What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-03 · 189 added, 279 removed, 81 unchanged (85% of the section changed)

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Executive Summary

XPO Logistics, Inc., a Delaware corporation, together with its subsidiaries (“XPO,” or “we”), is a leading provider of freight transportation services, primarily less-than-truckload (“LTL”) and truck brokerage services.

We use our proprietary technology to move goods efficiently through our customers’ supply chains.

Our two core lines of business, LTL and truck brokerage, generated the vast majority of our 2020 revenue and operating income.

Our company has two reportable segments — (i) North American LTL and (ii) Brokerage and Other Services — and within each segment, we are a top-three provider in vast, fragmented transportation sectors with growing penetration.

As of September 30, 2021, we had approximately 42,000 employees and 756 locations in 20 countries serving over 50,000 multinational, national, regional and local customers.

In addition to our scale, we believe that our outsized exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.

On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to our stockholders for U.S.

federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc.

(“GXO”) to XPO stockholders.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution.

XPO does not beneficially own any shares of GXO’s common stock following the spin-off.

GXO is an independent public company trading under the symbol “GXO” on the New York Stock Exchange.

The historical results of operations and the financial position of our Logistics segment for periods prior to the spin-off are presented as discontinued operations in these Condensed Consolidated Financial Statements.

XPO Logistics, Inc., together with its subsidiaries (“XPO,” or “we”), is a leading provider of freight transportation services.

We use our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services.

These two core lines of business generated the majority of our 2021 revenue and operating income.

Our company has two reportable segments — (i) North American LTL and (ii) Brokerage and Other Services — and within each segment, we are a leading provider in vast, fragmented transportation sectors with growing penetration.

As of March 31, 2022, we had approximately 42,000 employees and 731 locations in 20 countries serving approximately 50,000 multinational, national, regional and local customers.

We believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.

2022 Strategic Plan

On March 8, 2022, we announced that our Board of Directors approved a plan to pursue the strategic spin-off of our tech-enabled brokered transportation platform in North America as a publicly traded company and to pursue two divestitures:

the sale of our North American intermodal operation and the sale or listing of our European business.

If the spin-off to XPO shareholders is completed, the transaction will result in two pure-play, publicly traded companies with simplified business models and clearly delineated value propositions.

The core business of the spin-off will be our truck brokerage service, with complementary brokered services for managed transportation, last mile logistics and global forwarding.

The remaining company will be an asset-based provider of LTL service in North America.

The planned spin-off transaction, which is intended to be tax-free to XPO and our shareholders for U.S.

federal income tax purposes, would result in XPO shareholders owning stock in both companies.

In connection with

the transaction, it is anticipated that a portion of XPO’s outstanding debt may be repaid using proceeds from borrowings incurred and debt securities to be issued by the spun-off company.

We currently expect to complete the spin-off in the fourth quarter of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO’s debt on terms satisfactory to the XPO Board of Directors, and final approval by the XPO Board of Directors, among other requirements.

There can be no assurance that any strategic transaction will occur, or if one or more do occur, of the terms or timing.

In March 2022, we sold our North American intermodal operation for cash proceeds of approximately $705 million, net of cash disposed and subject to a customary post-closing purchase price adjustment.

We recorded a pre-tax gain on the sale of $450 million, net of transaction costs, for the three months ended March 31, 2022.

We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale.

The intermodal operation was included in our Brokerage and Other Services segment through the date of the sale.

2021 Spin-Off of the Logistics Segment

On August 2, 2021, we completed the spin-off of our Logistics segment as GXO Logistics, Inc.

The historical results of our Logistics segment are presented as discontinued operations in our Condensed Consolidated Financial Statements.

For information on our discontinued operations, see Note 2—Discontinued Operations.

During the three and nine months ended September 30, 2021, we incurred approximately $68 million and $111 million, respectively, of costs related to the spin-off, of which $57 million and $96 million, respectively, are reflected within income (loss) from discontinued operations in our Condensed Consolidated Statements of Income (Loss).

In connection with the spin-off, we entered into a separation and distribution agreement as well as various other agreements with GXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement, a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will continue to provide certain services for a period of time specified in the applicable agreement to GXO following the spin-off.

The impact of these services on the condensed consolidated financial statements was immaterial.

On September 30, 2021, following the completion of spin-off-related and planned deleveraging activities, we had approximately $1.2 billion of total liquidity, including $254 million of cash and cash equivalents.

For more information on the third quarter 2021 redemption of our 2023 and 2024 Senior Notes, see Note 7—Debt.

We are committed to a target leverage of 1.0x to 2.0x by the first half of 2023 as a key step in our process to achieve an investment-grade credit rating for XPO.

During the three months ended March 31, 2022 and 2021, we incurred approximately $4 million and $13 million, respectively, of costs related to the GXO spin-off.

For the three months ended March 31, 2021, $12 million of these costs are reflected within income from discontinued operations in our Condensed Consolidated Statements of Income.

North American Less-Than-Truckload Segment

XPO is a top three provider of LTL services in North America — we have one of the industry’s largest asset-based networks of tractors, trailers, drivers and terminals, and approximately 8% share of the $42 billion market as of December 31, 2020.

XPO is the fourth largest provider of asset-based LTL services in North America — we have one of the industry’s largest networks of tractors, trailers and terminals, and approximately 8% share of the $51 billion LTL market as of December 31, 2021.

We provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services.

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freight movements to and from Mexico and Canada, as well as intra-Canada service.

We have relationships with over 25,000 LTL customers in North America, primarily local accounts, and we are further diversifying our base by selling our LTL services across more verticals.

For the trailing 12 months ended September 30, 2021, we delivered approximately 13 million LTL shipments.

In addition to reliable national capacity, the other key factors driving our LTL growth and margin expansion are our proprietary technology and the industry’s favorable fundamentals — limited commoditization, rational pricing dynamics, rising industrial demand and the continued growth of e-commerce, which is driving smaller, more frequent shipments.

Specific to XPO, we believe that we have a significant opportunity to leverage our technology to improve LTL profitability beyond the sizable margin gains we have already achieved.

We use intelligent route-building to move LTL freight across North America, and proprietary visualization tools to help reduce the cost of pickups and deliveries.

