Q2 2024 GXO Logistics Inc Earnings Call

Hello, and welcome to the GXO Second Quarter 2024 Earnings Conference Call and Webcast. My name is Donna, and I will be your operator for today's call.

for earnings conference call and webcast.

Operator: Conference call and webcast. My name is Donna, 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 anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Operator: My name is Donna, 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 anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded.

Speaker Change: At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded.

Operator: Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures, and the company's guidance. During the call, the company will be making certain forward-looking statements within the meanings of applicable security law, which, by their nature, involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statement.

Operator: Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements. The use is non-GAAP financial measures and the company's guidance. During the call, the company will be making certain forward-looking statements within the meanings of applicable security law, which, by their nature, involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filing. The forward-looking statements made in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements except the extent required by law.

Operator: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filing. The forward-looking statements made in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements except to the extent required by law. The company may also refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call.

Speaker Change: Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures, and the company's guidance.

Speaker Change: During the call, the company will be making certain forward-looking statements within the meanings of applicable security law.

Speaker Change: 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.

Speaker Change: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filing.

Speaker Change: The forward-looking statements made in the company's earnings release, or made on this call, are made only as of today, and the company has no obligation to update any of these forward-looking statements except to the extent required by law.

Operator: The company may also refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliation of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release, and the related financial table are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company would also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, exchanges in global economic conditions, and consumer demand and spending.

Speaker Change: The company may also refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call.

Operator: Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial table are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company would also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors including fluctuations in foreign exchange rates, exchanges in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures and the various factors detailed in its filings with the SEC.

Speaker Change: Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial table are on its website.

Speaker Change: Unless otherwise stated, all results reported on this call are reported in United States dollars.

Speaker Change: The company would also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions.

Speaker Change: The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, exchanges in global economic conditions, and consumer demand and spending.

Operator: Labor market and global supply chain constraints, inflationary pressures, and the various factors detailed in its findings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore actual results could differ materially from guidance.

Speaker Change: Labor Market and Global Supply Chain Constraints, Inflationary Pressures, and the various factors detailed in its filings with the SEC.

Operator: It is not possible for the company to actually predict demand for its services and therefore actual results could differ materially from guidance, you can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures in the investor sections of the company's website. I will now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.

Speaker Change: It is not possible for the company to actually predict demand for its services and therefore actual results could differ materially from guidance.

Operator: You can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures, in the investor sections of the company's website.

Speaker Change: You can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures in the investor sections of the company's website.

Operator: I will now turn the call over to GXO's Chief Executive Officer Malcolm Wilson. Mr. Wilson, you may begin.

Speaker Change: I will now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.

Malcolm Wilson: Thanks Donna and good morning everyone. I appreciate you joining us today for our second quarter 2024 earnings call. With me in Greenwich are Baris Oran, our Chief Financial Officer, and Kristine Kubacki, our Chief Strategy Officer. GXO has delivered a strong second quarter, rounding out a great first half, and we're pleased to be reaffirming our full year 2024 guidance today. During the quarter, we signed about $270 million of new business wins. Our pipeline grew for the third consecutive quarter, standing at a new 12-month high of $2.3 billion of high-quality opportunities.

Malcolm Wilson: Thanks, Donna, and good morning, everyone. I appreciate you joining us today for our second quarter, 2020 for earnings call. With me and Greenwich, our Barry Schauron, our Chief Financial Officer, and Christine Quebec, our Chief Strategy Officer.

Malcolm Wilson: Thanks Donna and good morning everyone. I appreciate you joining us today for our second quarter 2024 earnings call.

Speaker Change: With me in Greenwich are Baris Oran, our Chief Financial Officer, and Christine Kabeke, our Chief Strategy Officer.

Malcolm Wilson: But we're also seeing contract duration increase as customers look to outsource to a trusted partner with global scale who can manage the complexity of their supply chain. We're particularly proud of our progress in Germany, the largest European economy, which has been part of our growth strategy since the spin. During the quarter, we signed a new deal with Chibo, a leading German retailer and coffee distributor.

Malcolm Wilson: GXO has delivered a strong second quarter, rounding out a great first half and would please to be reaffirming our full year 2024 guidance today. During the quarter, we signed about $277 million of new business win. Our pipeline grew for the third consecutive quarter, standing at a new 12-month high of $2.3 billion of high-quality opportunities. But also seeing contract duration increase as customers looped to outsource to a trusted partner with global scale who can manage the complexity of their supply chain.

Malcolm Wilson: GXO has delivered a strong second quarter, rounding out a great first half, and we're pleased to be reaffirming our full year 2024 guidance today.

Malcolm Wilson: During the quarter, we signed about $270 million of new business wins.

Malcolm Wilson: Our pipeline grew for the third consecutive quarter, standing at a new 12-month high of $2.3 billion of high-quality opportunities.

Malcolm Wilson: We're also seeing contract duration increase as customers look to outsource to a trusted partner with global scale who can manage the complexity of their supply chain.

Malcolm Wilson: We're particularly proud of our progress in Germany, the largest European economy, which has been part of our growth strategy since the spin. During the quarter, we've signed a new deal with Chiball, a leading German retailer and coffee distributor, and we've gone live on the 20-year nearly billion-dollar contract with Levi's that we announced in May. We're also pleased to have expanded our relationships with several long-standing customers this quarter, including Boeing, Gas, Marks and Spencer, and Ray Fion. Our land and expand strategy remains a core tenant of our long-term organic growth plan. Today, about half of our revenue comes from customers we've grown to serve in more than one country.

Malcolm Wilson: We're particularly proud of our progress in Germany.

Malcolm Wilson: The Largest European Economy

Malcolm Wilson: which has been part of our growth strategy since the spin.

Malcolm Wilson: During the quarter, we've signed a new deal with Chibo, a leading German retailer and coffee distributor. And we've gone live on the 20-year, nearly billion-dollar contract with Levi's that we announced in May.

Malcolm Wilson: And we've gone live on the 20-year, nearly billion-dollar contract with Levi's that we announced in May. We're also pleased to have expanded our relationships with several longstanding customers this quarter, including Boeing, Guess, Marks & Spencer, and Raytheon. Our land and expanse strategy remains a core tenet of our long-term organic growth plan, and today, about half of our revenue comes from customers we've grown to serve in more than one country. As we've mentioned, we believe we saw the bottom of the inventory cycle in the fourth quarter of last year.

Malcolm Wilson: New contracts we win are the key to our growth. Through the first half, we've won more than $520 million of new business. Given our increasing pipeline, we're on 25 and beyond.

Malcolm Wilson: New contracts we win are the key to our growth.

Malcolm Wilson: Through the first half, we've won more than $520 million of new business, and given our increasing pipeline, we're on track to sign a record amount of new business this year, underpinning our growth in 2025 and beyond.

Malcolm Wilson: As we've mentioned, we believe we saw the bottom of the inventory cycle in the fourth quarter of last year. We're beyond that inflection point, and we're seeing volume trends beginning to improve. At an industry level, e-commerce has returned to sustainable structural growth. Customer demand for outsourcing has remained strong throughout the cycle, as customers look to improve productivity, reduce complexity and recognise their supply chain as part of their strategy. About half of the contracts we've signed this quarter were for newly outsourced activities.

Malcolm Wilson: We're beyond that inflection point, and we're seeing volume trends beginning to improve. We have acquired Wincanton at an attractive valuation. In both the European and UK markets, we're seeing our customers grow more confident and launch new and larger projects.

Malcolm Wilson: About half of the contracts we've signed this quarter were for newly outsourced activities.

Malcolm Wilson: We're also pleased to have completed our acquisition of Windcanton in the second quarter. This deal exemplifies our M&A strategy. In Windcanton, we've acquired a platform to expand our presence in target verticals across the UK and Europe, including aerospace and defence and industrials. We have acquired Windcanton at an attractive valuation. We look forward to accelerating our future organic growth with this acquisition as we have done with our expansion in Germany. In both European and UK markets, we're seeing our customers grow more confident and launch new and larger projects. This bodes well for our future growth, along with our acquisition of Winkansen.

Malcolm Wilson: We are also pleased to have completed our acquisition of Wynne Canton in the second quarter. This deal exemplifies our M&A strategy.

Malcolm Wilson: In Wincanton, we've acquired a platform to expand our presence in target verticals across the UK and Europe , including aerospace and defence and industrials.

Malcolm Wilson: In both Europe and UK markets, we're seeing our customers grow more confident and launch new and larger projects.

Malcolm Wilson: This bodes well for our future growth, along with our acquisition of Wincanton.

Malcolm Wilson: North America, while we're currently seeing softer demand for goods, we've signed record new business wins in the first half of this year. Our long-term contractual business model gives us confidence in delivering our 2027 targets of $50.5 to $16 billion of revenue and $1.25 to $1.3 billion of adjusted EBITDA.

Malcolm Wilson: North America

Malcolm Wilson: While we're currently seeing softer demand for goods, we've signed record new business wins in the first half of this year.

Baris Oran: And with that, I'll pass you to Baris to walk you through the quarter. Baris, over to you.

Malcolm Wilson: And with that, I'll pass you to Baris to walk you through the quarter.

Baris Oran: Thanks, Malcolm.

Baris Oran: Good morning, everyone. In the second quarter, we generated record revenue of $2.8 billion, growing 19% year over year, of which 2% was organic. Our organic growth was driven by strength in diverse parts of our business, including aerospace, data center support, and Amit General Retail led by Cold Storage Supply Chain. Our adjusted EBITDA this quarter was $187 million, and we delivered $31 million of free cash flow. Our operating return and invested capital remained above our target at 32%, as we continue to invest in high return projects to fuel our organic growth. Our financial position remains rock solid, and we are committed to maintaining our investment-grade balance sheet.

Baris Oran: Baris, over to you.

Baris Oran: In the second quarter, we generated record revenue of $2.8 billion, growing 19% year-over-year.

Kristine Kubacki: of which 2% was organic. Our organic growth was driven by strength in diverse parts of our business, including aerospace, and we delivered 31 million dollars of free cash. We are expecting leverage levels of about two and a half times by the end of the year, and we will continue to allocate capital in the best interest of our shareholders.

Baris Oran: of which 2% was organic.

Baris Oran: Our organic growth was driven by strength in diverse parts of our business, including aerospace,

Baris Oran: Data Center Support, and Omnichannel Retail led by Cold Storage Supply Chain.

Speaker Change: Our adjusted EBITDA this quarter was $187 million.

