What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-13 · 90 added, 71 removed, 156 unchanged (51% of the section changed)

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This section of this Annual Report generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Annual Report and can be found in Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operation s ” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included in this Annual Report and can be found in Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2023.

is a brokered transportation platform defined by cutting-edge technology and an asset-light business model.

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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We price our service on either a contract or a spot basis.

Notable factors driving volume growth in our business include our ability to access massive truckload capacity for shippers through our carrier relationships;

Notable factors that enable volume growth in our business include our ability to access massive truckload capacity for shippers through our carrier relationships;

our proprietary, cutting-edge technology;

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and favorable long-term industry tailwinds.

As of December 31, 2023, we had approximately 115,000 carriers in our North American truck brokerage network, and access to more than 1.4 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.

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.

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.

The Separation

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On November 1, 2022, RXO became a standalone publicly-traded company.

The Coyote Acquisition

On the acquisition date, the Company acquired Coyote from UPS and certain subsidiaries of UPS.

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

The purchase price was subsequently increased by $ 10 million for working capital and other post-closing adjustments totaling $ 10 million, which was paid in the first quarter of 2025.

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

Notable External Conditions

As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control.

The COVID-19 pandemic may continue to impact overall economic activity, customer sectors served by our industry, supply chains and labor markets.

We cannot predict how long these dynamics will last, or whether any future resurgences will adversely affect our results of operations.

The impact of macroeconomic conditions, including but not limited to, prolonged inflation, higher interest rates and capital costs, exchange rate volatility, increased shipping costs, labor disputes, reduced discretionary consuming spending, increased tariffs and international conflicts, could negatively impact our financial results.

We continue to monitor the evolving macroeconomic environment and the impact to our business.

For further discussion of potential impacts of these macroeconomic effects on our business, refer to Item 1 A — Risk Factors .

Impact of Inflation

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and legal costs.

Prior to the Separation, the Company’s historical assets and liabilities presented were wholly owned by XPO and were reflected on a historical cost basis.

In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis.

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses including XPO’s corporate function which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications.

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Nevertheless, the consolidated financial statements may not reflect the results of operations, cash flows and financial position had the Company been a standalone entity during the periods presented.

The majority of these allocated costs are recorded within Sales, general and administrative expense;

The majority of these allocated costs are recorded within SG&A;

Depreciation and amortization expense;

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federal income tax return as well as certain state and local income tax returns.

The Company's foreign tax returns are filed on a full-year basis.

The Company’s consolidated financial statements include the accounts of RXO, Inc.

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Restructuring costs 33 16 13 0.7 % 0.4 % 0.3 %

Operating income 39 123 192 1.0 % 2.6 % 4.1 %

Operating income (loss) (56) 39 123 (1.2) % 1.0 % 2.6 %

Other expense 218 3 — 4.8 % 0.1 % — %

Interest expense, net 30 32 4 0.7 % 0.8 % 0.1 %

Income before income taxes 4 119 191 0.1 % 2.5 % 4.1 %

Income tax provision — 27 41 — % 0.6 % 0.9 %

Net income $ 4 $ 92 $ 150 0.1 % 1.9 % 3.2 %

Income (loss) before income taxes (304) 4 119 (6.7) % 0.1 % 2.5 %

Income tax provision (benefit) (14) — 27 (0.3) % — % 0.6 %

Net income (loss) $ (290) $ 4 $ 92 (6.4) % 0.1 % 1.9 %

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenue for 2023 decreased by 18.1% to $3.9 billion, from $4.8 billion in 2022.

The year-over-year decrease was driven primarily by a $571 million decrease in revenue generated from our truck brokerage business, as a result of a 28% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices, length of haul and freight mix.

The decline was partially offset by a 12% increase in load volume.

Additionally, revenue generated from our freight forwarding business decreased by $171 million, driven primarily by a decrease in ocean rates and volume.

Revenue increased by 15.9% to $4.6 billion in 2024, compared with $3.9 billion in 2023.

The year-over-year increase in revenue was driven primarily by a $796 million increase in revenue as a result of the Coyote acquisition in our truck brokerage business.

This was partially offset by (i) a $125 million decrease in legacy RXO truck brokerage revenue, driven primarily by a 7% decrease in revenue per load, which was impacted by a combination of fuel prices, freight mix and transportation market rates, partially offset by a 1% increase in legacy RXO load volume and (ii) a $90 million decrease in revenue in our managed transportation business, driven primarily by a decrease in ocean and expedite air rates and volume.

