What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-07 compared with 2024-02-08 · 100 added, 229 removed, 265 unchanged (55% of the section changed)

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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 more clearly reflect the nature of the expenses.

The change to natural expense classification had no impact on consolidated Revenues or Operating income.

At the time of the change, we recast prior period amounts to conform to the current presentation.

Our North American LTL segment includes the results of our trailer manufacturing operation.

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.

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a discussion of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Strategic Developments

2023 was the first full year that XPO operated solely as an asset-based LTL service provider in North America, following the completion of three key parts of our strategic plan, as previously announced:

the spin-offs of RXO, Inc.

(“RXO”) and GXO Logistics, Inc.

(“GXO”) in November 2022 and August 2021, respectively;

and the sale of our North American intermodal operation in March 2022.

On December 20, 2023, we acquired 28 LTL service centers in the U.S.

previously operated by Yellow Corporation.

Under the transaction, we purchased 26 of the service centers and assumed existing leases for the other two locations.

This is a strategic acquisition of assets that aligns with our commitment to invest in expanding our LTL network capacity.

Our Board of Directors has previously authorized the divestiture of our European business.

XPO has operated solely as an asset-based LTL service provider in North America since November 2022, when we completed the spin-off of RXO, Inc.

This followed the completion of two additional components of our strategic plan:

the spin-off of GXO Logistics, Inc.

(“GXO”) in August 2021, and the sale of our North American intermodal operation in March 2022.

In December 2023, we completed the Yellow Asset Acquisition, purchasing 26 LTL service centers and assuming existing leases for two additional locations.

The previously announced authorization by our Board of Directors to divest our European business remains in effect.

There can be no assurance that the divestiture will occur, or of the terms or timing of a transaction.

The historical results of operations and financial positions of RXO, GXO and our intermodal operation are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The historical results of operations and financial positions of RXO and our intermodal operation are presented as discontinued operations during the periods presented and, as such, have been excluded from both continuing operations and segment results.

We completed the sale of our intermodal operation for cash proceeds of approximately $705 million, net of cash disposed.

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As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control.

The overall freight environment continues to be recessionary, in large part due to underlying trends in supply and demand.

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

Despite this, we see growth potential ahead in all of our major markets.

We expect to 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.

Pandemic-related disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have largely abated, but new supply constraints are on the horizon as shippers increasingly avoid utilizing routes through areas with regional conflicts.

We cannot predict how long these dynamics will last, or whether future challenges, if any, will adversely affect our results of operations.

Other examples of macroeconomic factors that can affect our results are a rise in interest rates, which increased our cost of capital in 2023, and economic inflation, which, while lessening in the U.S., may still have a negative impact on certain of our operating costs, such as salaries, wages and employee benefits, fuel and purchased transportation.

The overall freight environment continues to be recessionary, due to a mix of macroeconomic pressures on supply and demand.

Importantly, we see growth potential ahead in our major markets, and we intend to continue expanding the business by investing in capacity for the long-term, gaining profitable market share, and aligning price with the value we provide.

Examples of macroeconomic factors that can affect our results are volatility in interest rates and economic inflation, which may have a negative impact on certain of our operating costs, such as salaries, wages and employee benefits, fuel, purchased transportation and insurance.

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

Regarding the war between Russia and Ukraine and the unrest in the Middle East, we have no direct exposure to those geographies.

We cannot predict how global supply chain activities or the economy at large may be impacted by prolonged disruptions in these regions, or sanctions imposed, or whether future conflicts, if any, may adversely affect our results of operations.

Examples of supply chain constraints that may affect our results include potentially higher tariffs on goods produced outside the United States, and the increasing reluctance of shippers to route goods through areas with regional conflict.

Regarding the war between Russia and Ukraine and the unrest in the Middle East, we have no direct exposure to these geographies.

We cannot predict how future macroeconomic conditions, supply chain constraints or global conflicts, if any, may adversely affect our results of operations.

Consolidated Summary Financial Results

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(Dollars in millions) 2024

2021 2023 2022 2021

Revenue $ 8,072 $ 7,744

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Interest expense 223 168 2.8 % 2.2 %

Income from continuing operations before

income tax provision

Income from continuing operations before income tax

473 260 5.9 % 3.4 %

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Income from continuing operations 387 192 4.8 % 2.5 %

Income (loss) from discontinued operations, net

(3) 482 245 — % 6.2 % 3.4 %

Income (loss) from discontinued operations, net of taxes — (3) — % — %

Net income $ 387 $ 189 4.8 % 2.4 %

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Our consolidated revenue for 2024 increased by 4.2% to $8.1 billion, compared with 2023.

The increase 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 increase 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 increased revenue by approximately 0.5 percentage points in 2024.

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Salaries, wages and employee benefits in 2024 was $3.4 billion, or 41.8% of revenue, compared with $3.2 billion, or 40.8% of revenue, in 2023.

