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 September 30, 2024, we had approximately 38,000 employees and 611 locations in 17 countries serving approximately 54,000 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. 18 Table of Contents We provide approximately 35,000 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 September 30, 2024, our customer-focused organization 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 4,400 tractors and 14,700 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 nine months ended September 30, 2024, we produced over 3,600 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 demand trends. 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 September 30, 2024, we moved approximately 18 billion pounds of freight 820 million miles, including moving linehaul freight an average of 2.6 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 September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 2,053 $ 1,980 100.0 % 100.0 % 3.7 % $ 6,150 $ 5,804 100.0 % 100.0 % 6.0 % Salaries, wages and employee benefits 852 809 41.5 % 40.9 % 5.3 % 2,541 2,354 41.3 % 40.6 % 7.9 % Purchased transportation 430 437 20.9 % 22.1 % (1.6) % 1,303 1,338 21.2 % 23.1 % (2.6) % Fuel, operating expenses and supplies 399 406 19.4 % 20.5 % (1.7) % 1,213 1,223 19.7 % 21.1 % (0.8) % Operating taxes and licenses 21 15 1.0 % 0.8 % 40.0 % 61 45 1.0 % 0.8 % 35.6 % Insurance and claims 33 39 1.6 % 2.0 % (15.4) % 105 129 1.7 % 2.2 % (18.6) % (Gains) losses on sales of property and equipment — 1 — % 0.1 % (100.0) % (5) (4) (0.1) % (0.1) % 25.0 % Depreciation and amortization expense 126 110 6.1 % 5.6 % 14.5 % 365 318 5.9 % 5.5 % 14.8 % Transaction and integration costs 13 8 0.6 % 0.4 % 62.5 % 39 47 0.6 % 0.8 % (17.0) % Restructuring costs 3 1 0.1 % 0.1 % 200.0 % 17 35 0.3 % 0.6 % (51.4) % Operating income 176 154 8.6 % 7.8 % 14.3 % 511 319 8.3 % 5.5 % 60.2 % Other income (15) (4) (0.7) % (0.2) % 275.0 % (31) (12) (0.5) % (0.2) % 158.3 % Debt extinguishment loss — — — % — % — % — 23 — % 0.4 % (100.0) % Interest expense 56 41 2.7 % 2.1 % 36.6 % 170 126 2.8 % 2.2 % 34.9 % Income from continuing operations before income tax provision 135 117 6.6 % 5.9 % 15.4 % 372 182 6.0 % 3.1 % 104.4 % Income tax provision 40 31 1.9 % 1.6 % 29.0 % 60 48 1.0 % 0.8 % 25.0 % Income from continuing operations 95 86 4.6 % 4.3 % 10.5 % 312 134 5.1 % 2.3 % 132.8 % Loss from discontinued operations, net of taxes — (2) — % (0.1) % (100.0) % — (3) — % (0.1) % (100.0) % Net income $ 95 $ 84 4.6 % 4.2 % 13.1 % $ 312 $ 131 5.1 % 2.3 % 138.2 % Three and Nine Months Ended September 30, 2024 Compared with Three and Nine Months Ended September 30, 2023 Our consolidated revenue for the third quarter of 2024 increased 3.7% to $2.1 billion, compared with the same quarter in 2023. Our consolidated revenue for the first nine months of 2024 increased 6.0% to $6.2 billion, compared with the same period in 2023. The increase in both periods reflects growth in both of our reportable segments, partially offset by a decline in fuel surcharge revenue in our North American LTL segment. Foreign currency movement did not impact revenue in the third quarter of 2024 and increased revenue by approximately 0.3 percentage points in the first nine months of 2024. 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 2024 was $852 million, or 41.5% of revenue, compared with $809 million, or 40.9% of revenue, for the same quarter in 2023. Salaries, wages and employee benefits for the first nine months of 2024 was $2.5 billion, or 41.3% of revenue, compared with $2.4 billion, or 40.6% of revenue, for the same period in 20 Table of Contents 2023. 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. Purchased transportation includes costs of procuring third-party freight transportation. Purchased transportation for the third quarter of 2024 was $430 million, or 20.9% of revenue, compared with $437 million, or 22.1% of revenue, for the same quarter in 2023. Purchased transportation for the first nine months of 2024 was $1.30 billion, or 21.2% of revenue, compared with $1.34 billion, or 23.1% 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, partially offset by higher purchased transportation in our European Transportation 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 third quarter of 2024 was $399 million, or 19.4% of revenue, compared with $406 million, or 20.5% of revenue, for the same quarter in 2023. Fuel, operating expenses and supplies for the first nine months of 2024 was $1.21 billion, or 19.7% of revenue, compared with $1.22 billion, or 21.1% 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. 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 2024 was $21 million, compared with $15 million for the same quarter in 2023. Operating taxes and licenses for the first nine months of 2024 was $61 million, compared with $45 million for the same period in 2023. The year-over-year increase in both periods primarily reflects property taxes on service centers acquired in the Yellow Asset Acquisition. 