GXO Logistics : Q2 2023 Earnings Call Transcript

GXO Logistics Q2 2023 Earnings Call

Presenters

Malcolm Wilson - Chief Executive Officer

Baris Oran - Chief Financial Officer

Bill Fraine - Chief Commercial Officer

Mark Manduca - Chief Investment Officer

Q&A Participants

Stephanie Moore - Jefferies

Scott Schneeberger - Oppenheimer

Bascome Majors - Susquehanna

Chris Wetherbee - Citigroup

Amit Mehrotra - Deutsche Bank

Allison Poliniak - Wells Fargo

Jason Seidl - TD Cowen

Ravi Shanker - Morgan Stanley

Brian Ossenbeck - JP Morgan

Jeff Kauffman - Vertical Research Partners

Operator

Welcome to the GXO, Second Quarter 2023 Earnings Conference Call and Webcast. My name is Daryl, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and- answer session. If anyone should require operator assistance during the conference, please press star-zero on your telephone keypad.

Please note that this conference is being recorded.

Before the call begins, let me read a brief statement on behalf of the Company regarding forward-looking statements, the use of non-GAAP financial measures, and the Company's guidance:

• During this call, the Company will make certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks and uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements.

• A discussion of factors that could cause actual results to differ materially is contained in the Company's SEC filings. The forward-looking statements in the Company's earnings release or made on this call are made only as of today, and the Company has no obligation to update any of these forward-looking statements, except to the extent required by law.
• The Company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the Company's earnings release, and the related financial tables are on its website.
• Unless otherwise stated, all results reported on this call are reported in United States dollars.
• The Company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The Company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures, and the various factors detailed in its filings with the SEC.
• It is not possible for the Company to actually predict demand for its services, and, therefore, actual results could differ materially from guidance. You can find a copy of the Company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures, in the Investors section of the Company's website.

I will now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.

Malcolm Wilson - GXO Chief Executive Officer

Thanks, Daryl, and good morning, everyone. Thanks for joining us today for our second quarter 2023 earnings call.

With me in Greenwich are Baris Oran, our Chief Financial Officer; Bill Fraine, our Chief Commercial Officer; and Mark Manduca, our Chief Investment Officer.

Before we review the quarter, I want to start by acknowledging that yesterday marked our second anniversary since becoming a publicly traded company.

We've had a stellar first two years: delivering eight straight quarters of revenue and adjusted EBITDA growth; posting consistently excellent operating results; and signing hundreds of new partnerships with blue-chip customers all over the world, while enabling their businesses through our best-in-classtech-enabled solutions. We have solidified ourselves as a globally recognized brand for logistics excellence, and a part of the Fortune 500.

We are committed to ambitious environmental, social and governance goals and are tracking especially strongly on our sustainability targets. I'm also particularly proud to note that this quarter's employee sentiment survey revealed the highest level of team member engagement and job satisfaction ever recorded.

This past January, we held our first Investor Day as a standalone company. We unveiled our strategic plan and financial targets for 2027 and had the opportunity to showcase our unique value proposition to the broader investment community.

So it's been a fantastic two years, and I wanted to take a moment, on behalf of the team here with me in Greenwich and our entire global leadership team, to thank our employees, our customers and our shareholders.

Now, turning to the quarter. I'm pleased to say we've delivered both top-line and bottom-line growth. Our revenue in the second quarter was $2.4 billion, growing 11% year over year, with 3% organic growth. Our adjusted EBITDA was $190 million, also up year over year, and above our expectations.

As a result, we are reiterating our full-year organic revenue growth guidance of 6-8%, and we're raising our full-year adjusted EBITDA guidance by $10 million, bringing the midpoint of our range to $740 million.

This quarter, we won our highest ever value of new sales wins, beating our prior record, which was set in the second quarter of 2022. Among our contracts signed this quarter are new partnerships and expansions with a terrific group of customers, including Boeing, Eddie Bauer, PepsiCo, Sainsbury's, Schneider Electric and TJ Maxx.

