Q1 2022 GXO Logistics Inc Earnings Call

May 5, 2022

[music].

Okay.

Welcome to the <unk> Q1, 2022 earnings conference call and webcast. My name is Garo and I'll be your operator for today's call. At this time all participants are in a listen only mode.

We will conduct a question and answer session.

What 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 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 the 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 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 earning 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 this guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The companys 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 in spending.

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 accurately predict demand for our 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 investors section on the Companys website.

I will now turn the call over to <unk>, Chief Executive Officer, Malcolm Wilson, Mr. Wilson, you may begin.

Thank you operator, good morning, everyone and welcome to <unk> first quarter 2022 earnings call. Joining me today are bearish Oran, Chief Financial Officer, Mark <unk>.

<unk>, our chief investment Officer.

We have started 2022 with outstanding top and bottom line performance. Our revenue grew 14% year over year in the first quarter of 2022, and our organic revenue, which excludes the impact of M&A and foreign exchange grew by 19.

Teen percent.

This is our highest first quarter performance. However, our adjusted diluted earnings per share increased by 59% year over year. Finally, our new business wins of $344 million is also a record for the first quarter.

Scoring the growing demand for our best in class solutions. As a result of this continued strong performance we are raising our full year organic revenue guidance. We are clearly in an environment, where supply chains have become far more complex and will require much greater scale and.

Innovation.

Our role as a trusted long term partner to global businesses is more critical than ever which is why we continue to see record new business wins, a huge sales pipeline and increasing demand for customer first time outsourcing.

All of our verticals are growing both organically and through new customer wins.

Worth taking a moment to discuss where we are winning new business.

While we continue to expand the scope of operations with existing customers and gain market share during the first quarter first time outsourcing, especially in the E Commerce and Omnichannel sector was again, the largest source of our new business wins.

Our first time outsourcing contract wins included BT cough for Decaf loan.

Raytheon and Zealand, though we saw expansion of operations with several existing customers, including Abercrombie and Fitch diversity, Ingersoll Rand and <unk> robot in the short term as physical retail reopens, we have seen some shifts.

<unk> e-commerce back to brick and mortar retail however, our customers continue to invest heavily with us in developing the direct to consumer channel when.

When you combine this with our high revenue retention levels, we have great confidence in the robust nature of our growth trajectory in 2022 and the coming years.

In early April we were very pleased that clipper logistics shareholders voted in favor of our offer to acquire the company.

We anticipate that this acquisition will be highly accretive to <unk> financial results, our vertical expertise and our geographic coverage.

At <unk>, we are proud of the way, we do business and we have made excellent progress establishing ourselves as the logistics partner of choice for forward looking companies that share our commitment to ESG.

As a new company, we have the unique opportunity to tailor, our environmental social and governance strategy to what matters, most our people our partners and our planet.

With the recent release of our inaugural ESG report, we're off to a strong start.

In the report we provide updates on the progress towards our global targets should details of how we have delivered against our stakeholder priorities in the first months as an independent company and we will preview our plans for the years to come.

I will now hand, the call over to Barrish, who will talk you through our quarterly performance in greater detail.

Barrish over to you.

Thank you Malcolm and good morning, everyone to start I'm going to review our record first quarter results and I will discuss the durability and visibility of our contractual business model in the first three months of the year, we delivered 19% organic revenue growth.

Our fifth consecutive quarter of double digit growth.

And secured a record number of new business wins.

Net income attributable to shareholders in Q1, 2022 was $37 million.

This compared to $14 million a year ago.

Adjusted EBITDA grew $255 million up from $143 million on a pro forma basis a year ago.

And adjusted diluted earnings per share increased by 59% year over year, our return on invested capital was stellar at over 30%.

We are implementing larger and more complex solutions on an unprecedented scale you see this in the investments we have made in the first quarter starting up these operations. This will drive full year margin expansion.

More visible in the second half of the year and into 'twenty two AC.

The average contract duration of our wins was approximately six years, which continues to extend our overall contract life. The strong secular trends within this business are demonstrated by the fact that we have raised our revenue growth guidance for the year.

We have also introduced an adjusted EPS guidance of between $2 70, and $2 90 per share.

Implying a growth range between 29% and 39% year over year.

Turning to cash flow.

Our business in the first quarter typically sees modest cash outflows due to seasonality.

This quarter was no different $60 million in cash outflows in Q1 2022 versus $20 million in cash outflows in Q1 2021.

As you May recall, we said that our growth capex to sales is approximately 2% and as we grow and implement new business, we have a modest working capital drain it.

We remain very confident in delivering our guidance of 30% free cash flow conversion from EBITDA in 2022.

Our investment grade rated balance sheet continues to be rock solid with leverage at under one times last 12 months adjusted EBITDA.

To conclude <unk> high earnings predictability continues to be underwritten by a further new business pipeline longer and longer contract durations.

Really variable cost base inflation pass throughs minimum volume guarantees and best in class revenue retention rates.

Our first quarter results clearly demonstrate that this business is not just an exciting structural growth story, but one in which we expect to deliver outstanding profits and strong cash flows with greater returns for our investors.

I'll now hand, the call to Mark who will elaborate our record wins technology investments ESG achievements as well as our res growth guidance.

Over to you Mark.

Thanks Paresh.

<unk> delivered a record first quarter for new customer wins.

We've won over $344 million in the first quarter.

Two thirds of that will fall this year.

Meaning we now expect.

Over $1 billion in incremental 2022 revenue.

Now importantly, we've also sustained our strong mid to high <unk> revenue retention rate.

Our wins.

And our $2 5 billion pipeline can be attributed to our reputation for quality and reliability.

But also our leadership in technology enabled solutions.

We really are the innovation leader in our industry and we never stop working to retain our technological edge.

The rise that you can see an average contract duration in the first quarter reflects the fact that we are partnering on more and more complex solutions with our customers.

Over the past few years, we've invested to increase the level of automation across our global footprint.

Certainly in the U S. We've seen a year over year increase of more than 40% in automated solutions in the first quarter and at the end of the first quarter. One third of our revenue is driven from highly automated sites globally.

This is driving real benefits for our customers across our business and for all of our stakeholders. For example in a number of cases, cobalt <unk> warehouses have materially improve productivity and accuracy rates, while enhancing our already great employee retention rates I would also.

Note that we've recently launched <unk> automated packaging solution in our e-commerce sites with custom fits boxes to that contents saving significantly on materials and contributing to sustainability.

These technological advancements not only drive our business forward they are well aligned with our firm belief that how we do business is every bit as important as what we do.

As Malcolm mentioned, we published our inaugural ESG report last week, highlighting that we're on track to achieve our long term targets, while also supporting our customers as they work to achieve that own ESG goals.

In particular I'd like to call out a few key highlights from the report on the environmental side.

Our greenhouse gas emissions fell by 3%, but what's more impressive here given the growth of <unk> is that the per dollar of revenue actually fell by some 24% year over year.

Additionally, nearly half of our global floor space is now using more efficient led lighting.

It's clear through both our wins and pipeline that we have considerable growth opportunities ahead as more and more customers are looking to check so to optimize their warehouse a mission critical component of the supply chain.

All of this is contributing to our raised guidance and let me take you through those highlights.

Firstly in terms of organic revenue growth, we're now guiding to 11% to 15% for 2022, that's up from 8% to 12%. This reflects the phenomenal new business wins that we've seen in the first three months the size of our sales pipeline and the strength of our existing business.

Secondly, we provided adjusted diluted earnings per share guidance for the first time.

And we're looking for this EPS of between $2 70, and $2 90. This implies a growth rate now of between 29 and 39% this year and puts us in the top 20% of the S&P 400 mid cap companies.

In closing we are clearly off to a phenomenal start in 2022.

GSO has extremely high multiyear revenue visibility some exceptional growth with global Blue chip customers.

Zillions of returns and excellent cash generation.

We will now open the call up to Q&A.

Thank you we will now be conducting a question and answer session.

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<unk> using speaker equipment, it may be necessary.

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Okay.

Our first questions come from the line Scott Schneeberger with Oppenheimer. Please proceed with your questions.

Thank you very much good morning, gentlemen for my first question.

I'll ask.

If you could please discuss what youre seeing in supply chain right now from a macro perspective.

That has developed in recent months and how how it's impacting your business. Thanks.

Thanks, Scott, It's Malcolm Wilson led.

Let me come in and give you some background. So first and foremost if I think about what <unk> seeing well you've just heard our call I mean, it was a great quarter.

We're operating in a huge addressable market and $430 billion, we have great organic growth, 19% as Mark just mentioned EPS guidance puts us in the top 20% of the S&P 400.

<unk> launched our inaugural ESG report, so really it was a super quarter. What was very very pleasing was the level of new business that was being signed $340 million. There was a huge amount of implementations taking place as well that will flow through from 2021. So overall very very good.

We've got a put that against the kind of bigger picture and what we saw really progressive play through.

January onwards was in some of our customers, where we operate and our omnichannel capacities. So we operate E fulfillment, where they also deliver into brick and mortar facilities for them, we've seen that consumers.

Consequence of the pandemic receding hub drifted back into the shopping mall, that's a great thing.

About that so we've seen some volume change as a consequence of that.

We've also see of course in Europe .

We can imagine.

Situation the shock aspect of the Russian invasion of Ukraine, but that shock initial shock.

That's really dissipated now.

To say that people have become familiar with the situation.

One thing I want to comment about the Big picture is there are still evident supply chain disruptions you know right now.