Currently, we are developing software to improve our ability to price in a dynamic market, and are deploying our XPO Smart® tools in LTL yards and cross-dock operations to enhance productivity.

Our LTL business is one of the few truly national LTL providers in North America, with a historically high return on capital (“ROIC”) and robust free cash flow generation.

Our LTL customer base is levered to the industrial economy, which we expect to be a growing opportunity for us as supply chain disruptions resolve and manufacturing scales up in North America.

In addition to our competitive positioning, we benefit from favorable industry fundamentals of rational pricing and limited commoditization.

We have relationships with approximately 25,000 LTL customers in North America, the majority of which are local accounts.

For the trailing 12 months ended March 31, 2022, we delivered approximately 18 billion pounds of freight.

After the planned spin-off of our North American brokered transportation platform, our company will be the third largest pure-play LTL provider in North America.

We expect our business to move forward with continued strong momentum from the numerous company-specific initiatives we have underway for network growth and efficiency.

We are using a combination of operational tactics and investments in our capacity of tractors, trailers, doors and truck drivers, including our goal of adding 900 net new doors to our network by year-end 2023.

Importantly, the plan levers XPO-specific competitive advantages, including our continued deployment of proprietary LTL technology, the expansion of our national driver training network, and increased production at our Company-owned trailer manufacturing facility in Arkansas.

We are making good progress in these areas, including the opening of three new LTL terminals from October 31, 2021 through March 31, 2022, one new terminal in April 2022 and one expected to open in May 2022.

In January 2022, we added a second production line at our trailer manufacturing facility to double our output run-rate.

We expect to graduate approximately 1,800 driver school trainees this year, which is twice the number of 2021 graduates, to counteract the industry-wide driver shortage.

Specific to our technology, we believe that we have a significant opportunity to further improve the profitability of our LTL network through innovation, beyond the large gain in operating margin we have achieved to date.

intelligent route-building to move LTL freight across North America, and proprietary visualization tools to help reduce the cost of pickups and deliveries.

Our XPO Smart™ productivity tools are deployed in our LTL cross-dock operations.

Our largest opportunity is related to our proprietary pricing technology, which includes automated, dynamic pricing for local accounts and a new pricing platform utilized by our pricing experts for larger accounts.

Brokerage and Other Services Segment

XPO is the third largest truck brokerage service provider in North America, and the second largest truck broker globally, with approximately 3% share of the $64 billion North American market as of December 31, 2020.

Essentially, shippers create the truckload demand and we place their freight with qualified carriers, pricing our service on either a spot or contract basis.

Our truck brokerage business has an agile, non-asset model and variable labor structure that generate high return on investment (“ROI”) and free cash flow conversion.

The key factors driving growth and margin expansion in our truck brokerage business are massive capacity, cutting-edge technology and favorable industry tailwinds.

The demand for truckload capacity in the e-commerce and omnichannel retail sectors is growing rapidly.

At the same time, more and more shippers are outsourcing to brokers and increasingly preferring brokers like XPO that offer digital capabilities.

As of September 30, 2021, we had approximately 91,000 independent carriers in our global brokerage network, giving us access to more than a million trucks on our XPO Connect® digital platform.

This digital access to enormous capacity is a standout differentiator for our business.

We believe that XPO Connect®, together with our brokerage pricing technology, can unlock incremental profitable growth well beyond our current levels.

Our Brokerage and Other Services segment also includes exposure to one of the fastest-growing brokerage subsectors —last mile logistics for heavy goods sold through e-commerce, omnichannel retail and direct-to-consumer channels.

XPO is the largest provider of home delivery for heavy goods in North America.

Several other non-core brokered freight transportation modes are included in our Brokerage and Other Services segment, as well as our European service offering.

In Europe, XPO is the No.

1 truck broker and the No.

1 LTL provider in France and Iberia (Spain / Portugal), and the No.

3 truck broker in the UK, where we have the largest single-owner LTL network.

Innovation and Sustainability

A decade after making our first technology investment in 2011, we are now reaping the benefits of more than $3 billion spent on technology, including innovating how goods move through supply chains.

Our industry is evolving, and customers want to de-risk their supply chains with more automation and better visibility.

We are well-positioned to satisfy these demands.

We use technology to increase our ROI and build our competitive differentiation, to serve our customers better and to make the most of the talent and assets within our organization.

Our cloud-based platform speeds the deployment of new ways to increase efficiency, control costs and leverage our footprint.

We concentrate our efforts on creating “smart” supply chains as the most meaningful way to create value for our shareholders and our customers.

Environmental sustainability is another significant priority for us.

Our entire business model is based on transporting freight as efficiently as possible.

This facilitates our ability to improve our carbon footprint over time by reducing empty miles, maintaining a modern fleet and training our drivers in eco-friendly techniques, among other initiatives.

In North America, XPO has been named a Top 75 Green Supply Chain Partner by Inbound Logistics for six consecutive years.

We have made substantial investments in fuel-efficient Freightliner Cascadia tractors;

these use EPA 2013-compliant and Greenhouse Gas 2014-compliant selective catalytic reduction (“SCR”) technology.

Our LTL locations have energy-saving policies in place and are implementing a phased upgrade to LED lighting.

Our Last Mile business is deploying electric box trucks in partnership with a client, supporting the client’s global climate initiatives.

Our modern road fleet in Europe is 98% compliant with Euro V, EEV and Euro VI standards.

We also own over 250 natural gas trucks operating in France, the UK, Spain and Portugal, including 80 tractors we purchased in 2020 that use liquified natural gas (“LNG”).

In Spain, we own government-approved mega-trucks to transport freight with fewer trips, and our last mile operations in Europe use electric vehicles for deliveries in certain urban areas, reducing those emissions to zero.

We publish an annual Sustainability Report, available online at sustainability.xpo.com, that provides details of our company’s global progress in key areas, including safety, employee engagement, diversity and inclusion, ethics and compliance, environmental protection and governance.

Impacts of COVID-19 and Supply Chain Challenges

XPO is one of the largest truck brokers in North America.

As of December 31, 2021, we had approximately 3% share of the $88 billion truck brokerage industry — which is a subset of the $400 billion total addressable opportunity of for-hire trucking in North America.

Shippers create truckload demand and we place their freight with qualified independent carriers, pricing the transactions on either a contract or a spot basis.

