gxo-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

Form 10-Q

_______________________________________________________

(Mark One)


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

For the quarterly period ended June 30, 2021


☐			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

_______________________________________________________

GXO Logistics, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________


Delaware						86-2098312
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
Two American Lane
Greenwich, Connecticut						06831
(Address of principal executive offices)						(Zip Code)

(203) 489-1287

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 $0.01 per share

GXO

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

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 5, 2021, there were 114,626,250 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

GXO Logistics, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2021

Table of Contents


			Page
Part I—Financial I nformation
Item 1. Financial Information			2
Condensed Combined Balance Sheets			2
Condensed Combined Statement of Operations			3
Condensed Combined Statements of Comprehensive Income (Loss)			4
Condensed Combined Statements of Cash Flow			5
Condensed Combined Statements of Changes in Equity			6
Notes to Condensed Combined Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosure s About Market Risk			26
Item 4. Controls and Procedures			26
Part II—Other Information
Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3. Defaults Upon Senior Securities			28
Item 4. Mine Safety Disclosures			28
Item 5. Other Information			28
Item 6. Exhibits			29
Signatures			32

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GXO Logistics, Inc.

Condensed Combined Balance Sheets

(Unaudited)


	June 30,		December 31,
(In millions)	2021		2020
ASSETS
Current assets
Cash and cash equivalents	$	326	$	328
Accounts receivable, net of allowances of $13 and $18, respectively	1,297		1,224
Other current assets	340		284
Total current assets	1,963		1,836
Long-term assets
Property and equipment, net of $1,048 and $922 in accumulated depreciation, respectively	838		770
Operating lease assets	1,744		1,434
Goodwill	2,058		2,063
Identifiable intangible assets, net of $398 and $373 in accumulated amortization, respectively	295		299
Other long-term assets	170		146
Total long-term assets	5,105		4,712
Total assets	$	7,068	$	6,548
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	458	$	415
Accrued expenses	973		784
Short-term borrowings and current finance lease liabilities	36		58
Short-term operating lease liabilities	414		332
Other current liabilities	128		149
Total current liabilities	2,009		1,738
Long-term liabilities
Long-term debt and finance lease liabilities	582		615
Deferred tax liability	63		54
Long-term operating lease liabilities	1,340		1,099
Other long-term liabilities	160		94
Total long-term liabilities	2,145		1,862
Commitments and contingencies
Equity
XPO investment	2,835		2,765
Accumulated other comprehensive income	39		58
Total equity before noncontrolling interests	2,874		2,823
Noncontrolling interests	40		125
Total equity	2,914		2,948
Total liabilities and equity	$	7,068	$	6,548

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share data)	2021		2020		2021		2020
Revenue	$	1,882	$	1,405	$	3,704	$	2,845
Direct operating expense	1,554		1,185		3,074		2,388
Sales, general and administrative expense	177		168		348		310
Depreciation and amortization expense	95		87		174		163
Transaction and integration costs	35		25		53		42
Restructuring costs (credit)	(1)		25		3		25
Operating income (loss)	22		(85)		52		(83)
Other (income) expense	1		(1)		—		(2)
Interest expense	6		5		11		12
Income (loss) before income taxes	15		(89)		41		(93)
Income tax provision (benefit)	1		(24)		10		(18)
Net income (loss)	14		(65)		31		(75)
Net income attributable to noncontrolling interests	(3)		—		(6)		(2)
Net income (loss) attributable to GXO	$	11	$	(65)	$	25	$	(77)

Earnings per share data
Basic and Diluted earnings (loss) per share	$	0.10	$	(0.57)	$	0.22	$	(0.67)


Common shares outstanding
Number of Basic and Diluted shares outstanding	115		115		115		115

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Net income (loss)	$	14	$	(65)	$	31	$	(75)

Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax effect of $(1), $(1), $2 and $(3)	$	19	$	31	$	(26)	$	(48)
Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $—, $—, $(1) and $—	—		2		(1)		2

Other comprehensive income (loss)	19		33		(27)		(46)
Comprehensive income (loss)	$	33	$	(32)	$	4	$	(121)
Less: Comprehensive income (loss) attributable to noncontrolling interests	(1)		2		(2)		—
Comprehensive income (loss) attributable to GXO	$	34	$	(34)	$	6	$	(121)

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Cash Flow

(Unaudited)


	Six Months Ended June 30,
(In millions)	2021		2020
Operating activities
Net income (loss)	$	31	$	(75)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation, amortization and net lease activity	174		163



Other	10		26
Changes in assets and liabilities
Accounts receivable	(9)		74
Other assets	(73)		(26)
Accounts payable	(40)		(92)
Accrued expenses and other liabilities	53		121
Net cash provided by operating activities	146		191
Investing activities
Payment for purchases of property and equipment	(119)		(102)
Proceeds from sales of property and equipment	2		6


Purchase and sale of affiliate trade receivables, net	12		2
Other	34		—
Net cash used in investing activities	(71)		(94)
Financing activities

Net proceeds (repayments) related to trade securitization program	(25)		45
Repayment of debt and finance leases	(56)		(71)
Purchase of noncontrolling interests	(128)		—

Net transfers from XPO	116		44
Other	15		16
Net cash provided by (used in) financing activities	(78)		34
Effect of exchange rates on cash, cash equivalents and restricted cash	1		(10)
Net increase (decrease) in cash, cash equivalents and restricted cash	(2)		121
Cash, cash equivalents, and restricted cash, beginning of period	328		200
Cash, cash equivalents, and restricted cash, end of period	$	326	$	321
Supplemental disclosure of cash flow information:
Leased assets obtained in exchange for new operating lease liabilities, including $281 related to an acquisition in 2021	$	576	$	243
Leased assets obtained in exchange of new finance lease liabilities, including $23 related to an acquisition in 2021	33		54
Cash paid for interest	10		12
Cash paid for income taxes	22		1