All customers across our North American business and European business are affected by.

Shortages of products as a consequence of the rise again of Covid in Asia, particularly in China and of course, various type of shipping disruptions last year. It was long beach inbound cohort this year, probably more outbound ports like Shanghai. So that's the.

The big picture, but overall, we are constantly monitoring our sales order pipeline.

Retained at a very high very positive level.

Over $2 5 billion conversion actually.

As remain very constant retention of customers very constant contracting terms, if anything going upwards. So on average for the quarter was around six years. So overall with kind of not seeing the impact of these larger picture.

But I do want to say in the end.

100% immune to any kind of macro wells you know interest rates are going up.

<unk> hundred percent Mike.

To that.

I would say that the very nature of how we do business the nature of how do we strike contractual deals with our customers our ability to pass through.

A lot of inflation to pass through at the moment, we're successfully doing that.

Really gives us a very strong base shields is to a certain extent from these momentarily volume modifications that we're seeing we see a bit of softness on one customer.

The scale of our business really tends to allow us to not see any major impact across our results.

Excellent. Thanks, Malcolm appreciate that color.

For my follow up I'd like to ask.

Margins in the quarter, if you could please elaborate but looking at slide 16, yes. Thank you for the bridge.

You had going in the right direction performance improvements and other if you could elaborate on that and then obviously you had this great.

New new activity and new business start ups, which is a bit of a headwind. So if you could just speak to how that how we should expect to see the margin develop over the balance of the year.

Thought of how you would bridge 2021 to 2022 in a similar fashion and elaborate on some of those drivers. Thank you.

Sure. This is Bruce here I'm going to take that margin question.

19% organic growth in Q1, and then you look into the components of that growth.

Is it close to half is coming from net new business wins.

Bear in mind that our earlier guidance was about 5% to 8% of our organic growth would come from new business wins, which we are clearly trending at the peak of this range.

And then we start up new business due to the complexity of the solutions, we provide to our customers. It takes time for each operation to reach our margin.

Margin maturity this ways by contract type open book.

Our cost plus contracts takes roughly three to six months to mature while closed loop and hybrid contracts takes six to 12 months to mature accordingly, we will see profitability of these contracts more prevalent in the second half of the year, which will drive our margin expansion on a year over year basis.

So the impact of new business wins in Q2, we were less than Q1, but we will see a positive margin contribution starting in the second half of the year.

Okay, great. Thanks for the color I'll turn it over.

Thank you. Our next question is coming from the line of Chris Wetherbee with Citi. Please proceed with your questions.

Hey, Thanks, and good morning, guys.

Maybe if I could just piggyback on that margin question, maybe understand that a little bit better as we think about.

Really more bigger picture so beyond just sort of the second half of this year as you think about the opportunity set in front of you the pipeline that you're expecting is there a way we can think about how much startup cost should be sort of generally in the business in any given year I don't know if thats as a percent of revenue. If we want to think about that as a percent of adjusted EBITDA margin just wanted to get a sense of what.

Should be sort of assumed in our expectations as we move forward beyond 2022.

Sure Chris.

Mentioned it has been extraordinary quarter of new startups and when you look into the Q1 detail the Delta in EBITDA was about 40 basis points and.

68 basis points Delta is coming from net new business with the remainder, reflecting our operating activities, including operating excellence. So this has been the <unk>.

As we mentioned earlier in Q4 earnings call. This has been a very robust startup time, we have been extremely busy and it is reflecting that in our margins and overtime.

The second half you will see more prevalent improvements in our margins. We're writing a lot of contracts very solid contracts for return on invested capital I'll give you. An example, I was with even their contract with huge revenues and only 6% EBITDA margins, but return on invested capital of 86% and EBIT a margin.

Above all our group average this is the kind of contract that I will sign everyday and all day.

Yeah.

Okay. Okay. So I guess it is not necessarily a good rule of thumb that would get you to think about in terms of X revenue equals on an annualized basis equals an initial upfront startup cost of something some percentage of that is there any way to think about it in that context.

Yes, Chris couple of ways of thinking about it so just to parishes points about the pipeline, it's mark here obviously.

We've got a very long duration pipeline. That's what your question talks towards but really what's happening in this $2 $5 billion pipeline, which by the way is up 20% year over year, we're winning some great contracts and those contracts are tilted to our strengths, which obviously our margin and return enhancing so you'll notice that in our presentation pack that we put out last night.

70% of our mix is coming from E Commerce, Omnichannel retail and consumer technology and all of the contracts that we signed through Q3 Q4, and Q1 have some element of automation attached to them. You'll know we've talked about automation contract wins as having 300 to 400 basis point margin improvement in our business.

So there's lots to like here in the pipeline, there's lots to like in terms of the new wins that we're signing we're winning a lot of outsourcing contracts wallets expansion and competitive wins in the business and that over time will naturally be margin expansion in hosting and also return enhancing his parish in mouse and the total industry.

Okay. That's really helpful. I appreciate that color Mark. Thank you so much.

Quick follow up here, so just thinking about the current environment that we're in E. Commerce growth was fairly robust in the quarter from a revenue perspective is there any way that we can look within the contracts to get a sense of where volume is trending from a sort of quarter to quarter dynamic just getting a sense of where you are relative.

To your sort of the floors and ceilings within the contract specifically on the E comm side would be helpful.

Yes, let me let me let me help on that question, it's Mark here so.

If you think about our business right now, let's let's go back to basics in terms of the 8% to 12% guidance range that we had so that was essentially coming from two elements that was coming from existing growth, which was 3% to 4% at the time and then 5% to 8%. We've obviously raised that range as you know to 11% to 15% for this year that now goes in essence.

So you can think about it as being existing customer wins, a four to five so that gives you a sense of what's going on in the underlying business, which as you say is highly skewed in our business towards E. Comm and then of course, new business wins in the seven to 10 range. So if you think about that that gets you should take 45% and seven to 10 and that gets you to 11 to 15, which is that new.

Guidance range and I don't think in terms of your underlying point, but run rates as you talk about in your question I don't think it would be unfair to surmise that the existing customer range that we've talked about is tracking ahead of trend in the first quarter as we saw in the third and the fourth quarter as well so underlying volumes as now can spoke about the Scotts question looking good.

The reason why I'm also confident in the 7% to 10% range just kind of looking into the looking glass as you say is the fact that the new customer wins and now accumulating at this $1.0 billion to $1 billion range, where we are.

Got a lot in the hopper in terms of new wins is the guidance talks about its essentially the 830 million that we talked about at the last quarter plus the $192 million.

From the last quarter that basically is 10, 5% plus two 5%, which means we've got a gross win rate already banked for this year of 12, 9% in the bag.

Anything that we could potentially win in the April let's just passed in May that we're currently sitting in so thats, what really drives our confidence in terms of existing customers gross wins when you combine that with the fact that as Malcolm said this mid to high <unk> revenue retention rate, that's very strong for our business services companies such as us as I'm sure you're aware.

So you've got really everything heading in the right direction for this business you've got existing customer growth.

Selling pipeline, you've got stellar retention rates and you've got plenty of new wins coming through so there's lots to be excited about here, Chris in terms of the underlying growth and the new growth coming through in the business I hope that helps.

Got it thanks, so much for the time appreciate it.

Thank you. Our next question is come from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your questions.

Thanks, Operator, hi, everybody congrats on the results.

I wanted to go back to your commentary on the first question I think Scott Scott Schneeberger question. So Europe , there's a lot going on in Europe right now.

Almost all of it if not all of it presents macro challenges.

And in <unk>.

You guys or your customers, you're engaging with your customers for 10, 15 20 million dollar outsourcing projects, which are huge investments for your customers and so I understand that the markets you serve and the solutions you're provider have incredible specs.

Secular tailwind attached to it but if you can just I mean, youre doing business right now for 'twenty three 'twenty four 'twenty five.

The challenges in Europe at all presented.

Any hesitation from your customers around maybe deferring some of these capital projects in light of what's happening in Europe , because I'm not worried so much about 'twenty two growth probably not worried about 'twenty three growth, but I'm a little bit worried about if there is an air pocket in growth in 'twenty late 'twenty three 'twenty four 'twenty five as a results from the long lead times of your <unk>.

No.

Yes, Amit thanks, thanks for that and.

It's a really good point that you're asking because I think as Jack. So we are a good bellwether. We can see ahead that long runway that we have a visibility of what customers are doing.

What I can say is right now.

E fulfillment I mean, we talked earlier about we have seen a drift back to brick and mortar I think that's a good thing, but overwhelmingly all of our customers continuing to want to put more and more of the business online and theyre doing that clients in <unk>.

Because it improves the ability to see directly the consumer experience they took shape firsthand they see directly.

They are also not to lose sight of the fact, it's a lower cost model for them to service the consumer directly relevant for our brick and mortar. So when we look at E fulfillment business, which is for <unk>. So broadly around 50% of activity, that's really going like a rocket and those projects that we talked to.

<unk> is about the never ending I mean.

A big proportion of the sales pipeline at the moment is those kind of projects and that typically projects that incorporate quite a lot of automation because volume is a volume business. It's all about future proofing the solution and generally those projects are.

Very buoyant lots of discussions with new customers.

Pipeline at the moment heavily populated with new projects.

Going very very well when we look across the rest of our business I mean, our food beverage <unk> activities. I mean, it is what it is people have to heat and customers are becoming more attuned to automation and that drives longer term contracts. So on that side of the business.