Cost of transportation and services (exclusive of depreciation and amortization) in 2024 was $3.6 billion, or 78.4% of revenue, compared with $3.0 billion, or 75.6% of revenue in 2023.

In 2023, we experienced (i) lower transportation costs as a percentage of revenue in last mile and (ii) an improvement in mix in our freight forwarding business.

This was offset by a 3.0 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 year.

Direct operating expense (exclusive of depreciation and amortization) of $235 million in 2023 increased $9 million, or 4.0%, from $226 million in 2022.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) increased to 6.0% in 2023 compared to 4.7% in 2022 due to deleverage on lower revenue.

SG&A of $591 million in 2023 decreased $49 million, or 7.7%, from $640 million in 2022.

As a percentage of revenue, SG&A increased to 15.0% in 2023 compared to 13.3% in 2022 due to higher compensation-related costs of 1.5 percentage points reflecting deleverage on lower revenue and incremental corporate costs of operating RXO as a standalone public company.

This was partially offset by cost savings from restructuring actions executed in 2023, which primarily comprised employee severance.

We anticipate the restructuring actions will result in cumulative annualized net cost savings of approximately $32 million.

The year-over-year increase as a percentage of revenue in 2024 was driven primarily by (i) a 1.6 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, and (ii) a 0.5 percentage point increase in last mile cost of transportation and services as a percentage of revenue as a result of freight mix changes.

Direct operating expense (exclusive of depreciation and amortization) of $202 million in 2024 decreased $33 million, or 14.0%, compared with $235 million in 2023.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 4.4% in 2024 compared to 6.0% in 2023 due to cost reduction initiatives.

SG&A of $666 million in 2024 increased $75 million, or 12.7%, from $591 million in 2023, primarily due to the Coyote acquisition.

As a percentage of revenue, SG&A decreased to 14.6% in 2024 compared with 15.0% in 2023 driven primarily by cost savings from restructuring actions executed in 2024.

Depreciation and amortization expense in 2024 was $87 million, compared with $67 million in 2023.

The year-over-year reduction was driven by (i) a decrease in intangible asset amortization expense as a result of a customer relationship intangible asset being fully amortized in December 2022 and (ii) a decrease in depreciation for our allocated share of XPO’s corporate overhead.

Transaction and integration costs in 2023 and 2022 were $12 million and $84 million, respectively, and primarily comprised spin-off related costs.

Restructuring costs in 2023 and 2022 were $16 million and $13 million, respectively, and primarily comprised severance costs.

Interest expense primarily consists of interest related to indebtedness for money borrowed and finance lease obligations.

The increase in interest expense in 2023 as compared to 2022 is primarily due to a full year of interest incurred in 2023 on borrowings made in connection with the Separation in the fourth quarter of 2022.

Our effective income tax rates were (13.0)% and 22.6% in 2023 and 2022, respectively.

The change in our effective income tax rate for the year ended December 31, 2023 compared to the year ended December 31, 2022 was driven primarily by a tax benefit of $2 million realized in 2023 from changes in reserves for uncertain tax positions.

For the year ended December 31, 2023, our effective tax rate differs from the U.S.

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

For the year ended December 31, 2022, our effective tax rate differs from the U.S.

corporate income tax rate of 21% due to state income taxes within the United States, partially offset by a tax benefit of $3 million from provision to return and other deferred tax adjustments.

Depreciation and amortization expense for 2024 included $19 million as a result of the Coyote acquisition.

Transaction and integration costs in 2024 and 2023 were $53 million and $12 million, respectively.

Transaction and integration costs for 2024 included $49 million as a result of the Coyote acquisition.

Transaction and integration costs for 2023 primarily comprised spin-off related costs.

Restructuring costs in 2024 and 2023 were $33 million and $16 million, respectively, and primarily comprised severance and operating lease impairment costs.

Other expense in 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, based on the difference between the issuance price and the closing market price of common stock on August 12, 2024, the effective date of the private placement.

Our effective income tax rates were 4.6% and (13.0)% for 2024 and 2023, respectively.

Our effective tax rate for 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.

Our effective tax rate for 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

Our ability to fund our operations and anticipated capital needs are reliant upon the generation of cash from operations, supplemented as necessary by utilization of our revolving credit facility.

