GXO Logistics Inc

Previous wording

On October 23, 2023, the Company completed the acquisition of PFSweb, Inc. (“PFS”), an e-commerce order fulfillment company based in Irving, Texas (the “PFS Acquisition”).

Current wording

On April 29, 2024, the Company completed the acquisition of Wincanton plc (“Wincanton”), a U.K. logistics provider specializing in both warehousing and transportation solutions (“the Wincanton Acquisition”). On October 23, 2023, the Company completed the acquisition of PFSweb, Inc. (“PFS”), an e-commerce order fulfillment company based in Irving, Texas (the “PFS Acquisition”). For additional information regarding our acquisitions see Note 4. Acquisitions.

Previous wording

Direct operating expense is comprised of both fixed and variable expenses and consists of operating costs related to our warehouses, including personnel costs, rent expenses, utility costs, equipment maintenance and repair costs, transportation costs, costs of materials and supplies, and information technology expenses. Direct operating expense for the three months ended March 31, 2024, increased by 8%, or $150 million, to $2.1 billion compared with $1.9 billion for the same period in 2023. Direct operating expense increased primarily due to $94 million higher personnel and temporary labor expenses, excluding the PFS Acquisition. The PFS Acquisition increased Direct operating expense by $51 million. As a percentage of revenue, direct operating expense for the three months ended March 31, 2024, was 83.7% compared with 82.0% for the same period in 2023.

Current wording

Direct operating expense is comprised of both fixed and variable expenses and consists of operating costs related to our warehouses, including personnel costs, rent expenses, utility costs, equipment maintenance and repair costs, transportation costs, costs of materials and supplies, and information technology expenses. Direct operating expense for the three months ended June 30, 2024 increased by 22%, or $432 million, to $2.4 billion compared with $2.0 billion for the same period in 2023. The acquisitions of Wincanton and PFS increased Direct operating expense by $340 million. Direct operating expense also increased due to higher personnel and temporary labor expenses in the U.K. and Ireland from growth in the business. As a percentage of revenue, Direct operating expense for the three months ended June 30, 2024, was 83.9% compared with 81.7% for the same period in 2023.

Previous wording

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits costs for executive and administrative functions, professional fees, bad debt expense and legal costs. SG&A for the three months ended March 31, 2024, decreased by $9 million, to $249 million compared with $258 million for the same period in 2023. SG&A decreased due to lower personnel costs, primarily for certain administrative functions.

Current wording

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits costs for executive and administrative functions, professional fees, bad debt expense and legal costs. SG&A for the three months ended June 30, 2024 increased by $25 million, to $270 million compared with $245 million for the same period in 2023. SG&A primarily increased due to the acquisitions of Wincanton and PFS.

Previous wording

Depreciation and amortization expense for the three months ended March 31, 2024 increased by $9 million to $92 million compared with $83 million for the same period in 2023. Amortization expense was $19 million and $17 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Depreciation and amortization expense for the three months ended June 30, 2024 increased by $15 million, to $99 million compared with $84 million for the same period in 2023. Amortization expense was $22 million and $19 million for the three months ended June 30, 2024 and 2023, respectively. Depreciation and amortization expense primarily increased due to the acquisitions of Wincanton and PFS.

Previous wording

Transaction and integration costs for the three months ended March 31, 2024 were $19 million and primarily related to the acquisition of Wincanton plc (the “Wincanton Acquisition”). Transaction and integration costs for the three months ended March 31, 2023 were $13 million and primarily related to the integration of Clipper Logistics plc.

Current wording

Transaction and integration costs for the three months ended June 30, 2024 were $15 million and primarily related to the Wincanton Acquisition. Transaction and integration costs for the three months ended June 30, 2023 were $6 million and primarily related to the integration of Clipper Logistics plc.

