XPO(XPO) - 2024 Q1 - Quarterly Report

Part I—Financial Information Item 1. Financial Statements (Unaudited) This section presents XPO, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2024, including balance sheets, income statements, comprehensive income, cash flows, and changes in equity, along with detailed notes explaining accounting policies, segment performance, debt, derivatives, and commitments Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (March 31, 2024 vs. December 31, 2023) | (In millions) | March 31, 2024 | December 31, 2023 | | :--------------------------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $229 | $412 | | Accounts receivable, net | 1,077 | 973 | | Total current assets | 1,528 | 1,593 | | Property and equipment, net | 3,257 | 3,075 | | Goodwill | 1,484 | 1,498 | | Total assets | $7,603 | $7,492 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $570 | $532 | | Total current liabilities | 1,622 | 1,590 | | Long-term debt | 3,323 | 3,335 | | Total liabilities | 6,271 | 6,226 | | Total equity | 1,332 | 1,266 | | Total liabilities and equity | $7,603 | $7,492 | - Total assets increased by $111 million from December 31, 2023, to March 31, 2024, reaching $7,603 million [8] - Total equity increased by $66 million to $1,332 million [8] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (Three Months Ended March 31, 2024 vs. 2023) | (In millions, except per share data) | 2024 | 2023 | | :----------------------------------- | :--- | :--- | | Revenue | $2,018 | $1,907 | | Operating income | 138 | 58 | | Income from continuing operations before income tax provision | 90 | 21 | | Income tax provision | 23 | 4 | | Income from continuing operations | 67 | 17 | | Net income | $67 | $14 | | Basic earnings per share | $0.58 | $0.13 | | Diluted earnings per share | $0.56 | $0.13 | - Net income significantly increased to $67 million in Q1 2024 from $14 million in Q1 2023, driven by a substantial rise in operating income from $58 million to $138 million [11] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, 2024 vs. 2023) | (In millions) | 2024 | 2023 | | :------------------------------------------------------------------------------------------------ | :--- | :--- | | Net income | $67 | $14 | | Other comprehensive income (loss), net of tax | (5) | 15 | | Comprehensive income | $62 | $29 | - Comprehensive income more than doubled to $62 million in Q1 2024 from $29 million in Q1 2023, despite a shift from other comprehensive income to a loss [15] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2024 vs. 2023) | (In millions) | 2024 | 2023 | | :---------------------------------------------------- | :--- | :--- | | Net cash provided by operating activities from continuing operations | $145 | $76 | | Net cash used in investing activities from continuing operations | (299) | (216) | | Net cash used in financing activities from continuing operations | (29) | (10) | | Net decrease in cash, cash equivalents and restricted cash | (183) | (155) | | Cash, cash equivalents and restricted cash, end of period | $235 | $315 | - Net cash provided by operating activities from continuing operations increased by $69 million year-over-year to $145 million [19][115] - Net cash used in investing activities increased to $299 million, primarily due to higher capital expenditures [19][116] Condensed Consolidated Statements of Changes in Equity Condensed Consolidated Statements of Changes in Equity (March 31, 2024 vs. December 31, 2023) | (Shares in thousands, dollars in millions) | Balance as of Dec 31, 2023 | Net Income | Other Comprehensive Loss | Exercise/Vesting of Stock Awards | Tax Withholdings | Stock Comp. Expense | Balance as of Mar 31, 2024 | | :--------------------------------------- | :------------------------- | :--------- | :----------------------- | :------------------------------- | :--------------- | :------------------ | :------------------------- | | Total Equity | $1,266 | $67 | $(5) | $0 | $(15) | $19 | $1,332 | - Total equity increased by $66 million from $1,266 million at December 31, 2023, to $1,332 million at March 31, 2024, primarily driven by net income and stock compensation expense, partially offset by other comprehensive loss and tax withholdings [23] Notes to Condensed Consolidated Financial Statements Note 1. Organization, Description of Business and Basis of Presentation XPO, Inc. is a freight transportation services provider in North America and Europe, utilizing proprietary