XPO, INC. 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 theSecurities 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 2021 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.
Executive Summary
XPO Logistics, Inc. , together with its subsidiaries ("XPO," or "we"), is a leading provider of freight transportation services. We use our proprietary technology to move goods efficiently through our customers' supply chains, primarily by providing less-than-truckload ("LTL") and truck brokerage services. These two core lines of business generated the majority of our 2021 revenue and operating income. Our company has two reportable segments - (i) North American LTL and (ii) Brokerage and Other Services - and within each segment, we are a leading provider in vast, fragmented transportation sectors with growing penetration. As ofJune 30, 2022 , we had over 43,000 employees and 749 locations in 20 countries serving approximately 50,000 multinational, national, regional and local customers. We believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator, our blue-chip customer relationships and our company-specific avenues for value creation are compelling competitive advantages. 2022 Planned RXO Spin-Off OnMarch 8, 2022 , we announced that our Board of Directors approved a strategic plan to pursue the spin-off of our tech-enabled brokered transportation platform inNorth America as a publicly traded company. In addition, the Board of Directors authorized two divestitures: our North American intermodal operation, which we sold inMarch 2022 , and the divestiture of our European business. The spin-off to XPO shareholders, if completed as planned, will result in two independent, publicly traded companies with simplified business models and clearly delineated value propositions. The spin-off company will beRXO, Inc. ("RXO") and will be comprised of our asset-light core truck brokerage business and complementary brokered services for managed transportation, last mile logistics and global forwarding. The remaining company, XPO, will be the third largest pure-play provider of asset-based LTL service inNorth America . The planned spin-off transaction, which is intended to be tax-free to XPO and our shareholders forU.S. federal income tax purposes, will 22
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result in XPO shareholders owning stock in both XPO and RXO. In connection with the transaction, it is anticipated that a portion of XPO's outstanding debt will be repaid using proceeds from debt incurred by RXO. We currently expect to complete the RXO spin-off transaction in the fourth quarter of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO's debt on terms satisfactory to our Board of Directors, and final approval by the Board of Directors, among other requirements.
There can be no assurance that any strategic transaction will occur, or if one or more do occur, of the terms or timing.
2022 Divestiture of North American Intermodal
InMarch 2022 , we sold our North American intermodal operation for cash proceeds of approximately$705 million , net of cash disposed and subject to customary post-closing working capital adjustments that remain ongoing. We recorded a$450 million pre-tax gain on the sale, net of transaction costs, during the first quarter of 2022. During the second quarter of 2022, we recognized a working capital adjustment of$16 million , which reduced the gain initially recognized in the first quarter of 2022. We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale. The intermodal operation was included in our Brokerage and Other Services segment through the date of the sale.
2021 Spin-Off of the Logistics Segment
OnAugust 2, 2021 , we completed the spin-off of our logistics segment as GXO Logistics, Inc. ("GXO"). The historical results of our logistics segment are presented as discontinued operations in our Condensed Consolidated Financial Statements. For information on our discontinued operations, see Note 2-Discontinued Operations. No costs related to the GXO spin-off were incurred for the three months endedJune 30, 2022 . For the six months endedJune 30, 2022 , we incurred costs of approximately$4 million related to the GXO spin-off. For the three and six months endedJune 30, 2021 , we incurred costs of approximately$30 million and$43 million , respectively, related to the GXO spin-off, of which$27 million and$39 million , respectively, are reflected within income from discontinued operations in our Condensed Consolidated Statements of Income.
