RXO, Inc 10-Q for FY2023 Q2
RXO, Inc. (RXO)
10-Q
2023-08-02
For: 2023-06-30
View Original
Added on
April 11, 2026
About this 10-Q
RXO, Inc filed this 10-Q on August 2, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $963M
- down 21.5% from $1.23B a year earlier
- Net income
- $3M
- down 93.2% from net income of $44M a year earlier
- Diluted EPS
- $0.03
- down 92.1% from $0.38 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 June 30, 2023
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 x No o
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 July 31, 2023, there were 116,982,388 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 June 30, 2023
Table of Contents
| Page No. | |||||
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
RXO, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, | December 31, | |||||||||||||
| (Dollars in millions, shares in thousands, except per share amounts) | 2023 | 2022 | ||||||||||||
| 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 | ||||||||||||||
| Current maturities of long-term debt | ||||||||||||||
| Short-term operating lease liabilities | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term liabilities | ||||||||||||||
| Long-term debt and obligations under finance leases | ||||||||||||||
| Deferred tax liability | ||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total long-term liabilities | ||||||||||||||
| Commitments and Contingencies (Note 9) | ||||||||||||||
| Equity | ||||||||||||||
Preferred stock, $ outstanding as of June 30, 2023 and December 31, 2022 | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
RXO, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in millions, shares in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| 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 income | ( | ( | ||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | ||||||||||||||||||||||
| Income tax provision | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Earnings per share data | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Basic weighted-average common shares outstanding | ||||||||||||||||||||||||||
| Diluted weighted-average common shares outstanding | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
RXO, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive loss, net of tax | ||||||||||||||||||||||||||
Foreign currency translation loss, net of tax effect of $ | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Other comprehensive loss | ( | |||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
RXO, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Operating activities | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash from operating activities | ||||||||||||||
| Depreciation and amortization expense | ||||||||||||||
| Stock compensation expense | ||||||||||||||
| Deferred tax expense (benefit) | ( | |||||||||||||
| 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 | ( | ( | ||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Financing activities | ||||||||||||||
| Payment for tax withholdings related to vesting of stock compensation awards | ( | |||||||||||||
| Repurchase of common stock | ( | |||||||||||||
| Net transfers from XPO | ||||||||||||||
| Repayment of debt and finance leases | ( | |||||||||||||
| Other | ( | |||||||||||||
| Net cash (used in) provided by financing activities | ( | |||||||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | ||||||||||||||
| Net increase 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 | $ | $ | ||||||||||||
| Cash paid for income taxes, net | ||||||||||||||
| Cash paid for interest, net | 17 | — | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
RXO, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | ||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock compensation awards | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to vesting of stock compensation awards | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Equity | ||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Vesting of stock compensation awards | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to vesting of stock compensation awards | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | XPO Investment | Total Equity | |||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net transfers from XPO | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
6
| Common Stock | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, shares in thousands) | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | XPO Investment | Total Equity | |||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net transfers from XPO | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
7
RXO, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the 2022 Form 10-K.
The Company’s condensed consolidated financial statements include the accounts of RXO, Inc. and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In management’s opinion, the condensed consolidated 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 six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
On November 1, 2022, the Company completed the separation (the “Separation”) from XPO, Inc. (formerly known as XPO Logistics, Inc.) (“XPO”). The Separation was accomplished by the distribution of 100 percent 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. The Separation was completed under a Separation and Distribution Agreement and various other agreements that govern aspects of the Company’s relationship with XPO.
On November 1, 2022, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. The combined financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements,” and have been prepared in accordance with GAAP.
8
In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis. Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including RXO. The charges reflected have either been specifically identified or allocated using drivers including proportionally adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The Company believes the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the condensed consolidated financial statements may not reflect the results of operations, financial position and cash flows had the Company been a standalone entity during the prior periods presented. The majority of these allocated costs are recorded within Sales, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Condensed Consolidated Statements of Operations. All charges and allocations for facilities, functions and services performed by XPO organizations have been deemed settled in cash by RXO to XPO in the year in which the cost was recorded in the Condensed Consolidated Statements of Operations.
For the periods ended before the Separation, 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 consolidated 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 Consolidated Statements of Cash Flows as a financing activity and in the Condensed Consolidated Statements of Changes in Equity as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from XPO’s corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.
