GXO Logistics, Inc. 10-Q

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 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, 2025, as filed with the SEC on February 25, 2026 (the “2025 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,” “our” 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-added 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 goods arrive at our warehouses through fulfillment and distribution, and the management of returned products. Our customer base includes many blue-chip leaders across sectors with high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics services. 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 long-term, and our warehouse lease arrangements generally align with the length of those contracts. The Company has both fixed-price contracts (closed-book or hybrid) and cost-plus contracts (open-book). Most of our customer contracts contain both fixed and variable components. The fixed component is typically designed to cover warehouse, technology, and equipment costs, while the variable component is determined based on expected volumes and associated labor costs. 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 provide for the payment of allowable costs incurred during contract performance, plus a specified margin. 18 Results of Operations Three Months Ended March 31, 2026 compared with the Three Months Ended March 31, 2025 Three Months Ended March 31, (In millions, except percentages) 2026 2025 $ Change % Change Revenue $ 3,298 $ 2,977 $ 321 11 % Direct operating expense 2,808 2,558 250 10 % Selling, general and administrative expense 296 261 35 13 % Depreciation and amortization expense 115 109 6 6 % Transaction and integration costs 16 22 (6) (27) % Restructuring costs and other 3 17 (14) (82) % Regulatory matter — 66 (66) (100) % Net loss on divestiture of business 21 — 21 n/m Operating income (loss) 39 (56) 95 n/m Other income (expense), net 10 (5) 15 n/m Interest expense, net (32) (32) — — % Income (loss) before income taxes 17 (93) 110 n/m Income tax expense (12) (2) (10) n/m Net income (loss) $ 5 $ (95) $ 100 n/m n/m - not meaningful Revenue for the three months ended March 31, 2026, increased by 11%, or $321 million, to $3.3 billion compared with $3.0 billion for the same period in 2025. The increase reflects growth in our business and $198 million of foreign currency movements for the three months ended March 31, 2026. Direct operating expense for the three months ended March 31, 2026, increased by 10%, or $250 million, to $2.8 billion compared with $2.6 billion for the same period in 2025. As a percentage of revenue, Direct operating expense for the three months ended March 31, 2026, decreased to 85.1% compared with 85.9% for the same period in 2025. The increase reflects growth in our business and $158 million of foreign currency movements for the three months ended March 31, 2026. For the three months ended March 31, 2026, we recorded a net benefit of $28 million, primarily in rent expense, from a real estate transaction that resulted in an early termination of a lease. The increase in Direct operating expense before recognizing the real estate transaction was in line with our business growth. Selling, general and administrative expense (“SG&A”) for the three months ended March 31, 2026, increased by $35 million, to $296 million compared with $261 million for the same period in 2025. The increase reflects growth in our business and $19 million of foreign currency movements for the three months ended March 31, 2026. Depreciation and amortization expense for the three months ended March 31, 2026, increased by $6 million, to $115 million, compared with $109 million for the same period in 2025. Amortization expense was $29 million for both the three months ended March 31, 2026, and 2025. Transaction and integration costs for the three months ended March 31, 2026, and 2025, were $16 million and $22 million, respectively, and primarily related to the acquisition and integration of Wincanton plc (now Wincanton Limited). Restructuring costs and other costs for the three months ended March 31, 2026, and 2025, were $3 million and $17 million, respectively. Restructuring costs primarily consisted of severance paid to exiting members of the Company’s leadership team and to individuals as part of an initiative to optimize corporate expenses. 