Our ability to fund our operations and anticipated capital needs are reliant upon the generation of cash from operations, supplemented as necessary by utilization of our revolving credit facilities.

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

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

We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months and thereafter, for the foreseeable future.

Capital Expenditures

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Debt and Financing Arrangements

Revolving Credit Facility

On October 18, 2022, we entered into a five-year unsecured, multi-currency revolving credit facility (the “Revolver”) with initial aggregate commitments of $ 500 million, of which $ 50 million is available for the issuance of letters of credit.

Loans under the Revolver bear interest at a fluctuating rate plus an applicable margin calculated based on the Company's credit ratings.

There was $ 5 million outstanding under the Revolver as of December 31, 2023.

Revolving Credit Facilities

On October 18, 2022, we entered into a five-year, $500 million, unsecured, multi-currency revolving credit facility (the “Revolver”) with $50 million available for the issuance of letters of credit.

Loans under the Revolver bear interest at a fluctuating rate plus an applicable margin based on the Company's credit ratings.

There were no amounts outstanding under the Revolver as of December 31, 2024.

On November 2, 2023, the Company exercised a feature to increase the total commitments under its Revolver from $500 million to $600 million.

Term Loan Facilities

On October 18, 2022, we entered into a five-year $ 100 million unsecured term loan facility (the “Term Loan”).

On November 2, 2023, the Company repaid all of the outstanding obligations in respect of the $ 100 million principal amount, interest and fees under the Term Loan and terminated the Term Loan.

The Revolver requires the Company to maintain a minimum interest coverage ratio of not less than 3.00:1.00.

On August 8, 2024, the Company and lenders entered into an amendment, which, following the completion of the Coyote acquisition on September 16, 2024, increased 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 10 — Debt to the consolidated financial statements for additional information.

We also have a non-U.S.

revolving credit facility with a maximum commitment of approximately $14 million.

This facility has a one-year term and we had $14 million outstanding as of December 31, 2024 classified as short-term debt.

On October 25, 2022, we completed an offering of $355 million in aggregate principal amount of unsecured notes (the “Notes” or the “7.50% Notes due 2027”).

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The Notes were issued at a price of 98.962% of par.

Refer to Note 10 — Debt to the consolidated financial statements for additional information.

Loan Covenants and Compliance

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

Equity Offering

During 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 1 3 — Stockholders ' Equity to the consolidated financial statements for additional information.

Financial Condition

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Total long-term liabilities 737 549 188 34.2 %

Total assets decreased by $206 million from December 31, 2022 to December 31, 2023, driven primarily by a $157 million decrease in accounts receivable as a result of a decrease in revenue due to decreased rates and a $93 million decrease in cash and cash equivalents as a result of the payoff of the Term Loan, partially offset by a $36 million increase in operating lease assets.

Total liabilities decreased by $213 million from December 31, 2022 to December 31, 2023, driven primarily by a decrease in third party transportation costs due to decreased rates and a $95 million decrease in long-term debt as a result of the payoff of the Term Loan.

Total assets and liabilities increased from December 31, 2023 to December 31, 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

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Years Ended December 31,

(In millions) 2023 2022 $ Change % Change

Net cash provided by operating activities $ 89 $ 310 $ (221) (71.3) %

(In millions) 2024 2023 $ Change

Net cash provided by (used in) operating activities $ (12) $ 89 $ (101)

Net cash used in investing activities (1,064) (66) (998)

Net cash used in financing activities (117) (183) 66 36.1 %

Net cash provided by (used in) financing activities 1,108 (117) 1,225

Effect of exchange rates on cash, cash equivalents and restricted cash (2) 1 (3)

Net increase (decrease) in cash and cash equivalents $ (93) $ 69 $ (162) 234.8 %

Net cash provided by operating activities for 2023 decreased by $221 million compared with 2022.

The decrease in cash provided by operating activities reflects the impact of an $88 million decrease in net income between periods and changes in working capital.

The change in working capital was driven primarily by the balance sheet impact of decreased revenues and cost of third party transportation between periods.

Net increase (decrease) in cash, cash equivalents and restricted cash $ 30 $ (93) $ 123

Net cash used in operating activities for 2024 decreased by $101 million compared with 2023.

The decrease in cash provided by operating activities was due primarily to the decrease in net income between periods and changes in working capital.

The $294 million decrease in net income was driven primarily by higher non-cash adjustments including a $216 million deemed non-pro rata distribution and increased depreciation and amortization expense related to the Coyote acquisition.

