XPO, Inc. 10-Q

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, 2023 (the “2023 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 June 30, 2024, we had approximately 38,000 employees and 615 locations in 17 countries serving approximately 53,000 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. Within the tables presented, certain amounts may not add due to the use of rounded numbers. Unless otherwise indicated, percentages presented are calculated from the underlying numbers in millions. North American LTL Segment LTL in North America is a bedrock industry providing a critical service to the economy, with favorable pricing dynamics and an established competitive landscape. XPO is one of the largest LTL networks in North America, with approximately 9% share of the U.S. market, estimated to be $52 billion as of December 31, 2023. We provide approximately 34,000 shippers in North America 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. 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, 2024, our customer-focused organization 18 Table of Contents of truck drivers, service center teams and sales professionals worked together to move approximately 18 billion pounds of freight through our network to its destinations. Importantly, our LTL business historically has generated a high return on invested capital and robust free cash flow. This supports our ongoing investments in our people, network capacity and proprietary technology. We manage 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 expansion of our service center footprint in strategic markets with long-term demand. Since implementing our LTL 2.0 growth plan in the fourth quarter of 2021, we have added over 4,300 tractors and 13,600 trailers. In 2023, we produced over 6,400 trailers at our in-house trailer manufacturing facility, surpassing our goal of more than 6,000 trailers, and for the six months ended June 30, 2024, we produced over 2,600 trailers. Our in-house trailer manufacturing is an example of a self-reliant capability that is competitively advantageous to us, particularly when industry conditions make it difficult to source equipment. In December 2023, we completed the acquisition of 28 service centers previously operated by Yellow Corporation (the “Yellow Asset Acquisition”), representing approximately 2,900 doors. We expect the net increase in doors to be approximately two-thirds of the gross number purchased as we look for opportunities to rationalize our existing footprint. This strategic acquisition of assets aligns with our commitment to invest in expanding our LTL network capacity. As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. In 2024, the overall freight environment continues to be recessionary, in large part due to underlying trends in supply and demand. Despite this, we continue to perform well and see growth potential ahead as we continue to expand our business by investing in capacity for the long-term, gaining profitable market share and aligning price with the value we provide to customers. Specific to our technology, we believe that we have a large opportunity to drive further growth and profitability in our LTL network through innovation. For more information, see “Technology” 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 an extensive base of customers within the consumer, trade and industrial markets, including many sector leaders that have long-tenured relationships with us. Our range of freight services in Europe encompasses dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding, warehousing and, increasingly, multimodal solutions, such as road-rail and road-short sea combinations that we tailor to customer needs. Our operators use our proprietary technology to manage these services within our digital ecosystem in Europe. Technology 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 June 30, 2024, we moved approximately 18 billion pounds of freight 823 million miles, including moving linehaul freight an average of 2.7 million miles a day. 19 Table of Contents 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 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. Consolidated Summary Financial Table Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 2,079 $ 1,917 100.0 % 100.0 % 8.5 % $ 4,097 $ 3,824 100.0 % 100.0 % 7.1 % Salaries, wages and employee benefits 854 783 41.1 % 40.8 % 9.1 % 1,688 1,545 41.2 % 40.4 % 9.3 % Purchased transportation 436 444 21.0 % 23.2 % (1.8) % 874 901 21.3 % 23.6 % (3.0) % Fuel, operating expenses and supplies 402 390 19.3 % 20.3 % 3.1 % 814 817 19.9 % 21.4 % (0.4) % Operating taxes and licenses 21 15 1.0 % 0.8 % 40.0 % 40 30 1.0 % 0.8 % 33.3 % Insurance and claims 33 46 1.6 % 2.4 % (28.3) % 71 90 1.7 % 2.4 % (21.1) % Gains on sales of property and equipment (4) (2) (0.2) % (0.1) % 100.0 % (5) (5) (0.1) % (0.1) % — % Depreciation and amortization expense 122 107 5.9 % 5.6 % 14.0 % 239 208 5.8 % 5.4 % 14.9 % Transaction and integration costs 12 17 0.6 % 0.9 % (29.4) % 26 39 0.6 % 1.0 % (33.3) % Restructuring costs 6 10 0.3 % 0.5 % (40.0) % 14 34 0.3 % 0.9 % (58.8) % Operating income 197 107 9.5 % 5.6 % 84.1 % 335 165 8.2 % 4.3 % 103.0 % Other income (6) (3) (0.3) % (0.2) % 100.0 % (16) (8) (0.4) % (0.2) % 100.0 % Debt extinguishment loss — 23 — % 1.2 % (100.0) % — 23 — % 0.6 % (100.0) % Interest expense 56 43 2.7 % 2.2 % 30.2 % 114 85 2.8 % 2.2 % 34.1 % Income from continuing operations before income tax provision 147 44 7.1 % 2.3 % 234.1 % 237 65 5.8 % 1.7 % 264.6 % Income tax provision (benefit) (3) 13 (0.1) % 0.7 % NM 20 17 0.5 % 0.4 % 17.6 % Income from continuing operations 150 31 7.2 % 1.6 % 383.9 % 217 48 5.3 % 1.3 % 352.1 % Income (loss) from discontinued operations, net of taxes — 2 — % 0.1 % (100.0) % — (1) — % — % (100.0) % Net income $ 150 $ 33 7.2 % 1.7 % 354.5 % $ 217 $ 47 5.3 % 1.2 % 361.7 % NM - Not meaningful. Three and Six Months Ended June 30, 2024 Compared with Three and Six Months Ended June 30, 2023 Our consolidated revenue for the second quarter of 2024 increased 8.5% to $2.1 billion, compared with the same quarter in 2023. Our consolidated revenue for the first six months of 2024 increased 7.1% to $4.1 billion, compared with the same period in 2023. The increase in both periods primarily reflects growth in our North American LTL segment and, to a lesser extent, growth in our European Transportation segment. Foreign currency movement did not impact revenue in the second quarter of 2024 and increased revenue by approximately 0.5 percentage points in the first six months of 2024. 20 Table of Contents 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 second quarter of 2024 was $854 million, or 41.1% of revenue, compared with $783 million, or 40.8% of revenue, for the same quarter in 2023. Salaries, wages and employee benefits for the first six months of 2024 was $1.7 billion, or 41.2% of revenue, compared with $1.5 billion, or 40.4% of revenue, for the same period in 2023. The year-over-year increase as a percentage of revenue in both periods primarily reflects the impact of inflation on our cost base, the insourcing of a greater proportion of linehaul from third-party transportation providers, and higher incentive compensation related to our operating performance. The increase in salaries, wages and employee benefits also reflects higher volumes in both of our segments. Purchased transportation includes costs of procuring third-party freight transportation. Purchased transportation for the second quarter of 2024 was $436 million, or 21.0% of revenue, compared with $444 million, or 23.2% of revenue, for the same quarter in 2023. Purchased transportation for the first six months of 2024 was $874 million, or 21.3% of revenue, compared with $901 million, or 23.6% of revenue, for the same period in 2023. The year-over-year decrease as a percentage of revenue in both periods primarily reflects the insourcing of a greater proportion of linehaul from third-party transportation providers and, to a lesser extent, lower rates paid to third-party providers for purchased transportation miles in our North American LTL segment. 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 2024 was $402 million, or 19.3% of revenue, compared with $390 million, or 20.3% of revenue, for the same quarter in 2023. Fuel, operating expenses and supplies for the first six months of 2024 was $814 million, or 19.9% of revenue, compared with $817 million, or 21.4% of revenue, for the same period in 2023. The year-over-year decrease as a percentage of revenue in both periods primarily reflects lower fuel costs, maintenance costs and bad debt expense as a percentage of revenue. 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 2024 was $21 million, compared with $15 million for the same quarter in 2023. Operating taxes and licenses for the first six months of 2024 was $40 million, compared with $30 million for the same period in 2023. The year-over-year increase in both periods primarily reflects property taxes on newly acquired service centers and lower tax incentives in Illinois. 