What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-07 · 54 added, 101 removed, 98 unchanged (61% of the section changed)

18 unchanged sentences

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 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.

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.

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.

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

The Coyote Acquisition

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.

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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, which was paid in the first quarter of 2025.

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.

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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 nine months ended September 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 months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

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 September 30, Percentage of Revenue

Three Months Ended March 31, Percentage of Revenue

(In millions) 2025 2024 2025 2024

6 unchanged sentences

Restructuring costs 14 11 1.0 % 1.2 %

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

Operating loss $ (30) $ (12) (2.1) % (1.3) %

Other expense — 1 — % 0.1 %

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Loss before income taxes $ (39) $ (21) (2.7) % (2.3) %

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

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

Revenue $ 2,883 $ 2,949 100.0 % 100.0 %

Cost of transportation and services (exclusive of depreciation and amortization) 2,208 2,224 76.6 % 75.4 %

Direct operating expense (exclusive of depreciation and amortization) 152 179 5.3 % 6.1 %

Sales, general and administrative expense 448 445 15.5 % 15.1 %

Depreciation and amortization expense 54 52 1.9 % 1.8 %

Transaction and integration costs 38 12 1.3 % 0.4 %

Restructuring costs 15 12 0.5 % 0.4 %

Operating income (loss) $ (32) $ 25 (1.1) % 0.8 %

Other expense 217 1 7.5 % — %

Interest expense, net 22 24 0.8 % 0.8 %

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

Income tax benefit (8) (6) (0.6) % (0.7) %

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

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.

Net loss $ (31) $ (15) (2.2) % (1.6) %

Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024

Revenue increased by 57.0% to $1.4 billion in the first quarter of 2025, compared with $913 million for the same quarter in 2024.

The year-over-year increase in revenue in the first quarter of 2025 was driven by (i) a $503 million increase in truck brokerage revenue, primarily as a result of the Coyote acquisition and (ii) a $46 million increase in last mile revenue, primarily as a result of a 24% increase in volume.

This was partially offset by a $15 million decrease in revenue in our managed transportation business, driven primarily by a decrease in expedite ground volume.

Cost of transportation and services (exclusive of depreciation and amortization) in the first quarter of 2025 was $1.2 billion, or 80.5% of revenue, compared with $699 million, or 76.6% of revenue in the same quarter of 2024.

The $454 million increase is primarily attributable to the Coyote acquisition.

The year-over-year increase as a percentage of revenue during the first quarter of 2025 was driven primarily by (i) a 0.8 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 and (ii) a 3.2 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 $48 million in the first quarter of 2025 decreased $5 million, or 9.4%, from $53 million in the same quarter of 2024.

As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 3.3% in the first quarter of 2025 compared with 5.8% in the same quarter of 2024 due to cost reduction initiatives.

SG&A of $210 million in the first quarter of 2025 increased $65 million, or 44.8%, from $145 million in the first quarter of 2024, primarily attributable to the Coyote acquisition.

As a percentage of revenue, SG&A decreased to 14.7% in the first quarter of 2025 compared with 15.9% for the same quarter of 2024 driven primarily by improved leverage as a result of increased scale due to the Coyote acquisition, as well as cost savings from restructuring actions.

Depreciation and amortization expense for the first quarter of 2025 was $32 million, compared with $16 million for the same quarter in 2024.

Depreciation and amortization expense for the first quarter of 2025 included $16 million as a result of the Coyote acquisition.

Transaction and integration costs for the first quarter of 2025 and 2024 were $6 million and $1 million, respectively.

Transaction and integration costs for the first quarter of 2025 included $5 million as a result of the Coyote acquisition.

Restructuring costs for the first quarter of 2025 and 2024 were $14 million and $11 million, respectively, and primarily comprised severance costs and operating lease impairment costs.

Our effective income tax rates were 19.2% and 27.7% for the first quarter of 2025 and 2024, respectively.

The effective tax rates for the first quarter of 2025 and 2024 were calculated using the discrete method.

Our effective tax rate for the first quarter of 2025 differs from the U.S.

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

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.

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 utilization of our revolving credit facility (the “Revolver”).

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

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 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.

The timing and magnitude of our growth and working capital needs 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.

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

Our 2024 capital expenditures include capital allocations associated with strategic investments in technology, equipment and real estate.

Our 2025 capital expenditures include capital associated with strategic investments in technology, equipment and real estate.

The level and the timing of the Company’s capital expenditures within these categories can vary as a result of a variety of factors outside of our control, such as the timing of new contracts and availability of labor and equipment.

We believe that we have significant discretion over the amount and timing of our capital expenditures as we are not subject to any agreement that would require significant capital expenditures on a designated schedule or upon the occurrence of designated events.

Debt and Financing Arrangements

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

We were in compliance with all covenants and other provisions of our outstanding debt and financing arrangements as of March 31, 2025.

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 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.

Refer to Note 7 —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, 2025.

Financial Condition

Our asset and liability balances are summarized as follows:

September 30, December 31,

(In millions) 2024 2023 $ Change % Change

(In millions) March 31, 2025 December 31, 2024 $ Change % Change

Total current assets $ 1,255 $ 1,339 $ (84) (6.3) %

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Total long-term liabilities 753 737 16 2.2 %

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.

Total assets decreased by $110 million from December 31, 2024 to March 31, 2025, primarily due to (i) a $77 million decrease in accounts receivable as a result of a sequential decrease in revenue, (ii) a $20 million decrease in operating lease assets as a result of amortization and (iii) a $19 million decrease in cash and cash equivalents as a result of timing of transaction-related payments associated with the Coyote acquisition.

Total liabilities decreased by $85 million from December 31, 2024 to March 31, 2025, primarily due to a sequential decrease in third party transportation costs, partially offset by a $36 million increase in long-term debt and obligations under finance leases.

Cash Flow Activity

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

Nine Months Ended September 30,

(In millions) 2024 2023 $ Change % Change

Three Months Ended March 31,

(In millions) 2025 2024 $ Change

Net cash provided by (used in) operating activities $ (2) $ 7 $ (9)

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 %

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.

Net cash used in investing activities (25) (11) (14)

Net cash provided by financing activities 7 6 1

Effect of exchange rates on cash, cash equivalents and restricted cash 1 — 1

Net change in cash, cash equivalents and restricted cash $ (19) $ 2 $ (21)

Net cash provided by operating activities for the first three months of 2025 decreased by $9 million compared with the same period in 2024.

The decrease in cash provided by operating activities reflects the impact of (i) a $16 million increase in net loss between periods and (ii) changes in working capital.

Investing activities used $25 million of cash for the first three months of 2025, compared with using $11 million of cash for the same period in 2024.

The increased usage in the first quarter of 2025 was due to $10 million paid related to the Coyote acquisition for working capital and other post-closing adjustments.

Financing activities provided $7 million of cash for the first three months of 2025, compared to providing $6 million of cash for the same period in 2024.

The primary source of cash in the first three months of 2025 was $35 million in net proceeds from borrowings, partially offset by $17 million in payments for tax withholdings primarily attributable to the vesting of stock compensation awards held by non-RXO employees at the spin which are now substantially complete.

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

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 2024 Form 10-K.

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 .

There have been no significant changes in the Company’s critical accounting estimates since December 31, 2024.

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