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xpo-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

Form 10-Q

___________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			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: 001-32172

_______________________________________________________

XPO Logistics, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________


Delaware		03-0450326
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Five American Lane
Greenwich,	CT	06831
(Address of principal executive offices)		(Zip Code)

(855) 976-6951

(Registrant’s telephone number, including area code)

______________________________________________________________________________________________________________

N/A

______________________________________________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

XPO

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.

Large accelerated filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 2, 2020, there were 91,415,716 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

XPO Logistics, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2020

Table of Contents


			Page No.
Part I—Financial Information
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Income (Loss)			2
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Statements of Cash Flows			4
Condensed Consolidated Statements of Changes in Equity			5
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			34
Part II—Other Information
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 5. Other Information			37
Item 6. Exhibits			37
Signatures			39

Table of Contents

Part I—Financial Information

Item 1. Financial Statements.

XPO Logistics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30,		December 31,
(In millions, except per share data)	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	2,025	$	377
Accounts receivable, net of allowances of $79 and $58, respectively	2,624		2,500
Other current assets	435		465
Total current assets	5,084		3,342
Long-term assets
Property and equipment, net of $2,435 and $2,054 in accumulated depreciation, respectively	2,573		2,704
Operating lease assets	2,221		2,245
Goodwill	4,506		4,450
Identifiable intangible assets, net of $914 and $850 in accumulated amortization, respectively	994		1,092
Other long-term assets	367		295
Total long-term assets	10,661		10,786
Total assets	$	15,745	$	14,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,025	$	1,157
Accrued expenses	1,855		1,414
Short-term borrowings and current maturities of long-term debt	130		84
Short-term operating lease liabilities	461		468
Other current liabilities	177		135
Total current liabilities	3,648		3,258
Long-term liabilities
Long-term debt	6,545		5,182
Deferred tax liability	494		495
Employee benefit obligations	157		157
Long-term operating lease liabilities	1,763		1,776
Other long-term liabilities	353		364
Total long-term liabilities	9,312		7,974
Stockholders’ equity
Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; 0.07 of Series A shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	41		41
Common stock, $0.001 par value; 300 shares authorized; 91 and 92 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	—		—
Additional paid-in capital	1,971		2,061
Retained earnings	766		786
Accumulated other comprehensive loss	(129)		(145)
Total stockholders’ equity before noncontrolling interests	2,649		2,743
Noncontrolling interests	136		153
Total equity	2,785		2,896
Total liabilities and equity	$	15,745	$	14,128

See accompanying notes to condensed consolidated financial statements.

Table of Contents

XPO Logistics, Inc.

Condensed Consolidated Statements of Income (Loss)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2020		2019		2020		2019
Revenue	$	4,221	$	4,154	$	11,587	$	12,512
Operating expenses
Cost of transportation and services	2,038		2,068		5,577		6,272
Direct operating expense	1,461		1,401		4,191		4,224
Sales, general and administrative expense	499		456		1,656		1,397
Total operating expenses	3,998		3,925		11,424		11,893
Operating income	223		229		163		619
Other income	(20)		(11)		(59)		(41)
Foreign currency (gain) loss	—		(5)		(5)		5
Debt extinguishment loss	—		—		—		5
Interest expense	86		75		240		218
Income (loss) before income tax provision (benefit)	157		170		(13)		432
Income tax provision (benefit)	59		34		(2)		99
Net income (loss)	98		136		(11)		333
Net income attributable to noncontrolling interests	(5)		(6)		(4)		(21)
Net income (loss) attributable to XPO	$	93	$	130	$	(15)	$	312

Earnings (loss) per share data
Net income (loss) attributable to common shareholders	$	84	$	117	$	(17)	$	282

Basic earnings (loss) per share	$	0.93	$	1.27	$	(0.18)	$	2.91
Diluted earnings (loss) per share	$	0.83	$	1.14	$	(0.18)	$	2.63

Weighted-average common shares outstanding
Basic weighted-average common shares outstanding	91		92		91		97
Diluted weighted-average common shares outstanding	102		102		91		107

See accompanying notes to condensed consolidated financial statements.