North American Less-Than-Truckload Segment
XPO has one of the largest networks of tractors, trailers and terminals in the North American LTL industry, with approximately 8% share of a$51 billion U.S. market. The LTL industry inNorth America has favorable fundamentals, with substantial barriers to entry, durable end-market demand, secular tailwinds and strong pricing dynamics. XPO delivered approximately 18 billion pounds of freight during 2021. Once the planned RXO spin-off is complete, we will be the third largest pure-play provider of LTL transportation inNorth America . We serve approximately 25,000 customers with geographic density and day-definite regional, national and cross-border services that reach approximately 99% ofU.S. zip codes, as well as cross-border service toMexico ,Canada and theCaribbean . Our capacity gives us the ability to manage large freight volumes more efficiently and balance our network to leverage fixed costs. Importantly, our LTL business historically has generated a high return on capital and robust free cash flow. This allows us to further develop our proprietary technology and invest in numerous other growth and optimization initiatives. We are managing the business to specific objectives, such as high customer service scores for on-time delivery and damage-free freight, and the addition of 900 net new doors to our network fromOctober 2021 to year-end 2023. FromOctober 31, 2021 throughJune 30, 2022 , we added five new terminals to our network, representing 345 net new doors. Additionally, we are continuing to execute on a host of idiosyncratic initiatives that are XPO-specific and independent of the macroeconomic environment. The ongoing deployment of our proprietary LTL technology encompasses multiple levers for value creation unique to our company. As other examples, we added a second production line at our in-house trailer manufacturing facility in January and doubled our output run-rate. We are also investing in the next generation of truck drivers at our 130 in-house training schools and targeting to train twice as many drivers in 2022 as in 2021. 23
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Specific to our technology, we believe we have a large opportunity to further improve the profitability of our LTL network through innovation, beyond the large gain in operating margin achieved to date. We use intelligent route-building to move LTL freight acrossNorth America , and proprietary visualization tools to help reduce the cost of pickups and deliveries. Our XPO Smart® productivity tools are installed in our cross-dock operations, and we recently deployed new cost models and tracking capabilities. Our largest opportunity is related to our proprietary pricing technology, which includes automated, dynamic pricing for local accounts and a new pricing platform utilized by our pricing experts for larger accounts.
Brokerage and Other Services Segment
XPO is the fourth largest truckload transportation broker in theU.S. Our asset-light truck brokerage business places shippers' freight with qualified independent carriers using our XPO Connect® technology platform. We price this service on either a contract or a spot basis, with 73% of our revenue in the second quarter of 2022 derived from customer contracts, and we operate with a variable cost structure that adjusts quickly to market changes. We derive our revenue from diversified industry verticals, and we have many long-standing, blue-chip customer relationships - on average, our top 10 customers have a 15-year tenure with us. Our truck brokerage business has a long track record of generating top-line growth and margin expansion, a high return on invested capital and strong free cash flow. Notable factors driving our performance include our access to massive truckload capacity for shippers through our carrier relationships, our strong management expertise, our company-specific avenues for value creation led by our cutting-edge technology, and favorable industry tailwinds. Broker penetration of for-hire truckload transportation has doubled in the last 15 years, and is still less than 25%. We have approximately 4% share of the$88 billion U.S. brokered truckload industry, giving us a long runway for revenue growth - the total addressable for-hire trucking market in 2021 was estimated to be approximately$400 billion . Demand for truckload capacity in the e-commerce and omnichannel retail sectors continues to be robust, and more and more shippers are outsourcing to brokers, while increasingly preferring brokers like XPO that offer digital capabilities. As ofJune 30, 2022 , we had relationships with approximately 98,000 independent truckload carriers inNorth America , representing more than one and a half million trucks. These relationships enable us to serve high demand without taking on high fixed costs. Even though we don't own the trucks or employ the drivers that transport our customers' freight, shippers view us as a highly reliable core carrier due to our operational excellence and reliability. Our XPO Connect® brokerage platform is another major differentiator for our business, together with our pricing technology, which we believe can unlock incremental profitable growth well beyond our current levels. We bring together seasoned transportation experts and master technologists to transform truck brokerage through digitization, making the process more productive for shippers, carriers and our company. ThroughJuly 2022 , cumulative truck driver downloads of the mobile app for XPO Connect® were over 800,000. The impact of XPO Connect® is pervasive throughout our brokerage operations. As ofJune 30, 2022 , approximately 80% of our truck brokerage orders inNorth America were created or covered digitally. From 2013 through 2021, the compound annual growth rate ("CAGR") of our truck brokerage revenue was 27.4% - approximately three times theU.S. brokered truckload industry CAGR of 9.6% - in part because larger customers communicate digitally with XPO Connect® through APIs and other integrations, and our automation makes our brokerage team more efficient at tendering loads. Our Brokerage and Other Services segment also includes asset-light, complementary brokered services for managed transportation, including expedited ground and air charter capabilities, last mile logistics for heavy goods and global forwarding, all of which use our technology. Our European business is also reported within this segment. 24
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Technology and Sustainability
Our proprietary technology is a major competitive advantage for us across our service lines. Our company has been investing in transportation automation, data science and digitization for more than a decade, well ahead of the industry curve, to innovate how goods move through supply chains. We believe that we are well-positioned to satisfy customer demands for faster, more efficient supply chains with greater visibility, while enhancing revenue and profitability.