technology, and is evaluating the divestiture of its European business - XPO acquired 28 LTL service centers in the U.S. from Yellow Corporation in December 2023 to expand its LTL network capacity [27] - The Board of Directors has authorized the divestiture of the European business, though terms and timing are uncertain [28] - The company uses trade receivables securitization and factoring programs to manage cash flows, with the European securitization program fully utilized at $216 million as of March 31, 2024 [33][34] Note 2. Segment Reporting XPO operates in two reportable segments: North American Less-Than-Truckload (LTL) and European Transportation, with performance assessed by Adjusted EBITDA - XPO's two reportable segments are North American LTL and European Transportation [40] Segment Revenue and Adjusted EBITDA (Three Months Ended March 31, 2024 vs. 2023) | (in millions) | 2024 Revenue | 2023 Revenue | 2024 Adj. EBITDA | 2023 Adj. EBITDA | | :-------------------- | :----------- | :----------- | :--------------- | :--------------- | | North American LTL | $1,221 | $1,120 | $255 | $182 | | European Transportation | $797 | $787 | $38 | $37 | | Corporate | N/A | N/A | $(5) | $(9) | | Total | $2,018 | $1,907 | $288 | $210 | - North American LTL Adjusted EBITDA increased by 40.1% to $255 million, while European Transportation Adjusted EBITDA increased by 2.7% to $38 million [44] Note 3. Revenue Recognition Revenue is disaggregated by geographic area based on sales office location, showing contributions from various North American and European regions Disaggregated Revenue by Geographic Area (Three Months Ended March 31, 2024 vs. 2023) | (In millions) | 2024 Total Revenue | 2023 Total Revenue | | :-------------------------------- | :----------------- | :----------------- | | United States | $1,194 | $1,097 | | North America (excluding United States) | $27 | $23 | | France | $334 | $340 | | United Kingdom | $243 | $224 | | Europe (excluding France and United Kingdom) | $220 | $223 | | Total | $2,018 | $1,907 | Note 4. Restructuring Charges The company incurs restructuring charges, primarily severance and facility-related costs, to improve efficiency, with $8 million incurred in Q1 2024 Restructuring-Related Activity (Three Months Ended March 31, 2024) | (In millions) | Reserve Balance as of Dec 31, 2023 | Charges Incurred | Payments | Reserve Balance as of Mar 31, 2024 | | :-------------------- | :--------------------------------- | :--------------- | :------- | :--------------------------------- | | Severance | | | | | | North American LTL | $2 | $0 | $(1) | $1 | | European Transportation | $1 | $8 | $(4) | $5 | | Corporate | $8 | $0 | $(3) | $5 | | Total | $11 | $8 | $(8) | $11 | - Total restructuring charges incurred in Q1 2024 were $8 million, primarily for European Transportation severance [48] Note 5. Derivative Instruments XPO uses derivative instruments, including cross-currency and interest rate swaps, to manage exposure to interest rate and foreign currency fluctuations, not for speculative purposes - The company uses cross-currency swap agreements to manage foreign currency exchange risk for USD-denominated debt, effectively converting it to EUR-denominated debt [52] - Interest rate swaps are used to mitigate variability in forecasted interest payments on the Senior Secured Term Loan Credit Agreement, converting floating rates to fixed rates [55] Effect of Derivative Instruments on Income (Three Months Ended March 31, 2024 vs. 2023) | (In millions) | Gain (Loss) in OCI (2024) | Gain (Loss) in OCI (2023) | Gain in Income (2024) | Gain in Income (2023) | | :------------------------------------------------------------------------------------------------ | :------------------------ | :------------------------ | :-------------------- | :-------------------- | | Interest rate swaps (cash flow hedges) | $2 | $1 | $0 | $0 | | Cross-currency swap agreements (net investment hedges) | $13 | $(10) | $3 | $2 | | Total | $15 | $(9) | $3 | $2 | Note 6. Debt XPO's total debt was $3,386 million as of March 31, 2024, with $564 million available under its ABL Facility and a term loan interest rate of approximately 7.32% Debt Overview (March 31, 2024 vs. December 31, 2023) | (In millions) | March 31, 2024 Carrying Value | December 31, 2023 Carrying Value | | :-------------------------------- | :------------------------------ | :------------------------------- | | Term loan facility | $1,088 | $1,087 | | 6.25% senior