What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-05 · 76 added, 145 removed, 95 unchanged (70% of the section changed)

23 unchanged sentences

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

On April 29, 2024, the Company completed the acquisition of Wincanton plc (“Wincanton”), a U.K.

On April 29, 2024, we completed the acquisition of Wincanton plc (“Wincanton”), a U.K.

logistics provider specializing in both warehousing and transportation solutions (“the Wincanton Acquisition”).

On October 23, 2023, the Company completed the acquisition of PFSweb, Inc.

(“PFS”), an e-commerce order fulfillment company based in Irving, Texas (the “PFS Acquisition”).

The Wincanton Acquisition is subject to a review by the Competition and Markets Authority in the U.K., which is expected to be completed by June 25, 2025.

Due to the acquisition of Wincanton in 2024, comparisons in our results of operations between 2025 and 2024 are less meaningful.

For additional information regarding our acquisitions see Note 5.

Acquisitions.

“Acquisition” in Condensed Consolidated Financial Statements.

Results of Operations

Three Months Ended September 30, 2024 compared with the Three Months Ended September 30, 2023

Three Months Ended September 30,

Three Months Ended March 31, 2025 compared with the Three Months Ended March 31, 2024

Three Months Ended March 31,

(In millions, except percentages) 2025 2024 $ Change % Change

3 unchanged sentences

Depreciation and amortization expense 109 92 17 18 %

Transaction and integration costs 21 3 18 n/m

Transaction and integration costs 22 19 3 16 %

Restructuring costs and other 17 16 1 6 %

Litigation expense (1) — (1) — %

Operating income 81 90 (9) (10) %

Regulatory matter and litigation expense 66 63 3 5 %

Operating loss (56) (39) (17) 44 %

Other income (expense), net (5) 6 (11) n/m

Interest expense, net (32) (13) (19) n/m

Income before income taxes 42 83 (41) (49) %

Income tax expense (7) (15) 8 (53) %

Net income $ 35 $ 68 $ (33) (49) %

Loss before income taxes (93) (46) (47) n/m

Income tax (expense) benefit (2) 10 (12) n/m

Net loss $ (95) $ (36) $ (59) n/m

n/m - not meaningful

Revenue for the three months ended September 30, 2024 increased by 28%, or $686 million, to $3.2 billion compared with $2.5 billion for the same period in 2023.

The increase primarily reflects $591 million from the acquisitions of Wincanton and PFS.

Revenue also increased due to growth in our Continental Europe business.

Foreign currency movement increased revenue $35 million for the three months ended September 30, 2024.

Revenue for the three months ended March 31, 2025 increased by 21%, or $521 million, to $3.0 billion compared with $2.5 billion for the same period in 2024.

The increase primarily reflects $487 million from the Wincanton Acquisition.

Also, revenue increased due to growth in our business.

Foreign currency movement decreased our revenue by $33 million for the three months ended March 31, 2025.

Direct operating expense is comprised of both fixed and variable expenses and consists of operating costs related to our warehouses, including personnel costs, rent expenses, utility costs, equipment maintenance and repair costs, transportation costs, costs of materials and supplies, and information technology expenses.

Direct operating expense for the three months ended September 30, 2024 increased by 33%, or $659 million, to $2.7 billion compared with $2.0 billion for the same period in 2023.

The acquisitions of Wincanton and PFS increased Direct operating expense by $523 million for the three months ended September 30, 2024.

Direct operating expense also increased due to foreign currency movement in our U.K.

and Ireland and Continental Europe businesses.

As a percentage of revenue, Direct operating expense for the three months ended September 30, 2024, was 84.6% compared with 81.4% for the same period in 2023.

The increase in Direct operating expense as a percentage of revenue was primarily related to the Wincanton Acquisition and higher personnel and temporary labor expenses associated with our new contract start-ups.

Direct operating expense for the three months ended March 31, 2025 increased by 24%, or $502 million, to $2.6 billion compared with $2.1 billion for the same period in 2024.

The increase primarily reflects $447 million from the Wincanton Acquisition.

Also, Direct operating expense increased due to growth in our business.

As a percentage of revenue, Direct operating expense for the three months ended March 31, 2025, was 85.9% compared with 83.7% for the same period in 2024.

