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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40470
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GXO Logistics, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware |
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86-2098312 |
| (State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
| Two American Lane |
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Greenwich, Connecticut |
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06831 |
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(Zip Code) |
(203) 489-1287
Registrant’s telephone number, including area code
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
| Common stock, par value $0.01 per share |
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GXO |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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| Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 6, 2023, there were 118,954,910 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
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GXO Logistics, Inc. |
| Form 10-Q |
For the Quarterly Period Ended September 30, 2023 |
Table of Contents |
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Page |
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GXO Logistics, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (Dollars in millions, shares in thousands, except per share amounts) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Revenue |
|
$ |
2,471 |
|
|
$ |
2,287 |
|
|
$ |
7,188 |
|
|
$ |
6,526 |
|
| Direct operating expense |
|
2,012 |
|
|
1,885 |
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|
5,875 |
|
|
5,408 |
|
| Selling, general and administrative expense |
|
258 |
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|
227 |
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|
761 |
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|
637 |
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| Depreciation and amortization expense |
|
101 |
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|
89 |
|
|
268 |
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|
242 |
|
| Transaction and integration costs |
|
3 |
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|
14 |
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|
22 |
|
|
57 |
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| Restructuring costs and other |
|
7 |
|
|
— |
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|
31 |
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|
14 |
|
| Operating income |
|
90 |
|
|
72 |
|
|
231 |
|
|
168 |
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| Other income, net |
|
7 |
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|
17 |
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|
8 |
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|
56 |
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| Interest expense, net |
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(14) |
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(6) |
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(41) |
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(19) |
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| Income before income taxes |
|
83 |
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|
83 |
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|
198 |
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|
205 |
|
| Income tax expense |
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(15) |
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(19) |
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(38) |
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|
(51) |
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| Net income |
|
68 |
|
|
64 |
|
|
160 |
|
|
154 |
|
| Net income attributable to noncontrolling interests |
|
(2) |
|
|
(1) |
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|
(4) |
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(3) |
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| Net income attributable to GXO |
|
$ |
66 |
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$ |
63 |
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$ |
156 |
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$ |
151 |
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| Earnings per share |
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| Basic |
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$ |
0.55 |
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$ |
0.53 |
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$ |
1.31 |
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$ |
1.30 |
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| Diluted |
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$ |
0.55 |
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$ |
0.53 |
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$ |
1.31 |
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$ |
1.29 |
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| Weighted-average common shares outstanding |
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| Basic |
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118,941 |
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118,621 |
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118,883 |
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116,508 |
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| Diluted |
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119,645 |
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|
119,065 |
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|
119,430 |
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117,107 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Net income |
|
$ |
68 |
|
|
$ |
64 |
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$ |
160 |
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$ |
154 |
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| Other comprehensive income (loss), net of tax |
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Foreign currency translation loss, net of tax expense of $(9), $(22), $0 and $(32) |
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(69) |
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(43) |
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(39) |
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(163) |
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Net unrealized gain on cash flow hedges, net of tax expense of $(1), $(2), $(1) and $(2) |
|
— |
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9 |
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1 |
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9 |
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Defined benefit plans, amortization of net loss, net of tax of $0, $0, $0 and $0 |
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1 |
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— |
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2 |
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— |
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| Other comprehensive loss, net of tax |
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(68) |
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(34) |
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(36) |
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(154) |
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| Comprehensive income |
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— |
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30 |
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124 |
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— |
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| Less: Comprehensive income (loss) attributable to noncontrolling interest |
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— |
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(1) |
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3 |
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(1) |
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| Comprehensive income attributable to GXO |
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$ |
— |
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|
$ |
31 |
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$ |
121 |
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$ |
1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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September 30, |
|
December 31, |
| (Dollars in millions, shares in thousands, except per share amounts) |
|
2023 |
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2022 |
| ASSETS |
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| Current assets |
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| Cash and cash equivalents |
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$ |
473 |
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$ |
495 |
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Accounts receivable, net of allowance of $18 and $12 |
|
1,661 |
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1,647 |
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| Other current assets |
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332 |
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286 |
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| Total current assets |
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2,466 |
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2,428 |
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| Long-term assets |
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Property and equipment, net of accumulated depreciation of $1,463 and $1,297 |
|
923 |
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960 |
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| Operating lease assets |
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2,133 |
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2,227 |
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| Goodwill |
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2,734 |
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2,728 |
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Intangible assets, net of accumulated amortization of $507 and $456 |
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507 |
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570 |
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| Other long-term assets |
|
328 |
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|
306 |
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| Total long-term assets |
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6,625 |
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6,791 |
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| Total assets |
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$ |
9,091 |
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$ |
9,219 |
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| LIABILITIES AND EQUITY |
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| Current liabilities |
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| Accounts payable |
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$ |
597 |
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$ |
717 |
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| Accrued expenses |
|
975 |
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|
995 |
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| Current debt |
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26 |
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|
67 |
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| Current operating lease liabilities |
|
561 |
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|
560 |
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| Other current liabilities |