Baris Oran: and we delivered 31 million dollars of free cash flow.

Baris Oran: Our operating return invested capital remained above our target at 32% as we continue to invest in high return projects to fuel our organic growth.

Baris Oran: Our financial position remains rock-solid, and we are committed to maintaining our investment-grade balance sheets.

Baris Oran: Our net leverage was 3.1 times as of the end of the second quarter. We are expecting leverage levels of about 2.5 times by the end of the year, and less than two times by the end of next year. We have no debt coming due in 2024. Our sequential acceleration in organic revenue growth in the second quarter reflects that we have seen an inflection point in our business.

Baris Oran: Our net leverage was 3.1 times as of the end of the second quarter.

Baris Oran: We are expecting leverage levels of about 2.5 times by the end of the year.

Baris Oran: and less than two times by the end of next year.

Baris Oran: We have no debt coming due in 2024.

Baris Oran: Our sequential acceleration in organic revenue growth in the second quarter reflects that we have seen an inflection point in our business.

Baris Oran: As Malcolm mentioned, he also continued our acquisition of the Encantan Disquarters. We are thrilled to have acquired this business at an attractive valuation, and we are well positioned to quickly deliver on our synergy targets of $55 million. We expect the acquisition will be creative to earning this year, with double-digit accretion to adjusted due to earnings per share once we fully integrate the two companies. Beyond cost synergies, we will look forward to leveraging the Encantan's expertise to accelerate our growth in the aerospace and defense, and industrial verticals in the UK and Europe, in Limedar, M&A strategy.

Baris Oran: As Malcolm mentioned, he also completed our acquisition of Bing Canton this quarter.

Malcolm Wilson: We are thrilled to have acquired this business at an attractive valuation.

Malcolm Wilson: And, we are well positioned to quickly deliver on our synergy targets of $55 million.

Malcolm Wilson: We expect the acquisition will be equitative to earnings this year.

Baris Oran: with double-digit accretion to adjusted diluted earnings per share once we fully integrate the two companies.

Baris Oran: Turning to our guidance, as Malcolm mentioned, they are reaffirming our view for the rest of the year. For the full year of 2024, adjusted EBTA of $805 million to $835 million. Adjusted EBTA to free cashful conversion of 30% to 40%, and adjusted diluted earnings per share of $2.73 to $2.93. We also expect to continue to deliver an operating return in massive capital of about 30%. While we're seeing many improving trends in our business, the tone of our customer conversations continues to reflect prudence in near-term growth expectations.

Baris Oran: Turning to our guidance, as Malcolm mentioned, we are reaffirming our view for the rest of the year.

Malcolm Wilson: For the full year of 2024, we expect to deliver organic revenue growth of 2 to 5 percent.

Malcolm Wilson: Adjusted EBITDA of $805 million to $835 million.

Malcolm Wilson: Adjusted EBITDA to a free cash flow conversion of 30% to 40%.

Malcolm Wilson: and adjusted diluted earnings per share of $2.73 to $2.93.

Malcolm Wilson: We also expect to continue to deliver an Operating Return Invested Capital of above 30%.

Speaker Change: While we are seeing many improving trends in our business, the tone of our customer conversations continues to reflect prudence in near-term growth expectations.

Baris Oran: Looking to 2025, the expected synergies from the profitability. GXO is executing well on the long-term strategy. We are uniquely positioned in a highly fragmented industry, and due to our long-term contractual business model, we have a multi-year organic growth runway ahead of us. We are generating strong free cash flows, enabling us to invest in our organic growth and strategic M&A, and we will continue to allocate capital in the best interest of our shareholders.

Malcolm Wilson: Looking to 2025, the expected synergies from the Vincanton integration and automated solutions we are underwriting to drive increased profitability.

Malcolm Wilson: GXO is executing well on the long-term strategy.

Malcolm Wilson: And we will continue to allocate capital in the best interest of our shareholders.

Christine Kubacki: With that, I'll hand the mic to Christine, our new Chief Strategy Officer. Over to you, Christine.

Malcolm Wilson: With that, I'll hand the mic to Christine, our new Chief Strategy Officer.

Christine Kubacki: Thanks, Bash.

Christine Kubacki: Good morning, everyone. I'm excited to have joined GXO in April as Chief Strategy Officer. I previously worked in investor relations and prior to that spent 17 years on the cell side. I've met many of you already, and I look forward to keeping you updated on how we are building the supply chain of the future. Malcolm and Bash have already reviewed our excellent progress in the corridor, and the ways that we're adding value for our customers.

Christine Kabeke: Over to you Christine.

Christine Kabeke: Thanks, Baris. Good morning, everyone. I'm excited to have joined GXO in April as Chief Strategy Officer.

Christine Kabeke: I previously worked in investor relations, and prior to that, spent 17 years on the sell side. I've met many of you already, and I look forward to keeping you updated on how we are building the supply chain of the future.

Kristine Kubacki: Malcolm and Baris have already reviewed our excellent progress in the quarter and the ways that we're adding value for our customers. I've now visited several of our highly automated sites in different countries. Our implementations of AI are skyrocketing. Our role in research and development of supply chain automation is to serve as an operational incubator. This approach is part of our strategy of efficient capital allocation, which is long-term growth driven by secular tailwinds, our global scale, our leadership in tech and automation, and a laser focus on our customers.

Christine Kubacki: I'd like to drill down on our automation and tech leadership. The key differentiator that is going to enable GXO to keep expanding our lead in the market. I've now visited several of our highly automated sites in different countries. As an engineer by training, I'm excited by the level of tech in our operations, both because I understand the value proposition and because I recognize how difficult it is to do what we do. The combination of our automation expertise and our approach to developing automated solutions is clearly our differentiator. GXO has helped shape the industry for years, and we continue to redefine the role logistics plays in the modern economy.

Malcolm Wilson: The key differentiator that is going to enable GXO to keep expanding our lead in the market.

Christine Kabeke: GXO has helped shape the industry for years, and we continue to redefine the role logistics plays in the modern economy.

Christine Kubacki: You may have seen the video we released this morning highlighting our progress in piloting humanoid robotics to work alongside our associates. We are the first to deploy humanoid robotics in our live sites, and while this technology is a few years away from full deployment, our engagement today with leading developers is helping shape the supply chain of the future.

Christine Kabeke: You may have seen the video we released this morning highlighting our progress in piloting humanoid robotics to work alongside our associates.

Christine Kabeke: And while this technology is a few years away from full deployment, our engagement today with leading developers is helping shape the supply chain of the future.

Christine Kubacki: We're also creating enormous value by deploying AI across our operations. The insights we're gaining from applying AI to optimize fulfillment are changing the way we run our sites. Our implementations of AI are skyrocketing, with 10 times as many sites in deployment for 2024 versus last year.

Christine Kabeke: We're also creating enormous value by deploying AI across our operations.

Christine Kabeke: The insights we're gaining from applying AI to optimize fulfillment are changing the way we run our sites.

Christine Kabeke: Our implementations of AI are skyrocketing.

Christine Kabeke: with 10 times as many sites in deployment for 2024 versus last year.

Christine Kubacki: Our role in research and development of supply chain automation is to serve as an operational incubator. We partner with developers of cutting-edge technology and help them shape their prototypes to address practical use cases with a focus on financial results. Our combination of discipline, capital deployment, and operational expertise means that we can identify which technologies will create operational value and deliver financial returns, and which ones won't. This approach is part of our strategy of efficient capital allocation. It de-risk our innovation while affording us a first mover advantage and the opportunity to trial emerging technologies without disrupting our operations.

Christine Kabeke: Our role in research and development of supply chain automation is to serve as an operational incubator.

Christine Kabeke: We partner with developers of cutting-edge technology and help them shape their prototypes to address practical use cases with a focus on financial results.

Christine Kabeke: Our combination of disciplined capital deployment and operational expertise means that we can identify which technologies will create operational value and deliver financial returns, and which ones won't.

Christine Kabeke: This approach is part of our strategy of efficient capital allocation.

Speaker Change: It de-risks our innovation while affording us a first mover advantage and the opportunity to trial emerging technologies without disrupting our operations.

Christine Kubacki: GXO has consistently delivered operating return on invested capital above 30%. It is this focus on innovation and discipline capital allocation that underpins our confidence on delivering our 2027 targets.

Speaker Change: GXO has consistently delivered operating return on invested capital above 30%, and it is this focus on innovation and disciplined capital allocation that underpins our confidence on delivering our 2027 targets.

Christine Kubacki: Along with today's earnings release, we also issued an updated investor presentation on our website, which outlines our value creation framework, including long-term growth driven by secular tailwinds, our global scale, our leadership in tech and automation, and a laser focus on our customers. As you can tell from today's announcement, the core fundamentals of GXO's business model are strong, and our relentless focus on these priorities, combined with our capital allocation strategy, results in a compelling long-term growth algorithm for GXO.

Speaker Change: Long-term growth driven by secular tailwinds, our global scale, our leadership in tech and automation, and a laser focus on our customers.

Christine Kabeke: And our relentless focus on these priorities combined with our capital allocation strategy results in a compelling long-term growth algorithm for GXO.

Christine Kubacki: We look forward to keeping you updated on our progress.

Malcolm Wilson: And with that, I'll turn it back to Malcolm. Thanks, Christine. We've built on our momentum from the first quarter and delivered record revenues in the second quarter.

Christine Kabeke: And with that, I'll turn it back to Malcolm.

Speaker Change: Thanks, Christine.

Speaker Change: We've built on our momentum from the first quarter and delivered record revenues in the second quarter.

Malcolm Wilson: With our pipeline at a 12-month high, we have a clear line of sights to sign a record amount of new business this year, underpinning our confidence about accelerating our growth in 25 and beyond.

Malcolm Wilson: With our pipeline at a 12 month high, we have a clear line of sight to sign a record amount of new business this year, underpinning our confidence about accelerating our growth in 2025 and beyond.

Operator: With that, we'll hand the mic back to Donna and transition to Q&A. Thank you.

Malcolm Wilson: With that, we'll hand the mic back to Donna and transition to Q&A.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Stephanie Moore of Jeffries. Please go ahead.

Operator: The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. 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 to pick up the handset before pressing the star keys. Again, that's star one to register a question at this time.

Donna: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Stephanie Moore of Jeffries. Please go ahead.

Stephanie Moore: Today's first question is coming from Stephanie Moore of Jefferies. Please go ahead. Ms. Moore, please make sure that your line is not on mute today.