For the periods ended before the Separation, the Company was a member of the XPO consolidated group, and its U.S. taxable income was included in XPO’s consolidated U.S. federal income tax return as well as in the tax returns filed by XPO with certain state and local taxing jurisdictions. For the periods ended after the Separation, the Company will file a consolidated U.S. federal income tax return as well as state and local income tax returns. The Company’s foreign income tax returns are filed on a full-year basis.
Significant Accounting Policies
Our significant accounting policies are disclosed in Note 2 to the 2022 Form 10-K. There have been no material changes to the Company’s significant accounting policies as of June 30, 2023.
Adoption of New Accounting Standards
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. We adopted this standard on January 1, 2023, on a prospective basis. The adoption did not have an impact on our financial statement disclosures.
9
Accounting Pronouncements Issued but Not Yet Effective
In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements”. The amendments in this update improve current GAAP by clarifying the accounting treatment for leasehold improvements associated with common control leases in order to create uniformity in practice. The ASU seeks to provide guidance to more accurately match the amortization expense of leasehold improvements under common control arrangements with the useful life of the improvements to the consolidated entity as a whole. The amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of the new guidance.
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 7 % 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 June 30, 2023 and 2022, respectively. Approximately 7 % and 9 % of our revenues were generated outside the U.S. (primarily in North America, excluding the U.S., and Asia) for the six months ended June 30, 2023 and 2022, respectively.
Our revenue disaggregated by service offering is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Truck brokerage | $ | $ | $ | $ | ||||||||||||||||||||||
| Last mile | ||||||||||||||||||||||||||
| Managed transportation | ||||||||||||||||||||||||||
| Freight forwarding | ||||||||||||||||||||||||||
| Eliminations | ( | ( | ( | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Our revenue disaggregated by industry sector is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Retail/e-commerce | $ | $ | $ | $ | ||||||||||||||||||||||
| Industrial/manufacturing | ||||||||||||||||||||||||||
| Food and beverage | ||||||||||||||||||||||||||
| Automotive | ||||||||||||||||||||||||||
| Logistics and transportation | ||||||||||||||||||||||||||
| 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. As of June 30, 2023, the fixed consideration component of our remaining performance obligation was approximately $136 million, and we expect approximately 99 % of that amount to be recognized over the next 3 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.
10
4. Restructuring Charges
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, and are intended to improve our efficiency and profitability going forward.
The following is a roll-forward of the Company’s restructuring liability, which is included in Accrued expenses in the Condensed Consolidated Balance Sheets:
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| (In millions) | Reserve Balance as of December 31, 2022 | Charges Incurred | Payments | Reserve Balance as of June 30, 2023 | ||||||||||||||||||||||||||||
| Severance | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Facilities | ( | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
We expect the majority of the cash outlays related to the remaining restructuring liability at June 30, 2023 to be complete within twelve months.
5. Debt
The following table summarizes the principal balance and carrying value of our debt:
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (In millions) | Principal Balance | Carrying Value | Principal Balance | Carrying Value | ||||||||||||||||||||||
| Term Loan | $ | $ | $ | $ | ||||||||||||||||||||||
| Finance leases, asset financing and other | ||||||||||||||||||||||||||
| Total debt and obligations under finance leases | ||||||||||||||||||||||||||
| Less: Current maturities of long-term debt | ||||||||||||||||||||||||||
| Total long-term debt and obligations under finance leases | $ | $ | $ | $ | ||||||||||||||||||||||
(1)The carrying value of the 7.50 % Notes due 2027 is presented net of unamortized debt issuance cost and discount of $8 million and $9 million as of June 30, 2023 and December 31, 2022, respectively.
Revolving Credit Agreement
On October 18, 2022, we entered into a five-year , unsecured multi-currency revolving credit facility (the “Revolver”). The Revolver borrowing capacity is up to $500 million, of which $50 million is available for the issuance of letters of credit. Loans under the Revolver bear interest at a fluctuating rate plus an applicable margin based on the Company’s credit ratings. The Company is required to pay a commitment fee on any unused commitment, based on pricing levels set forth in the agreement. The covenants in the Revolver are customary for financings of this type. The Revolver requires the Company to maintain a maximum consolidated leverage ratio and minimum interest coverage ratio. At June 30, 2023, the Company was in compliance with the covenants of the Revolver. There were no
11
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 plus an applicable margin calculated based on the Company’s credit ratings, payable at least 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. The effective interest rate on the Term Loan was 6.58 % as of June 30, 2023.
