GXO Logistics, Inc 10-Q for FY2022 Q1
GXO Logistics, Inc. (GXO)
10-Q
2022-05-05
For: 2022-03-31
View Original
Added on
April 08, 2026
About this 10-Q
GXO Logistics, Inc filed this 10-Q on May 5, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.08B
- up 14.3% from $1.82B a year earlier
- Net income
- $37M
- up 164.3% from net income of $14M a year earlier
- Diluted EPS
- $0.32
- up 166.7% from $0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-Q
_______________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-40470
_______________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(203 ) 489-1287
Registrant’s telephone number, including area code
_______________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 2, 2022, there were 114,856,317 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
GXO Logistics, Inc. | ||||||||
| Form 10-Q | ||||||||
For the Quarterly Period Ended March 31, 2022 | ||||||||
Table of Contents | ||||||||
| Page | ||||||||
1
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GXO Logistics, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands, except per share amounts) | 2022 | 2021 | ||||||||||||||||||||||||
| Revenue | $ | $ | ||||||||||||||||||||||||
| Direct operating expense | ||||||||||||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Transaction and integration costs | ||||||||||||||||||||||||||
| Restructuring costs and other | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Other income, net | ||||||||||||||||||||||||||
| Interest expense, net | ( | ( | ||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ( | ( | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | ( | ( | ||||||||||||||||||||||||
| Net income attributable to GXO | $ | $ | ||||||||||||||||||||||||
| Earnings per share data | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | ||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | ||||||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Basic weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Diluted weighted-average common shares outstanding | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
GXO Logistics, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||||||||
| Other comprehensive loss, net of tax | ||||||||||||||||||||||||||
Foreign currency translation loss, net of tax benefit of $ | ( | ( | ||||||||||||||||||||||||
Unrealized gain (loss) on hedging instruments, net of tax expense of $ | ( | |||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interest | ( | |||||||||||||||||||||||||
| Comprehensive loss attributable to GXO | $ | ( | $ | ( | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
GXO Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, | December 31, | |||||||||||||
| (Dollars in millions, shares in thousands, except per share amounts) | 2022 | 2021 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Accounts receivable, net of allowances of $ | ||||||||||||||
| Other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Long-term assets | ||||||||||||||
Property and equipment, net of $ | ||||||||||||||
| Operating lease assets | ||||||||||||||
| Goodwill | ||||||||||||||
Intangible assets, net of $ | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses | ||||||||||||||
| Short-term borrowings and obligations under finance leases | ||||||||||||||
| Current operating lease liabilities | ||||||||||||||
| Other current liabilities | ||||||||||||||
Total current liabilities | ||||||||||||||
| Long-term liabilities | ||||||||||||||
| Long-term debt and obligations under finance leases | ||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
Total long-term liabilities | ||||||||||||||
Commitments and contingencies (Note 11) | ||||||||||||||
| Stockholders’ Equity | ||||||||||||||
Common Stock, $ | ||||||||||||||
Preferred Stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
Total stockholders’ equity before noncontrolling interests | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
GXO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended March 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | $ | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||
| Depreciation and amortization expense | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||
Deferred tax benefit | ||||||||||||||
| Other | ( | |||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||
| Accounts receivable | ( | |||||||||||||
| Other assets | ( | ( | ||||||||||||
| Accounts payable | ( | ( | ||||||||||||
| Accrued expenses and other liabilities | ( | |||||||||||||
Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Proceeds from sales of property and equipment | ||||||||||||||
| Purchase and sale of affiliate trade receivables, net | ||||||||||||||
| Acquisition of businesses, net of cash acquired | ||||||||||||||
| Other | ||||||||||||||
Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Repayment of debt related to securitization transactions and other | ( | |||||||||||||
| Repayment of debt and finance leases | ( | ( | ||||||||||||
| Net transfers from XPO Logistics, Inc. | ||||||||||||||
| Other | ( | ( | ||||||||||||
Net cash provided by (used in) financing activities | ( | |||||||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ( | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||||||||
Cash and cash equivalents, beginning of period | ||||||||||||||
Cash and cash equivalents, end of period | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
GXO Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| Common Stock | XPO Logistics, Inc. Investment | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Equity Before Noncontrolling Interests | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Shares in thousands, dollars in millions) | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of stock compensation awards | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding on vesting of stock compensation awards | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of variable interest entity | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| (Shares in thousands, dollars in millions) | Common Stock | XPO Logistics, Inc. Investment | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Equity Before Noncontrolling Interests | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net transfers from XPO Logistics, Inc. | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
GXO Logistics, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company (“GXO” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the 2021 Form 10-K.