Equally what we're seeing is a shift to longer term deals simply because they can carry more capital being put off really with the intent to servicing the consumer for 510 years, plus and then the rest of our based <unk> Ah can only kind of comment that really timeline wise a strong.

<unk>.

Lots of long term projects in amongst so.

We're not really seeing I've heard a lot of a lot of customers talk about.

Not customers by a third of all the companies in the last week mentioned about may be it may be slow or things like that we're not seeing yet we're just seeing really a continuation of what we saw through 'twenty one 'twenty.

The start of this year is very very good for us that is why we are lifting our topline guidance and as Paresh mentioned I mean, we are awash in quarter. One we have probably our teams I've never worked harder in the context of just standing.

Anything new facilities everybody's ruling very very busy but also for the long term benefit.

That's pretty amazing I think it speaks to.

The opportunity in the execution. So so a couple other quick ones if I could barrish.

One thing that I noticed is when I look at the adjusted cost of the business, so taking out transaction and restructuring costs.

Deal amortization costs, the adjusted cost of the business was up year over year, but at a lower rate than revenue growth and I'm, including FX and both both numbers I just want to think about.

A lot of our margins for this business, but at the end of the day, it's a very growth centric business.

Even if you don't expand margins as long as Youre not declining margins. Your EBIT is still growing so as we think about the next three four years, including a startup costs do you feel comfortable that the up the adjusted Opex base of the company inflate at a lower rate than revenue, which allows you to drive some margin expansion is that the right algorithm for the company.

Yes, I feel fully confident on that as you look forward.

We will have higher margin expansion.

Especially on EBIT.

And you'll you should continue to see that our EBITDA margin expansion faster than our EBITDA margin expansion.

Currently we are about 40% open book.

After a clipboard, we are going to be pretty much close to 50% open book and thats going to be accelerating our EBITDA margin expansion much higher than EBITDA.

I'm just more focused on EBIT because obviously.

The useful life of your assets tailored to how you price the business in your <unk>, but it seems like that should translate to EBIT as well.

Last question for me, if I could im sorry, Im over my allotment, but I think it's an important question is that you guys paid a very big price for corporate logistics on a pre synergy basis post synergies it looks.

Very compelling, but one could argue that you're capitalizing a lot of the benefit based on the pre synergy price Malcolm <unk> been in Europe for for decades and been in this business for decades, one clip forgive you that makes the price worth paying for.

Can you just talk about the strategic rationale.

And why you are willing to pay such a high price on a pre synergy basis for the company, yes, Amit. Thanks.

Let me, let me give you the feedback on that so and Youre right I have been in Europe for a while and when we made a spin as a business. We created a kind of a list of companies that we admire that we thought would may really super.

M&A opportunities isn't clipper was right at the top so we were super pleased to have found an agreement very happy with kirker shareholders voted through the deal.

By the way just on timing on that.

It's got to go through a traditional kind of regulatory approval. We don't anticipate any difficulties are not likely to be closing probably in the soma maybe as early as I would say very early August but.

Heading into the kind of holiday periods for a lot of the people who work on those matters.

So it's more likely to be September , but its in the coming months for sure.

We're looking forward to welcoming all of those new team members across into the business is very accretive for our business. Even in the first year is going to be accretive and you're right. We're paying a good price for it.

We are just absolute tone of cost synergies of about $48 million.

Very visible to us is kind of where an experienced management organization, where we're experienced M&A with experience that integrating businesses and eating out all of the benefits that come out of an integration.

That business is bringing goes.

I could consume the rest of this call Amit just to tell you about it but it's bringing a reinforcement of E fulfillment in core markets that we operate virtually no crossover of customers I think when I look I think this may be one maximum two customers, where we actually have.

Business together at the moment very very small so no crossover customers. So there's a massive opportunity for cross sales across the customer base a lot of the clip of customers.

Multinationals, so they're not just UK activity and then we signed the customers Clipper very advance more saw pains me to say it but more so even than <unk>. So when it comes to reverse logistics returns management.

We'll scale so not fall them, they've got a lot of very sophisticated software that drives. It. So that is going to help us tremendously leverage those skill sets and those technologies across the rest of <unk> customer base, not just in UK Continental Europe , but even bringing out to north.

Then when we look at the geography could pose core business is a U K business, but they've done a great job of expanding and particular in Germany doing really well now the gx so.

Maya Germany, it's on our list of M&A target countries.

We've clipper in fact, when we put our existing business together with the business.

Germany, which is by the way Europe's largest single economy. It gives us critical mass and if we just see accelerating growth in Germany in the same scale as the rest of our business while that is going to be incredible for us. It's a big market dominated by a handful of players at the moment plenty room for.

New technology, driven organization, Jack So as loss thing used 30 codes.

Clip has done a great job of developing some verticals that are very heavy in repairs and refurbishment, we will leverage that across all of our customer base. They have been growing out a small network.

Organically and through small M&A and we'll look to carry that good work on loot huge leverage across our existing customer base and it fits well with ESG as well unless sled healthcare and life Sciences, and it's a business where you need scale, when we marry that to gx or scale, that's going to be.

A winner with no any today, it's going to grow like a wait.

We have really got good hopes for it so I think all in all this is what gives us a compelling reason to make that agreement I think big cost synergies.

Huge.

Huge top line synergies are going to come from that.

<unk>.

Okay. That's very clear thank you malika and thank you everybody appreciate it.

Thank you. Our next question is coming from the line of Vasco majors with Susquehanna. Please proceed with your questions.

Malcolm you join the Gx, our predecessor, nor bear in the fall of 2007, and what effectively right into a deep global recession and had to manage through that can you talk a little bit about the signs of the business changing that you saw 15 years ago and how those.

Inform how you manage this business for downside risk into the current environment. Thank you.

Yes for sure.

The goal.

Logistics I have to say sadly many years ago. It was viewed as a commodity is no longer viewed as a commodity to today. It's viewed as an essential part of doing business is viewed as it can make a difference to the success of any company when it comes to the consumer experience and that's what's changed.

The mental thing that's changed over all of those years.

Today, we are an integral part of the customer activities.

Blue Chip customers no one did they sign 510 15 year agreements because we become absolutely integral very sticky with them, we're part of how they deliver the service.

When we look how we work together.

Very much a contractual type of environment, we have.

Set volume type of agreements. So that's why you've heard bearish mentioned about the pass through of inflation is.

Actually never a big discussion customers, particularly when you think about wage inflation and energy inflation. These are the kind of essentials to delivering a great service and that's the.

Most important thing delivering a great service. So we never tend to have a big drama in the discussions with them, even though the actually cost increases.

But nevertheless, those tend to easily go through to our customers under the terms of the agreement that we have.

We have with them, so and more and more as Paresh mentioned, we're seeing a lot of open boot deals coming along I think in these high levels of inflationary environment that we say that's not a bad thing that's actually a good thing for us we're quite happy with those.

So that's the overview.

Can kind of share with you.

We've become I think we've matured as an industry all of a sudden full of technology a full of automation.

I Couldnt remember the days when you could have a graduate trainee induction day and you'd have a few people who don't know.

No. It's thousands of people people want to work for <unk>. So because they just see as a super high technology company with a very loyal very strong very structured customer base.

Thank you for that.

On the quantitative side.

I know you guys talked about this some in the.

The Investor day last summer, but the business is changing youre doing a fairly sizable acquisition.

I don't know Malcolm or bearish, who wants to take this but can you talk a little bit quantitatively about your modeling for how the business would fare in a deeper recession, just want to understand how instructive, nor Bayer 2009 scenario is or is not thank you.

Sure I'll take that this is very sure when you look at our customer base is very strong and our volumes are really strong as Mark mentioned, we have seen a stellar 19% organic growth result, as we are forecasting continued growth in our business. However, if you're going to see a downturn to 85% of our red.

It is fixed and.

And that's.

<unk>, one site and base because of the resilience of our open book cost plus contracts and inflation pass throughs. Our margins are very stable in different cycles, we have long term visibility with booking revenue all the way to 324 right now we have fantastic visibility in 2020 to 22 AC booking into 'twenty four.

And.

We have minimum volume guarantees that reinforces our strength in that bottom up and down cycles. So our mix of our business is very resilient and it's a business for all seasons.

Remember the fixed revenue, 25%, 40% open book, we have minimum volume guarantees inflation pass throughs and booking revenue all the way up to 2024 right now.

Okay. Thank you for that.

Thank you. Our next question is coming from the liner Brian .

J P. Morgan. Please proceed with your questions.

Hey, good morning, Thanks for taking the question.

Just wanted to come back to the margins and the startup costs.

Two part question on that can you give us a sense, where these start to fade as Jack so it gets to a certain size or scale or would this be kind of just normal seasonality. When you look at margins for first half back half.

That would be helpful to kind of understand and then also more near term given the environment. How tight everything is would you say that the startup costs are maybe a little bit more than you would've expected.

A good execution on time, the inflation getting enough people in place to stand up these projects, which sound like they're kind of Florida. So comments on both of those it would be helpful.

Hi, Brian This is Barry let me take that question.

As I mentioned, 19% organic growth and a very sizable portion of that is coming from new business wins were really trending at the higher.

Clearly trending at the peak of a range as far as new growth guidance and this has been extraordinary growth as Michael mentioned, we are extremely busy implementing contracts left right everywhere is our services are in high demand.

And we are delivering quite a lot to our customers. Our recent events through some of our performance for example in a download E Commerce customer we launched site launched recently reduced their variable cost by 40% per unit reduced inventory stock units by around 40% and most importantly, we delivered.