19 Regulatory matter for the three months ended March 31, 2025, was $66 million and related to the deductibility of value-added tax payments we made to certain third-party service providers, which was settled in 2025. Net loss on divestiture of business for the three months ended March 31, 2026, was $21 million, and related to a further reduction of the estimated fair value of certain grocery contracts. See Note 10. “Divestiture,” to the Condensed Consolidated Financial Statements. Other income (expense), net increased from expense to income, primarily due to foreign currency gain on foreign currency contracts. Other income (expense), net was as follows: Three Months Ended March 31, (In millions, except percentages) 2026 2025 $ Change % Change Net periodic pension income $ 7 $ 5 $ 2 40 % Foreign currency gain (loss): Realized loss on foreign currency contracts (1) — (1) n/m Unrealized gain (loss) on foreign currency contracts 4 (10) 14 n/m Foreign currency transaction and remeasurement gain, net of foreign currency contracts on intercompany loans 1 — 1 n/m Total foreign currency gain (loss) 4 (10) 14 n/m Other (1) — (1) n/m Other income (expense), net $ 10 $ (5) $ 15 n/m n/m - not meaningful Interest expense, net was as follows: Three Months Ended March 31, (In millions, except percentages) 2026 2025 $ Change % Change Debt and capital leases $ 43 $ 43 $ — — % Cross-currency swaps (8) (9) 1 (11) % Interest income (3) (2) (1) 50 % Interest expense, net $ 32 $ 32 $ — — % Income (loss) before income taxes for the three months ended March 31, 2026, was income of $17 million compared with a loss of $93 million for the same period in 2025. The increase from loss to income reflects higher operating income, primarily due to growth in our business and a net benefit of $28 million from a real estate transaction, lower regulatory matters, and unrealized gain on foreign currency contracts. Income tax expense for the three months ended March 31, 2026, was $12 million compared with $2 million for the same period in 2025. Our effective tax rate for the three months ended March 31, 2026, was an expense on a pre-tax income of 68.9%, compared to an expense on a pre-tax loss of (2.7)% for the same period in 2025. The change to our effective tax rate was primarily driven by an increase in pre-tax income, as well as an increase in unrecognized tax benefits, and a non-deductible fair value adjustment related to the Wincanton Divestment in the current period, and the regulatory matter in the prior period. 20 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 and factoring programs. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions. The timing and magnitude of our new contract start-ups can vary and may positively or negatively impact our cash flows. We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. As of March 31, 2026, we held cash and cash equivalents of $794 million and restricted cash of $3 million, and we had $793 million of borrowing capacity, net of letters of credit under our revolving credit facility . In February 2025, our board of directors authorized and announced the repurchase of up to $500 million of our common stock (the “Repurchase Plan”). The Repurchase Plan permits shares of common stock to be repurchased from time to time in management’s discretion. 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. We expect to fund any remaining repurchases with existing cash on hand, borrowings on our revolving credit facility, and/or other financing sources. No shares were repurchased during the first quarter of 2026. As of March 31, 2026, the remaining authorization under the Repurchase Plan was $300 million. We believe that our cas h and cash equivalents on hand, our cash flows generated by our operations, amounts available under the revolving credit facility, the use of our factoring programs, and refinancing options available to us in the capital markets, will provide sufficient liquidity to operate our business, including the repayment of the current portion of our debt, for at least the next 12 months and for the foreseeable future thereafter. For additional information regarding our cash requirements from lease obligations, indebtedness, and contractual obligations, see Note 4. “Leases,” Note 7. “Debt and Financing Arrangements,” and Note 14. “Commitments and Contingencies” in Part I, Item 1 of this Quarterly Report on Form 10-Q. Financial Condition The following table summarizes our asset and liability balances: March 31, December 31, (In millions, except percentages) 2026 2025 $ Change % Change Current assets $ 3,211 $ 3,288 $ (77) (2) % Long-term assets 8,983 8,974 9 — % Current liabilities 3,775 3,875 (100) (3) % Long-term liabilities 5,416 5,372 44 1 % There were no material changes in our total assets and total liabilities from December 31, 2025, to March 31, 2026. 