Our truck brokerage business has an agile model with a variable labor structure that generates a high ROIC and free cash flow conversion.

The key factors driving growth and margin expansion in our truck brokerage business are massive capacity, our cutting-edge XPO Connect ® technology platform and favorable industry tailwinds.

The demand for truckload capacity in the e-commerce and omnichannel retail sectors continues to be robust.

At the same time, more and more shippers are outsourcing to brokers, while increasingly preferring brokers like XPO that offer digital capabilities.

As of March 31, 2022, we had approximately 106,000 independent truckload carriers in our global brokerage network;

approximately 88,000 of these carriers are in North America, representing more than one and a half million trucks.

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

As of March 31, 2022, cumulative truck driver downloads of the mobile app for XPO Connect ® surpassed 700,000.

Our Brokerage and Other Services segment also includes three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business:

managed transportation, last mile logistics for heavy goods and global forwarding.

Our European business, which we plan to divest through either a sale or a listing, is also currently reported within this segment.

Post-spin-off, we expect all of the brokered transportation services to continue to lever the first-mover technology advantage the new company will inherit from XPO.

From 2013 through 2021, our truck brokerage business in North America generated a compound annual growth rate (“CAGR”) of 27.4% — three times the truck brokerage industry growth rate of 9.6%.

Technology and Corporate Sustainability

Proprietary technology is a major competitive advantage for us across our service lines.

Our company has been investing in transportation automation and digitization for more than a decade to innovate how goods move through supply chains.

We believe that we are well-positioned to satisfy customer demands for faster, more efficient supply chains with greater visibility, while enhancing revenue and profitability.

Importantly, our technology also helps our Company and customers meet our respective environmental, social and governance (“ESG”) goals, such as a reduction in the carbon footprint of certain supply chains operations.

For a detailed discussion of our philosophy relating to innovation and ESG matters, see the Executive Overview included in our 2021 Annual Report on Form 10-K, as well as our current Sustainability Report at sustainability.xpo.com .

Impacts of COVID-19 and Other 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 that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry.

We believe that the onset of the COVID-19 pandemic and associated impacts on economic activity had adverse effects on our results of operations and financial condition for the nine months ended September 30, 2020.

The rebound of our business began to occur midway through 2020;

however, as the economy recovers, demand has outpaced supply in certain sectors.

Additionally, labor shortages in the recovery – notably, a reduced supply of truck drivers – present challenges to many service industries, including freight transportation.

These dynamics, together with equipment shortages and pent-up demand for semiconductor chips used by some of our end markets, have created supply chain disruptions and increased our cost of transportation and services.

We cannot predict how long the current labor shortages and other disruptions will last, or whether future disruptions, if any, will adversely affect our results of operations.

We continue to incur net incremental and direct costs related to COVID-19 to ensure that we meet the needs of our employees and customers;

these include costs for personal protective equipment (“PPE”), site cleanings and enhanced employee benefits, referred to as COVID-19 related costs in this Form 10-Q.

We are executing a company-specific action plan to enhance network efficiencies and drive growth in our LTL business, including:

• Improving network flow with selective freight embargoes, with the cost embedded in 2021 guidance;

• Driving pricing by pulling the January 2022 General Rate Increase forward to November and instituting accessorial charges for detained trailers, oversized freight and special handling;

• Expanding the 2022 graduate count at XPO’s U.S.

truck driver training schools to more than double the nearly 800 graduates the company will have in 2021;

• Significantly increasing production capacity at XPO’s manufacturing facility in Arkansas, with the expectation of nearly doubling the year-over-year number of units produced in 2022;

• Allocating capital to expand North American LTL door count by 900 doors, or approximately 6%, over the next 12 to 24 months to improve network-wide operating efficiency and support future revenue growth.

The totality of the actions we have taken during the pandemic, and continue to take, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in key growth initiatives.

Impact of Inflation

Inflation can have a negative impact on our operating costs.

A prolonged period of inflation could cause interest rates, fuel, wages and other costs to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases.

For the third quarter and first nine months ended September 30, 2021, the constrained labor market resulted in higher third-party transportation costs to meet growing demand which were partially offset by increased pricing to our customers.

Labor shortages, particularly a shortage of truck drivers and dockworkers, and equipment shortages continue to present challenges to many transportation-related industries.

Additionally, disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have impacted some of the end-market activities that create demand for our services.

We cannot predict how long these dynamics will last in the economic recovery, or whether future challenges, if any, will adversely affect our results of operations.

To date, the totality of the actions we have taken during the pandemic, and continue to take

in the recovery, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in growth initiatives.

Additionally, economic inflation can have a negative impact on our operating costs.

A prolonged period of inflation could cause interest rates, fuel, wages and other costs to continue to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases.

For the three months ended March 31, 2022, the transportation industry’s truck driver shortage, together with rising fuel prices, resulted in higher transportation procurement costs to meet growing demand, which costs were largely offset by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases.

Regarding the war between Russia and Ukraine, we have no direct exposure to those geographies.

We cannot predict how global supply chain activities or the economy at large may be impacted by a prolonged war in Ukraine or sanctions imposed in response to the war, or whether future conflicts, if any, may adversely affect our results of operations.

Consolidated Summary Financial Table

Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change

Three Months Ended March 31, Percent of Revenue Change

(Dollars in millions) 2022

2022 2021 2022 vs.

2021 2020 2021 vs.