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 2024 was $33 million, compared with $46 million for the same quarter in 2023. Insurance and claims for the first six months of 2024 was $71 million, compared with $90 million for the same period in 2023. The year-over-year decrease in both periods reflects lower expense due to improved damage frequency. Gains on sales of property and equipment for the second quarter of 2024 was $4 million, compared with $2 million for the same quarter in 2023. Gains on sales of property and equipment for both the first six months of 2024 and 2023 was $5 million. The increase in the second quarter of 2024 is consistent with our lifecycle management approach for fleet in Europe. Depreciation and amortization expense for the second quarter of 2024 was $122 million, compared with $107 million for the same quarter in 2023. Depreciation and amortization expense for the first six months of 2024 was $239 million, compared with $208 million for the same period in 2023. The year-over-year increase in both periods reflects the impact of capital investments, in particular tractors and trailers. 21 Table of Contents Transaction and integration costs for the second quarter of 2024 were $12 million, compared with $17 million for the same quarter in 2023. Transaction and integration costs for the first six months of 2024 were $26 million, compared with $39 million for the same period in 2023. Transaction and integration costs for both periods of 2024 and 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives, while the 2023 periods also include retention awards for certain employees. We expect stock-based compensation costs related to our previously announced strategic initiatives to conclude in 2024. Restructuring costs for the second quarter of 2024 were $6 million, compared with $10 million for the same quarter in 2023. Restructuring costs for the first six months of 2024 were $14 million, compared with $34 million for the same period in 2023. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. For more information, see Note 4—Restructuring Charges to our Condensed Consolidated Financial Statements. Other income for the second quarter of 2024 was $6 million, compared with $3 million for the same quarter in 2023. Other income for the first six months of 2024 was $16 million, compared with $8 million for the same period in 2023. The year-over-year increase in both periods primarily reflects an increase in net periodic pension income, as well as $3 million in investment income in the first six months of 2024. Debt extinguishment loss was $23 million for the second quarter and first six months of 2023, which related to the refinancing of our Term Loan Facility in the second quarter of 2023. There was no debt extinguishment loss for the second quarter and first six months of 2024. Interest expense increased to $56 million for the second quarter of 2024, compared with $43 million for the same quarter in 2023. Interest expense increased to $114 million for the first six months of 2024, compared with $85 million for the same period in 2023. The increase in both periods is primarily due to the debt issuance in the fourth quarter of 2023 to finance the Yellow Asset Acquisition and higher prevailing interest rates in 2024. Our effective income tax rates were (2.0)% and 28.8% for the second quarter of 2024 and 2023, respectively, and 8.3% and 25.4% for the first six months of 2024 and 2023, respectively. The effective income tax rates for the second quarter and six-month periods of 2024 and 2023 were based on forecasted full-year effective income tax rates, adjusted for discrete items that occurred within the periods presented. The year-over-year decrease in our effective income tax rates in both periods was primarily driven by a one-time tax benefit of $41 million associated with a legal entity reorganization in our European Transportation business that occurred in the second quarter of 2024 and a reduced impact from forecasted non-deductible executive compensation expense as a result of higher pre-tax income in 2024 compared to the same periods in 2023, partially offset by the impact of losses for which no tax benefit can be recognized. We expect the legal entity reorganization to generate a net refund of approximately $45 million, primarily in 2025. 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 provision (benefit), depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments. Segment Adjusted EBITDA includes an allocation of corporate costs. See Note 2—Segment Reporting to our Condensed Consolidated Financial Statements for further information and a reconciliation of Adjusted EBITDA to Income from continuing operations. 22 Table of Contents North American Less-Than-Truckload Segment Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 1,272 $ 1,136 100.0 % 100.0 % 12.0 % $ 2,493 $ 2,256 100.0 % 100.0 % 10.5 % Adjusted EBITDA (1) 297 208 23.3 % 18.3 % 42.8 % 551 390 22.1 % 17.3 % 41.3 % Depreciation and amortization 86 71 6.8 % 6.3 % 21.1 % 168 139 6.7 % 6.2 % 20.9 % (1) Percent of Revenue is calculated using the underlying unrounded amounts. Revenue in our North American LTL segment increased 12.0% to $1.3 billion for the second quarter of 2024, compared with $1.1 billion for the same quarter in 2023. Revenue increased 10.5% to $2.5 billion for the first six months of 2024, compared with $2.3 billion for the same period in 2023. Revenue included fuel surcharge revenue of $208 million and $196 million, respectively, for the second quarters of 2024 and 2023, and $418 million and $413 million, respectively, for the first six months of 2024 and 2023. 