Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual future results, levels of activity, performance or achievements to be materially different from our expected future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Quarterly Report on Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’s unaudited Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with the audited consolidated financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 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 March 31, 2025, we had approximately 38,000 employees serving approximately 55,000 customers through 606 locations in 17 countries.
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 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.
North American LTL Segment
LTL in North America is a bedrock industry providing a critical service to the economy, with secular growth drivers, a favorable pricing environment 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 $53 billion in 2024.
We provide approximately 36,000 shippers with critical geographic density and day-definite domestic services to approximately 99% of U.S. zip codes, as well as cross-border services to 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 March 31, 2025, our customer-focused organization of truck
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drivers, service center teams and sales professionals worked together to move approximately 17 billion pounds of freight through our network.
Importantly, our LTL business historically has generated a high return on invested capital and robust free cash flow. This supports our ongoing investments in people, network capacity and proprietary technology. We manage the business to specific objectives, such as on-time delivery and damage-free transport of customer freight, the optimal sourcing of linehaul transportation, and the strategic expansion of our footprint in markets with long-term demand. Since implementing our growth plan in the fourth quarter of 2021, we have added more than 2,000 net new doors to our network — this includes the acquisition of service centers previously operated by Yellow Corporation (the “Yellow Asset Acquisition”), completed in December 2023. As of March 31, 2025, we had opened the majority of these acquired locations.
Additionally, we have continued to advance a host of initiatives that are specific to XPO and largely independent of the macroeconomic environment. Our in-house trailer manufacturing facility and truck driver schools are self-reliant capabilities that are competitively advantageous for us, particularly when industry conditions make it difficult to source equipment or drivers. In 2024, we produced over 4,400 trailers and continued to invest in training commercial drivers at our XPO driver schools.
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 in 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, full truckload brokerage, warehousing, managed transportation, last mile, freight forwarding and, increasingly, multimodal solutions customized for our customers, such as road-rail and road-short sea combinations. 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 pricing, linehaul, labor planning, pickup-and-delivery and dock operations — the main components of the service we provide. We have been investing in proprietary artificial intelligence (“AI”) technology and have identified a number of high-impact applications where intelligent automation and better decision-making can directly enhance profitability. We see artificial intelligence playing a major role in how we operate, compete, and create value over the long term.
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 March 31, 2025, we moved approximately 17 billion pounds of freight 800 million miles, including moving linehaul freight an average of 2.6 million miles a day.
With intelligent route-building, we can reduce empty miles in our linehaul network and improve load factor. Our proprietary optimization models analyze massive amounts of data including volume, capacity, and dimensions and generate instructions to maximize trailer utilization, reduce cost, and enhance service. We use our real-time visualization tools to drive efficiencies with pickups and deliveries and developed a robust pricing platform for contractual account management.
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Consolidated Summary Financial Table
Three Months Ended March 31, Percent of Revenue Change
(Dollars in millions) 2025
2024
2025 2024 2025 vs. 2024
Revenue $ 1,954 $ 2,018 100.0 % 100.0 % (3.2) %
Salaries, wages and employee benefits 832 834 42.6 % 41.3 % (0.2) %
Purchased transportation 399 438 20.4 % 21.7 % (8.9) %
Fuel, operating expenses and supplies 393 413 20.1 % 20.5 % (4.8) %
Operating taxes and licenses 19 19 1.0 % 0.9 % — %
Insurance and claims 35 38 1.8 % 1.9 % (7.9) %
Gains on sales of property and equipment (2) (2) (0.1) % (0.1) % — %
Depreciation and amortization expense 123 117 6.3 % 5.8 % 5.1 %
Legal matter (11) — (0.6) % — % NM
Transaction and integration costs 3 14 0.2 % 0.7 % (78.6) %
Restructuring costs 12 8 0.6 % 0.4 % 50.0 %
Operating income 151 138 7.7 % 6.8 % 9.4 %
Other income (1) (10) (0.1) % (0.5) % (90.0) %
Debt extinguishment loss 5 — 0.3 % — % NM
Interest expense 56 58 2.9 % 2.9 % (3.4) %
Income before income tax provision 91 90 4.7 % 4.5 % 1.1 %
Income tax provision 22 23 1.1 % 1.1 % (4.3) %
Net income $ 69 $ 67 3.5 % 3.3 % 3.0 %
NM - Not meaningful.
Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024
Our consolidated revenue for the first quarter of 2025 decreased 3.2% to $1.95 billion, compared with the same period in 2024. The decrease in revenue in the first quarter of 2025 compared to the same period in 2024 reflects declines in both of our reportable segments, further explained below. Foreign currency movement decreased revenue by approximately 1.4 percentage points in the first quarter of 2025.
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 first quarter of 2025 was $832 million, or 42.6% of revenue, compared with $834 million, or 41.3% of revenue, for the same period in 2024. The year-over-year increase as a percentage of revenue primarily reflects the insourcing of a greater proportion of linehaul from third-party transportation providers, partially offset by lower incentive compensation and savings from restructuring actions.
Purchased transportation includes costs of procuring third-party freight transportation. Purchased transportation for the first quarter of 2025 was $399 million, or 20.4% of revenue, compared with $438 million, or 21.7% of revenue, for the same period in 2024. 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 in our North American LTL segment.
Fuel, operating expenses and supplies includes the cost of fuel purchased for use in our vehicles as well as related taxes, maintenance and lease costs for our equipment, including tractors and trailers, costs related to operating our owned and leased facilities, bad debt expense, third-party professional fees, information technology expenses and supplies expense. Fuel, operating expenses and supplies for the first quarter of 2025 was $393 million, or 20.1% of revenue, compared with $413 million, or 20.5% of revenue, for the same period in 2024. The year-over-year decrease as a percentage of revenue primarily reflects lower fuel costs.
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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 first quarter of 2025 was $19 million, compared with $19 million for the same period in 2024.
Insurance and claims includes costs related to vehicular and cargo claims for both purchased insurance and self-insurance programs. Insurance and claims for the first quarter of 2025 was $35 million, compared with $38 million for the same period in 2024. The year-over-year decrease primarily reflects lower costs in our European Transportation segment, partially offset by higher vehicular insurance costs in our North American LTL segment.
Depreciation and amortization expense for the first quarter of 2025 was $123 million, compared with $117 million for the same period in 2024. The year-over-year increase reflects the impact of capital investments, in particular service centers acquired in the Yellow Asset Acquisition, as well as tractors and trailers.
Legal matter for the first quarter of 2025 was a gain of $11 million, which reflects the settlement of claims against certain truck manufacturers related to purchases by our European Transportation segment covering periods prior to our acquisition of Norbert Dentressangle SA in 2015.
Transaction and integration costs for the first quarter of 2025 were $3 million, compared with $14 million for the same period in 2024. The year-over-year decrease primarily relates to no further stock-based compensation costs in the current year for certain employees related to strategic initiatives.
Restructuring costs for the first quarter of 2025 were $12 million, compared with $8 million for the same period in 2024, which primarily related to restructuring actions in our European Transportation segment. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. For more information, see Note 4—Restructuring Charges to our Condensed Consolidated Financial Statements.
Other income for the first quarter of 2025 was $1 million, compared with $10 million for the same period in 2024. The year-over-year decrease primarily reflects a $5 million decrease in net periodic pension income and a $3 million decrease in investment income.
Debt extinguishment loss for the first quarter of 2025 was $5 million, with no comparable loss for the same period in 2024. The debt extinguishment loss in the first quarter of 2025 related to the refinancing of our term loan facility.
Interest expense decreased to $56 million for the first quarter of 2025, compared with $58 million for the same period in 2024. The decrease is primarily due to lower interest rates on our variable rate debt.
Our effective income tax rates were 24.2% and 25.2% for the first quarters of 2025 and 2024, respectively. The effective income tax rates for the first quarter of 2025 and 2024 were based on forecasted full-year effective income tax rates, adjusted for discrete items that occurred within the periods presented. The decrease in our effective income tax rate for the first quarter of 2025 compared to the same period in 2024 was primarily driven by a decrease in losses for which no tax benefit can be recognized and a decrease in forecasted non-deductible executive compensation expense. In both the first quarter of 2025 and 2024, the effective tax rates were impacted by losses for which no tax benefit can be recognized and forecasted non-deductible executive compensation expense, partially offset by a discrete tax benefit of $5 million from stock-based compensation in both periods.
