GXO Logistics, Inc.

Welcome to the GXO Q3 2021 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 on a listen-only mode. Later, we will conduct a question and answer session. If you have a question, please dial star 1 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 use 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 extend required by law. The company also may refer to certain non-GAAP financial measures as defined under the 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 relief and the related financial tables or 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. This guidance also reflects the company's estimates to date regarding the impact of the COVID-19 pandemic on its operations. It is not possible for the company to actually predict demand for its services, and therefore, its actual results could differ materially from the 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 investor section on the company's website. I will now turn the call over to Malcolm Wilson. Mr. Wilson, you may begin.

Thank you, Operator. Good morning and welcome to GXO's third quarter earnings call. With me today are Barry Shoran, our Chief Financial Officer, and Mark Manduka, our Chief Investment Officer. This is our first quarterly update following our successful spin-off in early August. In accordance with our can-do culture, GXO's listing was completed in only eight months. This was thanks to the collective hard work and dedication of our 95,000 exceptional team members the support of our loyal customers and our shareholders. We are extremely excited for the journey ahead as we pursue our secular growth opportunities. In the third quarter, our operations delivered the highest quarterly revenue and adjusted EBITDA in their history. Not only did we beat market expectations, we surpassed a stellar second quarter. This was the third consecutive quarter of double-digit organic revenue growth. As a result, we are raising the midpoint of our full-year revenue guidance to $7.7 billion and raising our midpoint of our pro forma adjusted EBITDA guidance to $622 million. In the third quarter, we won contracts with an aggregate lifetime value of over 1 billion, taking the value of our total wins year-to-date to 4.3 billion. Wins in this quarter included global blue-chip customers such as Raytheon, a global aerospace manufacturer, Ross Stores, a large chain of department stores here in the U.S., Zalando, one of Europe's largest e-commerce companies, and Zara, a global omni-channel fashion retailer. We also won business with a leading U.S. semiconductor company. These contracts have an average duration of five years. We also implemented solutions in the quarter with Abercrombie & Fitch, Apple, and Curry's, formerly Dixon's Carphone, and we expect new customer wins to have a $700 million uplift to our 2022 revenue, underpinning our growth for next year. Today, approximately 50% of our revenue now comes from customer relationships that span more than one country. The massive tailwinds of automation, e-commerce and outsourcing remain unabated, and our Blue Chip customers rely upon us for our best-in-cast solutions and to stand up technology-proficient warehouses with speed, reliability, and at scale on a global basis. Our land and expand strategy, underpinned by our global scale and technology leadership, is a key differentiator, as evidenced with customers like ASOS, Disney, and H&M. Year-to-date, we've expanded our operations with 16 of our top 20 customers across 22 new locations. On average, we now operate in three countries for each of our top 20 customers. As we navigate global supply chain disruptions and a tight labor market, we believe that being an employer of choice is critical. We continually hire throughout the year, not just for peak, but to meet our growth needs, and we strive to ensure our employee value proposition is compelling. As a company, we pride ourselves on creating a workplace where safety is paramount, diversity and inclusion are valued, and competitive compensation and benefits programs are offered. Against this backdrop, we are working hard to meet our warehouse recruiting needs. At the same time, we are increasing the deployment of automation, implementing our best-in-class software, and leveraging our e-commerce and warehouse solutions know-how. We have found that the use of technology boosts productivity, improves safety, and enhances our employee experience overall. After spending a few weeks visiting our teams and distribution centers across the U.S., I've seen firsthand that the good balance of GXO team members and technology makes for a winning combination. I'm also pleased to note that the quarter saw numerous awards granted to GXO, highlighting our leadership in technology and diversity. The Institute of Innovation and Knowledge Exchange recognized GXO for two decades of innovation with Virgin Media. And we were also recognized by the Human Rights Campaign on the Corporate Equality Index for LGBTQ plus inclusion. I would also like to take this opportunity to welcome our new Vice President of Diversity, Inclusion and Belonging, Leticia James. Diversity and inclusion are at the core of GXO values. Earlier this year, we jointly held a diversity and inclusion strategy workshop with one of our largest omnichannel retail customers to find ways to make our distribution centers more inclusive, recruit from a diverse talent pool, and serve the community as a strong corporate citizen. We launched a joint diversity and inclusion advisory board that tracks and measures progress on our diversity goals. All of this enables to be an employer of choice and a great place to work as our partnership expands. Finally, it gives me great pleasure to announce that we have been awarded a AA ESG rating from MSCI, placing GXO as the highest ranked among its largest industry peers. This rating recognizes the importance that our company places on environmental, social, and governance. It also acknowledges the clear targets that we have presented in recent months, including our firm goal to be carbon neutral by 2040. As a business, we want to set the benchmark for ESG across the supply chain. And we are already making good progress on our targets set out at our investor day. We feel confident about our future as a newly formed entity. We are excited to deliver on our vast growth potential as the largest global pure play contract logistics company. I will now pass you over to Baris to tell you through our financial performance. Baris, over to you.

Thank you, Malcolm, and good morning, everyone. Today, I'd like to walk you through our third quarter financials as well as our upgraded guidance for 2021. In the third quarter, we generated revenue of $2 billion, net income of $72 million, including $42 million of one-time tax items and adjusted EBITDA of $163 million. This revenue represents a year-over-year increase of 24.6%. and is up 12% on an organic basis, with FX contributing 2% and M&A contributing 10%. The 12% organic growth is notable in the context of 8 to 12 organic growth rate for next year that we are reconfirming today. Year-to-date, revenues from top 20 customers have grown approximately 37%, demonstrating the success of our land and expense strategy. Quite simply, we view ourselves as the scaled, third-party logistics partner of choice for global brands. One of the great benefits of our model is its visibility, and as we stand here in early November, we have a strong view on the revenue trends of our business heading into 2022 and even 2023. Moreover, looking back, we would like to note that from 2016 through the end of the third quarter, we have delivered an organic revenue growth CAGR of 7.3%, reflecting the high growth nature of our business even through a pandemic. Moving to earnings, the growth in our adjusted EBITDA reflects the robust revenue growth we have delivered via a combination of New customer wins and existing customer expansion, as well as efficiency gains. We had particularly strong open book contract wins. Our contracts are structured to provide resiliency with pass-through cost mechanisms. And in an inflationary environment, our third quarter results reflect this. We recorded a positive tax adjustment of approximately 42 million in the third quarter. This is a one-time P&L item resulting from the spin-off. Separately, in the fourth quarter, we expect a negative impact of less than 20 million in cash tax effects related to spin. Our cash flow from operations in the third quarter was 105 million. We spent 55 million in capex. Specifically, we spent approximately 50% of our total CapEx bill on automation, technology, and software. We invested for our high-growth future with an associated increase in working capital due to new starts and our recent acquisition. Overall, we generated free cash flow of $50 million, which represents over 30% of our adjusted EBITDA. Turning to the balance sheet, we had a net debt of $757 million at the quarter end, which included roughly $800 million of notes and about $180 million of finance leases. Our leverage ratio is 1.3 times trailing 12 months reported with adjusted EBITDA. This is well within the previously discussed net leverage range of 1 to 1.5 times. We also have an available $800 million revolving credit facility at our disposal and are committed to our investment-grade credit rating. I'll now turn the call over to Mark.