What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-04 · 171 added, 115 removed, 127 unchanged (69% of the section changed)

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These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual future results, levels of activity, performance or achievements to be materially different from our expected future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.

The following discussion should be read in conjunction with the Company’s unaudited Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report, and with the audited consolidated financial statements and related notes thereto included in the 2022 Form 10-K.

Forward-looking statements set forth in this Quarterly Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law.

The following discussion should be read in conjunction with the Company’s unaudited Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with the audited consolidated financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

Forward-looking statements set forth in this Quarterly Report on Form 10-Q speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law.

Executive Summary

XPO, Inc., together with its subsidiaries (“XPO,” or “we”), is a leading provider of freight transportation services with company-specific avenues for value creation.

XPO, Inc., together with its subsidiaries (“XPO,” “we” or the “Company”), is a leading provider of freight transportation services with company-specific avenues for value creation.

We use our proprietary technology to move goods efficiently through our customers’ supply chains in North America and Europe.

As of March 31, 2023, we had approximately 38,000 employees and 558 locations in 17 countries serving approximately 48,000 customers.

As of June 30, 2023, we had approximately 37,000 employees and 562 locations in 17 countries serving approximately 49,000 customers.

Our company has two reportable segments:

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We have recast prior period amounts to conform to the current year’s presentation.

We provided certain unaudited recast financial information for fiscal years 2020, 2021 and 2022 in a Form 8-K filed with the U.S.

Securities and Exchange Commission on April 11, 2023.

North American Less-Than-Truckload Segment

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market as of December 31, 2022.

One of our LTL competitors recently ceased operations.

The impact of this development on our operations and financial performance is uncertain and difficult to predict.

We believe it could have both positive and challenging effects on our business, operations, and future financial performance.

It is uncertain how the freight volume and

customers that had been handled and served by this competitor will be absorbed by the remaining market participants.

Our LTL sales and service professionals and network of drivers, tractors, trailers and terminals serve approximately 29,000 customers in North America.

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Together, our capacity and reach give us the ability to manage large freight volumes efficiently and balance our network to leverage fixed costs.

For the trailing 12 months ended March 31, 2023, we delivered approximately 18 billion pounds of freight.

For the trailing 12 months ended June 30, 2023, we delivered approximately 18 billion pounds of freight.

Importantly, our LTL business historically has generated a high return on invested capital and robust free cash flow.

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An LTL network of our scale has hundreds of thousands of activities underway at any given time, all managed on our technology.

For the trailing 12 months ended March 31, 2023, we moved 18 billion pounds of freight 773 million miles, including moving linehaul freight an average of 2.5 million miles a day.

For the trailing 12 months ended June 30, 2023, we moved 18 billion pounds of freight 778 million miles, including moving linehaul freight an average of 2.5 million miles a day.

With intelligent route-building, we can reduce empty miles in our linehaul network, improve load factor and mitigate cargo damage.

Our proprietary bypass models make recommendations to enhance trailer utilization, assimilating massive amounts of data and taking volume, density, and freight dimensions into account.

We use our visualization tools to reduce costs with pickups and deliveries, and we developed piece-level tracking to identify individual pallets to enhance shipment loading and visibility.

We use our visualization tools to reduce costs with pickups and deliveries, and we developed piece-level tracking to identify

individual pallets to enhance shipment loading and visibility.

We also developed a robust pricing platform for contractual account management and automated, dynamic pricing for local accounts.

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For a detailed discussion of our philosophy relating to innovation and ESG matters, see the Company Overview included in our 2022 Form 10-K, as well as our current Sustainability Report at sustainability.xpo.com .

Impacts of 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 virus that emerged in 2020 affected economic activity broadly and customer sectors served by our industry.

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

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, or whether future challenges, if any, will adversely affect our results of operations.

Additionally, economic inflation can have a negative impact on our operating costs, such as the rising costs of fleet maintenance, fuel and purchased transportation we experienced in 2022.

We mitigate these costs by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases.

In addition, the rise in interest rates increased our cost of capital in 2022.

An economic recession could depress customer demand for transportation services.

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 March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2023

2023 2022 2023 vs.