The covenants in the Term Loan are customary for financings of this type. In addition, the Term Loan requires the Company to maintain a maximum consolidated leverage ratio and minimum interest coverage ratio. At June 30, 2023, the Company was in compliance with the covenants of the credit agreement governing the Term Loan.
Notes
On October 25, 2022, we completed an offering of $355 million in unsecured notes (the “Notes” or the “7.50 % Notes due 2027”). 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. The Notes were issued at an issue price of 98.962 % of par. The effective interest rate on the Notes was 8.14 % as of June 30, 2023.
The Notes are guaranteed by each of our direct and indirect wholly owned domestic subsidiaries (other than certain excluded subsidiaries). The Notes and its guarantees are unsecured, senior indebtedness for us and our guarantors. The Notes contain covenants customary for debt securities of this nature. At June 30, 2023, the Company was in compliance with the covenants of the Notes.
6. 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.
Assets and Liabilities
The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of June 30, 2023 and December 31, 2022, due to their short-term nature and/or being receivable or payable on demand.
Debt
The fair value of our debt and classification in the fair value hierarchy is as follows:
| (In millions) | Level | June 30, 2023 | December 31, 2022 | |||||||||||||||||
| Term Loan | 2 | $ | $ | |||||||||||||||||
| 1 | ||||||||||||||||||||
We valued Level 1 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics.
12
7. Stockholders’ Equity
8. Earnings per Share
On November 1, 2022, the date of the Separation, 115,162,555 shares of common stock of the Company were distributed to XPO stockholders of record as of the record date and began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022.
The computations of basic and diluted earnings per share are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (Dollars in millions, shares in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic weighted-average common shares | ||||||||||||||||||||||||||
| Dilutive effect of stock-based awards | ||||||||||||||||||||||||||
| Diluted weighted-average common shares | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
For the three and six months ended June 30, 2023, approximately 0.3 million and 0.6 million shares are excluded from the calculation of diluted earnings per share, respectively, because their inclusion would have been anti-dilutive.
9. 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. 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.
13
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.
We carry 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.
Our last mile subsidiary is involved in several class action and collective action cases involving misclassification claims. The misclassification claims related solely to our last mile business, which operated as a wholly owned subsidiary of XPO until the spin-off of RXO was completed. As of November 1, 2022, pursuant to the Separation and Distribution Agreement between XPO and RXO, the liabilities of XPO’s last mile subsidiary, including legal liabilities, if any, related to the misclassification claims, were spun-off as part of RXO. Pursuant to the Separation and Distribution Agreement, RXO has agreed to indemnify XPO for certain matters relating to RXO, including indemnifying XPO from and against any liabilities, damages, costs, or expenses incurred by XPO arising out of or resulting from the misclassification claims. We believe these suits are without merit and we intend to defend the Company vigorously. We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.
10. Related Party
Prior to the Separation, the Company did not operate as a standalone business and the condensed consolidated financial statements were derived from the consolidated financial statements and accounting records of XPO. Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, that occurred prior to the Separation have been classified as related-party transactions. Transactions that originated with XPO prior to the Separation were cash settled or forgiven as of November 1, 2022. For amounts that were forgiven, the amounts have been recorded as an adjustment to XPO Investment.
Allocation of General Corporate Expenses
Post-Separation, general shared costs from XPO were no longer allocated to the Company; therefore no related amounts were reflected on the Company’s financial statements for the three and six months ended June 30, 2023.
Prior to the Separation, certain shared costs were allocated to the Company from XPO’s corporate overhead. The Condensed Consolidated Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that were charged directly to the Company. In addition, for purposes of preparing these condensed consolidated financial statements, a portion of XPO’s total corporate expenses have been allocated to the Company. See Note 2 - Basis of Presentation and Significant Accounting Policies for a discussion of the methodology used to allocate such costs for purposes of preparing these condensed consolidated financial statements.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2022 | 2022 | ||||||||||||||||||||||||
| Sales, general and administrative expense | $ | $ | ||||||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||||||||
| Transaction and integration costs | ||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||
14
Transactions with XPO and its non-RXO Subsidiaries
Revenue and costs generated from related parties are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2022 | 2022 | ||||||||||||||||||||||||
| Revenue | $ | $ | ||||||||||||||||||||||||
| Costs | ||||||||||||||||||||||||||
15
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 consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report, and with the audited consolidated financial statements and related notes thereto included in the 2022 Annual Report on Form 10-K. 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 brokered transportation platform defined by cutting-edge technology and an asset-light business model. The largest component is our core truck brokerage business. Our operations also include three asset-light, brokered transportation services, all of which complement our truck brokerage business: managed transportation, last mile and freight forwarding.