secured notes due 2028 | $822 | $822 | | 7.125% senior notes due 2031 | $445 | $445 | | 7.125% senior notes due 2032 | $575 | $575 | | 6.70% senior debentures due 2034 | $222 | $221 | | Finance leases, asset financing and other | $234 | $254 | | Total debt | $3,386 | $3,404 | | Short-term borrowings and current maturities | $63 | $69 | | Long-term debt | $3,323 | $3,335 | - As of March 31, 2024, XPO had $564 million available under its ABL Facility and $138 million issued under its $200 million Letters of Credit Facility [59][60] - The applicable interest rate for the term loan facility was approximately 7.32% as of March 31, 2024 [61] Note 7. Earnings (Loss) per Share Basic and diluted earnings per share from continuing operations significantly increased in Q1 2024 compared to Q1 2023, reflecting higher net income Earnings (Loss) per Share Data (Three Months Ended March 31, 2024 vs. 2023) | (In millions, except per share data) | 2024 | 2023 | | :----------------------------------- | :--- | :--- | | Net income from continuing operations | $67 | $17 | | Basic weighted-average common shares | 116 | 116 | | Diluted weighted-average common shares | 120 | 116 | | Basic earnings from continuing operations per share | $0.58 | $0.15 | | Diluted earnings from continuing operations per share | $0.56 | $0.15 | - Basic EPS from continuing operations rose from $0.15 in Q1 2023 to $0.58 in Q1 2024, and diluted EPS from continuing operations increased from $0.15 to $0.56 [62] Note 8. Commitments and Contingencies XPO is involved in various legal proceedings, accrues for probable losses, and resolved a California environmental matter for $7.9 million in April 2024 - The company accrues for specific legal proceedings when a loss is probable and reasonably estimable, and does not believe current matters will have a material adverse effect [64][65] - A California environmental matter, previously accrued for, was resolved for $7.9 million in April 2024 [68] - An insurance contribution litigation case, Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., is ongoing with trials scheduled for pollution exclusion in Fall 2024 and allocation of defense costs in early 2025 [67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on XPO's financial condition and operational results for Q1 2024, highlighting revenue growth, improved operating income, and strategic investments in LTL capacity and technology Executive Summary - XPO is a leading freight transportation services provider in North America and Europe, with approximately 39,000 employees and 610 locations in 17 countries serving 52,000 customers as of March 31, 2024 [71] - The North American LTL segment holds approximately 9% of the estimated $52 billion U.S. market [73] - The company acquired 28 LTL service centers from Yellow Corporation in December 2023 to expand its LTL network capacity [77] - XPO's European Transportation segment holds leading positions in France (full truckload broker, pallet network) and Iberia (full truckload broker, LTL provider), and is a top-tier dedicated truckload provider in the U.K [80] - Proprietary cloud-based technology optimizes LTL operations, including linehaul, pickup-and-delivery, and pricing, managing hundreds of thousands of activities daily [83][84] Consolidated Summary Financial Table Consolidated Financial Performance (Three Months Ended March 31, 2024 vs. 2023) | (Dollars in millions) | 2024 | 2023 | Change % | | :------------------------------------------------ | :--- | :--- | :------- | | Revenue | $2,018 | $1,907 | 5.8 % | | Salaries, wages and employee benefits | $834 | $762 | 9.4 % | | Purchased transportation | $438 | $457 | (4.2)% | | Fuel, operating expenses and supplies | $413 | $427 | (3.3)% | | Operating income | $138 | $58 | 137.9 % | | Interest expense | $58 | $42 | 38.1 % | | Income from continuing operations before income tax provision | $90 | $21 | 328.6 % | | Income tax provision | $23 | $4 | 475.0 % | | Income from continuing operations | $67 | $17 | 294.1 % | | Net income | $67 | $14 | 378.6 % | - Consolidated revenue increased by 5.8% to $2.0 billion, primarily driven by growth in the North American LTL segment and a 1.0 percentage point increase from foreign currency movement [87] - Operating income surged by 137.9% to $138 million, and net income increased by 378.6% to $67 million, reflecting improved operational efficiency and lower restructuring costs [86][95] Segment Financial Results North American LTL Segment