Revenue $ 1,917 $ 2,047 100.0 % 100.0 % (6.4) % $ 3,824 $ 3,941 100.0 % 100.0 % (3.0) %

Salaries, wages and employee benefits 762 725 40.0 % 38.3 % 5.1 %

Salaries, wages and employee

783 752 40.8 % 36.7 % 4.1 % 1,545 1,477 40.4 % 37.5 % 4.6 %

Purchased transportation 444 525 23.2 % 25.6 % (15.4) % 901 1,035 23.6 % 26.3 % (12.9) %

Fuel, operating expenses and supplies 427 418 22.4 % 22.1 % 2.2 %

Fuel, operating expenses and

390 434 20.3 % 21.2 % (10.1) % 817 852 21.4 % 21.6 % (4.1) %

Operating taxes and licenses 15 13 0.8 % 0.6 % 15.4 % 30 29 0.8 % 0.7 % 3.4 %

Insurance and claims 46 48 2.4 % 2.3 % (4.2) % 90 104 2.4 % 2.6 % (13.5) %

Gains on sales of property and equipment (3) (1) (0.2) % (0.1) % 200.0 %

Depreciation and amortization expense 101 94 5.3 % 5.0 % 7.4 %

Transaction and integration costs 22 7 1.2 % 0.4 % 214.3 %

Gains on sales of property

and equipment

(2) (1) (0.1) % — % 100.0 % (5) (2) (0.1) % (0.1) % 150.0 %

Depreciation and

amortization expense

107 96 5.6 % 4.7 % 11.5 % 208 190 5.4 % 4.8 % 9.5 %

Transaction and integration

17 7 0.9 % 0.3 % 142.9 % 39 14 1.0 % 0.4 % 178.6 %

Restructuring costs 10 2 0.5 % 0.1 % 400.0 % 34 8 0.9 % 0.2 % 325.0 %

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Other income (3) (13) (0.2) % (0.6) % (76.9) % (8) (27) (0.2) % (0.7) % (70.4) %

Interest expense 42 37 2.2 % 2.0 % 13.5 %

Income from continuing operations

before income tax provision

Debt extinguishment

23 26 1.2 % 1.3 % (11.5) % 23 26 0.6 % 0.7 % (11.5) %

Interest expense 43 31 2.2 % 1.5 % 38.7 % 85 68 2.2 % 1.7 % 25.0 %

Income from continuing

operations before income tax provision 44 127 2.3 % 6.2 % (65.4) % 65 167 1.7 % 4.2 % (61.1) %

Income tax provision 13 31 0.7 % 1.5 % (58.1) % 17 39 0.4 % 1.0 % (56.4) %

Income from continuing operations 17 32 0.9 % 1.7 % (46.9) %

Income (loss) from discontinued

operations, net of taxes

(3) 456 (0.2) % 24.1 % (100.7) %

Income from continuing

operations 31 96 1.6 % 4.7 % (67.7) % 48 128 1.3 % 3.2 % (62.5) %

Income (loss) from

discontinued operations, net of taxes 2 45 0.1 % 2.2 % (95.6) % (1) 501 — % 12.7 % (100.2) %

Net income $ 33 $ 141 1.7 % 6.9 % (76.6) % $ 47 $ 629 1.2 % 16.0 % (92.5) %

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

Our consolidated revenue for the first quarter of 2023 increased 0.7% to $1.9 billion, compared with the same quarter in 2022.

The increase reflects growth in fuel surcharge revenue in our LTL segment, due primarily to higher diesel prices.

Foreign currency movement decreased revenue by approximately 2.5 percentage points in the first quarter of 2023.

Three and Six Months Ended June 30, 2023 Compared with Three and Six Months Ended June 30, 2022

Our consolidated revenue for the second quarter of 2023 decreased 6.4% to $1.9 billion, compared with the same quarter in 2022.

Our consolidated revenue for the first six months of 2023 decreased 3.0% to $3.8 billion, compared with the same period in 2022.

The decrease in both periods reflects a decline in fuel surcharge revenue, due primarily to lower diesel prices.

Foreign currency movement increased revenue by approximately 0.6 percentage points in the second quarter of 2023 and decreased revenue by approximately 0.9 percentage points in the first six months of 2023.

Salaries, wages and employee benefits includes compensation-related costs for our employees, including salaries, wages, healthcare-related costs and payroll taxes, and covers drivers and dockworkers, operations and facility workers and employees in support roles and other positions.

Salaries, wages and employee benefits for the first quarter of 2023 was $762 million, or 40.0% of revenue, compared with $725 million, or 38.3% of revenue, for the same quarter in 2022.

The year-over-year increase as a percentage of revenue primarily reflects the impact of inflation on our cost base, partially offset by lower headcount.