Speaker Change: Ms. Moore, please make sure that your line is not on mute today.

Stephanie Moore: Hi, yes. Good morning. I apologize for that.

Stephanie Moore: I was hoping you could maybe talk a little bit more about maybe the recovery that you're seeing in the UK and Europe.

Stephanie Moore: Hi, yes, good morning. I apologize for that. I was hoping you could maybe talk a little bit more about just maybe the recovery.

Stephanie Moore: What you think is driving that in particular and then thoughts about when you would expect to see the US starting to improve some or other, maybe other levers that you can pull with your US customers given what kind of remains that we for environment. Thank you.

Speaker Change: that you're seeing in the UK and Europe , what you think is driving that in particular, and then thoughts about, you know, when you would expect to see the US starting to improve some or other

Stephanie Moore: maybe other levers that you can pull with your U.S. customers, given what kind of remains a weaker environment. Thank you.

Malcolm Wilson: Hi Stephanie, good morning. It's Malcolm here. Let me just cover that point, and so when we look across, in fact, all of our regions right now, what we're seeing is modest improvements in customer volumes compared to the last quarter. Core volumes though do remain, you know, relatively sluggish, generally flat, year over year, but we have got some areas now so we can see definite improvements coming through. When we're looking in the different regions, as you point out, definitely UK and continental Europe, they've remained strong. It's about two thirds of our business, and while we're not yet seeing that return to growth in the North American market, it's still a little uncertain.

Stephanie Moore: Hi Stephanie, good morning, it's Malcolm here.

Malcolm Wilson: Let me just cover that point then. So when we look across, in fact, all of our regions right now, what we're seeing is modest improvements in customer volumes compared to the last quarter.

Speaker Change: Coal volumes though do remain relatively sluggish, generally flat year over year, but we have got some areas now where we can see definite improvements coming through.

Speaker Change: When we look in the different regions, as you point out, definitely UK and continental Europe .

Speaker Change: They've remained stronger. It's about two-thirds of our business, and while...

Speaker Change: We're not yet seeing that return to growth in the North American market. It's still a little uncertain. What we are seeing is a tremendous amount of new business activity. In fact, we've signed more new business in our North American business.

Malcolm Wilson: What we are seeing is a tremendous amount of new business activity. In fact, we sign more new business in our North American business recently than for a long time. I think we're on target for a record in our North American activity for new business signings. Inventory levels also, we've definitely started to see those returns. So from that law point of the end of last year, I think that was really the inflection point for inventory levels across all of the regions. Definitely we're seeing infrastructure levels coming back. Customers already know starting, I think, to prepare for this year's holiday season.

Speaker Change: I think we're on target for a record in our North American activity for new business signings.

Unknown Executive: Inventory levels also, we've definitely started to see those return. So from that low point of the end of last year, I think that was really the inflection point for inventory levels across all of the regions. Definitely, we're seeing inventory levels coming back. Customers are already, I think, starting to prepare for this year's holiday season.

Speaker Change: Inventory levels also, we've definitely started to see those return. So from that low point of the end of last year, I think that was really the inflection point for inventory levels across all of the regions.

Speaker Change: Definitely we're seeing infrastructure levels coming back, customers already know starting I think to prepare for this year's holiday season.

Malcolm Wilson: Most pleasingly, as we just talked about, you know, sales has been strong, it's been tant, we've seen tangible improvements over the last quarter, and in fact, you're all in terms of every region, our sales pipelines, pre-pipelines, the really very, very strong, the time to convert is quick. Deal side is a getting bigger, duration of contracts are getting bigger. So the recent announcements that we've made about the Levi's contract, where we're commissioning right now and going live in Germany for the operation of a large, automated site, more and more of these kind of deals we're seeing, more and more transformative deals are coming into our sales pipeline.

Speaker Change: Most pleasingly, as we just talked about, you know, sales have been strong, we've seen tangible improvements.

Speaker Change: Over the last quarter, and in fact year over year, in terms of every region, our sales pipelines, pre-pipelines

Speaker Change: They're really very, very strong. The time to convert...

Speaker Change: It's quick.

Speaker Change: Deal sizes are getting bigger. Duration of contracts are getting bigger. So the recent announcements that we made about the Levi's contract where we are commissioning right now.

Speaker Change: and going live in Germany for the operation of a large automated site.

Speaker Change: More and more of these kind of deals we're seeing, more and more transformative deals are coming into our sales pipeline. So on top of the half a billion dollar of new business that we've already

Malcolm Wilson: So, on top of the half a billion dollars of new business that we've already closed one, during this year, you know, the second half of the, which really promising, and that boards well for our growth in the second half of this year, and indeed, going into 2025. And I think the last point, just, it's an important point, just to come back on alongside all of these innovations, we're really catapulting now, we're really accelerating the deployment of a lot of technology across the business, and in particular, we're very pleased that the way our trials are going with the very latest tech, you know, these humanoid robotics were, we're crumbling though, and we're bringing them into our operations across a real wide range of AI driven initiatives, across a wide range of applications.

Speaker Change: close one during this year, you know the second half of the year looks really promising and that bodes well for our growth in the second half of this year and indeed going into 2025. I think the last point, just it's an important point, just to come back on

Speaker Change: Alongside all of these innovations, we're really catapulting now, we're really accelerating the deployment of a lot of technology across the business and in particular, we're very pleased that the way our trials are going with the very latest tech, you know, these humanoid robotics where we're coupling them and we're bringing them into our operations across a real wide range of AI driven initiatives, across a wide range of applications. So I think...

Malcolm Wilson: So I think definitely in continental Europe, UK, we feel that the business is in a very good trajectory of growth, and really we'll see that also in the second half of the year and into 25. Not for America, still a little bit uncertain, but we do see all the signs of an improving situation later in the, not least the fact that we've got the holiday season ahead of us. And this year, we can see, always very early in the cycle for planning with our customers. We'll not much more by the end of August, but we can see that customers, particularly the consumer-focus customers, they are starting to plan out, really, now for a holiday season.

Speaker Change: Definitely, in continental Europe , UK, we feel that the business is in a very good trajectory of growth and really we'll see that also in the second half of the year and into 2025.

Speaker Change: North America is still a little bit uncertain, but we do see all the signs.

Speaker Change: of an improving situation later in the year, not least the fact that we've got the holiday season ahead of us.

Speaker Change: And this year we can see, although it's very early in the cycle for planning with our customers, we'll know much more by the end of August , but we can see that our customers, particularly the consumer-focused customers,

Speaker Change: They are starting to plan out really now for a holiday season. Last year was a very disappointing holiday season. Right now we feel this year's period will be a better period for us than last year.

Stephanie Moore: Last year, it was a very disappointing holiday season. Right now, we feel this year's period will be a better, a better period for us in last year.

Stephanie Moore: Thank you, very detailed. I'm sure appreciate it.

Stephanie Moore: Just for my follow-up here, I want to maybe bear a stupid talk through some free cash flow considerations for the second half. We realize the guidance has remained unchanged, but does imply a bit of a step up in the second half versus the first half, so we could walk through some of those puts and takes; that would be great.

Speaker Change: Thank you. Very detailed answer. I appreciate it. Just for my follow-up here, I wanted, maybe, Baris, if you could talk through some pre-cash flow considerations for the second half. I realize the guidance has remained unchanged, but it does imply a bit of a step up in the second half versus the first half, so if you could walk through some of those puts and takes, that would be great. Thank you.

Baris Oran: Thank you. Our free cash flow was $31 million in Q2, up to $28 million in over a year. Our strong first half, which was up to $56 million in over a year, puts us on a track to achieve our 30% to 40%. A bit that's a free cash flow conversion. Our working capital management continues to be strong in 2024, and we expect that we are investing more and more in automation that will accelerate, but we're comfortable with our guidance. For the year, and as you would recall, our cash flow tends to be second half tilted every year, so our guidance is reflecting that.

Baris Oran: Our pre-cash flow was $31 million in Q2, up $28 million year over year.

Speaker Change: Our strong first half, which was up 56 million dollars year over year, puts us on a track to achieve our 30% to 40% EBITDA to free cash flow conversion.

Speaker Change: Our working capital management continues to be strong in 2024, and we expect that we are investing more and more in automation that will accelerate, but we are comfortable with our guidance for the year, and as you would recall, our cash flow tends to be

Speaker Change: Second half tilted every year, so our guidance is reflecting that.

Operator: Thank you.

Scott Schneeberger: We'll move on to the next question from Scott Schiemberger of Oppenheimer. Please go ahead.

Speaker Change: Thank you. We'll move on to the next question from Scott Schneeberger of Oppenheimer. Please go ahead.

Scott Schneeberger: Thanks very much for morning all. I want to follow up on transactional volumes. It sounds like there's a bit of a geographical difference where you're still seeing the sluggishness that keeps you conscious in North America.

Scott Sheenberger: Thanks very much. Good morning, all. I want to follow up on transactional volumes.

Scott Sheenberger: It sounds like there's a bit of a geographical difference where you're still seeing the sluggishness that keeps you cautious in North America.

Scott Schneeberger: Paris, I guess it's for you. Is it still sequential improvement to third quarter to fourth quarter? That's what it sounded like in the answer to the last question. But is it just between the back two quarters of the year, how should we see that trend, and maybe with regards to your career consideration as well?

Scott Sheenberger: Baris, I guess it's for you, is it still sequential improvement to 3rd quarter to 4th quarter? That's what it sounded like in the answer to the last question. But is it just between the back two quarters of the year? How should we see that trend? And maybe with regard to year over year consideration as well. And then I guess Malcolm, if you want to follow that.

Scott Schneeberger: I guess, Malcolm, if you want to follow that, how much lack of visibility is there in North America? You mentioned all, you know, maybe later this month, you'll get a sense for the holiday season, but it sounds like your concern is broader than that. So maybe touch on some other verticals in North America, in addition to retail, or if it is just retail, that's kind of the thing that has you a little bit on pod.

Malcolm Wilson: How much, um, how much...

Scott Sheenberger: [inaudible]

Malcolm Wilson: Thank you.

Malcolm Wilson: Let me cover the second part of your question first; it's Malcolm, and then I'll hand you over to Baruch to cover the detail on the numbers. So, in fact, you're right; I think we have all year had a stronger outlook for our European business. That boards well.

Malcolm Wilson: Hi Scott, let me cover the second part of your question first, it's Malcolm, and then I'll hand you over to Baris to cover the detail on the numbers.

Malcolm Wilson: So, in fact, you're right, I think we have all year had...

