What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-07 · 82 added, 45 removed, 111 unchanged (53% of the section changed)

14 unchanged sentences

The largest component is our core truck brokerage business.

Our operations also include three asset-light, brokered transportation services, all of which complement our truck brokerage business:

managed transportation, last mile and freight forwarding.

Our operations also include asset-light managed transportation and last mile services, which complement our truck brokerage business.

Our truck brokerage business has a history of generating robust free cash flow conversion and a high return on invested capital.

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and favorable long-term industry tailwinds.

As of March 31, 2024, we had approximately 115,000 carriers in our North American truck brokerage network, and access to more than 1.5 million trucks.

As of June 30, 2024, we had approximately 118,000 carriers in our North American truck brokerage network, and access to more than 1.5 million trucks.

We provide our customers with highly efficient access to capacity through our digital brokerage technology.

This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels.

Our complementary services for managed transportation, last mile and freight forwarding also utilize our digital brokerage technology.

Our complementary services for managed transportation and last mile also utilize our digital brokerage technology.

Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings.

The service uses proprietary technology to enhance our revenue synergy, with cross-selling to truck brokerage, last mile and freight forwarding.

The service uses proprietary technology to enhance our revenue synergy, with cross-selling to truck brokerage and last mile.

Our managed transportation offering includes bespoke load planning and procurement, complex solutions tailored to specific challenges, performance monitoring, engineering and data analytics, among other services.

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In addition, we offer technology-enabled managed expedite services that automate transportation procurement for time-critical freight moved by road and air charter carriers.

We also offer freight forwarding services, including facilitation of ocean and air transportation, customs brokerage and additional domestic services.

Our last mile offering is an asset-light service that facilitates consumer deliveries performed by highly qualified third-party contractors.

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population and serving a customer base of omnichannel and e-commerce retailers and direct-to-consumer manufacturers.

Our freight forwarding service is a scalable, asset-light offering managed with advanced technology that facilitates ocean, road and air transportation and assists with customs brokerage.

We are a U.S.-based freight forwarder with a global network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 150 countries and territories.

Pending Acquisition

On June 21, 2024, the Company, United Parcel Service of America, Inc.

(“UPS”) and certain subsidiaries of UPS entered into a Purchase Agreement (the “Purchase Agreement”), pursuant to which, following the satisfaction or waiver of certain conditions, the Company will purchase (the “Coyote Acquisition”) UPS’ technology-driven, asset-light based truckload freight brokerage services business, as well as certain assets used to conduct haulage, dedicated transport and warehousing services in the United Kingdom (the “Acquired Business”) for $1.025 billion in cash, subject to certain customary adjustments.

Impact of Inflation

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In management’s opinion, the condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, results of operations and cash flows for the interim periods presented.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Refer to Note 2—Basis of Presentation and Significant Accounting Policies for additional details regarding the basis of presentation used for the Company’s condensed consolidated financial statements.

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Results of Operations

Three Months Ended March 31, Percentage of Revenue

Three Months Ended June 30, Percentage of Revenue

(In millions) 2024 2023 2024 2023

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Restructuring costs 2 1 0.2 % 0.1 %

Operating income $ — $ 14 — % 1.5 %

Other expense — — — % — %

Interest expense, net 8 8 0.9 % 0.8 %

Income (loss) before income taxes $ (8) $ 6 (0.9) % 0.6 %

Income tax provision (benefit) (1) 3 (0.1) % 0.3 %

Net income (loss) $ (7) $ 3 (0.8) % 0.3 %

Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023

Revenue decreased by 3.4% to $930 million in the second quarter of 2024, compared with $963 million for the same quarter in 2023.

The year-over-year decrease in revenue in the second quarter of 2024 was driven primarily by (i) a $20 million decrease in revenue generated from our managed transportation business, driven primarily by a decrease in ocean and expedite air rates and volume and (ii) a $14 million decrease in revenue generated from our truck brokerage business, as a result of a 7% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices and freight mix, partially offset by a 4% increase in load volume.