|
275 |
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|
193 |
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| Total current liabilities |
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2,434 |
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2,532 |
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| Long-term liabilities |
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| Long-term debt |
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1,621 |
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1,739 |
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| Long-term operating lease liabilities |
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1,800 |
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1,853 |
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| Other long-term liabilities |
|
419 |
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|
417 |
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| Total long-term liabilities |
|
3,840 |
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|
4,009 |
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Commitments and contingencies (Note 12) |
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| Stockholders’ Equity |
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Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,951 and 118,728 issued and outstanding |
|
1 |
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1 |
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Preferred Stock, $0.01 par value per share; 10,000 shares authorized, none issued and outstanding |
|
— |
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— |
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| Additional paid-in capital |
|
2,593 |
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2,575 |
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| Retained earnings |
|
479 |
|
|
323 |
|
| Accumulated Other Comprehensive Income (Loss) (“AOCIL”) |
|
(289) |
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(254) |
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| Total stockholders’ equity before noncontrolling interests |
|
2,784 |
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2,645 |
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| Noncontrolling interests |
|
33 |
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|
33 |
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| Total equity |
|
2,817 |
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|
2,678 |
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| Total liabilities and equity |
|
$ |
9,091 |
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$ |
9,219 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
| Cash flows from operating activities: |
|
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| Net income |
|
$ |
160 |
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$ |
154 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
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| Depreciation and amortization expense |
|
268 |
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|
242 |
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| Stock-based compensation expense |
|
25 |
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|
24 |
|
Deferred tax expense (benefit) |
|
(29) |
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— |
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| Other |
|
16 |
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(4) |
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| Changes in operating assets and liabilities |
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| Accounts receivable |
|
(23) |
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(22) |
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| Other assets |
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(39) |
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(28) |
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| Accounts payable |
|
(69) |
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|
(68) |
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| Accrued expenses and other liabilities |
|
34 |
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|
18 |
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| Net cash provided by operating activities |
|
343 |
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|
316 |
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| Cash flows from investing activities: |
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| Capital expenditures |
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(205) |
|
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(239) |
|
| Proceeds from sales of property and equipment |
|
13 |
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22 |
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| Acquisition of businesses, net of cash acquired |
|
— |
|
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(874) |
|
| Net proceeds from cross-currency swap agreements |
|
— |
|
|
26 |
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| Other |
|
— |
|
|
9 |
|
| Net cash used in investing activities |
|
(192) |
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|
(1,056) |
|
| Cash flows from financing activities: |
|
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| Proceeds from issuance of debt, net |
|
— |
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|
898 |
|
| Repayments of debt, net |
|
(139) |
|
|
— |
|
| Repayments of finance lease obligations |
|
(24) |
|
|
(23) |
|
| Taxes paid related to stock-based compensation awards |
|
(7) |
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(12) |
|
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| Net cash provided by (used in) financing activities |
|
(170) |
|
|
863 |
|
| Effect of exchange rates on cash, restricted cash and cash equivalents |
|
(2) |
|
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(22) |
|
| Net (decrease) increase in cash, restricted cash and cash equivalents |
|
(21) |
|
|
101 |
|
| Cash, restricted cash and cash equivalents, beginning of period |
|
495 |
|
|
333 |
|
Cash, restricted cash and cash equivalents, end of period |
|
$ |
474 |
|
|
$ |
434 |
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
473 |
|
|
$ |
434 |
|
| Restricted Cash (included in Other long-term assets) |
|
1 |
|
|
— |
|
| Total cash, restricted cash and cash equivalents |
|
$ |
474 |
|
|
$ |
434 |
|
|
|
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| Non-cash investing activities: |
|
|
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| Common stock issued for acquisition |
|
$ |
— |
|
|
$ |
203 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
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|
Common Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
AOCIL |
|
Equity Before
Noncontrolling
Interests |
|
Noncontrolling
Interests |
|
Total
Equity |
(Shares in thousands,
dollars in millions) |
|
Shares |
|
Amount |
| Balance as of June 30, 2023 |
|
118,932 |
|
|
$ |
1 |
|
|
$ |
2,587 |
|
|
$ |
413 |
|
|
$ |
(223) |
|
|
$ |
2,778 |
|
|
$ |
33 |
|
|
$ |
2,811 |
|
| Net income |
|
— |
|
|
— |
|
|
— |
|
|
66 |
|
|
— |
|
|
66 |
|
|
2 |
|
|
68 |
|
| Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(66) |
|
|
(66) |
|
|
(2) |
|
|
(68) |
|
| Stock-based compensation |
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
7 |
|
| Vesting of stock-based compensation awards |
|
30 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Tax withholding on vesting of stock-based compensation awards |
|
(11) |
|
|
— |
|
|
(1) |
|
|
— |
|
|
— |
|
|
(1) |
|
|
— |
|
|
(1) |
|
| Balance as of September 30, 2023 |
|
118,951 |
|
|
$ |
1 |
|
|
$ |
2,593 |
|
|
$ |
479 |
|
|
$ |
(289) |
|
|
$ |
2,784 |
|
|
$ |
33 |
|
|
$ |
2,817 |
|
|
|
|
|
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|
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|
(Shares in thousands,
dollars in millions) |
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
AOCIL |
|
Equity Before
Noncontrolling
Interests |
|
Noncontrolling
Interests |
|
Total
Equity |
|
Shares |
|
Amount |
| Balance as of December 31, 2022 |
|
118,728 |
|
|
$ |
1 |
|
|
$ |
2,575 |
|
|
$ |
323 |
|
|
$ |
(254) |
|
|
$ |
2,645 |
|
|
$ |
33 |
|
|
$ |
2,678 |
|
| Net income |
|
— |
|
|
— |
|
|
— |
|
|
156 |
|
|
— |
|
|
156 |
|
|
4 |
|
|
160 |
|
| Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(35) |
|
|
(35) |
|
|
(1) |
|
|
(36) |
|
| Stock-based compensation |
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
25 |
|
| Vesting of stock-based compensation awards |
|
366 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Tax withholding on vesting of stock-based compensation awards |
|
(143) |
|
|
— |
|
|
(7) |
|
|
— |
|
|
— |
|
|
(7) |
|
|
— |
|
|
(7) |
|
| Dividends |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(3) |
|
| Balance as of September 30, 2023 |
|
118,951 |
|
|
$ |
1 |
|
|
$ |
2,593 |
|
|
$ |
479 |
|
|
$ |
(289) |
|
|
$ |
2,784 |
|
|
$ |
33 |
|
|
$ |
2,817 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
AOCIL |
|
Equity Before
Noncontrolling
Interests |
|
Noncontrolling
Interests |
|
Total
Equity |
(Shares in thousands,
dollars in millions) |
|
Shares |
|
Amount |
| Balance as of June 30, 2022 |
|
118,610 |
|
|
$ |
1 |
|
|
$ |
2,561 |
|
|
$ |
214 |
|
|
$ |
(246) |
|
|
$ |
2,530 |
|
|
$ |
31 |
|
|
$ |
2,561 |
|
| Net income |
|
— |
|
|
— |
|
|
— |
|
|
63 |
|
|
— |
|
|
63 |
|
|
1 |
|
|
64 |
|
| Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(32) |
|
|
(32) |
|
|
(2) |
|
|
(34) |
|
| Stock-based compensation |
|
— |
|
|
— |
|
|
8 |
|
|
— |
|
|
— |
|
|
8 |
|
|
— |
|
|
8 |
|
| Vesting of stock compensation awards |
|
33 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Tax withholding on vesting of stock compensation awards |
|
(14) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Balance as of September 30, 2022 |
|
118,629 |
|
|
$ |
1 |
|
|
$ |
2,569 |
|
|
$ |
277 |
|
|
$ |
(278) |
|
|
$ |
2,569 |
|
|
$ |
30 |
|
|
$ |
2,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
AOCIL |
|
Equity Before
Noncontrolling
Interests |
|
Noncontrolling
Interests |
|
Total
Equity |
(Shares in thousands,
dollars in millions) |
|
Shares |
|
Amount |
| Balance as of December 31, 2021 |
|
114,659 |
|
|
$ |
1 |
|
|
$ |
2,354 |
|
|
$ |
126 |
|
|
$ |
(130) |
|
|
$ |
2,351 |
|
|
$ |
39 |
|
|
$ |
2,390 |
|
| Net income |
|
— |
|
|
— |
|
|
— |
|
|
151 |
|
|
— |
|
|
151 |
|
|
3 |
|
|
154 |
|
| Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(150) |
|
|
(150) |
|
|
(4) |
|
|
(154) |
|
| Stock-based compensation |
|
— |
|
|
— |
|
|
24 |
|
|
— |
|
|
— |
|
|
24 |
|
|
— |
|
|
24 |
|
| Vesting of stock compensation awards |
|
374 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Tax withholding on vesting of stock compensation awards |
|
(153) |
|
|
— |
|
|
(12) |
|
|
— |
|
|
— |
|
|
(12) |
|
|
— |
|
|
(12) |
|
| Common stock issued for acquisition |
|
3,749 |
|
|
— |
|
|
203 |
|
|
— |
|
|
— |
|
|
203 |
|
|
— |
|
|
203 |
|
| Deconsolidation of variable interest entity |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
2 |
|
|
(5) |
|
|
(3) |
|
| Dividends |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
(3) |
|
| Balance as of September 30, 2022 |
|
118,629 |
|
|
$ |
1 |
|
|
$ |
2,569 |
|
|
$ |
277 |
|
|
$ |
(278) |
|
|
$ |
2,569 |
|
|
$ |
30 |
|
|
$ |
2,599 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GXO Logistics, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of GXO Logistics, Inc. (“GXO” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The Company’s Condensed Consolidated Financial Statements include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.
The accompanying unaudited Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Certain amounts reported for prior periods have been reclassified to conform to the current period’s presentation.
The Company presents its operations as one reportable segment.