Salaries, wages and employee benefits for the second quarter of 2023 was $783 million, or 40.8% of revenue, compared with $752 million, or 36.7% of revenue, for the same quarter in 2022.

Salaries, wages and employee benefits for the first six months of 2023 was $1.55 billion, or 40.4% of revenue, compared with $1.48 billion, or 37.5% of revenue, for the same period in 2022.

The year-over-year increase as a percentage of revenue in both periods primarily reflects the impact of inflation on our cost base and the insourcing of a greater proportion of linehaul from third-party transportation providers, partially offset by lower headcount during the second quarter of 2023.

Purchased transportation includes costs of procuring third-party freight transportation.

Purchased transportation for the first quarter of 2023 was $457 million, or 24.0% of revenue, compared with $510 million, or 26.9% of revenue, for the same quarter in 2022.

The year-over-year decrease as a percentage of revenue primarily reflects lower rates paid to third-party providers for purchased transportation miles and the insourcing of a greater proportion of linehaul from third-party transportation providers.

Purchased transportation for the second quarter of 2023 was $444 million, or 23.2% of revenue, compared with $525 million, or 25.6% of revenue, for the same quarter in 2022.

Purchased transportation for the first six months of 2023 was $901 million, or 23.6% of revenue, compared with $1.0 billion, or 26.3% of revenue, for the same period in 2022.

The year-over-year decrease as a percentage of revenue in both periods primarily reflects lower rates paid to third-party providers for purchased transportation miles and the insourcing of a greater proportion of linehaul from third-party transportation providers.

Fuel, operating expenses and supplies includes the cost of fuel purchased for use in our vehicles as well as related taxes, maintenance and lease costs for our equipment, including tractors and trailers, costs related to operating our owned and leased facilities, bad debt expense, third-party professional fees, information technology expenses and supplies expense.

Fuel, operating expenses and supplies for the first quarter of 2023 was $427 million, or 22.4% of revenue, compared with $418 million, or 22.1% of revenue, for the same quarter in 2022.

The year-over-year increase primarily reflects higher lease costs and bad debt expense, partially offset by lower third-party information technology expenses.

Fuel, operating expenses and supplies for the second quarter of 2023 was $390 million, or 20.3% of revenue, compared with $434 million, or 21.2% of revenue, for the same quarter in 2022.

Fuel, operating expenses and supplies for the first six months of 2023 was $817 million, or 21.4% of revenue, compared with $852 million, or 21.6% of revenue, for the same period in 2022.

The year-over-year decrease in both periods primarily reflects lower fuel costs, partially offset by higher lease costs and bad debt expense.

Operating taxes and licenses includes tax expenses related to our vehicles and our owned and leased facilities as well as license expenses to operate our vehicles.

Operating taxes and licenses for the second quarter of 2023 was $15 million, compared with $13 million for the same quarter in 2022.

Operating taxes and licenses for the first six months of 2023 was $30 million, compared with $29 million for the same period in 2022.

Insurance and claims includes costs related to vehicular and cargo claims for both purchased insurance and self-insurance programs.

Insurance and claims for the first quarter of 2023 was $44 million, compared with $56 million for the same quarter in 2022.

The year-over-year decrease reflects lower cargo insurance expense due to improved operating performance related to damaged shipments.

Depreciation and amortization expense for the first quarter of 2023 was $101 million, compared with $94 million for the same quarter in 2022.

The year-over-year increase reflects the impact of capital investments, in particular tractors and trailers.

Transaction and integration costs for the first quarter of 2023 were $22 million, compared with $7 million for the same quarter in 2022.

Transaction and integration costs for the first quarter of 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives.

Transaction and integration costs for the first quarter of 2022 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees.

We expect to incur additional transaction and integration costs related to rebranding and stock-based compensation in 2023 and 2024.

Restructuring costs for the first quarter of 2023 were $24 million, compared with $6 million for the same quarter in 2022.

Insurance and claims for the second quarter of 2023 was $46 million, compared with $48 million for the same quarter in 2022.

Insurance and claims for the first six months of 2023 was $90 million, compared with $104 million for the same period in 2022.

The year-over-year decrease in both periods reflects lower cargo insurance expense due to improved operating performance related to damaged shipments.

Depreciation and amortization expense for the second quarter of 2023 was $107 million, compared with $96 million for the same quarter in 2022.

Depreciation and amortization expense for the first six months of 2023 was $208 million, compared with $190 million for the same period in 2022.