In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
On August 2, 2021, the Company completed the separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. On August 2, 2021, the Company became a standalone publicly-traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared under GAAP.
Prior to the Separation, the Company’s historical assets and liabilities presented were wholly owned by XPO and were reflected on a historical cost basis. In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis.
Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO. The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which include adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs are recorded within Selling, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Consolidated Statements of Operations.
The Company’s consolidated financial statements include the accounts of GXO Logistics, Inc. and its majority-owned subsidiaries and variable interest entities where the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.
The Company presents its operations as one reportable segment.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with
7
Customers.” The ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. On January 1, 2022, the Company adopted the guidance. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. The Company intends to apply this guidance when modifications of contracts that include LIBOR occur, which is not expected to have a material impact on the Company’s condensed consolidated financial statements.
2. Revenue Recognition
Revenue disaggregated by geographical area was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| United Kingdom | $ | $ | ||||||||||||||||||||||||
| United States | ||||||||||||||||||||||||||
| France | ||||||||||||||||||||||||||
| Netherlands | ||||||||||||||||||||||||||
| Spain | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
The Company’s revenue can also be disaggregated by various verticals, reflecting the customers’ principal industry sector. Revenue disaggregated by industry sector was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| E-commerce, omnichannel retail and consumer technology | $ | $ | ||||||||||||||||||||||||
| Food and beverage | ||||||||||||||||||||||||||
| Industrial and manufacturing | ||||||||||||||||||||||||||
| Consumer packaged goods | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
Contract Balances
| (In millions) | March 31, 2022 | December 31, 2021 | ||||||||||||
Contract assets (1) | $ | $ | ||||||||||||
Contract liabilities (2) | ||||||||||||||
(1) Contract assets are included within Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.
(2) Contract liabilities are included within Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.
8
Revenue included the following:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Amounts included in the beginning of year contract liability balance | $ | $ | ||||||||||||||||||||||||
Remaining Performance Obligations
As of March 31, 2022, the fixed consideration component of the Company’s remaining performance obligation was approximately $2.6 billion, and the Company expects to recognize approximately 69 % of that amount over the next three years and the remainder thereafter. The Company estimates remaining performance obligations at a point in time, and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
3. Acquisitions
Clipper Acquisition
On February 28, 2022, the Company and the board of directors of Clipper Logistics plc, a retail logistics company based in Leeds, England (“Clipper”), reached an agreement on the terms of a cash and share offer by the Company for the acquisition of the entire issued ordinary share capital of Clipper for approximately £1.0 billion (approximately $1.3 billion) (the “Clipper Acquisition”). Under the terms of the agreement, Clipper shareholders will be entitled to receive 690 pence (approximately $9.06 as of March 31, 2022) in cash and 0.0359 of a share of GXO common stock per share.
In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement, (ii) the Company entered into a Bridge Term Loan Credit Agreement and (iii) the Company entered into a Term Loan Credit Agreement. For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6. Debt and Financing Arrangements.
In April 2022, the Clipper Acquisition was approved by Clippers’ shareholders.
Kuehne + Nagel Acquisition
In 2021, the Company acquired the majority of Kuehne + Nagel’s contract logistics operations in the U.K. Kuehne + Nagel’s operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management. The Company recorded assets and liabilities at fair value. Operating and finance lease assets and liabilities, goodwill, and intangible assets acquired were $300 16 million and $26 million, respectively.
4. Restructuring and Other
Restructuring
The Company engages in restructuring actions as part of its ongoing efforts to best use its resources and infrastructure. These actions generally include severance and facility-related costs and are intended to improve efficiency and profitability.
9
The following is a rollforward of the restructuring liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:
| (In millions) | ||||||||||||||||||||
Balance as of December 31, 2021 | $ | |||||||||||||||||||
| Charges incurred | ||||||||||||||||||||
| Payments | ( | |||||||||||||||||||
Balance as of March 31, 2022 | $ | |||||||||||||||||||
The remaining restructuring liability at March 31, 2022, primarily relates to severance payments and is expected to be substantially paid within the next twelve months.
Other
In the first quarter of 2022, the Company deconsolidated a 50 % owned joint venture. The deconsolidation resulted in an $8 million charge recorded in the first quarter of 2022.
5. Leases
The Company has operating leases primarily for real estate, warehouse equipment, trucks, trailers, containers and material handling equipment. In addition, the Company has finance leases for equipment.