Recently Adopted Accounting Pronouncements
In 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The ASU applies only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. In 2021, the FASB expanded the scope of the guidance to include derivatives. On March 9, 2023, the Company entered into Amendment No. 1 to its revolving credit facility replacing LIBOR-based benchmark rates with SOFR-based benchmark rates and other conforming changes (the “Revolving Credit Facility”). The Company has transitioned its existing contracts to a replacement index. ASU 2020-04 and its amendments did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
2. Revenue Recognition
Revenue disaggregated by geographical area was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| United Kingdom |
|
$ |
958 |
|
|
$ |
890 |
|
|
$ |
2,695 |
|
|
$ |
2,371 |
|
| United States |
|
711 |
|
|
709 |
|
|
2,117 |
|
|
2,075 |
|
| France |
|
207 |
|
|
171 |
|
|
626 |
|
|
530 |
|
| Netherlands |
|
216 |
|
|
175 |
|
|
610 |
|
|
508 |
|
| Spain |
|
133 |
|
|
117 |
|
|
396 |
|
|
360 |
|
| Italy |
|
97 |
|
|
81 |
|
|
279 |
|
|
243 |
|
| Other |
|
149 |
|
|
144 |
|
|
465 |
|
|
439 |
|
| Total |
|
$ |
2,471 |
|
|
$ |
2,287 |
|
|
$ |
7,188 |
|
|
$ |
6,526 |
|
The Company’s revenue can also be disaggregated by the customer’s primary industry. Revenue disaggregated by industry was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Omnichannel retail |
|
$ |
1,051 |
|
|
$ |
919 |
|
|
$ |
3,041 |
|
|
$ |
2,618 |
|
| Technology and consumer electronics |
|
360 |
|
|
338 |
|
|
1,081 |
|
|
963 |
|
| Food and beverage |
|
362 |
|
|
335 |
|
|
1,004 |
|
|
1,009 |
|
| Industrial and manufacturing |
|
263 |
|
|
275 |
|
|
803 |
|
|
807 |
|
| Consumer packaged goods |
|
231 |
|
|
227 |
|
|
689 |
|
|
663 |
|
| Other |
|
204 |
|
|
193 |
|
|
570 |
|
|
466 |
|
| Total |
|
$ |
2,471 |
|
|
$ |
2,287 |
|
|
$ |
7,188 |
|
|
$ |
6,526 |
|
Contract Assets and Liabilities
Contract assets consist of two components, customer acquisition costs and costs to fulfill a contract. Contract assets are amortized to Direct operating expense in the Condensed Consolidated Statements of Operations over the contract term. Contract liabilities represent the Company’s obligation to transfer services to a customer for which the Company has received consideration or the amount is due from the customer.
The contract asset and contract liability balances from contracts with customers were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
| (In millions) |
|
2023 |
|
2022 |
| Contract assets included in: |
|
|
|
|
| Other current assets |
|
$ |
13 |
|
|
$ |
25 |
|
| Other long-term assets |
|
161 |
|
|
165 |
|
| Total contract assets |
|
$ |
174 |
|
|
$ |
190 |
|
| Contract liabilities included in: |
|
|
|
|
| Other current liabilities |
|
$ |
183 |
|
|
$ |
154 |
|
| Other long-term liabilities |
|
114 |
|
|
134 |
|
| Total contract liabilities |
|
$ |
297 |
|
|
$ |
288 |
|
Revenue included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Amounts included in the beginning-of-year contract liability balance |
|
$ |
11 |
|
|
$ |
12 |
|
|
$ |
109 |
|
|
$ |
83 |
|
Remaining Performance Obligations
As of September 30, 2023, the fixed consideration component of the Company’s remaining performance obligation was approximately $3.4 billion, and the Company expects to recognize approximately 72% of that amount over the next three years and the remainder thereafter. The Company estimates remaining performance obligations at a point in time, and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
3. Leases
The Company has operating leases for real estate, warehouse equipment, trucks, trailers, containers and material handling equipment. In addition, the Company has finance leases for warehouse equipment.
The following amounts related to leases were recorded in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
| (In millions) |
|
2023 |
|
2022 |
| Operating leases: |
|
|
|
|
| Operating lease assets |
|
$ |
2,133 |
|
|
$ |
2,227 |
|
|
|
|
|
|
| Current operating lease liabilities |
|
$ |
561 |
|
|
$ |
560 |
|
| Long-term operating lease liabilities |
|
1,800 |
|
|
1,853 |
|
| Total operating lease liabilities |
|
$ |
2,361 |
|
|
$ |
2,413 |
|
|
|
|
|
|
| Finance leases: |
|
|
|
|
| Property and equipment, net |
|
$ |
111 |
|
|
$ |
123 |
|
|
|
|
|
|
| Current debt |
|
$ |
26 |
|
|
$ |
35 |
|
| Long-term debt |
|
91 |
|
|
97 |
|
| Total finance lease liabilities |
|
$ |
117 |
|
|
$ |
132 |
|
The components of lease expense recorded in the Condensed Consolidated Statements of Operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Operating leases: |
|
|
|
|
|
|
|
|
| Operating lease cost |
|
$ |
163 |
|
|
$ |
187 |
|
|
$ |
561 |
|
|
$ |
527 |
|
| Short-term lease cost |
|
78 |
|
|
24 |
|
|
170 |
|
|
69 |
|
| Variable lease cost |
|
36 |
|
|
31 |
|
|
93 |
|
|
73 |
|
Total operating lease cost (1) |
|
$ |
277 |
|
|
$ |
242 |
|
|
$ |
824 |
|
|
$ |
669 |
|
| Finance leases: |
|
|
|
|
|
|
|
|
| Amortization of leases |
|
$ |
10 |
|
|
$ |
5 |
|
|
$ |
23 |
|
|
$ |
23 |
|
| Interest expense on lease liabilities |
|
1 |
|
|
1 |
|
|
3 |
|
|
4 |
|
| Total finance lease cost |
|
$ |
11 |
|
|
$ |
6 |
|
|
$ |
26 |
|
|
$ |
27 |
|
| Total operating and finance lease cost |
|
$ |
288 |
|
|
$ |
248 |
|
|
$ |
850 |
|
|
$ |
696 |
|
(1) Operating lease cost is primarily included in Direct operating expense in the Condensed Consolidated Statements of Operations.
Supplemental cash flow information was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
Leased assets obtained in exchange for new operating lease liabilities, including $207 from an acquisition in 2022 |
|
$ |
389 |
|
|
$ |
911 |
|
Leased assets obtained in exchange for new finance lease liabilities, including $16 from an acquisition in 2022 |
|
8 |
|
|
18 |
|
4. Debt and Financing Arrangements
The following table summarizes the carrying value of debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
| (In millions) |
|
Rate (1) |
|
2023 |
|
2022 |
1.65% Unsecured notes due 2026 (2) |
|
1.65 |
% |
|
$ |
398 |
|
|
$ |
397 |
|
2.65% Unsecured notes due 2031 (3) |
|
2.65 |
% |
|
397 |
|
|
397 |
|
Two-Year Term Loan due 2024 (4) |
|
— |
% |
|
— |
|
|
115 |
|
Three-Year Term Loan due 2025 (5) |
|
6.54 |
% |
|
235 |
|
|
234 |
|
Five-Year Term Loan due 2027 (6) |
|
6.67 |
% |
|
499 |
|
|
499 |
|
| Finance leases and other |
|
Various |
|
118 |
|
|
164 |
|
| Total debt |
|
|
|
1,647 |
|
|
1,806 |
|
| Less: Current debt |
|
|
|
26 |
|
|
67 |
|
| Total Long-term debt |
|
|
|
$ |
1,621 |
|
|
$ |
1,739 |
|
(1) Interest rate as of September 30, 2023.
(2) Net of unamortized debt issuance costs of $2 million as of September 30, 2023, and $3 million as of December 31, 2022.
(3) Net of unamortized debt issuance costs of $3 million as of September 30, 2023 and December 31, 2022.