The year-over-year increase as a percentage of revenue 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 year-over-year increase as a percentage of revenue 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 in 2024 was $1.7 billion, or 21.1% of revenue, compared with $1.8 billion, or 22.7% of revenue, in 2023.

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

The year-over-year decrease as a percentage of revenue 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 was $1.59 billion in 2024, or 19.7% of revenue, compared with $1.62 billion, or 21.0% of revenue, in 2023.

The year-over-year decrease primarily reflects lower fuel costs.

The year-over-year decrease as a percentage of revenue primarily reflects lower fuel costs due to lower diesel prices.

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 in 2024 was $80 million, compared with $60 million in 2023.

The year-over-year increase 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 in 2024 was $134 million, compared with $167 million in 2023.

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

The year-over-year decrease reflects lower expense due to improved damage frequency, partially offset by higher vehicular insurance costs.

Gains on sales of property and equipment in 2024 was $40 million, compared with $5 million in 2023.

The year-over-year decrease reflects $55 million in gains on real estate transactions in our North American LTL segment in 2022 and no comparable gains in 2023.

The year-over-year increase primarily reflects $34 million in gains on real estate transactions in our North American LTL segment in 2024 from a planned service center relocation with no comparable gains in 2023.

Depreciation and amortization expense in 2024 was $490 million, compared with $432 million in 2023.

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

There was no goodwill impairment loss in 2023, compared with a $64 million impairment loss in 2022, which related to our European Transportation reporting units.

For more information, see critical accounting policies and estimates below.

The year-over-year increase reflects the impact of capital investments, in particular tractors and trailers, as well as service centers acquired in the Yellow Asset Acquisition.

Litigation matter was $8 million in 2023, with no comparable expense in 2024.

See Note 18—Commitments and Contingencies to our Consolidated Financial Statements for further information.

Transaction and integration costs in 2023 and 2022 were $58 million.

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

Transaction and integration costs for 2022 are primarily comprised of stock-based compensation and third-party professional fees related to strategic initiatives.

We expect stock-based compensation costs related to our previously announced strategic initiatives to conclude in 2024.

Transaction and integration costs in 2024 were $53 million, compared with $58 million in 2023.

Transaction and integration costs for 2024 and 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives, as well as retention awards for certain employees related to strategic initiatives in 2023.

Stock-based compensation costs related to our previously announced strategic initiatives concluded in the fourth quarter of 2024.

Restructuring costs in 2024 were $27 million, compared with $44 million in 2023.

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For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements.

Other income primarily consists of pension income.

Other income primarily consists of pension income for both 2024 and 2023, while 2024 also includes investment income.

Other income for 2024 was $37 million, compared with $15 million in 2023.

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

The year-over-year increase reflects $13 million of investment income in 2024 in Corporate on a past investment in a private company that was sold during the year, compared with no investment income in 2023, as well as an increase in net periodic pension income in 2024.

Debt extinguishment loss was $0 million in 2024, compared with $25 million in 2023.

The debt extinguishment loss in 2023 related primarily to the refinancing of our Term Loan Facility in the second quarter of 2023, and to a much lesser extent, the redemption of our outstanding 6.25% senior notes due 2025 (“Senior Notes due 2025”) in the fourth quarter of 2023.

In 2022, the debt extinguishment loss related to the redemption of a portion of our outstanding Senior Notes due 2025.

The debt extinguishment loss in 2023 related to the refinancing of our Existing Term Loan Facility (as defined below) and the redemption of our outstanding 6.25% senior notes due 2025 (“Senior Notes due 2025”).

Interest expense for 2024 increased 32.7% to $223 million, from $168 million in 2023.

The increase in interest expense 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.

The increase is primarily due to the debt issuance in the fourth quarter of 2023 to finance the Yellow Asset Acquisition.

We anticipate interest expense to be between $220 million and $230 million in 2025.

Our consolidated income from continuing operations before income taxes in 2024 was $473 million, compared with $260 million in 2023.

The increase was primarily driven by higher operating income and lower debt extinguishment loss, partially offset by lower pension income and higher interest expense.

With respect to our U.S.

operations, income from continuing operations before income taxes was income of $286 million in 2023, compared with income of $303 million in 2022.

The decrease was primarily due to higher salaries, wages and employee benefits, lower gains on real estate transactions, higher depreciation and amortization, lower pension income and higher interest expense, partially offset by higher revenue, lower purchased transportation and lower fuel costs.

With respect to our non-U.S.

operations, loss from continuing operations before income taxes was $26 million in 2023, compared with a loss of $45 million in 2022.

The decrease in the loss is primarily due to the goodwill impairment charge of $64 million in 2022, and the absence of any such impairment in 2023, and lower purchased transportation and fuel costs in 2023, partially offset by higher salaries, wages and employee benefits and higher lease and facility costs in 2023.

Our effective income tax rates were 26.0% and 28.6% in 2023 and 2022, respectively.

The decrease in our effective income tax rate for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the non-deductible goodwill impairment charge in 2022 and the absence of any such impairment in 2023.