Speaker Change: a stronger outlook for our European business. That bodes well. Clearly, obviously, we've just concluded on the M&A of Wincanton, and that's going to strengthen still further because it's going to expose us into a number of new verticals. So we're very, very pleased about that.

Malcolm Wilson: Clearly, obviously, we've just concluded on the M&A of Win Canton, and that's going to strengthen still further because it's going to expose us into a number of new verticals. We're very, very pleased about that. In North America, I guess what we're seeing is in our industrial business, our urals, their business, tech business, generally, things that are directly linked somehow to the consumer. I think there is still a degree of uncertainty. We do, when we're talking to our customers, they anticipate this year that they are going to have more of a pronounced holiday season than what we saw in 23. 23 was very disappointing, I think, for everyone.

Malcolm Wilson: In North America, I guess what we're seeing is, in our industrials business, our aerospace business, tech business,

Malcolm Wilson: Generally, things that are directly linked somehow to the consumer, I think there's still a degree of uncertainty. We do, when we're talking to our customers...

Speaker Change: They anticipate this year that they are going to have more of a pronounced holiday season than what we saw in 23. 23 was very disappointing, I think.

Malcolm Wilson: This year, I think, on the back of improving levels of inventory, inventory levels are growing in our warehouses.

Malcolm Wilson: for everyone.

Malcolm Wilson: This year, I think, on the back of...

Malcolm Wilson: Improving levels of inventory. Inventory levels are growing in our warehouses.

Malcolm Wilson: I think, and the planning that's taking place right now, but also remembering one of the things that is directly within our control, highly predictable for us, is the actual implementing of that new business that we want. And we can see that our new business wins in North America have been very strong. So, whilst the here and now has a degree of uncertainty, what's really directly controllable by us, or the new business that we've won and how we will implement that and the timing of those implementations, that's much more pronounced. It does give us a better feel for the second half of the year.

Malcolm Wilson: I think, and the planning that's taking place right now, but also remembering one of the things that is directly within our control, highly predictable for us, is the actual implementing of that new business that we won. And we can see that our new business wins in North America have been very strong.

Malcolm Wilson: So whilst the here and now has a degree of uncertainty, what's really directly controllable by us, so the new business that we've won and how we will implement that, and the timing of those implementations, that's much more pronounced, so it does give us a better feel for the second half of the year. I don't believe...

Malcolm Wilson: I don't believe quarter three is going to be a significant change over quarter two, but I definitely do see that when we look at our implementations of new business, what we're hearing right now from our customers, and what we're seeing in our facilities, I do think we will see a noticeable change as we move into quarter four, and as we exit this year in 25 momentum.

Malcolm Wilson: Q3 is going to be a significant change over Q2, but I definitely do see that when we look at our implementations of new business.

Malcolm Wilson: What we're hearing right now from our customers...

Baris Oran: And what we're seeing in our facilities, I do think we will see a noticeable change as we move into quarter four and as we exit this year in 25 momentum, as it were. But maybe, Baris, you can put a little bit more detail around?

Baris Oran: But maybe, Barry, she can put a little bit more detail around. Sure. When you look into Q2, and then you look at our existing facilities, and include network consolidation and the macro impact, our volumes were still down, but they are less down compared to the fourth quarter of us.

Unknown Executive: Sure. When you look into Q2 and when you look at our existing facilities and include network consolidation and the macro impact, our volumes were still down, but they are less down compared to the fourth quarter of last year. We feel confident that we have passed the bottom, as Malcolm highlighted, we are expecting a better peak compared to Q4 of 2023, which was really, really low. And we've already seen this environment reflected in our current business.

Baris Oran: Sure. When you look into Q2 and when you look at our existing facilities and include network consolidation and the macro impact, our volumes were still down, but they are less down compared to the fourth quarter of last year.

Baris Oran: We are, if you're confident that we have passed the bottom as Malcolm highlighted, we are expecting a better key compared to Q4 of 2020, which was really, really, really all. And we are already seeing this environment reflected in our current business. Furthermore, as Malcolm highlighted, we see higher new business wins that will support our continuous growth in the back half, especially in Q4, and the profitability in the back half, especially in Q4. Remember Q4, we had easier cops.

Baris Oran: We feel confident that we have passed the bottom, as Malcolm highlighted. We are expecting a better peak compared to Q4 of 2023, which was really, really low. And we are already seeing this environment reflected in our current business.

Baris Oran: Furthermore, as Malcolm highlighted, we see higher new business wins that will support our continuous growth in the back half, especially in Q4, and the profitability in the back half, especially in Q4. Remember, Q4, we'll have easier comps.

Scott Schneeberger: Great, thank you both on that. And for my follow-up, I want to delve into a bit of the pipeline and the duration of contracts.

Speaker Change: Great. Thank you both on that. For my follow-up, I want to delve into a bit of the pipeline and the duration of contracts.

Scott Schneeberger: So in the deck you've cited, and I think it was a new, something new in the deck that, second quarter average contract duration of six months, I think, six years. Excuse me, and so that's impressive, and I assume Levi's is in that. So just curious, is a lot of this all-time high or very long-time high pipeline, is a lot of this longer duration contract.

Speaker Change: So in the deck you cited, and I think it was a new, something new in the deck, that second quarter average contract duration of six months.

Speaker Change: I think six years, excuse me, and so that's

Speaker Change: That's, you know, that's impressive. And I assume Levi's is in that. So just curious, is a lot of this

Speaker Change: All-time high or very long-time high pipeline is a lot of this longer duration contract. And just curious, Malcolm, if you back out Levi's, assuming that's what's driving that so high in the second quarter,

Scott Schneeberger: And I'm just curious, Malcolm, if you back out Levi's, assuming that's what's driving that so high in the second quarter, how does the overall portfolio look as far as long-term contracts? Because you have been winning a bunch of them. Is that looking a longer now, the total portfolio than it did just a few years ago, and how much is that moved up?

Speaker Change: How does the overall portfolio look as far as long-term contracts? Because you have been winning a bunch of them.

Speaker Change: Is that looking longer now, the total portfolio, than it did just a few years ago? And how much has that moved up? And more importantly, looking at the pipeline, do you see more of these long-duration contracts to come?

Scott Schneeberger: And more importantly, looking at the pipeline, do you see more of these long-duration contracts to come? Thank you.

Malcolm Wilson: Yes, Scott, definitely what we're seeing is the duration length of contracts that we're signing is gradually getting larger. And I think what's driving that is just the amount of technology that goes into the solutions that we're designing for customers. So many customers are coming to us because, well, they look at us, they see a very trusted partner that's very tech forward thinking. So, they're eager to benefit from the solutions that we can design for them that are really driving more efficiency, more productivity, higher quality. But with that, generally comes automation technology, whether that's good to person, collaborative robots, deep seated in building robotic activity.

Speaker Change: Yes, Scott.

Speaker Change: Definitely, what we're seeing is the duration length of contracts that we're signing is gradually getting larger. And I think what's driving that is just the amount of technology that goes into the solutions that we're designing for customers. So, many customers are coming to us because...

Speaker Change: Well, they look at us, they see a very trusted partner that's very tech forward thinking. So they're eager to benefit from the solutions that we can design for them that are really driving more efficiency, more productivity, higher quality.

Speaker Change: But with that generally comes automation technology, whether that's goods-to-person, collaborative robots, deep-seated, in-building robotic activity, or indeed what will be in the future the very latest batch of technology, humanoid type of robotics.

Malcolm Wilson: Or indeed, what will be in the future, these very latest batch of technology, humanoid type of robotics.

Malcolm Wilson: So, generally, that's what's driving this longer-term auguration. It's very good for us as a business because it gives us a huge planning horizon. And already, we're seeing business continuity with customers stretching out, writing to the next decade. So, I think, contracturation, increasing, deal size, really getting bigger, you know, customers are seeking to outsource more and more of what they traditionally might have done themselves. And that's driving just a larger scale amount of outsourcing. So, for us as a business, it's really a very good news aspect.

Speaker Change: So generally that's what's driving this longer term of duration. It's very good for us as a business because it gives...

Speaker Change: as a huge planning horizon. You already know we're seeing business continuity with customers stretching out right into the next decade. So, I think contract duration...

Speaker Change: Really getting bigger, you know, customers are seeking to outsource more and more of what they traditionally might have done themselves. And that's driving just a larger scale amount of outsourcing. So for us as a business,

Speaker Change: It's really a very good...

Malcolm Wilson: You know, it's something that gives us a lot of confidence when we're planning out our business beyond 25 and even into 26 and 27. And it's one of the reasons why we're really feeling very strong, very confident about the mid-term 27 plans that we announced earlier this year. We've got a lot of confidence coming from just the sheer level of new business that's coming to us. Obviously, we're hopeful that our core business and the economic environments in all the regions will improve from where it is right now. But a good deal of what we're referring to is directly under our control when it comes to just actually the new business that we're entering into with customers.

Speaker Change: news aspect. You know, it's something that gives us a lot of confidence when we're planning out our business beyond 25 and even into 26 and 27. It's one of the reasons why we're really feeling very strong, very confident about the midterm 27 plans that we announced earlier this year. We've got a lot of confidence coming.

Speaker Change: from just the sheer level of new business that's coming to us.

Speaker Change: Obviously.

Speaker Change: We're hopeful that our core business and the economic environments in all the regions will improve from where it is right now, but a good deal of what we're referring to is directly under our control when it comes to just actually the new business that we're entering into with customers.

Speaker Change: Sounds good, thanks.

Scott Schneeberger: Thank you. Excuse me.

Chris Wetherbee: The next question is coming from Chris Wetherbee of Wells Fargo. Please go ahead.

Speaker Change: Thank you and excuse me the next question is coming from Chris Wetherbee of Wells Fargo. Please go ahead.

Chris Wetherbee: Yeah. Hey, thanks.

Chris Wetherbee: Good morning, guys. I guess I wanted to talk a little bit about the guidance and just sort of make sure I understand the cadence for the rest of the year, particularly from an EBITDA contribution perspective. It seems like maybe 3Q is a little lower than what we thought might have could have been and where maybe a little bit more 4Q waited now than we were previously. So can you talk through a little bit of what we should see over the course of the next couple quarters and what sort of drive that seasonality, which I guess maybe is slightly different than what we've seen before.

Chris Weatherby: Good morning, guys. I guess I wanted to talk a little bit about the guidance and just sort of make sure I understand the cadence for the rest of the year, particularly from an EBITDA contribution perspective.