(4) Repaid in the second quarter of 2023.
(5) Net of unamortized debt issuance costs of $1 million as of December 31, 2022.
(6) Net of unamortized debt issuance costs of $1 million as of September 30, 2023 and December 31, 2022.
Factoring Programs
The Company sells certain of its trade receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.
Information related to the trade receivables sold was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Receivables sold in period |
|
$ |
288 |
|
|
$ |
259 |
|
|
$ |
820 |
|
|
$ |
716 |
|
| Cash consideration |
|
286 |
|
|
258 |
|
|
815 |
|
|
714 |
|
Net cash provided by operating cash flows (1) |
|
27 |
|
|
18 |
|
|
27 |
|
|
16 |
|
(1) The nine months ended September 30, 2022, includes $134 million of cash provided by factoring program, reduced by $118 million of cash used in the securitization program that was terminated in the first quarter of 2022.
Covenants and Compliance
The covenants in the unsecured notes, term loans and revolving credit facilities, which are customary for financings of this type, limit the Company’s ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require the Company to maintain a consolidated leverage ratio below a specified maximum.
As of September 30, 2023, the Company was in compliance with the covenants contained in its debt and financing arrangements.
5. Fair Value Measurements and Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
Assets and Liabilities
The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of September 30, 2023, and December 31, 2022, due to their short-term nature.
Debt
The fair value of debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
|
December 31, 2022 |
| (In millions) |
|
Level |
|
Fair Value |
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
1.65% Unsecured notes due 2026 |
|
2 |
|
$ |
353 |
|
|
$ |
398 |
|
|
$ |
342 |
|
|
$ |
397 |
|
2.65% Unsecured notes due 2031 |
|
2 |
|
303 |
|
|
397 |
|
|
294 |
|
|
397 |
|
Two-Year Term Loan due 2024 |
|
2 |
|
— |
|
|
— |
|
|
115 |
|
|
115 |
|
Three-Year Term Loan due 2025 |
|
2 |
|
233 |
|
|
235 |
|
|
234 |
|
|
234 |
|
Five-Year Term Loan due 2027 |
|
2 |
|
495 |
|
|
499 |
|
|
499 |
|
|
499 |
|
Financial Instruments
The Company directly manages its exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. The Company uses derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. The Company does not expect to incur any losses as a result of counterparty default.
The fair value of the Company’s derivative instruments and the related notional amounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2023 |
| (In millions) |
|
Notional |
|
Derivative
Assets (1)
|
|
Derivative
Liabilities (2)
|
Designated as hedges: |
|
|
|
|
|
|
| Cross-currency swap agreements |
|
$ |
1,337 |
|
|
$ |
26 |
|
|
$ |
14 |
|
Interest rate swaps (3) |
|
250 |
|
|
9 |
|
|
— |
|
| Not designated as hedges: |
|
|
|
|
|
|
| Foreign currency option contracts |
|
$ |
424 |
|
|
$ |
16 |
|
|
$ |
— |
|
| Foreign currency forward contracts |
|
58 |
|
|
— |
|
|
— |
|
(1) Derivative assets are included in Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.
(2) Derivative liabilities are included in Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.
(3) In June 2023, the Company amended one interest rate swap, with a notional amount of $125 million, scheduled to mature in 2027 to 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
| (In millions) |
|
Notional |
|
Derivative
Assets (1)
|
|
Derivative
Liabilities (2)
|
| Designated as hedges: |
|
|
|
|
|
|
| Cross-currency swap agreements |
|
$ |
1,337 |
|
|
$ |
22 |
|
|
$ |
13 |
|
| Interest rate swaps |
|
250 |
|
|
9 |
|
|
— |
|
| Not designated as hedges: |
|
|
|
|
|
|
| Foreign currency option contracts |
|
$ |
354 |
|
|
$ |
— |
|
|
$ |
5 |
|
| Foreign currency forward contracts |
|
3 |
|
|
— |
|
|
— |
|
(1) Derivative assets are included in Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.
(2) Derivative liabilities are included in Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.
As of September 30, 2023 and December 31, 2022, the derivatives were classified as Level 2 within the fair value hierarchy.
The effect of hedges on AOCIL and in the Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2023 |
|
Nine Months Ended September 30, 2023 |
| (In millions) |
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Gain (Loss) Reclassified from AOCIL into Net Income (1) |
|
Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) |
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Gain (Loss) Reclassified from AOCIL into Net Income (1) |
|
Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) |
| Derivatives designated as net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cross-currency swap agreements |
|
$ |
36 |
|
|
$ |
(3) |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
(3) |
|
|
$ |
2 |
|
| Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate swaps |
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
— |
|
(1) Amounts reclassified to net income are reported in Interest expense, net in the Condensed Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
| (In millions) |
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Gain (Loss) Reclassified from AOCIL into Net Income (1) |
|
Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) |
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Gain (Loss) Reclassified from AOCIL into Net Income (1) |
|
Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) |
| Derivatives designated as net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cross-currency swap agreements |
|
$ |
90 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
136 |
|
|
$ |
2 |
|
|
$ |
3 |
|
| Derivatives designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate swaps |
|
$ |
12 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11 |
|
|
$ |
— |
|
|
$ |
— |
|
(1) Amounts reclassified to net income are reported in Interest expense, net in the Condensed Consolidated Statements of Operations.
Derivatives Not Designated as Hedges
Gains and losses recognized in Other income, net in the Condensed Consolidated Statements of Operations for foreign currency options and forward contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Realized foreign currency contracts gain (loss) |
|
$ |
(3) |
|
|
$ |
10 |
|
|
$ |
(9) |
|
|
$ |
19 |
|
| Unrealized foreign currency contracts gain (loss) |
|
8 |
|
|
(1) |
|
|
12 |
|
|
14 |
|
Total foreign currency gain recognized in net income |
|
$ |
5 |
|
|
$ |
9 |
|
|
$ |
3 |
|
|
$ |
33 |
|
6. Stockholders’ Equity
The following tables summarize the changes in AOCIL by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In millions) |
|
Foreign
Currency
Translation
Adjustments |
|
Cash
Flow
Hedges |
|
Defined
Benefit
Plan |
|
Less: AOCIL
attributable to
noncontrolling
interest |
|
AOCIL
attributable
to GXO |
| As of June 30, 2023 |
|
$ |
(119) |
|
|
$ |
8 |
|
|
$ |
(111) |
|
|
$ |
(1) |
|
|
$ |
(223) |
|
| Foreign currency translation loss |
|
(98) |
|
|
— |
|
|
— |
|
|
2 |
|
|
(96) |
|
| Unrealized gain on hedges, net of tax |
|
27 |
|
|
— |
|
|
— |
|
|
— |
|
|
27 |
|