The increase in Direct operating expense as a percentage of revenue was primarily related to the Wincanton Acquisition.

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

SG&A for the three months ended September 30, 2024 increased by $7 million, to $265 million compared with $258 million for the same period in 2023.

SG&A primarily increased due to the acquisitions of Wincanton and PFS, partially offset by higher bad debt expense in the prior year.

Depreciation and amortization expense for the three months ended September 30, 2024 increased by $10 million, to $111 million compared with $101 million for the same period in 2023.

Amortization expense was $36 million and $18 million for the three months ended September 30, 2024 and 2023, respectively.

Depreciation and amortization expense primarily increased due to the acquisitions of Wincanton and PFS, partially offset by accelerated depreciation expense in the prior period.

Transaction and integration costs for the three months ended September 30, 2024 were $21 million and primarily related to the Wincanton Acquisition.

Transaction and integration costs for the three months ended September 30, 2023 were $3 million and primarily related to the PFS Acquisition.

SG&A for the three months ended March 31, 2025 increased by $12 million, to $261 million compared with $249 million for the same period in 2024.

SG&A increased primarily due to the Wincanton Acquisition.

Depreciation and amortization expense for the three months ended March 31, 2025 increased by $17 million, to $109 million compared with $92 million for the same period in 2024.

Amortization expense was $29 million and

$19 million for the three months ended March 31, 2025 and 2024, respectively.

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

Transaction and integration costs for the three months ended March 31, 2025 and 2024 were $22 million and $19 million, respectively and primarily related to the Wincanton 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 September 30, 2024 were $9 million compared with $7 million for the same period in 2023.

Litigation expense for the three months ended September 30, 2024 related to the reversal of legal expenses associated with a settlement agreement dated June 14, 2024.

For additional information regarding this settlement see Note 13.

Commitments and Contingencies.

Other income (expense), net decreased primarily due to foreign currency loss.

Other income, net was as follows:

Three Months Ended September 30,

Restructuring costs and other for the three months ended March 31, 2025 were $17 million compared with $16 million for the same period in 2024.

For the three months ended March 31, 2025, we recorded $66 million of a regulatory matter related to a contingency for the deductibility of value-added tax payments made by us to certain third-party service providers challenged by the Italian authorities.

For the three months ended March 31, 2024, we recorded $63 million of litigation expense related to a dispute between us and one of our customers which was settled in the second quarter of 2024.

For additional information regarding our regulatory and legal matters see Note 14.

“Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q .

Other income (expense), net decreased primarily due to unrealized loss on foreign currency contracts.

Other income (expense), net was as follows:

Three Months Ended March 31,

(In millions, except percentages) 2025 2024 $ Change % Change

Net periodic pension income

$ 7 $ 2 $ 5 n/m

$ 5 $ 3 $ 2 67 %

Foreign currency gain (loss):

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Foreign currency transaction and remeasurement gain

— 1 (1) (100) %

Total foreign currency gain (loss) (10) 3 (13) n/m

Other loss (2) — (2) — %

Other income (expense), net $ (5) $ 6 $ (11) n/m

n/m - not meaningful

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

Interest expense increased primarily due to debt incurred for the Wincanton Acquisition in April 2024.

Interest expense, net was as follows:

Three Months Ended September 30,

Three Months Ended March 31,

(In millions, except percentages ) 2025 2024 $ Change % Change

7 unchanged sentences

n/m - not meaningful

Income before income taxes for the three months ended September 30, 2024 was $42 million compared with $83 million for the same period in 2023.

The decrease was primarily due to higher transaction and integration costs and interest expense.

Income tax expense for the three months ended September 30, 2024 was $7 million compared with $15 million for the same period in 2023.

Our effective tax rate for the three months ended September 30, 2024 was 16.5%, compared with 17.9% for the same period in 2023.

The decrease in our effective tax rate was primarily driven by fluctuations in our jurisdictional income profile.