Net promoter score as you know this is used as the customer intimacy consumer intimacy and consumer satisfaction score, 45% uplift in the net promoter score. So that's what driving our new business wins and as I mentioned, we have 40 basis points Delta in Q1.

68 basis points is coming from new business wins, and he has been an extraordinary growth in in the second half of the usage you should see margin expansion coming from these new business wins.

Margin starts to mature.

Okay, but I guess in terms of.

Looking forward as there is this like the way the seasonal seasonality of the business should work, where you just have startup costs that just are higher in the first half.

Versus the second half or does that depend on.

Other factors like how much of it's organic or not.

Just trying to think about how we should be modeling this and really what's driving most of this impact.

Impact here in the first half will just be something we should be considered in more so in the future is just part of the normal business.

During the peak our customers don't like implementations everybody is very focused on.

Making sure the volumes are delivered to the consumer base. So that starts with before the Black Friday ends up with the returns process. After Christmas. So that's a period that we don't do a lot of implementations we tend to focus on delivery. So after that there is of course, an accumulation of new startups and youre getting ready for.

The next week.

<unk> as we get ready for <unk>. So you should see that on a year over year basis on a quarter over quarter basis, because of the nature of our fulfillment business model.

The peak season.

Okay understood.

And then just one quick follow up you mentioned returns and just Jack So direct I think in the past you've given some relative sizing and growth rates.

Can you give us an update on both of those thank you.

Hi, Brian I'm happy to take that.

With Jack so direct.

It's been huge demand obviously for the Jack So direct service, we have been as I mentioned to Chris inundated with customer inquiries margins youll be pleased to know for this year should be better versus the base business and they're growing substantially which is a good sign very broadly I think this year, we're budgeting for around $400 million of revenue in that business.

And clearly there's a lot of validation in the market.

What you are seeing with some of the M&A in the space, you've obviously seen shopify and deliver that to me is a very strong sense of validation that we're seeing interest in growth within that space. Unlike our broader business.

<unk> the customers to get closer and closer as bearish was talking about earlier in this D to C element get closer and closer to their end consumers. So the business will be really one of the mainstays of what we continue to grow.

Malcolm's point earlier. It clearly is also a very clear link with what we're doing in the multi tenanted warehouses of clipper, which dominates obviously that footprint. So we're very excited with what's going on within our base business in the U S. And then as we acquire oversee Copa will provide a growth Avenue within the European portion, which will act to a certain degree as <unk>.

Europe , so to speak so very exciting times ahead and tons and tons of growth in that business customers are falling over themselves to do business with us and it's a very good margins and returns.

Okay. Thanks for the time.

Thank you. Our next question is coming from the line of Hamzah Mazar with Jefferies. Please proceed with your questions.

Hi, This is Mario <unk> filling in for Hamzah.

Maybe could you just comment on what Youre seeing on labor availability and labor inflation in your model and kind of how you are managing through that.

I know that in your open source contract.

Pass through some or all of that inflation.

Our pressure, but maybe just kind of going back to the implementation of these projects as well in kind of the cost.

From a maybe even a capex perspective or implementation perspective kind of what youre seeing on again availability and then how youre managing through the labor inflation there.

Yes, hi, its smell, Tim let me, let me come back on this question so I mean.

Every time the market that we were seeing in 2021, that's eased.

Finding right now it's easier to recruit.

Labor and available I mean, having said that remember this is the quietest.

At time of the year in some respects a lot of our customers is not the busiest season as we normally see in the second half of the year as Paresh mentioned, so so elaborate a little bit.

Yes.

To say I mean in 2021, and we were able to successfully recruit all of the labor that we needed to.

We do that by paying a lot of attention to how we recruit a recruitment teams that know embedded right in the business right down in the ZIP code as it was so we're abreast of everything that we need to do in terms of making sure. We got the right volume underwriting skills.

And that fundamentally is about making sure that we're competitive.

So it's about ensuring that project. So we're just a great place for people to work, we want people to want to join gx or so whether you're working in a warehouse whether you're one of the implementation teams, whether you're a automation engineers, there's a lot to be said out of creating an environment where.

People actually do want to actually be employed by year end, we take a lot of store and that we look at.

On pulse surveys or all of the team. That's on this call from Jack. So every quarter. We retired reasons of survey results and also there is.

Sometimes you can identify things.

They should be and you correct them and by doing that I think.

It gives us this environment of being able to recruit when it comes to what we're seeing on the ground right now in terms of.

Labor wage inflation I mean, it's a real mixed story, we've got some Pos geographically, we've got labor inflation sort of 10% levels with auto parts, where it's moderated back down into sort of two 3%. So it's a real mixed bag by decentralizing.

Recruiting model, we are able to fill all of the roles that we need right now.

Although the busiest time of the Christmas seems a long way away useful to remember that our teams are now already working is may so it's not that far away, we're already working with our customers in plumbing. The result is that going to be needed for all of the different sales events.

All of the day for new product launches that are going to come along during the second half of the and we apply that same mindset too when we're implementing new business.

The new business that we implemented is methodically planned you have to imagine, we're bringing together all manner of different machinery automation machinery tens of different manufacturers and people all into one place to commence a warehouse operation going back to <unk> comment earlier.

Quarter, one was a particularly busy period followers of actually doing implementation had been a very.

Challenging time for all of our operational teams, but they've done an incredibly good job and we are.

We're all very proud of the work.

Tom.

Got it thanks, and then just for my follow up.

Maybe you could just talk a little more about Germany, who are the main competitors there.

What is the pro forma market share that you guys will have with clipper, how big can that market be for you guys and then I guess just with that.

What gives you confidence in your ability to win that business.

Other players in the market that are much more established currently.

Yes, so I mean, Germany as I think I mentioned, Germany, Europe's largest single economy is the market is good for outsourcing is a market that's very open to outsourcing.

When we think of our business today is very small for <unk>. So for Quickbooks bigger when you put both together.

Real critical mass.

With customer business.

Customers ultimately always want to see what you do.

If they're going to give you a $50 million.

Contract they want to see that you can do it.

This way they can see that.

Get them to see an existing facility. So when you don't have those existing facilities.

Walker for business growth.

So when we combine our business together click per <unk>. So for the first time, we will have real critical mass.

Some locations to show customers lots of different vertical experience to share with them and we're very confident that the <unk> brand. The reputation that we have in the market for delivering reliable on time solutions lots of automation highly productive.

Really efficient saving our customers lots of moment, improving the services improving the consumer experience. We're very confident that we will see a rapid growth in the market.

For G&A, so the kind of people we will.

A spa with is probably no different than all the other territories.

There's a range of incumbent European players in the market, but the differences will be a new entry and where our new entry with a lot of very high grade.

<unk>.

Im very confident that we will see a very good accelerated growth in that market and then it will be on top of the growth that we've seen across the rest of our business.

Understood. Thank you.

Our next questions come from the line of Ravi Shanker with Morgan Stanley . Please proceed with your questions.

Thanks, Good morning, gentlemen.

A couple of questions on the resilience of our names in a downturn.

I think as we kind of one of the key tenets of our story.

We first started the follow up I'm not going to you said a couple of times that you're seeing.

A shift of demand over to stores.

Would you say it was not a bad thing I'm trying to get to understand that a little bit better I mean, there's obviously a majority of your volumes are e-commerce. So.

How is that kind of how are you agnostic to a shift away from ecommerce store to store.

Well I mean on one hand, a lot of our customers actually E. Commerce Omnichannel. So in fact, we worked with them and we actually deliver into still a slow of them. So from a G&A. So part of it we're not really worried.

Whether we are delivering into a store however, it digitally or online.

I think it's useful just taking a step back I mean, we see a drift back to.

Brick and mortar to the shopping mall portfolio.

Fundamentally it has not changed at all.

A large manufacturer retailer sentiment they want to drive more of the business online.

It's a lower cost for them.

It gives them a better input to the consumer experience that can better George what's selling what's not selling is a direct contact with the end user so whilst we've seen momentary.

Moved back is not big volumes by the way, but we can see in our data because we analyzed very carefully.

Happening across our business with more than compensated for that with just the sheer number of brand new first time outsourcing customers that are asking us to support them.

Our sales pipeline it makes us the largest proportion of around 44% of our sort of $2 5 billion sales pipeline right. Now is first time outsourcing.

That's really important.

More than made up for in that and then from our existing customers even customers who have seen.

Brick and mortar sales picking up are still trying to expand the online sales because for all the reasons we've talked about so.

We don't really see any big dramatic impact coming from that and it was always to be expected as the pandemic has COVID-19 finally started to disappear that we would all be well come and we'd all relish the opportunity of.

We're going to get into pizza.

Shopping mall loving.

Not it won't run the stores during the day I think I think everybody is happy about that.

In a roundabout way, so but for us.

Very robust growth, we don't see any sign of that letting go.

Understood, yes, not complaining about being able to go out either.

The second question is kind of on the same topic.

Can you just help us understand kind of what the construct of your contracts are like.

Because obviously in a downturn your customers are going to see volumes decline.

But how are you protected on that I mean, do you guys have take or pays.

In your contracts do you have.

For a minimum volumes how does that Ken is there a cap on that I'm, just trying to figure out kind of what the floor is on earnings.

If there is a fairly severe recession not that that's the base case.

Paresh, maybe you can comment.