| Amounts reclassified from AOCIL to net income |
|
2 |
|
|
— |
|
|
1 |
|
|
— |
|
|
3 |
|
| Other comprehensive income (loss), net of tax |
|
(69) |
|
|
— |
|
|
1 |
|
|
2 |
|
|
(66) |
|
| As of September 30, 2023 |
|
$ |
(188) |
|
|
$ |
8 |
|
|
$ |
(110) |
|
|
$ |
1 |
|
|
$ |
(289) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In millions) |
|
Foreign
Currency
Translation
Adjustments |
|
Cash
Flow
Hedges |
|
Defined
Benefit
Plan |
|
Less: AOCIL
attributable to
noncontrolling
interest |
|
AOCIL
attributable
to GXO |
| As of December 31, 2022 |
|
$ |
(149) |
|
|
$ |
7 |
|
|
$ |
(112) |
|
|
$ |
— |
|
|
$ |
(254) |
|
| Foreign currency translation loss |
|
(41) |
|
|
— |
|
|
— |
|
|
1 |
|
|
(40) |
|
| Unrealized gain on hedges, net of tax |
|
1 |
|
|
1 |
|
|
— |
|
|
— |
|
|
2 |
|
| Amounts reclassified from AOCIL to net income |
|
1 |
|
|
— |
|
|
2 |
|
|
— |
|
|
3 |
|
| Other comprehensive income (loss), net of tax |
|
(39) |
|
|
1 |
|
|
2 |
|
|
1 |
|
|
(35) |
|
|
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2023 |
|
$ |
(188) |
|
|
$ |
8 |
|
|
$ |
(110) |
|
|
$ |
1 |
|
|
$ |
(289) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In millions) |
|
Foreign Currency Translation Adjustments |
|
Cash Flow Hedges |
|
Defined Benefit Plan |
|
Less: AOCIL attributable to noncontrolling interest |
|
AOCIL attributable to GXO |
| As of June 30, 2022 |
|
$ |
(169) |
|
|
$ |
— |
|
|
$ |
(76) |
|
|
$ |
(1) |
|
|
$ |
(246) |
|
| Foreign currency translation loss |
|
(111) |
|
|
— |
|
|
— |
|
|
2 |
|
|
(109) |
|
| Unrealized gain on hedges, net of tax |
|
69 |
|
|
9 |
|
|
— |
|
|
— |
|
|
78 |
|
| Amounts reclassified from AOCIL to net income |
|
(1) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1) |
|
| Other comprehensive income (loss), net of tax |
|
(43) |
|
|
9 |
|
|
— |
|
|
2 |
|
|
(32) |
|
| As of September 30, 2022 |
|
$ |
(212) |
|
|
$ |
9 |
|
|
$ |
(76) |
|
|
$ |
1 |
|
|
$ |
(278) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (In millions) |
|
Foreign Currency Translation Adjustments |
|
Cash Flow Hedges |
|
Defined Benefit Plan |
|
Less: AOCIL attributable to noncontrolling interest |
|
AOCIL attributable to GXO |
| As of December 31, 2021 |
|
$ |
(53) |
|
|
$ |
— |
|
|
$ |
(76) |
|
|
$ |
(1) |
|
|
$ |
(130) |
|
| Foreign currency translation loss |
|
(260) |
|
|
— |
|
|
— |
|
|
4 |
|
|
(256) |
|
| Unrealized gain on hedges, net of tax |
|
102 |
|
|
9 |
|
|
— |
|
|
— |
|
|
111 |
|
| Amounts reclassified from AOCIL to net income |
|
(5) |
|
|
— |
|
|
— |
|
|
— |
|
|
(5) |
|
| Other comprehensive income (loss), net of tax |
|
(163) |
|
|
9 |
|
|
— |
|
|
4 |
|
|
(150) |
|
| Deconsolidation of variable interest entity |
|
4 |
|
|
— |
|
|
— |
|
|
(2) |
|
|
2 |
|
| As of September 30, 2022 |
|
$ |
(212) |
|
|
$ |
9 |
|
|
$ |
(76) |
|
|
$ |
1 |
|
|
$ |
(278) |
|
7. Employee Benefit Plans
Defined Benefit Plans
The Company sponsors a retirement plan in the U.K. (the “U.K. Retirement Plan”). Components of the net periodic benefit cost recognized under the U.K. Retirement Plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Interest cost |
|
$ |
(11) |
|
|
$ |
(5) |
|
|
$ |
(30) |
|
|
$ |
(16) |
|
| Expected return on plan assets |
|
14 |
|
|
12 |
|
|
38 |
|
|
41 |
|
| Amortization of net loss |
|
(1) |
|
|
— |
|
|
(2) |
|
|
— |
|
Net periodic pension income (1) |
|
$ |
2 |
|
|
$ |
7 |
|
|
$ |
6 |
|
|
$ |
25 |
|
(1) Net periodic pension income is recorded in Other income, net in the Condensed Consolidated Statements of Operations.
The Company also maintains defined benefit pension plans for some of its foreign subsidiaries that are excluded from the disclosure due to their immateriality.
Defined Contribution Plans
The Company has defined contribution retirement plans for its U.S. employees and employees of certain foreign subsidiaries. The Company’s contributions for the three months ended September 30, 2023 and 2022, were $15 million and $12 million, respectively, and for the nine months ended September 30, 2023 and 2022 were $47 million and $40 million, respectively. Defined contribution costs were primarily recorded in Direct operating expense in the Condensed Consolidated Statements of Operations.
8. Restructuring Costs and Other
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.
For the three months ended September 30, 2023, Restructuring costs and other totaled $7 million including $6 million related to severance charges, primarily from the exit of non-core businesses in Asia. For the nine months ended September 30, 2023, Restructuring costs and other totaled $31 million, including $24 million related to severance charges and $7 million related to non-cash impairment charges.
The following is a roll forward of the restructuring liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
| (In millions) |
|
|
| Balance as of December 31, 2022 |
|
$ |
13 |
|
| Charges incurred |
|
24 |
|
| Payments |
|
(26) |
|
| Balance as of September 30, 2023 |
|
$ |
11 |
|
The remaining restructuring liability at September 30, 2023 primarily relates to severance payments and is expected to be substantially paid within the next 12 months.
9. Income Taxes
The effective tax rate was 17.9% for the three months ended September 30, 2023, compared with 22.5% for the same period in 2022. The effective tax rate was 19.1% for the nine months ended September 30, 2023, compared with 24.7% for the same period in 2022. The decrease in our effective tax rate for the three months was primarily driven by a tax benefit related to return-to-provision true-up adjustments. The decrease in our effective tax rate for the nine months was primarily driven by a tax benefit related to valuation allowance release.
As of September 30, 2023 and December 31, 2022, the Company had valuation allowances of $36 million and $44 million on its deferred income tax asset, respectively.
10. Goodwill
The following table presents the changes in Goodwill for the nine months ended September 30, 2023:
|
|
|
|
|
|
|
|
|
| (In millions) |
|
|
| Balance as of December 31, 2022 |
|
$ |
2,728 |
|
Acquisition (1) |
|
44 |
|
Impact of foreign exchange translation (2) |
|
(38) |
|
| Balance as of September 30, 2023 |
|
$ |
2,734 |
|
(1) Represents the finalization of the purchase price allocation for the Clipper acquisition. See Note 11 — Acquisition for additional information.
(2) Changes to goodwill amounts resulting from foreign currency translation after the acquisition date are presented as the impact of foreign exchange translation.
As of September 30, 2023, and December 31, 2022, there were no accumulated goodwill impairment losses.
11. Acquisition
On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). The Company acquired Clipper for $1,106 million, consisting of $902 million in cash and the issuance of 3,757,657 shares of GXO common stock with a value of $204 million.
The Company accounted for the Clipper Acquisition as a business combination using the acquisition method of accounting. The fair value of assets acquired and liabilities assumed was based on management’s estimate of the fair value using valuation techniques including income, cost and market approaches.