Speaker Change: Maybe 3Q is a little lower than what we thought might it could have been and we're maybe a little bit more 4Q weighted now than we were previously. So can you can you talk through a little bit of what we should see over the course of the next couple quarters and what sort of drives that seasonality? Which I guess maybe is slightly different than what we've seen before. Presumably maybe Wincanton's got a little bit different seasonality.

Chris Wetherbee: Presumably, maybe Winkantan's got a little bit different seasonality.

Baris Oran: Hi, Chris.

Baris Oran: This is Boris Schier. You're right. There is a peak period in Vincanson that's going to have an impact. PFS also has a sizable peak that's going to have an impact. And also we are seeing more contribution from our new business wins. In this quarter in Q2, we had roughly 8% of our growth coming from new business wins, and we expect that to grow to 9% towards the end of the year in Q4. That's going to have an impact. And remember, Q4, we really didn't; we really had a low peak period last year. So we're having really easy counts in Q4 of this year.

Speaker Change: Hi Chris, this is Baris here. You're right, there is a peak period in Vincanton that's going to have an impact. PFS also has a sizable peak that's going to have an impact. And also, we are seeing more contribution from our new business wins.

Speaker Change: In this quarter, in Q2, we had roughly 8% of our growth coming from new business wins, and we expect that to grow to 9% towards the end of the year in Q4. That's going to have an impact. And remember, Q4, we really didn't... we really had a...

Speaker Change: Low peak period last year, so we are having really easy comps in Q4 of this year. That's reflected in our numbers.

Baris Oran: That's reflected in our numbers.

Chris Wetherbee: Okay. Alright, that's helpful.

Chris Wetherbee: And then maybe if you guys can sort of opine to some extent on what we're seeing from a demand perspective, this is more of a U.S. question than it is a European question. And your thoughts on whether or not some of the activity we're seeing is pull forward from a peak season with people concerned about potential disruptions. Maybe it's port issues, or if there are other factors kind of playing, and there's some tariffs that went into effect in early August. It's kind of curious. You know, the relative strength of imports, particularly from a U.S. perspective.

Speaker Change: OK, all right, that's helpful. And then maybe if you guys could.

Speaker Change: . . . sort of opine to some extent on what we are seeing from a demand perspective, this is more of a US question than it is a European question. And your thoughts on whether or not some of the activity we are seeing is pull forward from a peak season with people concerned about potential disruptions, maybe it's port issues.

Speaker Change: or if there are other factors kind of playing in. There's some tariffs that went into effect in early August . I'm just kind of curious, you know, the relative strength of imports, particularly from a U.S. perspective, is that something that you think persists or do you feel like your customers are talking at all about pull forward?

Chris Wetherbee: Is that something that you think persists, or do you feel like your customers are talking at all about pull forward?

Malcolm Wilson: Chris, it's Malcolm here.

Malcolm Wilson: Right now, we don't actually see that the inventory levels that we're seeing is a result of a pull forward. I mean, there's different activities in different verticals. I mean, we saw in last year as an example.

Speaker Change: Chris, it's Malcolm here. Right now, we don't actually see that the inventory levels that we're seeing is a result of a pull forward. I mean, there's different activities in different verticals. I mean, we saw in last year as an example, and in fact in early parts of this year, some of our customers in different industries

Malcolm Wilson: And in fact, in early parts of this year, some of our customers in different industries, tangibly bringing products in earlier, tangibly bringing product in earlier from a safety perspective in terms of reassuring and other activities like that. But in terms of our consumer driven business, right now, I think we are just naturally seeing an elevating return to a more normalized level of inventory halving in our warehouses to support a normal kind of business planning cycle that our customers are having. And clearly right now, we're seeing early import of inventory getting ready for the holiday season, which I think would be a very traditional holiday season.

Speaker Change: Tangibly bringing products in earlier, tangibly bringing products in earlier from a safety

Speaker Change: cfw, Newport Ann evaluation, NNIM, Merit Rodgers B.S G entraining Merit Rodgers. I think we are just naturally seeing an elevating return

Speaker Change: to a more normalized level of inventory holding.

Speaker Change: In our warehouses to support a normal kind of business planning cycle that our customers are having and clearly Right now we're seeing early input of inventory getting ready for the holiday season Which I think will be a very traditional holiday season

Malcolm Wilson: I know you mentioned about possible disruptions, poor disruptions. You know, our industry, I think now accepts and lives in a disrupted environment. You know, I think I think our customers are very familiar with the fact that they have to think about think outside of the box and clearly, you know, in working with GX or the working with a partner that really is, well, we have a huge experience of being able to assist them in that in that cause. And again, one of the important aspects we are deploying a ton of automation and technology into our businesses that does allow us to actually transact a lot of volume in a much shorter window of time.

Speaker Change: I know you mentioned about possible disruptions, port disruptions.

Speaker Change: You know, our industry, I think, now accepts and lives in a disrupted environment. You know, I think our customers are very familiar with the fact that they have to think outside of the box.

Speaker Change: And clearly, you know, in working with GXO, they're working with a partner that really is...

Speaker Change: Well, we have a huge experience of being able to assist them in that in that cause. And again, one of the important aspects, we are deploying a ton of automation and technology into our businesses that does allow us.

Speaker Change: to actually transact a lot of volume in a much shorter window of time. So it's an added degree of safety for our customers as we head into the holiday season.

Malcolm Wilson: So it's an added degree of safety for our customers, you know, as we head into the holiday season.

Chris Wetherbee: Jason. Okay, very helpful. Thanks for the time this morning. Appreciate it.

Unknown Executive: Okay, very helpful. Thanks for your time this morning. I appreciate it.

Speaker Change: Okay, very helpful. Thanks for the time this morning. Appreciate it.

Brian Ossenbeck: The next question is coming from Brian Ossenbeck of J.P. Morgan.

Speaker Change: Thank you. The next question is coming from Brian Ossenbeck of JP Morgan. Please go ahead.

Brian Ossenbeck: Please go ahead. Thank you, Morgan. Thanks for taking the question.

Brian Ossenbeck: I just wanted to ask a little bit more about the composition of the recent winds and how that might impact margins with start-up costs and things like that for the rest of the year and the next year. So it looks like new business winds, you know, were a smaller portion of the book this quarter compared to last one. So it looks like a lot more outsourcing. Does that have an appreciable impact on the cadence of earnings here?

Brian Ostenbeck: Hey, good morning. Thanks for taking the question.

Brian Ostenbeck: So I just wanted to ask a little bit more about the composition of the recent wins and how that might impact margins with start-up costs.

Speaker Change: things like that for the rest of the year into next year. So it looks like new business wins.

Speaker Change: We're a smaller portion of the book this quarter compared to last one, so it looks like a lot more outsourcing. Does it have an appreciable impact on the cadence of earnings here when you think about startup costs and investments?

Brian Ossenbeck: I think about start-up costs and investments, and I guess more specifically, you know, why the shift between those two quarter to quarter is that just lumpiness because of the contractor you seeing some underlying changes in the end of behavior here. Hi, Brian.

Speaker Change: And I guess more specifically, you know, why the shift between those two quarter to quarter? Is that just lumpiness because of the contract? Are you seeing some underlying changes in the behaviors here?

Baris Oran: This is very shared. The delta is coming from the large outsourcing contracts we have signed. These are the large automated facilities that we took over from an in-house operation, and they are automating. And of course, the contribution from these vastly automated solutions is higher. The margin Delta is higher from automation, and we'll see that in play as we take over the site and is the ramp of this activity in these new facilities. Overall, as a trend, roughly half of our business had been coming from the first time outsourcing, but we do see quite a lot of demand, especially in the e-commerce, as well on the demand for new facilities, and they're still gaining market share from some of the smaller players, as we are seeing opportunities for consolidating network of our customers into more scaled operations.

Speaker Change: Hi Brian , this is Baris here. The Delta is coming from the large outsourcing contracts we have signed. These are the large automated facilities that we took over from an in-house operation and we are automating.

Speaker Change: And, of course, the contribution from these vastly automated solutions is higher. The margin delta is higher from automation, and we'll see that in play as we take over the site and as we ramp up the activity in these new facilities.

Speaker Change: [inaudible]

Speaker Change: And we are still gaining market share from some of the smaller players as we are getting opportunities for consolidating network of our customers into more scaled operations.

Baris Oran: So we're gaining market share from the smaller players as well.

Baris Oran: So this quarter I would say is a unique quarter by itself. Over the longer term, you should see the takeover in place still continuing, but we see new facilities, especially in the e-commerce. The demand for e-commerce facilities has been somewhat robust recently, and you're seeing a lot more in our pipeline as well. So that's going to be more balanced as we look forward. The profitability contribution, of course, on these automated facilities is higher, and we'll have them reflected in the next couple of quarters as we ramp them up and into next year as well. Got it.

Speaker Change: So we are gaining market share from the smaller players as well. So this quarter, I would say, is a unique quarter by itself.

Speaker Change: Over the longer term, you should see

Speaker Change: The takeover in place is still continuing, but we see new facilities, especially in the e-commerce. The demand for e-commerce facilities has been somewhat robust recently, and we're seeing a lot more in our pipeline as well.

Speaker Change: So, that's going to be more balanced as we look forward. The profitability contribution, of course, on these automated facilities is higher, and we'll have them reflected in the next couple of quarters as we ramp them up and into next year as well.

Brian Ossenbeck: That's helpful. Thank you.

Brian Ossenbeck: This is a follow-up. There's again, maybe you can talk a little bit more about how the investments and productivity and sales force that you're talking about to start the year, how those impacted the second quarter, how those have been implemented, they're getting the sort of returns. You expect because ultimately and other some seasonality into 3Q, but when is he just how much of a tailwind that's going to turn as you go from 2Q to 3Q. Thanks.

Speaker Change: Got it. That's helpful. Thank you.

Speaker Change: This is a follow-up.

Speaker Change: Baris, again, maybe you can talk a little bit more about how the investments and...

Baris Oran: Productivity and Salesforce that you're talking about to start the year, how those impacted the second quarter, how those have been implemented, they're getting the sort of returns.

Speaker Change: [inaudible]

Baris Oran: Thank you. We have sizable investments in our sales teams. In fact, that was a margins rag in our cuter on 10 basis points. These facilities do take up some time up to ramp it up and operationalize, but we're seeing a huge opportunity.

Speaker Change: Thank you.

Speaker Change: Thank you. We have sizably messed with our sales teams. In fact, that was a margin drag in our Q2, around 10 basis points.