Performance (Three Months Ended March 31, 2024 vs. 2023) | (Dollars in millions) | 2024 | 2023 | Change % | | :-------------------- | :--- | :--- | :------- | | Revenue | $1,221 | $1,120 | 9.0 % | | Adjusted EBITDA | $255 | $182 | 40.1 % | | Depreciation and amortization | $82 | $68 | 20.6 % | North American LTL Key Revenue Metrics (Three Months Ended March 31, 2024 vs. 2023) | Metric | 2024 | 2023 | Change % | | :------------------------------------------ | :------- | :------- | :------- | | Pounds per day (thousands) | 70,709 | 68,889 | 2.6 % | | Shipments per day | 51,392 | 49,107 | 4.7 % | | Average weight per shipment (in pounds) | 1,376 | 1,403 | (1.9)% | | Gross revenue per hundredweight (excl. fuel surcharges) | $23.13 | $21.06 | 9.8 % | - North American LTL revenue increased 9.0% to $1.2 billion, driven by higher volume (shipments per day up 4.7%) and a 9.8% increase in gross revenue per hundredweight, excluding fuel surcharges [100][101] - North American LTL Adjusted EBITDA increased 40.1% to $255 million, with its margin expanding to 20.9% of revenue, reflecting improved pricing, volume, lower purchased transportation costs, and reduced damage claims [103] European Transportation Segment Performance (Three Months Ended March 31, 2024 vs. 2023) | (Dollars in millions) | 2024 | 2023 | Change % | | :-------------------- | :--- | :--- | :------- | | Revenue | $797 | $787 | 1.3 % | | Adjusted EBITDA | $38 | $37 | 2.7 % | | Depreciation and amortization | $34 | $32 | 6.3 % | - European Transportation revenue increased 1.3% to $797 million, with foreign currency movement contributing approximately 2.5 percentage points to this increase [105] Liquidity and Capital Resources - Cash and cash equivalents decreased to $229 million as of March 31, 2024, from $412 million at December 31, 2023 [107] - Total liquidity was approximately $793 million as of March 31, 2024, including $564 million available under the ABL Facility [107][108] - Net cash provided by operating activities from continuing operations increased by $69 million to $145 million in Q1 2024 [113][115] - Cash used in investing activities from continuing operations increased to $299 million in Q1 2024, primarily due to $306 million in property and equipment purchases, reflecting continued investment for long-term growth [113][116] - Anticipated full-year gross capital expenditures for 2024 are between $700 million and $800 million, to be funded by cash on hand and available liquidity [118] Item 3. Quantitative and Qualitative Disclosures About Market Risk XPO is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices, with no material changes reported in Q1 2024 - The company is exposed to market risk related to changes in interest rates, foreign currency exchange rates, and commodity prices [120] - No material changes to quantitative and qualitative disclosures about market risk occurred during Q1 2024 compared to the 2023 Form 10-K [120] Item 4. Controls and Procedures Management concluded that XPO's disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024 [121] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024 [122] Part II—Other Information Item 1. Legal Proceedings Information regarding legal proceedings is consistent with the Company's 2023 Annual Report on Form 10-K and Note 8 of the current report - Legal proceedings information is consistent with the 2023 Form 10-K and Note 8 of this report [123] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors were reported compared to the 2023 Form 10-K [124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds occurred [125] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported [126] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable [127] Item 5. Other Information There is no other information to report under this item - No other information was reported [128] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including bylaws, restricted stock unit award agreements, certifications from executive officers, and XBRL-related documents - Exhibits include the 4th Amended and Restated Bylaws, various Restricted Stock Unit Award Agreements, and certifications from the Principal Executive Officer and Principal Financial Officer [130] Signatures The report is duly signed on behalf of XPO, Inc. by its Chief Executive Officer, Mario Harik, and Chief Financial Officer, Kyle Wismans, as of May 3, 2024 - The report was signed by Mario Harik, CEO, and Kyle Wismans, CFO, on May 3, 2024 [132]