RXO, Inc 10-Q for FY2022 Q3
RXO, Inc. (RXO)
10-Q
2022-11-30
For: 2022-09-30
View Original
Added on
April 11, 2026
About this 10-Q
RXO, Inc filed this 10-Q on November 30, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.14B
- down 5.0% from $1.2B a year earlier
- Net income
- $13M
- down 60.6% from net income of $33M a year earlier
- Diluted EPS
- $0.11
- down 62.1% from $0.29 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 September 30, 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: 001-41514
_______________________________________________
(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) | ||||
(980 ) 308-6058
(Registrant’s telephone number, including area code)
_______________________________________________
N/A
_______________________________________________
(Former name, former address and former fiscal year, if changed since last report)
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 o No x
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 x No o
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.
| Large accelerated filer | o | Accelerated filer | o | ||||||||||||||
| x | 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 28, 2022, there were 116,303,068 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
RXO, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 2022
Table of Contents
| Page No. | |||||
Condensed Combined Statements of Operations | |||||
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RXO, Inc.
Condensed Combined Balance Sheets
(Unaudited)
| September 30, | December 31, | ||||||||||
| (In millions) | 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 | |||||||||||
Identifiable 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 current finance lease liabilities | |||||||||||
| Short-term operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Long-term debt and finance lease liabilities | |||||||||||
| Deferred tax liability | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Equity | |||||||||||
| XPO investment | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying notes to Condensed Combined Financial Statements.
1
RXO, Inc.
Condensed Combined Statements of Operations
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of transportation and services (exclusive of depreciation and amortization) | |||||||||||||||||||||||
| Direct operating expense (exclusive of depreciation and amortization) | |||||||||||||||||||||||
| Sales, general and administrative expense | |||||||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||
| Transaction and integration costs | |||||||||||||||||||||||
| Restructuring costs | |||||||||||||||||||||||
| Operating income | $ | $ | $ | $ | |||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Interest income | ( | ( | |||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share data | |||||||||||||||||||||||
| Basic and Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Common shares outstanding | |||||||||||||||||||||||
| Number of Basic and Diluted shares outstanding | |||||||||||||||||||||||
See accompanying notes to Condensed Combined Financial Statements.
2
RXO, Inc.
Condensed Combined Statements of Comprehensive Income
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||||||||||||||
Foreign currency translation (loss) gain, net of tax effect of $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Other comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to Condensed Combined Financial Statements.
3
RXO, Inc.
Condensed Combined Statements of Cash Flows
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash from operating activities | |||||||||||
| Depreciation, amortization and net lease activity | |||||||||||
| Stock compensation expense | |||||||||||
| Deferred tax expense | ( | ||||||||||
| Other | |||||||||||
| Changes in assets and liabilities | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Payment for purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities | |||||||||||
| Net transfers to XPO | ( | ( | |||||||||
| Other | |||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Leased assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
| Leased assets obtained in exchange for new finance lease liabilities | |||||||||||
| Cash paid for income taxes | |||||||||||
See accompanying notes to Condensed Combined Financial Statements.
4
RXO, Inc.
Condensed Combined Statements of Changes in Equity
(Unaudited)
| (In millions) | XPO Investment | Accumulated Other Comprehensive Loss | Total Equity | ||||||||||||||
| Balance as of June 30, 2022 | $ | $ | ( | $ | |||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||
| Stock compensation expense | |||||||||||||||||
| Net transfers to XPO | ( | ( | |||||||||||||||
| Balance as of September 30, 2022 | $ | $ | ( | $ | |||||||||||||
| (In millions) | XPO Investment | Accumulated Other Comprehensive Loss | Total Equity | ||||||||||||||
| Balance as of December 31, 2021 | $ | $ | ( | $ | |||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||
| Stock compensation expense | |||||||||||||||||
| Net transfers to XPO | ( | ( | |||||||||||||||
| Balance as of September 30, 2022 | $ | $ | ( | $ | |||||||||||||
| (In millions) | XPO Investment | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||||||||||
| Balance as of June 30, 2021 | $ | $ | ( | $ | |||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive income | |||||||||||||||||
| Stock compensation expense | |||||||||||||||||
| Net transfers to XPO | ( | ( | |||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ||||||||||||||
| (In millions) | XPO Investment | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ( | $ | |||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive income | |||||||||||||||||
| Stock compensation expense | |||||||||||||||||
| Net transfers to XPO | ( | ( | |||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ||||||||||||||
See accompanying notes to Condensed Combined Financial Statements.
5
RXO, Inc.
Notes to Condensed Combined Financial Statements
(Unaudited)
1. Organization
RXO, Inc. (“RXO”, the “Company” or “we”), is a brokered transportation platform defined by cutting-edge technology and an asset-light business model, with the largest component being our core truck brokerage business. Our operations also include three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business: managed transportation, last mile and freight forwarding. We present our operations in the Condensed Combined Financial Statements as one reportable segment.
On November 1, 2022, XPO Logistics, Inc. (together with its subsidiaries, “XPO”) completed the spin-off of RXO in a transaction intended to be tax-free for U.S. federal income tax purposes, which was accomplished by the distribution of 100 % of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution. XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date. RXO is now a standalone publicly traded company, and, on November 1, 2022, regular-way trading of RXO’s common stock commenced on the New York Stock Exchange (the “NYSE”) under the ticker symbol “RXO.”
The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”). See Note 8—Subsequent Events for additional details.
2. Basis of Presentation
The Condensed Combined Financial Statements of RXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO. These financial statements reflect the combined historical results of operations, financial position and cash flows of RXO in accordance with U.S. generally accepted accounting principles (“GAAP”).
Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO. The Condensed Combined Financial Statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the Condensed Combined Financial Statements, as they are to be considered effectively settled upon effectiveness of the spin-off. The Condensed Combined Financial Statements are presented as if the RXO businesses had been combined for all periods presented. The assets and liabilities in the Condensed Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the spin-off all of the assets and liabilities presented were wholly owned by XPO and were transferred to RXO at a carry-over basis.
The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable to RXO, and the Condensed Combined Statements of Operations include allocations of XPO costs and expenses, as described below. XPO’s third-party debt and the related interest expense were not allocated to us for any of the periods presented as XPO’s borrowings are not our legal obligation.