Cost of transportation and services (exclusive of depreciation and amortization) in the second quarter of 2024 was $700 million, or 75.3% of revenue, compared with $723 million, or 75.1% of revenue in the same quarter of 2023.

The year-over-year increase as a percentage of revenue during the second quarter of 2024 was driven primarily by a 0.5 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as lower freight rates were not fully offset by corresponding reductions in cost of purchased transportation during the quarter.

Direct operating expense (exclusive of depreciation and amortization) of $50 million in the second quarter of 2024 decreased $9 million, or 15.3%, from $59 million in the same quarter of 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 5.4% in the second quarter of 2024 compared with 6.1% in the same quarter of 2023 due to cost reduction initiatives.

SG&A of $154 million in the second quarter of 2024 increased $10 million, or 6.9%, from $144 million in the second quarter of 2023.

As a percentage of revenue, SG&A increased to 16.6% in the second quarter of 2024 compared with 15.0% for the same quarter of 2023 due to a 1.0 percentage point increase in professional and consulting expense.

This was partially offset by cost savings from restructuring actions executed in 2023 and the first six months of 2024.

We anticipate the restructuring actions executed in 2023 and the first six months of 2024 will result in combined cost savings of more than $65 million annually.

Depreciation and amortization expense for the second quarter of 2024 was $17 million, compared with $18 million for the same quarter in 2023.

Transaction and integration costs for the second quarter of 2024 and 2023 were $7 million and $4 million, respectively, and primarily comprised acquisition and spin-off related costs.

Restructuring costs for the second quarter of 2024 and 2023 were $2 million and $1 million, respectively, and primarily comprised severance costs.

Our effective income tax rates were 11.3% and 44.0% for the second quarter of 2024 and 2023, respectively.

The effective tax rate for the second quarter of 2024 was calculated using the discrete method.

The effective tax rate for the second quarter of 2023 was based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the period presented.

Our effective tax rate for the second quarter of 2024 differs from the U.S.

corporate income tax rate of 21% primarily due to the effect of discrete tax items when experiencing a pre-tax loss.

Our effective tax rate for the second quarter of 2023 differs from the U.S.

corporate income tax rate of 21% primarily due to state income taxes within the U.S and non-deductible expenses.

The impact of this driver was enhanced due to our low pre-tax income in the second quarter of 2023.

Six Months Ended June 30, Percentage of Revenue

(In millions) 2024 2023 2024 2023

Revenue $ 1,843 $ 1,973 100.0 % 100.0 %

Cost of transportation and services (exclusive of depreciation and amortization) 1,399 1,482 75.9 % 75.1 %

Direct operating expense (exclusive of depreciation and amortization) 103 120 5.6 % 6.1 %

Sales, general and administrative expense 299 297 16.2 % 15.1 %

Depreciation and amortization expense 33 36 1.8 % 1.8 %

Transaction and integration costs 8 10 0.4 % 0.5 %

Restructuring costs 13 9 0.7 % 0.5 %

Operating income (loss) $ (12) $ 19 (0.7) % 1.0 %

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Interest expense, net 16 16 0.9 % 0.8 %

Loss before income taxes $ (21) $ (3) (2.3) % (0.3) %

Income tax benefit (6) (3) (0.7) % (0.3) %

Income (loss) before income taxes $ (29) $ 3 (1.6) % 0.2 %

Income tax provision (benefit) (7) — (0.4) % — %

Net income (loss) $ (22) $ 3 (1.2) % 0.2 %

Three Months Ended March 31, 2024 Compared with Three Months Ended March 31, 2023

Revenue decreased by 9.6% to $913 million in the first quarter of 2024, compared with $1,010 million for the same quarter in 2023.

The year-over-year decrease in revenue in the first quarter of 2024 was driven primarily by (i) a $36 million decrease in revenue generated from our truck brokerage business, as a result of a 15% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices, length of haul, and freight mix, partially offset by an 11% increase in load volume, (ii) a $25 million decrease in revenue generated from our freight forwarding business, driven primarily by a decrease in ocean rates and volume, and (iii) a $20 million decrease in revenue generated from our managed transportation business, driven primarily by a decrease in expedite air rates and volume.