Previous wording

Litigation expense primarily relates to an ongoing legal matter. During the first quarter of 2024, a trial was held in the United States District Court for the Western District of Missouri in connection with a dispute between the Company and one of its customers related to the start-up of the customer’s warehouse that occurred in 2018 (Lindt et al v. GXO Warehouse Company, Inc., docket no. 4:22-cv-00384-BP). In March 2024, the jury returned verdicts in favor of the customer. The Company recognized a $63 million expense in the three months ended March 31, 2024 for the jury verdicts, potential post-trial awards of interest, associated legal fees, costs and other related expenses. The Company believes that this case was incorrectly decided and intends to pursue post-verdict remedies as necessary, including an appeal, and will pursue reimbursement under its existing insurance policies.

Current wording

Litigation expense related to a legal settlement. On June 14, 2024, the Company’s subsidiary GXO Warehouse Company, Inc. entered into a settlement agreement for the claims in connection with a dispute between the Company and one of its customers related to the start-up of the customer’s warehouse that occurred in 2018. We recognized a $3 million expense reduction for three months ended June 30, 2024 for the settlement. For additional information regarding our legal matters see Note 13. Commitments and Contingencies.

Previous wording

Interest expense, net was as follows:

Current wording

Interest expense, net increased primarily due to debt incurred for the Wincanton Acquisition, partially offset by higher gains on cross-currency swaps in the current period. Interest expense, net was as follows:

Previous wording

Income (loss) before income taxes for the three months ended March 31, 2024 was a loss of $46 million compared with income of $29 million for the same period in 2023. The decrease was primarily due to a $63 million litigation expense recorded in the three months ended March 31, 2024.

Current wording

Income before income taxes for the three months ended June 30, 2024 was $53 million compared with $86 million for the same period in 2023. The decrease was primarily due to higher transaction and integration costs and interest expense, net.

Previous wording

Income taxes for the three months ended March 31, 2024 was a $10 million tax benefit compared with a $3 million tax expense for the same period in 2023. Our effective tax rate for the three months ended March 31, 2024 was a benefit on pre-tax loss of 21.1%, compared to an expense on pre-tax income of 11.0% for the same period in 2023. In 2023, our effective tax rate was reduced by discrete tax benefits from the release of valuation allowances.

Current wording

Income tax expense for the three months ended June 30, 2024 was$14 million compared with $20 million for the same period in 2023. Our effective tax rate for the three months ended June 30, 2024 was 25.4%, compared with 23.0% for the same period in 2023. The increase in our effective tax rate was driven by non-deductible items partially offset by a return-to-provision benefit in 2024.

Previous wording

Restructuring costs and other are primarily related to severance, including projects to optimize finance, human resources and information technology functions, and are not associated with customer attrition. Restructuring costs and other for the three months ended March 31, 2024 were $16 million compared with $21 million for the same period in 2023. Restructuring costs and other for the three months ended March 31, 2024 relate to a restructuring plan designed to centralize certain processes and standardize operating structures. For the three months ended March 31, 2023, restructuring costs and other included severance charges of $15 million and impairment charges of $6 million as a result of closing certain corporate and administrative offices.

Current wording

Restructuring costs and other are primarily related to severance, including projects to optimize finance, human resources and information technology functions, and are not associated with customer attrition. Restructuring costs and other for the six months ended June 30, 2024 were $17 million compared with $24 million for the same period in 2023. For the six months ended June 30, 2024, Restructuring costs and other relate to a restructuring plan designed to centralize certain processes and standardize operating structures. For the six months ended June 30, 2023, Restructuring costs and other included severance charges of $18 million and impairment charges of $6 million as a result of closing certain corporate and administrative offices.

Previous wording

Other income, net increased due to foreign currency gains and higher pension income. Other income, net was as follows:

Current wording

Other income, net increased due to higher pension income and foreign currency movements. Other income, net was as follows:

Previous wording

As of March 31, 2024, we held cash and cash equivalents of $423 million and we had $799 million of borrowing capacity, net of letters of credit under our revolving credit facility. Additionally, we entered into borrowing agreements during the first quarter of 2024 to fund the Wincanton Acquisition. We believe that our cash and cash equivalents on hand, cash flows from operations, the revolving credit facility, and the use of our factoring programs will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months.