The following amounts related to leases were recorded in the Condensed Consolidated Balance Sheets:
| (In millions) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Operating leases: | ||||||||||||||
| Operating lease assets | $ | $ | ||||||||||||
| Current operating lease liabilities | $ | $ | ||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Total operating lease liabilities | $ | $ | ||||||||||||
| Finance leases: | ||||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| Total finance lease liabilities | $ | $ | ||||||||||||
10
The components of lease expense recorded in the Condensed Consolidated Statements of Operations were as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Operating leases: | ||||||||||||||||||||||||||||||||||||||
| Operating lease cost | $ | $ | ||||||||||||||||||||||||||||||||||||
| Short-term lease cost | ||||||||||||||||||||||||||||||||||||||
| Variable lease cost | ||||||||||||||||||||||||||||||||||||||
| Total operating lease cost | $ | $ | ||||||||||||||||||||||||||||||||||||
| Finance leases: | ||||||||||||||||||||||||||||||||||||||
| Amortization of leased assets | $ | $ | ||||||||||||||||||||||||||||||||||||
| Interest expense on lease liabilities | ||||||||||||||||||||||||||||||||||||||
| Total finance lease cost | $ | $ | ||||||||||||||||||||||||||||||||||||
| Total operating and finance lease cost | $ | $ | ||||||||||||||||||||||||||||||||||||
Supplemental cash flow information was as follows:
| Three Months Ended March 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Leased assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||||||||
| Leased assets obtained in exchange for new finance lease liabilities | ||||||||||||||
6. Debt and Financing Arrangements
The following table summarizes the carrying value of debt:
| (In millions) | March 31, 2022 | December 31, 2021 | |||||||||||||||
| $ | $ | ||||||||||||||||
| Finance leases and other | |||||||||||||||||
| Total debt and obligations under finance leases | |||||||||||||||||
| Less: Short-term borrowings and obligations under finance leases | |||||||||||||||||
| Total long-term debt and obligations under finance leases | $ | $ | |||||||||||||||
(1) The carrying value of the 1.65 % Unsecured Notes due 2026 is presented net of unamortized debt issuance cost and discount of $3 million and $3 million as of March 31, 2022, and December 31, 2021, respectively.
(2) The carrying value of the 2.65 % Unsecured Notes due 2031 is presented net of unamortized debt issuance cost and discount of $4 million and $4 million as of March 31, 2022, and December 31, 2021, respectively.
Term Loan Credit Agreement
On March 22, 2022, the Company entered into a Term Loan Credit Agreement that provides a £375 million ($493 million as of March 31, 2022) unsecured term loan facility, which will partially fund the Clipper Acquisition. The Term Loan Credit Agreement consists of two delayed draw term loans of £187.5 246
11
The Term Loan Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for unsecured financings of this type, including negative covenants that, among other things, limit the ability of the Company and its subsidiaries to incur liens, limit the ability of the Company to make certain fundamental changes and limit the ability of certain of its subsidiaries to incur indebtedness, in each case subject to a number of important exceptions and qualifications. In addition, the Term Loan Credit Agreement requires the Company, beginning with the last day of the first full fiscal quarter following the initial funding of loans under the Term Loan Credit Agreement, to maintain a consolidated leverage ratio less than or equal to a specified maximum consolidated leverage ratio.
Bridge Term Loan Credit Agreement
On February 28, 2022, the Company entered into a Bridge Term Loan Credit Agreement that provided a £745 million ($979 million as of March 31, 2022) unsecured term loan facility for the Clipper Acquisition. The Bridge Term Loan Credit Agreement matures 364 days after an advance. Loans under the Bridge Term Loan Credit Agreement bear interest at the daily simple SONIA rate plus an applicable margin calculated based on the Company’s credit ratings. Interest will be paid in arrears, initially on the three-month anniversary of the acquisition closing date and thereafter on the date that is three months following the previous payment date.
Concurrently with the effectiveness of the Term Loan Credit Agreement, the Company reduced commitments under the Bridge Term Loan Credit Agreement by the aggregate amount of commitments under the Term Loan Credit Agreement.
Revolving Credit Facility
In 2021, the Company entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”). The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit. No amounts were outstanding under the Revolving Credit Facility as of March 31, 2022.
Sales of Certain Receivables
The Company sells certain of its trade accounts receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. The Company also sold certain European trade accounts receivable under a securitization program. In the first quarter of 2022, the Company terminated its securitization program. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows. The Company uses the sale of certain receivables to help manage its working capital.
Information related to the trade receivables sold was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Factoring agreements | ||||||||||||||||||||||||||
| Receivables sold in period | $ | $ | ||||||||||||||||||||||||
| Cash consideration | ||||||||||||||||||||||||||
| Securitization program | ||||||||||||||||||||||||||
| Receivables sold in period | $ | $ | ||||||||||||||||||||||||
| Cash consideration | ||||||||||||||||||||||||||
12
Covenants and Compliance
As of March 31, 2022, the Company was in compliance with the covenants contained in its debt and financing arrangements.