Revenue $ 3,473 $ 2,989 100.0 % 100.0 % 16.2 %

Cost of transportation and services 2,306 1,814 70.5 % 67.8 % 27.1 % 6,545 4,919 69.3 % 67.7 % 33.1 %

Direct operating expense 366 310 11.2 % 11.6 % 18.1 % 1,058 904 11.2 % 12.5 % 17.0 %

Cost of transportation and services (exclusive of depreciation and amortization) 2,437 2,053 70.2 % 68.7 % 18.7 %

Direct operating expense (exclusive of depreciation and amortization) 385 334 11.1 % 11.2 % 15.3 %

Sales, general and administrative expense 344 338 9.9 % 11.3 % 1.8 %

Depreciation and amortization expense 116 119 3.3 % 4.0 % (2.5) %

Gain on sale of business (450) — (13.0) % — % NM

Transaction and integration costs 10 5 0.3 % 0.2 % 100.0 %

Restructuring costs 6 1 0.2 % — % 500.0 %

Operating income 112 138 3.4 % 5.2 % (18.8) % 442 75 4.7 % 1.0 % NM

Operating income 625 139 18.0 % 4.7 % 349.6 %

Other income (14) (16) (0.4) % (0.5) % (12.5) %

Foreign currency (gain) loss (4) 1 (0.1) % — % NM (2) (5) — % (0.1) % (60.0) %

Debt extinguishment loss — 8 — % 0.3 % (100.0) %

Interest expense 37 65 1.1 % 2.2 % (43.1) %

Income (loss) from continuing operations before income tax provision (benefit) 32 68 1.0 % 2.5 % (52.9) % 257 (115) 2.7 % (1.6) % NM

Income tax provision (benefit) 11 31 0.3 % 1.2 % (64.5) % 60 (36) 0.6 % (0.5) % NM

Income (loss) from continuing operations 21 37 0.6 % 1.4 % (43.2) % 197 (79) 2.1 % (1.1) % NM

Income (loss) from discontinued operations, net of taxes (78) 61 (2.4) % 2.3 % NM 22 68 0.2 % 0.9 % (67.6) %

Net income (loss) $ (57) $ 98 (1.7) % 3.7 % NM $ 219 $ (11) 2.3 % (0.2) % NM

Income from continuing operations before income tax provision 602 82 17.3 % 2.7 % 634.1 %

Income tax provision 113 19 3.3 % 0.6 % 494.7 %

Income from continuing operations 489 63 14.1 % 2.1 % 676.2 %

Income from discontinued operations, net of taxes (1) 55 — % 1.8 % NM

Net income $ 488 $ 118 14.1 % 3.9 % 313.6 %

NM - Not meaningful

Three and Nine Months Ended September 30, 2021 Compared with Three and Nine Months Ended September 30, 2020

Revenue for the third quarter of 2021 increased 22.2% to $3.3 billion, compared with the same quarter in 2020.

Revenue for the first nine months of 2021 increased 30.1% to $9.4 billion compared with the same period in 2020.

The increase in revenue in the third quarter and first nine months of 2021 compared to the same periods in 2020 reflects growth in both our LTL and truck brokerage businesses and the negative impact of COVID-19 in 2020 which decreased demand for our services.

Cost of transportation and services includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truck brokerage businesses.

Cost of transportation and services for the third quarter of 2021 was $2.3 billion, or 70.5% of revenue, compared with $1.8 billion, or 67.8% of revenue, for the same period in 2020.

Cost of transportation and services for the first nine months of 2021 was $6.5 billion, or 69.3% of revenue, compared with $4.9 billion or 67.7% of revenue, for the same period in 2020.

The year-over-year increase as a percentage of revenue in both periods reflects the constrained labor market, which resulted in higher third-party transportation costs.

These increases were partially offset by lower COVID-19-related costs.

Direct operating expenses are comprised of both fixed and variable expenses and consist of operating costs related to our LTL service centers.

Direct operating expenses consist mainly of personnel costs, facility and equipment

expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.

Direct operating expense for the third quarter of 2021 was $366 million, or 11.2% of revenue, compared with $310 million, or 11.6% of revenue, for the same quarter in 2020.

Direct operating expense for the first nine months of 2021 was $1.1 billion, or 11.2% of revenue, compared with $904 million, or 12.5% of revenue, for the same period in 2020.

The year-over-year decrease as a percentage of revenue in both periods was primarily driven by the leveraging of compensation and facilities costs across a larger revenue base.

Direct operating expense for the third quarters of 2021 and 2020 included $6 million and $29 million, respectively, and the first nine months of 2021 and 2020 included $36 million and $67 million, respectively, of gains on sales of property and equipment.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Revenue for the first quarter of 2022 increased 16.2% to $3.5 billion, compared with the same quarter in 2021.

The increase in revenue reflects growth in both our Brokerage and Other Services and LTL segments and includes the impact of increased revenue from fuel surcharges.

Foreign currency movement reduced revenue by approximately 1.2 percentage points in the first quarter of 2022.

Cost of transportation and services (exclusive of depreciation and amortization) includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truck brokerage businesses.

Cost of transportation and services (exclusive of depreciation and amortization) for the first quarter of 2022 was $2.4 billion, or 70.2% of revenue, compared with $2.1 billion or 68.7% of revenue, for the same quarter in 2021.

The year-over-year increase as a percentage of revenue is primarily due to higher third-party transportation costs, which were partially offset by pricing actions.

Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and include operating costs related to our LTL service centers.

Direct operating expenses (exclusive of depreciation and amortization) consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.

Direct operating expense (exclusive of depreciation and amortization) for the first quarter of 2022 was $385 million, or 11.1% of revenue, compared with $334 million, or 11.2% of revenue, for the same quarter in 2021.

The year-over-year decrease as a percentage of revenue was primarily driven by the leveraging of compensation costs across a larger revenue base.

This decrease was almost entirely offset by a $23 million gains on sales of property and equipment in the first quarter of 2021.

There were no gains on sales of property and equipment in the first quarter of 2022.

Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, professional fees, facility costs, bad debt expense and legal costs.

SG&A for the third quarter of 2021 was $339 million, or 10.4% of revenue, compared with $294 million, or 11.0% of revenue, for the same period in 2020.

SG&A for the first nine months of 2021 was $1.0 billion, or 10.6% of revenue, compared with $915 million, or 12.6% of revenue, for the same period in 2020.

The year-over-year decrease as a percentage of revenue in both periods was primarily driven by lower self-insurance expense and third-party professional fees, as well as lower COVID-19-related costs.

Additionally impacting the third quarter of 2021 were lower incentive compensation expense.

These impacts were partially offset by legal costs of $29 million for the third quarter and first nine months of 2021 related to settlements in connection with classification of independent contractors at our Intermodal Drayage business unit.

See Note 10—Legal and Regulatory Matters to the Condensed Consolidated Financial Statements for further information.

Depreciation and amortization expense for the third quarter of 2021 was $118 million, compared with $119 million for the same period in 2020.

Depreciation and amortization expense for the first nine months of 2021 was $357 million, compared with $351 million for the same period in 2020.

Transaction and integration costs for the third quarter of 2021 were $15 million, compared with $— million for the same period in 2020.