6
XPO’s corporate function (“Corporate”) incurs 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. For purposes of the Condensed Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations. The charges reflected have either been specifically identified or allocated using drivers including (i) proportional adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments, or (ii) headcount. These allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Depreciation and amortization expense, Transaction and integration costs, and Restructuring costs in the Condensed Combined Statements of Operations. We believe the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
XPO investment represents XPO’s historical investment in RXO and includes the net effects of transactions with and allocations from XPO as well as RXO’s accumulated earnings. Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.
Principles of Combination
The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of RXO. Significant intercompany balances and transactions among the operations of the RXO legal entities have been eliminated in the Condensed Combined Financial Statements. All significant related party transactions between RXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment. The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Significant Accounting Policies
Our significant accounting policies are disclosed in Note 2 to the Combined Financial Statements for the year ended December 31, 2021, included in the Form 10. There have been no material changes to the Company’s significant accounting policies as of September 30, 2022.
Additional information related to certain significant accounting policies is as follows:
Fair Value Measurements
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.
We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated their fair values as of September 30, 2022 and December 31, 2021 due to their short-term nature and/or being receivable or payable on demand.
7
Leases
We determine if an arrangement is a lease at inception. For leases with terms greater than 12 months, we recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. For most of our leases, the implicit rate cannot be readily determined and, as a result, we use the incremental borrowing rates of XPO at the commencement date to determine the present value of future lease payments.
We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options. We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability. We account for lease and non-lease components within a contract as a single lease component for our real estate leases.
Lease expense for our operating leases is recognized on a straight-line basis over the lease term, with the exception of variable lease costs, which are expensed as incurred. For finance leases, amortization of the right-of-use asset is recognized in Depreciation and amortization expense on a straight-line basis over the lease term, and interest expense is accreted on the lease liability using the effective interest method.
Adoption of New Accounting Standards
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring annual disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements. We adopted this standard on January 1, 2022, on a prospective basis. The adoption did not have a material impact on our financial statement disclosures.
Accounting Pronouncement Issued but Not Yet Effective
In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The ASU increases the transparency surrounding supplier finance programs by requiring the buyer to disclose information on an annual basis about the key terms of the program, the outstanding obligation amounts as of the end of the period, a roll-forward of such amounts, and the balance sheet presentation of the related amounts. Additionally, the obligation amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for fiscal years beginning after December 15, 2022 except for the requirement to disclose the roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of the new guidance, which is limited to financial statement disclosures.
3. Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area, service offering and industry sector. The majority of our revenue, based on sales office location, is generated in the U.S. Approximately 9 % and 10 % of our revenues were generated outside the U.S. (primarily in North America, excluding the U.S., and Asia) for the three months ended September 30, 2022 and 2021, respectively. Approximately 9
8
Our revenue disaggregated by service offering was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Truck brokerage | $ | $ | $ | $ | |||||||||||||||||||
| Last mile | |||||||||||||||||||||||
| Managed transportation | |||||||||||||||||||||||
| Freight forwarding | |||||||||||||||||||||||
| Eliminations | ( | ( | ( | ( | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Our revenue by industry sector was approximately as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Retail/e-commerce | $ | $ | $ | $ | |||||||||||||||||||
| Food and beverage | |||||||||||||||||||||||
| Industrial/manufacturing | |||||||||||||||||||||||
| Logistics and transportation | |||||||||||||||||||||||
| Automotive | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Performance Obligations
Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On September 30, 2022, the fixed consideration component of our remaining performance obligation was approximately $151 million, and we expect approximately 91 % of that amount to be recognized over the next three years and the remainder thereafter. We estimate 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.
4. Restructuring
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. These actions generally include severance and facility-related costs, including impairment of operating lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability going forward.
Our restructuring-related activity was as follows:
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| (In millions) | Reserve Balance as of December 31, 2021 | Charges Incurred | Payments | Other | Reserve Balance as of September 30, 2022 | ||||||||||||||||||||||||
| Severance | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Facilities | ( | ||||||||||||||||||||||||||||
| Contract termination | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
9
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| (In millions) | Reserve Balance as of December 31, 2020 | Charges Incurred | Payments | Other | Reserve Balance as of September 30, 2021 | ||||||||||||||||||||||||
| Severance | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Facilities | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
We expect the majority of the cash outlays related to the charges incurred in the first nine months of 2022 will be completed by September 30, 2023.
5. Earnings per Share
6. Commitments and Contingencies
We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several class action and collective action cases involving claims that the contract carriers with which we contract for performance of delivery services, or their delivery workers, should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, unreimbursed business expenses, deductions from wages, penalties and other items), injunctive relief, or both.
We establish 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. We review and adjust 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, we assess 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, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose 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 our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our 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 our financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
XPO carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
10
7. Related Party Transactions
Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, are deemed related-party transactions. Related-party transactions are comprised of the following: (i) those that have been effectively settled or are expected to be settled for cash, and (ii) those which have historically not been settled and which have been or are expected to be forgiven by either party. For those that have been or are expected to be cash settled, we have recorded related-party receivables (assets) or payables (liabilities) in the Condensed Combined Balance Sheets as of September 30, 2022 and December 31, 2021. For those that have been or are expected to be forgiven, the amounts have been recorded as an adjustment of XPO Investment in the Condensed Combined Balance Sheets as of September 30, 2022 and December 31, 2021.
Allocation of General Corporate Expenses
The Condensed Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company. In addition, for purposes of preparing these Condensed Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to the Company. See Note 2—Basis of Presentation for a discussion of the methodology used to allocate such costs for purposes of preparing these Condensed Combined Financial Statements.
Costs included in our Condensed Combined Statements of Operations for our allocated share of XPO’s corporate overhead are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Sales, general and administrative expense | $ | $ | $ | $ | |||||||||||||||||||
| Depreciation and amortization expense | |||||||||||||||||||||||
| Transaction and integration costs | |||||||||||||||||||||||
| Restructuring costs | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Transactions with XPO and its non-RXO Subsidiaries
Revenue and costs generated from related parties were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of transportation and services (exclusive of depreciation and amortization) | |||||||||||||||||||||||
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Balances with XPO and its non-RXO Subsidiaries
Assets and liabilities on the Condensed Combined Balance Sheets include the following related-party amounts that are expected to be cash settled:
| September 30, | December 31, | ||||||||||
| (In millions) | 2022 | 2021 | |||||||||
Amounts due from XPO and its affiliates | |||||||||||
Trade receivables(1) | $ | $ | |||||||||
Amounts due to XPO and its affiliates | |||||||||||
Trade payables(2) | |||||||||||
_________________
(1)Represents trade receivables generated from revenue with XPO.
