FedEx Freight Holding Company, Inc.: Form 10-Q for the period ended Sep 30, 2026

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and corresponding notes and our Annual Report on Form 10-K for the year ended May 31, 2026. Our Annual Report includes additional information about our significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results. This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”). See “Forward-Looking Statements” and Part II, Item 1A. “Risk Factors” for a discussion of the uncertainties, risks, and assumptions associated with these statements.

The following tables are presented in millions of U.S. dollars unless otherwise stated except for per-share amounts, which are presented in U.S. dollars.

The “Company,” “FedEx Freight,” “we,” “us,” and “our” refer to FedEx Freight Holding Company, Inc. and its direct and indirect subsidiaries after giving effect to the reorganization completed on May 29, 2026 or, when referencing the time period prior to the reorganization, FedEx Freight, Inc.

Description of Business

FedEx Freight is a leading North American provider of less-than-truckload (“LTL”) freight transportation services. We offer a range of services designed to meet the diverse needs of LTL shippers including time-critical transportation needs leveraging our advanced tracking capabilities and a comprehensive network of service centers and hubs that facilitate efficient delivery and pickup. FedEx Freight’s service offerings include priority services when speed is critical and economy services when time can be traded for savings. FedEx Freight is our sole reportable segment.

The key indicators necessary to understand our operating results include:

• the overall customer demand for our various services based on macroeconomic factors and the North American and global economies;
• the volumes of transportation services provided through our network, primarily measured by our average daily shipments, shipment weight and size, and average length of haul;
• the mix of services purchased by our customers;
• the prices we obtain for our services, primarily measured by yield (revenue per shipment or hundredweight);
• our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and
• the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.

In analyzing the components of our revenue, we monitor changes and trends in our volumes and revenue per hundredweight. While revenue per hundredweight is a yield measurement, it is also a commonly used indicator for general pricing trends in the LTL industry. This metric is not a true measure of price, however, as it can be influenced by many other factors, such as changes in fuel surcharges and weight per shipment. As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates. LTL revenue per hundredweight and the key factors that can impact this metric are described in more detail below:

• Revenue Per Hundredweight — Our LTL transportation services are generally priced based on weight, commodity, and distance. This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association. Light, bulky freight typically has a higher class and is priced higher than dense, heavy freight. Fuel surcharges, accessorial charges, and revenue adjustments reflected in the “Revenue” line item in the accompanying unaudited Condensed Consolidated Statements of Income are included in this measurement.
• Weight Per Shipment — Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers’ products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service, and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight.
• Revenue Per Shipment — This measurement is primarily determined by the two metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue.

Transition to Stand-Alone Company

FedEx Freight Holding Company, Inc. was incorporated in Delaware on July 14, 2025, for the purpose of receiving, pursuant to a reorganization, all of the outstanding equity interests of FedEx Freight, Inc. On June 1, 2026, FedEx distributed shares representing approximately 80.1% of FedEx Freight Holding Company, Inc.'s outstanding common stock to holders of record of FedEx's common stock as of the close of business on May 15, 2026 (the “Spin-Off”). Following the Spin-Off, FedEx Freight became an independent, publicly traded company. For additional information, see Note 1, Description of Business and Basis of Presentation, of the accompanying consolidated financial statements.

Effective for the period beginning June 1, 2026, the Company's fiscal year-end has changed from May 31 to December 31. As a result of this change, the Company’s financial statements include a four-month transition period from June 1, 2026 through September 30, 2026. The Company adopted this change to align its reporting periods with the calendar year.