Transaction and integration costs for the first nine months of 2021 were $26 million, compared with $66 million for the same period in 2020.

Transaction and integration costs for the third quarter and first nine months of 2021 are primarily related to the spin-off of the Logistics segment.

Transaction and integration costs for the first nine months of 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

Restructuring costs for the third quarter of 2021 were $14 million, compared with $— million for the same period in 2020.

Restructuring costs for the first nine months of 2021 were $16 million, compared with $31 million for the same period in 2020.

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with our spin-off and in response to COVID-19.

For more information, see Note 5—Restructuring Charges to the Condensed Consolidated Financial Statements.

Upon successful completion of the restructuring initiatives recorded in the first nine months of 2021, we expect to achieve annualized pre-tax run-rate savings of approximately $20 million by mid-2022.

SG&A for the first quarter of 2022 was $344 million, or 9.9% of revenue, compared with $338 million, or 11.3% of revenue, for the same quarter in 2021.

The year-over-year decrease as a percentage of revenue was primarily driven by lower compensation expense and third-party professional and consulting fees.

Depreciation and amortization expense for the first quarter of 2022 was $116 million, compared with $119 million for the same quarter in 2021.

Gain on sale of business was $450 million, net of transaction costs, for the first quarter of 2022 as we sold our North American intermodal operation.

For more information, see Note 3—Divestiture to our Condensed Consolidated Financial Statements.

Transaction and integration costs for the first quarter of 2022 were $10 million, compared with $5 million for the same quarter in 2021.

Transaction and integration costs for the first three months of 2022 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-offs and other disposal activities, as well as retention awards paid to certain employees.

Restructuring costs for the first quarter of 2022 were $6 million, compared with $1 million for the same quarter in 2021.

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and other disposal activities.

For more information, see Note 6—Restructuring Charges to our Condensed Consolidated Financial Statements.

We may incur incremental restructuring costs in 2022 in connection with the planned spin-off of our North American brokered transportation operation or for other reasons;

however, we are currently unable to reasonably estimate these costs.

Other income primarily consists of pension income.

Other income for the third quarter of 2021 was $15 million, compared with $12 million for the same period in 2020.

Other income for the first nine months of 2021 was $43 million, compared with $31 million for the same period in 2020.

The year-over-year increase primarily reflects higher net periodic pension income in the third quarter and first nine months of 2021, compared with the same periods in 2020.

Foreign currency (gain) loss was a $4 million gain for the third quarter of 2021, compared with a $1 million loss for the same period in 2020.

Foreign currency (gain) loss was a $2 million gain for the first nine months of 2021, compared with a $5 million gain for the same period in 2020.

Foreign currency gain in the third quarter and first nine months of 2021 primarily reflected a realized gain on de-designated cross-currency contract.

Foreign currency loss in the third quarter of 2020 primarily reflected realized losses on foreign currency option and forward contracts.

Foreign currency gain in the first nine months of 2020 primarily reflected realized gains on foreign currency option and forward contracts and other derivative contracts, including a gain on a terminated net investment hedge.

additional information on our foreign currency option and forward contracts, see Note 6—Derivative Instruments to our Condensed Consolidated Financial Statements.

Debt extinguishment loss was $46 million for the third quarter of 2021 and $54 million for the first nine months of 2021.

In the third quarter of 2021, we redeemed our outstanding senior notes due 2023 and 2024 and wrote-off related debt issuance costs, as well as incurred a pre-payment penalty.

Additionally, in the first quarter of 2021, we redeemed our outstanding senior notes due 2022 and wrote-off related debt issuance costs, as well as incurred costs related to the amendment of our term loan credit agreement.

There were no debt extinguishment losses in the third quarter or the first nine months of 2020.

Interest expense decreased to $53 million for the third quarter of 2021 from $81 million for the third quarter of 2020.

Interest expense decreased to $176 million for the first nine months of 2021 from $226 million for the first nine months of 2020.

The declines in interest expense reflected the lower average debt balances, including the redemption of our senior notes due 2022 and amendment of our term loan agreement both in the first quarter of 2021, and the redemption of our senior notes due 2023 and 2024 in the third quarter of 2021.

Our effective income tax rates were 33.5% and 45.5% for the third quarter of 2021 and 2020, respectively, and 23.1% and 31.3% for the first nine months of 2021 and 2020, respectively.

The effective tax rates for the third quarter and nine-month periods of 2021 and 2020 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The reduction in our effective income tax rate for the third quarter and first nine months of 2021 compared to the same periods in 2020 was primarily driven by reduced contribution and margin-based taxes coupled with increased pre-tax book income and the impact of discrete items.

In the third quarter and first nine months of 2021, discrete tax benefits of $45 million related to a tax planning initiative that resulted in the recognition of a long-term capital loss were partially offset by discrete tax expenses of $41 million related to valuation allowances, of which $34 million were transferred to GXO.

Additionally, impacting the nine-month period was a discrete tax benefit of $8 million resulting from changes in reserves for uncertain tax positions.

There were no material discrete items impacting the effective tax rate for the third quarter and first nine months of 2020.

Other income for the first quarter of 2022 was $14 million, compared with $16 million for the same quarter in 2021.

Debt extinguishment loss was $8 million for the first quarter of 2021 and related to the write-off of debt issuance costs for the redemption of our outstanding senior notes due 2022, as well as costs incurred related to the amendment of our term loan credit agreement.

There was no debt extinguishment loss in the first quarter of 2022.

Interest expense decreased to $37 million for the first three months of 2022 from $65 million for the first three months of 2021.

The decrease in interest expense reflected lower average total indebtedness in the first quarter of 2022.

Our effective income tax rates were 18.8% and 23.0% for the first three months of 2022 and 2021, respectively.

The effective tax rates for the first quarter of 2022 and 2021 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The primary items impacting the effective tax rate for the first three months of 2022 compared to the same quarter in 2021 included a tax expense of $78 million from the sale of our North American intermodal operation, which resulted in a reduction to our effective tax rate due to the book gain exceeding the tax gain, as well as a tax benefit of $2 million from stock-based compensation.

The primary item impacting the effective tax rate for the first quarter of 2021 was a tax benefit of $3 million from stock-based compensation.