(2)Represents trade payables due to XPO.
8. Subsequent Events
RXO Notes
On October 25, 2022, we completed an offering of $355 million in aggregate principal amount of notes (the “Notes”). The Notes bear interest at a rate of 7.50 % per annum payable semiannually in cash in arrears on May 15 and November 15 of each year, beginning May 15, 2023, and mature on November 15, 2027, unless earlier repurchased or redeemed, if applicable. RXO is permitted to redeem some or all of the Notes prior to their maturity at redemption prices described in the indenture. The Notes were issued at an issue price of 98.962 % of par.
Term Loan Credit Agreement
On October 18, 2022, we entered into a five-year $100 million unsecured term loan facility (the “Term Loan”). The Term Loan bears interest at a fluctuating rate per annum equal to, at RXO’s option, the alternate base rate or a rate referencing the Secured Overnight Funding Rate (“SOFR”), in each case, plus an applicable margin calculated based on RXO’s credit ratings, payable quarterly. Beginning with the fiscal quarter ending March 31, 2025, the Term Loan will amortize on a quarterly basis in an amount equal to (i) 5 % per annum for the first eight fiscal quarters ending on or after such date and (ii) 10 % per annum for each fiscal quarter ending thereafter. The Term Loan matures on November 1, 2027.
Revolving Credit Agreement
On October 18, 2022, we entered into a five-year unsecured, multicurrency Revolving Credit Agreement (the “Revolver”) with initial aggregate commitments from all lenders of $500 million, of which $50 million will be available for the issuance of letters of credit. Loans under the Revolver will bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S. dollars, at RXO’s option, the alternate base rate or a rate referencing the SOFR and (b) with respect to borrowings in Canadian Dollars, the reserve adjusted Canadian Dollar Offered Rate (“CDOR”), in each case, plus an applicable margin calculated based on RXO’s credit ratings.
Cash Distribution to XPO
Net proceeds from the issuance of the Notes and the incurrence of the Term Loan, together with cash on RXO’s balance sheet, were used to fund a net cash distribution of $604 million from RXO to XPO, in the fourth quarter of 2022.
Distribution from XPO
On November 1, 2022, XPO completed the spin-off of RXO in a transaction intended to be tax-free for U.S. federal income tax purposes, which was accomplished by the distribution of 100 % of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution. XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date. RXO is now a standalone publicly traded company, and, on November 1, 2022, regular-way trading of RXO’s common stock commenced on the NYSE under the ticker symbol “RXO.”
The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a TMA, an EMA, a TSA, and an IPLA.
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The Separation and Distribution Agreement contains provisions that, among other things, relate to (i) the transfer, assumption and allocation of assets, liabilities and contracts to each of RXO and XPO as part of the spin-off, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities arising out of or resulting from the RXO business with RXO and to place financial responsibility for the obligations and liabilities arising out of or resulting from XPO’s retained business with XPO, (iii) the allocation between RXO and XPO of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the spin-off, and (iv) procedures governing the resolution of disputes, controversies or claims that may arise between RXO and XPO related to the separation or distribution.
Under the TSA, (i) XPO will provide RXO and certain of its affiliates, on an interim, transitional basis, various services and (ii) RXO will provide XPO and certain of its affiliates, on an interim, transitional basis, various services. The services to be provided will include, among others, employee benefits administration, information technology services, regulatory services, accounting support, general administrative services and other support services.
The TMA governs XPO’s and RXO’s rights, responsibilities and obligations with respect to tax matters; including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax, contests and other tax matters.
The EMA allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the spin-off.
The IPLA between an RXO subsidiary and XPO provides such RXO subsidiary licenses to certain XPO software and other intellectual property rights retained by XPO, and provides XPO licenses to certain software, patents and other intellectual property owned by RXO subsidiaries.
Stock Compensation Expense
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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 actual results or developments anticipated by the company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the company or its business or operations. The following discussion should be read in conjunction with the company’s unaudited Condensed Combined Financial Statements and related notes thereto included elsewhere in this Quarterly Report, and with the Audited Combined Financial Statements and related notes thereto included in the Form 10 declared effective on October 17, 2022 (the “Form 10”). Forward-looking statements set forth in this Quarterly Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law.
Business Overview
RXO, Inc. (“RXO”, the “Company” or “we”) is a high-performing brokered transportation platform defined by cutting-edge technology and a nimble, asset-light business model, with the largest component being our core truck brokerage business. We are the fourth largest broker of full truckload freight transportation in the United States, and have approximately 4% share of the entire $88 billion brokered truckload industry.
Our truck brokerage business has a variable cost structure with robust free cash flow conversion and a long track record of generating a high return on invested capital. Shippers create demand for our service, and we place their freight with qualified independent carriers using our technology. We price our service on either a contract or a spot basis.
Notable factors driving growth and margin expansion in our business include our ability to access massive truckload capacity for shippers through our carrier relationships, our proprietary, cutting-edge technology, our strong management expertise and favorable industry tailwinds. As of September 30, 2022, we had approximately 108,000 carriers in our North American truck brokerage network, and access to more than 1.5 million trucks.
We provide our customers with highly efficient access to capacity through our digital brokerage technology. This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels. Our other brokered transportation services for managed transportation, last mile and freight forwarding also utilize our digital brokerage technology — these services are described below.
Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings. The service uses proprietary technology to enhance our revenue synergy, with cross-selling to truck brokerage, last mile and freight forwarding.
Our last mile offering is an asset-light service that facilitates consumer deliveries performed by highly qualified third-party contractors. We are the largest provider of outsourced last mile for heavy goods in the United States, positioned within 125 miles of the vast majority of the U.S. population and serving a customer base of omnichannel and e-commerce retailers and direct-to-consumer manufacturers.
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Our freight forwarding service is a scalable, asset-light offering managed with advanced technology that facilitates ocean, road and air transportation and assists with customs brokerage. We are a global freight forwarder with a network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 160 countries and territories.
The Spin-Off
On November 1, 2022, XPO Logistics, Inc. (together with its subsidiaries, “XPO”) completed the spin-off of RXO in a transaction intended to be tax-free for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution. XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date. RXO is now a standalone publicly traded company, and, on November 1, 2022, regular-way trading of the common stock commenced on the New York Stock Exchange (the “NYSE”) under the ticker symbol “RXO.”
The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”). See Note 8—Subsequent Events for additional details.