Importantly, our technology also helps our company and customers meet our respective environmental, social and governance ("ESG") goals, such as a reduction in the carbon footprint of certain supply chain operations. For a detailed discussion of our philosophy relating to innovation and ESG matters, see the Executive Overview included in our 2021 Form 10-K, as well as our current Sustainability Report at sustainability.xpo.com.
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 dockworkers, 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 in the recovery, 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. For the three and six months endedJune 30, 2022 , a combination of growing demand for freight transportation services, the ongoing truck driver shortage and rising fuel prices resulted in higher transportation procurement costs; these costs were offset by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases. An economic recession could depress customer demand for transportation services and adversely affect our results of operations.
Regarding the war between
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Consolidated Summary Financial Table
Three Months Ended June 30 , Percent of Revenue Change Six Months Ended June 30 , Percent of Revenue Change
(Dollars in millions) 2022 2021 2022 2021 2022 vs. 2021 2022 2021 2022 2021 2022 vs. 2021
Revenue $ 3,232 $ 3,186 100.0 % 100.0 % 1.4 % $ 6,705 $ 6,175 100.0 % 100.0 % 8.6 %
Cost of transportation and
services
(exclusive of depreciation
and amortization) 2,153 2,186 66.6 % 68.6 % (1.5) % 4,590 4,239 68.5 % 68.6 % 8.3 %
Direct operating expense
(exclusive of
depreciation and
amortization) 365 358 11.3 % 11.2 % 2.0 % 750 692 11.2 % 11.2 % 8.4 %
Sales, general and
administrative
expense 324 324 10.0 % 10.2 % - % 668 662 10.0 % 10.7 % 0.9 %
Depreciation and amortization
expense 115 120 3.6 % 3.8 % (4.2) % 231 239 3.4 % 3.9 % (3.3) %
(Gain) loss on sale of
business 16 - 0.5 % - % NM (434) - (6.5) % - % NM
Transaction and integration
costs 25 6 0.8 % 0.2 % 316.7 % 35 11 0.5 % 0.2 % 218.2 %
Restructuring costs 4 1 0.1 % - % 300.0 % 10 2 0.1 % - % 400.0 %
Operating income 230 191 7.1 % 6.0 % 20.4 % 855 330 12.8 % 5.3 % 159.1 %
Other income (15) (10) (0.5) % (0.3) % 50.0 % (29) (26) (0.4) % (0.4) % 11.5 %
Debt extinguishment loss 26 - 0.8 % - % NM 26 8 0.4 % 0.1 % 225.0 %
Interest expense 31 58 1.0 % 1.8 % (46.6) % 68 123 1.0 % 2.0 % (44.7) %
Income from continuing
operations
before income tax provision 188 143 5.8 % 4.5 % 31.5 % 790 225 11.8 % 3.6 % 251.1 %
Income tax provision 47 30 1.5 % 0.9 % 56.7 % 160 49 2.4 % 0.8 % 226.5 %
Income from continuing
operations 141 113 4.4 % 3.5 % 24.8 % 630 176 9.4 % 2.9 % 258.0 %
Income (loss) from
discontinued
operations, net of taxes - 45 - % 1.4 % NM (1) 100 - % 1.6 % NM
Net income $ 141 $ 158 4.4 % 5.0 % (10.8) % $ 629 $ 276 9.4 % 4.5 % 127.9 %
NM - Not meaningful
Three and Six Months Ended