The year-over-year increase in both periods reflects the impact of capital investments, in particular tractors and trailers.

Transaction and integration costs for the second quarter of 2023 were $17 million, compared with $7 million for the same quarter in 2022.

Transaction and integration costs for the first six months of 2023 were $39 million, compared with $14 million for the same period in 2022.

Transaction and integration costs for the second quarter and first six months of 2023 are primarily comprised of stock-based compensation and retention awards for certain employees related to strategic initiatives.

Transaction and integration costs for the second quarter and first six months of 2022 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees.

We expect to incur additional transaction and integration costs related to stock-based compensation in 2023 and 2024.

Restructuring costs for the second quarter of 2023 were $10 million, compared with $2 million for the same quarter in 2022.

Restructuring costs for the first six months of 2023 were $34 million, compared with $8 million for the same period in 2022.

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 divestment activities.

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Other income primarily consists of pension income.

Other income for the first quarter of 2023 was $5 million, compared with $14 million for the same quarter in 2022.

The year-over-year decrease reflects $11 million of lower net periodic pension income in the first quarter of 2023 primarily due to a rise in interest rates and a lower expected return on plan assets.

Interest expense increased to $42 million for the first three months of 2023 from $37 million for the first three months of 2022.

The increase in interest expense is primarily due to a higher floating interest rate on our Term Loan Facilities, partially offset by the impact of the redemption of $1.1 billion of our 6.25% senior notes due 2025 in 2022.

Our effective income tax rates were 18.3% and 19.6% for the first three months of 2023 and 2022, respectively.

The effective tax rates for the first quarter of 2023 and 2022 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The decrease in our effective income tax rate for the first three months of 2023 compared to the same quarter of 2022 was primarily driven by an increased impact

from discrete items due to lower pre-tax book income.

The primary items impacting the effective tax rate for the first quarter of 2023 are $2 million of discrete tax benefits from revaluing deferred state taxes partially offset by forecasted non-deductible executive compensation expense.

The primary item impacting the effective tax rate for the first quarter of 2022 was a discrete tax benefit of $2 million from stock-based compensation.

Other income for the second quarter of 2023 was $3 million, compared with $13 million for the same quarter in 2022.

Other income for the first six months of 2023 was $8 million, compared with $27 million for the same period in 2022.

The year-over-year decrease in both periods reflects lower net periodic pension income in 2023 primarily due to a rise in interest rates and a lower expected return on plan assets.

Debt extinguishment loss was $23 million for the second quarter and first six months of 2023 and $26 million for the second quarter and first six months of 2022.

In the second quarter of 2023, we refinanced our Existing Term Loan Facility (as defined below) and wrote-off $12 million of debt issuance costs related to debt extinguished.

Additionally, we expensed $11 million of new debt issuance costs related to the portion of the New Term Loan Facility and Senior Notes (both as defined below) accounted for as a modification.

In the second quarter of 2022, we redeemed a portion of our outstanding 6.25% senior notes due 2025 (“Senior Notes due 2025”) and wrote-off related debt issuance costs.

Interest expense increased to $43 million for the second quarter of 2023 from $31 million for the second quarter of 2022.

Interest expense increased to $85 million for the first six months of 2023 from $68 million for the first six months of 2022.

The increase in both periods is primarily due to higher floating interest rates, partially offset by the impact of the redemption of $1.1 billion of our Senior Notes due 2025 in 2022.

Our effective income tax rates were 28.8% and 24.5% for the second quarter of 2023 and 2022, respectively, and 25.4% and 23.3% for the first six months of 2023 and 2022, respectively.

The effective tax rates for the second quarter and six-month periods of 2023 and 2022 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The increase in our effective income tax rate for the second quarter of 2023 compared to the same quarter of 2022 was primarily driven by forecasted non-deductible executive compensation expense, partially offset by a tax benefit of $1 million from return to provision adjustments.

The primary item impacting the effective tax rate for the second quarter of 2022 was a tax benefit of $1 million from stock-based compensation.

The increase in our effective income tax rate for the first six months of 2023 compared to the same period in 2022 was primarily driven by forecasted non-deductible executive compensation expense, partially offset by $2 million of discrete tax benefits from revaluing deferred state taxes.

The primary item impacting the effective tax rate for the first six months of 2022 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 (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income from continuing operations before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments.

Our CODM evaluates segment profit (loss) 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, transaction and integration costs, restructuring costs and other adjustments.