7. Fair Value Measurements and Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
Assets and liabilities
The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2022 and December 31, 2021, due to their short-term nature.
Debt
The fair value of debt was as follows:
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| (In millions) | Level | Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||||||||||||||||||||
| 2 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| 2 | ||||||||||||||||||||||||||||||||
Financial Instruments
The Company directly manages its exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. The Company uses derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. These financial instruments are not used for trading or other speculative purposes. The Company does not expect to incur any losses as a result of counterparty default.
13
Derivatives
The fair value of the Company’s derivative instruments and the related notional amounts were as follows:
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | Notional Amount | Balance Sheet Caption | Fair Value | |||||||||||||||||||||||||||||
| Derivatives designated as hedges | ||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
Cross-currency swap agreements (1) | $ | Other long-term liabilities | $ | |||||||||||||||||||||||||||||
| Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Foreign currency option contracts | $ | Other current assets | $ | |||||||||||||||||||||||||||||
(1) In the first quarter of 2022, the Company extended certain cross-currency swap agreements scheduled to mature in 2022. The new maturity of these cross-currency swap agreements is 2027.
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| (In millions) | Notional Amount | Balance Sheet Caption | Fair Value | |||||||||||||||||||||||||||||
| Derivatives designated as hedges | ||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | $ | Other current liabilities | $ | |||||||||||||||||||||||||||||
| Cross-currency swap agreements | Other long-term liabilities | |||||||||||||||||||||||||||||||
| Derivatives not designated as hedges | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Foreign currency option contracts | $ | Other current assets | $ | |||||||||||||||||||||||||||||
| Foreign currency option contracts | Other long-term assets | |||||||||||||||||||||||||||||||
As of March 31, 2022 and December 31, 2021, the derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.
The effect of net investment hedges on Accumulated Other Comprehensive Income (“AOCI”) and the Condensed Consolidated Statements of Operations was as follows:
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | Gain or (Loss) Recognized in Other Comprehensive Income | Gain or (Loss) Reclassified from AOCI into Net Income(1) | Gain or (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) | |||||||||||||||||||||||||||||
| Derivatives designated as hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | $ | $ | $ | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Amounts reclassified to net income are reported within Interest expense in the Condensed Consolidated Statements of Operations.
The gain recognized in earnings for foreign currency option contracts not designated as hedging instruments was $8 million for the three months ended March 31, 2022, of which $6 million was unrealized. These amounts are recorded in Other income, net in the Condensed Consolidated Statements of Operations.
There were no derivative instruments in the condensed consolidated financial statements as of March 31, 2021.
14
8. Employee Benefit Plans
Defined Benefit Plans
In July 2021, the Company became the plan sponsor for a retirement plan in the U.K. (the “U.K. Retirement Plan”). Components of the net periodic benefit cost under the U.K. Retirement Plan were as follows:
| Three Months Ended March 31, | ||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||
| Interest cost | $ | ( | $ | |||||||||||
| Expected return on plan assets | ||||||||||||||
Net periodic benefit income (1) | $ | $ | ||||||||||||
(1) Net periodic benefit income is recorded within Other income, net in the Condensed Consolidated Statements of Operations.
The Company also maintains defined benefit pension plans for some of its foreign subsidiaries that are excluded from the disclosures due to their immateriality.
Defined Contribution Plans
The Company’s costs for defined contribution plans were $4
9. Earnings per Share
The computations of basic and diluted earnings per share were as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands, except per share data) | 2022 | 2021 | ||||||||||||||||||||||||
| Net income attributable to common shares | $ | $ | ||||||||||||||||||||||||
Basic weighted-average common shares (1) | ||||||||||||||||||||||||||
| Diluted effect of stock-based awards | ||||||||||||||||||||||||||
Diluted weighted-average common shares (1) | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | ||||||||||||||||||||||||
| Diluted earnings per share | $ | $ | ||||||||||||||||||||||||
(1) On August 2, 2021, 114,626,250 shares of common stock of the Company were distributed and began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for the three months ended March 31, 2021.