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 June 30, Six Months Ended June 30, 2024 2023 Change % 2024 2023 Change % Pounds per day (thousands) 72,658 70,290 3.4 % 71,687 69,587 3.0 % Shipments per day 53,519 51,220 4.5 % 52,460 50,159 4.6 % Average weight per shipment (in pounds) 1,358 1,372 (1.1) % 1,367 1,387 (1.5) % Gross revenue per hundredweight, excluding fuel surcharges $ 23.56 $ 21.63 9.0 % $ 23.35 $ 21.34 9.4 % Percentages presented are calculated using the underlying unrounded amounts. The year-over-year increase in revenue, excluding fuel surcharge revenue, for both the second quarter and first six months of 2024 reflects higher gross revenue per hundredweight and volume, primarily related to our improvements in service quality. The increase in yield for both the second quarter and first six months 2024 reflects the benefit of numerous pricing initiatives. The increase in volume per day for both the second quarter and first six months of 2024 reflects higher shipments per day, partially offset by lower average weight per shipment. Adjusted EBITDA was $297 million, or 23.3% of revenue, for the second quarter of 2024, compared with $208 million, or 18.3% of revenue, for the same quarter in 2023. Adjusted EBITDA was $551 million, or 22.1% of revenue, for the first six months of 2024, compared with $390 million, or 17.3% of revenue, for the same period in 2023. The increase in Adjusted EBITDA as a percentage of revenue in both the second quarter and first six months of 2024 reflects lower purchased transportation, damage claims, fuel costs, maintenance costs and bad debt expense as a percentage of revenue. Depreciation and amortization expense increased to $86 million in the second quarter of 2024 compared with $71 million for the same quarter in 2023. Depreciation and amortization expense increased to $168 million in the first six months of 2024 compared with $139 million for the same period in 2023. The increase in both the second quarter and first six months of 2024 was due to the impact of capital investments, in particular tractors and trailers. 23 Table of Contents European Transportation Segment Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 808 $ 781 100.0 % 100.0 % 3.5 % $ 1,605 $ 1,568 100.0 % 100.0 % 2.4 % Adjusted EBITDA (1) 49 46 6.1 % 6.0 % 6.5 % 87 83 5.4 % 5.3 % 4.8 % Depreciation and amortization 35 33 4.3 % 4.2 % 6.1 % 70 65 4.4 % 4.1 % 7.7 % (1) Percent of Revenue is calculated using the underlying unrounded amounts. Revenue in our European Transportation segment increased 3.5% to $808 million for the second quarter of 2024, compared with $781 million for the same quarter in 2023. Revenue increased 2.4% to $1.61 billion for the first six months of 2024, compared with $1.57 billion for the same period in 2023. Foreign currency movement did not impact revenue in the second quarter of 2024 and increased revenue by approximately 1.2 percentage points in the first six months of 2024. The increase in revenue during both periods in 2024, compared to the same periods in 2023, after taking into effect the impact of foreign currency movement, primarily reflects higher yield and volume. Adjusted EBITDA was $49 million, or 6.1% of revenue, for the second quarter of 2024, compared with $46 million, or 6.0% of revenue, for the same quarter in 2023. Adjusted EBITDA was $87 million, or 5.4% of revenue, for the first six months of 2024, compared with $83 million, or 5.3% of revenue, for the same period in 2023. The change in Adjusted EBITDA as a percentage of revenue in both the second quarter and the first six months of 2024 primarily reflects lower fuel costs offset by higher salaries, wages and employee benefits as a percentage of revenue. Liquidity and Capital Resources Our cash and cash equivalents balance was $250 million as of June 30, 2024, compared to $412 million as of December 31, 2023. Our principal existing sources of cash are: (i) cash generated from operations; (ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”); and (iii) proceeds from the issuance of other debt. As of June 30, 2024, we have $586 million available to draw under our ABL Facility, based on a borrowing base of $587 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 $137 million in aggregate face amount of letters of credit as of June 30, 2024. As of June 30, 2024, we had approximately $836 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 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 $214 million as of June 30, 2024). As of June 30, 2024, €6 million (approximately $6 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”). 