GXO Logistics, Inc.

Welcome to the GXO first quarter 2025 earnings conference call and webcast. My name is Morgan, and I will be your operator for today's call. At this time, all participants are in listening 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 use of non-GAAP financial measures, and the company's 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 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, the most comparable GAAP measures, are contained in the company's earnings release and the related financial tables that 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.

Thanks, Morgan, and good morning, everyone. I appreciate you joining us today for our first quarter 2025 earnings call. With me in Greenwich are Baris Oran, our Chief Financial Officer, and Christine Kubecki, our Chief Strategy Officer. For the first quarter of 2025, GXO delivered a strong set of results against the dynamic macro backdrop. We generated revenue of $3 billion, which was up 21% year over year, and we beat expectations on adjusted EBITDA. Our new business wins in the quarter were $228 million. And our sales pipeline, excluding Wincanton, grew to a three-year high of $2.5 billion. I'd especially like to highlight the progress we've made in developing our business in the healthcare sector. We finalized a landmark deal with the UK National Health Services supply chain. This is our largest ever contract and carries a total lifetime value of about $2.5 billion. We'll commence operations for the NHS early in the third quarter. We've also recently signed other exciting health care contracts, most notably with Siemens Healthineers, and we have a rapidly growing pipeline of opportunities in the space. Our success in developing our health care business is a direct result of our acquisition of Clipper Logistics which brought with it strong relationships within the sector, and it's proof positive that our M&A strategy to target companies in growth verticals is working. We expect to make similar progress in target verticals like aerospace and defense and industrials, starting with our European business as a result of our integration of Wincanton. The Wincanton business is trading well and performing as expected. We're very pleased to be nearing the conclusion of the CMA process, and we expect that over the coming couple of months, we'll be able to start bringing the two businesses together and realizing our target $58 million of cost synergies. We also continue to grow with our existing customer base. Feedback from our customer interviews reflects that our customer satisfaction has risen nearly 10% since last year, which supports our continuing growth. New business signed with existing customers has increased year over year, and we expanded our relationships with Boeing, Kimberly-Clark, Mitsubishi, and Schneider Electric. Our sales pipeline excluding Wincanton is up 13% from last year. Our pipeline is diversified across our regions and verticals, which sets us up for a balanced growth and reinforces the resilience of our business model. Before I pass the mic to Baris to walk you through our detailed financials for the quarter, I'd like to touch on our outlook for the remainder of 2025. We're operating in an environment that demands unprecedented agility from global supply chains. The structural tailwinds of outsourcing, automation, and e-commerce continue to drive our industry's growth, illustrating that the need for our solutions is more important than ever. For the first quarter, 41% of our new wins are in newly outsourced business. 39% involve automation, and 42% come from e-commerce. On top of this, the complexity related to potential tariffs has created a new array of challenges for our customers, including rising costs, a need to rapidly react to changing prices, and fluctuating inventory levels. Our customers are managing through this while, most importantly of all, continuing to serve their end customers seamlessly. The range of activities we're undertaking to support our customers in this environment is evolving in real time and includes everything from strategic reviews of how to manage volatility to value-added services like re-tagging and re-bagging millions of SKUs that are already in circulation, and in parallel, We're still innovating. We're making rapid progress towards our vision of the tech-enabled warehouse, which Christine will update you on in a moment. In a world with increasing complex trade dynamics, the need for brands all over the world to rely on a partner who can help them navigate the global supply chain cost-effectively has never been higher. GXO's combination of cutting-edge technology and our long-term contractual business model with a customer base that's diversified by both geography and vertical give us confidence in our long-term growth. We've secured over $700 million of incremental revenue for 2025, plus another $300 million already for 2026. We've delivered a strong first quarter and taking into account the volatility of the macroeconomic environment, the contractual nature of our business, and our diverse geographical footprint, we're reaffirming our guidance for organic growth and adjusted EBDA for the full year 2025. And with that, I'll pass you over to Baris. Baris, over to you.

Thanks, Malcolm. Good morning, everyone. As Malcolm said, in the first quarter of 2025, GXO delivered revenue of $3 billion, growing 21% year-over-year, of which 3% was organic. All three of our regions delivered organic growth, led by our continental European business. We already have an established foothold in many of our global customers who are looking to expand in Europe over the coming years. And we see more momentum in this region than we did just a year ago. As Malcolm mentioned, we are also excited by our progress in newer geographies like Germany and newer verticals like healthcare. We are pleased that our M&A strategy is working. Our first quarter adjusted EVTA was $163 million. Our strong operating results were primarily driven by a faster than anticipated ramp-up of new facilities, and of site-level productivity initiatives. We recorded a net loss of $95 million, which was primarily driven by one-time charge related to a regulatory matter, as well as transaction and restructuring costs. Excluding these charges, our adjusted net income was $34 million. As we highlighted earlier, our operational teams are implementing a number of sizable automated startups. These new sites are maturing ahead of expectations. We are also working on a number of initiatives to improve operating productivity across our sites. These efforts have been one of the main drivers of our strong operating results in the first quarter. We expect to see their impact accelerate sequentially every quarter of this year, as in parallel the drag from the customer footprint realignments that we have called our last quarter are moderating into the second quarter, which improves our visibility. And our integration of Wincanton will provide another catalyst for group-adjusted EBITDA growth. Our first quarter free cash flow reflected normal seasonality as well as the Vincanton acquisition. We are on track to deliver our target of 25% to 35% adjusted EBITDA to free cash flow conversion for the full year. Our operating return on invested capital remains well above our target at 45%, including Vincanton, and has risen 12 percentage points from the first quarter of 2024. This improvement demonstrates our ability to invest back into our business with high returns. In February, our board authorized a $500 million share buyback. And during the quarter, we acted on this authorization and made strategic purchases of 2.8 million shares, or 2.4% of shares outstanding. We remain laser focused on our capital location and continue to prioritize investments in technologies and services that drive the greatest returns. As our focus in 2025 will be on accelerating our organic growth and the integration of Wincanton, we would like to reiterate that M&A is not in our near-term agenda. As a reminder, for 2025, we continue to expect to deliver organic revenue growth of 3% to 6%, adjusted EBITDA of $840 million to $860 million, adjusted diluted earnings per share of $2.40 to $2.60, and adjusted EBITDA to free cash flow conversion of 25% to 35% in line with our historical performance. We are able to deliver these results in spite of the macro volatility. as a result of our geographic diversification and our long-term contractual business model, which is designed to provide the maximum flexibility for our customers while protecting GXO from economic fluctuations that are outside of our control. GXO is a resilient business. As we have proven over the last four years, it's a public company. And we are well-positioned to deliver value for our customers and our shareholders. With that, I'll pass the mic to Christine. Christine, over to you.