Unknown Executive: These facilities do take some time to ramp up and operationalize, but we are seeing a huge opportunity. Our pipeline is very robust.

Speaker Change: These facilities do take up some time to ramp it up and operationalize, but we are seeing a huge opportunity. Our pipeline is very robust.

Baris Oran: Our pipeline is very robust. Our pipeline is turning faster as well, as well as our view rates have improved. Therefore, we're definitely seeing a huge benefit in our sales teams and our capabilities. The results are not in our numbers yet.

Speaker Change: Our pipeline is turning faster as well, as well as our win rates have improved.

Speaker Change: Therefore, we are definitely seeing a huge benefit or investing in our sales teams and our capabilities. The results are not in our numbers yet. You will see them more vividly in the next couple of years.

Baris Oran: You will see them more vividly in the next couple of years. Thank you.

Speaker Change: Okay. Thanks, Baris.

Ravi Shanker: The next question is coming from Ravi Shanker of Morgan Stanley. Please go ahead.

Baris Oran: Thank you.

Speaker Change: Thank you. The next question is coming from Ravi Shanker of Morgan Stanley . Please go ahead.

Christine Kubacki: That's not everyone. Maybe I can start with a question on the humanoid that you referred to a few times on this call, because it's a pretty interesting area of research and lots of new developments there. How do you see that ramping and playing out? Who are the players out there that can supply you with these humanoids? How does that coexist with cohorts?

Robbie Schenker: Thanks for having me, everyone. Maybe I can start with a question on the humanoids, which you referred to a few times on this call, because it's a pretty interesting area of research and lots of new developments there. How do you see that kind of ramping and playing out? Who are the players out there who can supply you with these?

Speaker Change: Humanoids. How does that coexist with Cobots? What do you see as the future of warehouse automation?

Christine Kubacki: What do you see as a future of warehouse automation?

Christine Kubacki: Hi, Ravi.

Christine Kubacki: It's Christine here. Existing robotic solutions have matured in recent years, and they're somewhat limited in what they can only perform specific functions. And this is really where the humanoids come in. They add the capability of performing dynamic tasks in a human way, and they're developed to make human-like decisions. They're also highly suitable for to perform some repetitive, heavy lifting type tasks and really work along with our associates. We believe that the humanoid category were really explode over the next couple of years, and therefore we're really leaning into the humanoid space via our operational incubator program.

Speaker Change: Hi Ravi, it's Kristine here.

Speaker Change: Existing robotic solutions have matured in recent years and they're somewhat limited in that they can only perform specific functions.

Speaker Change: And this is really where the humanoids come in, you know, they have the capability of performing dynamic tasks in a human way, and they're developed to make, you know, human-like decisions.

Speaker Change: They're also highly suitable to perform some repetitive, heavy lifting type tasks and really work along with our associates. We believe that the humanoid category will really explode over the next couple of years.

Speaker Change: and therefore we're really leaning into it into the humanoid space via our operational incubator program.

Christine Kubacki: We've even this morning just released a short video on the progress that we're making with humanoid. So I would say, stay tuned. There's a lot going on in this space. We're certainly very excited about the opportunities. I'm really at the end of the day. It's going to drive efficiencies for our customers, and we're excited about that, and it's going to accelerate GXO's growth. Really, you're very exciting.

Speaker Change: You know, we've even this morning just released a short video on the progress that we're making with Humanoids. So I would say...

Speaker Change: Stay tuned, there's a lot going on in this space, we're certainly very excited about the opportunities, and really at the end of the day it's going to drive efficiencies for our customers, and we're excited about that and it's going to accelerate GXO's growth.

Ravi Shanker: And now for a more mundane follow-up. Just to confirm your message on what you're seeing out there, because you have heard from some of your customers even, like consumer brands, a bit of mass market consumer brands, that there is some weakness out there. You see it in some of the retail results that are pretty weak. You're seeing that as much. I mean, you did say that the US is a little bit softer.

Speaker Change: Great to hear. Very exciting. And now for a more mundane follow-up, just to kind of confirm your message on what you're seeing out there, because we have heard from

Speaker Change: Some of your customers even, like consumer brands.

Speaker Change: A bit of mass market consumer brands that there is some weakness out there. You see it in some of the retail results that are pretty weak.

Speaker Change: You're saying that you aren't seeing that as much. I mean, you did say that the U.S. is a little bit softer. What is the message on what do you think the inventory situation and demand environment is going to look like in the back half?

Malcolm Wilson: What is the message on what do you think the inventory situation and demand environment is going to look like in the back off?

Malcolm Wilson: Yeah, Ravi, it's Malcolm here. Let me cover some of that, and I'll ask Baris to also come in on it. I think there are two things to consider. It's a kind of here and now. So obviously, we work with our customers for the second half of this year, and within that, clearly the holiday season, roughly about 50% of our business is really consumer focused. You know, it's directly to the consumer. So in that regard, the second half of the year is going to be influenced by the here and now thinking.

Malcolm Wilson: Ravi, I'm Malcolm here.

Malcolm Wilson: Let me cover some of that, and now I'll ask Barry to also come in on it. I think it's two things to consider. This is a kind of hearing no. Obviously, we work with our customers for the second half of this year. And within that, clearly the holiday season, roughly about 50% of our businesses, really consumer focus. It's directly to the consumers. So, in that regard, second half of the year, it's going to be influenced by the hearing, no thinking. What we can see is in the discussions that we're having with customers; they are planning for a holiday season.

Speaker Change: Yeah, Ravi, it's Malcolm here. Let me cover some of that and I'll ask Baris to also come in on it. I think it's two things to consider. It's a kind of here and now. So obviously we work with our customers for the second half of this year and within that,

Baris Oran: Clearly, the holiday season, roughly about 50% of our business is...

Baris Oran: Really consumer focused, you know, it's directly to the consumer so

Malcolm Wilson: What we can see is in the discussions that we're having with customers, they are planning, you know, for a holiday season. Maybe there'll be this year, unlike last year, a little bit more promotional activity, maybe even a bit of discounting, who knows.

Baris Oran: In that regard, the second half of the year is going to be influenced by the here and now thinking.

Baris Oran: What we can see is, in the discussions that we're having with customers...

Malcolm Wilson: And maybe there will be this year, unlike last year, a little bit more promotional activity, maybe even a bit of discounting. Who knows. But definitely, that's the hearing no. But I think the other aspect is so much of what we do. And as we've just talked a lot about the high levels of new business that we're coming into yet. So these are really projects for the future. We're kind of another transactional kind of business. We're really a longer term, long term arrangement with our customers. So we're looking out beyond 24 into 25 into 26. That aspect of our business, I think, is very strong.

Baris Oran: They are planning, you know, for a holiday season. Maybe there will be this year, unlike last year, a little bit more promotional activity, maybe even a bit of discounting, who knows? But definitely that's the here and now. But I think the other aspect is so much of what we do, and as we've just talked a lot about the high levels of new business that is coming into GXO.

Malcolm Wilson: But definitely that's the here and now. But I think the other aspect is so much of what we do and as we've just talked a lot about the high levels of new business that is coming into GXO, these are really projects for the future. We're kind of not a transactional kind of business. We're really a longer term, long term arrangement with our customers. So we're looking out beyond 24, into 25, into 26.

Baris Oran: These are really projects for the future, you know, we're kind of not a transactional kind of business, we're really a longer term, you know, long term arrangement with our customers. So we're looking out beyond 24, into 25, into 26.

Malcolm Wilson: That aspect of business, I think, is very strong. So that's the customers really kind of having to re-plan out and re-design their own supply chains. And clearly, we're at the heart of that with so many of these big blue chip customers.

Malcolm Wilson: That's the customers really kind of having to replan out and redesign out their own supply chains. And clearly we're at the heart of that. We've saw many of these big blue chip customers.

Baris Oran: That aspect of business I think is very strong, so that's the customers really kind of having to re-plan out and re-design out their own supply chains and clearly we're at the heart of that with so many of these big blue chip customers.

Baris Oran: Baris, can you add? Yes, the revenue growth in the second half of the year, the delta, is primarily coming from the new winds that we are implementing. And when you look into the underlying volume and network consolidation assumptions in Q2, clearly we were negative, and in Q3 we will expect a similar trend, and somewhat easing up into Q4, reflecting an easier comp in the Q4 versus the Q4 of Austria, which was bottom for us. But again, this reflects a negative volume and network consolidation environment that we are forecasting for the entire year. Despite that, our growth is accelerating because of our new business winds.

Baris Oran: Baris

Baris Oran: Yes, the revenue growth in the second half of the year, the delta, is primarily coming from the new winds that we are implementing.

Unknown Executive: that we are implementing.

Baris Oran: and when you look into the underlying volume and network consolidation assumptions.

Baris Oran: In Q2, clearly we were negative.

Speaker Change: And in Q3, we will expect a similar trend and somewhat easing up into Q4, reflecting an easier comp.

Baris Oran: are in the Q4O versus the Q4O last year, which was a bottom for us. But again, this reflects a negative volume and network consolidation environment.

Baris Oran: That we are forecasting for the entire year. Despite that, our growth is accelerating because of our new business wins.

Ravi Shanker: Very good, thank you. Thank you.

Speaker Change: Very good. Thank you.

Operator: Thank you. The next question is coming from Jason Seidl of TD Cowen. Please go ahead.

Jason Seidl: The next question is coming from Jason Sidel of TD Cowan.

Speaker Change: Thank you.

Jason Seidl: Please go ahead. Thank you, our brother.

Speaker Change: Thank you. The next question is coming from Jason Seidl of TD Cowen. Please go ahead.

Jason Seidl: Thank you, operator. Morning, everyone.

Jason Seidl: Morning, everyone. One of the delve a little bit into the contract length. I think expanding makes it a lot more predictable for your earnings power over time. You mentioned that about half of the contracts you're signing are newly outsourced customers. Are those customers pushing out the longer term as well? And also, as we think about these longer terms, some of the deals that you're signing are sort of in the double-digit years.

Jason Seidel: Thank you, operator. Good morning, everyone.

Jason Seidel: I wanted to delve a little bit into the contract length, I think, you know.

Jason Seidl: I want to delve a little bit into contract length. I think expanding it makes it a lot more predictable for your earnings power over time. You mentioned about half of the contracts you're signing are newly outsourced customers. Are those customers pushing out the longer term as well? And also, as we think about these longer terms, some of the deals that you sign are sort of in the double-digit years. Is there any difference in how we should think of the profitability of those contracts or how they're structured?