Sure our contracts are very well structured for volume fluctuations remember nearly 40% of our open book cost plus contracts, which are very resilient.

And then there is 25% of fixed revenues and high return on invested capital and they don't require a lot of upfront capex inflation pass through another concern and volumes on these contracts don't really affect our business.

So the remainder 60% closed book hybrid.

When you think about them. They also have about 25% fixed revenues associated with them. So they don't it doesn't matter what the volumes are and then you are looking to their cost structure is workforce is most flexible and very scalable more than 50% of our cost is coming from our workforce.

It is very flexible and scalable.

And volumes will impact margins on closed book and hybrid contracts, but there's a lot of scalability and variable Jonathan on the cost for these operations well. So if you scale up or scale down operations in line with our volumes. So when you look into the picture or or context on our business is very well structured with this mix.

After clipper, we should be close to 50% of book.

Okay understood I will follow up offline as well thanks, so much for the time.

Thank you.

Ladies and gentlemen that is all the time, we have for questions today I'd like to hand, the call back to management for any closing remarks.

Thank you. Thank you operator, and thanks for managing the call so well.

It's Malcolm here I'm, just going to really bring the call to an end a few comments from my side and from my from Mike on behalf of myself and my colleagues. So first and foremost I mean this is the third time, we've made a call and I hope everybody on the call is starting to get familiar with.

Process.

A company that likes to achieve we are comparing <unk> to two <unk>.

Good results.

This is a completely managed by hands on sleeves rolled up management.

Most of our business, we're close to the markets that we operate in.

The acquisition, that's coming along is going to be integrated very smoothly, we will give a great job with that.

The company itself, we're in a strong position with continuing to benefit as we have grown from our launch and what we saw even in last year.

A huge amount of outsourcing more and more companies seeking to outsource their logistics.

Fulfillment is roughly 50% of our business signed capping a tiger by the tail even in an environment where people go back to the mall is growing at a tremendous pace and lastly, we're capitalizing and we really have been making huge benefit from first mover advantage in automation.

And tech enablement of the warehouse and nothing no reason to imagine that we will not continue to do that in the quarter itself. It was a great quarter for us I'm not going to come.

Everything that we've talked about it but it was really a super quarter for us and we're very very pleased about that and always remembering that as of <unk>.

Business, we've only really existed since last August so there is a huge amount of.

Future with this company is still to come and still to be sure. So listen I'd like to bring the cult and Im very pleased everybody on the call you were able to join US today I really thank you for giving up your time and I really thank you also for the support that you're giving to <unk>. So thank you very much.

Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may disconnect your lines at this time.

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Welcome to the <unk> Q1, 2022 earnings conference call and webcast. My name is Daryl and I will 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 you 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.

A discussion of the 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 earning 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 as guidance incorporates business trends to date and what it believes today to be appropriate assumptions.

The company's results are inherently unpredictable and maybe 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.

<unk> pressures and the various factors detailed in its filings with the SEC.

It is not possible for the company to accurately predict demand for our services and therefore actual results could differ materially from guidance you.

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 investors section on the Companys website.

I will now turn the call over to <unk>, Chief Executive Officer, Malcolm Wilson, Mr. Wilson, you may begin.

Thank you operator, good morning, everyone and welcome to <unk> first quarter 2022 earnings call. Joining me today are bearish Oren Chief Financial Officer, Mark <unk>, Our Chief investment Officer.

10%.

This is our highest first quarter performance ever.

Our adjusted diluted earnings per share increased by 59% year over year finally, our new business wins of $344 million is also a record for the first quarter underscoring the growing demand for our best in class.

<unk> as a result of this continued strong performance we are raising our full year organic revenue guidance. We are clearly in an environment, where supply chains have become far more complex and will require much greater scale and innovation.

All of our verticals are growing both organically and through new customer wins.

Worth taking a moment to discuss where we are winning new business.

Our first time outsourcing contract wins included BT cough for Decaf alone.

Raytheon.

Alonso, we saw expansion of operations with several existing customers, including Abercrombie and Fitch diversity, Ingersoll Rand and <unk> robot in the short term as physical retail reopens, we have seen some shifts from e-commerce back.

To brick and mortar retail.

However, our customers continue to invest heavily with us in developing the direct to consumer channel.

When you combine this with our high revenue retention levels, we have great confidence in the robust nature of our growth trajectory in 2022 and the coming years.

In early April we were very pleased that clipper logistic shareholders voted in favor of our offer to acquire the company.

We anticipate that this acquisition will be highly accretive to <unk> financial results.

<unk> expertise and our geographic coverage.

As a new company, we have the unique opportunity to tailor, our environmental social and governance strategy to what matters, most our people our partners and our planet.

With the recent release of our inaugural ESG report, we're off to a strong start.

I will now hand, the call over to Barrish, who will talk you through our quarterly performance in greater detail.

Hi, rich over to you.

Thank you Malcolm and good morning, everyone to start I am going to review our record first quarter results and I will discuss the durability and visibility of our contractual business model in the first three months of the year, we delivered 19% organic revenue growth.

Our fifth consecutive quarter of double digit growth.

And secured a record number of new business wins.

Net income attributable to shareholders in Q1 to 80 382 was $37 million this compared to $14 million a year ago adjusted.

Adjusted EBITDA grew $255 million up from $143 million on a pro forma basis, a year ago and adjusted diluted earnings per share increased by 59% year over year. Our return on invested capital was stellar at over 30%.

We are implementing larger and more complex solutions on an unprecedented scale you'll see this in the investments we have made in the first quarter starting up these operations. This will drive full year margin expansion.

More visible in the second half of the year and into <unk>.

The average contract duration of our wins was approximately six years, which continues to extend our overall contract like.

The strong secular trends within this business are demonstrated by the fact that we have raised our revenue growth guidance for the year.

We have also introduced an adjusted EPS guidance of between $2 70, and $2 90 per share.

Implying a growth range between 29% and 39% year over year.

Turning to cash flow.

Our business in the first quarter typically sees modest cash outflows due to seasonality.

This quarter was no different.

$60 million in cash outflows in Q1 2022 versus $20 million in cash outflows in Q1 2021.

As you May recall, we said that our growth capex to sales is approximately 2% and as we grow and implement new business, we have a modest working capital drain.

We remain very confident in delivering our guidance of 30% free cash flow conversion from EBITDA in 2022.

Our investment grade rated balance sheet continues to be rock solid with leverage of under one times last 12 months adjusted EBITDA.

To conclude <unk> high earnings predictability continues to be underwritten by a further new business pipeline longer and longer contract durations.

Highly variable cost base inflation pass throughs minimum volume guarantees and best in class revenue retention rates.

Our first quarter results clearly demonstrate that this business is not just an exciting structural growth story, but one in which we expect to deliver outstanding profit.

Strong cash flows with greater returns for our investors.

I'll now hand, the call to Mark who will elaborate our record wins technology investments.

CA achievements as well as our res growth guidance over.

Over to you Mark.

Thanks Paresh.

<unk> delivered a record first quarter for new customer wins.

We've won over $344 million in the first quarter about two thirds of that will fall this year.

Meaning we now expect.

Over $1 billion in incremental 2022 revenue.

Now importantly, we've also sustained our strong mid to high Ninety's revenue retention rate.

Our wins.

And our $2 $5 billion pipeline can be attributed to our reputation for quality and reliability.

But also our leadership in technology enabled solutions.

We really are the innovation leader in our industry and we never stopped working to retain our technological edge.

The rise that you can see an average contract duration of the first quarter reflects the fact that we are partnering on more and more complex solutions with our customers.

Over the past few years, we've invested to increase the level of automation across our global footprint.

<unk> in the U S. We've seen a year over year increase of more than 40% in automated solutions in the first quarter and at the end of the first quarter. One third of our revenue is driven from highly automated sites globally.

This is driving real benefits for our customers across our business and for all of our stakeholders. For example in a number of cases, codebooks <unk> warehouses have materially improve productivity and accuracy rates, while enhancing our already great employee retention rates I would also.

Note that we've recently launched <unk> automated packaging solution in our e-commerce sites, but custom fits boxes to their contents saving significantly on materials and contributing to sustainability.

These technological advancements not only drive our business forward they are well aligned with our firm belief that how we do business is every bit as important as what we do.

In particular I'd like to call out a few key highlights from the report on the environmental side.

Our greenhouse gas emissions fell by 3%, but what's more impressive here given the growth of <unk> is that the per dollar of revenue actually fell by some 24% year over year.

Additionally, nearly half of our global floor space is now using more efficient led lighting.

It's clear through both our wins and pipeline that we have considerable growth opportunities ahead as more and more customers are looking to <unk> to optimize their warehouse a mission critical component of the supply chain.

All of this is contributing to our raised guidance and let me take you through those highlights.

Secondly, we provided adjusted diluted earnings per share guidance for the first time.

And we're looking for this EPS of between $2 70, and $2 90. This implies a growth rate now of between 29 and 39% this year and puts us in the top 20% of the S&P 400 mid cap companies.

In closing we are clearly off to a phenomenal start in 2022.

GSO has extremely high multiyear revenue visibility some exceptional growth with global Blue chip customers.

Resilient returns and excellent cash generation.

We will now open the call up to Q&A.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.

You pick up your handset before pressing the star keys, one moment, please while we poll for your questions.

Okay.

Our first questions come from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions.

Thank you very much good morning, gentlemen for my first question.

I'll ask.

If you could please discuss what youre seeing in supply chain right now from a macro perspective, how that's developed in recent months and how how it's impacting your business. Thanks.

