Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. 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 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 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”). 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,” “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 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: North American Less-Than-Truckload (“LTL”), the largest component of our business, and European Transportation. Our North American LTL segment includes the results of our trailer manufacturing operations.
In the first quarter of 2023, we made certain changes to our financial reporting to increase transparency and improve comparability. Specifically, we changed the expense captions within Operating income in the Condensed Consolidated Statements of Income to reflect the nature of the expense. The change to natural expense classification had no impact on consolidated Revenues or Operating income. We have recast prior period amounts to conform to the current year’s presentation.
North American Less-Than-Truckload Segment
LTL in North America is a bedrock industry providing a critical service to the economy, with favorable pricing dynamics and a stable competitive landscape. We have one of the largest LTL networks in North America, with approximately 8% share of the $59 billion U.S. market as of December 31, 2022.
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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. We provide shippers with critical geographic density and day-definite domestic and cross-border services to approximately 99% of U.S. zip codes, as well as Mexico, Canada and the Caribbean. 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 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 half of 2024 from an October 2021 baseline. 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. We produced 4,705 trailers at our in-house trailer manufacturing facility in 2022, nearly doubling the 2021 output. Our goal is to produce more than 6,000 trailers in 2023. We are also investing in expanding the number of drivers trained at our 130 commercial driver schools. Our in-house trailer manufacturing and driver schools are examples of idiosyncratic, self-reliant capabilities that are advantageous to XPO, particularly when industry constraints on equipment or drivers exist.
Specific to our technology, we believe we have a large opportunity to drive further growth and profitability in our LTL network through innovation. For further information, see the “Technology and Sustainability” section below.
European Transportation Segment
XPO has a unique pan-European transportation platform with leading positions in key geographies: we are the #1 full truckload broker and the #1 pallet network (LTL) provider in France; the #1 full truckload broker and the #1 LTL provider in Iberia (Spain and Portugal); and a top-tier dedicated truckload provider in the U.K., where we also have the largest single-owner LTL network. We serve a large base of customers within the consumer, trade and industrial markets, including many sector leaders that have long-tenured relationships with us.
Our range of services in Europe encompasses dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and, increasingly, multimodal solutions, such as road-rail and road-short sea combinations that we tailor to customer needs. Our operators use our proprietary XPO Connect ® technology to manage these services within our digital ecosystem in Europe.
Technology and Sustainability
One of the ways in which we deliver superior service to our customers is by empowering our employees with technology. Our industry is evolving, and customers want to de-risk their supply chains by forming relationships with reliable service providers that have invested in innovation.
We have built a highly scalable ecosystem on the cloud that deploys our software consistently across our operating footprint. In our North American LTL business, the caliber of our technology is mission-critical to our success; it optimizes linehaul, pickup-and-delivery and pricing — the main components of the service we provide. 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 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
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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. 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 .
Consolidated Summary Financial Table
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. 2022 2023
2022
2023 2022 2023 vs. 2022
Revenue $ 1,980 $ 1,946 100.0 % 100.0 % 1.7 % $ 5,804 $ 5,887 100.0 % 100.0 % (1.4) %
Salaries, wages and employee
benefits
809 739 40.9 % 38.0 % 9.5 % 2,354 2,216 40.6 % 37.6 % 6.2 %
Purchased transportation 437 480 22.1 % 24.7 % (9.0) % 1,338 1,515 23.1 % 25.7 % (11.7) %
Fuel, operating expenses and
supplies
406 425 20.5 % 21.8 % (4.5) % 1,223 1,277 21.1 % 21.7 % (4.2) %
Operating taxes and licenses 15 15 0.8 % 0.8 % — % 45 44 0.8 % 0.7 % 2.3 %
Insurance and claims 39 41 2.0 % 2.1 % (4.9) % 129 145 2.2 % 2.5 % (11.0) %
(Gains) losses on sales of
property and equipment
1 (1) 0.1 % (0.1) % (200.0) % (4) (3) (0.1) % (0.1) % 33.3 %
Depreciation and
amortization expense
110 99 5.6 % 5.1 % 11.1 % 318 289 5.5 % 4.9 % 10.0 %
Transaction and integration
costs
8 2 0.4 % 0.1 % 300.0 % 47 16 0.8 % 0.3 % 193.8 %
Restructuring costs 1 7 0.1 % 0.4 % (85.7) % 35 15 0.6 % 0.3 % 133.3 %
Operating income 154 139 7.8 % 7.1 % 10.8 % 319 373 5.5 % 6.3 % (14.5) %
Other income (4) (15) (0.2) % (0.8) % (73.3) % (12) (42) (0.2) % (0.7) % (71.4) %
Debt extinguishment
loss
— — — % — % — % 23 26 0.4 % 0.4 % (11.5) %
Interest expense 41 35 2.1 % 1.8 % 17.1 % 126 103 2.2 % 1.7 % 22.3 %