Impacts of COVID-19 and Other Notable External Conditions
As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. The COVID-19 pandemic that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry. Labor shortages, particularly a shortage of truck drivers, and equipment shortages continue to present challenges to many transportation-related industries. Additionally, disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have impacted some of the end-market activities that create demand for our services. We cannot predict how long these dynamics will last, or whether future challenges, if any, will adversely affect our results of operations. To date, the totality of the actions we have taken during the pandemic, and continue to take, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in growth initiatives.
Additionally, economic inflation can have a negative impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to continue to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases. During 2021 and the three and nine months ended September 30, 2022, the transportation industry’s truck driver shortage, together with rising fuel prices, resulted in higher transportation procurement costs to meet growing demand, which costs were largely offset by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases. An economic recession could depress activity levels and adversely affect our results of operations.
Regarding the war between Russia and Ukraine, we have no direct exposure to those geographies. We cannot predict how global supply chain activities or the economy at large may be impacted by a prolonged war in Ukraine or sanctions imposed in response to the war, or whether future conflicts, if any, may adversely affect our results of operations.
Basis of Presentation
Refer to Note 2—Basis of Presentation for details regarding the basis of presentation used for the Company’s Condensed Combined Financial Statements.
Cost of transportation and services (exclusive of depreciation and amortization) primarily includes the cost of providing or procuring freight transportation for RXO customers.
Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.
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SG&A, including the allocated costs of XPO, primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, third-party professional fees, facility costs, bad debt expense and legal costs.
RXO has a single reportable segment.
Results of Operations
| Three Months Ended September 30, | Percent of Revenue | Nine Months Ended September 30, | Percent of Revenue | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 1,138 | $ | 1,198 | 100.0 | % | 100.0 | % | $ | 3,676 | $ | 3,362 | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||
| Cost of transportation and services (exclusive of depreciation and amortization) | 857 | 958 | 75.3 | % | 80.0 | % | 2,782 | 2,630 | 75.7 | % | 78.2 | % | |||||||||||||||||||||||||||||||||||
| Direct operating expense (exclusive of depreciation and amortization) | 56 | 48 | 4.9 | % | 4.0 | % | 167 | 143 | 4.5 | % | 4.3 | % | |||||||||||||||||||||||||||||||||||
| Sales, general and administrative expense | 158 | 130 | 13.9 | % | 10.9 | % | 485 | 387 | 13.2 | % | 11.5 | % | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense | 23 | 22 | 2.0 | % | 1.8 | % | 65 | 62 | 1.8 | % | 1.8 | % | |||||||||||||||||||||||||||||||||||
| Transaction and integration costs | 23 | 1 | 2.0 | % | 0.1 | % | 44 | 2 | 1.2 | % | 0.1 | % | |||||||||||||||||||||||||||||||||||
| Restructuring costs | 6 | 1 | 0.5 | % | 0.1 | % | 9 | 1 | 0.2 | % | — | % | |||||||||||||||||||||||||||||||||||
| Operating income | $ | 15 | $ | 38 | 1.3 | % | 3.2 | % | $ | 124 | $ | 137 | 3.4 | % | 4.1 | % | |||||||||||||||||||||||||||||||
| Other expense | 1 | — | 0.1 | % | — | % | — | 1 | — | % | — | % | |||||||||||||||||||||||||||||||||||
| Interest income | $ | (1) | $ | — | (0.1) | % | — | % | $ | (1) | $ | — | — | % | — | % | |||||||||||||||||||||||||||||||
| Income before income taxes | $ | 15 | $ | 38 | 1.3 | % | 3.2 | % | $ | 125 | $ | 136 | 3.4 | % | 4.1 | % | |||||||||||||||||||||||||||||||
| Income tax provision | 2 | 5 | 0.2 | % | 0.4 | % | 29 | 28 | 0.8 | % | 0.8 | % | |||||||||||||||||||||||||||||||||||
| Net income | $ | 13 | $ | 33 | 1.1 | % | 2.8 | % | $ | 96 | $ | 108 | 2.6 | % | 3.3 | % | |||||||||||||||||||||||||||||||
Three and Nine Months Ended September 30, 2022 Compared with Three and Nine Months Ended September 30, 2021
Our revenue decreased 5.0% to $1.1 billion in the third quarter of 2022, compared with $1.2 billion for the same quarter in 2021. Revenue for the first nine months of 2022 increased 9.3% to $3.7 billion compared with $3.4 billion for the same period in 2021. The year-over-year decrease in revenue in the third quarter of 2022 was primarily driven by (i) lower revenue generated from services in our managed transportation operation, (ii) lower ocean volume in our freight forwarding business and (iii) lower revenue generated from our truck brokerage business, primarily driven by lower truckload pricing in the spot market, partially offset by a year-over-year increase in volume. The increase in revenue in the first nine months of 2022 primarily reflects an increase in truck brokerage loads, facilitated by our digital platform, as well as strong pricing across our service offerings. Of the $0.3 billion increase in revenue in the first nine months of 2022, compared with the same period in 2021, 76% was driven by volume increases and 27% was driven by pricing increases, partially offset by a 3% reduction from changes in mix.
Cost of transportation and services (exclusive of depreciation and amortization) for the third quarter of 2022 was $857 million, or 75.3% of revenue, compared with $958 million or 80.0% of revenue, for the same quarter in 2021. Cost of transportation and services (exclusive of depreciation and amortization) for the first nine months of 2022 was $2.8 billion, or 75.7% of revenue, compared with $2.6 billion or 78.2% of revenue, for the same period in 2021. Third party transportation costs as a percentage of revenue decreased year-over-year by 4.7 and 2.3 percentage points for the third quarter and first nine months of 2022, respectively. The year-over-year decreases in both 2022 periods were due primarily to our ability to purchase services at lower cost as the transportation market softened, while the majority of our revenue reflected fixed terms on customer contracts established in stronger rate environments prior to 2022.
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Direct operating expense (exclusive of depreciation and amortization) for the third quarter of 2022 was $56 million, or 4.9% of revenue, compared with $48 million, or 4.0% of revenue, for the same quarter in 2021. Direct operating expense (exclusive of depreciation and amortization) for the first nine months of 2022 was $167 million, or 4.5% of revenue, compared with $143 million, or 4.3% of revenue, for the same period in 2021. The year-over-year increase as a percentage of revenue in the third quarter of 2022 was primarily a result of higher compensation-related costs and facilities costs, which increased as a percentage of revenue by approximately 0.4 and 0.2 percentage points, respectively. The year-over-year increase as a percentage of revenue in the first nine months of 2022 was primarily the result of higher compensation-related costs, which increased as a percentage of revenue by approximately 0.2 percentage points.