Thanks, Scott, It's Malcolm Wilson.

Let me come in and give you some background. So first and foremost if I think about what <unk> seeing well you've just heard our call I mean, it was a great quarter.

We're operating in a huge addressable market and $430 billion, we have great organic growth, 19% as Mark just mentioned EPS guidance puts us in the top 20% of the S&P 400.

We launched our inaugural ESG report, so really it was a super quarter. What was very very pleasing was the level of new business that was being signed $340 million. There was a huge amount of implementations taking place as well that will flow through from 2021. So overall very very good.

Good.

We've got to put that against the kind of bigger picture and what we saw really progressively through from January onwards was in some of our customers, where we operate and our omnichannel capacities. So we operate E fulfillment and also deliver into brick and mortar facilities for them.

We've seen that consumers.

A consequence of the pandemic receding have drifted back into the shopping mall Thats a great thing we're happy about that so we've seen some volume change as a consequence of that.

We've also see of course in Europe .

We can imagine.

Situation the shock aspect of the Russian invasion of Ukraine.

Shock initial shock.

Has really dissipated now.

To say that people have become familiar with the situation.

Last thing I want to comment about the Big picture is there are still evident supply chain disruptions right now.

All customers across our North American business and European business are affected by.

Shortages of products as a consequence of that.

Corvid in Asia, particularly in China and of course, various type of shipping disruptions last year. It was long beach inbound cohort this year, probably more outbound ports like Shanghai. So that's the kind of big picture, but overall we are constantly.

Monitoring our sales order pipeline.

Our retained at a very high very positive level.

Over $2 5 billion conversion accurate as it remain very constant retention of customers very constant contracting terms, if anything going upwards. So on average for the quarter was around six years. So overall, we're kind of not seeing the.

The impact of these larger picture events, but I do want to say in the end.

100% immune to any kind of macro world interest rates are going up.

<unk> hundred percent Matt.

Moving to that.

I would say that the very nature of how we do business the nature of how we strike our contractual deals with our customers our ability to pass through.

A lot of inflation to pass through at the moment, we're successfully doing that.

Really gives us a very strong base shields us to a certain extent from these momentarily volume modifications that we're seeing we see a bit of softness on one customer.

The scale of our business really tends to allow us to not see any major impact in our across our results.

Excellent. Thanks, Malcolm appreciate that color.

For my follow up I'd like to ask.

Margins in the quarter, if you could please elaborate but looking at slide 16, yes. Thank you for the bridge.

You had going in the right direction performance improvements and other if you could elaborate on that and then obviously you had this great.

New new activity and new business start ups, which is a bit of a headwind. So if you could just speak to how we should expect to see the margin develop over the balance of the year.

Thought of how you would bridge 2021 to 2022 in a similar fashion and elaborate on some of those drivers. Thank you.

Sure. This is Bruce here I'm going to take that margin question.

19% organic growth in Q1, and then you look into the components of that growth.

Is it close to half is coming from net new business wins.

Bearing in mind that our earlier guidance was about 5% to 8% of our organic growth would come from new business wins, which we are clearly trending at the peak of this range.

And then we start up new business due to the complexity of the solutions, we provide to our customers. It takes time for each operation to reach our margin.

Margin maturity this ways by contract type open book.

Which will drive our margin expansion on a year over year basis.

So the impact of new business wins in Q2, we were less than Q1, but we will see a positive margin contribution starting in the second half of the year.

Great. Thanks for the color I'll turn it over.

Thank you. Our next question is coming from the line of Chris Wetherbee with Citi. Please proceed with your questions.

Hey, Thanks, and good morning, guys.

Maybe if I could just piggyback on that margin question, maybe understand that a little bit better as we think about.

Really more bigger picture so beyond just sort of the second half of this year as you think about the opportunity set in front of you the pipeline that youre expecting is there a way we can think about how much startup cost should be sort of generally in the business in any given year I don't know if thats what the percent of revenue. If we want to think about that as a percentage of adjusted EBITDA margin just wanted to get a sense of what.

Should be sort of assumed in our expectations as we move forward beyond 2022.

Sure Chris.

Mentioned it has been an extraordinary quarter of new startups and when you look into the Q1 detail the delta in EBITDA was about 40 basis points and.

68 basis points Delta is coming from net new business with the remainder, reflecting our operating activities, including operating excellence. So this has been the <unk>.

As we mentioned earlier in Q4 earnings call. This has been.

<unk> robust startup time, we had been extremely busy and it is reflecting that in our margins and overtime.

In the second half you will see more prevalent improvement in our margins. We're writing a lot of contracts very solid contracts for return on invested capital I will give you. An example, I was we didn't get a contract with huge revenues and only 6% EBITDA margins, but return on invested capital of 86% and EBIT a mark.

Our group average this is the kind of contracted I will sign every day and all day.

Yeah.

Okay. Okay understood I guess, it's not necessarily a good rule of thumb that would get you to think about in terms of X revenue equals on an annualized basis equals an initial upfront startup cost of something some percentage of that is there any way to think about it in that context.

Yes, Chris couple of ways of thinking about it so just to <unk> point about the pipeline, it's mark here obviously.

We've got a very long duration pipeline. That's what your question talk towards but really what's happening in this $2 $5 billion pipeline, which by the way is up 20% year over year, we're winning some great contracts and those contracts are tilted to our strength, which obviously our margin and return enhancing so you'll notice that in our presentation.

<unk> pack that we put out last night, 70% of our mix is coming from E Commerce, Omnichannel retail and consumer technology and all of the contracts that we signed three Q3 Q4, and Q1 have some element of automation attached to them Youll remember we've talked about automation contract win was having 300 to 400 basis point margin improvement in our business.

<unk>.

So there's lots to like here in the pipeline Theres lots of like in terms of the new wins that we're signing we're winning a lot of outsourcing contracts, while its expansion and competitive wins in the business and that over time will naturally be margin expansion in hosting and also return enhancing his bearish in mountain both alluded to.

Okay. That's really helpful. I appreciate that color Mark. Thank you so much.

To your sort of the floors and ceilings within the contract specifically on the E comm side would be helpful.

Yes, let me let me let me help on that question, it's Mark here. So if.

If you think about our business right now, let's let's go back to basics in terms of the 8% to 12% guidance range that we had so that was essentially coming from two elements that was coming from existing growth, which was 3% to 4% at the time and then 5% to 8%. We've obviously ways that range as you know to 11% to 15% for this year that now goes in essence.

So you can think about it as being existing customer wins, a four to five but that gives you a sense of what's going on in the underlying business, which as you say is highly skewed in our business towards E. Comm and then of course, new business wins in the seven to 10 range. So if you think about that that gets you. If you take 45% and seven to 10 and that gets you to 11% to 15, which is that new.

<unk> range and I don't think in terms of your underlying point, but run rate as you talk about in your question I don't think it would be unfair to surmise that the existing customer range that we've talked about is tracking ahead of trend in the first quarter as we saw in the third and the fourth quarter as well so underlying volumes as Malcolm spoke about the Scotts question looking good.

The reason I'm also confident in the 7% to 10% range just kind of looking into the looking glass as you say is the fact that the new customer wins and now accumulating at this $1.02 billion range.

A lot in the Hopper in terms of new wins is the guidance talks about its essentially the 830 million that we talked about at the last quarter plus the $192 million from the last quarter that basically is 10, 5% plus two 5%, which means we've got a gross win rate already banked for this year of 12, 9% in the bag.

Anything that we could potentially win in the April was just passed in May that we're currently sitting at so thats, what really drives our confidence in terms of existing customers gross wins when you combine that with the fact that as Malcolm said this mid to high <unk> revenue retention rate, that's very strong for our business services companies such as us as I'm sure you're aware.

So you've got really everything heading in the right direction for this business you've got existing customer growth.

<unk> pipeline, you've got stellar retention rates and you've got plenty of new wins coming through so there's lots to be excited about here, Chris in terms of the underlying growth and the new growth coming through in the business I hope that helps.

Got it thanks, so much for the time appreciate it.

Thank you. Our next question is come from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your questions.

Thanks, Operator, hi, everybody congrats on the results.

Malcolm I wanted to go back to your commentary on the first question I think Scott Scott Schneeberger question. So Europe , there's a lot going on in Europe right now.

Almost all of it if not all of it presents macro challenges.

And <unk>.

You guys or your customers, you're engaging with your customers for 10, 15 20 million dollar outsourcing projects, which are huge investments for your customers.

So I understand that the markets you serve and the solutions you're provider have incredible.

Secular tailwind attached to it but if you can just I mean, youre doing business right now for 'twenty three 'twenty four 'twenty five.

The challenges in Europe at all presented.

<unk>.

Yeah. Thanks, Thanks for that and.

It's a really good point that you're asking because I think as Jack. So we are a good bellwether. We can see ahead that long runway that we have a visibility of what customers are doing and why.

What I can say is right now.

E fulfillment I mean, we talked earlier about we've seen a drift back to brick and mortar I think that's a good thing, but overwhelmingly all of our customers continuing to want to put more and more of the business online and theyre doing that clients in <unk>.

Because it improves their ability to see directly the consumer experience they talk firsthand they see directly.

We're also not to lose sight of the fact, it's a lower cost model for them to service the consumer directly relevant for our brick and mortar. So when we look at E fulfillment business, which is for <unk>. So broadly around 50% of our activity, that's really going like a rocket and those projects that we talked to.