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 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 long-term industry tailwinds. As of June 30, 2023, we had approximately 121,000 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 complementary services for managed transportation, last mile and freight forwarding also utilize our digital brokerage technology.
16
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 managed transportation offering includes bespoke load planning and procurement, complex solutions tailored to specific challenges, performance monitoring, engineering and data analytics, among other services. Our control tower solution leverages the expertise of a dedicated team focused on continuous improvement, and digital, door-to-door visibility into order status and freight in transit. In addition, we offer technology-enabled managed expedite services that automate transportation procurement for time-critical freight moved by road and air charter carriers.
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 transportation 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.
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 U.S.-based freight forwarder with a global network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 150 countries and territories.
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 may continue to impact overall economic activity, customer sectors served by our industry, supply chains and labor markets. We cannot predict how long these dynamics will last, or whether any future resurgences will adversely affect our results of operations.
Additionally, economic inflation can have a negative impact on our operating costs, and any economic recession could depress activity levels and adversely affect our results of operations. 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. Generally, inflationary increases in labor and operating costs related to our operations have historically been offset through price increases. However, the pricing environment generally becomes more competitive during economic downturns, which may, as it has in the past, affect our ability to obtain price increases from customers both during and following such periods.
Basis of Presentation
On November 1, 2022, the Company completed the separation from XPO, Inc. (formerly known as “XPO Logistics, Inc.”) (“XPO”) (the “Separation”). Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. On November 1, 2022, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared in accordance with GAAP. Refer to Note 2—Basis of Presentation and Significant Accounting Policies for additional details regarding the basis of presentation used for the Company’s condensed consolidated financial statements as related to the Separation.
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 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.
17
Sales, general and administrative expense (“SG&A”), including the allocated costs of XPO prior to the Separation, 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 June 30, | Percentage of Revenue | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 963 | $ | 1,226 | 100.0 | % | 100.0 | % | ||||||||||||||||||
| Cost of transportation and services (exclusive of depreciation and amortization) | 723 | 904 | 75.1 | % | 73.7 | % | ||||||||||||||||||||
| Direct operating expense (exclusive of depreciation and amortization) | 59 | 56 | 6.1 | % | 4.6 | % | ||||||||||||||||||||
| Sales, general and administrative expense | 144 | 166 | 15.0 | % | 13.5 | % | ||||||||||||||||||||
| Depreciation and amortization expense | 18 | 21 | 1.9 | % | 1.7 | % | ||||||||||||||||||||
| Transaction and integration costs | 4 | 18 | 0.4 | % | 1.5 | % | ||||||||||||||||||||
| Restructuring costs | 1 | 3 | 0.1 | % | 0.2 | % | ||||||||||||||||||||
| Operating income | $ | 14 | $ | 58 | 1.5 | % | 4.7 | % | ||||||||||||||||||
| Other income | — | (1) | — | % | (0.1) | % | ||||||||||||||||||||
| Interest expense, net | 8 | — | 0.8 | % | — | % | ||||||||||||||||||||
| Income before income taxes | $ | 6 | $ | 59 | 0.6 | % | 4.8 | % | ||||||||||||||||||
| Income tax provision | 3 | 15 | 0.3 | % | 1.2 | % | ||||||||||||||||||||
| Net income | $ | 3 | $ | 44 | 0.3 | % | 3.6 | % | ||||||||||||||||||
Three Months Ended June 30, 2023 Compared with Three Months Ended June 30, 2022
Revenue decreased 21.5% to $963 million in the second quarter of 2023, compared with $1,226 million for the same quarter in 2022. The year-over-year decrease in revenue in the second quarter of 2023 was driven primarily by (i) a $198 million decrease in revenue generated from our truck brokerage business, as a result of a 33% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices, length of haul, and freight mix, partially offset by a 10% increase in load volume and (ii) a $36 million decrease in revenue generated from our freight forwarding business, driven primarily by a decrease in ocean rates and volume.
