GXO Logistics, Inc.

Welcome to the GXO Q4 full year 2022 earnings conference call and webcast. My name is Kevin and I'll be your operator for today's call. At this time, all participants are in 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 make certain forward-looking statements within the meetings of applicable securities laws, 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 are 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 the filings with the FCC. 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 investor section of the company's website. I'll now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.

Thank you, Kevin, and good morning, everyone. I appreciate you joining us today for our fourth quarter and full year 2022 earnings call. With me in Greenwich are Baris Oran, our Chief Financial Officer, Bill Frane, our Chief Commercial Officer, and Mark Manduka, our Chief Investment Officer. It was a pleasure to dedicate some time a few weeks ago at our Investor Day to share a deeper dive into our business, the value we add and our strategy for the coming years. As a reminder, during our Investor Day presentation, we announced our financial targets for 2027, which are as follows. We will more than double our top line from the end of 2021 to $17 billion and deliver compounded annual organic growth of between 8% and 12%. We'll nearly triple our adjusted EBITDA over the same period to about $1.6 billion. will generate more than $2 billion of free cash flow by 2027, and will deliver operating return on invested capital of above 30%. And just to reiterate, these long-term targets do reflect our expectations of a softer macroeconomic environment in the near term, which we anticipate will be the case through the majority of 2023. For the benefit of everyone, we've posted the transcripts and video on our investor side. But today, we're here to focus on our 2022 full-year earnings, our performance in the fourth quarter, and our 2023 outlook. So let's turn to that. For the fourth quarter, we delivered excellent financial and operational performance. We generated revenue of $2.5 billion, reflecting organic growth of 7.5% and adjusted EBITDA of $205 million. These results reflected robust new business growth, strong year-over-year adjusted EBITDA growth, and sustained margin expansion through the second half of the year. For the full year, we delivered revenue of $9 billion, organic growth of 15.4%, and adjusted EBITDA of $728 million at the top end of the range we provided at our investor day. In addition to our strong operational performance during this year's peak season, we also increased our overall warehouse tech by about 40% year-over-year, with pilots, ramp-ups, and roll-outs of several different types of operational technology across all of our geographies. Additionally, to enable customers to quickly scale capacity up and down, specifically during peak, we trialed a new approach where we deployed several hundred pieces of tech to support volume spikes. For the customers who participated in this pilot, who were experiencing volume surges of up to 200% vis-a-vis a non-peak day, this was an incredible enabler of success during this year's holiday season. The fourth quarter was also a busy time for us internally, as we kicked off the smooth integration of the Clipper business. We've already made huge progress on realizing our cost synergies and now expect the bulk of the over $40 million to come within the first two years. Importantly, we also signed the first of what we expect will be several significant customer contracts, combining Clipper customer relationships and GXO capability. These revenue synergies will be substantial in the coming years. They will also be above and beyond the $40 million of cost synergies. In the fourth quarter, GXO achieved a stellar level of new business wins, closing nearly $200 million of new contracts, including partnerships with Barilla, Boeing, Farfetch, Kingfisher Beer, Nike, and Shark Ninja. I also want to take a moment to say a thank you to all of our GXO colleagues who delivered a strong peak season and full year, and who strive every day to make our organization a great place to work. I'm proud that just last week, we were named one of the top 50 companies in the US for diversity. Now, turning to 2023, we're pleased to reaffirm our guidance of 6% to 8% organic revenue growth and $700 to $730 million of adjusted EBITDA. Given the business we've already closed through the fourth quarter of 2022, combined with our strong sales pipeline, we're starting the year with a high degree of visibility to our growth. So in closing, it's been a great fourth quarter, and we're proud to have delivered another stellar year in 2022. Looking ahead, in 2023, we're laser focused on delivering our guidance and executing on our long-term business plan. And we're looking forward to continuing to create value for our customers, our employees, and our shareholders. With that, I'll hand you over to Bill to add more color on our commercial landscape. Bill, over to you.

Thanks, Malcolm, and good morning, everyone. During our investor day, we talked about the GXO difference, our unique combination of technology, scale, and expertise, which drives our partnerships with amazing brands and grows our market share. Our new business wins from the fourth quarter of 2022 contributed nearly $200 million to future revenue growth. Therefore, for 2023, all of our wins to date have accumulated to around $661 million of gross in-year revenue. Looking beyond the fourth quarter, our sales momentum is strong. We've continued to win great contracts early in the first quarter of 2023. one of which, as Malcolm mentioned, is Fafetz, to support Reebok's brand launch and omni-channel logistics throughout Europe. This was a customer previously served by Clipper and is our first major cross-sell with, coming shortly after completing the transaction. This customer needed the breadth, flexibility, global scale, and expertise of GXO in a networked multi-site operation across Europe. They also needed this solution to go live within a few weeks of the contract being signed and a partner that could then deploy automation to drive efficiency and higher volumes in the future. Now turning to our pipeline, at $2.1 billion, we're up versus the third quarter, reflecting a growing number of customers coming to GXO in this environment and underscoring our confidence in future market share gains. Importantly, The pipeline is turning over rapidly. We have lots of exciting growth opportunities in all of our verticals and geographies, including a number of sizable outsourcing projects and expansions with existing customers. Now, I'd like to take a moment to comment on what we're seeing on the ground and how this positively impacts our growth. In 2022, as the world came out of the pandemic, there was a clear realization of the importance of reassessing and rebuilding supply chains in order to emerge stronger. The conversations we're having with our customers reflect that they need an optimized supply chain solution today, while at the same time they're looking to strategically reposition their end-to-end supply chains for the future. As the partner of choice, GXO is leveraging our best-in-class technology to drive optimal accuracy, speed, and efficiency for our global blue chip customers. Let me give you two examples. First, the world's most advanced technology companies are turning to GXO for solutions. In the fourth quarter, we expanded our partnership with one large U.S. tech customer by leveraging our transformational work over the past 12 months. Last year, we took over one of their operations within 72 hours of signing the contract. And within 30 days, we were meeting or exceeding all KPIs. Over the past year, we've transformed their operations and delivered a 10% improvement in accuracy, a 10% reduction in stock outs, and a 17% reduction in staff turnover. And second, the trend toward nearshoring is gathering pace. Over the coming years, Roughly $3.5 trillion worth of global trade is forecast to come back onshore. For the warehousing industry, this represents a multi-billion dollar opportunity, and we're already seeing this in our pipeline, with many of our conversations related in some form to inventory management. For example, just in case versus just in time, or diversification of their global warehouse footprint. One area we're seeing this theme emerging strongly is in the semiconductor sector. And we are perfectly positioned to benefit given that GXO is a critical partner to a number of the industry leaders in this space. Overall, it's becoming clear to many of the world's leading brands that business as usual is no longer an option. The current environment is leading more and more companies to look to outsourcing as a solution and they're turning to experts like GXO. We stand ready to support customers all over the world as they look to us to help redesign their supply chains, taking advantage of our technology, scale, and expertise. This GXO difference is why we are gaining market share. And with that, I'll turn you over to Baris.