Nine Months Ended September 30, 2024 compared with the Nine Months Ended September 30, 2023

Nine Months Ended September 30,

(In millions, except percentages) 2024 2023 $ Change % Change

Revenue $ 8,459 $ 7,188 $ 1,271 18 %

Direct operating expense 7,116 5,875 1,241 21 %

Selling, general and administrative expense 784 761 23 3 %

Depreciation and amortization expense 302 268 34 13 %

Transaction and integration costs 55 22 33 n/m

Restructuring costs and other 26 31 (5) (16) %

Litigation expense 59 — 59 — %

Operating income 117 231 (114) (49) %

Other income, net 1 8 (7) (88) %

Interest expense, net (69) (41) (28) 68 %

Income before income taxes 49 198 (149) (75) %

Income tax expense (11) (38) 27 (71) %

Net income $ 38 $ 160 $ (122) (76) %

n/m - not meaningful

Revenue for the nine months ended September 30, 2024 increased by 18%, or $1.3 billion, to $8.5 billion compared with $7.2 billion for the same period in 2023.

The increase primarily reflects an increase of $1.1 billion from the acquisitions of Wincanton and PFS.

Revenue also increased due to growth in our U.K.

and Ireland and Continental Europe businesses.

Foreign currency movement increased revenue $85 million for the nine months ended September 30, 2024.

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 nine months ended September 30, 2024 increased by 21%, or $1.2 billion, to $7.1 billion compared with $5.9 billion for the same period in 2023.

The acquisitions of Wincanton and PFS increased Direct operating expense by $914 million for the nine months ended September 30, 2024.

Direct operating expense also increased due to foreign currency movement in our U.K.

and Ireland and Continental Europe businesses.

As a percentage of revenue, Direct operating expense for the nine months ended September 30, 2024, was 84.1% compared with 81.7% for the same period in 2023.

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 nine months ended September 30, 2024 increased by 3%, or $23 million, to $784 million compared with $761 million for the same period in 2023.

SG&A increased primarily due to the acquisitions of Wincanton and PFS, partially offset by higher bad debt expense in the prior year.

Depreciation and amortization expense for the nine months ended September 30, 2024 increased by $34 million to $302 million compared with $268 million for the same period in 2023.

Amortization expense was $77 million and

$54 million for the nine months ended September 30, 2024 and 2023, respectively.

Depreciation and amortization expense increased primarily due to the acquisitions of Wincanton and PFS.

Transaction and integration costs for the nine months ended September 30, 2024 were $55 million compared with $22 million for the same period in 2023.

Transaction and integration costs for the nine months ended September 30, 2024 primarily related to the Wincanton Acquisition.

Transaction and integration costs for the nine months ended September 30, 2023 primarily related to the integration of Clipper Logistics plc.

Restructuring costs and other for the nine months ended September 30, 2024 were $26 million compared with $31 million for the same period in 2023.

For the nine months ended September 30, 2024, Restructuring costs and other relate to a restructuring plan designed to centralize certain processes and standardize operating structures.

For the nine months ended September 30, 2023, Restructuring costs and other included severance charges of $24 million and impairment charges of $7 million as a result of closing certain corporate and administrative offices and the exit of non-core businesses in Asia.

Litigation expense for the nine months ended September 30, 2024 related to a settlement agreement dated June 14, 2024.

We recognized $59 million expense for the nine months ended September 30, 2024 for the settlement, associated legal fees, costs and other related expenses.

For additional information regarding this settlement see Note 13.

Commitments and Contingencies.

Other income, net decreased due to foreign currency loss, partially offset by higher pension income.

Other income, net was as follows:

Nine Months Ended September 30,

(In millions, except percentages) 2024 2023 $ Change % Change

Net periodic pension income

$ 15 $ 6 $ 9 n/m

Foreign currency gain (loss):

Realized foreign currency option and forward contracts loss

(6) (9) 3 (33) %

Unrealized foreign currency option and forward contracts gain (loss)

(4) 12 (16) n/m

Foreign currency transaction and remeasurement loss

(2) (1) (1) 100 %

Total foreign currency gain (loss) (12) 2 (14) n/m

Other loss (2) — (2) — %

Other income, net $ 1 $ 8 $ (7) (88) %

n/m - not meaningful

Interest expense, net increased primarily due to debt incurred for the Wincanton Acquisition, partially offset by higher gains on cross-currency swaps in the current period.