For the three months ended March 31, 2022, approximately 1.4 million shares are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
15
10. Stockholders’ Equity
The following table summarizes the changes in AOCI by component:
| (In millions) | Foreign Currency Translation Adjustments | Defined Benefit Plan | Less: AOCI attributable to noncontrolling interest | AOCI attributable to GXO | ||||||||||||||||||||||||||||
| As of December 31, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||
| Unrealized gain (loss), net of tax | ( | ( | ||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI to net income | ( | ( | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ||||||||||||||||||||||||||||||
| Deconsolidation of variable interest entity | ( | |||||||||||||||||||||||||||||||
| As of March 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||
| (In millions) | Foreign Currency Translation Adjustments | Defined Benefit Plan | Less: AOCI attributable to noncontrolling interest | AOCI attributable to GXO | ||||||||||||||||||||||||||||
| As of December 31, 2020 | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||
| Unrealized gain (loss), net of tax | ( | ( | ||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI to net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ||||||||||||||||||||||||||||||
| As of March 31, 2021 | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
11. Commitments and Contingencies
The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business. These proceedings may include personal injury claims arising from the transportation and handling of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company reviews and adjusts accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or discloses that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on management’s assessment, together with legal counsel, regarding the ultimate outcome of the matter.
Management of the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. Management of the Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
The Company carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting its operations. In the event the Company is required to satisfy
16
17
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 results, levels of activity, performance or achievements to be materially different from any 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 are qualified by these cautionary statements, and there can be no assurance that the 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 17, 2022 (the “2021 Form 10-K”).
Business Overview
GXO Logistics, Inc., together with its subsidiaries (“GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in an industry propelled by strong secular tailwinds. Our customers rely on us to move their goods with high efficiency through their supply chains — from the moment inbound goods arrive at our logistics sites, through fulfillment and distribution and the management of returned products. Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics services.
We strive to provide all of our customers with consistently high levels of service and cutting-edge automation managed by our proprietary technology. We also collaborate with our largest customers on planning and forecasting and provide assistance with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as sustainability metrics. Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.
The most dramatic growth in secular demand in recent years has been in ecommerce and related sectors, including omnichannel retail and other direct-to-consumer channels. As part of our growth strategy, we intend to develop additional business in consumer and other verticals where we already have deep expertise, prominent customer relationships and a strong track record of successful performance. We also intend to expand into new verticals by leveraging our capacity and technological strengths and by marketing the benefits of our proprietary platform for warehouse operations. We use technology to manage advanced automation, labor productivity, safety and the complex flow of goods within sophisticated logistics environments.
18
Our business model is asset-light and historically resilient in cycles, with high returns, strong free cash flow and visibility into revenue and earnings. The vast majority of our contracts with customers are multi-year agreements, and our facility lease arrangements generally align with contract length. Most of our customer contracts contain both fixed and variable components. The fixed component is typically designed to cover facility, technology and equipment costs and may cover management costs, while the variable component is determined based on expected volumes and associated labor costs.
The Separation
On August 2, 2021, the Company completed the separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. On August 2, 2021, the Company became a standalone publicly-traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared under GAAP.
Prior to the Separation, the Company’s historical assets and liabilities presented were wholly owned by XPO and were reflected on a historical cost basis. In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis.
Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO. The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which include adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs are recorded within Selling, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Consolidated Statements of Operations.
The Company’s consolidated financial statements include the accounts of GXO Logistics, Inc. and its majority-owned subsidiaries and variable interest entities where the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.
The Company has a single reportable segment.
Clipper Acquisition
On February 28, 2022, the Company and the board of directors of Clipper Logistics plc, a retail logistics company based in Leeds, England (“Clipper”), reached an agreement on the terms of a cash and share offer by the Company for the acquisition of the entire issued ordinary share capital of Clipper for approximately £1.0 billion (approximately $1.3 billion) (the “Clipper Acquisition”).
In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement, (ii) the Company entered into a Bridge Term Loan Credit Agreement and (iii) the Company entered into a Term Loan Credit Agreement. In April 2022, the Clipper Acquisition was approved by Clippers’ shareholders.
19
Results of Operations
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,083 | $ | 1,822 | $ | 261 | 14 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Direct operating expense | 1,748 | 1,520 | 228 | 15 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | 190 | 171 | 19 | 11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 76 | 79 | (3) | (4) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction and integration costs | 19 | 18 | 1 | 6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring costs and other | 13 | 4 | 9 | n/m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 37 | 30 | 7 | 23 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income, net | 16 | 1 | 15 | n/m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (4) | (5) | 1 | (20) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 49 | 26 | 23 | 88 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | (11) | (9) | (2) | 22 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 38 | $ | 17 | $ | 21 | 124 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
n/m - not meaningful
Revenue for the three months ended March 31, 2022, increased by 14%, or $261 million, to $2.1 billion compared with $1.8 billion for the same period in 2021. For the three months ended March 31, 2022, our North America, Asia and Pacific operations reported growth of 15% and our European operations reported growth of 14%. Foreign currency movement decreased revenue by approximately 5% for the three months ended March 31, 2022.
Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs and facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses. Direct operating expense for the three months ended March 31, 2022 increased by 15%, or $228 million, to $1.7 billion compared with $1.5 billion for the same period in 2021. As a percentage of revenue, direct operating expense for the three months ended March 31, 2022, was 84% compared with 83% for the same period in 2021. Direct operating expense increased primarily due to higher personnel and temporary labor expense of $180 million, as well as higher third-party facilities and transportation costs of $42 million.
Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administration functions, professional fees and legal costs. SG&A for the three months ended March 31, 2022, increased by 11%, or $19 million, to $190 million compared with $171 million for the same period in 2021. SG&A increased due to higher personnel costs, primarily for certain administration functions, reflecting the growth in our business.
Depreciation and amortization expense for the three months ended March 31, 2022, decreased by $3 million to $76 million compared with $79 million for the same period in 2021. Depreciation and amortization expense included the amortization of intangible assets of $14 million for both the three months ended March 31, 2022, and 2021. For the three months ended March 31, 2021, depreciation expense included $6 million allocated from XPO before the Separation.
Transaction and integration costs for the three months ended March 31, 2022, were $19 million compared with $18 million for the same period in 2021. Transaction and integration costs in 2022 relate to the Clipper Acquisition and transaction and integration costs in 2021 primarily relate to the Separation.
Restructuring costs and other for the three months ended March 31, 2022, were $13 million compared with $4 million for the same period in 2021. For the three months ended March 31, 2022, restructuring costs and other included $5 million primarily related to severance costs and $8 million related to the deconsolidation of a joint venture.
20
Other income, net consists primarily of pension income and foreign exchange gains and losses. Other income, net for the three months ended March 31, 2022, was $16 million compared with $1 million for the same period in 2021. For the three months ended March 31, 2022, pension income was $9 million and the gain on foreign currency options was $8 million.
Interest expense, net for the three months ended March 31, 2022, was $4 million compared with $5 million for the same period in 2021. For the three months ended March 31, 2022, interest expense primarily relates to debt issued in 2021 and capital lease obligations, partially offset by interest income on the cross-currency swap agreements. For the three months ended March 31, 2021, interest expense primarily relates to related-party debt obligations with XPO before the Separation and capital lease obligations.
Income before income taxes for the three months ended March 31, 2022, increased by $23 million to $49 million compared with $26 million for the same period in 2021. The increase was primarily due to higher revenue and increased other income as a result of pension income and foreign currency options, partially offset by the deconsolidation of a joint venture.
Income tax expense for the three months ended March 31, 2022, was $11 million compared with a $9 million expense for the same period in 2021. Our effective tax rate was 22.1% for the three months ended March 31, 2022, compared with 33.4% for the same period in 2021. The effective tax rates for the first quarters of 2022 and 2021 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. The effective tax rate for the first quarter of 2022 was driven by pre-tax losses in certain jurisdictions for which no benefit was recognized and offset by discrete items having a tax benefit of $3 million from stock-based compensation. The effective tax rate for the first quarter of 2021 was driven by pre-tax losses in certain jurisdictions for which no benefit was recognized and discrete items having a tax expense of $2 million for adjustment of prior period taxes offset by a tax benefit of $2 million from stock-based compensation.
Liquidity and Capital Resources
Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions. The timing and magnitude of our start-ups can vary and may positively or negatively impact our cash flows.
We continually evaluate our liquidity requirements and capital structure 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.
Term Loan Credit Agreement
On March 22, 2022, we entered into a Term Loan Credit Agreement that provides a £375 million ($493 million as of March 31, 2022) unsecured term loan facility, which will fund the Clipper Acquisition. The Term Loan Credit Agreement consists of two delayed draw term loans of £187.5 million ($246 million as of March 31, 2022) each. The loans may be borrowed in multiple draws beginning on the acquisition date. The loans mature on the second and third anniversary following the funding date, respectively. Loans under the Term Loan Credit Agreement bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S. dollars, at our option, the alternate base rate or the adjusted secured overnight financing rate and (b) with respect to borrowings in British Pounds Sterling, the daily simple Sterling Overnight Interbank Average rate (“SONIA”), in each case, plus an applicable margin based on the Company’s credit ratings.
21
Bridge Term Loan Credit Agreement
On February 28, 2022, we entered into a Bridge Term Loan Credit Agreement that provided a £745 million ($979 million as of March 31, 2022) unsecured term loan facility for the Clipper Acquisition. The Bridge Term Loan Credit Agreement matures 364 days after an advance. Loans under the Bridge Term Loan Credit Agreement bear interest at the daily simple SONIA rate plus an applicable margin calculated based on the Company’s credit ratings. Interest will be paid in arrears, initially on the three-month anniversary of the acquisition closing date and thereafter on the date that is three months following the previous payment date.