Segment Financial Results

Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

Our CODM evaluates segment profit based on adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as income from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, gain on sale of business, transaction and integration costs, restructuring costs and other adjustments.

See Note 4—Segment Reporting for further information and a reconciliation of adjusted EBITDA to Income from continuing operations.

North American Less-Than-Truckload Segment

Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change

Three Months Ended March 31, Percent of Revenue Change

(Dollars in millions) 2022 2021 2022 2021 2022 vs.

2020 2021 2020 2021 2020 2021 vs.

Revenue $ 1,105 $ 962 100.0 % 100.0 % 14.9 %

Adjusted EBITDA 205 214 18.5 % 22.2 % (4.2) %

Depreciation and amortization 57 55 3.6 % 169 169 — %

Revenue in our North American LTL segment increased 14.8% to $1.1 billion for the third quarter of 2021, compared with $933 million for the same quarter in 2020.

Revenue increased 18.7% to $3.1 billion for the first nine months of 2021, compared with $2.6 billion for the same period in 2020.

Revenue included fuel surcharge revenue of $167 million and $108 million, respectively, for the third quarters of 2021 and 2020, and $466 million and $323 million, respectively, for the first nine months of 2021 and 2020.

Depreciation and amortization expense 55 55 5.0 % 5.7 % — %

Revenue in our North American LTL segment increased 14.9% to $1.1 billion for the first quarter of 2022, compared with $962 million for the same quarter in 2021.

Revenue included fuel surcharge revenue of $207 million and $135 million, respectively, for the first three months of 2022 and 2021.

We evaluate the revenue performance of our LTL business using several commonly used metrics, including volume (weight per day in pounds) and yield, which is a commonly used measure of LTL pricing trends.

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The following table summarizes our key revenue metrics:

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Change % 2021 2020 Change %

Three Months Ended March 31,

2022 2021 Change %

Pounds per day (thousands) 70,176 70,730 (0.8) %

Gross revenue per hundredweight, excluding fuel surcharges $ 20.76 $ 19.11 8.7 %

The year-over-year increases in revenue for both the third quarter and first nine months of 2021 reflect an increase in average weight per day and gross revenue per hundredweight.

The increase in weight per day for the third quarter reflects higher weight per shipment.

The increase in weight per day for the first nine months of 2021 reflects higher shipments per day and weight per shipment.

Adjusted EBITDA was $222 million, or 20.8% of revenue, for the third quarter of 2021, compared with $238 million, or 25.3% of revenue, for the same quarter in 2020.

Adjusted EBITDA was $694 million, or 22.3% of revenue, for the first nine months of 2021, compared with $562 million, or 21.4% of revenue, for the same period in 2020.

Adjusted EBITDA for 2021 included significantly lower year-over-year gains from LTL real estate transactions, including a $5 million gain in the third quarter of 2021, compared with $26 million in 2020;

and a $27 million gain in the first nine months of 2021, compared with $63 million in 2020.

Adjusted EBITDA in the third quarter of 2021 also reflects higher revenue and lower COVID-19-related expenses, partially offset by increased compensation costs and purchased transportation expense incurred to meet growing demand.

The year-over-year increase in revenue for the first quarter of 2022 reflects an increase in gross revenue per hundredweight.

The decrease in weight per day for the first quarter reflects lower shipments per day, partially offset by higher weight per shipment.

Adjusted EBITDA was $205 million, or 18.5% of revenue, for the first three months of 2022, compared with $214 million, or 22.2% of revenue, for the same quarter in 2021.

Adjusted EBITDA for the first quarter of 2021 included $17 million of gains from real estate transactions.

There were no gains from real estate transactions in the first quarter of 2022.

Additionally, adjusted EBITDA in the first quarter of 2022 reflected higher revenue, partially offset by increased compensation costs, purchased transportation expense and fuel costs incurred to meet growing demand.

Brokerage and Other Services Segment

Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change

Three Months Ended March 31, Percent of Revenue Change

(Dollars in millions) 2022 2021 2022 2021 2022 vs.

2020 2021 2020 2021 2020 2021 vs.

Revenue $ 2,432 $ 2,071 100.0 % 100.0 % 17.4 %

Adjusted EBITDA 164 125 6.7 % 6.1 % 31.2 %

Depreciation and amortization 60 59 1.7 % 180 168 7.1 %

Revenue in our Brokerage and Other Services segment increased 27.2% to $2.3 billion for the third quarter of 2021, compared with $1.8 billion for the same quarter in 2020.

Revenue increased 37.0% to $6.5 billion for the first nine months of 2021, compared with $4.7 billion for the same period in 2020.

The year-over-year revenue increases for the third quarter and first nine months of 2021 reflect an increase in North American truck brokerage loads per day and improved pricing across segment services, enhanced by our digital platform, as well as improving market conditions in the economic recovery from the COVID-19 pandemic.

These gains were partially offset by the impact of the global semiconductor shortage, which constrained customer demand for freight transportation services in North America and Europe, and by a truck driver shortage in the U.K.

and North America.

Adjusted EBITDA was $131 million, or 5.8% of revenue, for the third quarter of 2021, compared with $90 million, or 5.1% of revenue, for the same quarter of 2020.

Adjusted EBITDA was $386 million, or 5.9% of revenue, for the first nine months of 2021, compared with $159 million, or 3.4% of revenue, for the same period in 2020.

The increases were primarily driven by higher revenue due to load growth and improved pricing, partially offset by higher compensation and facilities costs.

Depreciation and amortization expense 60 60 2.5 % 2.9 % — %

Revenue in our Brokerage and Other Services segment increased 17.4% to $2.4 billion for the first quarter of 2022, compared with $2.1 billion for the same quarter in 2021.

The year-over-year revenue increase for the first three

months of 2022 primarily reflected an increase in North American truck brokerage loads, facilitated by our digital platform, as well as strength in other services.

Foreign currency movement reduced revenue by approximately 1.7 percentage points in the first quarter of 2022.

Adjusted EBITDA was $164 million, or 6.7% of revenue, for the first three months of 2022, compared with $125 million, or 6.1% of revenue, for the same quarter in 2021.

The increase was primarily driven by higher revenue due to load growth in North American truck brokerage and strong pricing in other brokerage services, partially offset by higher third-party transportation and compensation costs.

Liquidity and Capital Resources

As of September 30, 2021, we had cash and cash equivalents of $254 million.