Sales, general and administrative expense for the third quarter of 2022 was $158 million or 13.9% of revenue, compared with $130 million, or 10.9% of revenue, for the same quarter in 2021. SG&A for the first nine months of 2022 was $485 million, or 13.2% of revenue, compared with $387 million, or 11.5% of revenue, for the same period in 2021. The year-over-year increases in SG&A as a percentage of revenue primarily resulted from higher compensation-related costs of 2.5 and 1.2 percentage points, respectively, for the third quarter and first nine months of 2022.
Depreciation and amortization expense for the third quarter of 2022 was $23 million, compared with $22 million for the same quarter in 2021. Depreciation and amortization expense for the first nine months of 2022 was $65 million, compared with $62 million for the same period in 2021. Depreciation and amortization expense included amortization of acquisition-related intangible assets of $5 million and $6 million for the third quarter of 2022 and 2021, respectively. Depreciation and amortization expense included amortization of acquisition-related intangible assets of $16 million and $18 million for the first nine months of 2022 and 2021, respectively.
Transaction and integration costs for the third quarter and first nine months of 2022 were $23 million and $44 million, respectively, and are primarily comprised of spin-off related costs.
Restructuring costs for the third quarter and first nine months of 2022 were $6 million and $9 million, respectively, and are primarily comprised of spin-off related costs.
Our effective income tax rates were 18.5% and 14.2% for the third quarter of 2022 and 2021, respectively, and 23.6% and 20.7% for the first nine months of 2022 and 2021, respectively. The effective tax rates for the third quarter and nine-month periods of 2022 and 2021 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. Our effective tax rates for the third quarter of 2022 and 2021 differ from the U.S. corporate income tax rate of 21% primarily due to a tax benefit of $1 million and $5 million, respectively, from changes in reserves for uncertain tax positions partially offset by state income taxes within the U.S. Our effective tax rate for the first nine months of 2022 differs from the U.S. corporate income tax rate of 21% due to state income taxes within the U.S. partially offset by a tax benefit of $1 million from changes in reserves for uncertain tax positions. Our effective tax rate for the first nine months of 2021 differs from the U.S. corporate income tax rate of 21% due to tax benefits of $5 million from changes in reserves for uncertain tax positions and $2 million from revaluing state deferred tax assets partially offset by state income taxes within the U.S.
Liquidity and Capital Resources
Historically, our principal existing sources of cash are cash generated from operations and funding from XPO.
Treasury activities at XPO are generally centralized, while certain balances are managed locally. To the extent cash and cash equivalents are legally owned by RXO, they are reflected in the Condensed Combined Financial Statements.
Following our spin-off from XPO, our capital structure and sources of liquidity changed from our historical capital structure because we no longer participate in XPO’s centralized cash management program. Additionally, we incurred $455 million of new debt in October 2022.
We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months. In conjunction with the spin-off, we expect to further evaluate our liquidity needs, capital structure and sources of capital on a standalone basis. See Note 8—Subsequent Events for additional details.
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Financial Condition
The following table summarizes our asset and liability balances as of September 30, 2022 and December 31, 2021:
| As of September 30, | As of December 31, | ||||||||||
| (In millions) | 2022 | 2021 | |||||||||
| Total current assets | $ | 1,225 | $ | 1,083 | |||||||
| Total long-term assets | 1,012 | 985 | |||||||||
| Total current liabilities | 888 | 816 | |||||||||
| Total long-term liabilities | 205 | 182 | |||||||||
Total assets increased by $169 million from December 31, 2021 to September 30, 2022 primarily due to an increase in cash in 2022 generated by cash flows from operations. Total liabilities increased by $95 million from December 31, 2021 to September 30, 2022, primarily due to an $27 million increase in accounts payable and a $36 million increase in accrued expenses in 2022. The increases in accounts payable and accrued expenses were primarily due to an increase in managed transportation volume.
Cash Flow Activity
Our cash flows from operating, investing and financing activities, as reflected on our Condensed Combined Statements of Cash Flows, are summarized as follows:
| Nine Months Ended September 30, | |||||||||||
| (In millions) | 2022 | 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) | |||||||||
During the first nine months of 2022, we generated cash from operating activities of $234 million, which was used to fund (i) $39 million of net transfers to XPO and (ii) the purchase of $39 million of property and equipment.
During the first nine months of 2021, we generated cash from operating activities of $119 million, which was used to fund (i) $131 million of net transfers to XPO and (ii) the purchase of $30 million of property and equipment.
Net cash provided by operating activities for the first nine months of 2022 increased by $115 million, compared with the first nine months of 2021. The increase reflects favorable changes in working capital in the first nine months of 2022, primarily related to accounts receivable using $10 million of cash, compared to using $101 million during the same period in 2021 as the revenue growth rate decelerated in 2022.
Investing activities used $38 million of cash in the first nine months of 2022 compared to $29 million in the same period of 2021, primarily to purchase property and equipment. The increase in property and equipment purchases between periods is primarily driven by increased spending on computer software and equipment.
Financing activities used $38 million of cash for the first nine months of 2022 compared with using $130 million of cash for the same period in 2021. The primary use of cash from financing activities in both periods was for net transfers to XPO.
Contractual Obligations
As of September 30, 2022, the Company’s future contractual obligations have not materially changed as compared with December 31, 2021. In connection with the spin-off, subsequent to September 30, 2022 we incurred approximately $455 million of new indebtedness with associated annual interest expense of approximately $35 million. See Note 8—Subsequent Events for additional details. We anticipate full year net capital expenditures to be between $40 million and $50 million in 2022, funded by cash from operations and available liquidity.
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Critical Accounting Policies
Our significant accounting policies, which include management’s most subjective and complex estimates and judgments, are included in Note 2—Basis of Presentation to the Combined Financial Statements for the year ended December 31, 2021 included in the Form 10. A discussion of accounting estimates, considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates, are disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10. There have been no significant changes in the Company’s critical accounting estimates since December 31, 2021.
New Accounting Standards
Information related to new accounting standards is included in Note 2—Basis of Presentation to our Condensed Combined Financial Statements in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in foreign currency exchange rates and commodity prices. There have been no material changes to our quantitative and qualitative disclosures about market risk related to our continuing operations during the nine months ended September 30, 2022, as compared with the quantitative and qualitative disclosures about market risk described in our Form 10 for the year ended December 31, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness 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 such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, 2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 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 time 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.