Cost of transportation and services (exclusive of depreciation and amortization) for the second quarter of 2023 was $723 million, or 75.1% of revenue, compared with $904 million or 73.7% of revenue, for the same quarter in 2022. The year-over-year increase in the second quarter of 2023 was driven primarily by a 5.4 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as a result of tightened capacity in the second quarter of 2023. This was partially offset by (i) lower transportation costs as a percentage of revenue in last mile and (ii) an improvement in mix in our freight forwarding business.
Direct operating expense (exclusive of depreciation and amortization) for the second quarter of 2023 was $59 million, or 6.1% of revenue, compared with $56 million, or 4.6% of revenue, for the same quarter in 2022. The year-over-year increase as a percentage of revenue in the second quarter of 2023 was primarily a result of deleverage on lower revenue.
SG&A for the second quarter of 2023 was $144 million or 15.0% of revenue, compared with $166 million, or 13.5% of revenue, for the same quarter in 2022. The year-over-year increase in SG&A as a percentage of revenue was primarily a result of higher compensation-related costs of 1.8 percentage points for the second quarter of 2023 compared with the same quarter of 2022, reflecting deleverage on lower revenue and incremental corporate costs of operating RXO as a standalone public company.
18
Depreciation and amortization expense for the second quarter of 2023 was $18 million, compared with $21 million for the same quarter in 2022. The year-over-year reduction was driven primarily by a decrease in intangible asset amortization expense as a result of a customer relationship intangible asset being fully amortized in December 2022.
Transaction and integration costs for the second quarter of 2023 and 2022 were $4 million and $18 million, respectively, and primarily comprised spin-off related costs.
Restructuring costs for the second quarter of 2023 were $1 million and primarily comprised severance costs. Restructuring costs for the second quarter of 2022 were $3 million and comprised severance, facilities and contract termination costs.
Our effective income tax rates were 44.0% and 24.3% for the second quarter of 2023 and 2022, respectively. The effective tax rates for the second quarter of 2023 and 2022 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. Our effective tax rate for the second quarter of 2023 differs from the U.S. corporate income tax rate of 21% due primarily to state income taxes within the U.S and non-deductible expenses. The impact of these drivers was magnified due to our low pre-tax income in the second quarter of 2023. Our effective tax rate for the second quarter of 2022 differs from the U.S. corporate income tax rate of 21% due primarily to state income taxes within the U.S.
| Six Months Ended June 30, | Percentage of Revenue | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 1,973 | $ | 2,538 | 100.0 | % | 100.0 | % | ||||||||||||||||||
| Cost of transportation and services (exclusive of depreciation and amortization) | 1,482 | 1,925 | 75.1 | % | 75.8 | % | ||||||||||||||||||||
| Direct operating expense (exclusive of depreciation and amortization) | 120 | 111 | 6.1 | % | 4.4 | % | ||||||||||||||||||||
| Sales, general and administrative expense | 297 | 327 | 15.1 | % | 12.9 | % | ||||||||||||||||||||
| Depreciation and amortization expense | 36 | 42 | 1.8 | % | 1.7 | % | ||||||||||||||||||||
| Transaction and integration costs | 10 | 21 | 0.5 | % | 0.8 | % | ||||||||||||||||||||
| Restructuring costs | 9 | 3 | 0.5 | % | 0.1 | % | ||||||||||||||||||||
| Operating income | $ | 19 | $ | 109 | 1.0 | % | 4.3 | % | ||||||||||||||||||
| Other income | — | (1) | — | % | — | % | ||||||||||||||||||||
| Interest expense, net | 16 | — | 0.8 | % | — | % | ||||||||||||||||||||
| Income before income taxes | $ | 3 | $ | 110 | 0.2 | % | 4.3 | % | ||||||||||||||||||
| Income tax provision | — | 27 | — | % | 1.1 | % | ||||||||||||||||||||
| Net income | $ | 3 | $ | 83 | 0.2 | % | 3.3 | % | ||||||||||||||||||
Six Months Ended June 30, 2023 Compared with Six Months Ended June 30, 2022
Revenue decreased 22.3% to $2.0 billion in the first six months of 2023, compared with $2.5 billion for the same period in 2022. The year-over-year decrease in revenue in the first six months of 2023 was driven primarily by (i) a $422 million decrease in revenue generated from our truck brokerage business, as a result of a 33% reduction in revenue per load, which was impacted by a combination of transportation market rates, fuel prices, length of haul, and freight mix, partially offset by an 8% increase in load volume and (ii) a $95 million decrease in revenue generated from our freight forwarding business, driven primarily by a decrease in ocean rates and volume.