Current wording

As of June 30, 2024, we held cash and cash equivalents of $469 million and we had $926 million of borrowing capacity, net of letters of credit under our revolving credit facilities. We believe that our cash and cash equivalents on hand, cash flows from operations, the revolving credit facilities, and the use of our factoring programs will provide sufficient liquidity to operate our business and fund our current and assumed obligations for at least the next 12 months.

Previous wording

For additional information regarding our cash requirement from lease obligations, indebtedness and contractual obligations, see Note 3. Leases, Note 5. Debt and Financing Arrangements, Note 12. Commitments and Contingencies, and Note 13. Subsequent Events, in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

For additional information regarding our cash requirement from lease obligations, indebtedness and contractual obligations, see Note 3. Leases, Note 6. Debt and Financing Arrangements and Note 13. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Previous wording

Cash flows provided by operating activities for the three months ended March 31, 2024 increased $11 million compared with the same period in 2023. The increase was primarily due to the increase in working capital, partially offset by lower net income.

Current wording

Cash flows provided by operating activities for the six months ended June 30, 2024 increased $65 million compared with the same period in 2023. The increase was primarily due to working capital changes, primarily driven by collection of receivables and timing of payments, partially offset by lower net income.

Previous wording

Investing activities used $82 million of cash for the three months ended March 31, 2024 and 2023. During the three months ended March 31, 2024, we used $73 million of cash to purchase property and equipment and $15 million to purchase Wincanton shares and received $6 million of cash from sales of property and equipment. During the three months ended March 31, 2023, we used $91 million of cash to purchase property and equipment and received $9 million of cash from sales of property and equipment.

Current wording

Investing activities used $1,014 million of cash for the six months ended June 30, 2024 and $140 million for the same period in 2023. During the six months ended June 30, 2024, we used $863 million, net of cash received, to fund the Wincanton Acquisition, used $161 million of cash to purchase property and equipment and received $10 million of cash from sales of property and equipment. During the six months ended June 30, 2023, we used $150 million of cash to purchase property and equipment and received $10 million of cash from sales of property and equipment.

Previous wording

Financing activities used $8 million of cash for the three months ended March 31, 2024, including $8 million to repay finance lease obligations and $4 million in payments for employee taxes on net settlement of equity awards. Financing activities used $29 million of cash for the three months ended March 31, 2023, including $21 million to repay debt, $8 million to repay finance lease obligations and $4 million in payments for employee taxes on net settlement of equity awards.

Current wording

Financing activities generated $857 million and used $155 million of cash for the six months ended June 30, 2024 and June 30, 2023, respectively. The source of cash from financing activities during the six months ended June 30, 2024 was the issuance of long-term debt of $1,085 million, partially offset by cash used to repay $196 million of debt, $19 million to repay finance lease obligations and $7 million in payments for employee taxes on net settlement of equity awards. The primary uses of cash from financing activities in during the six months ended June 30, 2023 were $138 million to repay debt, $16 million to repay finance lease obligations and $6 million in payments for employee taxes on net settlement of equity awards.

Previous wording

As of March 31, 2024, the Company’s contractual obligations had not materially changed compared with December 31, 2023.

Current wording

During the six months ended June 30, 2024, we entered into a $1.1 billion of unsecured notes to fund the Wincanton Acquisition. Other than the unsecured notes noted herein, as of June 30, 2024, the Company’s contractual obligations had not materially changed compared with December 31, 2023.

Previous wording

There have been no material changes to the critical accounting policies and estimates as previously disclosed in “Critical Accounting Policies” in Part II, Item 7 of our Form 10-K for the year ended December 31, 2023.

Current wording

There have been no material changes to the critical accounting policies and estimates as previously disclosed in “Critical Accounting Policies” in Part II, Item 7 of our 2023 Form 10-K.