During the third quarter of 2022, RXO relied on certain material processes and internal controls over financial reporting performed by XPO.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6—Commitments and Contingencies to the Condensed Combined Financial Statements included in this Quarterly Report on Form 10-Q for a description of our legal proceedings.
ITEM 1A. RISK FACTORS
There are no material changes to the risk factors previously disclosed under “Risk Factors” in the Form 10, except to note that the spin-off was completed on November 1, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit Number | Description | |||||||
| 10.1+ | ||||||||
| 10.2+ | ||||||||
| 10.3*+ | ||||||||
| 31.1 * | ||||||||
| 31.2 * | ||||||||
| 32.1 ** | ||||||||
| 32.2 ** | ||||||||
| 101.INS * | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH * | XBRL Taxonomy Extension Schema. | |||||||
| 101.CAL * | XBRL Taxonomy Extension Calculation Linkbase. | |||||||
| 101.DEF * | XBRL Taxonomy Extension Definition Linkbase. | |||||||
| 101.LAB * | XBRL Taxonomy Extension Label Linkbase. | |||||||
| 101.PRE * | 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.
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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.
Date: November 30, 2022 | RXO, INC. | |||||||
| By: | /s/ Drew M. Wilkerson | |||||||
| Drew M. Wilkerson | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ James E. Harris | |||||||
| James E. Harris | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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Exhibit 10.3
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE XPO LOGISTICS, INC. 2016 OMNIBUS INCENTIVE
COMPENSATION PLAN, dated as of [DATE] (the “Grant Date”)
between XPO LOGISTICS, INC., a Delaware corporation (the “Company”),
and [PARTICIPANT NAME]
UNDER THE XPO LOGISTICS, INC. 2016 OMNIBUS INCENTIVE
COMPENSATION PLAN, dated as of [DATE] (the “Grant Date”)
between XPO LOGISTICS, INC., a Delaware corporation (the “Company”),
and [PARTICIPANT NAME]
This Performance-Based Restricted Stock Unit Award Agreement (this “Award Agreement”) sets forth the terms and conditions of an award of restricted stock units with respect to a number of shares of the Company’s Common Stock, $0.001 par value (“Share”) equal to [NUMBER OF UNITS] (this “Award”), that is subject to the terms and conditions specified herein (each such restricted stock unit, an “RSU”) and that are granted to you under the XPO Logistics, Inc. 2016 Omnibus Incentive Compensation Plan (the “Plan”). This Award provides you with the opportunity to earn, subject to the terms of this Award Agreement, Shares or cash, as set forth in Section 3 of this Award Agreement.
THIS AWARD IS SUBJECT TO ALL TERMS AND CONDITIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING THE DISPUTE RESOLUTION PROVISIONS SET FORTH IN SECTION 10 OF THIS AWARD AGREEMENT. BY SIGNING YOUR NAME BELOW, YOU SHALL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT.
SECTION 1.The Plan. This Award is made pursuant to the Plan, all the terms of which are hereby incorporated in this Award Agreement, including the provisions of Section 6(e) of the Plan. In the event of any conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan shall govern.
SECTION 2.Definitions. Capitalized terms used in this Award Agreement that are not defined in this Award Agreement have the meanings as used or defined in the Plan. As used in this Award Agreement, the following terms have the meanings set forth below:
“Cause” shall have the meaning given to such term in your Employment Agreement or, if there is no Employment Agreement in effect at the time of your termination, the meaning given to such term in the Plan.
“Employment Agreement” means any individual employment agreement, change in control and severance agreement, or confidential information protection agreement between you and the Company or any of its Subsidiaries.
“Good Reason” shall having the meaning given to such term in your Employment Agreement or, if there is no Employment Agreement in effect at the time of your termination, the meaning given to such term in the Plan.
“Performance Goal” means the completion of a distribution to shareholders of the Company of 80% or more of the common stock of a subsidiary of the Company that holds the Company’s North America Transport business (which may include, at the discretion of the Board, all or any combination of the Company’s Brokerage, Expedite, Managed Transportation, Global Forwarding, Intermodal and Drayage, and Last Mile business lines) (“Spinco”) that occurs on or prior to March 31, 2023.
“Performance Period” means the period commencing on the Grant Date and ending on March 31, 2023.
“Section 409A” means Section 409A of the Code, and the regulations and other interpretive guidance promulgated thereunder, as in effect from time to time.
“Settlement Date” means a date that is as soon as reasonably practicable (and in any event within 10 calendar days) following the date, if any, on which the RSUs vest pursuant to Section 3.
SECTION 3.Vesting and Settlement.
(a)Vesting Requirements. Except as otherwise provided in this Award Agreement, the RSUs will become vested on each of the first five anniversaries of the Grant Date in accordance with the schedule below (each, a “Vesting Date”), contingent upon (i) the completion of the Performance Goal during the Performance Period, and (ii) your continued employment through each such Vesting Date (except as otherwise provided in Sections 3(b)(i) and 3(c)). If the Performance Goal is not achieved during the Performance Period then, upon the last day of the Performance Period, 100% of the RSUs granted pursuant to this Award Agreement shall be forfeited.
| Grant Date Anniversary | % of Award that Vests | ||||
| Year 1 | 12.5% | ||||
| Year 2 | 12.5% | ||||
| Year 3 | 25% | ||||
| Year 4 | 25% | ||||
| Year 5 | 25% | ||||
(b)Termination of Employment. Notwithstanding anything to the contrary in this Award Agreement or the Plan but subject to Section 3(c), all outstanding and unvested RSUs will be forfeited upon your termination of employment for any reason prior to the Vesting Date, except that:
(i)if your employment terminates by reason of your death prior to the Vesting Date, then 100% of the RSUs shall vest immediately; and
(ii)upon your involuntary termination of employment by the Company without Cause (and other than due to your Disability) or if you resign, in either case, prior to the final Vesting Date, subject to the achievement of the Performance Goal prior to your termination of employment and during the Performance Period, (A) you shall vest in a number of RSUs, solely with respect to the RSUs scheduled and eligible to vest on the Vesting Date immediately following the date of termination, equal to the product of (x) the number of such RSUs scheduled and eligible to vest on the Vesting Date immediately following the date of termination and (y) a fraction, the numerator of which is the number of days from the Vesting Date immediately preceding the date of termination (or, if such termination is after the Grant Date but prior to the first Vesting Date, the Grant Date) through the date of termination of your employment and the denominator of which is the number of days from the Vesting Date immediately preceding the date of termination (or, if such termination is after the Grant Date but prior
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to the first Vesting Date, the Grant Date) through the Vesting Date immediately following the date of termination, and (B) the remainder of the RSUs shall be forfeited.