For the year ended December 31, 2023, our effective tax rate was impacted by $15 million from non-deductible compensation partially offset by $9 million of discrete tax benefits, the largest of which was a $4 million benefit from changes in reserves for uncertain tax positions.

For the year ended December 31, 2022, our effective tax rate was impacted by the non-deductible goodwill impairment charge and $10 million from non-deductible compensation.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Our consolidated revenue for 2022 increased by 7.2% to $7.7 billion, from $7.2 billion in 2021.

The increase primarily reflects growth in our LTL segment.

Foreign currency movement decreased revenue by approximately 5.3 percentage points in 2022.

Salaries, wages and employee benefits in 2022 was $2.95 billion, or 38.2% of revenue, compared with $2.87 billion, or 39.8% of revenue in 2021.

The year-over-year decrease as a percentage of revenue reflects leveraging compensation-related costs across a larger revenue base in 2022.

Purchased transportation in 2022 was $2.0 billion, or 25.4% of revenue, compared with $1.9 billion, or 26.9% of revenue, in 2021.

The year-over-year decrease as a percentage of revenue is primarily due to a larger revenue base in 2022, partially offset by a small increase in costs due to higher rates paid to third-party providers for purchased transportation, including higher fuel surcharges.

Fuel, operating expenses and supplies in 2022 was $1.7 billion, or 21.9% of revenue, compared with $1.5 billion, or 20.7% of revenue, in 2021.

The year-over-year increase as a percentage of revenue was primarily driven by higher fuel costs.

Operating taxes and licenses in 2022 was $58 million, compared with $56 million in 2021.

Insurance and claims in 2022 was $183 million, compared with $174 million in 2021.

The year-over-year increase was primarily driven by an increase in large loss vehicular claims in 2022.

Gains on sales of property and equipment in 2022 was $60 million, compared with $72 million in 2021.

Depreciation and amortization expense in 2022 was $392 million, compared with $385 million in 2021.

Goodwill impairment was $64 million in 2022 and related to our European Transportation reporting units, compared to no goodwill impairment loss in 2021.

For more information, see critical accounting policies and estimates below.

Transaction and integration costs in 2022 were $58 million, compared with $36 million in 2021.

Transaction and integration costs for 2022 are primarily comprised of stock-based compensation and third-party professional fees

related to strategic initiatives.

Transaction and integration costs for 2021 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees.

Restructuring costs in 2022 were $50 million, compared with $19 million in 2021.

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 divestment activities.

For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements.

Other income primarily consists of pension income.

Other income for 2022 was $55 million, compared with $60 million in 2021.

Debt extinguishment loss was $39 million in 2022, compared with $54 million in 2021.

In 2022, we repurchased a portion of our outstanding Senior Notes due 2025 and wrote-off related debt issuance costs and incurred a pre-payment penalty.

In 2021, we redeemed our outstanding senior notes due 2022, 2023 and 2024 and wrote-off related debt issuance costs, incurred a pre-payment penalty on the redemption of the 2024 senior notes and incurred costs related to the amendment of our term loan credit agreement.

Interest expense for 2022 decreased 36.0% to $135 million, from $211 million in 2021.

The decrease in interest expense reflected lower average debt balances.

Our consolidated income from continuing operations before income taxes in 2022 was $258 million, compared with $107 million in 2021.

The increase was primarily driven by higher operating income and lower interest expense and debt extinguishment loss.

The increase was primarily driven by higher operating income partially offset by higher interest expense.

With respect to our U.S.

operations, income from continuing operations before income taxes was $303 million in 2022, compared with income of $108 million in 2021.

The increase was primarily due to higher revenue, partially offset by higher fuel, third-party transportation and personnel costs.

Additionally impacting the increase in 2022 were lower interest expense and debt extinguishment loss.

operations, income from continuing operations before income taxes was

income of $486 million in 2024, compared with income of $286 million in 2023.

The increase was primarily due to higher revenue, lower purchased transportation and higher gains on real estate transactions, partially offset by higher salaries, wages and employee benefits, depreciation and amortization and interest expense.

With respect to our non-U.S.

operations, loss from continuing operations before income taxes was $13 million in 2024, compared with a loss of $26 million in 2023.

The increase in the loss was primarily due to higher fuel costs and the goodwill impairment charge of $64 million in 2022, partially offset by lower personnel costs.

The decrease in the loss is primarily due to higher revenue, partially offset by higher purchased transportation and salaries, wages and employee benefits in 2024.

Our effective income tax rates were 18.1% and 26.0% in 2024 and 2023, respectively.

The increase in our effective income tax rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by increased pre-tax book income, which decreased the impact of discrete tax benefits.

For the year ended December 31, 2022, our effective tax rate was impacted by the non-deductible goodwill impairment charge and $10 million from non-deductible compensation.

For the year ended December 31, 2021, our effective tax rate was impacted by discrete tax benefits of $45 million related to a tax planning initiative that resulted in the recognition of a long-term capital loss, partially offset by discrete tax expenses of $39 million related to foreign valuation allowances, of which $34 million of the valuation allowances were transferred to GXO.

