What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-30 compared with 2023-08-04 · 111 added, 112 removed, 186 unchanged (55% of the section changed)

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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.

All forward-looking statements set forth in this Quarterly Report on Form 10-Q 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 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”).

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

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

As of September 30, 2023, we had approximately 38,000 employees and 563 locations in 17 countries serving approximately 50,000 customers.

Our company has two reportable segments:

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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.

During the third quarter of 2023, one of our LTL competitors ceased operations and filed for bankruptcy.

This caused a disruption between supply and demand in the industry, leading to more freight volume and shipments going to the remaining market participants, including XPO.

Our LTL sales and service professionals and network of drivers, tractors, trailers and terminals serve approximately 30,000 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 June 30, 2023, we delivered approximately 18 billion pounds of freight.

For the trailing 12 months ended September 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.

This supports our ongoing investments in the expansion of our network capacity and the enhancement of our proprietary technology.

We are managing the business to specific objectives, such as high customer service scores for on-time delivery and damage-free freight, the optimal sourcing of linehaul transportation, and the addition of 900 net new doors to our terminal footprint by the first quarter of 2024 from an October 2021 baseline.

Since implementing our LTL 2.0 growth plan in the fourth quarter of 2021, we added six terminals to our network, representing 473 net new doors.

Since implementing our LTL 2.0 growth plan in the fourth quarter of 2021, we added 531 net new doors to our network, including six terminals.

Additionally, we are continuing to execute a host of initiatives that are specific to XPO and largely independent of the macroeconomic environment.

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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 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.

For the trailing 12 months ended September 30, 2023, we moved 18 billion pounds of freight 790 million miles, including moving linehaul freight an average of 2.6 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 also developed a robust pricing platform for contractual account management and automated, dynamic pricing for local accounts.

real-time visualization tools to reduce costs with pickups and deliveries and developed a robust pricing platform for contractual account management and automated, dynamic pricing for local accounts.

Importantly, our technology also helps our company meet its environmental, social and governance (“ESG”) goals, such as a reduction in our carbon footprint, and can help our customers meet their own goals.

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Consolidated Summary Financial Table

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

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

(Dollars in millions) 2023

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Insurance and claims 39 41 2.0 % 2.1 % (4.9) % 129 145 2.2 % 2.5 % (11.0) %

Gains on sales of property

and equipment

(Gains) losses on sales of

property and equipment

1 (1) 0.1 % (0.1) % (200.0) % (4) (3) (0.1) % (0.1) % 33.3 %

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Net income $ 84 $ 131 4.2 % 6.7 % (35.9) % $ 131 $ 760 2.3 % 12.9 % (82.8) %

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 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.

Three and Nine Months Ended September 30, 2023 Compared with Three and Nine Months Ended September 30, 2022

Our consolidated revenue for the third quarter of 2023 increased 1.7% to $2.0 billion, compared with the same quarter in 2022.

Our consolidated revenue for the first nine months of 2023 decreased 1.4% to $5.8 billion, compared with the same period in 2022.

The increase in revenue in the third quarter of 2023 compared to the same period in 2022 reflects the dynamics in the North American LTL industry described in the segment results below, partially offset by a decline in fuel surcharge revenue.

The decrease in revenue in the first nine months of 2023 compared to the same period in 2022 reflects a decline in fuel surcharge revenue, due primarily to lower diesel

Foreign currency movement increased revenue by approximately 2.9 percentage points in the third quarter of 2023 and by approximately 0.3 percentage points in the first nine months of 2023.

Salaries, wages and employee benefits includes compensation-related costs for our employees, including salaries, wages, incentive compensation, 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 third quarter of 2023 was $809 million, or 40.9% of revenue, compared with $739 million, or 38.0% of revenue, for the same quarter in 2022.

Salaries, wages and employee benefits for the first nine months of 2023 was $2.4 billion, or 40.6% of revenue, compared with $2.2 billion, or 37.6% 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 higher incentive compensation related to our operating performance, inflation on our cost base, foreign currency impacts, and the insourcing of a greater proportion of linehaul from third-party transportation providers, partially offset by improvements in productivity.

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

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.

Purchased transportation for the third quarter of 2023 was $437 million, or 22.1% of revenue, compared with $480 million, or 24.7% of revenue, for the same quarter in 2022.

Purchased transportation for the first nine months of 2023 was $1.3 billion, or 23.1% of revenue, compared with $1.5 billion, or 25.7% 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 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.

Fuel, operating expenses and supplies for the third quarter of 2023 was $406 million, or 20.5% of revenue, compared with $425 million, or 21.8% of revenue, for the same quarter in 2022.

Fuel, operating expenses and supplies for the first nine months of 2023 was $1.2 billion, or 21.1% of revenue, compared with $1.3 billion, or 21.7% of revenue, for the same period in 2022.