Income from continuing
operations before income tax provision 117 119 5.9 % 6.1 % (1.7) % 182 286 3.1 % 4.9 % (36.4) %
Income tax provision 31 27 1.6 % 1.4 % 14.8 % 48 66 0.8 % 1.1 % (27.3) %
Income from continuing
operations 86 92 4.3 % 4.7 % (6.5) % 134 220 2.3 % 3.7 % (39.1) %
Income (loss) from
discontinued operations, net of taxes (2) 39 (0.1) % 2.0 % (105.1) % (3) 540 (0.1) % 9.2 % (100.6) %
Net income $ 84 $ 131 4.2 % 6.7 % (35.9) % $ 131 $ 760 2.3 % 12.9 % (82.8) %
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
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prices. 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 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 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 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 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 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.
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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. For more information, see Note 5—Restructuring Charges to our Condensed Consolidated Financial Statements.
Other income primarily consists of pension income. 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 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, 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 $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
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 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. In the first quarter of 2023, we began allocating incremental corporate costs from Corporate to North American LTL. Prior periods have been recast to reflect these incremental allocations, which approximate $80 million annually. See Note 3—Segment Reporting to our Condensed Consolidated Financial Statements for further information and a reconciliation of Adjusted EBITDA to Income from continuing operations.
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North American Less-Than-Truckload Segment
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. 2022 2023 2022 2023 2022 2023 vs. 2022
Revenue $ 1,228 $ 1,205 100.0 % 100.0 % 1.9 % $ 3,484 $ 3,552 100.0 % 100.0 % (1.9) %
Adjusted EBITDA 241 240 19.6 % 19.9 % 0.4 % 631 700 18.1 % 19.7 % (9.9) %
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 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. 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, while impacts on volume can include shipments per day and weight per shipment. The following table summarizes our key revenue metrics:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 Change % 2023 2022 Change %
Pounds per day (thousands) 72,257 70,063 3.1 % 70,465 70,854 (0.5) %
Shipments per day 53,637 49,744 7.8 % 51,303 49,459 3.7 %
Average weight per shipment (in pounds) 1,347 1,408 (4.3) % 1,374 1,433 (4.1) %
Gross revenue per hundredweight, excluding
fuel surcharges
$ 22.81 $ 21.43 6.4 % $ 21.84 $ 21.18 3.1 %
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
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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 September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change
(Dollars in millions) 2023 2022 2023 2022 2023 vs. 2022 2023 2022 2023 2022 2023 vs. 2022
Revenue $ 752 $ 741 100.0 % 100.0 % 1.5 % $ 2,320 $ 2,335 100.0 % 100.0 % (0.6) %
Adjusted EBITDA 44 43 5.8 % 5.9 % 2.3 % 127 130 5.5 % 5.6 % (2.3) %
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 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 $355 million as of September 30, 2023, compared to $460 million as of December 31, 2022. Our principal existing sources of cash are: (i) cash generated from operations; (ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”); (iii) proceeds from the issuance of other debt; and (iv) proceeds from divestiture activities. 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 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. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.
Trade Receivables Securitization and Factoring Programs
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
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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 $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. 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 7.32% 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 first nine months of 2023 due to this redemption.
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 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 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.
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Sources and Uses of Cash
Nine Months Ended September 30,
(In millions) 2023 2022
Net cash provided by operating activities from continuing operations $ 443 $ 628
Net cash used in investing activities from continuing operations (473) (315)
Net cash used in financing activities from continuing operations (72) (706)
During the nine months ended September 30, 2023, we: (i) generated cash from operating activities from continuing operations of $443 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 $494 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: (i) purchase property and equipment of $354 million; and (ii) redeem a portion of our Senior Notes due 2025 for $651 million.
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 $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 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 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.
New Accounting Standards
Information related to new accounting standards is included in Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
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