Additionally, impacting the year ended December 31, 2021, were $8 million from non-deductible compensation and discrete tax benefits of $4 million related to stock-based compensation.

The decrease in our effective income tax rate for 2024 compared to 2023 was primarily driven by a one-time tax benefit of $41 million associated with the legal entity reorganization in our European Transportation business and a reduced impact from non-deductible executive compensation expense as a result of higher pre-tax income in 2024 compared to 2023, partially offset by the impact of losses for which no tax benefit can be recognized.

For 2024, our effective tax rate was impacted by $49 million of discrete tax benefits, the largest of which was a $41 million benefit from the legal entity reorganization in our European Transportation business, offset by $16 million from non-deductible compensation and $9 million from losses for which no tax benefit can be recognized.

For 2023, our effective tax rate was impacted by $15 million from non-deductible compensation partially offset by $9 million of discrete tax benefits, the largest of which was a $4 million benefit from changes in reserves for uncertain tax positions.

We expect the legal entity reorganization in our European Transportation business 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, depreciation and amortization expense, goodwill impairment charges, litigation matters, transaction and integration costs, restructuring costs and other adjustments.

Segment Adjusted EBITDA reflects an allocation of corporate costs.

Our CODM regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

For our North American LTL and European Transportation segments, 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, goodwill impairment charges, litigation matters, transaction and integration costs, restructuring costs and other adjustments.

Segment adjusted EBITDA includes an allocation of corporate costs.

See Note 4—Segment Reporting and Geographic Information for further information and a reconciliation of adjusted EBITDA to Income from continuing operations.

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Adjusted EBITDA (1)

1,115 864 22.8 % 18.5 %

Depreciation and amortization expense 346 291 7.1 % 6.2 %

(1) Percent of Revenue is calculated using the underlying unrounded amounts.

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenue in our North American LTL segment increased 4.9% to $4.9 billion in 2024, compared with $4.7 billion in 2023.

Revenue included fuel surcharge revenue of $857 million and $1.0 billion, respectively, for the years ended December 31, 2023 and 2022.

Revenue included fuel surcharge revenue of $785 million and $857 million, respectively, for the years ended December 31, 2024 and 2023.

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

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Gross revenue per hundredweight, excluding fuel surcharges $ 23.94 $ 22.21 7.8 %

The year-over-year increase in revenue for 2023, excluding fuel surcharge revenue, reflects higher gross revenue per hundredweight, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives.

Volume was flat year-over year, with higher shipments per day in 2023 offset by lower average weight per shipment.

A soft industry environment for freight transportation contributed to lower volumes in the first half of the year, which was offset by higher volumes as the year continued.

Despite unfavorable industry conditions, our volumes increased in the second half of the year due to higher shipments per day resulting from improvements in service quality and investments in capacity, as well as the impact of a competitor ceasing operations during the third quarter of 2023.

In the month of January 2024, weight per day decreased 1.1%, as compared with January 2023, attributable to a year-over-year decrease of 2.5% in weight per shipment and an increase of 1.4% in shipments per day.

Adjusted EBITDA was $864 million, or 18.5% of revenue, in 2023, compared with $932 million, or 20.1% of revenue, in 2022.

Percentages presented are calculated using the underlying unrounded amounts.

The year-over-year increase in revenue for 2024, excluding fuel surcharge revenue, reflects higher yield, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives, partially offset by slightly lower volume.

The decrease in volume per day reflects lower average weight per shipment partially offset by higher shipments per day.

In the month of January 2025, weight per day decreased 8.5%, as compared with January 2024, attributable to a year-over-year decrease of 6.0% in shipments per day and a decrease of 2.7% in weight per shipment.

Adjusted EBITDA was $1,115 million in 2024, compared with $864 million in 2023.

Adjusted EBITDA included gains from real estate transactions of $34 million for the year ended December 31, 2024 with no comparable gains in 2023.

Excluding these gains, the small decrease in Adjusted EBITDA reflected lower fuel surcharge revenue, higher salaries, wages and employee benefits, and, to a lesser extent, lower pension income.

These items were partially offset by higher revenue, excluding fuel surcharge revenue, driven by the pricing and volume dynamics explained above, lower purchased transportation, lower fuel costs, and lower damage claims.

Depreciation and amortization expense increased in 2023 compared with 2022 due to the impact of capital investments, in particular tractors and trailers.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Revenue in our North American LTL segment increased 12.6% to $4.6 billion in 2022, compared with $4.1 billion in 2021.

Revenue included fuel surcharge revenue of $1.0 billion and $632 million, respectively, for the years ended December 31, 2022 and 2021.

The following table summarizes our key revenue metrics:

Years Ended December 31,

2022 2021 Change %

Pounds per day (thousands) 70,163 71,739 (2.2) %

Shipments per day 49,257 50,392 (2.3) %

Average weight per shipment (in pounds) 1,424 1,424 — %

Gross revenue per hundredweight, excluding fuel surcharges $ 21.18 $ 19.80 7.0 %

The year-over-year increase in revenue for 2022 reflects an increase in gross revenue per hundredweight.