Segment Adjusted EBITDA has historically reflected an allocation of corporate costs.

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North American Less-Than-Truckload Segment

Three Months Ended March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2023 2022 2023 2022 2023 vs.

2022 2023 2022 2023 2022 2023 vs.

Revenue $ 1,136 $ 1,240 100.0 % 100.0 % (8.4) % $ 2,256 $ 2,347 100.0 % 100.0 % (3.9) %

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Depreciation and amortization 71 59 6.3 % 4.8 % 20.3 % 139 115 6.2 % 4.9 % 20.9 %

Revenue in our North American LTL segment increased 1.2% to $1.12 billion for the first quarter of 2023, compared with $1.11 billion for the same quarter in 2022.

Revenue included fuel surcharge revenue of $217 million and $207 million, respectively, for the first three months of 2023 and 2022.

The increase in fuel surcharge revenue primarily reflects higher diesel prices.

Revenue in our North American LTL segment decreased 8.4% to $1.14 billion for the second quarter of 2023, compared with $1.24 billion for the same quarter in 2022.

Revenue decreased 3.9% to $2.26 billion for the first six months of 2023, compared with $2.35 billion for the same period in 2022.

The decrease in revenue for both periods reflects a decline in fuel surcharge revenue, primarily driven by lower diesel prices.

Revenue included fuel surcharge revenue of $196 million and $291 million, respectively, for the second quarters of 2023 and 2022, and $413 million and $498 million, respectively, for the first six months of 2023 and 2022.

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.

We measure yield using gross revenue per hundredweight, excluding fuel surcharges.

Impacts on yield can include weight per shipment and length of haul, among other factors.

Impacts on yield can include weight per shipment and length of haul, among other factors, while impacts on volume can include shipments per day and weight per shipment.

The following table summarizes our key revenue metrics:

Three Months Ended March 31,

2023 2022 Change %

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 Change % 2023 2022 Change %

Pounds per day (thousands) 70,290 72,333 (2.8) % 69,587 71,250 (2.3) %

Gross revenue per hundredweight, excluding fuel surcharges $ 21.06 $ 20.76 1.4 %

The year-over-year increase in revenue, excluding fuel surcharge revenue, for the first quarter of 2023 reflects an increase in gross revenue per hundredweight, almost entirely offset by lower volume.

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

In the month of April 2023, as compared to April 2022, weight per day decreased 2.0% while shipments per day increased 3.1%.

Adjusted EBITDA was $182 million, or 16.3% of revenue, for the first three months of 2023, compared with $186 million, or 16.8% of revenue, for the same quarter in 2022.

The decrease in Adjusted EBITDA in the first quarter of 2023 reflected higher salaries, wages and employee benefits, primarily due to cost inflation and, to a lesser extent, higher headcount, $11 million of lower pension income and higher fuel costs and bad debt expense.

These items were almost entirely offset by lower purchased transportation, primarily due to lower rates paid to third-party providers for purchased transportation miles and the insourcing of a greater proportion of linehaul from third-party transportation providers.

Depreciation and amortization expense increased to $68 million in the first quarter of 2023 compared with $56 million for the same quarter in 2022 due to the impact of capital investments, in particular tractors and trailers.

Shipments per day 51,220 50,274 1.9 % 50,159 49,316 1.7 %

Average weight per shipment (in pounds) 1,372 1,439 (4.7) % 1,387 1,445 (4.0) %

Gross revenue per hundredweight, excluding

fuel surcharges

$ 21.63 $ 21.34 1.4 % $ 21.34 $ 21.05 1.4 %

The year-over-year decrease in revenue, excluding fuel surcharge revenue, for both the second quarter and first six months of 2023 reflects lower volume, primarily due to a soft industry environment for freight transportation, largely offset by an increase in gross revenue per hundredweight.

The decrease in volume per day for both the second quarter and first six months of 2023 reflects lower average weight per shipment, partially offset by higher shipments per day.

In the month of July 2023, as compared to July 2022, weight per day and shipments per day increased 4.2% and 8.8%, respectively, reflecting, in part, the impact of recent industry disruption.

Adjusted EBITDA was $208 million, or 18.3% of revenue, for the second quarter of 2023, compared with $274, or 22.1% of revenue, for the same quarter in 2022.

Adjusted EBITDA was $390 million, or 17.3% of revenue, for the first six months of 2023, compared with $460 million, or 19.6% of revenue, for the same period in 2022.