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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. 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 before debt extinguishment loss, interest expense, income tax provision, depreciation and amortization expense, legal matters, 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 Net income.
North American Less-Than-Truckload Segment
Three Months Ended March 31, Percent of Revenue Change
(Dollars in millions) 2025 2024 2025 2024 2025 vs. 2024
Revenue $ 1,172 $ 1,221 100.0 % 100.0 % (4.0) %
Adjusted EBITDA (1)
250 255 21.3 % 20.9 % (2.0) %
Depreciation and amortization 90 82 7.7 % 6.7 % 9.8 %
(1) Percent of Revenue is calculated using the underlying unrounded amounts.
Revenue in our North American LTL segment decreased 4.0% to $1.17 billion for the first quarter of 2025, compared with $1.22 billion for the same period in 2024. Revenue included fuel surcharge revenue of $178 million and $210 million, respectively, for the first quarters of 2025 and 2024. The decrease in fuel surcharge revenue was primarily driven by lower diesel prices and lower volume.
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 March 31,
2025 2024 Change %
Pounds per day (thousands) 65,427 70,709 (7.5) %
Shipments per day 48,400 51,392 (5.8) %
Average weight per shipment (in pounds) 1,352 1,376 (1.8) %
Gross revenue per hundredweight, excluding
fuel surcharges
$ 24.73 $ 23.13 6.9 %
Percentages presented are calculated using the underlying unrounded amounts.
The year-over-year decrease in revenue, excluding fuel surcharge revenue, in the first quarter of 2025 reflects lower volume, driven by lower shipments per day and lower average weight per shipment. These items were partially offset by higher yield, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives.
Adjusted EBITDA was $250 million for the first quarter of 2025, compared with $255 million for the same period in 2024. The decrease in adjusted EBITDA reflects lower revenue, driven by lower fuel surcharge revenue and volume, and lower pension income. These items were partially offset by higher yield and lower purchased transportation and fuel costs.
Depreciation and amortization expense increased to $90 million in the first quarter of 2025 compared with $82 million for the same period in 2024. The increase was due to the impact of capital investments, in particular service centers acquired in the Yellow Asset Acquisition, as well as tractors and trailers.
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European Transportation Segment
Three Months Ended March 31, Percent of Revenue Change
(Dollars in millions) 2025 2024 2025 2024 2025 vs. 2024
Revenue $ 782 $ 797 100.0 % 100.0 % (1.9) %
Adjusted EBITDA (1)
32 38 4.1 % 4.8 % (15.8) %
Depreciation and amortization 32 34 4.1 % 4.3 % (5.9) %
(1) Percent of Revenue is calculated using the underlying unrounded amounts.
Revenue in our European Transportation segment decreased 1.9% to $782 million for the first quarter of 2025, compared with $797 million for the same period in 2024. Foreign currency movement decreased revenue by approximately 3.4 percentage points in the first quarter of 2025. The increase in revenue during the first quarter of 2025, compared to the same period in 2024, after taking into effect the impact of foreign currency movement, primarily reflects higher yield, partially offset by lower volume.
Adjusted EBITDA was $32 million for the first quarter of 2025, compared with $38 million for the same period in 2024. The decrease in adjusted EBITDA was primarily driven by higher purchased transportation, 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 decreased to $32 million in the first quarter of 2025 compared with $34 million for the same period in 2024.
Liquidity and Capital Resources
Our cash and cash equivalents balance was $212 million as of March 31, 2025, compared to $246 million as of December 31, 2024. Our principal existing sources of cash are: (i) cash generated from operations; (ii) borrowings available under our Revolving Credit Facility (as defined below); and (iii) proceeds from the issuance of other debt. As of March 31, 2025, we have $599 million available to draw under our Revolving Credit Facility, after considering 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 $133 million in aggregate face amount of letters of credit as of March 31, 2025.
In February 2025, we terminated our Second Amended and Restated Revolving Credit Agreement, as amended, and entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for revolving credit commitments in an aggregate amount of $600 million (the “Revolving Credit Facility”). See Note 6—Debt to our Condensed Consolidated Financial Statements for further information.
