GXO Logistics, Inc.

quarter 2024 earnings conference call and webcast my name is Donna and I will 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 anyone should require operator assistance during the conference please press star 0 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 the call, the company will be making certain forward-looking statements within the meanings of applicable security 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 filing. The forward-looking statements made 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 may also 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 table are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company would 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, exchanges 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 information regarding forward-looking statements and non-GAAP financial measures in the investor sections 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.

Thanks, Donna, and good morning, everyone. I appreciate you joining us today for our second quarter 2024 earnings call. With me in Greenwich are Baris Oran, our Chief Financial Officer, and Christine Kebeke, our Chief Strategy Officer. GXO has delivered a strong second quarter, rounding out a great first half, and we're pleased to be reaffirming our full year 2024 guidance today. During the quarter, we signed about $270 million of new business wins. Our pipeline grew for the third consecutive quarter, standing at a new 12-month high of $2.3 billion of high-quality opportunities. We're also seeing contract duration increase as customers loop to outsource to a trusted partner with global scale who can manage the complexity of their supply chain. We're particularly proud of our progress in Germany, the largest European economy, which has been part of our growth strategy since the spin. During the quarter, we've signed a new deal with Chibo, a leading German retailer and coffee distributor, and we've gone live on the 20-year, nearly billion-dollar contract with Levi's that we announced in May. We're also pleased to have expanded our relationships with several long-standing customers this quarter, including Boeing, Guess, Marks & Spencer, and Raytheon. Our land and expand strategy remains a core tenant of our long-term organic growth plan. And today, about half of our revenue comes from customers we've grown to serve in more than one country. New contracts we win are the key to our growth. Through the first half, we've won more than $520 million of new business. And given our increasing pipeline, we're on track to sign a record amount of new business this year, underpinning our growth in 25 and beyond. As we've mentioned, we believe we saw the bottom of the inventory cycle in the fourth quarter of last year. We're beyond that inflection point, and we're seeing volume trends beginning to improve. At an industry level, e-commerce has returned to sustainable structural growth. Customer demand for outsourcing has remained strong throughout the cycle, as customers look to improve productivity reduce complexity, and recognize their supply chain as part of their strategy. About half of the contracts we've signed this quarter were for newly outsourced activities. We're also pleased to have completed our acquisition of Wincanton in the second quarter. This deal exemplifies our M&A strategy. In Wincanton, we've acquired a platform to expand our presence in target verticals across the UK and Europe, including aerospace and defense and industrials. We have acquired Wincanton at an attractive valuation. We look forward to accelerating our future organic growth with this acquisition, as we have done with our expansion in Germany. In both Europe and UK markets, we're seeing our customers grow more confident and launch new and larger projects. This bodes well for our future growth, along with our acquisition of Wincanton. North America, while we're currently seeing softer demand for goods, we've signed record new business wins in the first half of this year. Our long-term contractual business model gives us confidence in delivering our 2027 targets of $15.5 to $16 billion of revenue and $1.25 to $1.3 billion of adjusted EBITDA. And with that, I'll pass you to Barish to walk you through the quarter.

Barish, over to you. Thanks, Malcolm. Good morning, everyone. In the second quarter, we generated record revenue of $2.8 billion, growing 19% year-over-year, of which 2% was organic. Our organic growth was driven by strength in diverse parts of our business, including aerospace, data center support, and omnichannel retail led by cold storage supply chain. Our adjusted EBITDA this quarter was $187 million, and we delivered $31 million of free cash flow. Our operating return invested capital remained above our target at 32% as we continue to invest in high-return projects to fuel our organic growth. Our financial position remains rock solid. and we are committed to maintaining our investment-grade balance sheet. Our net leverage was 3.1 times as of the end of the second quarter. We are expecting leverage levels of about 2.5 times by the end of the year and less than 2 times by the end of next year. We have no debt coming due in 2024. Our sequential acceleration in organic revenue growth in the second quarter reflects that we have seen an inflection point in our business. As Malcolm mentioned, we also completed our acquisition of Vincanton this quarter. We are thrilled to have acquired this business at an attractive valuation, and we are well positioned to quickly deliver on our synergy targets of $55 million. We expect the acquisition will be accretive to earnings this year, with double-digit accretion to adjusted diluted earnings per share once we fully integrate the two companies. Beyond cost synergies, we will look forward to leveraging Wincanton's expertise to accelerate our growth in the aerospace and defense and industrial verticals in the UK and Europe in line with our M&A strategy. Turning to our guidance, As Malcolm mentioned, we are reaffirming our view for the rest of the year. For the full year of 2024, we expect to deliver organic revenue growth of 2% to 5%, adjusted EBITDA of $805 million to $835 million, adjusted EBITDA to free cash flow conversion of 30% to 40%, and adjusted diluted earnings per share of $2.73 to $2.93. We also expect to continue to deliver an operating return on invested capital of about 30 percent. While we are seeing many improving trends in our business, the tone of our customer conversations continues to reflect prudence in near-term growth expectations. Looking to 2025, the expected synergies from the Wing Canton integration and automated solutions we are underwriting to drive increased profitability. GXO is executing well on the long-term strategy. We are uniquely positioned in a highly fragmented industry, and due to our long-term contractual business model, we have a multi-year organic growth runway ahead of us. We are generating strong free cash flows, enabling us to invest in our organic growth and strategic M&A. And we will continue to allocate capital in the best interest of our shareholders. With that, I'll hand the mic to Christine, our new Chief Strategy Officer. Over to you, Christine.