The decrease in Adjusted EBITDA in both the second quarter and first six months of 2023 reflected lower revenue, driven by the dynamics explained above, higher salaries, wages and employee benefits, primarily due to cost inflation, and to a lesser extent, lower pension income.

These items were partially offset by lower purchased transportation, primarily due to lower rates paid to third-party providers for purchased transportation miles and the insourcing of a greater proportion of linehaul from third-party transportation providers, and lower fuel costs, in addition to lower headcount during the second quarter of 2023.

Depreciation and amortization expense increased to $71 million in the second quarter of 2023 compared with $59 million for the same quarter in 2022.

Depreciation and amortization expense increased to $139 million in the first six months of 2023 compared with $115 million for the same period in 2022.

The increase in both the second quarter and first six months of 2023 was due to the impact of capital investments, in particular tractors and trailers.

European Transportation Segment

Three Months Ended March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2023 2022 2023 2022 2023 vs.

2022 2023 2022 2023 2022 2023 vs.

Revenue $ 781 $ 807 100.0 % 100.0 % (3.2) % $ 1,568 $ 1,594 100.0 % 100.0 % (1.6) %

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Depreciation and amortization 33 32 4.2 % 4.0 % 3.1 % 65 65 4.1 % 4.1 % — %

Revenue in our European Transportation segment was $787 million in each of the first quarters of 2023 and 2022.

Foreign currency movement decreased revenue by approximately 6.1 percentage points in the first quarter of 2023.

The increase in revenue compared to the first quarter of 2022, after taking into effect the impact of foreign currency movement, primarily reflects price increases to cover cost inflation as well as higher volume.

Adjusted EBITDA was $37 million, or 4.7% of revenue, for the first three months of 2023, compared with $38 million, or 4.9% of revenue, for the same quarter in 2022.

The decrease in Adjusted EBITDA was primarily driven by higher salaries, wages and employee benefits due to the impact of cost inflation and bonuses paid to certain French employees in connection with a government program (PPV:

Prime de Partage de la Valeur), almost entirely offset by lower purchased transportation and higher gains on sales of property and equipment.

Revenue in our European Transportation segment decreased 3.2% to $781 million for the second quarter of 2023, compared with $807 million for the same quarter in 2022.

Revenue decreased 1.6% to $1.57 billion for the first six months of 2023, compared with $1.59 billion for the same period in 2022.

Foreign currency movement increased revenue by approximately 1.5 percentage points in the second quarter of 2023 and decreased revenue by approximately 2.2 percentage points in the first six months of 2023.

The decrease in revenue for the second quarter of 2023 compared to 2022, after taking into effect the impact of foreign currency movement, primarily reflects a decline in fuel surcharge revenue due to lower diesel prices.

Revenue for the first six months of 2023 increased compared to 2022 after taking into effect the impact of foreign currency movement, primarily reflecting price increases to cover cost inflation as well as higher volume.

Adjusted EBITDA was $46 million, or 6.0% of revenue, for the second quarter of 2023, compared with $49 million, or 6.0% of revenue, for the same quarter in 2022.

Adjusted EBITDA was $83 million, or 5.3% of revenue, for the first six months of 2023, compared with $87 million, or 5.4% of revenue, for the same period in 2022.

The decrease in Adjusted EBITDA in both periods was primarily driven by lower fuel revenue, higher salaries, wages and employee benefits due to the impact of cost inflation, and higher lease costs.

These items were almost entirely offset by lower purchased transportation, fuel and temporary labor costs.

Liquidity and Capital Resources

Our cash and cash equivalents balance was $309 million as of March 31, 2023, compared to $460 million as of December 31, 2022.

Our cash and cash equivalents balance was $290 million as of June 30, 2023, compared to $460 million as of December 31, 2022.

Our principal existing sources of cash are:

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and (iv) proceeds from divestiture activities.

As of March 31, 2023, we have $502 million available to draw under our ABL Facility, based on a borrowing base of $502 million and outstanding letters of credit of less than $1 million.

Additionally, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we had issued $154 million in aggregate face amount of letters of credit as of March 31, 2023.

As of March 31, 2023, we had approximately $811 million of total liquidity.

As of June 30, 2023, we have $512 million available to draw under our ABL Facility, based on a borrowing base of $513 million and outstanding letters of credit of less than $1 million.

Additionally, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we had issued $141 million in aggregate face amount of letters of credit as of June 30, 2023.

In February 2023, we amended our existing ABL Facility.