Our cash and cash equivalents balance was $1.0 billion as of March 31, 2022, compared to $260 million as of December 31, 2021.

Our principal existing sources of cash are (i) cash generated from operations;

(ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”);

and (iii) proceeds from the issuance of other debt.

As of September 30, 2021, we have $993 million available to draw under our ABL Facility, based on a borrowing base of $1.0 billion and outstanding letters of credit of $7 million.

Additionally, under our Senior Secured Term Loan Credit Agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $198 million in aggregate face amount of letters of credit as of September 30, 2021.

In July 2021, we amended our existing ABL facility which matures in April 2024 to reduce the commitments from $1.1 billion to $1.0 billion.

There were no other significant changes made to the terms of the facility, including the maturity date, the interest rate margin, and financial covenants.

(iii) proceeds from the issuance of other debt;

and (iv) proceeds from divestiture activities.

As of March 31, 2022, we have $996 million available to draw under our ABL Facility, based on a borrowing base of $1.0 billion and outstanding letters of credit of $4 million.

Additionally, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $185 million in aggregate face amount of letters of credit as of March 31, 2022.

As of March 31, 2022, we had approximately $2.0 billion of total liquidity.

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

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We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements.

We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

We also sell trade accounts receivable under a securitization program described below.

We also sell trade accounts receivable under our securitization program.

We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

Our European business participates in a trade receivables securitization program co-arranged by two European banks (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries in the United Kingdom and France to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.

The program expires in July 2024.

We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred.

For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer.

The fair value of any servicing assets and liabilities is immaterial.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets.

We had no such borrowings outstanding as of September 30, 2021 and €20 million ($24 million) as of December 31, 2020.

The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $232 million as of September 30, 2021).

Prior to July 2021, when the securitization program was amended in connection with the spin-off, the maximum amount available was €400 million.

As of September 30, 2021, €19 million (approximately $22 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously purchased.

For more information, see Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements.

The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $221 million as of March 31, 2022).

As of March 31, 2022, €1 million (approximately $1 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously purchased.

Under the program, we service the receivables we sell on behalf of the Purchasers, which gives us visibility into the timing of customer payments.

The benefit to our cash flow includes the difference between the cash consideration in the table below and the amount we collected as a servicer on behalf of the Purchasers.

In the first nine months of 2021 and 2020, we collected cash as servicer of $1.2 billion and $1.0 billion, respectively.

Information related to the trade receivables sold was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

Securitization programs

Receivables sold in period

$ 504 $ 355 $ 1,259 $ 1,008

Cash consideration

504 355 1,259 1,008

Factoring programs

Receivables sold in period

$ 17 $ 17 $ 46 $ 58

Cash consideration

In the first three months of 2022 and 2021, we collected cash as servicer of $464 million and $341 million, respectively.

Term Loan Facilities

In the first quarter of 2021, we amended the Term Loan Credit Agreement to consolidate our tranches and lower the interest rate.

The applicable terms of the Term Loan Credit Agreement are as follows:

December 31, 2020

(In millions) September 30, 2021 First Tranche Second Tranche

Principal balance $ 2,003 $ 1,503 $ 500

Interest spread:

Base rate loans 0.75 % 1.00 % 1.50 %

LIBOR loans 1.75 % 2.00 % 2.50 %

Maturity date February 2025 February 2025 February 2025

We recorded a debt extinguishment loss of $3 million in the first nine months of 2021 due to this amendment.

Senior Notes Due 2023 and 2024

In the third quarter of 2021, we redeemed our outstanding 6.125% senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75% senior notes due 2024 (“Senior Notes due 2024”).

The redemption price for the Senior Notes due 2023 was 100.0% of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375% of the principle amount, plus accrued and unpaid interest.

We paid for the redemption using cash received from GXO of approximately $794 million, proceeds from an equity offering described in Note 8—Stockholders’ Equity and available cash.

We recorded debt extinguishment losses in the third quarter of 2021 of $3 million and $43 million related to the redemption of the Senior Notes due 2023 and Senior Notes due 2024, respectively.

In the first quarter of 2021, we amended our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) and recorded a debt extinguishment loss of $3 million.

Senior Notes Due 2025

In March 2022, we provided notice to redeem $630 million (“Redeemed Notes”) of the $1.15 billion principal amount of our outstanding 6.25% senior notes due 2025.

The redemption price for the Redeemed Notes was 100% of the principal amount plus a premium as defined in the indenture and accrued and unpaid interest.

In April 2022, we completed the redemption of the Redeemed Notes using available liquidity.

The loss on debt extinguishment of approximately $26 million will be reflected in the second quarter of 2022 results of operations.

Senior Notes Due 2022

In January 2021, we redeemed our outstanding 6.50% senior notes due 2022.

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We paid for the redemption with available cash.

We recorded a debt extinguishment loss of $5 million in the first nine months of 2021 due to this redemption.

Senior Notes Due 2025

In the second quarter of 2020, we completed private placements of $1.15 billion aggregate principal amount of senior notes due 2025.

Net proceeds from the notes were initially invested in cash and cash equivalents and were subsequently used to redeem our outstanding senior notes due 2022 in January 2021.

Share Issuance

In July 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s chairman and Chief Executive Officer.

The additional 750,000 purchased shares were also split equally between us and JPE.

We received approximately $384 million of proceeds, net of fees and expenses, from the sale of the shares and used them to repay a portion of our outstanding borrowings and for general corporate purposes.

XPO did not receive any proceeds from the sale of shares by JPE.

We recorded a debt extinguishment loss of $5 million in the first quarter of 2021 due to this redemption.

Preferred Stock and Warrant Exchanges

In December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and a lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions) their holdings, including JPE, for a number of shares of our common stock equal to the number of shares of common

stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

With respect to the preferred stock, through December 31, 2020, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $22 million of cash.

With respect to the warrants, through December 31, 2020, 0.3 million warrants were exchanged, and we issued 0.3 million shares of common stock.

In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock.

In the second quarter of 2021, the remaining 40 preferred shares were exchanged, and we issued 5,714 shares of common stock.

With respect to the warrants, in the first quarter of 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.

Commencing in the fourth quarter of 2020, holders of our convertible preferred stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash.

These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment.