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XPO Logistics, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Net income (loss)	$	98	$	136	$	(11)	$	333

Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax effect of $13, $(11), $6 and $(17)	$	71	$	(66)	$	27	$	(68)
Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $—, $—, $— and $—	(1)		—		(1)		1
Defined benefit plans adjustments, net of tax effect of $(1), $—, $1 and $—	(2)		(1)		(7)		(1)
Other comprehensive income (loss)	68		(67)		19		(68)
Comprehensive income	$	166	$	69	$	8	$	265
Less: Comprehensive income (loss) attributable to noncontrolling interests	10		(9)		7		4
Comprehensive income attributable to XPO	$	156	$	78	$	1	$	261

See accompanying notes to condensed consolidated financial statements.

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XPO Logistics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2020		2019
Operating activities
Net income (loss)	$	(11)	$	333
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation, amortization and net lease activity	572		546
Stock compensation expense	50		48
Accretion of debt	14		16
Deferred tax expense	4		26
Debt extinguishment loss	—		5
Unrealized (gain) loss on foreign currency option and forward contracts	(1)		5
Gains on sales of property and equipment	(68)		(73)
Other	46		17
Changes in assets and liabilities
Accounts receivable	(152)		(190)
Other assets	(52)		(12)
Accounts payable	(105)		(153)
Accrued expenses and other liabilities	395		(126)
Net cash provided by operating activities	692		442
Investing activities
Payment for purchases of property and equipment	(377)		(413)
Proceeds from sale of property and equipment	148		192
Cash collected on deferred purchase price receivable	—		186
Other	5		—
Net cash used in investing activities	(224)		(35)
Financing activities
Proceeds from issuance of debt	1,155		1,751
Proceeds from borrowings related to securitization program	48		—
Proceeds from borrowings on ABL facility	820		1,690
Repayment of borrowings on ABL facility	(620)		(1,690)
Repayment of debt and finance leases	(65)		(850)
Payment for debt issuance costs	(21)		(28)
Purchase of noncontrolling interests	(21)		—
Repurchase of common stock	(114)		(1,347)
Change in bank overdrafts	20		2
Payment for tax withholdings for restricted shares	(21)		(11)
Other	1		4
Net cash provided by (used in) financing activities	1,182		(479)
Effect of exchange rates on cash, cash equivalents and restricted cash	(2)		(7)
Net increase (decrease) in cash, cash equivalents and restricted cash	1,648		(79)
Cash, cash equivalents and restricted cash, beginning of period	387		514
Cash, cash equivalents and restricted cash, end of period	$	2,035	$	435
Supplemental disclosure of cash flow information
Leased assets obtained in exchange for new operating lease liabilities	$	481	$	559
Leased assets obtained in exchange for new finance lease liabilities	32		35
Cash paid for interest	215		202
Cash paid for income taxes	20		89

See accompanying notes to condensed consolidated financial statements.

Table of Contents

XPO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)


	Series A Preferred Stock			Common Stock
(Shares in thousands, dollars in millions)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total XPO Stockholders' Equity		Non-controlling Interests		Total Equity
Balance as of June 30, 2020	72	$	41	91,322	$	—	$	1,963	$	672	$	(192)	$	2,484	$	150	$	2,634
Net income	—	—		—	—		—		93		—		93		5		98
Other comprehensive income	—	—		—	—		—		—		63		63		5		68
Exercise and vesting of stock compensation awards	—	—		39	—		—		—		—		—		—		—
Tax withholdings related to vesting of stock compensation awards	—	—		—	—		(3)		—		—		(3)		—		(3)
Purchase of noncontrolling interests	—	—		—	—		(1)		—		—		(1)		(20)		(21)
Dividend declared	—	—		—	—		—		—		—		—		(4)		(4)
Stock compensation expense	—	—		—	—		10		—		—		10		—		10
Other	—	—		—	—		2		1		—		3		—		3
Balance as of September 30, 2020	72	$	41	91,361	$	—	$	1,971	$	766	$	(129)	$	2,649	$	136	$	2,785