The year-over-year decrease in both periods primarily reflects lower fuel and temporary labor costs, as well as lower purchased services during the nine-month period, partially offset by higher lease and facility costs.

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.

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

Operating taxes and licenses for the first nine months of 2023 was $45 million, compared with $44 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 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.

Insurance and claims for the third quarter of 2023 was $39 million, compared with $41 million for the same quarter in 2022.

Insurance and claims for the first nine months of 2023 was $129 million, compared with $145 million for the same period in 2022.

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

Depreciation and amortization expense for the third quarter of 2023 was $110 million, compared with $99 million for the same quarter in 2022.

Depreciation and amortization expense for the first nine months of 2023 was $318 million, compared with $289 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.

Transaction and integration costs for the third quarter of 2023 were $8 million, compared with $2 million for the same quarter in 2022.

Transaction and integration costs for the first nine months of 2023 were $47 million, compared with $16 million for the same period in 2022.

Transaction and integration costs for the third quarter and first nine 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 third quarter and first nine 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.

Restructuring costs for the third quarter of 2023 were $1 million, compared with $7 million for the same quarter in 2022.

Restructuring costs for the first nine months of 2023 were $35 million, compared with $15 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 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.

Other income for the third quarter of 2023 was $4 million, compared with $15 million for the same quarter in 2022.

Other income for the first nine months of 2023 was $12 million, compared with $42 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.

Debt extinguishment loss was $23 million for the first nine months of 2023, compared with $26 million for the same period in 2022.

There was no debt extinguishment loss in the third quarter of 2023 and 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.

Additionally, in the second quarter of 2023, 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.

Interest expense increased to $41 million for the third quarter of 2023 from $35 million for the third quarter of 2022.

Interest expense increased to $126 million for the first nine months of 2023 from $103 million for the first nine months of 2022.

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

Our effective income tax rates were 27.0% and 22.5% for the third quarter of 2023 and 2022, respectively, and 26.4% and 23.0% for the first nine months of 2023 and 2022, respectively.

The effective tax rates for the third quarter and nine-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 third 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 items impacting the effective tax rate for the third quarter of 2022 were tax benefits of $1 million from revaluing deferred state taxes and $1 million from state tax initiatives.

The increase in our effective income tax rate for the first nine months of 2023 compared to the same period in 2022 was primarily driven by forecasted non-deductible executive compensation expense as well as tax expense of $1 million from uncertain tax positions, partially offset by tax benefits of $3 million from revaluing deferred state taxes and $2 million from return to provision adjustments.

The primary items impacting the effective tax rate for the first nine months of 2022 were tax benefits of $3 million from stock-based compensation, $1 million from revaluing deferred state taxes and $1 million from state tax initiatives.

Segment Financial Results

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North American Less-Than-Truckload Segment

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

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

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

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Depreciation and amortization 75 60 6.1 % 5.0 % 25.0 % 214 175 6.1 % 4.9 % 22.3 %

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.

Revenue in our North American LTL segment increased 1.9% to $1.23 billion for the third quarter of 2023, compared with $1.21 billion for the same quarter in 2022.

Revenue decreased 1.9% to $3.48 billion for the first nine months of 2023, compared with $3.55 billion for the same period in 2022.

Revenue included fuel surcharge revenue of $223 million and $274 million, respectively, for the third quarters of 2023 and 2022, and $636 million and $772 million, respectively, for the first nine months of 2023 and 2022.

The decrease in fuel surcharge revenue for both periods was primarily driven by lower diesel prices.

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 June 30, Six Months Ended June 30,

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

2023 2022 Change % 2023 2022 Change %

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$ 22.81 $ 21.43 6.4 % $ 21.84 $ 21.18 3.1 %

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.

The year-over-year increase in revenue, excluding fuel surcharge revenue, in the third quarter of 2023 reflects higher volume and gross revenue per hundredweight, primarily related to our improvements in service quality and investments in capacity, as well as the impact of a competitor ceasing operations during the third quarter of 2023.

The increase in volume per day for the third quarter of 2023 reflects higher shipments per day, partially offset by lower average weight per shipment.

The increase in yield in the third quarter of 2023 reflects the benefit of numerous pricing initiatives underway.

We expect to further accelerate yield growth in the fourth quarter.

The year-over-year increase in revenue, excluding fuel surcharge revenue, for the first nine months of 2023 reflects higher gross revenue per hundredweight partially offset by slightly lower volume.

The decline in volume per day for the first nine months of 2023 reflects lower average weight per shipment, partially offset by higher shipments per day.

In the month of October 2023 weight per day increased 2.5%, as compared with October 2022, attributable to a year-over-year increase of 6.0% in shipments per day and a decrease of 3.5% in weight per shipment.

These October 2023 North American LTL segment operating metrics are preliminary and actual results may vary.