<unk> is about the never ending I mean.

Very buoyant lots of discussions with new customers.

Pipeline at the moment heavily populated with new projects.

Growing very very well when we look across the rest of our business I mean, our food beverage <unk> activities. I mean, it is what it is you know people have to heat.

Customers are becoming more attuned to automation and that drives longer term contracts. So on that side of the business equally what we're seeing as a shift to longer term deals simply because they can carry more capital being put off really with the intent to servicing the consumer.

For 510 years, plus and then the rest of our business I can only kind of comment that really timeline wise a strong.

Lots of long term projects in amongst so.

We're not really seeing I've heard a lot of a lot of customers talk about.

Not customers buffered a lot of companies in the last week mentioned about may be it may be slow or things like that we're not seeing yet we're just seeing really a continuation of what we saw through 'twenty one 'twenty.

But also for the long term benefit.

That's pretty amazing I think it speaks to.

The opportunity in the execution. So so a couple other quick ones if I could barrish.

One thing that I noticed is when I look at the adjusted cost of the business, so taking out transaction and restructuring costs.

Deal amortization costs, the adjusted cost of the business was up year over year, but at a lower rate than revenue growth and I'm, including FX and both both numbers I just want to think about.

A lot of our margins for this business, but at the end of the day, it's a very growth centric business.

Yes, I feel fully confident on that as you look forward.

We will have higher margin expansion.

Especially on EBIT.

And you'll you should continue to see that our EBITDA margin expansion faster than our EBITDA margin expansion.

Currently we are about 40% open book.

After a clipboard, we are going to be pretty much close to 50% open book and thats going to be accelerating our EBITDA margin expansion much higher than EBITDA.

I'm just more focused on EBIT because obviously.

The useful life of your assets tailored to how you price the business in your <unk>, but it seems like that should translate to EBIT as well.

Very compelling, but one could argue that you're capitalizing a lot of the benefit based on the pre synergy price Malcolm <unk> been in Europe for for decades I've been in this business for decades, one clip forgive you that makes the price worth paying for and can you just talk about the strategic.

Now.

And why you are willing to pay such a high price on a pre synergy basis for the company, Yes, Amit.

M&A opportunities and Clipper was right at the top so we were Super pleased to have found an agreement very happy with kirker shareholders voted through the deal.

By the way just on timing on that.

Heading into the kind of holiday periods for a lot of the people who work on those matters.

So more likely to be September , but its in the coming months for sure.

We're looking forward to welcoming all of those new team members across into the business is very accretive for our business. Even in the first year is going to be accretive and youre right. We are paying a good price for it but it's coming with just absolute tone of cost synergies of about $48 million.

Very visible to us is kind of where an experienced management organization, where malware experienced M&A with experience that integrating businesses and eating out all of the benefits that come out of any integration what that business is bringing goes.

Is that could consume the rest of this call Amit just to tell you about it.

It's bringing a reinforcement of E fulfillment in core markets that we operate virtually no crossover of customer I think when I look I think this may be one maximum two customers, where we actually have.

Business together at the moment very very small so no crossover customers. So there's a massive opportunity for cross sales across the customer base a lot of the clip of customers.

Multinationals, so they're not just UK activity.

And then I was assigned to the customers' clipper very advance more saw pains me to say it but more so even than <unk>. So when it comes to reverse logistics returns management, it's a real scale for them they've got a lot of very sophisticated software that drives it so.

That is going to help us tremendously leverage those skill sets and those technologies across the rest of <unk> customer base not just in UK Continental Europe , or even bringing out to North America. Then when we look at the geography could pose core business is a U K business, but.

You've done a great job of expanding and particularly in Germany.

Really well now the gx, so we admire Germany, it's on our list of M&A target countries.

Clipper in fact, when we put our existing business together with the business for Germany, which is by the way Europe's largest single economy. It gives us critical mass and if we just see accelerating growth in Germany in the same scale as the rest of our business while that is going to be incredible.

For us, it's a big market dominated by a handful of players at the moment plenty of room for a new technology driven organization like Jack So as loss thing used verticals.

<unk> done a great job of developing some verticals that are very heavy in repairs and refurbishment, we will leverage that across all of our customer base. They have been growing out a small network.

Gannett and through small M&A, and we will look to carry that good work comp lit huge leverage across our existing customer base and it fits well with ESG as well unless slit health.

Life Sciences, and it's a business, where you need scale, when we marry that to gx or scale, that's going to be a winner would know any today is going to grow like a wait.

We're really got good hopes for it so I think all in all this is what gives us some compelling reason to make that agreement I think big cost synergies.

Huge.

Huge top line synergies are going to come from that.

<unk>.

Okay. That's very clear thank you malika and thank you everybody appreciate it.

Thank you. Our next question is coming from the line of Vasco majors with Susquehanna. Please proceed with your questions.

Malcolm you join the Gx, our predecessor, nor bear in the fall of 2007 and walked effectively right into a deep global recession and had to manage through that can you talk a little bit about the signs of the business changing that you saw 15 years ago and how those in.

Inform how you manage this business for downside risk into the current environment. Thank you.

Yes for sure yes.

The goal.

Demento thing that's changed over all of those years.

Today, we are an integral part of the customer activities.

Those blue chip customers, nor one that they signed 510 15 year agreements because we become absolutely integral very sticky with them, we're part of how they deliver their service.

When we look at how we work together.

Very much a contractual type of environment, we have.

Set volume type of agreements, that's why you've heard bearish mention about the pass through of inflation is.

Actually never a big discussion customers, particularly when you think about wage inflation and energy inflation. These are the kind of essential to delivering a great service and thus.

Most important thing delivering a great service. So we never tend to have a big drama in the discussions with them, even though they're actually cost increases.

But nevertheless, those tend to easily go through to our customers under the terms of the agreements that we have.

We have with them, so and more and more as Paresh mentioned, we're seeing a lot of open boot deals coming along I think in these high levels of inflationary environment that we say that's not a bad thing Thats actually a good thing for us we're quite happy with those.

So that's the overview.

Can kind of share with you.

We've become I think with mature doesn't industry all of a sudden full of technology full of automation.

I can remember in the days when you could have a graduate trainee induction day and you'd have a few people who don't know <unk>.

<unk> of people people want to work for <unk>, so because they just see us as a super high technology company with a very loyal very strong very structured customer base.

Thank you for that.

On the quantitative side.

I know you guys talked about this some in.

The Investor day.

Last summer, but the business is changing youre doing a fairly sizable acquisition I don't know Malcolm embarrass, who wants to take this but can you talk a little bit quantitatively about your modeling for how the business would fare in a deeper recession, just want to understand how instructive, nor Bayer 2009 scenario is or is not thank you.

Sure I'll take that this is Barry when.

When you look at our customer base is very strong and our volumes are really strong as mark mentioned.

I've seen a stellar 19% organic growth result, as we are forecasting really continued growth in our business. However, if you're going to see a downturn.

5% of our revenues fixed and.

And.

We have minimum volume guarantees that reinforces our second at bottom up and down cycles. So our mix of our business is very resilient and it's a business for all seasons.

Remember the fixed revenue, 25%, 40% open book, we have minimum volume guarantees inflation pass throughs and booking revenue all the way up to 2024 right now.

Okay. Thank you for that.

Thank you. Our next question is coming from the line of Brian .

With J P. Morgan. Please proceed with your questions.

Hey, good morning, Thanks for taking the question.

Just wanted to come back to the <unk>.

<unk> and the startup costs.

I have a two part question on that can you give us a sense, where these start to fade as Jack so it gets to a certain size or scale or the speed kind of just normal seasonality. When you look at margins for first half back half.

That'd be helpful to kind of understand and then also more near term given the environment and how tight everything is would you say that the startup costs are maybe a little bit more than you would've expected.

Terms of getting the execution on time, the inflation getting enough people in place to stand up these projects, which sound like they're kind of Florida. So comments on both of those it would be helpful.

Yeah.

Hi, Brian This is Barry let me take that question.

As I mentioned, 19% organic growth and a very sizable portion of that is coming from new business wins were really trending at the higher.

Clearly trending at the peak of a range as far as new growth guidance and this has been extraordinary growth as Mark mentioned, we are extremely busy implementing contracts left right everywhere is our services are in high demand and we are delivering quite a lot to our customers a reason to run through some of our performance.

For example, in our Belmont E Commerce customer relaunched site launched recently reduced their variable cost by 40% per unit.

You said inventory stock units by around 40% and most importantly, we delivered then net promoter score as you know this is used as the customer intimacy consumer intimacy and consumer satisfaction score, 45% uplift in the net promoter score so thats, what driving our new business wins and.

As I mentioned, we have 40 basis points Delta in Q1, 68 basis points is coming from new business wins and it has been an extraordinary growth in in the second half of the usage you should see margin expansion coming from these new business wins.

Starts to mature.

Okay, but I guess in terms of.

Looking forward as there is this like the way the seasonal seasonality of the business.

Should work, we just have startup costs are higher in the first half.

Versus the second half or does that depend on.

Other factors like how much of it's organic or not.

I'm just trying to think about how we should be modeling this and really what's driving most of this impact.

Impact here in the first half will this be something we should be considered more so in the future is just part of the normal business.

During the peak our customers don't like implementations everybody is very focused on.

The next week.

Next peak as we get ready for <unk>. So you should see that on a year over year basis on a quarter over quarter basis, because of the nature of our fulfillment business model.

And the peak season.

Okay understood.