The following table summarizes the final fair values of identifiable assets acquired and liabilities assumed at the acquisition date:
|
|
|
|
|
|
|
|
|
| (In millions) |
|
|
| ASSETS |
|
|
| Current assets |
|
|
| Cash and cash equivalents |
|
$ |
26 |
|
| Accounts receivable |
|
143 |
|
| Other current assets |
|
67 |
|
| Total current assets |
|
236 |
|
| Long-term assets |
|
|
| Property and equipment |
|
80 |
|
| Operating lease assets |
|
219 |
|
Intangible assets (1) |
|
392 |
|
| Other long-term assets |
|
29 |
|
| Total long-term assets |
|
720 |
|
| Total assets |
|
$ |
956 |
|
| LIABILITIES |
|
|
| Current liabilities |
|
|
| Accounts payable |
|
$ |
81 |
|
| Accrued expenses |
|
96 |
|
| Current debt |
|
55 |
|
| Current operating lease liabilities |
|
43 |
|
| Other current liabilities |
|
56 |
|
Total current liabilities |
|
331 |
|
| Long-term liabilities |
|
|
| Long-term debt |
|
10 |
|
| Long-term operating lease liabilities |
|
176 |
|
| Other long-term liabilities |
|
173 |
|
| Total long-term liabilities |
|
359 |
|
| Total liabilities |
|
$ |
690 |
|
| Net assets purchased |
|
$ |
266 |
|
| Cash paid |
|
$ |
902 |
|
Common stock issued (2) |
|
204 |
|
| Purchase price paid |
|
$ |
1,106 |
|
Goodwill recorded (3) |
|
$ |
840 |
|
(1) The Company acquired $392 million of intangible assets, comprised of customer relationships and trade names, with weighted-average useful lives of 15 years.
(2) Represents the fair value of the Company’s common stock issued.
(3) Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill acquired was recorded in the United Kingdom and Ireland reporting unit and was primarily attributed to anticipated synergies. The Company does not expect the goodwill recognized in connection with the Clipper Acquisition to be deductible for income tax purposes.
12. Commitments and Contingencies
The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business. These proceedings may include personal injury claims arising from the transportation and handling of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company reviews and adjusts accruals for loss contingencies quarterly and as additional information becomes available.
If a loss is not both probable and reasonably estimable, or if an exposure to a loss exists in excess of the amount accrued, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or discloses that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on management’s assessment, together with legal counsel, regarding the ultimate outcome of the matter.
Management of the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. Management of the Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows. Legal costs related to these matters are expensed as they are incurred.
The Company carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting its operations. In the event the Company is required to satisfy a legal claim outside the scope of the coverage provided by insurance, its financial condition, results of operations or cash flows could be negatively impacted.
13. Subsequent Events
Financial Instruments - Net Investment Hedges
In October 2023, the Company terminated a hedge with a notional amount of $115 million. Also, the Company amended a $235 million hedge to extend its maturity from 2024 to 2025. Additionally, the Company entered into various hedges for an aggregate notional amount of $313 million that will mature from 2025 to 2028.
Acquisition
On September 13, 2023, the Company entered into an Agreement and Plan of Merger to acquire PFSweb, Inc., a Delaware corporation headquartered in Irving, Texas (“PFS”), and on October 23, 2023, the Company completed its acquisition of PFS. PFS provides e-commerce order fulfillment services. The Company acquired the shares of PFSweb at a price per share of $7.50 in cash, totaling approximately $181 million.
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 on Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 16, 2023 (the “2022 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Business Overview
GXO Logistics, Inc., together with its subsidiaries, (“GXO,” the “Company” or “we”) is the largest pure-play contract logistics provider in the world and a foremost innovator in the industry. We provide our customers with high-value-add warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions at scale. Our customers rely on us to move their goods with high efficiency through their supply chains — from the moment inbound goods arrive at our warehouses, through fulfillment and distribution and the management of returned products. Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics and warehousing services.
We strive to provide all customers with consistent quality service and cutting-edge automation. We also collaborate with our largest customers on planning and forecasting and assist with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as environmental, social and governance. Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.
The most dramatic growth in secular demand in recent years has been in e-commerce and related sectors, including omnichannel retail and other direct-to-consumer channels. We expect to attract new customers and expand the services we provide to existing customers through new projects, thus earning more of their external and internal logistics spending. We use technology to manage advanced automation, labor productivity, sustainability, safety and the complex flow of goods within sophisticated warehouse environments.
Our business model is asset-light and historically resilient in cycles, with high returns, strong free cash flow and visibility into revenue and earnings. The vast majority of our contracts with customers are long-term in nature, and our warehouse lease arrangements generally align with contract length. The Company has both fixed-price contracts (closed book or hybrid contracts) and cost-plus contracts (open book contracts). Most of our customer contracts contain both fixed and variable components. The fixed component is typically designed to cover warehouse, technology and equipment costs, while the variable component is determined based on expected volumes and associated labor costs. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit. Cost-plus contracts provide for the payment of allowable costs incurred during the performance of the contract plus a specified margin.
On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). Due to the Clipper Acquisition, comparisons in our results of operations between 2023 and 2022 are less meaningful.
Results of Operations
Three Months Ended September 30, 2023 Compared with the Three Months Ended September 30, 2022
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Three Months Ended September 30, |
| (In millions) |
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2023 |
|
2022 |
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$ Change |
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% Change |
| Revenue |
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$ |
2,471 |
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$ |
2,287 |
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$ |
184 |
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|
8 |
% |
| Direct operating expense |
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2,012 |
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|
1,885 |
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|
127 |
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7 |
% |
| Selling, general and administrative expense |
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258 |
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227 |
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31 |
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14 |
% |
| Depreciation and amortization expense |
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101 |
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89 |
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12 |
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13 |
% |
| Transaction and integration costs |
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3 |
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14 |
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(11) |
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(79) |
% |
| Restructuring costs and other |
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7 |
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— |
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7 |
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n/m |
| Operating income |
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90 |
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72 |
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18 |
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25 |
% |
| Other income, net |
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7 |
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17 |
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(10) |
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(59) |
% |
| Interest expense, net |
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(14) |
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(6) |
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(8) |
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n/m |
| Income before income taxes |
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83 |
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83 |
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— |
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— |
% |
| Income tax expense |
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(15) |
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(19) |
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4 |
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(21) |
% |
| Net income |
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$ |
68 |
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$ |
64 |
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$ |
4 |
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6 |
% |
n/m - not meaningful
Revenue for the three months ended September 30, 2023, increased by 8%, or $184 million, to $2.5 billion compared with $2.3 billion for the same period in 2022. The increase in 2023 compared to the prior period primarily reflects growth in our Continental Europe and United Kingdom and Ireland operations. Foreign currency movement increased revenue by $126 million for the three months ended September 30, 2023 compared with the prior period.
Direct operating expense is comprised of both fixed and variable expenses and consist 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 September 30, 2023, increased by 7%, or $127 million, to $2.0 billion compared with $1.9 billion for the same period in 2022. Direct operating expense increased primarily due to higher personnel and temporary labor expenses and higher facilities and equipment expense. As a percentage of revenue, direct operating expense for the three months ended September 30, 2023, was 81.4% compared with 82.4% for the same period in 2022.
Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the three months ended September 30, 2023, increased by 14%, or $31 million, to $258 million compared with $227 million for the same period in 2022.
SG&A increased due to higher personnel costs, primarily for certain administrative functions, and higher bad debt expense.
Depreciation and amortization expense for the three months ended September 30, 2023 increased by $12 million to $101 million compared with $89 million for the same period in 2022. Amortization expense was $18 million and $21 million for the three months ended September 30, 2023 and 2022, respectively. The increase in depreciation and amortization expense was primarily related to increased depreciation expense due to the impact of prior capital investments associated with new contracts.
Transaction and integration costs for the three months ended September 30, 2023 were $3 million and primarily related to the acquisition of PFSweb, Inc. Transaction and integration costs for the three months ended September 30, 2022 were $14 million and primarily related to the Clipper Acquisition.
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 September 30, 2023 was $7 million and primarily related to the exit of non-core businesses in Asia.
