GXO Logistics : Q3 2022 Earnings Call Transcript

GXO Logistics Q2 2022 Earnings Call

Presenters

Malcolm Wilson - GXO Chief Executive Officer

Baris Oran - GXO Chief Financial Officer

Bill Fraine - GXO Chief Commercial Officer

Mark Manduca - GXO Chief Investment Officer

Q&A Participants

Scott Schneeberger - Oppenheimer

Chris Wetherbee - Citi

Stephanie Moore - Jefferies

Allison Poliniak - Wells Fargo

Brian Ossenbeck - JPMorgan

Ari Rosa - Credit Suisse

Casey Deak - Stifel

Operator

Welcome to the GXO Q3 2022 Earnings Conference Call and Webcast. My name is Doug, and I'll 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 Company guidance:

During this call, the Company will be making certain forward-looking statements within the meaning of applicable securities law, which, by their nature, involve a number of risks, 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 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 on 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

Thank you, Doug, and good morning, everyone. Thank you for joining us today.

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

Jumping right in: the third quarter of 2022 was another outstanding quarter for GXO. We posted strong operating and financial results, grew our relationships with several of our large global customers, and added many others. And, in October, we received final regulatory approval from the UK Competition and Markets Authority for our acquisition of Clipper Logistics.

In the third quarter, I'm proud to report that we've delivered our highest-ever quarter of revenue - $2.3 billion - despite foreign exchange impacts from the softening Euro and Pound against the US dollar. This result was driven by strong organic revenue growth of 16%, combined with our high level of customer retention.

We also delivered record Adjusted EBITDA in the quarter, which was up 19% year over year, driving sequential margin expansion, as we've completed the outsized volume of operational startups that we were implementing in the early months of the year. As Baris will discuss in a moment, we've also delivered strong results on free cash flow and adjusted earnings per share.

This quarter, we continued to gain market share, as customers look to outsource more business in order to improve service and reduce costs. It's very clear that many new and existing customers are reassessing supply chains post-COVID.

We signed new contracts with both existing and first-time outsourcing customers, as we continued to grow our market share with international brands. We signed new contracts with Boeing, LVMH, Nike, Samsung, Sky TV, and Syngenta, to name just a few. Half of our wins in the quarter came from new sites with largely existing customers, and half were from market share gains from our peers and first-time outsourcing customers.

I also want to take a moment to touch upon the Clipper acquisition. This is a fantastic company that we've acquired - Clipper is a true diamond. They've got an impressive customer base, expertise in a diverse range of high-value-added service offerings, and, most importantly, stellar people.

Additionally, Clipper helps bolster our already industry-leading ESG credentials. With their focus on reverse logistics and repairs, Clipper is helping to do great business for customers in a manner that is good for the environment. For example, Clipper repaired around 1.5 million pieces of consumer electronics last year, reducing CO2 emissions and enabling the circular economy. The majority of RFPs across the markets now reference ESG credentials and core values, and our leadership position here is a real competitive advantage.

As you may recall, we closed the Clipper deal back in May. This enabled us to ensure continuity and stability for Clipper's customers and top talent. At that time, we were also able to put in place favorable borrowing arrangements, which Baris will touch upon shortly.

With regulatory approval now secured, we're moving forward with the integration, and I am pleased to note that we anticipate delivering the lion's share of the planned £36 million of cost synergies in '23 and '24.