Cost of transportation and services (exclusive of depreciation and amortization) in the first quarter of 2024 was $699 million, or 76.6% of revenue, compared with $759 million, or 75.1% of revenue in the same quarter of 2023.

The year-over-year increase as a percentage of revenue during the first quarter of 2024 was driven primarily by a 2.1 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as lower freight rates were not fully offset by corresponding reductions in cost of purchased transportation during the quarter.

This was partially offset by an improvement in mix in our freight forwarding business.

Direct operating expense (exclusive of depreciation and amortization) of $53 million in the first quarter of 2024 decreased $8 million, or 13.1%, from $61 million in the same quarter of 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 5.8% in the first quarter of 2024 compared with 6.0% in the same quarter of 2023 due to cost reduction initiatives.

SG&A of $145 million for the first quarter of 2024 decreased $8 million, or 5.2%, from $153 million for the first quarter of 2023.

As a percentage of revenue, SG&A increased to 15.9% in the first quarter of 2024 compared to 15.1% for the same quarter of 2023 due to higher compensation-related costs of 0.4 percentage points reflecting deleverage on lower revenue.

This was partially offset by cost savings from restructuring actions executed in 2023 and the first quarter of 2024.

We anticipate the restructuring actions executed in 2023 and the first quarter of 2024 will result in combined cost savings of more than $60 million annually.

Depreciation and amortization expense for the first quarter of 2024 was $16 million, compared with $18 million for the same quarter in 2023, flat year-over-year as a percentage of revenue.

Transaction and integration costs for the first quarter of 2024 and 2023 were $1 million and $6 million, respectively, and primarily comprised spin-off related costs.

Restructuring costs for the first quarter of 2024 and 2023 were $11 million and $8 million, respectively, and primarily comprised severance costs.

Our effective income tax rates were 27.7% and 106.0% for the first quarter of 2024 and 2023, respectively.

The effective tax rate for the first quarter of 2024 was calculated using the discrete method.

The effective tax rate for the first quarter of 2023 was based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the period presented.

Our effective tax rate for the first quarter of 2024 differs from the U.S.

corporate income tax rate of 21% primarily due to state income taxes within the U.S.

Our effective tax rate for the first quarter of 2023 differs from the U.S.

corporate income tax rate of 21% primarily due to a tax benefit of $2 million from changes in reserves for uncertain tax positions.

The impact of this driver was enhanced due to our low pre-tax loss in the first quarter of 2023.

Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023

Revenue decreased by 6.6% to $1.8 billion in the first six months of 2024, compared with $2.0 billion for the same period in 2023.

The year-over-year decrease in revenue in the first six months of 2024 was driven primarily by (i) a $65 million decrease in revenue generated from our managed transportation business, driven primarily by a decrease in ocean and expedite air rates and volume and (ii) a $50 million decrease in revenue generated from our truck brokerage business, as a result of an 11% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices, length of haul and freight mix, partially offset by an 8% increase in load volume.

Cost of transportation and services (exclusive of depreciation and amortization) in the first six months of 2024 was $1.4 billion, or 75.9% of revenue, compared with $1.5 billion, or 75.1% of revenue, for the same period in 2023.

The year-over year increase as a percentage of revenue in the first six months of 2024 was driven primarily by a 1.4 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as lower freight rates were not fully offset by corresponding reductions in cost of purchased transportation.

Direct operating expense (exclusive of depreciation and amortization) of $103 million in the first six months of 2024 decreased $17 million, or 14.2%, from $120 million in the same period in 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 5.6% in the first six months of 2024 compared with 6.1% in the same quarter of 2023 due to cost reduction initiatives.

SG&A of $299 million in the first six months of 2024 increased $2 million, or 0.7%, from $297 million in the first six months of 2023.

As a percentage of revenue, SG&A increased to 16.2% in the first six months of 2024 compared with 15.1% for the same period of 2023 due to a 0.7 percentage point increase in professional and consulting expense.

This was partially offset by cost savings from restructuring actions executed in the first six months of 2024.

We anticipate the restructuring actions executed in 2023 and the first six months of 2024 will result in combined cost savings of more than $65 million annually.