Speaker Change: Expanding makes it a lot more predictable for your earnings power over time.

Jason Seidel: You know, you mentioned about half of the contracts you're signing are newly outsourced customers. Are those customers pushing out the longer term as well? And also, as we think about these longer terms, some of the deals that you sign are sort of in the double-digit years. Is there any difference in how we should think of the profitability of those contracts or how they're structured?

Baris Oran: Is there any difference in how we should think of the profitability of those contracts or how they're structured? Yeah, the roughness of this quarter, half of the new business winds came from outsourcing, and it does include that number of automated facilities as well. Then you have an automated facility to make it work, to make it economically feasible. You need to have a longer-term contract because it takes time to set it up. It takes time to operate, and you're putting a lot of resources. You have to make sure software, hardware, and people work together to achieve the benefits.

Speaker Change: Yeah, roughly this quarter, half of the new business wins came from outsourcing.

Speaker Change: And that does include a number of automated facilities as well. When you have an automated facility, to make it work, to make it economically feasible, you need to have a longer-term contract.

Speaker Change: Because it takes time to set it up, it takes time to operate, and you're putting a lot of resources. You have to make sure software, hardware, and people work together to achieve the benefits.

Baris Oran: And those do end up their high value and higher margin contracts for us. And the customers are relying on our expertise and basically trusting them, trusting us with their brand to achieve those objectives and profitability. So, higher margin over time, but some startup costs? Higher margin over time. Of course, there's a ramp-up period of automation, but once it comes at a mature level, it is quite profitable, and it's very efficient.

Speaker Change: and those do end up, they are high value and higher margin contracts for us.

Jason Seidel: and the customers are relying on our expertise and basically trusting them, trusting us with their brand to achieve those objectives and profitability.

Speaker Change: So, higher margin over time, but some startup costs.

Speaker Change: Higher margin over time, of course, there's a ramp up period of automation, but once it comes at a mature level, it is quite profitable and it's very efficient.

Jason Seidl: Okay, that sounds great.

Jason Seidl: What does it just follow up here? As I look at some of your end markets, everyone grew but food and beverage, which to me was interesting because that's the one that everyone would think of as more sort of steady state. What's going on in that category? It's basically reflecting the noise in the market as far as consumer companies are concerned at the moment. But on the other hand, we have seen a nice pickup in our Omnichel retail on our frozen network, which has been quite robustly performing. So, it's basically reflecting the consumer environment that they're living in right now.

Speaker Change: Okay, that sounds great. I wanted to just follow up here. As I look into some of your end markets, everyone grew but food and beverage, which to me was interesting because that's the one that everyone would think of as more sort of steady state. What's going on in that category?

Unknown Executive: It's basically reflecting the noise in the market as far as consumer companies are concerned at the moment. But on the other hand, we have seen a nice pickup in our omni-channel retail on our frozen network, which has been quite robustly performing. So, it's basically reflecting the consumer environment that we are living in right now. Remember, in Q2, we still are facing negative volumes plus network consolidation impacts, and that will ease as we get into Q4 because of the compact effect.

Speaker Change: It's basically reflecting the noise in the market as far as consumer companies are concerned at the moment.

Speaker Change: But, on the other hand, we have seen a nice pickup in our ommature retail on our frozen network, which has been quite robustly performing. So it's basically reflecting the consumer environment that we are living in right now.

Baris Oran: Remember, in Q2, we still are facing negative volumes plus network consolidation impacts, and that will ease as we get into Q4 because of the compact effect. And despite that, we are experiencing our growth because of our win. So it sounds like food and beverage will be positive and back after the year. We do expect a better outcome from our food and beverage customers at the back of the years, and our frozen network is quite robust as well.

Jason Seidel: Remember, in Q2 we still are facing negative volumes plus network consolidation impacts and that will ease as we get into Q4 because of the compact effect. And despite that, we are accelerating our growth because of our wins.

Speaker Change: So it sounds like food and beverage will be positive and back after the year.

Jason Seidel: We do expect a better outcome from our food and beverage customers at the back of the year and our frozen network is quite robust at the moment.

Jason Seidl: Thanks. Appreciate the color. Nice quarter.

Unknown Executive: Thanks; I appreciate the color.

Speaker Change: Thanks, appreciate the call, have a nice quarter.

Speaker Change: Thank you.

David Zazula: The next question is coming from David Zazula of Barclays. Please go ahead.

Speaker Change: Thank you. The next question is coming from David Zazula of Barclays. Please go ahead.

Unknown Executive: Hey, thanks for taking my question.

David Zazula: Hey, thanks for taking my question. I was wondering if you could talk a little bit. I know you've discussed briefly before the impact of the Winkant acquisition on margins in the second half. I know they have a primarily open book contract structure. So how you're expecting that to impact, and how your conversations with customers have gone as far as how they want to keep their contract structure in place at least initially.

David Zazula: Hey, thanks for taking my question.

David Zazula: I'm wondering if you could talk a little bit, I know you've discussed briefly before, the impact of the Wincant acquisition on margins in the second half. I know they have a primarily open book contract structure, so how you're expecting that to impact and how your conversations with customers have gone as far as how they want to keep their contract structure in place, at least initially.

Baris Oran: Hi, this is very sure. Let me take the margin question, and I will refer to Malcolm on the regulatory process because there are certain limits on what we can discuss and what we can contribute to Winkant at the moment. Winkant is an open book business, smaller in size compared to GXO. Although it's a high return to methods capital, it's a temporary margin drag until we start the integration.

Jason Seidel: [inaudible]

Baris Oran: Hi, this is Baris here. Let me take the margin question and I will refer to Malcolm on the regulatory process because there are certain limits on what we can discuss and what we can contribute to in Canton at the moment.

Speaker Change: Vincanton is an open book business, smaller in size compared to GXO, although it's a high return investment capital, it's a temporary margin drag until we start the integration.

Baris Oran: Once we have completed the regulatory process in the second half of the year, we'll be able to see what we can do. The peak is over. This start integration process. This quarter, it was a drag in our margins and I expect that direct to slightly increasing to Q3 and Q4 as more and more of period of Winkant is consolidating our operation. This will turn into a tailwind to 2025.

Speaker Change: Once we have completed the regulatory process and the peak is over, we'll start the integration process.

Jason Seidel: This quarter it was a drag in our margins and I expect that drag to slightly increase into Q3 and Q4 as more and more periods of in-canton is consolidated in our operation.

Baris Oran: Given the roughly $55 million of cost energy is we're targeting once we start the integration process at Winkant.

Jason Seidel: This will turn into a tailwind to 2025 given the roughly 55 million dollars of cost synergies we are targeting once we start the integration process at Bing Canton. As far as the regulatory process, Malcolm, anything you would like to add?

Malcolm Wilson: As far as the regulatory process, Malcolm, anything you would like to add? Thanks, Birish. Well, in terms of regulatory process, it's a normal process in the UK. We know it very well. We undertook it very positively with the Clipa deal. We anticipate that the regulatory process being complete during September, October. Clearly, the Winkant and business, it does have a holiday season, and it's straight into the holiday season at that time. As indeed is the existing GX or Holiday season.

Malcolm Wilson: Thanks, Baris. Well, in terms of regulatory process, it's a normal process in the UK. We know it very well. We undertook it very positively with the Clipper deal. We anticipate that regulatory process being complete during September , October .

Malcolm Wilson: Clearly, the Wincanton business, it does have a holiday season, and it's straight into the holiday season at that time, as indeed is the existing GXO holiday season. So we'll really commence the full-blown integration of the two businesses from January onwards. And as Baris was indicating, I think it's quite likely the majority of our synergy benefits will be in action and coming through into our numbers during the course of the year.

Malcolm Wilson: We'll really commence the full-blown integration of the two businesses from January onwards, and as Birish was indicating, I think it's quite likely the majority of our synergy benefits will see being actioned and coming through into our numbers during the course of next year, during the full year, basically. In terms of some other points about Winkant. We've had incredibly positive feedback from the customers. They like the fact that Winkant is becoming part of a much larger, global business. Today, it's been primarily a UK organisation. The team members that we've had contact with are very good. They're super stars.

Speaker Change: of next year, during the full year basically. In terms of some of the points about Wynne-Canton, I mean, we've had incredibly positive feedback from the customers.

Jason Seidel: They like the fact that Wincanton is becoming part of a much larger global business. Today it's been primarily a UK organisation. The team members that we've had contact with are very good, they're superstars. We're very pleased to be welcoming those team members into our business. So overall, although it's...

Malcolm Wilson: We're very pleased to be welcoming those team members into our business. Overall, although it's far too soon to start putting numbers around revenue synergies, we do anticipate realizing some very healthy growth coming from existing verticals. We, importantly also, Winkant operates in a number of verticals that GX is not present in right now in Europe. Verticals such as public expenditure, defence, aerospace, a lot of different industrial activity. These are areas that today GX is not as prevalent in, so it will help balance out our portfolio. But many of these customers are, in fact, global customers. So far, clearly, unable to take the benefit of working with Winkant because they're really a UK-centric business.

Jason Seidel: we are far too soon to start putting numbers around revenue synergies. We do anticipate realising some very healthy growth coming from existing verticals, but importantly also

Speaker Change: In Canton it operates in a number of verticals that GXO is not present in right now in Europe . Verticals such as public expenditure, defence, aerospace, a lot of different industrial activity. These are areas that today GXO is not as prevalent in. So it will help balance out our portfolio.

Speaker Change: But many of these customers are in fact global customers, so far clearly unable to take the benefit of working with Wincanton because they're really a UK centric business. But in future we can see a lot of opportunity of transposing those business relationships, not just across UK but continental Europe and even here into North America with particularly on some of the aerospace and industrial type of customers that they're working with. So overall it's a very interesting, very exciting time for our UK business teams. I know the two teams...

Malcolm Wilson: But in future, we can see a lot of opportunity of transporting those business relationships, not just across the UK but continental Europe. And even here in to North America, particularly on some of the overall space and industrial type of customers that they're working with.

Malcolm Wilson: So overall, it's a very interesting, very exciting time for our UK business teams. I know the two teams, whilst we do operate separately right now, which is in alignment with the regulatory rules, I know they're looking forward to coming together towards the end of the year and really being able to maximise the benefits that will come out of this deal that has been done.

David Zazula: Very helpful. Good squeeze in, just one more.