Relationship with FedEx

As a wholly owned subsidiary of FedEx prior to the Spin-Off, we relied on FedEx to manage certain of our operations and provide certain services, the costs of which were either allocated or directly billed to us. Historical costs for such services may not necessarily reflect the actual expenses we would have incurred, or will incur, as an independent company. In connection with the Spin-Off, we entered into a Separation and Distribution Agreement and certain other agreements with FedEx, including a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, an Intellectual Property Cross-License Agreement, a Trademark License Agreement, and a Stockholder and Registration Rights Agreement, as described in our Annual Report, which provide a framework for our relationship with FedEx after the Spin-Off. We expect to be able to utilize certain FedEx services for a transitional period following the Spin-Off, but generally not longer than 24 months after the Spin-Off before we replace these services with services supplied either internally or by third parties. The cost of replacing such services may vary from the historical costs directly allocated to us. Addressing the needs that arise from becoming a stand-alone company will require significant resources. We will continue to monitor potential separation dis-synergies and we have incurred, and anticipate we will further incur, certain one-time costs associated with transitioning operations to self-management and arranging for services that we previously received as part of FedEx.

Stand-Alone Company Expenses

As a result of the Spin-Off, we became subject to federal securities law and stock exchange requirements. We are establishing additional procedures and practices as a stand-alone public company. As a result, subsequent to the Spin-Off, we have incurred and will continue to incur additional expenditures consisting primarily of employee-related costs, costs to establish certain stand-alone functions and information technology systems, and other transaction-related costs. Additionally, we have incurred and will continue to incur incremental costs that arise from becoming a stand-alone public company, including costs related to external reporting, internal audit, treasury, investor relations, board of directors and officers, and stock and benefit plan administration, as well as costs from expanding the services of existing functions, such as information technology, finance, human resources, legal, tax, facilities, branding, security, government relations, community outreach, and insurance. In line with our long-term cost strategy, we will continue to look for operational cost improvement opportunities as a stand-alone company by utilizing our lean culture and innovative technologies to drive lower costs and increased productivity levels across our business and corporate functions.

Results of Operations

Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. The discussion of operating expense below focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes.

Seasonality

Our business is cyclical in nature, as seasonal fluctuations affect volumes, revenue, and earnings. Our second and third quarters are historically the busiest periods and the latter part of December through February is historically the slowest period. Shipment levels, operating costs, earnings, and cash flow can also be affected by timing of merit-based compensation increases, our annual general rate increase, and severe weather. See Part I, “Item 1A. Risk Factors” in our Annual Report for more information.

Trends Affecting our Business

In addition to the matters discussed above under “—Transition to Stand-Alone Company,” the following trends significantly affect our business and operating results. See Part I, “Item 1A. Risk Factors” in our Annual Report and Part II, Item 1A. “Risk Factors” of this Quarterly Report for more information.

Fuel

We apply fuel surcharges on our services, which are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from ten days prior to the week in which it is assessed. We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges.

While fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price, extra service charges, and the level of discounts offered.

In addition to variability in usage and market prices, the manner in which we purchase fuel (whether through retail or bulk suppliers) also influences our results. We must purchase large quantities of fuel to operate our vehicles, and the price and availability of fuel are beyond our control and can be highly volatile. For example, recent disruptions to shipping have contributed to a significant increase in fuel prices, and global volatility in fuel prices may persist due to ongoing regional and global tensions and conflicts in the Middle East and elsewhere. In addition, our purchased transportation expense is affected by fuel costs.

Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term. During calendar year 2026, higher fuel prices have positively affected yields through increased fuel surcharges which have more than offset the impact of higher fuel expense, resulting in a net favorable operating income impact.

To date, we have been mostly successful in mitigating over time the expense effect of higher fuel costs through our indexed fuel surcharges, as the amount of the surcharges is closely linked to the market prices for fuel. If we are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or some other reason, fuel costs could materially and adversely affect our operating results.

Macroeconomic Conditions

While our operations are limited to the United States, Canada, and Mexico, we are indirectly impacted by, and particularly vulnerable to, broader macroeconomic activity. The transportation industry is highly cyclical and especially susceptible to trends in economic activity. Our primary business is to transport goods, so our business levels are directly tied to the purchase and production of goods and the rate of global trade growth. The decline in U.S. imports of consumer goods that started in late 2022, along with slowed global industrial production, has contributed to continued weakened business conditions for the transportation industry leading to lower shipment volumes. Additionally, changes in U.S. and international trade policy have in the past, and could in the future, lead to further weakened business conditions for the transportation industry. We also have experienced, and may continue to experience, a decline in demand for our transportation services as inflation and elevated interest rates are negatively affecting consumer and business spending. We expect inflation and elevated interest rates to continue to negatively affect our results for the remainder of calendar year 2026.