As of September 30, 2021, there were no shares of preferred stock or warrants outstanding.

In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock and 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.

Share Repurchases

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We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.

In the first quarter of 2020, we purchased and retired 2 million shares at an aggregate value of $114 million.

The share purchases were funded by our available cash and proceeds from our 2019 debt offerings.

There have been no share repurchases since the first quarter of 2020.

Our remaining share repurchase authorization was $503 million as of September 30, 2021.

Our remaining share repurchase authorization was $503 million as of March 31, 2022.

Loan Covenants and Compliance

As of September 30, 2021, we were in compliance with the covenants and other provisions of our debt agreements.

As of March 31, 2022, we were in compliance with the covenants and other provisions of our debt agreements.

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

Sources and Uses of Cash

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) 2022 2021

Net cash provided by operating activities from continuing operations $ 200 $ 77

Net cash used in investing activities from continuing operations (143) (78)

Net cash provided by (used in) financing activities from continuing operations (1,880) 1,195

During the nine months ended September 30, 2021, we:

(i) generated cash from operating activities from continuing operations of $558 million;

(ii) generated proceeds from sales of property and equipment of $72 million;

(iii) received a distribution from GXO of $794 million;

and (iv) generated proceeds of $384 million from the issuance of common stock.

Net cash provided by (used in) investing activities from continuing operations 571 (38)

Net cash used in financing activities from continuing operations (24) (1,464)

During the three months ended March 31, 2022, we:

(i) generated cash from operating activities from continuing operations of $200 million and (ii) generated net proceeds from sale of a business of $705 million.

We used cash during this period primarily to purchase property and equipment of $137 million.

During the three months ended March 31, 2021, we:

(i) generated cash from operating activities from continuing operations of $77 million and (ii) generated proceeds from sales of property and equipment of $36 million.

We used cash during this period primarily to:

(i) purchase property and equipment of $74 million;

(ii) redeem our senior notes due 2022, 2023 and 2024 for $2.8 billion;

(ii) redeem our senior notes due 2022 for $1.2 billion;

and (iii) repay our ABL Facility borrowings of $200 million.

During the nine months ended September 30, 2020, we:

(i) generated cash from operating activities from continuing operations of $292 million;

(ii) generated proceeds from sales of property and equipment (primarily real estate) of $137 million;

and (iii) received net proceeds of $1.4 billion from our issuances of debt and short-term borrowings.

We used cash during this period primarily to:

(i) purchase property and equipment of $220 million;

and (ii) repurchase common stock of $114 million.

Cash flows from operating activities from continuing operations for the nine months ended September 30, 2021 increased by $266 million, compared with the same period in 2020.

The increase reflects higher income from continuing operations of $276 million for the nine months ended September 30, 2021, compared with the same period in 2020, partially offset by a greater use of cash for working capital in the first nine months of 2021 than in

the prior-year period.

Additionally, cash paid for taxes was $71 million higher in the nine months ended September 30, 2021, compared with the same period in 2020.

Investing activities from continuing operations used $143 million and $78 million of cash in the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, we used $212 million of cash to purchase property and equipment and received $72 million from sales of property and equipment.

During the nine months ended September 30, 2020, we used $220 million of cash to purchase property and equipment and received $137 million from sales of property and equipment.

Financing activities from continuing operations used $1.9 billion of cash in the nine months ended September 30, 2021 and generated $1.2 billion of cash in the nine months ended September 30, 2020.

The primary uses of cash from financing activities during the first nine months of 2021 were $2.8 billion used to redeem the senior notes due 2022, 2023 and 2024 and $200 million used to repay borrowings under our ABL Facility.

The primary sources of cash from financing activities during the first nine months of 2021 were $794 million of proceeds from a distribution from GXO and $384 million of net proceeds from our common offering.

In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $794 million.

The primary sources and uses of cash from financing activities during the nine months ended September 30, 2020 were $1.1 billion of net proceeds from the issuance of senior notes due 2025;

$200 million of proceeds from borrowings on our ABL Facility, net of payments, partially offset by $114 million used to purchase XPO common stock and $50 million used to repay debt and finance leases.

Contractual Obligations

After completion of the spin, GXO’s borrowing arrangements and obligations under their finance and operating leases were no longer part of our contractual obligations.

Additionally, as described in more detail above, we redeemed our Senior Notes 2023 and Senior Notes 2024 in the third quarter of 2021.

We anticipate full year net capital expenditures to be between $250 million and $275 million in 2021.

Cash flows from operating activities from continuing operations for the three months ended March 31, 2022 increased by $123 million, compared with the same period in 2021.

The increase reflects higher income from continuing operations of $426 million for the three months ended March 31, 2022, compared with the same period in 2021, and the impact of operating assets and liabilities providing $36 million of cash in the first three months of 2022, compared to utilizing $112 million during the same period in 2021.

Partially offsetting these impacts was a $450 million gain on sale of business recognized during the three months ended March 31, 2022.

Within operating assets and liabilities, accounts payable generated $332 million more cash while accounts receivable utilized $207 million more cash in the first quarter of 2022 compared to the same period in 2021 as a result of higher revenues and timing of payments.

Investing activities from continuing operations generated $571 million of cash in the three months ended March 31, 2022 and used $38 million of cash in the three months ended March 31, 2021.

During the three months ended March 31, 2022, we received $705 million of cash from the sale of our intermodal operation, net of cash disposed, and used $137 million to purchase property and equipment.

During the three months ended March 31, 2021, we used

$74 million of cash to purchase property and equipment and received $36 million from sales of property and equipment.

Financing activities from continuing operations used $24 million of cash in the three months ended March 31, 2022 and $1.5 billion of cash in the three months ended March 31, 2021.

The primary uses of cash from financing activities during the first three months of 2022 were $16 million used to repay borrowings.

The primary uses of cash from financing activities during the three months ended March 31, 2021 were $1.2 billion used to redeem the senior notes due 2022 and $200 million used to repay borrowings under our ABL Facility.

Except for the notice of our intent to redeem a portion of our senior notes due 2025 as described above, there were no material changes to our December 31, 2021 contractual obligations during the three months ended March 31, 2022.

We anticipate full year net capital expenditures to be between $425 million and $475 million in 2022 (without giving effect to the planned spin-off and other dispositions).

New Accounting Standards

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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