What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-10 · 125 added, 54 removed, 103 unchanged (63% of the section changed)

15 unchanged sentences

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 strive to provide all 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.

5 unchanged sentences

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.

The Company has both fixed-price contracts (closed book or hybrid contracts) and cost-plus contracts (open book 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, 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.

Under fixed-price 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.

Cost-plus 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”).

1 unchanged sentence

Results of Operations

Three Months Ended March 31,

Three Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

4 unchanged sentences

Transaction and integration costs 6 24 (18) (75) %

Restructuring costs and other 3 1 2 n/m

Operating income 99 59 40 68 %

Other income, net 1 23 (22) (96) %

Interest expense, net (14) (9) (5) 56 %

Income before income taxes 86 73 13 18 %

Income tax expense (20) (21) 1 (5) %

Net income $ 66 $ 52 $ 14 27 %

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Three Months Ended June 30, 2023, compared with the Three Months Ended June 30, 2022

Revenue for the three months ended June 30, 2023, increased by 11%, or $238 million, to $2.4 billion compared with $2.2 billion for the same period in 2022.

The increase in 2023 compared to the prior period primarily reflects an increase of $154 million from the Clipper Acquisition for the periods that were not comparable and growth in our Continental Europe business, primarily driven by new contract implementations.

Foreign currency movement increased revenue by $17 million in 2023.

Direct operating expenses is comprised of 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 June 30, 2023, increased by 10%, or $182 million, to $2.0 billion compared with $1.8 billion for the same period in 2022.

Direct operating expense increased primarily due to the Clipper Acquisition and higher personnel and temporary labor expenses due to growth in our business.

As a percentage of revenue, direct operating expense for the three months ended June 30, 2023, was 81.7% compared with 82.3% 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 June 30, 2023,

increased by 11%, or $25 million, to $245 million compared with $220 million for the same period in 2022.

SG&A increased due to the Clipper Acquisition.

Depreciation and amortization expense for the three months ended June 30, 2023 increased by $7 million to $84 million compared with $77 million for the same period in 2022.

Amortization expense was $19 million and $13 million for the three months ended June 30, 2023 and 2022, respectively.

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

Transaction and integration costs for the three months ended June 30, 2023, were $6 million compared with $24 million for the same period in 2022.

Transaction and integration costs for the three months ended June 30, 2023 and 2022, primarily relate to the Clipper Acquisition.

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

Restructuring costs and other for the three months ended June 30, 2023 were $3 million compared with $1 million for the same period in 2022.

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

Other income, net was as follows:

Three Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

Net periodic pension income

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

Foreign currency:

Realized foreign currency contracts gain (loss)

(4) 7 (11) n/m

Unrealized foreign currency contracts gain

3 9 (6) (67) %

Foreign currency remeasurement loss

— (2) 2 (100) %

Total foreign currency gain (loss) (1) 14 (15) n/m

Other income, net $ 1 $ 23 $ (22) (96) %

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

Interest expense, net was as follows:

Three Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

Debt and capital leases

$ 23 $ 12 $ 11 92 %

Cross-currency swaps

(8) (3) (5) n/m

Interest income

(1) — (1) n/m

Interest expense, net $ 14 $ 9 $ 5 56 %

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Income before income taxes for the three months ended June 30, 2023, increased to $86 million compared with $73 million for the same period in 2022.

The increase was due to higher operating income, partially offset by lower other income and higher interest expense.

Income tax expense for the three months ended June 30, 2023, was $20 million compared with $21 million for the same period in 2022.

Our effective tax rate was 23.0% for the three months ended June 30, 2023, compared with 29.4% for the same period in 2022.

The decrease in our effective tax rate was primarily driven by a decrease in pre-tax losses in certain jurisdictions for which no benefit was recognized and higher transaction costs for the same period in 2022 related to the Clipper Acquisition which were non deductible.

Six Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

Revenue $ 4,717 $ 4,239 $ 478 11 %

Direct operating expense 3,863 3,523 340 10 %

Selling, general and administrative expense 503 410 93 23 %

Depreciation and amortization expense 167 153 14 9 %

Transaction and integration costs 19 43 (24) (56) %

Restructuring costs and other 24 14 10 71 %

6 unchanged sentences

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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.

Six Months Ended June 30, 2023 compared with the Six Months Ended June 30, 2022

Revenue for the six months ended June 30, 2023 increased by 11%, or $478 million, to $4.7 billion compared with $4.2 billion for the same period in 2022.

The increase primarily reflects an increase of $378 million from the Clipper Acquisition for the periods that were not comparable and growth in our business, primarily driven by new contract implementations.

Foreign currency movement decreased revenue by $83 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.

Direct operating expense for the six months ended June 30, 2023 increased by 10%, or $340 million, to $3.9 billion compared with $3.5 billion for the same period in 2022.

Direct operating expense increased primarily due to the Clipper Acquisition, as well as higher facilities expense and higher personnel and temporary labor expenses due to growth in our business.

As a percentage of revenue, direct operating expense for the six months ended June 30, 2023, was 81.9% compared with 83.1% 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 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.

SG&A for the six months ended June 30, 2023, increased by 23%, or $93 million, to $503 million compared with $410 million for the same period in 2022.