Cost of transportation and services (exclusive of depreciation and amortization) for the first six months of 2023 was $1.5 billion, or 75.1% of revenue, compared with $1.9 billion or 75.8% of revenue, for the same period in 2022. The year-over year decrease in the first six months of 2023 was driven primarily by (i) lower transportation costs as a percentage of revenue in last mile and a (ii) an improvement in mix in our freight forwarding business. This was partially offset by a 2.5 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as a result of tightened capacity in the second quarter of 2023.
19
Direct operating expense (exclusive of depreciation and amortization) for the first six months of 2023 was $120 million, or 6.1% of revenue, compared with $111 million, or 4.4% of revenue, for the same period in 2022. The year-over-year increase as a percentage of revenue in the first six months of 2023 was primarily a result of deleverage on lower revenue.
SG&A for the first six months of 2023 was $297 million or 15.1% of revenue, compared with $327 million, or 12.9% of revenue, for the same period in 2022. The year-over-year increase in SG&A as a percentage of revenue primarily resulted from higher compensation-related costs of 2.2 percentage points for the first six months of 2023 as compared to the first six months of 2022, reflecting deleverage on lower revenue and incremental corporate costs of operating RXO as a standalone public company.
Depreciation and amortization expense for the first six months of 2023 was $36 million, compared with $42 million for the same period in 2022. The year-over-year reduction was driven by a decrease in intangible asset amortization expense as a result of a customer relationship intangible asset being fully amortized in December 2022.
Transaction and integration costs for the first six months of 2023 and 2022 were $10 million and $21 million, respectively, and primarily comprised spin-off related costs.
Restructuring costs for the first six months of 2023 were $9 million and primarily comprised severance costs. Restructuring costs for the first six months of 2022 were $3 million and comprised severance, facilities and contract termination costs.
Our effective income tax rates were (11.0)% and 24.3% for the first six months of 2023 and 2022, respectively. The effective tax rates for the first six months of 2023 and 2022 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. Our effective tax rate for the first six months of 2023 differs from the U.S. corporate income tax rate of 21% due primarily to a discrete tax benefit of $2 million from changes in reserves for uncertain tax positions, partially offset by state income taxes within the U.S. and non-deductible expenses. The impact of these drivers was magnified due to our low pre-tax income in the first six months of 2023. Our effective tax rate for the first six months of 2022 differs from the U.S. corporate income tax rate of 21% due primarily to state income taxes within the U.S.
Liquidity and Capital Resources
Overview
Our ability to fund our operations and anticipated capital needs are reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings, share repurchases and strategic business development transactions. The timing and magnitude of our growth and working capital needs can vary and may positively or negatively impact our cash flows.
We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.
Capital Expenditures
Our 2023 capital expenditures include capital associated with strategic investments in technology, equipment and real estate. The level and the timing of the Company’s capital expenditures within these categories can vary as a result of a variety of factors outside of our control, such as the timing of new contracts and availability of labor and materials. We believe that we have significant discretion over the amount and timing of our capital expenditures as we are not subject to any agreement that would require significant capital expenditures on a designated schedule or upon the occurrence of designated events.
20
Debt and Financing Arrangements
There have been no material changes to our outstanding debt and financing arrangements in the first six months of 2023 and we were in compliance with all covenants and other provisions of these arrangements as of June 30, 2023. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations. Refer to Note 5—Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s debt and financing arrangements as of June 30, 2023.
Financial Condition
The following table summarizes our asset and liability balances as of June 30, 2023 and December 31, 2022:
| As of June 30, | As of December 31, | |||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||
| Total current assets | $ | 916 | $ | 1,029 | $ | (113) | (11.0) | % | ||||||||||||||||||
| Total long-term assets | 996 | 1,002 | (6) | (0.6) | % | |||||||||||||||||||||
| Total current liabilities | 699 | 823 | (124) | (15.1) | % | |||||||||||||||||||||
| Total long-term liabilities | 624 | 621 | 3 | 0.5 | % | |||||||||||||||||||||
Total assets decreased by $119 million from December 31, 2022 to June 30, 2023, driven primarily by a $157 million decrease in accounts receivable as a result of a decrease in revenue, offset partially by a $26 million increase in cash and cash equivalents due to net cash provided by operating activities. Total liabilities decreased by $121 million from December 31, 2022 to June 30, 2023, driven primarily by a $69 million decrease in accounts payable and a $46 million decrease in accrued expenses, both resulting from a decrease in third party transportation costs.