The decrease in weight per day for 2022 reflects lower shipments per day.

Adjusted EBITDA was $932 million, or 20.1% of revenue, in 2022, compared with $826 million, or 20.0% of revenue, in 2021.

Adjusted EBITDA included gains from real estate transactions of $55 million and $62 million for the years ended December 31, 2022 and 2021, respectively.

Additionally, Adjusted EBITDA in 2022 reflected higher revenue, partially offset by increased compensation and fuel costs, as well as higher purchased transportation costs, in part due to inflation.

Depreciation and amortization expense increased in 2022 compared with 2021 due to the impact of prior capital investments, in particular tractors and trailers.

Excluding these gains, the increase in adjusted EBITDA reflected higher revenue, excluding fuel surcharge revenue, driven by the pricing and volume dynamics explained above, and lower purchased transportation, damage claims, fuel costs, maintenance costs, and bad debt expense.

These items were partially offset by lower fuel surcharge revenue and higher salaries, wages and employee benefits and vehicular insurance costs.

Depreciation and amortization expense increased to $346 million in 2024 compared with $291 million in 2023 due to the impact of capital investments, in particular tractors and trailers, as well as service centers acquired in the Yellow Asset Acquisition.

European Transportation Segment

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Adjusted EBITDA (1)

158 163 5.0 % 5.3 %

Depreciation and amortization expense 140 136 4.4 % 4.4 %

(1) Percent of Revenue is calculated using the underlying unrounded amounts.

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenue in our European Transportation segment remained consistent at $3.1 billion in 2023 and 2022.

Revenue in our European Transportation segment increased 3.3% to $3.2 billion in 2024, compared with $3.1 billion in 2023.

Foreign currency movement increased revenue by approximately 1.3 percentage points in 2024.

The decrease in revenue compared to 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 $163 million, or 5.3% of revenue in 2023, compared with $169 million, or 5.5% of revenue, in 2022.

The decrease in Adjusted EBITDA 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, and higher lease and facility costs.

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

Depreciation and amortization expense increased in 2023 compared with 2022 primarily due to the impact of capital investments as well as foreign currency movements.

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Revenue in our European Transportation segment decreased 0.1% to $3.07 billion in 2022, compared with $3.08 billion in 2021.

Foreign currency movement decreased revenue by approximately 12.3 percentage points in 2022.

The increase in revenue compared to 2021, after taking into effect the impact of foreign currency movement, primarily reflects higher fuel surcharge revenue.

Adjusted EBITDA was $169 million, or 5.5% of revenue in 2022, compared with $165 million, or 5.4% of revenue, in 2021.

The increase in Adjusted EBITDA was primarily driven by lower compensation-related and third-party transportation costs, partially offset by higher fuel costs and the impact of inflation.

Depreciation and amortization expense decreased in 2022 compared with 2021 primarily due to the impact of foreign currency movement.

The increase in revenue compared to 2023, after taking into effect the impact of foreign currency movement, primarily reflects higher yield.

Adjusted EBITDA was $158 million in 2024, compared with $163 million in 2023.

The decrease in adjusted EBITDA was primarily driven by higher purchased transportation, salaries, wages and employee benefits and lease and facility costs.

These items were partially offset by the increase in revenue after taking into effect the impact of foreign currency movement, described above, and lower fuel costs and insurance and claims.

Depreciation and amortization expense increased to $140 million in 2024 compared with $136 million in 2023 primarily due to the impact of capital investments.

Liquidity and Capital Resources

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As of December 31, 2024, we have $511 million available to draw under our ABL Facility, based on a borrowing base of $512 million and outstanding letters of credit of less than $1 million.

Commitments under our ABL Facility are $600 million and the maturity date is April 30, 2026.

Additionally, under a credit agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $137 million in aggregate face amount of letters of credit as of December 31, 2024.

In connection with the spin-off of RXO, effective November 4, 2022, the commitments under the ABL Facility were reduced from $1.0 billion to $600 million.

There were no other significant changes made to the terms of the facility at that time.

In February 2023, we amended the facility to, among other things:

(i) extend the maturity date to April 30, 2026 (subject, in certain circumstances, to a springing maturity if more than $250 million of our existing term loan debt or certain refinancings thereof remain outstanding 91 days prior to their respective maturity dates);

(ii) replace LIBOR-based benchmark rates applicable to loans outstanding with SOFR-based rates;

(iii) reduce the sublimit for issuance of letters of credit to $200 million;

(iv) reduce the sublimit for borrowings in Canadian Dollars to $50 million;

(v) exclude real property from the collateral securing the obligations and (vi) make certain other changes to the covenants and other provisions therein.

The aggregate commitment of all lenders under the amended ABL Facility remains equal to $600 million.

As of December 31, 2024, we had approximately $757 million of total liquidity.