Interest expense, net was as follows:

Nine Months Ended September 30,

(In millions, except percentages) 2024 2023 $ Change % Change

Debt and capital leases

$ 103 $ 72 $ 31 43 %

Cross-currency swaps

(29) (25) (4) 16 %

Interest income

(5) (6) 1 (17) %

Interest expense, net $ 69 $ 41 $ 28 68 %

Income before income taxes for the nine months ended September 30, 2024 was $49 million compared with $198 million for the same period in 2023.

The decrease was primarily due to higher costs associated with Litigation expense, Transaction and integration costs and interest expense.

Income tax expense for the nine months ended September 30, 2024, was $11 million compared with $38 million for the same period in 2023.

Our effective tax rate for the nine months ended September 30, 2024 was 21.9%, compared to 19.1% for the same period in 2023.

The increase in the Company’s effective tax rate for the nine months ended September 30, 2024 is due to a tax benefit related to a valuation allowance release in the prior year period.

Loss before income taxes for the three months ended March 31, 2025, was $93 million compared with $46 million for the same period in 2024.

The increase in loss before income taxes was primarily due to higher SG&A expense, higher depreciation, amortization and interest expense, and lower other income, net.

Income tax for the three months ended March 31, 2025, was a $2 million income tax expense compared with a $10 million income tax benefit for the same period in 2024.

Our effective tax rate for the three months ended March 31, 2025, was an expense on a pre-tax loss of (2.7)%, compared to a benefit on a pre-tax loss of 21.1% for the

same period in 2024.

The change to our effective tax rate was primarily driven by non-deductible transaction costs and a non-deductible regulatory matter.

For the three months ended March 31, 2025 and 2024, the Pillar Two Global Anti-Base Erosion rules issued by the Organization for Economic Co-operation and Development (“Pillar Two”) did not have a material impact on our income tax expense/benefit.

Pillar Two did not have a significant impact on our fiscal 2024 and we currently do not expect it to have a significant impact on our fiscal 2025 income tax expense.

Liquidity and Capital Resources

3 unchanged sentences

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

As of September 30, 2024, we held cash and cash equivalents of $548 million, restricted cash in Other long-term assets of $21 million and we had $959 million of borrowing capacity, net of letters of credit under our revolving credit facilities .

In October and November 2024, we deposited an additional €34 million ($38 million as of September 30, 2024) of restricted cash in connection with the investigation by the Italian authorities.

We have agreed to deposit an additional €33 million ($37 million as of September 30, 2024) of restricted cash in December 2024 and January 2025.

As of March 31, 2025, we held cash and cash equivalents of $288 million and restricted cash of $94 million, and we had $949 million of borrowing capacity, net of letters of credit under our revolving credit facilities .

As of March 31, 2025, we deposited €84 million ($91 million as of March 31, 2025) of restricted cash in relation to a contingency.

In April 2025, we made a partial payment of €15 million ($17 million) against this contingency funded from the designated bank account reducing the restricted cash balance.

For additional information regarding our regulatory and legal matters see Note 14.

“Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q .

On February 18, 2025, our board of directors authorized and announced the repurchase of up to $500 million (the “Repurchase Plan”) of our common stock.

The Repurchase Plan permits shares of common stock to be repurchased from time to time in management’s discretion, through a variety of methods, including a 10b5-1 trading plan, open market purchases, privately negotiated transactions or otherwise.

The timing and number of shares of common stock repurchased will depend on a variety of factors, including price, general business and market conditions, alternative investment opportunities and funding considerations.

We will fund the repurchases with existing cash, borrowings on our revolving credit facility, and/or other financing sources.

The Repurchase Plan does not obligate the Company to repurchase any specific number of shares of common stock and may be suspended or discontinued at any time.

As of March 31, 2025, the remaining authorization under the Repurchase Plan was approximately $390 million.

We believe that our cas h and cash equivalents on hand, cash flows from operations, the revolving credit facilities, and the use of our factoring programs will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months.

5 unchanged sentences

The following table summarizes our asset and liability balances:

September 30, December 31,

March 31, December 31,

(In millions, except percentages) 2025 2024 $ Change % Change

3 unchanged sentences

Total long-term liabilities 5,048 5,042 6 — %

Total assets and liabilities increased from December 31, 2023 to September 30, 2024 primarily due to the Wincanton Acquisition.

