GXO Logistics, Inc.

Welcome to the GXO second quarter 2025 earnings conference call and webcast. My name is Shamali, 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 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 that 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 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 the 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, Jamali, and good morning, everyone. Thanks for joining us this morning. With me in Greenwich today are Baris Orant, our Chief Financial Officer, and Christine Kubecki, our Chief Strategy Officer. We're pleased to have built on our momentum from the first quarter and delivered a great second quarter. We saw new business wins of $307 million up 13% year over year, including with the likes of Axo Nobel, Boeing, L'Oreal, Nestle, Pratt & Whitney, and Thermo Fisher. Our new business wins for the first half of the year total over half a billion dollars. We delivered record revenue of $3.3 billion and $212 million of adjusted EBITDA, up 13% year-over-year. In June... we raised our full-year guidance for organic revenue growth, adjusted EBITDA, and adjusted diluted earnings per share. And today, given our better-than-expected performance in the first half of 2025, we're again raising our full-year adjusted EBITDA guidance to a new range of $865 million to $885 million. an increase of $25 million vis-à-vis our initial range. This quarter, we received final regulatory approval for our strategic acquisition of Wincanton. This will unlock growth opportunities in the industrial and aerospace markets for GXO across Europe. the GXO and Wincanton teams are already collaborating on a range of strategic customer tenders across both the aerospace and defense verticals. We'll be kicking off the integration of the two companies in the coming weeks, and we still expect to deliver the lion's share of the run rate $60 million of synergies by the end of 2026, which is ahead of our previous expectations. On top of that, we also expect to gain significant revenue synergies over the coming years. With that in mind, I'd like to take a moment to welcome our new colleagues from Wincanton. It's a stellar organization, and like GXO, it's clear that the high caliber of their people is why Wincanton has been able to build such an incredible business. Also during the quarter, we launched GXO IQ, a software platform that we designed in partnership with Google Cloud specifically for the complexities of supply chain operations. GXO IQ leverages AI to provide a modular, scalable means to start up customer operations more quickly, run them more reliably, and access a broad suite of value-added software applications. GXO IQ reflects the best of GXO's innovation and progress we've made over the past few years. We're operators first, with a relentless focus on adding value to our customers' global supply chains. I'm extremely proud of our great second quarter performance. This week marks GXO's fourth anniversary since we became a publicly traded company, and it's worth putting our accomplishments in context. In the four years since the spin, we signed nearly $4.5 billion of new customer contracts, undertaken three very successful acquisitions, and nearly doubled the size of the business, all while remaining an investment-grade balance sheet company. Our customer satisfaction scores are at an all-time high. We're in the process of finalizing a nearly 20-year expansion of our business with a top 15 U.S. retailer. We will now operate with this customer in all three regions, We've also renewed and expanded with two of our top customers, including H&M, into a multi-year agreements across multiple geographies. These long-term global partnerships speak volumes about the value we create for our customers and our ability to solve complex challenges when they need it most. GXO remains the market leader in automated fulfillment We've more than doubled the number of robots deployed in our operations over the past four years, increased the percentage of our revenue that's processed by automation to about 50%, and made groundbreaking advances in warehouse AI. Our sales pipeline remains robust at $2.4 billion, exclusive of the Wincanton sales pipelines. It has grown by more than a third since the last full year prior to the spin, and it's more diverse than ever before. Reflecting our new business wins today, GXO is very well positioned to drive profitable growth into 2026 and beyond. Before I turn it over to Baris, I want to say a few words about the additional news we announced yesterday. Barish plans to step down from his role as Chief Financial Officer to pursue new opportunities. He will remain with GXO, serving as our CFO until a successor is named. I've deeply appreciated Barish's partnership over the past four years. He has been dedicated not only to the performance of the company, but to our customers and our people. He's been instrumental in instilling capital and cost discipline while maintaining strong momentum on new business wins. GXO is well positioned thanks in large part to his valuable contributions. And with that, I'll turn it over to Baris. Baris, over to you.

Thanks, Malcolm. It has been an honor to work with you and the team to build GXO into a true industry leader. I feel this is the right moment to embrace new opportunities, and I do so with immense gratitude and pride in all that we have accomplished since the spin. It is gratifying to know GXO has a bright future ahead. Now turning to the quarter. As Malcolm mentioned, in the second quarter of 2025, GXO delivered record revenue of $3.3 billion, growing 16% year-over-year, of which 6% was organic. This was our highest quarter organic growth in nine quarters. Organic revenue growth accelerated sequentially in each region, highlighting the value of our contractual business model, which proved resilient throughout the dynamic trade environment. Our strongest organic growth in the quarter was in the Army Channel retail and technology verticals. We now have about $800 million of incremental revenue secured for 2025, which, in combination with our retention-rated mid-90s, puts us in excellent shape to achieve or improve upon our full-year organic growth targets. We delivered adjusted EBITDA of $212 million. Our margins expanded by 90 basis points sequentially, as the sizable automated startups and productivity initiatives we mentioned last quarter matured more quickly than expected. And we saw improved space utilization in our shared network. We continue to leverage our SG&A more effectively due to our central efficiencies programs. net income of $28 million, and adjusted net income of $66 million. Our diluted earnings per share was 23 cents, and our adjusted diluted earnings per share increased to 57 cents. Our free cash flow in the second quarter primarily reflects the payment for the one-time regulatory item we booked last quarter. 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. We remain disciplined in our capital expenditures and working capital management, which allows us to continue to invest into our business with high returns. Our leverage levels remain steady at three times net debt, even after repurchasing shares during the first half of the year. In the second quarter, we repurchased 2.6 million shares at an average price of $34.86. In total, in the first half of the year, we have repurchased 5.4 million shares, or about 4% of the total shares outstanding, at an average price of $37.34. This represents a 26% discount to our average share price over the last 30 trading days. And in June, Moody's upgraded GXO's credit rating. We are proud that we have now hold investment-grade ratings from all three major agencies for the first time since the spin, which reflects the scale and resilience of our contractual business model. We remain laser-focused on our capital allocation and continue to prioritize investments in technologies and services that drive the greatest returns. Our focus in 2025 will continue to be on accelerating our organic growth and the integration of Vincanton. We expect to see accelerated growth opportunities coming from our acquisitions. As Malcolm mentioned, given our excellent operating performance in the first half of 2025, And following our guidance update in June, we are raising our full year EBITDA guidance again. As a reminder, for 2025, we now expect to deliver organic revenue growth of 3.5% to 6.5%, up from our initial guidance of 3% to 6%, adjusted EBITDA of $865 million to $885 million, up from our initial guidance of $840 million to to $860 million, adjusted related earnings per share of $2.43 to $2.63, up from our initial guidance of $2.40 to $2.60, and adjusted EBITDA to free cash flow conversion of 25% to 35%. We are excited about our increasing momentum. we now have greater visibility than ever of the benefits we will be capturing as we bring Wincanton and GXO businesses together. These benefits will begin to be realized during the remainder of this year and will materially ramp up throughout 2026. And we are already on our way to capturing the strategic growth opportunity we have targeted with this acquisition. Given our strong operating results and our effective capital allocation, GXO remains well positioned to deliver all size value for our customers and our shareholders. With that, I'll pass the mic to Christine. Christine, over to you.