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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 $207 million as of December 31, 2024).

As of December 31, 2023, €1 million (approximately $1 million) was available under the program.

As of December 31, 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.

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Cash consideration

1,815 1,744 1,726

Factoring programs

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Cash consideration

Bridge Facility

On December 4, 2023, in connection with the Yellow Asset Acquisition, we entered into a senior secured bridge term loan credit agreement (the “Bridge Credit Agreement”).

Under this agreement, we were able to borrow up to an aggregate amount of $870 million (the “Bridge Facility”).

Concurrently with the issuance of the Incremental Term Loans and the Senior Notes due 2032, described below, on December 13, 2023, we terminated the commitments under this agreement.

The Bridge Facility remained unfunded at the termination date.

Term Loan Facility

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In December 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, having substantially similar terms as the New Term Loan Facility, except with respect to maturity date, issue price, prepayment premiums in connection with certain voluntary prepayments and certain other provisions.

The Incremental Term Loans were issued under the Term Loan Credit Agreement, having substantially similar terms as the New Term Loan Facility, except with respect to maturity date, issue price, prepayment premiums in connection with certain voluntary prepayments and certain other provisions.

The Incremental Term Loans were issued at par and will mature on February 1, 2031.

Both the New Term Loan Facility and Incremental Term Loans bear interest at a rate per annum equal to, at our option, either (a) a Term 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 for both tranches was 7.36% as of December 31, 2023.

The weighted average interest rate of our term loans was approximately 6.53% as of December 31, 2024.

In December 2023, we completed the private placement of $585 million aggregate principal amount of senior notes due 2032 (the “Senior Notes due 2032”), which mature on February 1, 2032 and bear interest at a rate of 7.125% per annum.

Interest is payable semi-annually in cash in arrears, commencing August 1, 2024.

Interest is payable semi-annually in cash in arrears, and commenced August 1, 2024.

These notes were issued at par.

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

In 2021, we redeemed our outstanding 6.125% senior notes due 2023 (“Senior Notes due 2023”), 6.75% senior notes due 2024 (“Senior Notes due 2024”) and 6.50% senior notes due 2022 (“Senior Notes due 2022”).

The redemption price for the Senior Notes due 2023 and Senior Notes due 2022 was 100.0% of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375% of the principal amount, plus accrued and unpaid interest.

We paid for the redemptions using available cash, net proceeds from a debt issuance and equity offering and cash received from GXO of approximately $794 million.

We recorded debt extinguishment losses of $51 million related to these redemptions.

Share Issuance

In 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s executive chairman.

The additional 750,000 purchased shares were also split equally between us and JPE.

We received approximately $384 million of proceeds, net of fees and expenses, from the sale of the shares and used them to repay a portion of our outstanding borrowings and for general corporate purposes.

XPO did not receive any proceeds from the sale of shares by JPE.

Series A Convertible Perpetual Preferred Stock (“Preferred Stock”) and Warrants

In order to simplify our equity capital structure, in 2021, the remaining 1,015 preferred shares outstanding were exchanged for 0.1 million shares of common stock and the remaining 9.8 million warrants outstanding were exchanged for 9.2 million shares of common stock.

The warrants exchanged included holdings of JPE.

Subsequent to the exchange, there are no shares of Preferred Stock or warrants outstanding.

Share Repurchases

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Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

In 2023, as described above, we amended the terms of our ABL Facility and Existing Term Loan Facility, including transitioning the interest rate from the London Interbank Offered Rate (“LIBOR”) to other base rates.

We have no other contracts or hedging relationships that reference LIBOR.

Sources and Uses of Cash

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During 2024, we:

(i) generated cash from operating activities from continuing operations of $694 million and (ii) received net proceeds of $3.0 billion from the issuance of debt.

We used cash during this period primarily to:

(i) purchase property and equipment of $1.5 billion;

(ii) repay our Existing Term Loan Facility for $2.0 billion and (iii) redeem our Senior Notes due 2025 for $114 million.

During 2022, we:

(i) generated cash from operating activities from continuing operations of $824 million;

(ii) generated proceeds from sales of property and equipment of $88 million;

and (iii) received a distribution from RXO of $312 million.

(i) generated cash from operating activities from continuing operations of $808 million and (ii) generated proceeds from sales of property and equipment of $75 million.

We used cash during this period primarily to:

(i) purchase property and equipment of $789 million;

(ii) redeem a portion of our Senior Notes due 2025 for $1.1 billion and (iii) make payments on debt and finance leases of $61 million.

(ii) make payments of $129 million related to tax withholding obligations in connection with the vesting of restricted shares and (iii) make payments on debt and finance leases of $82 million.

During 2023, we:

(i) generated cash from operating activities from continuing operations of $490 million;

(ii) generated proceeds from sales of property and equipment of $131 million;

(iii) received a distribution from GXO of $794 million and (iv) generated proceeds of $384 million from the issuance of common stock.

