What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-07 · 85 added, 79 removed, 114 unchanged (59% of the section changed)

22 unchanged sentences

and favorable long-term industry tailwinds.

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.

As of September 30, 2024, we had approximately 150 thousand carriers in our North American truck brokerage network, and access to approximately 1.8 million trucks.

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

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

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.

On September 16, 2024 (the “acquisition date”), the Company acquired the 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 (collectively, “Coyote”) from United Parcel Service of America, Inc.

(“UPS”) and certain subsidiaries of UPS.

We acquired Coyote for $1.038 billion in cash, subject to certain additional customary adjustments.

Refer to Note 3—Acquisition to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s acquisition of Coyote.

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 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.

Operating results for the three and nine months ended September 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 June 30, Percentage of Revenue

Three Months Ended September 30, Percentage of Revenue

(In millions) 2024 2023 2024 2023

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Restructuring costs 2 3 0.2 % 0.3 %

Operating income $ — $ 14 — % 1.5 %

Operating income (loss) $ (20) $ 6 (1.9) % 0.6 %

Other expense 216 1 20.8 % 0.1 %

Interest expense, net 6 8 0.6 % 0.8 %

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

Loss before income taxes $ (242) $ (3) (23.3) % (0.3) %

Income tax provision (benefit) 1 (2) 0.1 % (0.2) %

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

Net loss $ (243) $ (1) (23.4) % (0.1) %

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

Revenue increased by 6.6% to $1,040 million in the third quarter of 2024, compared with $976 million for the same quarter in 2023.

The year-over-year increase in revenue in the third quarter of 2024 was driven primarily by a $105 million increase in revenue as a result of the Coyote acquisition in our truck brokerage business.

This was partially offset by a $41 million decrease in legacy RXO truck brokerage revenue, driven primarily by a 5% decrease in load volume, as well as a 3% decrease in revenue per load, which was impacted by a combination of fuel prices, freight mix and transportation market rates.

Cost of transportation and services (exclusive of depreciation and amortization) in the third quarter of 2024 was $809 million, or 77.8% of revenue, compared with $742 million, or 76.0% of revenue in the same quarter of 2023.

The year-over-year increase as a percentage of revenue during the third quarter of 2024 was driven primarily by a 1.3 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 $49 million in the third quarter of 2024 decreased $10 million, or 16.9%, from $59 million in the same quarter of 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 4.7% in the third quarter of 2024 compared with 6.0% in the same quarter of 2023 due to cost reduction initiatives.

SG&A of $149 million in the third quarter of 2024 increased $1 million, or 0.7%, from $148 million in the third quarter of 2023.

As a percentage of revenue, SG&A decreased to 14.3% in the third quarter of 2024 compared with 15.2% for the same quarter of 2023 due to a 0.6 percentage point decrease in compensation-related expenses as a result of cost savings from restructuring actions executed in 2023 and the first nine months of 2024.

Depreciation and amortization expense for the third quarter of 2024 was $21 million, compared with $16 million for the same quarter in 2023.

Depreciation and amortization expense for the third quarter of 2024 included $3 million as a result of the Coyote acquisition.

Transaction and integration costs for the third quarter of 2024 and 2023 were $30 million and $2 million, respectively.

Transaction and integration costs for the third quarter of 2024 included $29 million as a result of the Coyote acquisition.

Restructuring costs for the third quarter of 2024 and 2023 were $2 million and $3 million, respectively, and primarily comprised severance costs.

Other expense for the third quarter of 2024 includes a one-time charge of $216 million representing a deemed non-pro rata distribution in connection with the private placement common stock issuance completed in August 2024.

Our effective income tax rates were (0.4)% and 50.5% for the third quarter of 2024 and 2023, respectively.

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

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

corporate income tax rate of 21% primarily due to the effect of large non-deductible tax items associated with the Coyote acquisition and related common stock issuances.

The effective tax rate for the third 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 third 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 a discrete tax benefit associated with return to provision true-up.

Nine Months Ended September 30, Percentage of Revenue

(In millions) 2024 2023 2024 2023

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Income (loss) before income taxes $ (271) $ — (9.4) % — %

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

Income tax benefit (6) (2) (0.2) % (0.1) %

Net income (loss) $ (265) $ 2 (9.2) % 0.1 %

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.

Nine Months Ended September 30, 2024 Compared with Nine Months Ended September 30, 2023

Revenue decreased by 2.2% to $2.88 billion in the first nine months of 2024, compared with $2.95 billion for the same period in 2023.

The year-over-year decrease in revenue in the first nine months of 2024 was driven primarily by (i) a $91 million decrease in legacy RXO truck brokerage revenue, driven primarily by an 8% decrease in revenue per load, which was impacted by a combination of transportation market rates, freight mix and fuel prices, partially offset by a 3% increase in load volume and (ii) a $77 million decrease in revenue in our managed transportation business, driven primarily by a decrease in ocean and expedite air rates and volume.

This was partially offset by a $105 million increase in revenue as a result of the Coyote acquisition in our truck brokerage business.

Cost of transportation and services (exclusive of depreciation and amortization) in the first nine months of 2024 was $2.21 billion, or 76.6% of revenue, compared with $2.22 billion, or 75.4% of revenue, for the same period in 2023.

The year-over-year increase as a percentage of revenue in the first nine 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 $152 million in the first nine months of 2024 decreased $27 million, or 15.1%, from $179 million in the same period in 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 5.3% in the first nine months of 2024 compared with 6.1% in the same quarter of 2023 due to cost reduction initiatives.