	Series A Preferred Stock			Common Stock
(Shares in thousands, dollars in millions)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total XPO Stockholders' Equity		Non-controlling Interests		Total Equity
Balance as of December 31, 2019	72	$	41	92,342	$	—	$	2,061	$	786	$	(145)	$	2,743	$	153	$	2,896
Net (income) loss	—	—		—	—		—		(15)		—		(15)		4		(11)
Other comprehensive income	—	—		—	—		—		—		16		16		3		19
Exercise and vesting of stock compensation awards	—	—		672	—		—		—		—		—		—		—
Tax withholdings related to vesting of stock compensation awards	—	—		—	—		(21)		—		—		(21)		—		(21)
Purchase of noncontrolling interests	—	—		—	—		(1)		—		—		(1)		(20)		(21)
Retirement of common stock	—	—		(1,715)	—		(114)		—		—		(114)		—		(114)
Dividend declared	—	—		—	—		—		(2)		—		(2)		(4)		(6)
Stock compensation expense	—	—		—	—		42		—		—		42		—		42
Adoption of new accounting standard and other	—	—		62	—		4		(3)		—		1		—		1
Balance as of September 30, 2020	72	$	41	91,361	$	—	$	1,971	$	766	$	(129)	$	2,649	$	136	$	2,785

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XPO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity (continued)

(Unaudited)


	Series A Preferred Stock			Common Stock
(Shares in thousands, dollars in millions)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total XPO Stockholders' Equity		Non-controlling Interests		Total Equity
Balance as of June 30, 2019	72	$	41	91,992	$	—	$	2,054	$	563	$	(153)	$	2,505	$	407	$	2,912
Net income	—	—		—	—		—		130		—		130		6		136
Other comprehensive loss	—	—		—	—		—		—		(52)		(52)		(15)		(67)
Exercise and vesting of stock compensation awards	—	—		242	—		—		—		—		—		—		—
Tax withholdings related to vesting of stock compensation awards	—	—		—	—		(7)		—		—		(7)		—		(7)
Dividend declared	—	—		—	—		—		(1)		—		(1)		(3)		(4)
Stock compensation expense	—	—		—	—		8		—		—		8		—		8
Other	—	—		—	—		1		(12)		—		(11)		(2)		(13)
Balance as of September 30, 2019	72	$	41	92,234	$	—	$	2,056	$	680	$	(205)	$	2,572	$	393	$	2,965


	Series A Preferred Stock			Common Stock
(Shares in thousands, dollars in millions)	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total XPO Stockholders' Equity		Non-controlling Interests		Total Equity
Balance as of December 31, 2018	72	$	41	115,683	$	—	$	3,311	$	377	$	(154)	$	3,575	$	395	$	3,970
Net income	—	—		—	—		—		312		—		312		21		333
Other comprehensive loss	—	—		—	—		—		—		(51)		(51)		(17)		(68)
Exercise and vesting of stock compensation awards	—	—		423	—		—		—		—		—		—		—
Tax withholdings related to vesting of stock compensation awards	—	—		—	—		(11)		—		—		(11)		—		(11)
Retirement of common stock	—	—		(23,932)	—		(1,275)		—		—		(1,275)		—		(1,275)
Dividend declared	—	—		—	—		—		(2)		—		(2)		(4)		(6)
Stock compensation expense	—	—		—	—		27		—		—		27		—		27
Adoption of new accounting standard and other	—	—		60	—		4		(7)		—		(3)		(2)		(5)
Balance as of September 30, 2019	72	$	41	92,234	$	—	$	2,056	$	680	$	(205)	$	2,572	$	393	$	2,965

See accompanying notes to condensed consolidated financial statements.

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XPO Logistics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization, Description of Business and Basis of Presentation

XPO Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. We use our integrated network of people, technology and physical assets to help customers manage their goods most efficiently throughout their supply chains. Our customers are multinational, national, mid-size and small enterprises. We run our business on a global basis, with two reportable segments: Transportation and Logistics. See Note 2—Segment Reporting for further information on our operations.

We prepared our Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and on the same basis as the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), except for the effects of adopting Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” as of January 1, 2020, as described below. The interim reporting requirements of Form 10-Q allow certain information and note disclosures normally included in annual consolidated financial statements to be condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the 2019 Form 10-K.