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 2024 was $33 million, compared with $39 million for the same quarter in 2023. Insurance and claims for the first nine months of 2024 was $105 million, compared with $129 million for the same period in 2023. The year-over-year decrease in both periods reflects lower expense due to improved damage frequency, partially offset by higher vehicular insurance costs. (Gains) losses on sales of property and equipment for the third quarter of 2024 was $0 million, compared with a loss of $1 million for the same quarter in 2023. (Gains) losses on sales of property and equipment in the first nine months of 2024 was a gain of $5 million, compared with a gain of $4 million for the same period in 2023. Depreciation and amortization expense for the third quarter of 2024 was $126 million, compared with $110 million for the same quarter in 2023. Depreciation and amortization expense for the first nine months of 2024 was $365 million, compared with $318 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, as well as service centers acquired in the Yellow Asset Acquisition. Transaction and integration costs for the third quarter of 2024 were $13 million, compared with $8 million for the same quarter in 2023. Transaction and integration costs for the first nine months of 2024 were $39 million, compared with $47 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. We expect stock-based compensation costs related to our previously announced strategic initiatives to conclude in 2024. Restructuring costs for the third quarter of 2024 were $3 million, compared with $1 million for the same quarter in 2023. Restructuring costs for the first nine months of 2024 were $17 million, compared with $35 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. 21 Table of Contents Other income for the third quarter of 2024 was $15 million, compared with $4 million for the same quarter in 2023. Other income for the first nine months of 2024 was $31 million, compared with $12 million for the same period in 2023. The year-over-year increase reflects $9 million of investment income in the third quarter of 2024 and $13 million of investment income in the first nine months of 2024 in Corporate on a past investment in a private company that was sold in the quarter, compared with no investment income in the 2023 periods, as well as an increase in net periodic pension income in both 2024 periods. Debt extinguishment loss was $23 million for the first nine months of 2023, which related to the refinancing of our Existing Term Loan Facility (as defined below) in the second quarter of 2023. There was no debt extinguishment loss in the third quarter of 2023 or in 2024. Interest expense increased to $56 million for the third quarter of 2024, compared with $41 million for the same quarter in 2023. Interest expense increased to $170 million for the first nine months of 2024, compared with $126 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. Our effective income tax rates were 29.7% and 27.0% for the third quarter of 2024 and 2023, respectively, and 16.0% and 26.4% for the first nine months of 2024 and 2023, respectively. The effective income tax rates for the third quarter and nine-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 increase in our effective income tax rate for the third quarter of 2024 compared to the same period in 2023 was primarily driven by losses for which no tax benefit can be recognized and a reduction in the one-time tax benefit initially recognized in the second quarter of 2024 related to the legal entity reorganization in our European Transportation business, partially offset by a decrease in forecasted non-deductible executive compensation expense. The decrease in our effective income tax rate for the first nine months of 2024 compared to the same period in 2023 was primarily driven by a one-time tax benefit of $40 million associated with the legal entity reorganization in our European Transportation business 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 period 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 cash refund of approximately $45 million, to be received 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, 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 September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 1,251 $ 1,228 100.0 % 100.0 % 1.9 % $ 3,743 $ 3,484 100.0 % 100.0 % 7.4 % Adjusted EBITDA (1) 284 241 22.7 % 19.6 % 17.8 % 836 631 22.3 % 18.1 % 32.5 % Depreciation and amortization 89 75 7.1 % 6.1 % 18.7 % 257 214 6.9 % 6.1 % 20.1 % (1) Percent of Revenue is calculated using the underlying unrounded amounts. Revenue in our North American LTL segment increased 1.9% to $1.3 billion for the third quarter of 2024, compared with $1.2 billion for the same quarter in 2023. Revenue increased 7.4% to $3.7 billion for the first nine months of 2024, compared with $3.5 billion for the same period in 2023. Revenue included fuel surcharge revenue of $195 million and $223 million, respectively, for the third quarters of 2024 and 2023, and $613 million and $636 million, respectively, for the first nine months of 2024 and 2023. The decrease in fuel surcharge revenue 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, 2024 2023 Change % 2024 2023 Change % Pounds per day (thousands) 69,470 72,257 (3.9) % 70,950 70,465 0.7 % Shipments per day 51,921 53,637 (3.2) % 52,281 51,303 1.9 % Average weight per shipment (in pounds) 1,338 1,347 (0.7) % 1,357 1,374 (1.2) % Gross revenue per hundredweight, excluding fuel surcharges $ 24.34 $ 22.81 6.7 % $ 23.67 $ 21.84 8.4 % Percentages presented are calculated using the underlying unrounded amounts. The year-over-year increase in revenue, excluding fuel surcharge revenue, for both the third quarter and first nine months of 2024 reflects higher yield, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives, partially offset by lower volume in the third quarter of 2024. The decrease in volume per day for the third quarter of 2024 reflects lower shipments per day and average weight per shipment. Volume per day increased for the first nine months of 2024, reflecting higher shipments per day partially offset by lower average weight per shipment. Adjusted EBITDA was $284 million, or 22.7% of revenue, for the third quarter of 2024, compared with $241 million, or 19.6% of revenue, for the same quarter in 2023. Adjusted EBITDA was $836 million, or 22.3% of revenue, for the first nine months of 2024, compared with $631 million, or 18.1% of revenue, for the same period in 2023. The increase in Adjusted EBITDA as a percentage of revenue in both the third quarter and first nine months of 2024 reflects lower purchased transportation, damage claims, and fuel costs, partially offset by higher salaries, wages and employee benefits and vehicular insurance costs. Depreciation and amortization expense increased to $89 million in the third quarter of 2024 compared with $75 million for the same quarter in 2023. Depreciation and amortization expense increased to $257 million in the first nine months of 2024 compared with $214 million for the same period in 2023. The increase in both the third quarter and first nine months of 2024 was due to the impact of capital investments, in particular tractors and trailers, as well as service centers acquired in the Yellow Asset Acquisition. 