While broader freight conditions have shown signs of improvement and volume and base yield trends continue to stabilize, we expect softness in the industrial economy to continue to put pressure on demand for LTL services for the remainder of calendar year 2026. We will continue to execute on our four key priorities of optimizing our network, strengthening our commercial offering, advancing our technology capabilities, and driving financial value creation.

The uncertainty of slowing North American and global economies, global inflation, geopolitical challenges, and the effects these factors will have on the rate of growth of North American and global trade, supply chains, fuel prices, and our business in particular, make any expectations for the remainder of calendar year 2026 inherently less certain.

Global Trade Policies

The United States government has taken certain actions that have negatively affected U.S. trade, including imposing and threatening to impose tariffs on many goods imported into the United States (including certain goods from Canada and Mexico). Additionally, many foreign governments (including Canada and Mexico) have imposed, and others have threatened to impose, tariffs on certain goods exported from the United States. These actions have contributed to weakness in the global economy and in the transportation industry, which has led to lower shipments, adversely affecting our results of operations.

These or additional changes in U.S. or international trade policy could lead to further weakened business conditions for the transportation industry.

Summary of Results

The following tables compare revenue, operating expenses, operating income (dollars in millions), net income, operating expenses as a percent of revenue, operating margin, and selected statistics:

19

Revenue

Revenue increased 8% in the third quarter and 9% in the four months ended September 30, 2026, primarily due to higher fuel surcharges and favorable base yield, partially offset by lower volume. Revenue for the four months ended September 30, 2026 was also positively affected by one additional operating day.

Revenue per shipment increased 10% and revenue per hundredweight increased 9% in both the third quarter and in the four months ended September 30, 2026, reflecting higher fuel surcharges, favorable base yield, and increased weight per shipment. Average daily shipments decreased 1% in each of the third quarter and the four months ended September 30, 2026 due to reduced demand for our services, primarily resulting from macroeconomic conditions.

Operating Income

Operating income decreased 13% in the third quarter and 6% in the four months ended September 30, 2026, primarily due to increased separation and other expenses related to IT and other professional services following the Spin-Off, increased salaries and employee benefit expenses, and increased operating supplies and expenses. These impacts were partially offset by increased revenue.

Salaries and employee benefits increased 4% in the third quarter and 5% in the four months ended September 30, 2026, primarily due to investments in our employees, including higher wage rates and increased variable incentive compensation.

Operating supplies and expenses increased 16% in the third quarter and in the four months ended September 30, 2026, primarily due to higher costs related to outside service contracts, professional fees, incremental software license costs, and other technology-related expenditures to support the business as a stand-alone company. Higher fuel expense also contributed to the increase in both periods.

Purchased transportation expense increased 18% in the third quarter and 17% in the four months ended September 30, 2026, primarily due to higher base rates and fuel prices.

We incurred separation and other costs of $105 million in the third quarter and $127 million in the four months ended September 30, 2026, compared with costs of $30 million in the corresponding prior-periods. These costs are primarily professional services related to consulting and advisory services associated with the Spin-Off and employee-related costs as a result of the dissolution of a retiree healthcare benefit plan upon completion of the Spin-Off.

Other Income (Expense)

Other income (expense) changed unfavorably 149% in the third quarter and in the four months ended September 30, 2026 primarily due to the termination of the cash pooling arrangement associated with the Spin-Off, resulting in no related-party interest income in the third quarter and in the four months ended September 30, 2026, and higher third-party interest expense resulting from debt incurred during calendar year 2026.