See Note 7—Debt to our Condensed Consolidated Financial Statements for further information.

As of June 30, 2023, we had approximately $802 million of total liquidity.

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

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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 $217 million as of March 31, 2023).

As of March 31, 2023, the maximum amount available under the program was utilized.

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 $218 million as of June 30, 2023).

As of June 30, 2023, €5 million (approximately $5 million) was available under the program.

Under the securitization program, we service the receivables we sell on behalf of the purchasers.

In May 2023, we entered into an agreement to extend the securitization program, which was scheduled to expire in July 2024, through July 2026.

The terms and conditions of the extended securitization program are materially consistent with the prior program.

The program expires in July 2026.

Term Loan Facility

In 2015, we entered into a Term Loan Credit Agreement that provided for a single borrowing of $1.6 billion, which was subsequently amended to increase the principal balance to $2.0 billion and to extend the maturity date to February 2025 (the “Existing Term Loan Facility”).

In May 2023, we amended the Term Loan Credit Agreement to obtain $700 million of new term loans (the “New Term Loan Facility”) having substantially similar terms as the Existing Term Loan Facility, except with respect to maturity date, issue price, interest rate, prepayment premiums in connection with certain voluntary prepayments and certain other provisions.

The New Term Loan Facility was issued at 99.5% of the face amount and will mature on May 24, 2028.

The New Term Loan Facility will bear interest at a rate per annum equal to, at our option, either (a) a Term Secured Overnight Financing (“SOFR”) rate (subject to a 0.00% floor) or (b) a base rate (subject to a 0.00% floor), in each case, plus an applicable margin of 2.00% for Term SOFR loans or 1.00% for base rate loans.

The interest rate was 7.09% as of June 30, 2023.

In the second quarter of 2023, we used net proceeds from the New Term Loan Facility and new Senior Notes, as described below, together with cash on hand, to repay $2.0 billion of outstanding principal under the Existing Term Loan Facility and to pay related fees, expenses and accrued interest.

We recorded a debt extinguishment loss of $23 million in the second quarter of 2023.

Senior Notes Due 2028 and 2031

In May 2023, we completed private placements of $830 million aggregate principal amount of senior secured notes due 2028 (the “Senior Secured Notes due 2028”) and $450 million aggregate principal amount of senior notes due 2031 (the “Senior Notes due 2031” and together with the Senior Secured Notes due 2028, the “Senior Notes”).

The Senior Secured Notes due 2028 mature on June 1, 2028 and bear interest at a rate of 6.25% per annum.

The Senior Notes due 2031 mature on June 1, 2031 and bear interest at a rate of 7.125% per annum.

Interest on the Senior Notes is payable semi-annually in cash in arrears, commencing December 1, 2023.

The Senior Notes were issued at par and were used to repay our Existing Term Loan Facility as described above.

Senior Notes Due 2025

In the second quarter of 2022, we redeemed $630 million of the then $1.15 billion outstanding principal amount of our Senior Notes due 2025.

The redemption price for the notes was 100% of the principal amount plus a premium, as defined in the indenture, of approximately $21 million and accrued and unpaid interest.

We paid for the redemption using available liquidity.

We recorded a debt extinguishment loss of $26 million in the second quarter of 2022 due to this redemption.

In the fourth quarter of 2022, we repurchased an additional $408 million of the outstanding principal amount of our Senior Notes due 2025 in a cash tender offer.

Loan Covenants and Compliance

As of March 31, 2023, we were in compliance with the covenants and other provisions of our debt agreements.

As of June 30, 2023, 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

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2023 2022

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Net cash used in financing activities from continuing operations (36) (673)

During the three months ended March 31, 2023, we generated cash from operating activities from continuing operations of $76 million.

During the six months ended June 30, 2023, we:

(i) generated cash from operating activities from continuing operations of $207 million;

and (ii) received net proceeds of $2.0 billion from the issuance of debt.

We used cash during this period primarily to:

(i) purchase property and equipment of $355 million;

(ii) make payments on debt and finance leases of $16 million;

and (iii) make payments of $12 million related to tax withholding obligations in connection with the vesting of restricted shares.

During the three months ended March 31, 2022, we generated cash from operating activities from continuing operations of $188 million.

and (ii) repurchase our Existing Term Loan Facility for $2.0 billion.

During the six months ended June 30, 2022, we generated cash from operating activities from continuing operations of $357 million.