23 Table of Contents European Transportation Segment Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change (Dollars in millions) 2024 2023 2024 2023 2024 vs. 2023 2024 2023 2024 2023 2024 vs. 2023 Revenue $ 803 $ 752 100.0 % 100.0 % 6.8 % $ 2,407 $ 2,320 100.0 % 100.0 % 3.8 % Adjusted EBITDA (1) 44 44 5.4 % 5.8 % — % 131 127 5.4 % 5.5 % 3.1 % Depreciation and amortization 36 35 4.5 % 4.7 % 2.9 % 106 100 4.4 % 4.3 % 6.0 % (1) Percent of Revenue is calculated using the underlying unrounded amounts. Revenue in our European Transportation segment increased 6.8% to $803 million for the third quarter of 2024, compared with $752 million for the same quarter in 2023. Revenue increased 3.8% to $2.4 billion for the first nine months of 2024, compared with $2.3 billion for the same period in 2023. Foreign currency movement increased revenue by approximately 0.1 percentage points in the third quarter of 2024 and by approximately 0.9 percentage points in the first nine 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 volume and yield. Adjusted EBITDA was $44 million, or 5.4% of revenue, for the third quarter of 2024, compared with $44 million, or 5.8% of revenue, for the same quarter in 2023. Adjusted EBITDA was $131 million, or 5.4% of revenue, for the first nine months of 2024, compared with $127 million, or 5.5% of revenue, for the same period in 2023. The change in Adjusted EBITDA as a percentage of revenue in both the third quarter and the first nine months of 2024 primarily reflects higher salaries, wages and employee benefits and purchased transportation, partially offset by lower fuel costs as a percentage of revenue. Liquidity and Capital Resources Our cash and cash equivalents balance was $378 million as of September 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 September 30, 2024, we have $556 million available to draw under our ABL Facility, based on a borrowing base of $557 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 September 30, 2024. As of September 30, 2024, we had approximately $934 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 $223 million as of September 30, 2024). As of September 30, 2024, the maximum amount available under the program was utilized. Under the securitization program, we service the receivables we sell on behalf of the purchasers. The program expires in July 2026. 24 Table of Contents 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 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 weighted average interest rate of our term loans was approximately 7.20% as of September 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 September 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 Nine Months Ended September 30, (In millions) 2024 2023 Net cash provided by operating activities from continuing operations $ 619 $ 443 Net cash used in investing activities from continuing operations (598) (473) Net cash used in financing activities from continuing operations (59) (72) During the nine months ended September 30, 2024, we generated cash from operating activities from continuing operations of $619 million. We used cash during the period primarily to: (i) purchase property and equipment of $623 million; (ii) make payments on debt and finance leases of $64 million; and (iii) make payments of $21 million related to tax withholding obligations in connection with the vesting of restricted shares. 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) repurchase our Existing Term Loan Facility for $2.0 billion. 25 Table of Contents Cash flows from operating activities from continuing operations for the nine months ended September 30, 2024 increased by $176 million, compared with the same period in 2023. The increase primarily reflects: (i) higher income from continuing operations of $178 million and (ii) higher non-cash depreciation and amortization of $47 million, that is added back in the determination of operating cash flows. These items were partially offset by the impact of operating assets and liabilities utilizing $166 million of cash in the first nine months of 2024, compared with utilizing $133 million during the same period in 2023. Investing activities from continuing operations used $598 million of cash in the nine months ended September 30, 2024 and $473 million of cash in the nine months ended September 30, 2023. During the nine months ended September 30, 2024, we used $623 million to purchase property and equipment, as compared to a $494 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 $59 million of cash in the nine months ended September 30, 2024 and $72 million of cash in the nine months ended September 30, 2023. The primary use of cash from financing activities during the first nine months of 2024 was $64 million used to repay borrowings, primarily related to finance lease obligations, and $21 million to make payments for tax withholdings on restricted shares. The primary uses of cash from financing activities during the first nine 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 nine months of 2024 was $32 million of proceeds from bank overdrafts. 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. There were no material changes to our December 31, 2023 contractual obligations during the nine months ended September 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.