24 Table of Contents In the second quarter of 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 in May 2028. In the same period, we used net proceeds from the New Term Loan Facility, the Senior Secured Notes due 2028 (as defined below) and the Senior Notes due 2031 (as defined 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 2023 due to this repayment. In the fourth quarter of 2023, we entered into an incremental amendment to the Term Loan Credit Agreement to obtain $400 million of incremental term loans (the “Incremental Term Loans”). The Incremental Term Loans are a new tranche of loans under the Term Loan Credit Agreement and will mature in February 2031. The applicable interest rate for the two tranches of the term loan facility approximated 7.34% as of June 30, 2024. Senior Notes Due 2028 and 2031 In the second quarter of 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”). The Senior Secured Notes due 2028 mature in June 2028 and bear interest at a rate of 6.25% per annum. The Senior Notes due 2031 mature in June 2031 and bear interest at a rate of 7.125% per annum. Interest is payable semi-annually in cash in arrears and commenced December 1, 2023. These notes were issued at par and were used to repay our Existing Term Loan Facility as described above. Loan Covenants and Compliance As of June 30, 2024, 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, (In millions) 2024 2023 Net cash provided by operating activities from continuing operations $ 355 $ 207 Net cash used in investing activities from continuing operations (483) (342) Net cash used in financing activities from continuing operations (35) (36) During the six months ended June 30, 2024, we generated cash from operating activities from continuing operations of $355 million. We used cash during the period primarily to: (i) purchase property and equipment of $496 million; (ii) make payments on debt and finance leases of $39 million; and (iii) make payments of $17 million related to tax withholding obligations in connection with the vesting of restricted shares. 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; and (ii) repurchase our Existing Term Loan Facility for $2.0 billion. Cash flows from operating activities from continuing operations for the six months ended June 30, 2024 increased by $148 million, compared with the same period in 2023. The increase primarily reflects: (i) higher income from continuing operations of $169 million; (ii) higher non-cash depreciation and amortization of $31 million, that is added back in the determination of operating cash flows and (iii) higher non-cash deferred tax expense of $31 million, that is also added back in the determination of operating cash flows. These items were partially offset by the impact of operating assets and liabilities utilizing $175 million of cash in the first six months of 2024, compared with utilizing $125 million during the same period in 2023. 25 Table of Contents Investing activities from continuing operations used $483 million of cash in the six months ended June 30, 2024 and $342 million of cash in the six months ended June 30, 2023. During the six months ended June 30, 2024, we used $496 million to purchase property and equipment, as compared to a $355 million usage of cash in the same period in 2023. The increase reflects our continued investment to support our long-term growth targets. Financing activities from continuing operations used $35 million of cash in the six months ended June 30, 2024 and $36 million of cash in the six months ended June 30, 2023. The primary use of cash from financing activities during the first six months of 2024 was $39 million used to repay borrowings, primarily related to finance lease obligations, and $17 million to make payments for tax withholdings on restricted shares. The primary uses of cash from financing activities during the first six months of 2023 was $2.0 billion used to repay our Existing Term Loan Facility. The primary source of cash from financing activities during the first six months of 2024 was $27 million of proceeds from bank overdrafts. 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. There were no material changes to our December 31, 2023 contractual obligations during the six months ended June 30, 2024. We anticipate full year gross capital expenditures to be between $700 million and $800 million in 2024, funded by cash on hand, cash generated from operations and available liquidity. This includes capital expenditures to integrate the service centers acquired in the Yellow Asset Acquisition into our network. 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.