Revenue for the second quarter of 2022 increased 1.4% to$3.2 billion , compared with the same quarter in 2021. Revenue for the first six months of 2022 increased 8.6% to$6.7 billion , compared with the same period in 2021. Revenue in the second quarter and first six months of 2022 compared to the same periods in 2021 reflects growth in our LTL segment and our North American truck brokerage operation, and includes the impact of increased revenue from fuel surcharges. The increase in both periods was partially offset by the sale of our North American intermodal operation inMarch 2022 , which reduced revenue growth by approximately 8.4 percentage points in the second quarter of 2022 and 2.8 percentage points in the first six months of 2022. Additionally, foreign currency movement reduced revenue by approximately 2.3 percentage points in the second quarter of 2022 and 1.7 percentage points in the first six months of 2022. Cost of transportation and services (exclusive of depreciation and amortization) includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truck brokerage businesses. 26
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Cost of transportation and services (exclusive of depreciation and amortization) for the second quarter of 2022 was$2.2 billion , or 66.6% of revenue, compared with$2.2 billion , or 68.6% of revenue, for the same quarter in 2021. Cost of transportation and services (exclusive of depreciation and amortization) for the first six months of 2022 was$4.6 billion , or 68.5% of revenue, compared with$4.2 billion , or 68.6% of revenue, for the same period in 2021. The year-over-year decrease as a percentage of revenue in both periods reflects the sale of our intermodal operation. Additionally impacting the decrease as a percentage of revenue in the second quarter of 2022 was lower third-party transportation costs, which were partially offset by higher fuel costs. For the six-month period, higher fuel costs as a percentage of revenue were partially offset by lower compensation costs. Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and include operating costs related to our LTL service centers. Direct operating expenses (exclusive of depreciation and amortization) 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. Direct operating expense (exclusive of depreciation and amortization) for the second quarter of 2022 was$365 million , or 11.3% of revenue, compared with$358 million , or 11.2% of revenue, for the same quarter in 2021. Direct operating expense (exclusive of depreciation and amortization) for the first six months of 2022 was$750 million , or 11.2% of revenue, compared with$692 million , or 11.2% of revenue, for the same period in 2021. The increase in direct operating expense in both periods reflects lower gains on sales of property and equipment and higher compensation costs. Direct operating expense for the second quarters of 2022 and 2021 included$2 million and$7 million , respectively, and the first six months of 2022 and 2021 included$2 million and$30 million , respectively, of gains on sales of property and equipment. As a percentage of revenue, direct operating expense for the six-month period reflects the lower gains on sales of property and equipment offset by the leveraging of compensation costs across a larger revenue base.
Sales, general and administrative expense ("SG&A") primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, professional fees, facility costs, bad debt expense and legal costs.