For the avoidance of doubt, if your employment terminates for any reason (other than upon death), prior to the achievement of the Performance Goal during the Performance Period, all outstanding RSUs will be forfeited.
By way of illustration, if you are terminated without Cause (and other than due to your Disability) on the date that is six (6) months after the first Vesting Date and the Performance Goal was achieved prior to your termination of employment and during the Performance Period, you shall vest in one-half (1/2) of the RSUs that were scheduled and eligible to vest on the second Vesting Date and the remainder of the RSUs shall be forfeited.
(c)Change of Control. If a Change of Control occurs prior to the completion of the Performance Goal, then all outstanding RSUs will be forfeited upon the occurrence of the Change of Control. To the extent the RSUs are assumed by Spinco upon the distribution of the shares of Spinco by the Company and if a Change of Control of Spinco occurs following the completion of the Performance Goal during the Performance Period and prior to the final Vesting Date, and you remain employed by Spinco or one of its subsidiaries at the time of such Change of Control, then all outstanding RSUs (including any RSUs replaced in compliance with Section 8(b) of the Plan) shall remain outstanding and unvested, and shall continue to vest in accordance with the time-based vesting conditions set forth in Section 3(a), subject to your continued employment through each Vesting Date, or shall vest upon your earlier termination of employment (i) due to your death, (ii) due to an involuntary termination by Spinco or any successor employer without Cause (and other than due to your Disability), or (iii) due to your resignation for Good Reason. Or, if such RSUs (assumed by Spinco upon the distribution of the shares of Spinco by the Company) are not replaced in compliance with Section 8(b) of the Plan and the Change in Control occurs after achievement of the Performance Goal during the Performance Period, such RSUs shall vest immediately upon the occurrence of the Change of Control.
(d)Settlement of RSU Award. If RSUs vest pursuant to the foregoing provisions of this Section 3, then no later than the applicable Settlement Date, the Company shall deliver to you or your legal representative either (i) one Share or (ii) a cash payment equal to the Fair Market Value determined as of the Settlement Date of one Share, in each case, for each RSU that has been deemed earned and vested in accordance with the terms of this Award Agreement; provided, that the Company shall have sole discretion to determine whether to settle such RSUs in Shares, cash or a combination thereof.
SECTION 4.Forfeiture of RSUs. If you (a) breach any restrictive covenant (which, for the avoidance of doubt, includes any non-compete, non-solicit, non-disparagement or confidentiality provisions) contained in any arrangements with the Company (including your Employment Agreement and the confidentiality covenant contained in Section 10(c) hereof) to which you are subject or (b) engage in fraud or willful misconduct that contributes materially to any financial restatement or material loss to the Company or any of its Subsidiaries, your rights with respect to the RSUs shall immediately terminate, and you shall be entitled to no further payments or benefits with respect thereto and, if the RSUs are vested and/or settled, the Company may require you to forfeit or remit to the Company any amount payable, or the after-tax net amount paid or received by you, in respect of any RSUs; provided, however, that (i) the Company shall make such demand that you forfeit or remit any such amount no later than six months after learning of the conduct described in this Section 4 and (ii) in cases where cure is possible, you shall first be provided a 15-day cure period to cease, and to cure, such conduct.
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SECTION 5.No Rights as a Stockholder. You shall not have any rights or privileges of a stockholder with respect to the RSUs subject to this Award Agreement unless and until certificates representing Shares are actually issued and delivered to you or your legal representative in settlement of this Award.
SECTION 6.Non-Transferability of RSUs. Unless otherwise provided by the Committee in its discretion, RSUs may not be sold, assigned, alienated, transferred, pledged, attached or otherwise encumbered except as provided in Section 9(a) of the Plan. Any purported sale, assignment, alienation, transfer, pledge, attachment or other encumbrance of RSUs in violation of the provisions of this Section 6 and Section 9(a) of the Plan shall be void.
SECTION 7.Withholding, Consents and Legends.
(a)Withholding. The delivery of Shares or cash pursuant to Section 3 of this Award Agreement is conditioned on satisfaction of any applicable withholding taxes in accordance with this Section 7(a) and Section 9(d) of the Plan. No later than the date as of which an amount first becomes includible in your gross income for Federal, state, local or foreign income tax purposes with respect to any RSUs, you shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld with respect to such amount. In the event that there is withholding tax liability in connection with the settlement of the RSUs, if authorized by the Committee in its sole discretion, you may satisfy, in whole or in part, any withholding tax liability by having the Company withhold from the number of Shares or cash you would be entitled to receive upon settlement of the RSUs, an amount in cash or a number of Shares having a Fair Market Value (which shall either have the meaning set forth in the Plan or shall have such other meaning as determined by the Company in accordance with applicable withholding requirements) equal to such withholding tax liability.
(b)Consents. Your rights in respect of the RSUs are conditioned on the receipt to the full satisfaction of the Committee of any required consents that the Committee may determine to be necessary or advisable (including your consent to the Company’s supplying to any third-party recordkeeper of the Plan such personal information as the Committee deems advisable to administer the Plan).
(c)Legends. The Company may affix to certificates for Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under any applicable securities laws). The Company may advise the transfer agent to place a stop order against any legended Shares.
SECTION 8.Successors and Assigns of the Company. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns.
SECTION 9.Committee Discretion. The Compensation Committee of the Board shall have full and plenary discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive.
SECTION 10.Dispute Resolution.
(e)Jurisdiction and Venue. Notwithstanding any provision in your Employment Agreement, you and the Company irrevocably submit to the exclusive jurisdiction
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of (i) the United States District Court for the Southern District of New York and (ii) the courts of the State of New York for the purposes of any suit, action or other proceeding arising out of this Award Agreement or the Plan. You and the Company agree to commence any such action, suit or proceeding either in the United States District Court for the Southern District of New York or, in the courts of the State of New York. You and the Company further agree that service of any process, summons, notice or document by U.S. registered mail to the other party’s address set forth below shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which you have submitted to jurisdiction in this Section 10(a). You and the Company irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Award Agreement or the Plan in (A) the United States District Court for the Southern District of New York or (B) the courts of the State of New York, and hereby and thereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
(f)Waiver of Jury Trial. You and the Company hereby waive, to the fullest extent permitted by applicable law, any right either of you may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Award Agreement or the Plan.