As of March 31, 2025, we had approximately $811 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 $216 million as of March 31, 2025). As of March 31, 2025, €1 million (approximately $1 million) was available under the program. Under the securitization program, we service the receivables we sell on behalf of the purchasers. The program expires in July 2026.
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Term Loan Facility
In February 2025, we amended our Senior Secured Term Loan Credit Agreement. Pursuant to the amendment, the lenders provided the company (a) a term loan B facility in an aggregate principal amount of $700 million, maturing on May 24, 2028 (the “Refinancing Term Loan B-2 Facility”), and (b) a term loan B facility in an aggregate principal amount of $400 million, maturing on February 1, 2031 (the “Refinancing Term Loan B-3 Facility” and together with the Refinancing Term Loan B-2 Facility, the “Refinancing Term Loan Facilities”). The proceeds of the Refinancing Term Loan Facilities were used to refinance our existing term loans. We recorded a debt extinguishment loss of $5 million due to this refinancing.
The Refinancing Term Loan Facilities bear interest at a rate per annum equal to, at the Company’s option, either alternate base rate (“ABR”) or Term Secured Overnight Financing Rate (“SOFR”) plus (i) in the case of ABR Loans, 0.75% or, (ii) in the case of Term SOFR Loans, 1.75%, which, in each case after September 30, 2025, shall be reduced by 0.25% upon the achievement of a Consolidated First Lien Net Leverage Ratio (as defined in the Amended Term Loan Credit Agreement) of less than or equal to 1.21 to 1.00. The Refinancing Term Loan Facilities are secured by a lien on substantially all of our assets and the assets of our guarantors, with certain exceptions.
The amended Term Loan Credit Agreement contains customary mandatory prepayment requirements, representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, dividends, repayments of junior financings and asset sales, in each case subject to a number of important exceptions and qualifications.
The weighted average interest rate of our term loans was approximately 6.07% as of March 31, 2025.
Loan Covenants and Compliance
As of March 31, 2025, 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
Three Months Ended March 31,
(In millions) 2025 2024
Net cash provided by operating activities $ 142 $ 145
Net cash used in investing activities (191) (299)
Net cash used in financing activities (30) (29)
During the three months ended March 31, 2025, we generated cash from operating activities of $142 million. We used cash during the period primarily to: (i) purchase property and equipment of $199 million and (ii) make net payments of $47 million related to tax withholding obligations in connection with the vesting of restricted shares.
During the three months ended March 31, 2024, we generated cash from operating activities of $145 million. We used cash during this period primarily to: (i) purchase property and equipment of $306 million; (ii) make payments on debt and finance leases of $21 million; and (iii) make payments of $15 million related to tax withholding obligations in connection with the vesting of restricted shares
Cash flows from operating activities for the three months ended March 31, 2025 decreased by $3 million, compared with the same period in 2024. The decrease primarily reflects the impact of operating assets and liabilities utilizing $78 million of cash in the first three months of 2025, compared with utilizing $68 million during the same period in 2024, which was partially offset by higher non-cash depreciation and amortization of $6 million, that is added back in the determination of operating cash flows.
Investing activities used $191 million of cash in the three months ended March 31, 2025 and $299 million of cash in the three months ended March 31, 2024. During the three months ended March 31, 2025, we used $199 million to purchase property and equipment, as compared to a $306 million usage of cash in the same period in 2024. The decrease is due to the timing of capital expenditures in 2025 compared to 2024.
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Financing activities used $30 million of cash in the three months ended March 31, 2025 and $29 million of cash in the three months ended March 31, 2024. The primary uses of cash from financing activities during the first three months of 2025 were $47 million to make net payments for tax withholdings on restricted shares and $18 million used to repay borrowings, primarily related to finance lease obligations. The primary uses of cash from financing activities during the first three months of 2024 were $21 million used to repay borrowings, primarily related to finance lease obligations, and $15 million to make payments for tax withholdings on restricted shares. The primary source of cash from financing activities during the first three months of 2025 was $38 million of proceeds from bank overdrafts, as compared to $11 million in the same period of 2024.
There were no material changes to our December 31, 2024 contractual obligations during the three months ended March 31, 2025. We anticipate full year gross capital expenditures to be between $600 million and $700 million in 2025, funded by cash on hand, cash generated from operations and available liquidity.
New Accounting Standards
Information related to new accounting standards is included in Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.