(i) generated cash from operating activities from continuing operations of $694 million and (ii) received net proceeds of $3.0 billion from the issuance of debt.

We used cash during this period primarily to:

(i) purchase property and equipment of $269 million;

(ii) redeem our Senior Notes due 2022, 2023 and 2024 for $2.8 billion;

(iii) repay our ABL Facility borrowings of $200 million and (iv) make payments on debt and finance leases of $80 million.

Cash flows from operating activities from continuing operations for 2023 decreased by $130 million compared with 2022.

The decrease in 2023 compared with 2022 reflects:

(i) the impact of operating assets and liabilities utilizing $99 million of cash in 2023, compared with generating $1 million of cash in 2022;

(ii) a $64 million non-cash

goodwill impairment charge recognized in 2022, that was added back to income from continuing operations in the determination of 2022 operating cash flows;

(iii) lower non-cash deferred tax expense of $49 million in 2023, that is also added back in the determination of operating cash flows and (iv) higher cash paid for interest of $40 million in 2023.

These items were partially offset by:

(i) lower gains on sales of property and equipment of $55 million in 2023 and (ii) higher non-cash depreciation, amortization and net lease activity of $40 million in 2023, that are both also added back in the determination of operating cash flows, and (iii) lower cash paid for taxes of $53 million in 2023.

(i) purchase property and equipment of $1.5 billion;

(ii) repay our Existing Term Loan Facility for $2.0 billion and (iii) redeem our Senior Notes due 2025 for $114 million.

Cash flows from operating activities from continuing operations for 2024 increased by $114 million compared with 2023.

The increase in 2024 compared with 2023 reflects:

(i) higher income from continuing operations of $88 million;

(ii) higher non-cash deferred tax and stock compensation expenses of $119 million, that are added back to income from continuing operations in determining cash flow from operating activities;

(iii) a $64 million non-cash goodwill impairment charge recognized in 2022, that also is added back in the determination of operating cash flows and (iv) the impact of operating assets and liabilities generating $1 million of cash in 2022, compared with utilizing $30 million of cash in 2021.

Additionally, cash paid for interest was $108 million lower in 2022 compared to 2021.

(i) higher income from continuing operations of $195 million and (ii) higher non-cash depreciation and amortization of $58 million, that is added back in the determination of operating cash flows.

These items were partially offset by:

(i) the impact of operating assets and liabilities utilizing $194 million of cash in 2024, compared with utilizing $99 million in 2023 and (ii) higher gains on sales of property and equipment of $35 million in 2024 compared with 2023, that is subtracted in the determination of operating cash flows.

As of December 31, 2024, we had $893 million of operating lease and related interest payment obligations, of which $160 million is due within the next twelve months.

Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $45 million.

These operating leases will commence at various times beginning in 2024 through 2025 with initial lease terms of 4.5 years to 15 years.

These operating leases will commence in 2025 with initial lease terms of 3 years to 12 years.

For further information on our operating leases and their maturities, see Note 8—Leases to our Consolidated Financial Statements.

Investing activities from continuing operations used $1,502 million of cash in 2023 compared with $404 million used in 2022 and $141 million used in 2021.

During 2023, we used $1,533 million of cash to purchase property and equipment, including $878 million related to the Yellow Asset Acquisition, and received $29 million from sales of property and equipment.

During 2022, we used $521 million of cash to purchase property and equipment and received $88 million of cash from sales of property and equipment and $29 million from the settlement of cross currency swaps.

During 2021, we used $269 million of cash to purchase property and equipment and received $131 million of cash from sales of property and equipment.

We anticipate gross capital expenditures to be between $700 million and $800 million in 2024, funded by cash on hand and available liquidity.

Financing activities from continuing operations generated $761 million of cash in 2023 compared with $861 million of cash used in 2022 and $1.9 billion of cash used in 2021.

As of December 31, 2024, we have approximately $79 million of purchase commitments, of which approximately $40 million is due within the next twelve months.

Investing activities from continuing operations used $702 million of cash in 2024 compared with $1,502 million used in 2023.

During 2024, we used $789 million of cash to purchase property and equipment and received $75 million from sales of property and equipment, including $47 million related to the sale of a service center in our North American LTL segment in December 2024 from a planned service center relocation.

In January 2025, the proceeds from this sale were used to purchase four new service centers that were previously leased.

During 2023, we used $1,533 million of cash to purchase property and equipment, including $878 million related to the Yellow Asset Acquisition, and received $29 million of cash from sales of property and equipment.

We anticipate gross capital expenditures to be between $600 million and $700 million in 2025, including the four new service centers referenced above, funded by cash on hand and available liquidity.

Financing activities from continuing operations used $226 million of cash in 2024 compared with $761 million of cash generated in 2023.

The primary uses of cash from financing activities during 2024 was $129 million to make payments for tax withholdings on restricted shares, primarily driven by a payment of approximately $85 million for tax withholdings on XPO restricted stock units that vested during December, and $82 million used to repay borrowings, primarily related to finance lease obligations.