Total long-term liabilities also increased from December 31, 2023 to September 30, 2024 due to the issuance of $1.1 billion of unsecured notes to fund the Wincanton Acquisition.

There were no material changes in our total current assets, total long-term assets, and other long-term liabilities as of March 31, 2025, compared to December 31, 2024.

As of March 31, 2025, accrued expenses within total current liabilities included $66 million related to the accrual of a regulatory matter described in Note 14.

“Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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:

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions, except percentages)

1 unchanged sentence

Net cash provided by operating activities $ 29 $ 50 $ (21) (42) %

Net cash used in investing activities (1,107) (192) (915) n/m

Net cash provided by (used in) financing activities 829 (170) 999 n/m

Net cash used in investing activities (77) (82) 5 (6) %

Net cash used in financing activities (66) (8) (58) n/m

Effect of exchange rates on cash and cash equivalents 11 (5) 16 n/m

Net increase (decrease) in cash, restricted cash and cash equivalents $ 99 $ (21) $ 120 n/m

Net decrease in cash, restricted cash and cash equivalents $ (103) $ (45) $ (58) n/m

n/m - not meaningful

Operating Activities

Cash flows provided by operating activities for the nine months ended September 30, 2024 increased by $20 million compared with the same period in 2023.

The increase was primarily due to working capital changes, primarily driven by higher factoring of receivables and timing of payments, partially offset by lower net income.

Cash flows provided by operating activities for the three months ended March 31, 2025 decreased by $21 million compared with the same period in 2024.

The decrease was primarily due to less cash generated from income partially offset by lower working capital consumption for the three months ended March 31, 2025.

Investing Activities

Investing activities used $1.1 billion of cash for the nine months ended September 30, 2024 and $192 million for the same period in 2023.

During the nine months ended September 30, 2024, we used $863 million, net of cash received, to fund the Wincanton Acquisition, used $255 million of cash to purchase property and equipment, used $5 million of cash in settlement of cross currency swap agreements and received $16 million of cash from sales of property and equipment.

During the nine months ended September 30, 2023, we used $205 million of cash to purchase property and equipment and received $13 million of cash from sales of property and equipment.

Investing activities used $77 million of cash for the three months ended March 31, 2025 and $82 million for the same period in 2024.

During the three months ended March 31, 2025, we used $78 million of cash to purchase property and equipment and received $1 million of cash from sales of property and equipment.

During the three months ended March 31, 2024, we used $73 million of cash to purchase property and equipment, $15 million to purchase Wincanton shares and received $6 million of cash from sales of property and equipment.

Financing Activities

Financing activities generated $829 million and used $170 million of cash for the nine months ended September 30, 2024 and September 30, 2023, respectively.

The source of cash from financing activities during the nine months ended September 30, 2024 was the issuance of long-term debt of $1,085 million, partially offset by cash used to repay $216 million of debt, $32 million to repay finance lease obligations and $8 million in payments for employee taxes on net settlement of equity awards.

The primary uses of cash from financing activities during the nine months ended September 30, 2023 were $139 million to repay debt, $24 million to repay finance lease obligations and $7 million in payments for employee taxes on net settlement of equity awards.

Financing activities used $66 million and $8 million of cash for the three months ended March 31, 2025 and March 31, 2024, respectively.

The primary use of cash from financing activities during the three months ended March 31, 2025 was $106 million used to repurchase shares of our common stock pursuant to the Repurchase Plan, $11 million to repay finance lease obligations and $6 million in payments for employee taxes on net settlement of equity awards, partially offset by $56 million of net borrowings under revolving credit facilities.

The primary uses of cash from financing activities during the three months ended March 31, 2024 were $8 million to repay finance lease obligations and $4 million in payments for employee taxes on net settlement of equity awards.

Off-Balance Sheet Arrangements

1 unchanged sentence

Contractual Obligations

During the nine months ended September 30, 2024, we issued $1.1 billion of unsecured notes to fund the Wincanton Acquisition.

Other than the unsecured notes noted herein, as of September 30, 2024, the Company’s contractual obligations had not materially changed compared with December 31, 2023.

As of March 31, 2025, the Company’s contractual obligations had not materially changed compared with December 31, 2024.

Critical Accounting Policies and Estimates

4 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