SG&A for the second quarter of 2022 was$324 million , or 10.0% of revenue, compared with$324 million , or 10.2% of revenue, for the same quarter in 2021. SG&A for the first six months of 2022 was$668 million , or 10.0% of revenue, compared with$662 million , or 10.7% of revenue, for the same period in 2021. Higher compensation costs were offset by lower third-party professional and consulting fees in the second quarter of 2022. For the six-month period, higher compensation, travel and entertainment and insurance costs were partially offset by lower third-party professional and consulting fees. As a percentage of revenue, the year-over-year decrease in both periods was primarily driven by lower third-party professional and consulting fees. Additionally, the year-over-year decrease as a percentage of revenue in the six-month period reflects the leveraging of compensation costs across a larger revenue base. Depreciation and amortization expense for the second quarter of 2022 was$115 million , compared with$120 million for the same quarter in 2021. Depreciation and amortization expense for the first six months of 2022 was$231 million , compared with$239 million for the same period in 2021. The decrease in both periods reflected the sale of our intermodal operation. (Gain) loss on sale of business was a gain of$434 million , net of transaction costs, for the first six months of 2022 as we sold our intermodal operation during the first quarter of 2022. During the second quarter of 2022, we recognized a working capital adjustment of$16 million , which decreased the gain initially recognized in the first quarter of 2022. For more information, see Note 3-Divestiture to our Condensed Consolidated Financial Statements. Transaction and integration costs for the second quarter of 2022 were$25 million , compared with$6 million for the same quarter in 2021. Transaction and integration costs for the first six months of 2022 were$35 million , compared with$11 million for the same period in 2021. Transaction and integration costs for the second quarter and first six months of 2022 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-offs and other divestment activities, as well as retention awards paid to certain employees. 27
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Restructuring costs for the second quarter of 2022 were$4 million , compared with$1 million for the same quarter in 2021. Restructuring costs for the first six months of 2022 were$10 million , compared with$2 million for the same period in 2021. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and other divestment activities. For more information, see Note 6-Restructuring Charges to our Condensed Consolidated Financial Statements. We may incur incremental restructuring costs in 2022 in connection with the planned spin-off of our North American brokered transportation platform or for other reasons; however, we are currently unable to reasonably estimate these costs. Other income primarily consists of pension income. Other income for the second quarter of 2022 was$15 million , compared with$10 million for the same quarter in 2021. Other income for the first six months of 2022 was$29 million , compared with$26 million for the same period in 2021. The increase in both periods is primarily related to lower foreign currency losses in the second quarter and first six months of 2022. Debt extinguishment loss was$26 million for the second quarter and first six months of 2022 and$8 million for the first six months of 2021. There was no debt extinguishment loss in the second quarter of 2021. In the second quarter of 2022, we redeemed a portion of our outstanding senior notes due 2025 and wrote-off related debt issuance costs. In the first six months of 2021, we redeemed our outstanding senior notes due 2022 and wrote-off related debt issuance costs, as well as incurred costs related to the amendment of our Senior Secured Term Loan Credit Agreement (the "Term Loan Credit Agreement"). Interest expense decreased to$31 million for the second quarter of 2022 from$58 million for the second quarter of 2021. Interest expense decreased to$68 million for the first six months of 2022 from$123 million for the first six months of 2021. The decrease in interest expense reflects lower average total indebtedness in the second quarter and first six months of 2022. Our effective income tax rates were 24.8% and 20.9% for the second quarter of 2022 and 2021, respectively, and 20.2% and 21.7% for the first six months of 2022 and 2021, respectively. The effective tax rates for the second quarter and six-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. The primary items impacting the effective tax rate for the second quarter of 2022 compared to the same quarter in 2021 included a reduction in tax expense of$4 million from the sale of our intermodal operation and a tax benefit of$1 million from stock-based compensation. The primary items impacting the effective tax rate for the second quarter of 2021 were a tax benefit of$5 million from changes in reserves for uncertain tax positions partially offset by a tax expense of$2 million from return to provision adjustments. The primary items impacting the effective tax rate for the first six months of 2022 compared to the same period in 2021 included a tax expense of$74 million from the sale of our intermodal operation, which resulted in a reduction to our effective tax rate due to the book gain exceeding the tax gain, as well as a tax benefit of$3 million from stock-based compensation. The primary items impacting the effective tax rate for the first six months of 2021 were tax benefits of$5 million from changes in reserves for uncertain tax positions and$3 million from stock-based compensation, partially offset by a tax expense of$4 million from return to provision adjustments. 28
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Segment Financial Results
Our chief operating decision maker ("CODM") regularly reviews financial
information at the operating segment level to allocate resources to the segments
and to assess their performance. Our CODM evaluates segment profit based on
adjusted earnings before interest, taxes, depreciation and amortization
("adjusted EBITDA"), which we define as net income from continuing operations
attributable to common shareholders before debt extinguishment loss, interest
expense, income tax, depreciation and amortization expense, (gain) loss on sale
of business, transaction and integration costs, restructuring costs and other
adjustments. See Note 4-Segment Reporting to our Condensed Consolidated
Financial Statements for further information and a reconciliation of adjusted
EBITDA to Net income from continuing operations attributable to common
shareholders.