21 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, (In millions, except percentages) 2026 2025 $ Change % Change Net cash provided by operating activities $ 31 $ 29 $ 2 7 % Net cash used in investing activities (62) (77) 15 (19) % Net cash used in financing activities (26) (66) 40 (61) % Effect of exchange rates on cash and cash equivalents (3) 11 (14) n/m Net decrease in cash, restricted cash and cash equivalents $ (60) $ (103) $ 43 (42) % n/m - not meaningful Operating Activities Cash flows provided by operating activities for the three months ended March 31, 2026, increased by $2 million compared with the same period in 2025. The increase was due to higher net income adjusted for the net effect of non-cash items, offset by working capital consumption in 2026. Investing Activities Investing activities used $62 million and $77 million of cash for the three months ended March 31, 2026, and March 31, 2025, respectively. During the three months ended March 31, 2026, we utilized $65 million of cash to purchase property and equipment and received $3 million from the sale of property and equipment. During the three months ended March 31, 2025, we utilized $78 million of cash to purchase property and equipment and received $1 million from the sale of property and equipment. Financing Activities Financing activities used $26 million and $66 million of cash for the three months ended March 31, 2026, and March 31, 2025, respectively. The primary use of cash from financing activities during the three months ended March 31, 2026, was $15 million in payments for employee taxes on net settlement of equity awards and $14 million to repay finance lease obligations, partially offset by $7 million in proceeds from the exercise of stock options. 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. 22 Guaranteed Securities: Summarized Financial Information The following information is provided to comply with Rule 13-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended, for the €500 million 3.750% notes due 2030 issued by GXO Logistics Capital B.V. (“GXO Capital”), a subsidiary of the Company incorporated under the laws of the Netherlands. GXO Capital was incorporated in October 2025. The €500 million 3.750% notes due 2030 are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by GXO Logistics, Inc. (“GXO”). The €500 million 3.750% notes due 2030 are not guaranteed by any of GXO’s or GXO Capital’s subsidiaries (all GXO subsidiaries other than GXO Capital are referred to herein as "non-guarantor subsidiaries"). Holders of the €500 million 3.750% notes due 2030 will have a direct claim only against GXO Capital, as issuer, and GXO, as guarantor. The following tables set forth the summarized financial information for the three months ended March 31, 2026, and as of March 31, 2026, and December 31, 2025, of GXO and GXO Capital, on a standalone basis, which does not include the consolidated impact of the assets, liabilities, and financial results of their subsidiaries except as noted in the tables below, nor does it include any impact of intercompany eliminations as there were no intercompany transactions between GXO and GXO Capital. This summarized financial information is not intended to present the financial position or results of operations of GXO or GXO Capital in accordance with U.S. generally accepted accounting principles (“GAAP”). GXO Summarized Results of Operations Standalone and Unconsolidated (Unaudited) Three Months Ended (In millions) March 31, 2026 Revenue $ — Costs and expenses 6 Operating loss (6) Other income from non-guarantor subsidiaries 10 Other income, net 3 Interest income from non-guarantor subsidiaries 11 Interest expense, net (17) Net income attributable to GXO standalone $ 1 23 GXO Summarized Assets and Liabilities Standalone and Unconsolidated (Unaudited) March 31, December 31, (In millions) 2026 2025 Current assets $ 572 $ 519 Investments in non-guarantor subsidiaries 2,361 2,361 Notes receivable from non-guarantor subsidiaries 717 860 Other noncurrent assets 77 81 Total assets $ 3,727 $ 3,821 Accounts payable to non-guarantor subsidiaries $ 511 $ 384 Current debt 400 400 Other current liabilities 79 93 Long-term debt 1,758 1,758 Notes payable to non-guarantor subsidiaries 4 210 Other noncurrent liabilities 135 167 Total liabilities $ 2,887 $ 3,012 GXO Capital Summarized Results of Operations Standalone and Unconsolidated (Unaudited) Three Months Ended (In millions) March 31, 2026 Revenue $ — Costs and expenses — Operating income — Interest expense, net (5) Income tax benefit 1 Loss attributable to GXO Capital standalone $ (4) GXO Capital Summarized Assets and Liabilities Standalone and Unconsolidated (Unaudited) March 31, December 31, (In millions) 2026 2025 Current assets $ 2 $ 3 Investments in non-guarantor subsidiaries 2,350 2,350 Other noncurrent assets — 1 Total assets $ 2,352 $ 2,354 Current liabilities $ 8 $ 6 Long-term debt 571 580 Total liabilities $ 579 $ 586 24 Off-Balance Sheet Arrangements 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 As of March 31, 2026, the Company’s contractual obligations had not materially changed compared with December 31, 2025. Critical Accounting Policies and Estimates 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 2025 Form 10-K. Accounting Pronouncements Information related to new accounting standards is included in Note 1. “Basis of Presentation and Significant Accounting Policies and Estimates” in Part I, Item 1 of this Quarterly Report on Form 10-Q.