Cash Flow Activity
Our cash flows from operating, investing and financing activities are summarized as follows:
| Six Months Ended June 30, | ||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 66 | $ | 177 | $ | (111) | (62.7) | % | ||||||||||||||||||
| Net cash used in investing activities | (28) | (24) | (4) | 16.7 | % | |||||||||||||||||||||
| Net cash (used in) provided by financing activities | (13) | 30 | (43) | (143.3) | % | |||||||||||||||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | 1 | — | 1 | 100.0 | % | |||||||||||||||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | 26 | $ | 183 | $ | (157) | (85.8) | % | ||||||||||||||||||
During the first six months of 2023, we generated cash from operating activities of $66 million, which was used primarily to fund (i) the purchase of $28 million of property and equipment, (ii) $9 million of tax withholdings related to vesting of stock compensation awards and (iii) $2 million of common stock repurchases.
During the first six months of 2022, we: (i) generated cash from operating activities of $177 million and (ii) received $30 million of net transfers from XPO. We used cash during this period primarily to purchase $24 million of property and equipment.
Net cash provided by operating activities for the first six months of 2023 decreased by $111 million, compared with the first six months of 2022. The decrease in cash provided by operating activities reflects the impact of a $80 million decrease in net income between periods and changes in working capital. The change in working capital was primarily driven by the balance sheet impact of decreased revenues and cost of third party transportation between periods.
21
Investing activities used $28 million of cash for the first six months of 2023, compared with using $24 million of cash for the same period in 2022. The use of cash in both periods was to purchase property and equipment.
Financing activities used $13 million of cash for the first six months of 2023 compared with generating $30 million of cash for the same period in 2022. The primary use of cash from financing activities in the first six months of 2023 was (i) $9 million for payments of tax withholdings related to vesting of stock compensation awards and (ii) $2 million for the repurchase of common stock. The primary source of cash from financing activities in the first six months of 2022 was net transfers from XPO.
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 and Significant Accounting Policies to the Consolidated Financial Statements for the year ended December 31, 2022 included in the Annual Report on Form 10-K. 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 and Est section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K. There have been no significant changes in the Company’s critical accounting estimates since December 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in foreign currency exchange rates, commodity prices, and interest rates. There have been no material changes to our quantitative and qualitative disclosures about market risk related to our continuing operations during the quarter ended June 30, 2023, as compared with the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the year ended December 31, 2022.
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 June 30, 2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2023, such that the information required to be included in our Securities and Exchange Commission 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.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9—Commitments and Contingencies to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of our legal proceedings.
ITEM 1A. RISK FACTORS
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes with respect to these risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no issuances of unregistered securities during the three or six months ended June 30, 2023.
Issuer Purchases of Equity Securities
| (Dollars in millions, shares in thousands, except per share amounts) | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||||||||||||
| April 1, 2023 through April 30, 2023 | — | $ | — | — | $ | 125 | ||||||||||||||||||||
| May 1, 2023 through May 31, 2023 | 100 | 20.53 | 100 | 123 | ||||||||||||||||||||||
| June 1, 2023 through June 30, 2023 | — | — | — | 123 | ||||||||||||||||||||||
| Total | 100 | $ | 20.53 | 100 | ||||||||||||||||||||||
(1)Based on trade date.
(2)On May 2, 2023, the Company’s Board of Directors authorized the repurchase of up to $125 million of the Company’s common stock. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. Also, the program does not have an expiration date. For further details, refer to Note 7—Stockholders’ Equity to the condensed consolidated financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
23
ITEM 6. EXHIBITS
Exhibit Number | Description | |||||||
| 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.
24
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: August 2, 2023 | 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) | ||||||||
25
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 June 30, 2023 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: August 2, 2023 | |||||
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 June 30, 2023 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: August 2, 2023 | |||||
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 June 30, 2023 (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: August 2, 2023 | |||||
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 June 30, 2023 (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: August 2, 2023 | |||||