Concurrently with the effectiveness of the Term Loan Credit Agreement, we reduced commitments under the Bridge Term Loan Credit Agreement by the aggregate amount of commitments under the Term Loan Credit Agreement.
Unsecured Notes
In 2021, we completed an offering of $800 million aggregate principal amount of notes, consisting of $400 million of notes due 2026 (the “2026 Notes”) and $400 million of notes due 2031 (the “2031 Notes”). The 2026 Notes bear interest at a rate of 1.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2026. The 2031 Notes bear interest at a rate of 2.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2031.
Revolving Credit Facility
In 2021, we entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”). The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit. No amounts were outstanding under the Revolving Credit Facility as of March 31, 2022.
Sales of Certain Receivables
We sell certain of our trade accounts receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. The Company also sold certain European trade accounts receivable under a securitization program. In the first quarter of 2022, we terminated our securitization program.We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows. We use the sale of certain receivables to help manage our working capital.
Information related to the trade receivables sold was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||||||||
| Factoring agreements | ||||||||||||||||||||||||||
| Receivables sold in period | $ | 229 | $ | 100 | ||||||||||||||||||||||
| Cash consideration | 228 | 100 | ||||||||||||||||||||||||
| Securitization program | ||||||||||||||||||||||||||
| Receivables sold in period | $ | — | $ | 428 | ||||||||||||||||||||||
| Cash consideration | — | 428 | ||||||||||||||||||||||||
Covenants and Compliance
As of March 31, 2022, we were in compliance with the covenants contained in our debt and financing arrangements.
22
Financial Condition
The following table summarizes our asset and liability balances as of March 31, 2022 and December 31, 2021:
| (In millions) | March 31, 2022 | December 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Total current assets | $ | 2,030 | $ | 2,099 | (69) | (3) | % | |||||||||||||||||||
| Total long-term assets | 5,096 | 5,172 | (76) | (1) | % | |||||||||||||||||||||
| Total current liabilities | 2,122 | 2,329 | (207) | (9) | % | |||||||||||||||||||||
| Total long-term liabilities | 2,629 | 2,552 | 77 | 3 | % | |||||||||||||||||||||
There were no significant changes in our total assets and total liabilities from December 31, 2021 to March 31, 2022.
Cash Flow Activity
Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, are summarized as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 46 | $ | 47 | $ | (1) | (2) | % | ||||||||||||||||||
| Net cash used in investing activities | (44) | (38) | (6) | 16 | % | |||||||||||||||||||||
| Net cash provided by (used in) financing activities | (18) | 80 | (98) | (123) | % | |||||||||||||||||||||
| Effect of exchange rates on cash and cash equivalents | (5) | (3) | (2) | 67 | % | |||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | (21) | $ | 86 | $ | (107) | (124) | % | ||||||||||||||||||
Operating Activities
Cash flows from operating activities for the three months ended March 31, 2022, decreased by $1 million compared with the same period in 2021. The decrease is due to a $28 million decrease in working capital, offset by a $21 million increase in net income.
Investing Activities
Investing activities used $44 million of cash for the three months ended March 31, 2022, compared with $38 million used for the same period of 2021. During the three months ended March 31, 2022, we used $65 million of cash to purchase property and equipment and received $3 million of cash from sales of property and equipment. During the three months ended March 31, 2021, we used $67 million of cash to purchase property and equipment, received $20 million in connection with the purchase and sale of affiliate trade receivables and received $9 million from the Kuehne + Nagel acquisition.
Financing Activities
Financing activities used $18 million of cash for the three months ended March 31, 2022, including a $9 million use of cash to repay debt and finance leases. Financing activities generated $80 million of cash for the three months ended March 31, 2021. The primary sources of cash from financing activities in the three months ended March 31, 2021, were $138 million of net transfers from XPO, partially offset by a $25 million repayment of debt related to securitization transactions and $26 million used to repay debt and finance leases.
23
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of March 31, 2022, the Company’s future contractual obligations had not materially changed as compared with December 31, 2021.
Critical Accounting Policies and Estimates
Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, and that are hereby incorporated by reference.