(g)Confidentiality. You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Section 10, except that you may disclose information concerning such dispute to the court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).
SECTION 11.Notice. All notices, requests, demands and other communications required or permitted to be given under the terms of this Award Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three business days after they have been mailed by U.S. certified or registered mail, return receipt requested, postage prepaid, addressed to the other party as set forth below:
| If to the Company: | XPO Logistics, Inc. Five American Lane Greenwich, CT 06831 Attention: Chief Human Resources Officer | ||||
| If to you: | To your address as most recently supplied to the Company and set forth in the Company’s records | ||||
The parties may change the address to which notices under this Award Agreement shall be sent by providing written notice to the other in the manner specified above.
SECTION 12.Governing Law. This Award Agreement shall be deemed to be made in the State of Delaware, and the validity, construction and effect of this Award Agreement in all respects shall be determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.
SECTION 13.Headings and Construction. Headings are given to the Sections and subsections of this Award Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation
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of this Award Agreement or any provision thereof. Whenever the words “include,” “includes” or “including” are used in this Award Agreement, they shall be deemed to be followed by the words “but not limited to”. The term “or” is not exclusive.
SECTION 14.Amendment of this Award Agreement. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Award Agreement prospectively or retroactively; provided, however, that, except as set forth in Section 15(d) of this Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair your rights under this Award Agreement shall not to that extent be effective without your consent (it being understood, notwithstanding the foregoing proviso, that this Award Agreement and the RSUs shall be subject to the provisions of Section 7(c) of the Plan).
SECTION 15.Section 409A.
(d)It is intended that the provisions of this Award Agreement comply with Section 409A, and all provisions of this Award Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
(e)Neither you nor any of your creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A) payable under this Award Agreement to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to you or for your benefit under this Award Agreement may not be reduced by, or offset against, any amount owing by you to the Company or any of its Affiliates.
(f)If, at the time of your separation from service (within the meaning of Section 409A), (i) you shall be a specified employee (within the meaning of Section 409A and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest (except as otherwise provided in your Employment Agreement), on the first business day after such six-month period. For purposes of Section 409A, each payment hereunder will be deemed to be a separate payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).
(g)Notwithstanding any provision of this Award Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A, the Company reserves the right to make amendments to this Award Agreement as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A. In any case, you shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you or for your account in connection with this Award Agreement (including any taxes and penalties under Section 409A), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.
SECTION 16.Counterparts. This Award Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. You and the Company hereby acknowledge and
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agree that signatures delivered by facsimile or electronic means (including by “pdf”) shall be deemed effective for all purposes.
SECTION 17.Section 280G. Notwithstanding anything in this Award Agreement to the contrary and regardless of whether this Award Agreement has otherwise expired or terminated, unless otherwise provided in your Employment Agreement, in the event that any payments, distributions, benefits or entitlements of any type payable to you (“CIC Benefits”) (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this paragraph would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then your CIC Benefits shall be reduced to such lesser amount (the “Reduced Amount”) that would result in no portion of such benefits being subject to the Excise Tax; provided that such amounts shall not be so reduced if the Company determines, based on the advice of Golden Parachute Tax Solutions LLC, or such other nationally recognized certified public accounting firm as may be designated by the Company (the “Accounting Firm”), that without such reduction you would be entitled to receive and retain, on a net after tax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount that is greater than the amount, on a net after tax basis, that you would be entitled to retain upon receipt of the Reduced Amount. Unless the Company and you otherwise agree in writing, any determination required under this Section 17 shall be made in writing in good faith by the Accounting Firm. In the event of a reduction of benefits hereunder, benefits shall be reduced by first reducing or eliminating the portion of the CIC Benefits that are payable under this Award Agreement and then by reducing or eliminating the portion of the CIC Benefits that are payable in cash and then by reducing or eliminating the non-cash portion of the CIC Benefits, in each case, in reverse order beginning with payments or benefits which are to be paid the furthest in the future. For purposes of making the calculations required by this Section 17, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and you shall furnish to the Accounting Firm such information and documents as the Accounting Firm may reasonably require in order to make a determination under this Section 17, and the Company shall bear the cost of all fees the Accounting Firm charges in connection with any calculations contemplated by this Section 17. In connection with making determinations under this Section 17, the Accounting Firm shall take into account the value of any reasonable compensation for services to be rendered by you before or after the Change of Control, including any non-competition provisions that may apply to you and the Company shall cooperate in the valuation of any such services, including any non-competition provisions.
SECTION 18.Securities Trade Monitoring Policy. You are required to maintain a securities brokerage account with the Company’s preferred broker in order to receive any Shares issuable under this Award, in accordance with the Company securities trade monitoring policy (the “Trade Monitoring Policy” ). The Company’s preferred broker is currently Morgan Stanley. Any Shares issued to you pursuant to this Award Agreement shall be deposited in your account with the Company’s preferred broker in accordance with the terms set forth herein. You hereby acknowledge that you have reviewed, and agree to comply with, the terms of the Trade Monitoring Policy, and that this Award, and the value of any Shares issued pursuant to this Award Agreement, shall be subject to forfeiture or recoupment by the Company, as applicable, in the event of your noncompliance with the Trade Monitoring Policy, as it may be in effect from time to time.
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The parties have duly executed this Award Agreement as of the date first written above.
| XPO LOGISTICS, INC. | ||||||||
| By: | /s/ Josephine Berisha | |||||||
| Josephine Berisha | ||||||||
| Chief Human Resources Officer | ||||||||
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Exhibit 31.1
CERTIFICATION
I, Drew M. Wilkerson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 of RXO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Drew M. Wilkerson | |||||
| Drew M. Wilkerson | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Date: November 30, 2022 | |||||
Exhibit 31.2
CERTIFICATION
I, James E. Harris, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 of RXO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ James E. Harris | |||||
| James E. Harris | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: November 30, 2022 | |||||
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Executive Officer of RXO, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Drew M. Wilkerson | |||||
| Drew M. Wilkerson | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: November 30, 2022 | |||||
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Financial Officer of RXO, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ James E. Harris | |||||
| James E. Harris | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: November 30, 2022 | |||||