Depreciation and amortization expense for the first six months of 2024 was $33 million, compared with $36 million for the same period in 2023, flat year-over-year as a percentage of revenue.

Transaction and integration costs for the first six months of 2024 and 2023 were $8 million and $10 million, respectively, and primarily comprised acquisition and spin-off related costs.

Restructuring costs for the first six months of 2024 and 2023 were $13 million and $9 million, respectively, and primarily comprised severance costs.

Our effective income tax rates were 22.9% and (11.0)% for the first six months of 2024 and 2023, respectively.

The effective tax rate for the first six months of 2024 was calculated using the discrete method.

The effective tax rate for the first six months of 2023 was based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

Our effective tax rate for the first six months of 2024 differs from the U.S.

corporate income tax rate of 21% primarily due to state income taxes.

Our effective tax rate for the first six months of 2023 differs from the U.S.

corporate income tax rate of 21% primarily due to a discrete tax benefit of $2 million from changes in reserves for uncertain tax positions, partially offset by state income taxes within the U.S.

and non-deductible expenses.

Liquidity and Capital Resources

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Debt and Financing Arrangements

We were in compliance with all covenants and other provisions of our outstanding debt and financing arrangements as of March 31, 2024.

We were in compliance with all covenants and other provisions of our outstanding debt and financing arrangements as of June 30, 2024.

Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

Refer to Note 5—Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s debt and financing arrangements as of March 31, 2024.

Refer to Note 6—Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s debt and financing arrangements as of June 30, 2024.

As discussed further in Note 6—Debt , on April 11, 2024, we amended the Revolver (the “Amendment”).

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Our asset and liability balances are summarized as follows:

March 31, December 31,

June 30, December 31,

(In millions) 2024 2023 $ Change % Change

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Total long-term liabilities 572 549 23 4.2 %

Total assets decreased by $26 million from December 31, 2023 to March 31, 2024, driven primarily by a $27 million decrease in accounts receivable as a result of a decrease in revenue.

Total liabilities decreased by $14 million from December 31, 2023 to March 31, 2024, driven primarily by a decrease in third party transportation costs.

Total assets decreased by $12 million from December 31, 2023 to June 30, 2024, driven primarily by a $18 million decrease in accounts receivable as a result of a decrease in revenue.

Total liabilities increased by $3 million from December 31, 2023 to June 30, 2024, driven primarily by an increase in debt and operating lease liabilities, partially offset by a decrease in third party transportation costs.

Cash Flow Activity

Our cash flows from operating, investing and financing activities are summarized as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2024 2023 $ Change % Change

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Net increase in cash, cash equivalents and restricted cash $ 2 $ 26 $ (24) (92.3) %

Net cash provided by operating activities for the first three months of 2024 decreased by $35 million compared with the same period in 2023.

Net cash provided by operating activities for the first six months of 2024 decreased by $64 million compared with the same period in 2023.

The decrease in cash provided by operating activities reflects the impact of (i) a $25 million decrease in net income between periods and (ii) changes in working capital.

Investing activities used $11 million of cash for the first three months of 2024, compared with using $12 million of cash for the same period in 2023.

Investing activities used $22 million of cash for the first six months of 2024, compared with using $28 million of cash for the same period in 2023.

The use of cash in both periods was to purchase property and equipment.

Financing activities provided $6 million of cash for the first three months of 2024, compared with using $8 million of cash for the same period in 2023.

The primary source of cash in the first three months of 2024 was $8 million in net proceeds from borrowings.

The primary use of cash in the first three months of 2023 was $7 million for payments of tax withholdings related to vesting of stock compensation awards.

Financing activities provided $22 million of cash for the first six months of 2024, compared with using $13 million of cash for the same period in 2023.

The primary source of cash in the first six months of 2024 was $27 million in net proceeds from borrowings on revolving credit facilities.

The primary uses of cash in the first six months of 2023 were (i) $9 million for payments of tax withholdings related to vesting of stock compensation awards and (ii) $2 million for the repurchase of common stock.

Critical Accounting Policies

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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