SG&A of $448 million in the first nine months of 2024 increased $3 million, or 0.7%, from $445 million in the first nine months of 2023.

As a percentage of revenue, SG&A increased to 15.5% in the first nine months of 2024 compared with 15.1% for the same period of 2023 due to a 0.5 percentage point increase in professional and consulting expense.

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

Depreciation and amortization expense for the first nine months of 2024 was $54 million, compared with $52 million for the same period in 2023.

Depreciation and amortization expense for the first nine months of 2024 included $3 million as a result of the Coyote acquisition.

Transaction and integration costs for the first nine months of 2024 and 2023 were $38 million and $12 million, respectively.

Transaction and integration costs for the first nine months of 2024 included $35 million as a result of the Coyote acquisition.

Transaction and integration costs for the first nine months of 2023 primarily comprised spin-off related costs.

Restructuring costs for the first nine months of 2024 and 2023 were $15 million and $12 million, respectively, and primarily comprised severance costs.

Other expense for the first nine months of 2024 includes a one-time charge of $216 million representing a deemed non-pro rata distribution in connection with the private placement common stock issuance completed in August 2024.

Our effective income tax rates were 2.2% and (574.3)% for the first nine months of 2024 and 2023, respectively.

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

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

corporate income tax rate of 21% primarily due to the effect of large non-deductible tax items associated with the Coyote acquisition and related common stock issuances.

The effective tax rate for the first nine 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 nine 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.

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 June 30, 2024.

We were in compliance with all covenants and other provisions of our outstanding debt and financing arrangements as of September 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 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”).

Among other things, the Amendment increases the consolidated leverage ratio financial covenant level applicable under the Revolver from the fiscal quarter ending June 30, 2024 through the fiscal quarter ending March 31, 2025, as follows:

(i) to 4.25:1.00 for the fiscal quarters ending June 30, 2024 and September 30, 2024;

(ii) to 4.00:1.00 for the fiscal quarter ending December 31, 2024;

(iii) to 3.75:1.00 for the fiscal quarter ending March 31, 2025;

and (iv) returns to 3.50:1.00 beginning with the fiscal quarter ending June 30, 2025.

Refer to Note 8 —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 September 30, 2024.

In the third quarter of 2024, the Revolver was amended to increase the Company’s maximum consolidated leverage ratio to not greater than 4.50:1.00.

This amendment also extended the Revolver maturity date to September 16, 2029, subject to a springing earlier maturity date based on outstanding borrowings under the Company’s existing notes.

Refer to Note 8—Debt for additional information regarding this amendment.

During the three months ended September 30, 2024, the Company completed both a private placement and public offering of its common stock.

Total proceeds from these offerings, net of related issuance costs, of approximately $1.1 billion were used to fund the acquisition of Coyote on September 16, 2024.

Refer to Note 10 — Stockholders ’ Equity for additional information related to the equity issuances.

Financial Condition

Our asset and liability balances are summarized as follows:

June 30, December 31,

September 30, December 31,

(In millions) 2024 2023 $ Change % Change

3 unchanged sentences

Total long-term liabilities 793 549 244 44.4 %

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.

Total assets and liabilities increased from December 31, 2023 to September 30, 2024, primarily due to the acquisition of Coyote.

Refer to Note 3 — Acquisition for additional information related to assets acquired and liabilities assumed.

Cash Flow Activity

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions) 2024 2023 $ Change % Change

Net cash provided by operating activities $ 2 $ 66 $ (64) (97.0) %

Net cash used in investing activities (22) (28) 6 21.4 %

Net cash provided by (used in) financing activities 22 (13) 35 269.2 %

Effect of exchange rates on cash, cash equivalents and restricted cash — 1 (1) (100.0) %

Net cash provided by (used in) operating activities $ (5) $ 70 $ (75) (107.1) %

Net cash used in investing activities (1,052) (47) (1,005) n/m

Net cash provided by (used in) financing activities 1,107 (17) 1,124 n/m

Net increase in cash, cash equivalents and restricted cash $ 50 $ 6 $ 44 733.3 %

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 $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 $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.

n/m - not meaningful

Net cash provided by operating activities for the first nine months of 2024 decreased by $75 million compared with the same period in 2023.

The decrease in cash provided by operating activities due primarily to the decrease in net income between periods.

Investing activities used $1,052 million of cash for the first nine months of 2024, compared with using $47 million of cash for the same period in 2023.

The primary uses of cash in the nine months ended September 30, 2024 were (i) $1,019 million for the acquisition of Coyote and (ii) $33 million to purchase property and equipment.

The primary use of cash in the nine months ended September 30, 2023 was $46 million to purchase property and equipment.

Financing activities provided $1,107 million of cash for the first nine months of 2024, compared with using $17 million of cash for the same period in 2023.

The primary source of cash in the nine months ended September 30, 2024 was $1,095 million in net proceeds from the issuance of common stock.

The primary uses of cash in the nine months ended September 30, 2023 were (i) $12 million for payments of tax withholdings related to vesting of stock compensation awards, (ii) $3 million for debt and finance lease repayments and (iii) $2 million for the repurchase of common stock.

Critical Accounting Policies

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A discussion of accounting estimates, considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates, are disclosed in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Form 10-K.

There have been no significant changes in the Company’s critical accounting estimates since December 31, 2023.

There have been no significant changes in the Company’s critical accounting estimates since December 31, 2023, except for the additional critical accounting policy described in Note 2 — Basis of Presentation and Significant Accounting Policies .

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