Other income, net decreased due to foreign currency movements and lower pension income. Other income, net was as follows:
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Three Months Ended September 30, |
| (In millions) |
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2023 |
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2022 |
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$ Change |
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% Change |
Net periodic pension income |
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$ |
2 |
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$ |
7 |
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$ |
(5) |
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(71) |
% |
Foreign currency: |
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|
Realized foreign currency contracts gain (loss) |
|
(3) |
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10 |
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(13) |
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n/m |
Unrealized foreign currency contracts gain (loss) |
|
8 |
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(1) |
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9 |
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n/m |
Foreign currency remeasurement gain |
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— |
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1 |
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(1) |
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(100) |
% |
| Total foreign currency gain |
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5 |
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10 |
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(5) |
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(50) |
% |
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| Other income, net |
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$ |
7 |
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$ |
17 |
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$ |
(10) |
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(59) |
% |
n/m - not meaningful
Interest expense, net increased primarily due to higher variable interest rates on our debt compared with the prior period. Interest expense, net was as follows:
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Three Months Ended September 30, |
| (In millions) |
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2023 |
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2022 |
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$ Change |
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% Change |
Debt and capital leases |
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$ |
25 |
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$ |
16 |
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$ |
9 |
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|
56 |
% |
Cross-currency swaps |
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(9) |
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(9) |
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— |
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— |
% |
Interest income |
|
(2) |
|
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(1) |
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(1) |
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|
100 |
% |
| Interest expense, net |
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$ |
14 |
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$ |
6 |
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$ |
8 |
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n/m |
n/m - not meaningful
Income before income taxes for both the three months ended September 30, 2023 and 2022 was $83 million.
Income tax expense for the three months ended September 30, 2023 was $15 million compared with $19 million for the same period in 2022. Our effective tax rate was 17.9% for the three months ended September 30, 2023, compared with 22.5% for the same period in 2022. The change in our effective tax rate was primarily driven by a tax benefit related to return-to-provision true-up adjustments.
Nine Months Ended September 30, 2023 Compared with the Nine Months Ended September 30, 2022
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Nine months ended September 30, |
| (In millions) |
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2023 |
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2022 |
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$ Change |
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% Change |
| Revenue |
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$ |
7,188 |
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$ |
6,526 |
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$ |
662 |
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10 |
% |
| Direct operating expense |
|
5,875 |
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5,408 |
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|
467 |
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|
9 |
% |
| Selling, general and administrative expense |
|
761 |
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|
637 |
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124 |
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19 |
% |
| Depreciation and amortization expense |
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268 |
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|
242 |
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26 |
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|
11 |
% |
| Transaction and integration costs |
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22 |
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|
57 |
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(35) |
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(61) |
% |
| Restructuring costs and other |
|
31 |
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14 |
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17 |
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n/m |
| Operating income |
|
231 |
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|
168 |
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|
63 |
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|
38 |
% |
| Other income, net |
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8 |
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|
56 |
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|
(48) |
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|
(86) |
% |
| Interest expense, net |
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(41) |
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|
(19) |
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|
(22) |
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n/m |
| Income before income taxes |
|
198 |
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|
205 |
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|
(7) |
|
|
(3) |
% |
| Income tax expense |
|
(38) |
|
|
(51) |
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|
13 |
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|
(25) |
% |
| Net income |
|
$ |
160 |
|
|
$ |
154 |
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|
$ |
6 |
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|
4 |
% |
n/m - not meaningful
Revenue for the nine months ended September 30, 2023 increased by 10%, or $662 million, to $7.2 billion compared with $6.5 billion for the same period in 2022. The increase primarily reflects an increase of $378 million from the Clipper Acquisition for the periods that were not comparable and growth in our Continental Europe operations. Foreign currency movement increased revenue by $43 million for the nine months ended September 30, 2023 compared with the prior period.
Direct operating expense is comprised of both fixed and variable expenses and consist 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 nine months ended September 30, 2023 increased by 9%, or $467 million, to $5.9 billion compared with $5.4 billion for the same period in 2022. Direct operating expense increased primarily due to the Clipper Acquisition, as well as higher personnel and temporary labor expenses and higher facilities and equipment expense. As a percentage of revenue, direct operating expense for the nine months ended September 30, 2023, was 81.7% compared with 82.9% for the same period in 2022.
Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the nine months ended September 30, 2023, increased by 19%, or $124 million, to $761 million compared with $637 million for the same period in 2022. SG&A increased primarily due to the Clipper Acquisition and higher personnel costs, primarily for certain administrative functions, and higher bad debt expense.
Depreciation and amortization expense for the nine months ended September 30, 2023 increased by $26 million to $268 million compared with $242 million for the same period in 2022. Amortization expense was $54 million and $48 million for the nine months ended September 30, 2023 and 2022, respectively. Depreciation and amortization expense increased primarily due to the Clipper Acquisition.
Transaction and integration costs for the nine months ended September 30, 2023 were $22 million compared with $57 million for the same period in 2022. Transaction and integration costs for the nine months ended September 30, 2023 and 2022, primarily related to the Clipper Acquisition.
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 nine months ended September 30, 2023 was $31 million and included severance charges of $24 million and impairment charges of $7 million due to closing certain corporate and administrative offices and the exit of non-core businesses in Asia.
For the nine months ended September 30, 2022, Restructuring costs and other was $14 million and included severance charges of $6 million and $8 million related to the deconsolidation of a joint venture.
Other income, net decreased due to foreign currency movements and lower pension income. Other income, net was as follows:
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Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Net periodic pension income |
|
$ |
6 |
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$ |
25 |
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$ |
(19) |
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|
(76) |
% |
Foreign currency: |
|
|
|
|
|
|
|
|
Realized foreign currency contracts gain (loss) |
|
(9) |
|
|
19 |
|
|
(28) |
|
|
n/m |
Unrealized foreign currency contracts gain |
|
12 |
|
|
14 |
|
|
(2) |
|
|
(14) |
% |
Foreign currency remeasurement loss |
|
(1) |
|
|
(2) |
|
|
1 |
|
|
(50) |
% |
| Total foreign currency gain |
|
2 |
|
|
31 |
|
|
(29) |
|
|
(94) |
% |
|
|
|
|
|
|
|
|
|
| Other income, net |
|
$ |
8 |
|
|
$ |
56 |
|
|
$ |
(48) |
|
|
(86) |
% |
n/m - not meaningful
Interest expense, net increased primarily due to debt incurred for the Clipper Acquisition and higher variable interest rates on our debt compared with the prior period, partially offset by higher gains on cross-currency swaps in the current period. Interest expense, net was as follows:
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|
|
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
Debt and capital leases |
|
$ |
72 |
|
|
$ |
37 |
|
|
$ |
35 |
|
|
95 |
% |
Cross-currency swaps |
|
(25) |
|
|
(16) |
|
|
(9) |
|
|
56 |
% |
Interest income |
|
(6) |
|
|
(2) |
|
|
(4) |
|
|
n/m |
| Interest expense, net |
|
$ |
41 |
|
|
$ |
19 |
|
|
$ |
22 |
|
|
n/m |
n/m - not meaningful
Income before income taxes for the nine months ended September 30, 2023, decreased to $198 million compared with $205 million for the same period in 2022. The decrease was due to lower Other income, net and higher interest expense, partially offset by higher operating income.
Income tax expense for the nine months ended September 30, 2023 was $38 million compared with $51 million for the same period in 2022. Our effective tax rate was 19.1% for the nine months ended September 30, 2023, compared with 24.7% for the same period in 2022. The change in our effective tax rate was primarily driven by a tax benefit related to a valuation allowance release.
Liquidity and Capital Resources
Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facilities. Our principal uses of cash in the future will be to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions. The timing and magnitude of our start-ups can vary and may positively or negatively impact our cash flows.