North American Less-Than-Truckload Segment
Three Months Ended June 30 , Percent of Revenue Change Six Months Ended June 30 , Percent of Revenue Change
(Dollars in millions) 2022 2021 2022 2021 2022 vs. 2021 2022 2021 2022 2021 2022 vs. 2021
Revenue $ 1,239 $ 1,081 100.0 % 100.0 % 14.6 % $ 2,344 $ 2,043 100.0 % 100.0 % 14.7 %
Adjusted EBITDA 294 258 23.7 % 23.9 % 14.0 % 499 472 21.3 % 23.1 % 5.7 %
Depreciation and
amortization expense 60 57 4.8 % 5.3 % 5.3 % 115 112 4.9 % 5.5 % 2.7 %
Revenue in our North American LTL segment increased 14.6% to $1.2 billion for
the second quarter of 2022, compared with $1.1 billion for the same quarter in
2021. Revenue increased 14.7% to $2.3 billion for the first six months of 2022,
compared with $2.0 billion for the same period in 2021. Revenue included fuel
surcharge revenue of $291 million and $164 million , respectively, for the second
quarters of 2022 and 2021, and $498 million and $299 million , respectively, for
the first six months of 2022 and 2021.
We evaluate the revenue performance of our LTL business using several commonly
used metrics, including volume (weight per day in pounds) and yield, which is a
commonly used measure of LTL pricing trends. We measure yield using gross
revenue per hundredweight, excluding fuel surcharges. Impacts on yield can
include weight per shipment and length of haul, among other factors. The
following table summarizes our key revenue metrics:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change % 2022 2021 Change %
Pounds per day (thousands) 72,333 76,520 (5.5) % 71,250 73,636 (3.2) %
Gross revenue per hundredweight,
excluding fuel surcharges $ 21.34 $ 19.29 10.6 % $ 21.05 $ 19.20 9.6 %
The year-over-year increases in revenue for both the second quarter and first
six months of 2022 reflect an increase in gross revenue per hundredweight. The
decrease in weight per day for the second quarter and first six months reflects
lower shipments per day. The impact of lower shipments per day in the first six
months of 2022 was partially offset by higher weight per shipment.
Adjusted EBITDA was $294 million , or 23.7% of revenue, for the second quarter of
2022, compared with $258 million , or 23.9% of revenue, for the same quarter in
2021. Adjusted EBITDA was $499 million , or 21.3% of revenue, for the first six
months of 2022, compared with $472 million , or 23.1% of revenue, for the same
period in 2021. Adjusted EBITDA for the second quarter and first six months of
2021 included $5 million and $22 million of gains from real estate transactions,
respectively. There were no gains from real estate transactions in the second
quarter and first six months of 2022. Additionally, adjusted EBITDA in both
periods of 2022 reflects higher revenue, partially offset by increased fuel and
compensation costs and purchased transportation costs from higher highway
subservice costs per mile.