We recently announced an expansion with Abercrombie & Fitch to the UK, after launching our first operation for them - a highly automated distribution centre utilizing goods-to-person robotics - here in the US last year. And Ikea recently ranked our site in the U.S. number one in its global network for productivity, service quality and inventory accuracy.

A few weeks ago, we also announced the signing of a multi-year agreement with Heineken. Over the past two years, we've significantly transformed their distribution network, enhancing efficiency, service and sustainability.

In the quarter, we also launched our business in Germany, which is an exciting new market for us, and we're looking forward to meaningfully growing there over the coming quarters and years.

I want to provide an update on one more point. We mentioned last quarter that we were in the process of strengthening our tech organization to ensure we have the right structure to meet the huge demand for our services. This means both looking at the organizational needs today, where we're increasing our total operational tech by over 60% year over year on a quarterly basis, and anticipating our growth over the coming years.

I'm pleased to say that we've completed that review, and you may have seen last week's announcement regarding the appointment of Adrian Stoch to the role of Chief Automation Officer. Some of you have met Adrian already: he's served as president of our Consumer division in the US since 2021, where he's driven record wins and has been looking after some of our highest-profile customers in this capacity. He has delivered substantial improvement in productivity through the deployment of automation and technology in complex consumer solutions. In his new role, he'll be looking after our operational tech - including automation, machine learning, and artificial intelligence, as they relate to our on-the-ground operations - on a global basis. I'm delighted to have Adrian's unique expertise in this capacity going forward.

So, in summary, we're proud that we're one of the few companies in our industry that is expecting to grow top and bottom line this year. Since our spin, we've demonstrated our strength and resilience in a changing macroeconomic backdrop, quarter by quarter. On top of that, we continue to deliver record levels of new sales wins, which will propel our future growth and underpin our confidence in our 2027 targets.

And with that, I'll ask Bill to update you on what we're seeing on the ground. Bill, over to you.

Bill Fraine - GXO Chief Commercial Officer

Thanks, Malcolm. Good morning, everyone.

As Malcolm said, we're very excited to have delivered a record amount of new sales wins this quarter: nearly $500 million, beating our previous record. And with our record pre-pipeline, we're continuing to see many more opportunities for growth. We see more and more brands partnering with GXO to modernize their supply chains and optimize their operations. What has really changed of late is that this is now happening at a greater pace and scale than we have ever seen before. This is a dynamic, growing market, and we are winning a larger share of these bigger business opportunities - and this is all due to The GXO Difference.

As we first mentioned last year, customers are increasingly realizing the possibilities of what logistics done right can achieve and that "business as usual" will no longer work. You see this in our second quarter wins, with some notable newly outsourced business, including Eddie Bauer, Ingersoll Rand, and Sainsbury's. With Sainsbury's, we have already successfully gone live on two of the six sites that we were awarded in April - and these sites are doing millions of case picks per week. This highlights just how fast we can move on the ground. Sainsbury's is a very exciting partnership for GXO, and it also showcases our leading capabilities for large outsourcing deals. As customers continue to seek large, transformative deals, we are in a prime position to convert more and more of the $300-billion insourced market.

We're also seeing many of our customers deepen their existing partnerships with GXO. We are very excited to be going live on a huge new European site for JD Sports, which highlights how we are expanding our partnership, which started in the UK and is now expanding across Europe. We are also working with this customer to support driving their growth globally, where they are looking to leverage our best-in-class capabilities.

We also grew our partnerships with a number of other existing customers, including Havaianas, Nike, and PepsiCo.

This is proof positive of The GXO Difference, reflecting the transformative value that a scaled, tech-enabled partner with decades of expertise can bring to customers.

Stepping back - the makeup of our wins and our pipeline continues to reflect the diversity and vibrancy of our business. As an example, our rapidly growing industrials activity in the US has already won almost as much business from global leaders like Boeing and Schneider Electric in the first half of this year as it did in the whole of last year.

Our pipeline stands at $2.1 billion, up year over year, and this is even after our record new business wins in the quarter. Over half of our pipeline is made up of new logos, that is, companies that are looking to outsource and reevaluate their supply chains. This plays to