As of September 30, 2023, we held cash and cash equivalents of $473 million and we had $799 million of borrowing capacity available, net of letters of credit under our Revolving Credit Facility.
We continually evaluate our liquidity requirements and capital structure in consideration 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.
Factoring Programs
We sell certain of our trade receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.
Information related to the trade receivables sold was as follows:
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Receivables sold in period |
|
$ |
288 |
|
|
$ |
259 |
|
|
$ |
820 |
|
|
$ |
716 |
|
| Cash consideration |
|
286 |
|
|
258 |
|
|
815 |
|
|
714 |
|
Net cash provided by operating cash flows (1) |
|
27 |
|
|
18 |
|
|
27 |
|
|
16 |
|
(1) The nine months ended September 30, 2022, includes $134 million of cash provided by factoring program, reduced by $118 million of cash used in the securitization program that was terminated in the first quarter of 2022.
Covenants and Compliance
The covenants in the unsecured notes, term loans and revolving credit facilities, which are customary for financings of this type, limit our ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require us to maintain a consolidated leverage ratio below a specified maximum.
As of September 30, 2023, we were in compliance with the covenants contained in our debt and financing arrangements.
Financial Condition
The following table summarizes our asset and liability balances:
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|
| (In millions) |
|
September 30, 2023 |
|
December 31, 2022 |
|
$ Change |
|
% Change |
Current assets |
|
$ |
2,466 |
|
|
$ |
2,428 |
|
|
$ |
38 |
|
|
2 |
% |
Long-term assets |
|
6,625 |
|
|
6,791 |
|
|
(166) |
|
|
(2) |
% |
Total Assets |
|
$ |
9,091 |
|
|
$ |
9,219 |
|
|
$ |
(128) |
|
|
(1) |
% |
Current liabilities |
|
$ |
2,434 |
|
|
$ |
2,532 |
|
|
$ |
(98) |
|
|
(4) |
% |
Long-term liabilities |
|
3,840 |
|
|
4,009 |
|
|
(169) |
|
|
(4) |
% |
Total Liabilities |
|
$ |
6,274 |
|
|
$ |
6,541 |
|
|
$ |
(267) |
|
|
(4) |
% |
The decrease in total assets from December 31, 2022 to September 30, 2023 reflects a decrease in long-term assets primarily due to depreciation and amortization of property and equipment, operating leases and intangible assets.
The decrease in total liabilities from December 31, 2022 to September 30, 2023 primarily reflects the decrease in accounts payable due to the timing of payments and the early repayment of our $115 million two-year term loan.
Cash Flow Activity
Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, are summarized as follows:
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|
|
|
Nine Months Ended September 30, |
| (In millions) |
|
2023 |
|
2022 |
|
$ Change |
|
% Change |
| Net cash provided by operating activities |
|
$ |
343 |
|
|
$ |
316 |
|
|
$ |
27 |
|
|
9 |
% |
| Net cash used in investing activities |
|
(192) |
|
|
(1,056) |
|
|
864 |
|
|
(82) |
% |
| Net cash provided by (used in) financing activities |
|
(170) |
|
|
863 |
|
|
(1,033) |
|
|
n/m |
| Effect of exchange rates on cash, restricted cash and cash equivalents |
|
(2) |
|
|
(22) |
|
|
20 |
|
|
(91) |
% |
| Net (decrease) increase in cash, restricted cash and cash equivalents |
|
$ |
(21) |
|
|
$ |
101 |
|
|
$ |
(122) |
|
|
(121) |
% |
Operating Activities
Cash flows provided by operating activities for the nine months ended September 30, 2023 increased by $27 million compared with the same period in 2022 due to increase in cash generated from net income adjusted for non-cash charges.
Investing Activities
Investing activities used $192 million of cash for the nine months ended September 30, 2023, compared with $1.1 billion used for the same period of 2022. During the nine months ended September 30, 2023, we used $205 million of cash to purchase property and equipment and received $13 million of cash from sales of property and equipment. During the nine months ended September 30, 2022, we used $874 million, net of cash received, to fund the Clipper Acquisition, used $239 million of cash to purchase property and equipment, received $26 million in proceeds from cross-currency swap agreements, excluding accrued interest, and received $22 million of cash from sales of property and equipment.
Financing Activities
Financing activities used $170 million of cash for the nine months ended September 30, 2023, including $139 million used to repay debt, $24 million to repay finance lease obligations and $7 million in payments for employee taxes on stock-based compensation awards. Financing activities generated $863 million of cash for the nine months ended September 30, 2022, including $898 million in proceeds from long-term debt, partially offset by $23 million to repay finance lease obligations and $12 million in payments for employee taxes on stock-based compensation awards.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of September 30, 2023, the Company’s contractual obligations had not materially changed compared with December 31, 2022.
Critical Accounting Policies and Estimates
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, 2022.
Accounting Pronouncements
Information related to new accounting standards is included in Note 1 — Basis of Presentation and Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk that may impact our Condensed Consolidated Financial Statements due primarily to variable rate long-term debt obligations and fluctuations in certain foreign currencies. To reduce our exposure to market risk associated with interest and foreign currency exchange rate risks, we enter into various derivative instruments. There have been no material changes to our exposure to market risk for the nine months ended September 30, 2023, from those previously disclosed in “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, 2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of September 30, 2023 were effective as of such time such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Other than the design and implementation of internal controls related to the acquisition of Clipper Logistics plc, there have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 12 — Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of our legal proceedings.
ITEM 1A. RISK FACTORS
There are no material changes to the risk factors as previously disclosed in “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended December 31, 2022.
ITEM 5. OTHER INFORMATION
Compensatory Arrangements of the Former Chief Human Resources Officer
As previously disclosed, Maryclaire Hammond ceased service as the Chief Human Resources Officer of the Company on November 3, 2023, and will separate from employment with the Company on December 31, 2023. In exchange for certain separation benefits, on November 7, 2023 Ms. Hammond entered into a settlement agreement with GXO Logistics UK Limited releasing legal claims and reaffirming her obligations under her Service Agreement with GXO Logistics UK Limited, dated May 14, 2021. Pursuant to the settlement agreement, Ms. Hammond will receive (1) 12 months of pay in lieu of notice, consisting of base salary, employer pension contributions and car allowance, as well as 12 months of continued health benefits, (2) an annual incentive bonus for 2023, calculated at the higher of actual performance or target, and an ex gratia payment equal to £278,175, payable in April 2025, (3) vesting of a portion of her unvested equity compensation awards, and (4) certain ancillary benefits, including reimbursement of legal fees in connection with the settlement agreement, outplacement services for up to 12 months, and global tax support for a transition period. This description is qualified in its entirety by reference to the full text of the settlement agreement, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
ITEM 6. EXHIBITS
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Exhibit
Number |
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Description |
| 10.1 |
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| 31.1* |
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| 31.2* |
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| 32.1** |
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| 32.2** |
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| 101.INS* |
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Inline XBRL Instance Document. |
| 101.SCH* |
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Inline XBRL Taxonomy Extension Schema. |
| 101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase. |
| 104* |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| * |
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Filed herewith. |
| ** |
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Furnished herewith. |
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.
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GXO Logistics, Inc. |
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Date: November 8, 2023 |
By: |
/s/ Malcolm Wilson |
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Malcolm Wilson |
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(Chief Executive Officer) |
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(Principal Executive Officer) |
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Date: November 8, 2023 |
By: |
/s/ Baris Oran |
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Baris Oran |
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(Chief Financial Officer) |
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(Principal Financial Officer) |
EX-10.1
2
gxosettlementagreement-m.htm
EX-10.1
gxosettlementagreement-m
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