We have a controlling financial interest in entities generally when we own a majority of the voting interest. The noncontrolling interests reflected in our consolidated financial statements primarily relate to a minority interest in XPO Logistics Europe SA (“XPO Logistics Europe”), formerly known as Norbert Dentressangle SA, a business we acquired in 2015. In July 2020, we purchased a shareholder’s noncontrolling interest in XPO Logistics Europe for €17 million (approximately $20 million). Following this acquisition, the noncontrolling interest was reduced to approximately 4% of XPO Logistics Europe.

The Condensed Consolidated Financial Statements are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, particularly in light of the outbreak of a strain of coronavirus, COVID-19, in the first quarter of 2020. The rapid escalation of COVID-19 into a pandemic in the first quarter of 2020 has affected, and will continue to affect, economic activity broadly and customer sectors served by our industry. COVID-19 has had, and we expect will continue to have, significant effects on economic activity, on demand for our services, and on our results of operations in 2020.

Restricted Cash

As of September 30, 2020 and December 31, 2019, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $10 million.

Accounts Receivable and Allowance for Doubtful Accounts

We record accounts receivable at the contractual amount and we record an allowance for doubtful accounts for the amount we estimate we may not collect. In determining the allowance for doubtful accounts, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay. Commencing in the first quarter of 2020 and in accordance with ASU 2016-13, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for doubtful accounts. We write off accounts receivable balances once the receivables are no longer deemed collectible.

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Trade Receivables Securitization and Factoring Programs

We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We 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. We also sell trade accounts receivable under a securitization program described below. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

XPO Logistics Europe, one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom and France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.

We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any continuing involvement with the receivables is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets. These borrowings amounted to €43 million ($50 million) as of September 30, 2020. See Note 6—Debt for additional information on these borrowings.

Under a securitization program that was terminated in July 2019, if transfers were accounted for as sales, the consideration received included a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable was not a trade receivable and was recorded based on its fair value and reported within Other current assets on our Condensed Consolidated Balance Sheets. The cash payment which we received on the date of the transfer was reflected within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows. As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity. The new program does not include a deferred purchase price mechanism.

The maximum amount of net cash proceeds available at any one time under the current securitization program is €400 million (approximately $469 million as of September 30, 2020), and this amount includes any unsecured borrowings related to the program. As of September 30, 2020, €294 million (approximately $345 million) of capacity was utilized under the program and €106 million (approximately $124 million) was available to us. The weighted average interest rate was 0.64% as of September 30, 2020. Charges for commitment fees, which are based on a percentage of available amounts, and charges for administrative fees were not material to our results of operations for the three and nine months ended September 30, 2020 and 2019. The securitization program expires in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

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Information related to the trade receivables sold was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Securitization programs
Receivables sold in period	$	750	$	790	$	2,039	$	1,451
Cash consideration	750		787		2,039		1,316
Deferred purchase price	—		3		—		135

Factoring programs
Receivables sold in period	$	112	$	196	$	575	$	615
Cash consideration	112		195		574		612

In addition to the cash considerations referenced above, we received $49 million and $186 million in the three and nine months ended September 30, 2019, respectively, for the realization of cash on the deferred purchase price receivable for our prior securitization program.

Acquisition

In March 2020, XPO Logistics Europe announced that it had entered into a definitive agreement to acquire the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom. The operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management, and generated annual revenues in 2019 of approximately £500 million ($639 million). The transaction is subject to customary closing conditions and is currently being reviewed by the UK Competition and Markets Authority (the “CMA”). The deadline for a phase 1 decision from the CMA is November 20, 2020. The transaction is not expected to be material to our 2020 operating results.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:

•Level 1—Quoted prices for identical instruments in active markets;

•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and

•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of September 30, 2020 and December 31, 2019 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents included money market funds valued using quoted prices in active markets. The Level 2 cash equivalents included short-term investments valued using published interest rates for instruments with similar terms and maturities. For information on the fair value hierarchy of our derivative instruments, see Note 5—Derivative Instruments and for information on financial liabilities, see Note 6—Debt.

The fair value hierarchy of cash equivalents was as follows:


(In millions)	Carrying Value		Fair Value		Level 1		Level 2
September 30, 2020	$	1,657	$	1,657	$	1,657	$	—
December 31, 2019	144		144		127