SG&A increased primarily 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 six months ended June 30, 2023 increased by $14 million to $167 million compared with $153 million for the same period in 2022.

Amortization expense was $36 million and $27 million for the six months ended June 30, 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.

Transaction and integration costs for the six months ended June 30, 2023, were $19 million compared with $43 million for the same period in 2022.

Transaction and integration costs for the six months ended June 30, 2023 and 2022, primarily relate to the Clipper Acquisition.

Restructuring costs and other for the six months ended June 30, 2023 were $24 million compared with $14 million for the same period in 2022.

For the six months ended June 30, 2023, Restructuring costs and other included severance charges of $18

million and impairment charges of $6 million as a result of closing certain corporate and administrative offices.

For the six months ended June 30, 2022, Restructuring costs and other included severance charges of $6 million and $8 million related to the deconsolidation of a joint venture.

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

Other income, net was as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

11 unchanged sentences

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

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

Interest expense, net was as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2023 2022 $ Change % Change

2 unchanged sentences

Cross-currency swaps

(8) (4) (4) 100 %

(16) (7) (9) n/m

Interest income

(4) (1) (3) n/m

Interest expense, net $ 27 $ 13 $ 14 n/m

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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.

Income before income taxes for the six months ended June 30, 2023, decreased to $115 million compared with $122 million for the same period in 2022.

The decrease was due to lower other income and higher interest expense, offset by higher operating income.

Income tax expense for the six months ended June 30, 2023, was $23 million compared with $32 million for the same period in 2022.

Our effective tax rate was 19.9% for the six months ended June 30, 2023, compared with 26.4% for the same period in 2022.

The decrease in our effective tax rate was primarily driven by a valuation allowance release, a decrease in pre-tax losses in certain jurisdictions for which no benefit was recognized and higher transaction costs for the same period in 2022 related to the Clipper Acquisition which were non deductible.

Liquidity and Capital Resources

Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our Revolving Credit Facility.

Our principal uses of cash in the future will be to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions.

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.

As of June 30, 2023, we held cash and cash equivalents of $305 million and we had $799 million of borrowing capacity available, net of letters of credit under our Revolving Credit Facility.

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

1 unchanged sentence

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

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.

Information related to the trade receivables sold was as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2023 2022 2023 2022

1 unchanged sentence

Cash consideration 268 228 529 456

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.

Net cash used in operating cash flows (1)

(1) The three months ended June 30, 2022, includes $8 million of cash used by factoring programs.

The six months ended June 30, 2022, includes $116 million of cash provided by factoring program, reduced by $118 million of cash used in the securitization program that was terminated in the first quarter of 2022.

Covenants and Compliance

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.

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

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

As of June 30, 2023, we were in compliance with the covenants contained in our debt and financing arrangements.

Financial Condition

The following table summarizes our asset and liability balances:

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

June 30, December 31,

(In millions) 2023 2022 $ Change % Change

Total current assets $ 2,306 $ 2,428 $ (122) (5) %

2 unchanged sentences

Total long-term liabilities 3,912 4,009 (97) (2) %

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

The decrease in total assets and total liabilities from December 31, 2022 to June 30, 2023, primarily reflects the early repayment of our $115 million two-year term loan and the decrease in accounts payable due to the timing of payments.

Cash Flow Activity

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,

Six Months Ended June 30,

(In millions) 2023 2022 $ Change

1 unchanged sentence

Net cash used in investing activities (140) (1,003) 863 (86) %

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

Net cash provided by (used in) financing activities (155) 869 (1,024) (118) %

Effect of exchange rates on cash and cash equivalents 5 (15) 20 n/m

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

Net (decrease) increase in cash and cash equivalents $ (190) $ 51 $ (241) n/m

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Operating Activities

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.

Cash flows provided by operating activities for the six months ended June 30, 2023, decreased by $100 million compared with the same period in 2022, primarily due to the decrease in accounts payable and accrued expenses due to the timing of payments for transaction and integration costs and severance costs.

Investing Activities

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.

Investing activities used $140 million of cash for the six months ended June 30, 2023, compared with $1.0 billion used for the same period of 2022.

During the six months ended June 30, 2023, we used $150 million of cash to purchase property and equipment and received $10 million of cash from sales of property and equipment.

During the six months ended June 30, 2022, we used $874 million, net of cash received, to fund the Clipper Acquisition, used $154 million of cash to purchase property and equipment, received $14 million from the release of an escrow related to the Kuehne + Nagel acquisition, received $10 million in proceeds from cross-currency swap agreements, excluding accrued interest, and received $6 million of cash from sales of property and equipment.

Financing Activities

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.

Financing activities used $155 million of cash for the six months ended June 30, 2023, including $138 million used to repay debt, $16 million to repay finance lease obligations and $6 million in payments for employee taxes on stock-based compensation awards.

Financing activities generated $869 million of cash for the six months ended

June 30, 2022, including $898 million in proceeds from long-term debt, partially offset by $15 million to repay finance lease obligations and $12 million in payments for employee taxes on stock-based compensation awards.

Off-Balance Sheet Arrangements

1 unchanged sentence

Contractual Obligations

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

As of June 30, 2023, the Company’s contractual obligations had not materially changed compared with December 31, 2022.

Critical Accounting Policies and Estimates

3 unchanged sentences

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