The primary source of cash from financing activities during 2023 was $3.0 billion of net proceeds from the issuance of debt.

The primary uses of cash from financing activities during 2023 were $2.1 billion used to repay our Existing Term Loan Facility and redeem the Senior Notes due 2025 and $71 million used to repay other borrowings.

The primary uses of cash from financing activities during 2022 were $1.1 billion used to redeem a portion of the Senior Notes due 2025 and $61 million used to repay other borrowings.

The primary source of cash from financing activities from continuing operations during 2022 was $312 million of net proceeds from a distribution from RXO, which included net proceeds from RXO’s debt offerings.

The primary uses of cash from financing activities from continuing operations during 2021 were $2.8 billion used to redeem the senior notes due 2022, 2023 and 2024 and $200 million used to repay borrowings under our ABL Facility.

The primary sources of cash from financing activities from continuing operations during 2021 were $794 million of proceeds from a distribution from GXO and $384 million of net proceeds from the issuance of common stock.

In 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO.

As of December 31, 2024, we had $3.3 billion total outstanding principal amount of debt, excluding finance leases.

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Discount rate - benefit obligations 5.63 % 5.15 % 5.21% - 5.55% 4.98% - 5.12%

An increase or decrease of 25 basis points in the discount rate would decrease or increase our 2023 pre-tax pension income by approximately $1 million.

An increase or decrease of 25 basis points in the discount rate would increase or decrease our 2024 pre-tax pension income by less than $1 million.

We use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment.

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For the year ended December 31, 2024, our expected return on plan assets was $98 million, compared to the actual return on plan assets of $17 million.

The actual annualized return on plan assets for 2023 was approximately 10%, which was above the expected return on asset assumption for the year due to positive returns in the long duration fixed income market environment, which represented 90% of the portfolio, along with positive performance from the domestic and international equity markets.

The actual annualized return on plan assets for 2024 was approximately 1%, which was below the expected return on asset assumption for the year due to negative performance in the long duration fixed income market environment, which represented 90% of the portfolio.

An increase or decrease of 25 basis points in the expected return on plan assets would increase or decrease our 2024 pre-tax pension income by approximately $4 million.

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For our defined benefit pension plans, accumulated unrecognized actuarial losses were $195 million as of December 31, 2024.

The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is

amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.

The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.

Effect on Results

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In determining the amount and timing of pension contributions, we consider our cash position, the funded status as measured by the Pension Protection Act of 2006 and generally accepted accounting principles, and the tax deductibility of contributions, among other factors.

We contributed $5 million in both 2023 and 2022 to the non-qualified plans and we estimate that we will contribute $5 million in 2024.

We made benefit payments of $5 million in both 2024 and 2023 under the non-qualified plans and we estimate that we will make benefit payments of $5 million in 2025.

For additional information, see Note 13—Employee Benefit Plans to our Consolidated Financial Statements.

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The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.

For our 2024 annual goodwill assessment, we performed a step-zero qualitative analysis for two of our reporting units.

Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of these reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.

For our other three reporting units, we performed a quantitative analysis using a combination of income and market approaches.

All reporting units had fair values in excess of their carrying values, resulting in no impairment of goodwill.

For our 2023 annual goodwill assessment, we performed a step-zero qualitative analysis for our five reporting units.

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Similarly, for our 2022 annual goodwill assessment performed as of August 31, we performed a step-zero qualitative analysis for each of the three reporting units that existed at that time and reached the same conclusion.

However, in the fourth quarter of 2022 and in connection with the RXO spin-off, we performed additional impairment tests

because the number of our reporting units increased from three to five to reflect our new internal organization.

However, in the fourth quarter of 2022 and in connection with the RXO spin-off, we performed additional impairment tests because the number of our reporting units increased from three to five to reflect our new internal organization.

Specifically, while our European Transportation business was previously considered a single reporting unit, after the spin-off of RXO, it was determined that the European Transportation business was comprised of four reporting units.

As a result, in the fourth quarter of 2022, we tested each of the four new reporting units for potential impairment.

A quantitative test was performed for each of these four new reporting units using a combination of income and market approaches and we recorded an aggregate impairment charge of $64 million related to two of these new reporting units.

The income approach of determining fair value is based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

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We believe the actuarial methods are appropriate for measuring these self-insurance accruals.

However, based on the number of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above along with other external factors.

However, because of the number of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above along with other external factors.

Accordingly, changes in these assumptions and factors can affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims.

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We evaluate the recoverability of these future tax deductions and credits by assessing all available evidence, including the reversal of deferred tax liabilities, carrybacks available, and historical and projected pre-tax profits generated by our operations.

Valuation allowances are established when, in management’s judgment, it is more likely than not that our deferred tax assets will not be realized.

historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.

Valuation allowances are established when, in management’s judgment, it is more likely than not that our deferred tax assets will not be

In assessing the need for a valuation allowance, management weighs the available positive and negative evidence, including limitations on the use of tax losses and other carryforwards due to changes in ownership, historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.

New Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis