Q2 2023 GXO Logistics Inc Earnings Call

Yeah.

Welcome to the Jack So second quarter of 2023 earnings Conference call and webcast. My name is Darryl and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

Pretty much require operator assistance during the conference. Please press start zero on your telephone keypad.

Nope that this conference is being recorded.

For the Big copy again, let me read a brief statement on behalf of the company regarding forward looking statements the use of non-GAAP financial measures and the company's guidance.

During this call the company will make certain forward looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements.

A discussion of factors that could cause actual results to differ materially is contained in the company's S. T C violence.

The forward looking statements and 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 F. C. C 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 or 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 it's guidance incorporates business trends to date and what it believes today.

[noise] appropriate assumptions the company's results are inherently unpredictable and may be materially affected by many factors, including fluctuation Safari exchange rates changes uncle.

Oh boy economic condition, and consumer demand and spending labor market and global supply chain constraints inflationary.

Inflationary pressures.

Various factors detailed and it's violence with the S E C.

It's not possible for the company to actually predict demand for it services and therefore actual results could differ materially from guidance.

Can find a copy of the company's earnings release, which contains additional information important information regarding forward looking statements and non-GAAP financial measures and the investors section on the company's website I will now turn the call over to <unk>, Chief Executive Officer, Malcolm lesson, Mr Watson and maybe get.

Thanks, Darryl and good morning, everyone. Thanks for joining us today for a second call. So it's 2023, you're on east call.

Fred Chief Commercial Officer, Martin, Duke Chief investment in South Asia.

Before we review the quarter they want to start by acknowledging that yesterday MA I was second anniversary since becoming a publicly traded company.

We've had astellas us two years, delivering eight straight quarters of revenue and it just it E. Bay's da girl posting consistently excellent operating results I'm, signing hundreds of new partnerships with blue chip customers all over the world, while enabling the basically.

He says through a best in class enabled solutions.

We have silly they find ourselves as a globally recognise brand for logistics excellence and a part of the Fortune 500.

We are committed to ambitious environmental social and governance goals and I've tracking, especially strong let all know sustainability targets.

I'm also particularly proud to know that this crosses employee sentiment survey revealed the highest level of team member engagement and job satisfaction.

Ever recorded.

This past January we held Ah first invest the day as a stand alone company, we own veil that strategic plan and financial targets for 2027 and have the opportunity to showcase our unique value proposition so the broader investment community.

So it's been a fantastic two years and I want you to take a Mormon on behalf of the team here with me in Greenwich, and our entire global leadership team to thank our employees customers and shareholders.

No turning to the quarter I'm pleased to say, we deliberate both top line I'm bottom line girl.

Revenue in the second quarter was $2.4 billion growing 11% you're over here with 3% organic Grove.

I'll just eat EBIT da was $190 million also oh, you're over here under both our expectations.

As a result, we are reiterating a full year organic revenue growth guidance of 6% to 8% and we're raising our fully adjusted EBITDA guidance by $10 million, bringing the mid point of outrage to $740 million.

This quarter, we wound our highest ever value of new sales wayne's, beating a prior record which was set in the second quarter of 2022.

One guy contract sign this quarter Ah, new partnerships and expansions with a terrific group of customers, including Boeing Eddie Bauer Pepsi co Sainsburys Schneider electric and T J Maxx.

We recently and I was just an expansion with Abercrombie and Fitch to the UK. After launching a first operation fall then a highly automated distributions sense of utilizing gould's supposed to enroll buffet here in the U S last year.

Ikea recently Ryan R. Aside in the U S number wall and it's global network for productivity service quality and inventory accuracy.

A few weeks ago, we also I'm signing of a multi year agreement with hynek.

Over the past two years, we've significantly transformed the distribution network and hadn't sing efficiency service on the sustainability.

Isn't the call Sir we all so lonely style basically seen Germany, which is an exciting new market for us and we're looking forward to meaningfully growing the over the coming quarters and yours.

I want to provide an off day on one more point, we mentioned the last call. So that we were in the process of strengthening Tech organization to ensure we have the right stroked chose to meet the huge demand for our services.

This means bowl flew king at the Organisational needs today, we're we're increasing Ah talk of operational take by over 60% Euro via on a quarterly basis.

She she facing our girl over the coming years.

I'm pleased to say that we've completed not revered and you may have saved in last week's announcement regarding the appointment of Adrian store to the rule of Chief Automation Officer.

Some of you have met Adrienne already he served as the president of a consumer division in the U S seems 2020, well well he's driven wreck called wings and has been looking after some of our highest profile customers in this capacity.

He has delivered substantial improvement in productivity say fruit the deployment of automation and technology and complex consumer solutions.

In his new role he'd been looking after our operational tech, including automation machine learning and artificial intelligence as they relate to Ah on the ground operations on a global basis.

I'm delighted to have agents unique expertise in this capacity going forward.

So in summary, we're proud that one of the few companies in our industry that he's expecting to girl talk and bought some line this year.

So, Spain, we've demonstrated our strength and resilience in a changing macro economic backdrop quarter by quarter.

On top of that we continue to deliver record levels of new sales weddings, which will propel our future growth and on the pain Ah confidence in 2027 targets.

And with that I'll ask Bill to update you on what we're seeing on the ground.

Bill over to you.

<unk> good morning, everyone.

Is Malcolm said, we are very excited to have delivered a record amount of new sales wins this quarter.

Nearly $500 million, beating a previous record.

It was a record pre pipeline, we are continuing to see many more opportunities for growth.

We see more and more brands partnering with G X O to modernize their supply chains and optimize their operations.

What is really changing of late.

This is now happening at a greater pace and scale than we've ever seen before.

This is a dynamic growing market.

And we are winning a larger share of these bigger business opportunities.

And this is all due to the G X O difference.

As we had first mentioned last year customers are increasingly realizing the possibility of what logistics done right can achieve in that business as usual will no longer work.

You see they said a second quarter wins with some notable newly outsource business, including Eddie Bauer Ingersoll Rand in Sainsburys.

Would say Barry's, we have already successfully gone live with two of the six sites and we reward in April .

And these sites are doing millions of case picks per week.

This highlights just how fast we can move on the ground.

Sainsburys is a very exciting partnership with G X O and it also showcases leading capabilities for large outsourcing deals.

As customers continue to seek lodge transformative deals.

We are a prime position to convert more and more of the $300 billion in source market.

We are also seeing many of our customers deepen their existing partnerships with G. XO.

We are very excited to be going live on a huge new European Cypher J D sports.

[noise] highlights how we're expanding our partnership.

Which started in the U K and is now expanding across Europe .

We're also working with this customer support driving their growth globally, where they are looking to leverage our best in class capabilities.

We also good partnerships with a number of other existing customers, including hobby on us.

Nike and Pepsico.

This is proof positive of the G X O difference.

Reflecting the transformative value that a scaled tech enabled partner with decades of experience.

The customers.

Stepping back.

The make up of a wins in our pipeline continues to reflect the diversity and vibrancy of our business.

As example, our rapidly growing industrials activity in the U S has already won almost as much business from global leaders like Boeing and Schneider electric and the first half of the year.

As it did in the whole of last year.

Oh, a pipeline stands at $2.1 billion a year over year.

And this even after our record new business wins in the quarter.

Over half a pipeline is made up of new logos that is companies that are looking to outsource and reevaluate their supply chains.

This place the gx those core competency.

And it is worth mentioning that are pre pipeline is also up about 30% year over year.

One of our customers recently told me that <unk> is and I quote.

Airport and the storm.

We understand the market.

We understand the need for agility.

And we bring to life.

Mm leap that they can gain through a scale expertise and technologies.

That is why they turn to us.

And we are deploying this game changing technology at a breathtaking pace.

Clothing, a site soon to go live with approximately 5000 automated shuttles and pouches and what will be one of Europe's largest and most automated E com sites.

As Malcolm mentioned, we recently added Adrian stock to our global leadership team and the new role of Chief Automation Officer.

I've known Adrian and work with them since he joined G XO and.

And he is the real deal.

He joined to lead a consumer business and demonstrated right away is expertise running complex customer operations.

For example, what if Adrian recent automation transformations drove an 18% reduction in cost per unit for the customer.

As we highlighted at our Investor day.

As more customers in more markets embrace the increasingly critical need for automation.

<unk> wins more market share.

And this grows our top and bottom lines further.

With Adrian at the helm it is safe to say the hour pace of tech deployment.

Is just getting started.

We are really excited by our growth.

We are winning larger opportunities many of which Ah first time outsourcing.

Our existing customers are turning to us to help support their ambitious grow plants.

And as a wins and pipeline show.

We are set up for a very strong 2024.

And with that I'll hand, you over to borrowers to walk you through our numbers and guidance.

Bearish over to you.

Thanks, Bill and good morning, everyone.

You're very proud of results this quarter.

And we are confident in our outlook for the remainder of 2023 and yeah.

A small commission for the second course of 2023.

It is avenue $2.4 billion, an increase of 11% year over the years.

Including 3% organic revenue for.

Our technology aerospace and continental European parcel of the business continues to lead the pack on organic revenue growth.

And he saw this trend continue through July .

Our adjusted EBITDA in the courtroom was $190 million up 8% a year over the years.

They are delivering consistent adjusted EBITDA margins as a result of our resilience business model.

Despite the non operational impact from it takes ages and pensions, which was 70 basis points or modules are strong and resilient.

This was driven by our productivity team initiatives, both central and it decides level.

Our margins are up quarter over quarter by hundred basis points.

And all of this gives us great confidence in our margin expectation for the second half of the year.

Or it just loses earnings per share was 70 cents up from 68 cents in the private ish.

Are operating cash flow was $61 million and are free cash flow totaled $3 million.

Taking into account the strength of cash flows and state for the remainder of the use the pre paid $115 million of dead ahead of schedule.

Demand for our services continues the extent is seen in the record number of wins and the continued to rise high quality contracts with blue chip customers that doable attractive returns.

Our revenue from automated operations continues to grow faster than a rural gross level and are operating return your message capsules remains they'll about 30 per cent talk.

Looking ahead to our expectations for the Julio twenty-three reiterating our organic revenue growth guidance range of six to eight per cent.

It also maintaining our approximately 30 per cent free cash flow conversion rate for the full year of 2023.

With respect to our Belushi, we will continue to deploy a capsule in the best interests of our shareholders, including deleveraging my bags and exclusive emanate.

You also please for the second quarter in a row to raise our full year profit guidance or both.

EBIT, a and adjusted diluted earnings per share.

You're raising our adjusted EBITDA guidance by $10 million, bringing our food you arrange to between $725 million to $755 million, they should fix better than expected performance in our operations.

There are also raising our adjusted earnings per share guidance by five cents.

Bringing are fully arrange to $2.45 to $2.65 per share.

Looking beyond Trinitarian three do you believe you're in a great position for next year.

Nearly half a billion dollars of incremental business, all really see cute for 2024.

In addition, you have over $100 million locked in for 2025.

One of my core focus areas S. C. F. O is to continue to maximize shareholder value by all the kissing castle into contact with high returns attracted growth and strong cash flow generation.

And there are a lot of opportunities to do this.

And with that I'll hand, you over to Mark.

Thanks parish.

In a dynamic environment, we've delivered a strong first half of 2023.

Bill spoke about.

We set a record for new business wins in queue to which alongside our vibrant pipeline.

Sets us up for strong top line growth into 2024.

Moreover.

Thanks to these recent wins.

We now have visibility for growth into 2025 and also 2026.

On our journey to achieving our 20 twenty-seven targets.

You haven't parishes comments about the counter cyclicality of our margin profile.

There are very few companies in this market that are combining gross with margin resiliency.

We've been saying it for two years and now we're proving it.

This is a resilient business and a rare breed of an asset.

And this is a management team.

Delivering on its promises.

And with that will.

Will turned back to Darrell for 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.

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Our first question is coming from the line of Stephanie more with Jeffries. Please proceed with your questions.

Hi, good morning, Thank you.

Isn't it.

[noise] morning, so congratulations on another nice corner I'm, just looking at your organic growth performance here today, I think with seven per cent growth in the first quarter and three per cent in two Q now what gives you confidence in your ability to see a step up and growth in the second half to kind of meet your your four year six to eight per cent target and maybe within.

That if you could just talk about you know.

Wow, that's your thoughts that.

<unk>, what you're saying I think geography <unk>. Thank you.

Hi, Stephanie smell come here, let me, let me get some color right around nine questions. So.

Business is doing really well when we think about the kind of vertical operates in getting so the customer industries, our industrial aerospace foodservice Tech all choice, they're really doing well across all of our regions, but of course consumer facing basically so e-commerce a break.

Most of Omnichannel retail business is slow right now and he's clearly.

Function of the soft a mackerel that we're seeing across all of our business every region every geography.

When we think about the holiday season, we're already unhappy now you for a ride in the moment and a half in deep discussion with a costume assess the normal phasing for when we're doing this process and we are collecting costa Marines, how customer information customers raunchy committing to phone incremental <unk>.

<unk>. So this year just like previous yours will be hiring gain from the market around 15 to 20000, new team colleagues to cope with commits it close to the mountains, particularly around the holiday season holiday season for Aziz a biggish quarter. So when we bring all these factors into play weird.

Pretty good <expletive> shed, but in addition to that I do Wanna call like New business. You know, we had to really stellar classes I mean, costa totally furrows as a business it was.

Absolutely record, we signed nearly 500 million dollar of new basically said a lot of the business that we've signed in the last few close to these impacting no asquith progressing into the second half of the we talked and I think you will have seen a press releases early in the about the same space a huge business Wade that's.

Already going alive, we're already implementing on different sides. So all of those benefits are kicking game. So the second nausea. So all you know when we put all of those factors together with feeling very good about where we are on the second half of course, we're watching carefully the macro but you know when.

I have a number of months away from the end of the but clearly we're watching carefully the mackerel will knowing her niece snapping as we got into the first part of September that's when we really say peak season holiday season volumes really motoring along for our business. So that's the time, who really know that would be the athletes.

But right now everything was saying is giving us a very good feeling about overall view for the full yeah and that's why we've reiterates it off for Ya guidance may be useful I I'll ask bearish did you just come in and just sure in terms of.

<unk> has progressed, so far compared to last year cause it is an interesting dynamic.

Thank you mark them in queue to our organic revenue growth was 3% and be so loyal to single.

Did you just impact from lower volumes with Omnichannel retail vertical soft too, but stronger in aerospace technology and food services and he is monk Commission had strong winds and as you can see our margins are not really particularly the sense to two volumes is this is this is not.

Other business that has much operating leverage in the second half of the year, you have easier comps compared to especially the fourth quarter old lawsuit, 13% to be exact.

Vs. The second quarter of this year and we're working on a peak plenty for our customers you'll have greater clarity in September and are working assumption was in the peak you will have that similar peaks between Australia, too, which was rather soft one other thing to remind remind ourselves. We have won a lot of new outsourcing contracts.

And these are takeover in place and the revenue contributions all those will you will see in Q3 and Q4 and that's how we are comfortable with the rest of the year or our revenue growth.

Great No really helpful in India.

You know, maybe if you could provide a branch <unk> and the second corner and then how we should think about the <unk> in the back half the Internet to me here conversion hergott. Thanks.

Hi, it's pretty <expletive> on the free Cashflow side, we had 3 million positive in Q2, and the continued to guys for a touch of free cash flow conversion about 30%.

This quarter was zipping by a cash call so far productivity integration initiatives, which was roughly $23 million cash Oslo. The accounting charge was earlier about the cash payment was this quarter in the second quarter and roughly around $40 million of timing of working capital.

Or close initiatives overall has very attractive Roy M payback and it's clear the scene in our projection and they'd be dumb upgrades and our Capex is entirely in our control as he continued to scrutinize every dollar we spend.

Deep prepaid that's around $150 million is you're comfortable with it second half and our actions actually showed the comfort comfort levels you have for the second half of the year.

Got it thank you so much.

Thank you.

Thank you our next questions come from the lineup Scott Schneberger with Oppenheimer. Please proceed with your questions.

Thanks, very much yeah, so very strong new business when quarter and.

Assume I think you mentioned that I'm not sure I I don't recall retention, probably still mid to high nineties, but the organic growth did this how ready to date. So it sounds like that was a volume pressure maybe consumer discretionary activity could you discuss what what are the transactional volume was in the quarter.

And and where you expect that to go and what you are doing with that variable cost management correspondingly and then and then lastly, how we should see that come through in the margin over the next couple of quarters. Thank you.

Hi, It's Florencia, let me help you out with.

Volumes and the margin trajectory and hobby manage our costs throughout our cycle is is I mentioned, the seeing some softness coming from.

Retail vertical omnichannel retail and then strength in aerospace technology and food services.

Also geographically or organic growth in continental Europe has been very very strong.

So if you're looking to try to see it in the first couple of weeks. So July that sent tends to continue but you start seeing those are moderation and slight improvements in some alright facilities in U K N U S. It's too early to call, whether it's a major obstacle or not but you start to see to see moderation.

As you recall roughly 70% of our closest structure is variable. This business is designed to scale up and down cause there are facilities that doubled in size during the peak and go back to its normal shape. After the peak. So we have the muscles to do that and you see.

That you know our how our margin is very stable throughout the cycles and I remember roughly half of our business is close book and half of our business is open book Cost-plus. So that gives us a lot of original is through cycles as you see it in our margins.

And thanks parents, and and and congrats on day, the EBITDA performance in the quarter and the increases EBITDA could.

It's kind of the components of the drivers of of the EBITDA rage from the prior guidance to to where we are now what's really been behind that the main components. Thank you.

Sure. The majority is coming from our productivity gains not only at the central initiatives by the site that will our productivity has improved and there is some support coming from the exchange rates as well, that's making up the upgrade in the USA it'd be tough.

Great. Thanks, I'll turn it over.

Thank you.

Thank you our next questions come from the line of fast the majors with Susquehanna. Please proceed with your questions.

Good morning, your wins halfway through this year as you talked about earlier just give you a tremendous start on next year's top line growth and.

Of course, the cops are gonna get <unk> pretty difficult or at least more difficult for the sales pipelines near record levels and you've got another nine months or so to add more new deals that can move the needle before he gets 25 so it.

Taking it all together and adding him that had star Europe's stabilization you know maybe a soft landing in the U S. Looking more likely today than it did this time like last year. It does feel like next year setting up to reach or exceed your longer term view of that mid to high teens EBIT.

Gross overtime.

A lot of words to basically ask is it is that kind of view towards 2024 at least on a preliminary basis reasonable from where we sit today and you know what could still getting in the way of achieving that thank you.

Thank you as you look into our progression.

Top line in new ways. It's phenomenal you highlighted the numbers are achievable into 2024 and a couple of additional things I would like to remind you that is gonna support us into our epitaph into next year.

Our productivity initiatives as you would recall are driving neurons $26 million or benefits. This year and the wrong race is gonna be about $40 million at the end of the year. So there's going to be about $14 million. That's gonna support already besides the next year and also the off season.

Change race really expecting it may be a single digits uplifts coming from ethics, as well and that should support our EBITDA further into finish waiting for it.

And is there anything that you look for that that that you're fearful of her that can maybe get in the right way.

Well I mean this business is very good reviews yoga and if you're not 100 per cent immune from Macrobot you have shown you quarter after quarter resilience from the swings.

So far we are doing really really well we have phenomenal wings.

Our productivity efforts underground exercise at the central level of delivering so you looked very comfortably into 23 to four.

Thank you bear.

Thank you.

Thank you our next questions come from the lineup, Chris Weatherby with Citigroup. Please proceed with your questions.

Hey, Thanks, good morning, maybe picking up on the cost and synergy opportunities bear she's lay.

Lay out what's in the back half what's been realized so far from the cost take out as well as the dissynergies around clipper in what we're expecting by quarter for the next two quarters of the year.

Sure so far in the cool in Q1. These generates about 4 million dollar benefits and Q2 B's jaded about 5 million dollar benefit.

Both integration and hosts they called it productivity tasty.

It is four.

Or the balance hold the the expect another $17 million.

Even across the quarters and that's gonna get you the 26 million dollar impact for this year of course, the run rate is gonna be $40 million by the end of the year.

Okay, that's very helpful.

Bill maybe you can talk a little bit about what you're seeing on the demand side, particularly some from the consumer the E com vertical I I think there's been some discussion about whether inventory destocking has come you're starting to wind down or maybe it's still in process and they've talked a little bit about the peak season.

<unk>, we're down mid singer low single digits, I think in that quarter or maybe maybe if you could start with sort of how that progressed is that's still sort of the right run rate is receding here in two Q and you know those big picture thoughts around the consumer or e-commerce verticals would be helpful.

Yeah, Hey, Chris This is bill.

What I would tell you is let me tell you a little bit about what we're seeing in the selling with the new customers and I think this will go back into what you're asking the question about it you know the size of the pipelines growing and and we're seeing E com customers by the way, leading a big parade here in new business.

And and the return was he in the return of 100 million dollar deals. We're seeing if you look at it on top 200 prospects are above 10 billion. Each if you look at our top top 10, it's 20 and if you go to some of the larger cost several hundred million. So we're seeing bigger deals come in and this is because customers are wanting to restructure their supply chains and move.

A new market. So I'll I'll give you one example.

So you know what we're seeing is we're seeing more and more opportunities and the opportunities are coming faster and larger as I mentioned and really it's because our brand is becoming a beacon for customers who want to renew their supply chain. They really looked at the G X O as a leader in this with both automation and the ability for scale and expertise.

I'll give you. An example, I recently traveled with a customer at the beginning of July a big partner in Europe , and they want to come in the U S traveled around North America.

And we were planning the future kind of where they wanna be we visited their sites we visited our sites.

And when they left they were gonna come back with a plan it maybe put it on an arris pay instead.

We've already got a verbal agreement to take over Canada for them, We've got a new site in Australia, and we're looking at at the U S. So what we're seeing if that's the kind of change that's happened where that would have been a longer period of time to get there. They see what we do they see the value of what we bring they see that we bring expertise across multiple sites.

So it's the same we can do this over and over again and they're very comfortable with the returns we've shown than what they've seen with our existing customers. So that's the big change as far as peak.

Yeah, It's yeah I would say, it's mixed we have some customers who expect.

To do fairly well and are doing fairly well know better than the average. So there are volumes of come up we have customers, who are being Ah Ah Ah I would say.

They're taking advantage of where they think pigs gotta be so they're not gonna discount they've gotta, they've gotta hang onto their prices they gotta improve their margins, but they're gonna take opportunities as they come up so we'll know more as we get into September and we were really planning heavily with customers right now, but I'll tell you that you know.

I I I would imagine that the fourth quarter looks a lot like last year's fourth quarter.

Okay, and what is your point of clarification in terms of the pipeline relative chicken version or are you, suggesting that.

There might be a faster pace of conversion out of the pipeline does that change sort of what the pipeline should look like over the course of how we measure at quarter to quarter or year over year. Yeah. Great question, that's exactly what's happening so if the acceleration that pipelines up well over two two times now so it's really moving in speeding up that's generating a lot of value for us and again.

The amount of customers what you saw in the <unk> in the almost 500 million in the amount of customers. He might've opportunities. This will continue as we go forward I would say that aerospace industry, Industrials, Hi, Tech and I've mentioned econ.

They're all looking for a big 2024.

Okay. That's helpful. Thank you for the time.

Thank you. Our next question has come from the lineup Ahmet <unk> with Deutsche Bank. Please proceed with your questions.

Mm. Thanks, Hi, everyone I just wanted to circle back maybe the Tabasco question next year's kind of I guess revenue outlook. So if I look at the new business wins 457 million I guess, you were talking about that being incremental revenue in 2024 that that implies something like.

Four to five per cent revenue growth for next year and of course, we have another six months to go for additional wins, we got some hopefully cyclical volume recovery. So it just seems like the progress you're making them. The net new wins should kind of bridge you to the double digit low double digit growth next year in terms of revenue, but then I look of concern.

And the consensus is saying, it's gonna be 8% next year. So I'm just trying to understand kind of what's the right way to think about revenue grow up next year is it feels like low double digits is achievable you certainly probably up to start getting to those numbers to hit your twenties twenty-seven target. If you can talk about that that'd be great.

Hey, I'm, a small cat agree with everything you're saying in terms of the the theoretics of it.

So what have you got in your favor here, you've got clearly the record new wins, which is growing the snuggled in our business, which is obviously always historically been the biggest important part of all 8% to 12% revenue growth you've heard as well and baskins question about the fact that our retention rates has been extremely strongly not mid to high nineties. So that's very lovely pushing for those price swings that you're talking about.

So that's in your favor as well.

As well talked about the fact that the pipeline is strongest conversing well, we're seeing a lot of big hundred million dollar customers coming to us. So that's exciting as well Malcolm talked about the fact that the cops were extremely weak for for the second part of this year. So that's in your favor getting into next year as well.

And then as you move further down the P&L you have a number of things in your favor as well we're spending lots of also makes it contracts bill talked about that and then parishes Central efficiency program is running ahead of plan as we've talked about in the last two quarters. So whether it's top line I hear your points very sensible, whether it's margin all of those things were running in our favor.

2024, and I think it's gonna be a bumper yet.

Okay.

Not a bumpy you write a bumper year [laughter].

Exactly that's what I put in the English, saying, so I just wanted to make sure that's clear.

So.

The other thing I wanted to ask about was the central efficiency plan because.

When we think about <unk>. So we we don't think about you know cost savings, we think about revenue growth. It's it's a it's a.

It's a big deal and I I, just don't feel like we talk about it enough I know you've started to talk about it a little bit more can you just as we think about 24, what's what's the year on your incremental benefit because it's not a high operating leverage business, but next year you could argue that maybe we do see some operating leverage because the revenues go up and then the central efficiency.

He cost the cost structure down can you help besides that in terms of what the net you're on your incremental cost savings or from Central question is because I think that's a big opportunity.

It is remember those cover several areas and did you think more efficient across the business conducting activities that are not related to the core business and some of them are procurement related some of them are sourcing non core activities like call centers data centers and they also have reduced or no.

[noise] operational non customer facing staff way about.

10 per cent.

[noise] you today. So those are all paying off quite well by the end of the year, if you're gonna be running get hitting a rumbling through about $40 million a bike finished with it it's yellow and that is going to increase within 22, 84, and you're going to continue to reap benefits from this this product program is that your ex.

Getting more and more steps and you'll continue to see benefits out of it.

Okay Alright. Thank you guys appreciate it.

Thank you. Thank you.

Thank you our next questions come from the lineup Allison <unk> with Wells Fargo. Please proceed with your questions.

Hi, good morning.

The new business when he talked quite a bit.

And what about the other services components are increasingly part of these contracts in terms of whether it's returns or repair just any color their thing.

Yeah, Hi, this is bill the.

Yes, definitely and and returns a reverse is is growing very well at 27% in Q2.

We continue to see enormous potential in this category moving forward as an example, we were able to convert 600000 units.

From being a for one customer and what that means is bottom line dollars for them.

And a large amount so what those benefits are as I mentioned before we were able to show live examples the customer so when people come in we can show the values of of of reverse across across Europe .

Cross the U S and so they see that this is there but that is definitely a huge growth area for us and it also involves automation again and analytics both areas that add value and also become value added services.

Got it and then he certainly had to type about when some competitors corner.

Is it really describing just they are amazing you know opportunity that you can provide them is there anything else I can.

Kind of leaning more towards <unk>, meaning that Mark <unk>.

Competitors at this point.

Yes, well, here's what I would I'll tell you what we were told so that was with a customer last week in Memphis is looking to do some work with us in the U S.

And and they had visited sites in California, Tennessee, and then I met with him and we were going through some kind of the contract from the numbers in the car.

[noise] rotations.

And they had their or the team on the phone and what they said was.

That we've just visited over five sites for G X O and these are the finest sites, we visited and they repeat the same process is across all sites, which is really what is critically important to customers is to see that it's not just that we have a good site is that the process isn't the practices. The automation everything we do is is repeatable because that's where they can get.

Count on it so that's what I would say they would tell US is a big difference they see that they don't see the same continuous improvement. They don't see the same approach to making sure. The same process a measurable controllable across the sites and finally, what I would add in there is is engagement employee engagement. We've just recently finished the survey that came back very strong from our employees.

And that's very important in this market at the end of the day hourly employees do the work of moving these products.

And and what they also saw was it we are heavily engaged they hear it from our employees I see it as they walk through our site and that engagement is something that is very very important to us and very critical to our success.

Thank you. Our next question comes from the line of Jason inside out with T. D. Cowan. Please proceed with your questions.

Thank you Robert are good morning, gentlemen, and special congrats to Adrian for his new role Adrian I don't talk to him a little bit about this in the past and you guys are utilizing some a I already in your network and having some success and putting that new technology to use <unk> can you talk a little bit more about it and then how you think that could be used to even when.

Hey, I'll stop there. It's it's it's more it's mark her Adrian is not with us today, but oh totally of spirit exactly and spirits, it's been part about DNA for awhile.

Analytics with our customers. So if you look at how we handle returns or how we handle processes inside the site. We're always we have a heavy analytics group is looking at these numbers in following these numbers and it's how we improve its how we learn is how we manage returns at a better pace. We can see the products that are coming in and and preposition to make it more.

[noise] seamless and productive for the customer and you get the best value back to them as I mentioned moving these days.

And it helps us redesign transportation networks. It helps us improve automation productivity. So D. A I will look at the data coming out of the automation and it will help us decide up that's why I'd like to move products and what products as I mentioned earlier and find that we use it to handle even areas like like how do we pack how do we make the best use out of packaging, which which lowers the cost.

For the customer and improves any yesterday.

I appreciate the collar on that and I I guess my follow up is going to be something that really we haven't talked about too much because you know jeeze you guys recording record Windsor, who would be talking about the M&A side, but does does all this new growing business does that put potentially M&A on the back burner or is this something you guys are still look.

King at and maybe if you are could you talk about what you're seeing out there in the market in terms of mountains.

And Jason Hi, Malcolm let me touch on that then I'll asberry to come in on the multiples find but from an M&A point of view.

Actually you can say a business, we're really growing or is that a a.

All of them were taking market share customers really want to work with Jack So Ah level of alternation. That's really why we are just appointed hatred.

So overall, we're in really great shape, what we have to recognize sometimes there are vertical specially isation or maybe geography, specializations, where customers really want to see what you're doing on the ground and when you know on the ground, it's very difficult to convince customers too.

Come across to you and that's typically where with focus on and M&A Road, that's where we design our M&A Ah pipeline, it's where we look for best opportunities. When we think about Mancini margin accretion customer Grove and that's typically.

Pure play in the well well very mulch loosing at different vertical specialization bearish, maybe you can just give a view of what we're seeing around from the 30, whose perspective in terms of Ah multiples in the light sure. What's your focusing on right now is where we can have initial capabilities edition.

<unk> customer relationships additional geography's, we have you're looking into additional capabilities in North America, including Canada, and Mexico and that does include the value of the services as well that you can expand further to our customers.

Do you have a sizeable pipeline in Germany. If you are looking into potential acquisitions in Germany, as well, but our cash flow generation are deleveraging is at the heart of what we do right now and you always look at this as as an alternative to invest in our own stock through a buyback and we always compare that.

And see if it makes sense for our shareholders. If it pays off for our shareholders. That's hobby benchmark in our kept a location whether it be you should look into our own investing in our own business all through buybacks or invest in growth in M&A, Let me take over a company you go down faster you gave them more capable.

Is you get a new Ah relationships, there's a lot of costa of opportunities. So those are the things we will call to basic right now today the number.

Sellers are not as as many out there the multiples of the expectations of the private sellers has come down some but not as much. So that's the that's the part that you have to be always mindful of their financial numbers behind those it should make sense for.

Shareholders.

Makes sense gentlemen, I appreciate the time is always.

Thank you our next questions come from the line of Ravi Shankar with Morgan Stanley . Please proceed with your questions.

Great. Thanks, everyone Bill maybe for you. Another question on the pipeline your business, obviously, you're gonna Ah impressive Brian the names on there, but with a distinctly a consumer slash retail <unk> is that a deliberate decision are you guys Ah prioritizing consumer a retail over industrial.

<unk>, what's the e-commerce mixed there and kind of where where do you think that and market kind of five short looks like you know maybe three years now.

Yeah, that's exactly what I mean.

I'll tell you that.

E Com is.

A a.

A lot of what we see today, because they're working to restructure their supply chain. So that that's the big difference what they've seen is is there are definitely windows at the market, who were doing very well in their supply chains are different and further advanced than others and so they're trying to get there. That's one big part I would say so we see a lot of that but definitely not to take away from anything else Aerospace's is on fire right.

Now as you'd imagine with it with the you know retired of flying on planes as we all know we're doing today in crowded airports as we're seeing today. So you've heard let's talk a lot about Boeing but a lot of aerospace where a lot of industrials work industrials very hot right now, we're seeing a lot of that happening for us food and beverage so big closes in that you'll be hearing more and more as we enter the court.

We just can't mention some names, but probably when you get up every morning, and you do something you do every day on the way to work, we're doing a lot of work with big companies.

That we're growing we're growing a couch with and so I would say that all of all of those all all areas Alright. If you look at the Big thing that's exciting for us as a huge portion of our pipeline is new logos.

And that's a that's a big benefit people, who haven't outsource business before coming through us to outsource because they realize they can't take the quantum leap they need to take.

And we talked about some of those and that's just where we are talking to our existing customers and non customers about the cost benefits and the bottom line value benefits. If I was taking a site that they were already running today never mind. The the the secondary part of then we can take it and we can reset it for the future overtime. So the example would be we get two or three sites.

One site, we may automate the sites, we may make them whenever we decide to do but the benefits. They get right away is cost of off the books the benefit to get long term is a company, that's bringing up more and more value in creative ways.

Scarlet Super helpful and that also touch on the the point I wanted to follow up on which is the you mentioned the ecommerce guys are transforming their supply chains, you've obviously seen the leading e-commerce retailer in the U S and the word kind of a completely restructured their supply chain move to a more kind of regional local type model.

Yeah, well, there's two ways.

And and the benefit of that is is the G X O direct model.

Some of these named customers were talking about that a large companies that have their own supply chain.

And companies that are coming in from Europe into the U S. My conversation constantly with them is why do you want to go out and build a bunch of sites across the United States. What you could do is you can have a core central process and you can use the X O directing the market's you want it you need to be able to be closer it's flex. It. After the flexibility of offers you speed ended up as you a winning team that's already in place.

Really skip over the implementation in those markets. That's that's what idea people are gravitating to they liked that idea. That's why you were seeing great growth in those markets and we'll see more so those are the areas, we really get to help and not just here, but as you know words and and and the UK now and we'll be in Europe soon Europe with direct and in those cases exact same things.

Happening their customers are seeing the same value, we mentioned T. J X earlier, so we play a big part of that and the final thing I would say is goes back to what I said earlier, what we're being told by our customers as we run the best sites that they have so we're we have those sites were definitely the leader in those.

Alright, Sir Thanks, a lot.

Thank you. Our next question is coming from the lineup, Brian <unk> with J P. Morgan. Please proceed with your questions.

Hey, good morning, Thanks for taking the question maybe for your Bill can you talk more about the German market. It seems like it was a long time coming you were serving it from a couple of different countries before but making a pretty big efforts can you just talk about it if that was a customer's pulling you into their equivalents $20 billion. So it's not small but.

Maybe you can talk about how that looks ramping up and in terms of what you might need to add their as you mentioned emanate earlier.

Yeah, I'll I'll talk to you from what we're seeing and what we're doing on the selling side and then let's.

Talk a little bit about.

What he sees obviously is closer to Germany that idea, but what he sees the market why but obviously, we all know its largest market in Europe . So you definitely want to be in it. What we've done is we've developed a strong sales team. There. We've we've expanded it we have a a a focus we have a step on who's leading it out for US is the president of the market and we have a very strong pipeline.

We we see huge opportunities we're already doing work in Poland that supports Germany.

And we have sites in Germany that was part of the Flipper purchase we gained we gained opportunities in the market. So we see great growth in there as we go forward 24, 25 and be all it definitely has a big play it at 2027 numbers.

And let me let me just add Brian it's Malcolm here.

It's a huge addressable market I mean, it's 100 billion dollar market, we're very pleased to be in the when we made the acquisition I'll quit but we brought Ah Clifford business together with the G X all business and this Bill just mentioned, we've got Super leader Roney get Stefan <unk> you said.

Guy you know he's a well respected fruit market and we're really driving the route I mean, we've been engaging a lot of marketing campaign. So rose local interested in a new company that we've.

<unk> actually already opened a state of the Ah Ah facility in a dole, Megan, which really is enabling us to showcase a lot of the new technologies that what Britain gay gainer and I know Adrian in this new role will be spending time, the really you know to showcase some of the things that were.

Doing so we're we're in a very good position, but for us it's still a very tiny market and that's really one of the things that sect, citing goes we can see so much potential for I'm a girl I'm will do me organic way, but also you know perish perish mentioned earlier, you know when with in a small environment.

Market, we're not equally opposed to look you know specialize M. N. At you know just to accelerate our grove in particular geography, so but overall, we're we're in a very good position I think we're gonna do is going to become one of our larger market as we progress through the next few years.

[noise], okay. Thanks for that just to follow up with <unk>.

The appointment will also help is deploying small SEC inhibitions automation I would say it decides able as well so if you're looking at the organization that besides level looking guys are layers. It decides level a span of control it besides level. So although those are part of our productivity efforts and it's paying off quite as well and you will see that progressing towards the end.

Of this year and into next year, there's more to come on that side.

Okay. Thanks, very appreciate it.

Thank you.

Thank you. Our next question is coming from the line of check Kaufman with vertical research partners. Please proceed with your questions.

Well, thank you very much and thank you for slipping my hand.

Just kind of a broader picture question you talked about what's going on in your pipe line with your customers as we start to get more and more of these more complex assignments with your customer base in theory that should.

Probably go hand in hand, with some stronger margins can you talk a little bit about what's going on on the margins side of the business as you're implementing more of these automation projects.

Sure, it's pretty sure V C about 200 to 300 basis points higher margin in the automation and many of the new projects Bill is mentioned, there's a lot of automation.

Involves even if it is takeover in place first time, all sorts of existing facility overtime. The implement automation in those facilities. So they do become old automated overtime. That's one of the drivers of our productivity and I'm also.

Before them and it is making our contracts like much stickier.

Margins higher and you create a lot of values will be captured more about it.

[noise] bearish. Thank you that's my one.

Thank you.

Thank you, ladies and gentlemen that has all the time, we have for questions today I'd now like to hand, the call back over to Mister Wilson for any closing remarks.

Thanks, Darryl and thanks again for hosting a recall today, we appreciate it.

With delivered record wins, and if a very excising pipeline for the future growth opportunities are abundant in our business. This <unk> for a great 2024, and fruit delivering strong ebay D E. B E. P S and returns Rasho holders, we I expect.

All of these benefits to continue.

Where's that will bring the culture, and then I'd like to finish by wishing everybody a great rest of the day and thank everybody for your attendance to the call many things.

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

Have a wonderful day.