Income Taxes

Our effective tax rate was 27.5% for the third quarter and 27.5% for the four months ended September 30, 2026, compared to 25.5% for the third quarter and 25.6% for the four months ended September 30, 2025. The effective tax rates for the third quarter and four months ended September 30, 2026 were higher than the comparable prior-year periods primarily due to incremental nondeductible costs incurred in connection with operating as a stand-alone company. The effective tax rate exceeds the federal statutory rate primarily due to state taxes and non-deductible items.

Recent Accounting Guidance

See Note 3, Recent Accounting Guidance, of the accompanying financial statements for a discussion of recent accounting guidance.

Financial Condition

Liquidity

Cash totaled $388 million as of September 30, 2026, compared to $251 million as of May 31, 2026. The following table provides a summary of our cash flows for the four months ended September 30, 2026 and 2025 (in millions):

Cash Provided by Operating Activities. Cash flows from operating activities decreased $695 million in the four months ended September 30, 2026 primarily due to lower net income and working capital changes, driven by a decrease in intercompany amounts due to Parent related to the termination of the Company's factoring agreement with FedEx in preparation for the Spin-Off. For additional information regarding our historical factoring agreement with FedEx, refer to Note 12, Related Party Transactions, of the accompanying financial statements.

Cash Used in Investing Activities. Capital expenditures increased $96 million in the four months ended September 30, 2026 primarily due to increased spending on information technology and vehicles and trailers, partially offset by decreased spending on ground support and dock equipment and facilities and other.

See “—Capital Resources” for a more detailed discussion of capital expenditures during calendar year 2026.

Cash Used in Financing Activities. In the four months ended September 30, 2026, cash used in financing activities decreased $946 million, driven by a $1,059 million decrease in net transfers to FedEx, partially offset by a $100 million principal payment on the Term Loan Facility.

Capital Resources

Our operations are capital intensive, characterized by significant investments in vehicles and trailers, facilities, ground support and dock equipment, and technology. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities.

The following table compares capital expenditures by asset category (in millions):

Capital expenditures increased $88 million in the third quarter of 2026 and $96 million in the four months ended September 30, 2026 primarily due to increased spending on information technology and vehicles and trailers, partially offset by decreased spending on ground support and dock equipment and facilities and other. These changes in capital expenditures are a result of continuing to prioritize investments that support increasing efficiency and reducing our cost to serve.

Our capital expenditures for the seven months ending December 31, 2026 are expected to total approximately $365 million, funded by cash on hand and available liquidity. Our expected capital expenditures for the remainder of calendar year 2026 include investments in technology required for our exit from the Transition Services Agreement. We will continue to evaluate our investments in critical long-term strategic projects to prioritize capital expenditures expected to generate high returns on investment and are balanced with our outlook.

Liquidity Outlook

We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives, and capital resources. We believe our existing cash, cash flows generated from operations, availability under our revolving credit facility, and access to capital markets will provide adequate resources to fund our future cash flow needs.

In response to the conditions referenced in “— Results of Operations — Trends Affecting our Business” above, we are continuing to actively manage and optimize our capital allocation.

We have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures, which include lease obligations. Refer to Note 8, Leases and Note 13, Commitments and Contingencies of the accompanying financial statements for more information. In addition, we have certain tax positions that are further discussed in Note 8, Income Taxes, to the financial statements included in our Annual Report. We do not have any guarantees or other off-balance sheet financing arrangements that we believe could have a material impact on our financial condition or liquidity.

In contemplation of the Spin-Off, we incurred $4.3 billion of indebtedness, consisting of $3.7 billion in senior notes (the “Notes”) and a $0.6 billion term loan under a three-year delayed draw term loan facility (the “Term Loan Facility”). Substantially all of the proceeds from the Notes and Term Loan Facility were used to fund the distribution of approximately $4.1 billion in cash to FedEx at the closing of the Spin-Off as part of the consideration for the assets FedEx contributed to us. $4.2 billion of this indebtedness is outstanding as of September 30, 2026 and has an estimated weighted average interest rate of 4.82%. The actual rates of interest may be different from those assumed. We have also entered into a revolving credit facility (together with the Term Loan Facility, the “Credit Facilities”) which will provide for borrowings of up to $1.2 billion, as further described under Note 7, Long-Term Debt. As of September 30, 2026, we were in compliance with the financial covenant and all other covenants of the Credit Facilities and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants of the Credit Facilities, our access to financing could become limited.

Standard & Poor's has assigned us a BBB- rating and Moody's Investors Service has assigned us a Baa3 rating for our senior unsecured debt. Our interest expense may increase in the event of a reduction in our credit rating. If our unsecured debt ratings are reduced to below investment grade, our access to the capital markets may become limited.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.

Information regarding our critical accounting estimates can be found in our Annual Report, including Note 2, Summary of Significant Accounting Policies, to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.

Forward-looking Statements

Certain statements contained in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements, including (but not limited to) statements contained in the notes to the financial statements contained in Part I, Item 1. “Financial Statements;” Part I, Item 2. “Management’s Discussion and Analysis of Results of Operations and Financial Condition;” and Part II, Item 1A. “Risk Factors;” regarding our strategy, outlook, financial condition, results of operations, cash flows, plans, objectives, future performance, and business.

Forward-looking statements are generally identified by the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “forecasts,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends,” “outlook,” “potential,” and similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, and expected future developments, as well as other factors we believe are appropriate under the circumstances. These forward-looking statements involve risks and uncertainties, and actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, economic conditions in the markets in which we operate; significant changes in the volumes of shipments transported through our network, customer demand for our various services, and the prices we obtain for our services; geopolitical developments and additional changes in international trade policies and relations; the price and availability of fuel and limitations on our ability to recover fuel costs through surcharges; failure to successfully implement our business strategy and effectively respond to changes in market dynamics and customer preferences; our ability to achieve some or all of the anticipated benefits from the Spin-Off; the consequences of us no longer operating as part of a globally diversified company; dis-synergies and other costs incurred in connection with the Spin-Off exceeding our estimates; the distribution of shares of FedEx Freight, together with certain related transactions, not qualifying for the intended tax treatment; a significant data breach or other disruption to our technology infrastructure, and our ability to mitigate the technological, operational, legal, regulatory, and reputational risks related to emerging technologies such as autonomous technology and artificial intelligence (“AI”); increased insurance and claims expenses related to vehicle accidents, workers’ compensation claims, property and cargo loss, general business liabilities, and benefits paid under employee disability programs; failure to receive or collect expected insurance coverage; the effect of any international conflicts or terrorist activities; failure of third-party service providers to perform as expected, or disruptions in our relationships with those providers or their provision of services to us; widespread outbreak of an illness or any other communicable disease or public health crisis; damage to our or FedEx’s reputation or loss of brand equity; the intense competition within our industry; our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees; any effects on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, policies, and actions; any liability resulting from and the costs of defending against litigation and governmental proceedings; the sufficiency of insurance coverage we purchase; the effect of technology developments (including AI and machine learning) on our operations and on demand for its services, and our ability to identify and eliminate unnecessary information technology redundancy and complexity throughout the organization, including exiting the Transition Services Agreement with FedEx in the expected timeframe and at the expected cost; disruptions in global supply chains; constraints, volatility, or disruption in the global capital and credit markets; our ability to maintain our current credit ratings and senior unsecured debt credit ratings, and our ability to meet credit agreement financial covenants; and other risk factors identified in Item 1A. “Risk Factors” of our Annual Report, as updated by subsequent filings with the Securities and Exchange Commission (“SEC”). Further, new risk factors emerge from time to time, and it is not possible for us to predict all risk factors, nor can we accurately assess the ultimate impact of all risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements.

As a result, no assurance can be given as to our future results and achievements or the effect of such results and achievements on our business and results of operations. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.

There have been no material changes in our exposures to market risk since May 31, 2026. For details on the Company’s interest rate, foreign currency, and commodity risks, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.

The management of FedEx Freight, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx Freight management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of September 30, 2026 (the end of the period covered by this Quarterly Report).

