RXO(US:RXO)2024-08-07 20:19Part I—Financial Information Financial Statements The company's financial statements for the period ended June 30, 2024, show a year-over-year revenue decline, resulting in a net loss of $22 million for the first six months, compared to a $3 million net income in the prior year. Total assets slightly decreased to $1.81 billion, while total liabilities remained stable. A key event noted is the pending acquisition of Coyote Logistics from UPS for $1.025 billion Condensed Consolidated Balance Sheets As of June 30, 2024, total assets were $1,813 million, a slight decrease from $1,825 million at year-end 2023, primarily due to lower accounts receivable. Total liabilities increased marginally to $1,234 million from $1,231 million. Total equity declined from $594 million to $579 million, with retained earnings shifting to an accumulated deficit of $16 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $776 | $796 | | Total Assets | $1,813 | $1,825 | | Total Current Liabilities | $662 | $682 | | Total Liabilities | $1,234 | $1,231 | | Total Equity | $579 | $594 | Condensed Consolidated Statements of Operations For the second quarter of 2024, RXO reported a net loss of $7 million on revenue of $930 million, compared to a net income of $3 million on revenue of $963 million in Q2 2023. For the six-month period, the net loss was $22 million on revenue of $1,843 million, a significant downturn from the $3 million net income on revenue of $1,973 million in the first half of 2023 Key Operating Results (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $930 | $963 | $1,843 | $1,973 | | Operating Income (Loss) | $0 | $14 | $(12) | $19 | | Net Income (Loss) | $(7) | $3 | $(22) | $3 | | Diluted EPS | $(0.06) | $0.03 | $(0.19) | $0.03 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash provided by operating activities was $2 million, a sharp decrease from $66 million in the same period of 2023. Net cash used in investing activities was $22 million for property and equipment purchases. Financing activities provided $22 million, primarily from net borrowings on revolving credit facilities, a reversal from the $13 million used in the prior year Six-Month Cash Flow Summary (in millions) | Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2 | $66 | | Net Cash used in Investing Activities | $(22) | $(28) | | Net Cash from (used in) Financing Activities | $22 | $(13) | | Net Increase in Cash | $2 | $26 | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies and events, including the pending $1.025 billion acquisition of Coyote Logistics. Revenue is primarily generated in the U.S., with truck brokerage being the largest service offering. The company incurred $13 million in restructuring charges in the first half of 2024. An amendment to its revolving credit facility was secured to provide temporary relief on its leverage covenant. Legal contingencies primarily relate to contractor misclassification claims - On June 21, 2024, the Company entered into an agreement to acquire UPS's Coyote Logistics business for $1.025 billion in cash, subject to customary adjustments29 Revenue by Service Offering (in millions) | Service Offering | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Truck brokerage | $1,107 | $1,157 | | Last mile | $497 | $501 | | Managed transportation | $308 | $373 | | Total | $1,843 | $1,973 | - The company amended its Revolver to increase the maximum consolidated leverage ratio covenant, with levels up to 4.25:1.00 for the quarters ending in the second half of 2024, before stepping down and returning to 3.50:1.00 in mid-202539 - The company is involved in several class action cases alleging misclassification of independent contractors in its last mile business. One such case, Muniz v. RXO Last Mile, Inc., has been settled, with the full amount accrued5455 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 6.6% revenue decline in the first half of 2024 to lower revenue per load in truck brokerage and reduced rates and volume in managed transportation, partially offset by an 8% increase in truck brokerage load volume. Operating expenses as a percentage of revenue increased, leading to an operating loss. The company highlights cost reduction initiatives expected to yield over $65 million in annual savings. Liquidity was impacted by lower operating cash flow, but management believes existing sources are sufficient for the next 12 months, supported by an amended credit facility Results of Operations For Q2 2024, revenue fell 3.4% YoY to $930 million, driven by declines in managed transportation and truck brokerage revenue per load, despite a 4% increase in truck brokerage volume. For the first six months, revenue decreased 6.6% to $1.8 billion, with truck brokerage revenue per load down 11% and managed transportation revenue down $65 million. Cost of transportation and services as a percentage of revenue increased in both periods due to freight rate pressures. SG&A increased as a percentage of revenue, though cost-saving measures are underway - Q2 2024 revenue decrease was driven by a $20 million decline in managed transportation and a $14 million decline in truck brokerage, where a 7% reduction in revenue per load offset a 4% increase in volume69 - H1 2024 revenue decrease was driven by a $65 million decline in managed transportation and a $50 million decline in truck brokerage, where an 11% reduction in revenue per load offset an 8% increase in volume74 - Restructuring actions executed in 2023 and H1 2024 are anticipated to result in combined annual cost savings of more than $65 million7176 Liquidity and Capital Resources The company's liquidity is primarily funded by cash from operations and its revolving credit facility. Net cash from operations decreased significantly to $2 million in H1 2024 from $66 million in H1 2023 due to lower net income and working capital changes. To maintain flexibility, the company amended its Revolver in April 2024 to temporarily increase its consolidated leverage ratio covenant. Management believes current liquidity is sufficient for the next 12 months Six-Month Cash Flow Comparison (in millions) | Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2 | $66 | | Net cash used in investing activities | $(22) | $(28) | | Net cash provided by (used in) financing activities | $22 | $(13) | - On April 11, 2024, the company amended its Revolver to increase the consolidated leverage ratio financial covenant, providing greater financial flexibility through March 31, 202581 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures during the quarter ended June 30, 2024. Key risks remain related to foreign currency exchange rates, commodity prices, interest rates, and diesel fuel prices - There have been no material changes to the company's quantitative and qualitative disclosures about market risk compared to those described in the 2023 Form 10-K87 Controls and Procedures Based on an evaluation as of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective. There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 202488 - No material changes to internal control over financial reporting were identified during the quarter89 Part II—Other Information Legal Proceedings This section refers to Note 10 of the condensed consolidated financial statements for a detailed description of the company's legal proceedings - For a description of legal proceedings, see Note 10—Commitments and Contingencies to the condensed consolidated financial statements91 Risk Factors The company has identified new material risk factors related to the pending acquisition of Coyote Logistics. These risks include potential difficulties in integrating the business, failure to realize anticipated synergies, assumption of unknown liabilities, adverse effects of acquisition accounting, and the possibility that the acquisition may not be completed - New risks have been identified related to the pending $1.025 billion acquisition of Coyote Logistics, including: - Challenges in successfully integrating the acquired business and realizing anticipated benefits - Potential for the acquired business to have unknown or contingent liabilities - Risk that the acquisition may not be completed, which could negatively impact stock price and business results - Business uncertainties for both RXO and Coyote Logistics while the acquisition is pending939697100 Unregistered Sales of Equity Securities and Use of Proceeds There were no issuances of unregistered securities during the first six months of 2024. Additionally, no shares of common stock were repurchased during this period under the company's authorized share repurchase program. As of June 30, 2024, $123 million remained available under the program - No shares were repurchased during the three or six months ended June 30, 2024. As of June 30, 2024, $123 million remained available under the company's share repurchase program102 Exhibits This section lists the exhibits filed with the Form 10-Q. Key exhibits include the Purchase Agreement for the Coyote Logistics acquisition, an amendment to the Revolving Credit Agreement, and certifications by the Principal Executive Officer and Principal Financial Officer - Key exhibits filed include: - Exhibit 2.1: Purchase Agreement for Coyote Logistics, dated June 21, 2024 - Exhibit 10.1: Amendment No. 2 to the Revolving Credit Agreement, dated April 11, 2024 - Exhibits 31.1, 31.2, 32.1, 32.2: Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act105