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Changes in Equity

(Unaudited)


(In millions)	XPO Investment		Accumulated Other Comprehensive Income (Loss)		Equity Before Noncontrolling Interests		Non-controlling Interests		Total Equity
Balance as of March 31, 2021	$	2,903	$	16	$	2,919	$	124	$	3,043
Net income	11		—		11		3		14
Other comprehensive income (loss)	—		23		23		(4)		19
Purchase of noncontrolling interest	—		—		—		(128)		(128)
Net transfers from (to) XPO	(79)		—		(79)		40		(39)
Other	—		—		—		5		5
Balance as of June 30, 2021	$	2,835	$	39	$	2,874	$	40	$	2,914


(In millions)	XPO Investment		Accumulated Other Comprehensive Income (Loss)		Equity Before Noncontrolling Interests		Non-controlling Interests		Total Equity
Balance as of December 31, 2020	$	2,765	$	58	$	2,823	$	125	$	2,948
Net income	25		—		25		6		31
Other comprehensive loss	—		(19)		(19)		(8)		(27)
Purchase of noncontrolling interest	—		—		—		(128)		(128)
Net transfers from XPO	45		—		45		40		85
Other	—		—		—		5		5
Balance as of June 30, 2021	$	2,835	$	39	$	2,874	$	40	$	2,914


(In millions)	XPO Investment		Accumulated Other Comprehensive Income (Loss)		Equity Before Noncontrolling Interests		Non-controlling Interests		Total Equity
Balance as of March 31, 2020	$	2,688	$	(141)	$	2,547	$	128	$	2,675
Net loss	(65)		—		(65)		—		(65)
Other comprehensive income	—		31		31		2		33
Net transfers to XPO	(2)		—		(2)		—		(2)
Balance as of June 30, 2020	$	2,621	$	(110)	$	2,511	$	130	$	2,641


(In millions)	XPO Investment		Accumulated Other Comprehensive Income (Loss)		Equity Before Noncontrolling Interests		Non-controlling Interests		Total Equity
Balance as of December 31, 2019	$	2,633	$	(66)	$	2,567	$	130	$	2,697
Net income (loss)	(77)		—		(77)		2		(75)
Other comprehensive loss	—		(44)		(44)		(2)		(46)
Net transfers from XPO	65		—		65		—		65
Balance as of June 30, 2020	$	2,621	$	(110)	$	2,511	$	130	$	2,641

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Notes to Condensed Combined Financial Statements

(Unaudited)

1. Organization

GXO Logistics, Inc. (“GXO”, the “Company” or “we”) is the largest pure-play contract logistics provider in the world and a foremost innovator in the logistics industry in North America and Europe. We provide high-value-add warehousing and distribution, order fulfillment and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions. In addition, we are a major provider of reverse logistics, which is also called returns management. We serve a broad range of customers in the e-commerce and retail, food and beverage, consumer packaged goods, aerospace, consumer technology, manufacturing and other industries. We present our operations in the Condensed Combined Financial Statements as one reportable segment.

On August 2, 2021, XPO Logistics, Inc. (together with its subsidiaries, “XPO”) completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution. XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on the record date. GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of the common stock commenced on the New York Stock Exchange (the “NYSE”) under the ticker symbol “GXO.”

The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”). See Note 10—Subsequent Events for additional details.

2. Basis of Presentation

The Condensed Combined Financial Statements of GXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO. These financial statements reflect the combined historical results of operations, financial position and cash flows of GXO in accordance with U.S. generally accepted accounting principles (“GAAP”).

Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO. The combined financial statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the combined financial statements, as they are to be considered effectively settled upon effectiveness of the spin-off. The Condensed Combined Financial Statements are presented as if the GXO businesses had been combined for all periods presented. The assets and liabilities in the Condensed Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the spin-off all of the assets and liabilities presented are wholly owned by XPO and are being transferred to GXO at a carry-over basis.

The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable to GXO, and the Condensed Combined Statements of Operations include allocations of XPO costs and expenses, as described below.

XPO’s corporate function (“Corporate”) incurs a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. For purposes of the Condensed Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations, including GXO. The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for

transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs are recorded in Sales, general and administrative expense (“SG&A”) and Depreciation and amortization expense in the Condensed Combined Statements of Operations. We believe the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.

XPO investment represents XPO’s historical investment in GXO and includes the net effects of transactions with and allocations from XPO as well as GXO’s accumulated earnings. Certain transactions between GXO and XPO, including XPO’s non-GXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of GXO and general financing activities.

Principles of Combination

The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of GXO. Significant intercompany balances and transactions among the operations of the GXO legal entities have been eliminated in the Condensed Combined Financial Statements. All significant related party transactions between GXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment. The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Significant Accounting Policies

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 Combined Statements of Cash Flows. We also sell certain European 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 SAS (“XPO Logistics Europe”), one of our wholly-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 to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and has been presented within these combined financial statements 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 Combined Balance Sheets at the date of transfer. In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial.

In addition to selling trade receivables which originate with GXO, the special purpose entity also purchases trade receivables from XPO and sells assets to the Purchasers. The trade receivables which have been purchased from XPO have been reflected within Other current assets in the Condensed Combined Balance Sheets, and the related cash flows have been reflected within Purchase and sale of affiliate trade receivables, net, within investing activities

in the Condensed Combined Statements of Cash Flows. See Note 6—Debt for additional information related to our receivables securitization secured borrowing program and these borrowings.

Information related to the trade receivables sold was as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
(In millions)	2021	2020	2021	2020
Securitization programs

SEC Form 10-Q filed by GXO Logistics Inc.