During the quarter ended September 30, 2026, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

You should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report, which could materially affect our business, results of operations, financial condition, and the price of our common stock. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, results of operations, financial condition, and the price of our common stock. The risk factor set forth below updates, and should be read together with, the risk factors described in our Annual Report.

A significant data breach or other disruption to our technology infrastructure could materially adversely affect our business and result in the loss of critical, sensitive, or confidential information.

Our ability to attract and retain customers, efficiently operate our business, and compete effectively depends in part on the sophistication, security, and reliability of our technology infrastructure, including our ability to provide features of service that are important to our customers, to protect our confidential business information and the information provided by our customers (including personal information), and to maintain customer confidence in our ability to protect our systems and to provide services consistent with their expectations. We face significant and evolving risks from cyberattacks, data breaches, and operational disruptions, which may be random or targeted and can originate from a variety of sources, including external actors, malicious insiders, and third-party service providers. These risks are heightened by the increasing number, intensity, and sophistication of attempted attacks globally, as well as the growing reliance on connected information technology systems to store and transmit sensitive data. FedEx and our third-party service providers have experienced, and we and our third-party service providers may experience in the future, breaches or disruptions of our technology infrastructure, which could result in unauthorized access to, or loss of, sensitive or confidential information regarding our operations, customers, employees, or suppliers, including personal information. We have also faced, and may continue to face, attempts to gain access to customer accounts. We also maintain integrations with customers and key business partners and have faced, and may continue to face, attempts to gain access to our systems and environments through such entry points. Additionally, risks such as code anomalies, “Acts of God,” transitional challenges in migrating operating company functionality to our enterprise automation platforms, data leakage, cyber-fraud, and human error pose a direct threat to our products, services, systems, and data, and could result in unauthorized access to, or block legitimate access to, sensitive or confidential data. Any incidents involving the foregoing or similar matters could materially adversely affect our business and result in significant costs.

We depend on and interact with technology and systems of third parties, including customers, cloud service providers, Software as a Service providers, and other vendors. Certain third parties are involved in critical technology services and data processing. These third parties are subject to similar cybersecurity and operational risks, and their failures, breaches, or human errors could compromise our data or disrupt our operations, despite having security processes, protocols, and standards in place. The security measures we and our third-party service providers have in place may not be sufficient to prevent all breaches or disruptions.

Detecting, investigating, and remediating cybersecurity incidents is complex and may be delayed by incomplete or insufficiently detailed logging, the sophistication of threat actors, and the size and complexity of our information systems. The full scope and impact of an incident may not be immediately apparent, and remediation efforts may be prolonged or repeated before the incident is fully contained. In some cases, breaches may not be discovered for a significant period of time after they occur, and harm may spread internally or to customers, vendors, or other third parties before containment. Patches for certain vulnerabilities may not exist and, even where patches or other risk-mitigating activities are available, the development of patches or execution of risk-mitigating actions may not occur before an underlying vulnerability is exploited and results in the disruption of our operations or compromise of our information systems or data.

A significant number of our employees as well as customers and others with whom we do business work remotely or in hybrid models, which may heighten these risks. We and certain other companies have recently been targeted by nation-state sponsored schemes intended to defraud companies through the use of synthetic identities and technological tools (including generative AI and deepfake technologies) to obtain remote employment in the U.S. While to date we have not experienced a material impact on our business or results of operations from such scams, if these scams were to succeed, they could expose us to governmental and regulatory as well as market and media scrutiny regarding the actual or perceived integrity of our technology infrastructure, as well as other potential liability and consequences.

Our investments in technology security initiatives, information technology risk management, business continuity, and disaster recovery plans, including the retirement and replacement of end-of-life systems, are costly, require ongoing monitoring and updating, and may not be sufficient to prevent all incidents, particularly as threats evolve and new technologies such as AI and machine learning introduce additional challenges. A significant cybersecurity incident could materially adversely affect our business, results of operations, and financial condition.