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Brokerage and Other Services Segment
Three Months Ended June 30 , Percent of Revenue Change Six Months Ended June 30 , Percent of Revenue Change
(Dollars in millions) 2022 2021 2022 2021 2022 vs. 2021 2022 2021 2022 2021 2022 vs. 2021
Revenue $ 2,067 $ 2,161 100.0 % 100.0 % (4.3) % $ 4,499 $ 4,232 100.0 % 100.0 % 6.3 %
Adjusted EBITDA 152 130 7.4 % 6.0 % 16.9 % 316 255 7.0 % 6.0 % 23.9 %
Depreciation and
amortization expense 54 60 2.6 % 2.8 % (10.0) % 114 120 2.5 % 2.8 % (5.0) %
Revenue in our Brokerage and Other Services segment decreased 4.3% to
$2.1 billion for the second quarter of 2022, compared with $2.2 billion for the
same quarter in 2021. The decrease in revenue was due to the sale of our North
American intermodal operation in March 2022 , which impacted revenue by
approximately 12.3 percentage points. Revenue in the second quarter of 2022
benefited from an increase in North American truck brokerage loads, facilitated
by our digital platform, as well as strong pricing across the segment. Foreign
currency movement reduced revenue by approximately 3.4 percentage points in the
second quarter of 2022.
Revenue increased 6.3% to $4.5 billion for the first six months of 2022,
compared with $4.2 billion for the same period in 2021. Revenue in the first six
months of 2022 compared to the same period in 2021 benefited from an increase in
North American truck brokerage loads, as well as strong pricing across the
segment. The increase was partially offset by the sale of our intermodal
operation, which reduced revenue growth by approximately 4.1 percentage points
in the first six months of 2022. Foreign currency movement reduced revenue by
approximately 2.6 percentage points in the first six months of 2022.
Adjusted EBITDA was $152 million , or 7.4% of revenue, for the second quarter of
2022, compared with $130 million , or 6.0% of revenue, for the same quarter in
2021. Adjusted EBITDA was $316 million , or 7.0% of revenue, for the first six
months of 2022, compared with $255 million , or 6.0% of revenue, for the same
period in 2021. The increases were primarily driven by higher revenue in North
American truck brokerage and other brokerage services, partially offset by
higher third-party transportation and compensation costs and by the sale of our
intermodal operation.
Liquidity and Capital Resources
Our cash and cash equivalents balance was$436 million as ofJune 30, 2022 , compared to$260 million as ofDecember 31, 2021 . Our principal existing sources of cash are: (i) cash generated from operations; (ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the "ABL Facility"); (iii) proceeds from the issuance of other debt; and (iv) proceeds from divestiture activities. As ofJune 30, 2022 , we have$995 million available to draw under our ABL Facility, based on a borrowing base of$1 billion and outstanding letters of credit of$5 million . Additionally, we have a$200 million uncommitted secured evergreen letter of credit facility, under which we had issued$185 million in aggregate face amount of letters of credit as ofJune 30, 2022 . As ofJune 30, 2022 , we had approximately$1.4 billion of total liquidity. 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.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We also sell trade accounts receivable under our securitization program co-arranged by two banks (the "Purchasers"). We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers. For more information, see Note 1-Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements.
The maximum amount of net cash proceeds available at any one time under our
securitization program, inclusive of any unsecured borrowings, is €200 million
(approximately
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less than €1 million (less than
Under the program, we service the receivables we sell on behalf of the Purchasers, which gives us visibility into the timing of customer payments. The benefit to our cash flow includes the difference between the cash consideration and the amount we collected as a servicer on behalf of the Purchasers. In the first six months of 2022 and 2021, we collected cash as servicer of$885 million and$753 million , respectively.
Term Loan Facilities
In the first quarter of 2021, we amended our Term Loan Credit Agreement and
recorded a debt extinguishment loss of
Senior Notes Due 2025 InApril 2022 , we redeemed$630 million of the then$1.15 billion outstanding principal amount of our 6.25% senior notes due 2025. The redemption price for the notes was 100% of the principal amount plus a premium, as defined in the indenture, of approximately$21 million and accrued and unpaid interest. We paid for the redemption using available liquidity. We recorded a debt extinguishment loss of$26 million in the second quarter of 2022 due to this redemption.
Senior Notes Due 2022
InJanuary 2021 , we redeemed our outstanding 6.50% senior notes due 2022. The redemption price for the notes was 100% of the principal amount, plus accrued and unpaid interest. We paid for the redemption with available cash. We recorded a debt extinguishment loss of$5 million in the first six months of 2021 due to this redemption.