Investing activities used $1,064 million of cash in 2024 compared with $66 million of cash used in 2023.

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

Financing activities used $117 million of cash in 2023 compared with using $183 million of cash in 2022.

The primary uses of cash from financing activities in 2023 were (i) $104 million for debt and finance lease repayments, driven primarily by the payoff of the Term Loan and (ii) $14 million for payments of tax withholdings related to vesting of stock compensation awards.

The primary use of cash from financing activities in 2022 was $621 million in net transfers to XPO in connection with the Separation.

The primary source of cash from financing activities in 2022 was the issuance of long-term debt of $451 million, offset by payment of debt issuance costs of $9 million.

Net proceeds from the issuance of the Notes and the incurrence of the Term Loan, together with cash on RXO's balance sheet, were used to fund a net cash distribution of $604 million from RXO to XPO, in the fourth quarter of 2022.

The primary uses of cash in 2024 were (i) $1,019 million for the acquisition of Coyote, net of cash acquired, and (ii) $45 million to purchase property and equipment.

The primary use of cash in 2023 was to purchase property and equipment.

Financing activities provided $1,108 million of cash in 2024 compared with using $117 million of cash in 2023.

The primary source of cash from financing activities in 2024 was $1,095 million in net proceeds from the issuance of common stock.

The primary uses of cash from financing activities in 2023 were (i) $104 million for debt and finance lease repayments, driven primarily by the payoff of the $100 million term loan facility and (ii) $14 million for payments of tax withholdings related to vesting of stock compensation awards.

Contractual Obligations

We lease certain facilities and equipment under non-cancellable operating lease arrangements.

We lease certain facilities and equipment under non-cancellable operating and finance lease arrangements.

As of December 31, 2024, our outstanding discounted obligations under operating and finance leases were $296 million and $4 million, respectively.

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The Notes mature on November 15, 2027, unless earlier repurchased or redeemed, if applicable.

As of December 31, 2023, we had $5 million outstanding under the Revolver, with interest payable monthly or quarterly, depending on RXO’s upfront election.

Borrowings under the Revolver are payable, at our option, at any time prior to or at maturity on October 18, 2027.

As of December 31, 2024, we had no amounts outstanding under the Revolver.

Interest on any outstanding borrowings is payable monthly or quarterly, depending on RXO’s upfront election.

Borrowings under the Revolver are payable, at our option, at any time prior to or at maturity on September 16, 2029.

We also have a non-U.S.

revolving credit facility with a maximum commitment of approximately $14 million.

This facility has a one-year term and we had $14 million outstanding as of December 31, 2024 classified as short-term debt.

See Note 10 — Debt to the consolidated financial statements for additional information.

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Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.

Business Combinations

We apply the acquisition method of accounting with respect to the identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.

The excess of the cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill.

During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires our management to make significant estimates and assumptions for intangible assets, contract obligations assumed, and pre-acquisition contingencies, where applicable.

Although we believe the assumptions and estimates we have made in the past are reasonable and appropriate, they are based, in part, on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

The assistance of an independent third-party valuation firm was used to determine the estimated fair values and useful lives of finite-lived intangible assets including customer relationships and trademarks.

Valuation methods used were based on income-based approaches including the excess earnings method and relief-from-royalty method for customer relationships and trademarks, respectively.

Critical estimates and assumptions used in valuing certain acquired intangible assets include projected revenues, projected expenses, customer retention rate, contributory asset charges, and discount rate for the customer relationships;

and projected revenues, trademark phase-out projection, trademark royalty rate, and discount rate for the trademarks.

Unanticipated events and circumstances may occur which could affect the accuracy or validity of such assumptions, estimates or actual results.

Evaluation of Goodwill

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Application of the goodwill impairment test requires judgment, including the identification of the reporting units, the assignment of assets and liabilities to the reporting units, the assignment of goodwill to the reporting units, and a determination of the fair value of the reporting units.

For our 2023 goodwill assessment, we performed a quantitative analysis for our reporting units using a combination of income and market approaches.

For our 2024 goodwill assessment, we performed a quantitative analysis for our reporting units using a combination of the income and market approaches.

As of November 30, 2024, we completed our annual impairment tests for goodwill with all of our reporting units having fair values in excess of their carrying values, resulting in no impairment of goodwill.

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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-K

Item 7. Management’s Discussion and Analysis