RXO(RXO) - 2022 Q3 - Quarterly Report

Part I—Financial Information Item 1. Financial Statements (Unaudited) RXO's unaudited condensed combined financial statements present its standalone financial position, operations, and cash flows, derived from XPO's historical records Condensed Combined Balance Sheets As of September 30, 2022, RXO's total assets increased to $2.237 billion, driven by a significant rise in cash and cash equivalents Condensed Combined Balance Sheet Highlights (in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $187 | $29 | | Accounts receivable, net | $1,012 | $1,010 | | Total current assets | $1,225 | $1,083 | | Total assets | $2,237 | $2,068 | | Liabilities & Equity | | | | Total current liabilities | $888 | $816 | | Total long-term liabilities | $205 | $182 | | Total liabilities | $1,093 | $998 | | Total equity | $1,144 | $1,070 | | Total liabilities and equity | $2,237 | $2,068 | Condensed Combined Statements of Operations Q3 2022 revenue decreased to $1.14 billion and net income fell to $13 million, impacted by higher spin-off related costs Condensed Combined Statements of Operations (in millions) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,138 | $1,198 | $3,676 | $3,362 | | Operating income | $15 | $38 | $124 | $137 | | Net income | $13 | $33 | $96 | $108 | | Basic and Diluted EPS | $0.11 | $0.29 | $0.83 | $0.94 | Condensed Combined Statements of Comprehensive Income Comprehensive income decreased to $11 million in Q3 2022 and $94 million for nine months, impacted by lower net income and foreign currency losses Condensed Combined Statements of Comprehensive Income (in millions) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $13 | $33 | $96 | $108 | | Other comprehensive (loss) income | $(2) | $6 | $(2) | $7 | | Comprehensive income | $11 | $39 | $94 | $115 | Condensed Combined Statements of Cash Flows Net cash from operating activities significantly increased to $234 million for the nine months ended September 30, 2022 Condensed Combined Statements of Cash Flows (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $234 | $119 | | Net cash used in investing activities | $(38) | $(29) | | Net cash used in financing activities | $(38) | $(130) | | Net increase (decrease) in cash | $158 | $(39) | | Cash, end of period | $187 | $31 | Condensed Combined Statements of Changes in Equity Total equity increased to $1.144 billion by September 30, 2022, driven by net income and offset by XPO transfers Changes in Equity for Nine Months Ended Sep 30, 2022 (in millions) | Description | Amount | | :--- | :--- | | Balance as of Dec 31, 2021 | $1,070 | | Net income | $96 | | Other comprehensive loss | $(2) | | Stock compensation expense | $9 | | Net transfers to XPO | $(29) | | Balance as of Sep 30, 2022 | $1,144 | Notes to Condensed Combined Financial Statements The notes detail the XPO spin-off, financial presentation, revenue by service, legal contingencies, and significant subsequent financing events - On November 1, 2022, XPO completed the spin-off of RXO, which is now a standalone publicly traded company on the NYSE under the ticker 'RXO'[25] - The financial statements were prepared on a standalone basis derived from XPO's records and include allocations of XPO's corporate expenses for functions like IT, HR, and finance[26][30] Revenue by Service Offering (Nine Months Ended Sep 30, in millions) | Service Offering | 2022 | 2021 | | :--- | :--- | :--- | | Truck brokerage | $2,265 | $1,903 | | Last mile | $784 | $765 | | Managed transportation | $394 | $485 | | Freight forwarding | $340 | $289 | | Total (after eliminations) | $3,676 | $3,362 | - Subsequent to the quarter end, RXO completed a $355 million notes offering, entered into a $100 million term loan and a $500 million revolving credit facility, and used the proceeds to fund a $604 million net cash distribution to XPO[59][60][61][62] - RXO has assumed liabilities for several class action cases involving misclassification claims related to XPO's former last mile services and has agreed to indemnify XPO for these matters[51] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses RXO's market position, Q3 revenue decline, nine-month growth, and post-spin-off liquidity changes - RXO is the fourth largest broker of full truckload freight in the U.S., with approximately 4% market share of the $88 billion industry[72] Results of Operations Summary (in millions) | Metric | Q3 2022 | Q3 2021 | Change | Nine Months 2022 | Nine Months 2021 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,138 | $1,198 | -5.0% | $3,676 | $3,362 | +9.3% | | Operating Income | $15 | $38 | -60.5% | $124 | $137 | -9.5% | | Net Income | $13 | $33 | -60.6% | $96 | $108 | -11.1% | - The Q3 2022 revenue decrease was driven by lower revenue in managed transportation, lower ocean volume in freight forwarding, and lower truckload spot market pricing, despite increased volume[88] - Transaction and integration costs related to the spin-off were $23 million in Q3 2022 and $44 million for the first nine months of 2022, significantly impacting operating income[93] - Net cash from operating activities increased by $115 million to $234 million in the first nine months of 2022, primarily due to favorable changes in working capital as revenue growth decelerated[99][101] - Post-spin-off, the company's capital structure changed significantly with the incurrence of $455 million in new debt in October 2022[96][104] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk exposures, including foreign currency and commodity prices, during the first nine months of 2022 - The company is exposed to market risks from changes in foreign currency exchange rates and commodity prices, but there have been no material changes to these exposures during the first nine months of 2022[107] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2022, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[108] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[110] Part II—Other Information Legal Proceedings The company refers to Note 6 for details on legal proceedings, primarily misclassification claims related to last mile business - For details on legal proceedings, the report refers to Note 6—Commitments and Contingencies in the financial statements[112] Risk Factors The company reports no material changes to previously disclosed risk factors, except for the completed spin-off on November 1, 2022 - There are no material changes to the risk factors disclosed in the Form 10, with the exception that the spin-off was completed on November 1, 2022[113] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[114] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[115] Mine Safety Disclosures This item is not applicable to the company - Not applicable[116] Other Information The company reported no other information for this item - None[117] Exhibits This section lists exhibits filed with the Form 10-Q, including employment agreements, certifications, and XBRL data - Exhibits filed include management compensation agreements, CEO/CFO certifications (Section 302 and 906), and XBRL interactive data files[119]