Accounting Pronouncements
Information related to new accounting standards is included in Note 1—Basis of Presentation and Significant Accounting Policies to the condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk disclosures involve forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
Our long-term debt portfolio primarily consists of fixed-rate instruments complemented by a variable-rate revolving credit facility that can be drawn on from time to time. For any variable-rate debt, interest rate changes in the underlying index rates will impact future interest expense. Currently we do not hold any derivative contracts that hedge our interest rate risk; however, we may consider entering into such contracts in the future. A 1% increase or decrease in interest rates would decrease or increase the fair value of our notes and debentures by approximately 6%.
Foreign Currency Exchange Risk
A significant proportion of our net assets and income are in non-U.S. dollar (“USD”) currencies, primarily the Euro (“EUR”) and British pound sterling (“GBP”). We are exposed to currency risk from potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR or the GBP relative to the USD could have an adverse impact on our financial results.
We entered into cross-currency swap agreements to manage our foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated notes, including the interest payments, to fixed-rate EUR-denominated debt. We use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or GBP as their functional currency.
As of March 31, 2022, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in a decrease in net assets of $26 million. As of March 31, 2022, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of $46 million. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with the
24
history of foreign currency transactions. Fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The sensitivity analysis of the impact of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2022, such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during our most recently completed fiscal quarter that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
25
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11—Commitments and Contingencies to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of our legal proceedings.
ITEM 1A. RISK FACTORS
Except as set forth below, as of the date of this report, there are no material changes to the risk factors previously disclosed under “Risk Factors” in the 2021 Form 10-K.
Risks Related to Russia’s Invasion of Ukraine.
In February 2022, Russia launched a large-scale military invasion of Ukraine. The United States and other countries and certain international organizations have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response, and additional sanctions may be imposed in the future. The extent and duration of the military action or future escalation of such hostilities, resulting sanctions and market disruptions and volatility are impossible to predict, but could be significant and could have a severe adverse effect on the regional and global economies. The ramifications of the hostilities and sanctions may not be limited to Russia, Ukraine and Russian and Ukrainian companies; ramifications may spill over to and negatively impact other regional and global economic markets. The potential for a wider conflict could further increase financial market volatility and could negatively affect our ability to raise additional capital when required. While we currently conduct limited business in Russia, the conflict and its effects could adversely affect our business, results of operations, cash flows and financial condition.
Risks Related to the Proposed Acquisition of Clipper Logistics plc.
On February 28, 2022, the Company and the board of directors of Clipper Logistics plc (“Clipper”) reached an agreement on the terms and conditions of a recommended cash and share offer to be made by GXO for the entire issued and to be issued share capital of Clipper. It is intended that the acquisition of Clipper will be effected by means of a Court-sanctioned scheme of arrangement. On April 11, 2022, GXO announced that at a Court Meeting and General Meeting of Clipper shareholders, the requisite majority of scheme shareholders voted to approve the scheme at the Court Meeting and the requisite majority of Clipper shareholders voted to pass the special resolution in connection with the amendment of the Clipper articles of association and the implementation of the scheme at the General Meeting. The completion of the acquisition of Clipper remains subject to the satisfaction or waiver of the other conditions, including the Court sanctioning the Scheme at the Scheme Court Hearing and the receipt of regulatory approvals from relevant competition authorities in the United Kingdom and Poland. Our acquisition of Clipper may not be completed on the currently contemplated timeline or in the currently contemplated form, or at all, and may not achieve the intended benefits.
26
ITEM 6. EXHIBITS
| Exhibit Number | Description | ||||||||||
| 2.1 | |||||||||||
| 2.2 | |||||||||||
| 10.1 | |||||||||||
| 10.2 | |||||||||||
| 10.3 | |||||||||||
| 10.4*+ | |||||||||||
| 10.5*+ | |||||||||||
| 31.1 * | |||||||||||
| 31.2 * | |||||||||||
| 32.1** | |||||||||||
| 32.2** | |||||||||||
| 101.INS * | Inline XBRL Instance Document. | ||||||||||
| 101.SCH * | Inline XBRL Taxonomy Extension Schema. | ||||||||||
| 101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase. | ||||||||||
| 101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase. | ||||||||||
| 101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase. | ||||||||||
| 101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase. | ||||||||||
| 104 * | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | ||||||||||
| * | Filed herewith. | ||||||||||
| ** | Furnished herewith. | ||||||||||
| + | This exhibit is a management contract or compensatory plan or arrangement. | ||||||||||
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GXO Logistics, Inc. | ||||||||
| Date: May 5, 2022 | By: | /s/ Malcolm Wilson | ||||||
| Malcolm Wilson | ||||||||
| (Chief Executive Officer) | ||||||||
| Date: May 5, 2022 | By: | /s/ Baris Oran | ||||||
| Baris Oran | ||||||||
| (Chief Financial Officer) | ||||||||
28