Adjusted EBITDA was $241 million, or 19.6% of revenue, for the third quarter of 2023, compared with $240 million, or 19.9% of revenue, for the same quarter in 2022.

Adjusted EBITDA was $631 million, or 18.1% of revenue, for the first nine months of 2023, compared with $700 million, or 19.7% of revenue, for the same period in 2022.

The decrease in Adjusted EBITDA as a percentage of revenue in both the third quarter and first nine months of 2023 reflected lower fuel surcharge revenue, higher salaries, wages and employee benefits primarily due to higher incentive compensation and cost inflation, and, to a lesser extent, lower pension income.

These items were partially offset by higher revenue, excluding fuel surcharge revenue, driven by the dynamics explained above, improvements

in productivity, 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, lower fuel costs, and lower insurance and claims due to improved service.

Depreciation and amortization expense increased to $75 million in the third quarter of 2023 compared with $60 million for the same quarter in 2022.

Depreciation and amortization expense increased to $214 million in the first nine months of 2023 compared with $175 million for the same period in 2022.

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

European Transportation Segment

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

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

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

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Depreciation and amortization 35 31 4.7 % 4.2 % 12.9 % 100 96 4.3 % 4.1 % 4.2 %

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.

Revenue in our European Transportation segment increased 1.5% to $752 million for the third quarter of 2023, compared with $741 million for the same quarter in 2022.

Revenue decreased 0.6% to $2.32 billion for the first nine months of 2023, compared with $2.34 billion for the same period in 2022.

Foreign currency movement increased revenue by approximately 7.6 percentage points in the third quarter of 2023 and by approximately 0.9 percentage points in the first nine months of 2023.

The decrease in revenue for the third quarter of 2023 and the first nine months of 2023, compared to the same periods in 2022, after taking into effect the impact of foreign currency movement, primarily reflects lower volumes in a soft industry environment for freight transportation.

Adjusted EBITDA was $44 million, or 5.8% of revenue, for the third quarter of 2023, compared with $43 million, or 5.9% of revenue, for the same quarter in 2022.

Adjusted EBITDA was $127 million, or 5.5% of revenue, for the first nine months of 2023, compared with $130 million, or 5.6% of revenue, for the same period in 2022.

The change in Adjusted EBITDA in both periods was primarily driven by the decrease in revenue after taking into effect the impact of foreign currency movement, described above, higher salaries, wages and employee benefits due to the impact of cost inflation and foreign currency impacts, and higher lease and facility costs.

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

Liquidity and Capital Resources

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

Our cash and cash equivalents balance was $355 million as of September 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 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.

As of September 30, 2023, we have $589 million available to draw under our ABL Facility, based on a borrowing base of $590 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 $139 million in aggregate face amount of letters of credit as of September 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.

As of September 30, 2023, we had approximately $944 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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We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements.

We also sell trade accounts receivable under a securitization program for our European transportation business.

We also sell trade accounts receivable under a securitization program for our European

transportation business.

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.

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 $218 million as of June 30, 2023).

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

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 $211 million as of September 30, 2023).

As of September 30, 2023, €15 million (approximately $16 million) was available under the program.

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

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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.

The interest rate was 7.32% as of September 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.

We recorded a debt extinguishment loss of $23 million in the first nine months of 2023 due to this redemption.

Senior Notes Due 2028 and 2031

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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.

We recorded a debt extinguishment loss of $26 million in the first nine months 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 June 30, 2023, we were in compliance with the covenants and other provisions of our debt agreements.

As of September 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

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions) 2023 2022

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Net cash used in financing activities from continuing operations (72) (706)

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

During the nine months ended September 30, 2023, we:

(i) generated cash from operating activities from continuing operations of $443 million;

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(i) purchase property and equipment of $494 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.

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

During the nine months ended September 30, 2022, we generated cash from operating activities from continuing operations of $628 million.

We used cash during this period primarily to:

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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.

Cash flows from operating activities from continuing operations for the nine months ended September 30, 2023 decreased by $185 million, compared with the same period in 2022.

The decrease reflects the impact of operating assets and liabilities utilizing $133 million of cash in the first nine months of 2023, compared with generating $13 million during the same period in 2022, primarily driven by timing of payments and lower sequential increase in revenues, and $86 million of lower income from continuing operations for the nine months ended September 30, 2023, compared with the same period in 2022.

Investing activities from continuing operations used $473 million of cash in the nine months ended September 30, 2023 and $315 million of cash in the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we used $494 million to purchase property and equipment, as compared to a $354 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 $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.

Financing activities from continuing operations used $72 million of cash in the nine months ended September 30, 2023 and $706 million of cash in the nine months ended September 30, 2022.

The primary uses of cash from financing activities in each of the first nine 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 nine 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 September 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.

As of September 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.

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

We anticipate full year gross capital expenditures to be between $675 million and $725 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