Preferred Stock and Warrant Exchanges
Commencing in the fourth quarter of 2020, holders of our convertible preferred stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our logistics segment. In the first quarter of 2021, 975 preferred shares were exchanged, and we issued approximately 139 thousand shares of common stock. In the second quarter of 2021, the remaining 40 preferred shares were exchanged, and we issued 5,714 shares of common stock. With respect to the warrants, in the first quarter of 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock. Subsequent to the exchange in the second quarter of 2021, there are no shares of preferred stock or warrants outstanding.
Share Repurchases
InFebruary 2019 , our Board of Directors authorized repurchases of up to$1.5 billion of our common stock. Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
There have been no share repurchases since the first quarter of 2020. Our
remaining share repurchase authorization was
Loan Covenants and Compliance
As of
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Sources and Uses of Cash
Six Months Ended June 30,
(In millions) 2022 2021Net cash provided by operating activities from continuing operations
$
399
464 (75)
Net cash used in financing activities from continuing operations
(673) (1,489)
During the six months ended June 30, 2022 , we: (i) generated cash from operating
activities from continuing operations of $399 million ; and (ii) generated net
proceeds from the sale of our North American intermodal operation of $705
million . We used cash during this period primarily to: (i) purchase property and
equipment of $267 million ; and (ii) redeem a portion of our senior notes due
2025 for $651 million .
During the six months ended June 30, 2021 , we: (i) generated cash from operating
activities from continuing operations of $308 million ; and (ii) generated
proceeds from sales of property and equipment of $60 million . We used cash
during this period primarily to: (i) purchase property and equipment of $135
million ; (ii) redeem our senior notes due 2022 for $1.2 billion ; and (iii) repay
our ABL Facility borrowings of $200 million .
Cash flows from operating activities from continuing operations for the six
months ended June 30, 2022 increased by $91 million , compared with the same
period in 2021. The increase reflects higher income from continuing operations
of $455 million for the six months ended June 30, 2022 , compared with the same
period in 2021, and the impact of operating assets and liabilities utilizing
$102 million of cash in the first six months of 2022, compared with utilizing
$129 million during the same period in 2021. Partially offsetting these impacts
was a $434 million gain on sale of business recognized during the six months
ended June 30, 2022 . Within operating assets and liabilities, accounts payable
generated $184 million more cash while accounts receivable utilized $159 million
more cash in the first six months of 2022, compared with the same period in
2021, as a result of higher revenues and timing of payments in the 2022 period.
Investing activities from continuing operations generated $464 million of cash
in the six months ended June 30, 2022 and used $75 million of cash in the six
months ended June 30, 2021 . During the six months ended June 30, 2022 , we
received $705 million of cash from the sale of our intermodal operation, net of
cash disposed, and used $267 million to purchase property and equipment. During
the six months ended June 30, 2021 , we used $135 million of cash to purchase
property and equipment and received $60 million from sales of property and
equipment.
Financing activities from continuing operations used $673 million of cash in the
six months ended June 30, 2022 and $1.5 billion of cash in the six months ended
June 30, 2021 . The primary uses of cash from financing activities during the
first six months of 2022 were $651 million used to redeem a portion of the
senior notes due 2025 and $32 million used to repay borrowings. The primary uses
of cash from financing activities during the six months ended June 30, 2021 were
$1.2 billion used to redeem the senior notes due 2022, $200 million used to
repay borrowings under our ABL Facility and $43 million used to repay our debt
and finance leases.
Except for the redemption of a portion of our senior notes due 2025 as described
above, there were no material changes to our December 31, 2021 contractual
obligations during the six months ended June 30, 2022 . We anticipate full year
net capital expenditures to be between $425 million and $475 million in 2022
(without giving effect to the planned spin-off and divestiture of our European
business).
New Accounting Standards
Information related to new accounting standards is included in Note 1-Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
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