We used cash during this period primarily to:

(i) purchase property and equipment of $242 million;

(ii) make payments on debt and finance leases of $16 million;

and (iii) make payments of $12 million related to tax withholding obligations in connection with the vesting of restricted shares.

Cash flows from operating activities from continuing operations for the three months ended March 31, 2023 decreased by $112 million, compared with the same period in 2022.

The decrease reflects the impact of operating assets and liabilities utilizing $79 million of cash in the three months ended March 31, 2023, compared with generating $42 million of cash during the same period in 2022.

Within operating assets and liabilities, for the three months ended March 31, 2023, compared with the same period in 2022:

(i) accounts payable utilized $125 million more cash primarily due to the timing of payments;

and (ii) accrued expenses and other liabilities generated $94 million less cash primarily due to the accrual of a tax obligation related to the sale of our intermodal operation in the first quarter of 2022.

Partially offsetting these items, accounts receivable utilized $85 million less cash in the first quarter of 2023 as compared to the first quarter of 2022 primarily as a result of a lower sequential increase in revenues.

Investing activities from continuing operations used $216 million of cash in the three months ended March 31, 2023 and $120 million of cash in the three months ended March 31, 2022.

During the three months ended March 31, 2023, we used $224 million to purchase property and equipment, as compared to a $123 million usage of cash in the same period in 2022.

and (ii) redeem a portion of our Senior Notes due 2025 for $651 million.

Cash flows from operating activities from continuing operations for the six months ended June 30, 2023 decreased by $150 million, compared with the same period in 2022.

The decrease reflects the impact of operating assets and liabilities utilizing $125 million of cash in the first six months of 2023, compared with utilizing $40 million during the same period in 2022, and $80 million of lower income from continuing operations for the six months ended June 30, 2023, compared with the same period in 2022.

Within operating assets and liabilities, for the six months ended June 30, 2023, compared with the same period in 2022:

(i) accrued expenses and other liabilities generated $140 million less cash primarily due to the accrual of a tax obligation related to the sale of our intermodal operation in the first quarter of 2022;

and (ii) accounts payable utilized $129 million more cash primarily due to the timing of payments.

Partially offsetting these items, accounts receivable utilized $177 million less cash in the first six months of 2023 as compared to the same period in 2022 primarily as a result of a lower sequential increase in revenues.

Investing activities from continuing operations used $342 million of cash in the six months ended June 30, 2023 and $216 million of cash in the six months ended June 30, 2022.

During the six months ended June 30, 2023, we used $355 million to purchase property and equipment, as compared to a $242 million usage of cash in the same period in 2022.

The increase reflects our continued investment, primarily in tractors and trailers, to support our long-term growth targets.

Financing activities from continuing operations used $10 million of cash in the three months ended March 31, 2023 and $24 million of cash in the three months ended March 31, 2022.

The primary uses of cash from financing activities in each of the first three months of 2023 and 2022 were $16 million used to repay borrowings and $12 million to make payments for tax withholdings on restricted shares.

The primary source of cash from financing activities during the first three months of 2023 was $19 million of proceeds from bank overdrafts, as compared to $3 million in the same period of 2022.

There were no material changes to our December 31, 2022 contractual obligations during the three months ended March 31, 2023.

Financing activities from continuing operations used $36 million of cash in the six months ended June 30, 2023 and $673 million of cash in the six months ended June 30, 2022.

The primary uses of cash from financing activities in each of the first six months of 2023 and 2022 were $2.0 billion and $651 million, respectively, used to repay our Existing Term Loan Facility and redeem a portion of our Senior Notes due 2025.

The primary source of cash from financing activities during the first six months of 2023 was $2.0 billion of net proceeds from the issuance of debt.

As a result of the debt transactions that occurred during the second quarter, as of June 30, 2023, we had $2.4 billion total outstanding principal amount of debt, excluding finance leases.

We have $112 million of debt maturing in 2025 and no other significant debt maturities until 2028.

Interest on our ABL and term loan facility are variable, while interest on our senior notes are at fixed rates.

As of June 30, 2023, future interest payments associated with our debt aggregate approximately $1.0 billion and are estimated based on the principal amount of debt and applicable interest rates as of that date.

For further information on our debt facilities and maturities, see Note 7—Debt to our Condensed Consolidated Financial Statements.

There were no other material changes to our December 31, 2022 contractual obligations during the six months ended June 30, 2023.

We anticipate full year gross capital expenditures to be between $500 million and $600 million in 2023, funded by cash on hand and available liquidity.

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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