And then just one quick follow up you mentioned returns and GSE, Jack So direct I think in the past you've given some relative sizing and growth rates.

Can you give us an update on both of those thank you.

Hi, Brian I'm happy to take that.

With Jack so direct.

There's been huge demand obviously for the Jack So direct service, we have been as I mentioned to Chris inundated with customer inquiries margins youll be pleased to know for this year should be better versus the base business and they're growing substantially which is a good sign very broadly I think this year, we're budgeting for around $400 million of revenue in that business.

And clearly there's a lot of validation in the market.

What youre seeing with some of the M&A in the space, you've obviously seen shopify and deliver that to me is a very strong sense of validation that we are seeing interest in growth within that space. Unlike our broader business.

Facilitates the customers to get closer and closer as bearish was talking about earlier in this D to C element get closer and closer to their end consumers. So the business will be really one of the mainstays of what we continue to grow.

Correct Europe , so to speak so very exciting times ahead and tons and tons of growth in that business customers are falling over themselves to do business with us and it's a very good margins and returns.

Okay. Thanks for the time.

Thank you. Our next question comes from the line of Hamzah.

Missouri with Jefferies. Please proceed with your questions.

Hi, This is Mario <unk> filling in for Hamzah.

Maybe could you just comment on what Youre seeing on labor availability and labor inflation in your model and kind of how you are managing through that.

I know that in your open source contract you can.

Pass throughs.

Or all of that inflation.

Our pressure, but maybe just kind of going back to the implementation of these projects as well in kind of the cost.

Maybe even a capex perspective, or implementation perspective kind of what youre seeing on again availability and then how youre managing through the labor inflation there.

Yes, hi, its smell Kim let me.

Come back on this question so I mean.

Very tight labor market that we were seeing in 2021. That's eased we are finding right now is easier to recruit.

Morten.

<unk> available I mean, having said that remember this is the quietest.

<unk> of the year in some respects a lot of our customers. It's not the busiest season as we normally see in the second half of the year as Paresh mentioned.

So labor they are a bit easier.

And.

To say I mean in 2021, and we were able to successfully recruit all of the labor that we needed to.

And that fundamentally is if I'm, making sure that we're competitive and also it's about ensuring that project. So we're just a great place for people to work, we want people to want to join Jack So so whether you're working in a warehouse whether you're one of the implementation teams.

Your automation engineer Theres, a lot to be said out of creating an environment, where people actually do want to actually be employed by year end, we take a lot of store and that we link.

On pulse surveys all of the team that's on this call from Jack So every quarter, we read thousands of survey results in also.

Sometimes you can identify things that are.

Not what they should be and you correct them and by doing that I think.

Gives us they said environment of being able to recruit when it comes to what we're seeing on the ground right now in terms of.

Labor wage inflation I mean, it's a real mixed story.

Story, we've got some pause geographic level, we've got labor inflation sort of 10% levels with auto parts, where it's moderated back down into sort of two 3%. So it's a real mixed bag by decentralizing recruiting model, we are able to fill all of the roles.

We need right now.

Of the day for new product launches that are going to come along during the second half of the and we apply that same mindset to when we're implementing new business.

The new business that we implemented is methodically planned you have to imagine, we're bringing together all manner of different.

Machinery automation machinery tens of different manufacturers and people all into one place to commence a warehouse operation going back to <unk> comment earlier.

One was a particularly busy period followers of actually doing implementation had been a very cheap.

Challenging time for all of our operational teams, but they've done an incredibly good job and <unk>.

All very proud of the work that they've done.

Got it thanks, and then just for my follow up.

Maybe you could just talk a little more about Germany, who are the main competitors there.

What is the pro forma market share that you guys will have with clipper.

Can that market be for you guys and then I guess just with that.

What gives you confidence in your ability to win that business.

Other players in the market that are much more established currently.

Yes, so I mean, Germany.

I think I mentioned, Germany, Europe's largest single economy is the market is good for outsourcing is a market that's very open to outsourcing.

When we think of our business today is very small for <unk>. So for click pretty big when you put both together you got a real critical mass and.

With customer business customers.

Customers ultimately always want to see what you do.

If they're going to give you a $50 million.

Contract they want to see that you can do it.

The easiest way they can see that if you take them to see an existing facility. So when you don't have those existing facilities.

Walker for business growth.

So when we combine business together click per <unk>. So for the first time, we will have real critical mass.

Some locations to show customers lots of different vertical experience to share with them and we're very confident that the <unk> brand the reputation.

Patients that we have in the market for delivering reliable on time solutions lots of <unk>.

Automation highly productive highly efficient saving our customers lots of moment, improving the services improving the consumer experience. We're very confident that we will see a rapid growth in the market for <unk>. So the condo people we will.

A spa with is probably no different than all the other territories.

There is a range of incumbent <unk>.

European players in the market, but the differences will be a new trend and where our new entry with a lot of very high grade credentials.

Im very confident that we will see a very good accelerated growth in that market and then it will be on top of the growth that we've seen across the rest of our business.

Understood. Thank you.

Our next questions come from the line of Ravi Shanker with Morgan Stanley . Please proceed with your questions.

Thanks, Good morning, gentlemen.

Couple of questions on resilience of RNA is in a downturn.

I think as what kind of one of the key Dennis story maybe.

Maybe first start with a follow up I'm not going to you said a couple of times that you're seeing a shift.

Demand over to stores.

Which would you say it was not a bad thing I'm trying to get to understand a little bit better, but there's obviously a majority of your volumes are e-commerce. So.

How is that kind of how are you agnostic to shift away from ecommerce store to store.

Well I mean on one hand, a lot of our customers actually E. Commerce Omnichannel. So in fact, we worked with them and we actually deliver into stores for them. So from a G&A. So part of it we're not really worried.

However, we are delivering into a store however, it delivering online, but I think it's useful just taking a step back I mean, we see a drift back to <unk>.

Brick and mortar to the shopping mall.

The main point it has not changed at all.

We manufacture a retailer sentiment they want to drive more of the business online.

It's lower cost for them.

Some are better input to the consumer experience that can better George what's selling what's not selling is a direct contact with the end user so whilst we have seen that momentary.

Moved back is not big volumes by the way, but we can see in our data because we analyzed very carefully what's happening across our business.

With more than compensated for that with just the sheer number of brand new first time outsourcing customers that are asking us to support them in our sales pipeline. It makes us the largest proportion of around 44% of our sort of $2 5 billion sales pipeline right now is first time.

Sourcing.

That is really important so.

More than made up for in that.

And then from our existing customers, even customers, who have seen brick and mortar sales picking up.

Still trying to expand the online sales because for all of the reasons. We've talked about so we don't really see any big dramatic impact coming from that and it was always to be expected as the pandemic has COVID-19 finally started to disappear.

We would all be well common we'd all relish the opportunity of.

Going to get into pizza.

Shopping mall loving.

Not it won't run the stores during the day I think I think everybody's happy about that.

In a roundabout way, so but for us very robust growth, we don't see any any sign of that letting go.

Understood, yes, not complaining about being able to go out either.

The second question is kind of on the same topic.

Can you just help us understand kind of what the construct of your contracts are like.

Because obviously in a downturn your customers are going to see volumes decline.

But how are you protected on that I mean, do you guys have take or pays and your contracts do you have.

For minimum volumes, how does that Ken is there a cap on that I'm, just trying to figure out kind of what the floor is on earnings.

If there is a fairly severe recession not that that's the base case.

Paresh, maybe you can comment.

Sure.

Contracts are very well structured for volume fluctuations remember nearly 40% of our open book cost plus contracts that you are very resilient.

So the remainder 60% closed book hybrid.

When you think about them. They also have about 25% fixed revenues associated with them. So they don't it doesn't matter what the volumes are and then you look into that cost structure is workforce is mostly flexible im very scalable more than 50% of our cost is coming from our workforce.

It is very flexible and scalable and.

After clipper, we should be close to 50% of our book.

Okay understood I will follow up offline as well thanks, so much for the time.

Thank you.

Ladies and gentlemen that is all the time, we have for questions today I'd like to hand, the call back to management for any closing remarks.

Thank you. Thank you operator, and thanks for managing the call so well.

Process.

A company that likes to achieve we are comparing <unk> to two <unk>.

Good results.

This is a component it's managed by hands on sleeves rolled up management.

Most of our business, we're close to the markets that we operate in.

The acquisition, that's coming along is going to be integrated very smoothly, we will give a great job with that.

The company itself, we're in a strong position with continuing to benefit as we have grown from our launch and what we saw even in last year, a huge amount of outsourcing more and more companies seeking to outsource their logistics.

<unk> is roughly 50% of our business. So I think having a tiger by the tail even in an environment where people go back to the mall is growing at a tremendous pace and lastly, we're capitalizing and we really have been making huge benefit from first mover advantage in automation.

Tech enablement of the warehouse and nothing no reason to imagine that we will not continue to do that in the quarter itself. It was a great quarter for us I'm not going to rig count.

Everything that we've talked about it but it was really a super quarter for us and we're very very pleased about that and always remembering that as a business. We've only really existed since last August . So there is a huge amount of.

<unk> with.

With these companies still to come and still to be sure. So listen I'd like to bring the cult and Im very pleased everybody on the call you were able to join US today I really thank you for giving up your time and I really thank you also for the support that you're giving to Gi. So thank you very much.

Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may disconnect. Your lines at this time have.

Have a wonderful day.

Q1 2022 GXO Logistics Inc Earnings Call

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