David Zazula: You reiterated the cashflow guidance, which I think calls for some sequential acceleration and cashflow in the back-ass, at the same time as it sounds like you're expecting maybe modest volume accelerations. Maybe you could square the two as to how you are expecting good cashflow at the second half. Our cashflow generally tends to be tilted in the second half. So far on a year-to-date basis, we are better than last year. So this gives us a lot of confidence that we'll be able to achieve the guidance range of a bit of a free cashflow conversion. And, as I highlighted, as far as the volume impact is concerned, last year Q4 was really the bottom.

Baris Oran: Our cash flow generally tends to be tilted in the second half. So far, on a year-to-date basis, we are better than last year.

Baris Oran: So this gives us a lot of confidence that we'll be able to achieve the guidance range of EBITDA to pre-cash flow conversion. And as I highlighted, as far as volume's impact is concerned, last year Q4 was really the worst. We've seen very, very low inventory levels and low volume levels, and we are going to be comping them out in Q4. So we do expect an acceleration into Q4 in our organic growth range coming from volume. But beyond that, remember, we are expecting higher contribution from our new business wins that are going to be operational in Q4 as well. So we are looking positively into the second half of the year.

Baris Oran: We've seen very, very low inventory levels and low inventory, low volume levels. And we are going to be camping them out in Q4. So we do expect an acceleration. Q4 in our organic growth range coming from the volume. But beyond that, remember we are expecting higher contribution from our new business wins. That's going to be operational in Q4 as well. So we are looking positively into the second half of the year.

Speaker Change: Remember, we are expecting higher contribution from our new business wins that's going to be operational in Q4 as well. So we are looking positively into the second half of the year.

Baris Oran: Thanks very much. Thank you.

Operator: Thank you. The next question is coming from Kevin Gainey of Thompson-Davison Company. Please go ahead.

Kevin Gainey: The next question is coming from Kevin Ganey of Thompson Davis and Company.

Speaker Change: Thank you.

Kevin Gainey: Please go ahead. Good morning, everybody.

Christine Kubacki: I appreciate you taking the question. I wanted to maybe go into talk about the AI deployments that you guys are doing. What is the customer demand for that, and how are you guys planning that integration? And maybe if there's like a line of sight of what the opportunity is for you guys to capitalize on there.

Speaker Change: Good morning everybody. I appreciate you taking the question. I wanted to maybe go into talk about the AI deployments that you guys are doing. What's the, what is the customer demand for that and

Unknown Executive: How are you guys planning that integration and maybe if there's...

Speaker Change: How are you guys planning that integration and maybe if there's...

Christine Kubacki: Hey, Kevin. It's Christine here to talk a little bit about AI. It's really an exciting point for GXO. And as I mentioned, our AI deployments are up 10 times year over year in 2024. And we're using AI to add value in a variety of use cases within our existing operations. And some of those cases include optimizing picking, managing inventory flow, predicting skew replenishment modes, and all of which really reduces our cycle time. And this improves really dramatically the efficiencies for our customers and improves capacity that I think Malcolm talked about earlier. So I think we're, you know, GXO we're the leader in, you know, the automated supply chain solutions.

Speaker Change: Predicting, you know, skew replenishment modes and, you know, all of which really reduces our cycle time.

Speaker Change: And this improves really dramatically the efficiencies for our customers and improves capacity that I think Malcolm talked about earlier. So I think we're, you know, GXO, we're the leader in, you know, the automated supply chain solutions. So I think we're, you know, GXO, we're the leader in, you know, the automated supply

Christine Kubacki: But I would say on AI, we're really, really just getting started. And the predictive power of AI is already changing the way that we run our existing sites. And this will AI will further enhance this advantage. So I would say, watch this space. We'll certainly have a lot more to update you on our progress as we get forward.

Kevin Gainey: Thanks, Christine.

Kevin Gainey: And then maybe if you guys, this is a more M&A style question.

Kevin Gainey: When you guys make acquisitions, do you typically integrate them wholly, or do you still consider them like a subsidiary? and how did that affect how you guys run those businesses?

Speaker Change: Do you typically integrate them wholly or do you still consider them like subsidiary and...

Malcolm Wilson: Kevin, it's Malcolm here.

Malcolm Wilson: No, we tend to have a strategy whereby we integrate all there because we feel that drives the best environment for our customers; it's the best environment for our teas. Obviously, as a business, I think business associates, IT members, you know, this year alone, we've kind of already promoted around 2,000 people into new roles, home-grown talent, as it were. So when we integrate businesses, of course, new employees, new colleagues coming into the company, getting all of these benefits. But first and foremost, as well, you know, we've been very successful; we have a very strong track record.

Speaker Change: Yeah, Kevin, it's Malcolm here. No, we tend to have a strategy whereby we integrate all there because

Kevin: We feel that drives the best.

Speaker Change: [inaudible]

Speaker Change: Homegrown talent as it were. So when we integrate businesses of course

Speaker Change: New employees, new colleagues coming into the company gain all of these benefits. But first and foremost as well, you know, we've been very successful, we have a very strong track record. We do what we say we'll do when it comes to making very smooth...

Malcolm Wilson: We do what we say we'll do when it comes to making very smooth integrations of business. Customers value the fact that we do that thoughtfully; we don't disrupt any business. But in doing that also, it means we're able to leverage the strength of all of the business that we have in one particular geography, and that's what drives the high degree of synergy, cost synergy benefits that we're able to achieve. You know, improve procurement, buying powers, doing things in the most smartest way, in the most efficient way, and that's what gives us confidence. You know, we've done this several times.

Speaker Change: Integrations of Business, Customers

Speaker Change: value the fact that we...

Speaker Change: We do that thoughtfully, we don't disrupt any business.

Speaker Change: But in doing that also, it means we're able to leverage the strength of all of the business that we have in one particular geography, and that's what drives

Speaker Change: The High Degree of Synergy, Cost Synergy Benefits.

Speaker Change: that were able to achieve, you know, improved procurement, buying powers.

Speaker Change: doing things in the most smartest way, in the most efficient way, and that's what gives us confidence, you know, we've done this...

Malcolm Wilson: It's what's given us a high degree of confidence in terms of the synergy savings that will come from the Wing Canton deal, and really, you know, from I believe January onwards, that integration will start in earnest, and, you know, we'll purposely make sure it's done very smoothly, very well, but to the best effect ultimately of our team members, and of course our customers, and in the end, us in the best interest of our shareholders.

Speaker Change: Several times, it's what's given us a high degree of confidence in terms of the synergy savings that will come from the Wincanton deal. And really, you know, from, I believe, January onwards...

Speaker Change: That integration will start in earnest and we'll purposely make sure it's done very smoothly, very well, but to the best effect ultimately of our team members and of course our customers and in the end, that's in the best interest of our shareholders.

Baris Oran: Appreciate the colour in that, Malcolm, and then if I could squeeze one more in for bearish, how are you guys thinking about application in the back half of the year? We are focusing on generating cash. Our first priority is a growth enterprise to continue to invest in our new business opportunities, organic growth, and we're in the process of deleveraging. Our first priority would be organic growth. Once we go through the regulatory process, we will start integrating Wing Canton, and we'll capture more synergies, and we're really excited about the new business opportunities working, the teams working together can create for us in industrial, in aerospace and defence.

Speaker Change: Appreciate the color on that, Malcolm. And then if I could squeeze one more in for Baris, how are you guys thinking about capital allocation in the back half of the year?

Unknown Executive: We are; we are focusing.

Baris Oran: priorities as a growth enterprise to continue to invest in our in our new business opportunities organic growth.

Baris Oran: and we are in the process of deleveraging.

Speaker Change: Our first priority would be organic growth.

Speaker Change: Once we go through the regulatory process, we will...

Speaker Change: I'll start integrating Minkenton and we'll capture more cost synergies.

Baris Oran: and we are really excited about the new business opportunities, the teams working together.

Baris Oran: Everybody's getting ready for that, but we need to get the approval from the regulatory bodies first. So our priority would be integrating, growing organically, and paying down debt.

Speaker Change: can create for us in industrials, in aerospace and defense. Everybody's getting ready for that. But we need to get the approval from the regulatory bodies first. So our priority would be integrating, growing organically and paying down debt.

Kevin Gainey: Appreciate the time. Thank you.

Malcolm Wilson: Thank you, ladies and gentlemen.

Malcolm Wilson: That is all the time we have today for questions.

Malcolm Wilson: I would like to turn the call back over to CEO Mr. Malcolm Wilson for closing comments. Thank you, Johnner, and thanks for hosting our call today. We really appreciate that. We're pleased with the progress that we've made through the second quarter. We've delivered strong business wins, loop forward to even more to come through our biggest sales pipeline, and we're also looking forward to going live on a number of new exciting sites in the second half of this year. We've seen a return of larger, more complex projects into our sales pipeline. As Baris mentioned, you know, the return also of a lot of e-fulfillment type of projects is very pleasing to see.

Unknown Executive: Thank you, John.

unknown: ?? ?? ?? ?? ?? ??

Speaker Change: We're pleased with the progress that we've made through the second quarter.

Speaker Change: We've delivered strong business wins, look forward to even more to come through our bigger sales pipeline and we're also looking forward to going live on a number of new exciting sites in the second half of this year.

Malcolm Wilson: We're leading the industry with a growing number of innovative and game-changing technologies, which are all being proven right now in our sites, including the latest batch of humanoid type of raw bodies. And well, as Kristine mentioned, just a whole host of AI initiatives is becoming a norm in our business. It's really very exciting time for all of our teams working in the facilities. As a company, we're excited to continue to deliver these great shareholder returns from the exciting growth that's ahead of us.

Baris Oran: We're leading the industry with a growing number of innovative and game-changing technologies which are all being proven right now in our sites, including the latest batch of humanoid type of robotics.

Speaker Change: And, well, as Kristine mentioned, just a whole host of AI initiatives, that's becoming a norm in our business. It's really a very exciting time for all of our teams working in the facilities.

Speaker Change: As a company, we're excited to continue to deliver these great shareholder returns from the exciting growth that's ahead of us. So with that, I'd like to wish everybody a great rest of the day, and thanks very much for joining us and your attendance on our call. Thank you.

Malcolm Wilson: So, with that, I'd like to wish everybody a great rest of the day.

Malcolm Wilson: And thanks very much for joining us and your attendance on our call.

Operator: Thank you.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Speaker Change: Ladies and gentlemen, this concludes today's conference.

Speaker Change: Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Speaker Change: ?? ?? ?? ?? ??

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Speaker Change: . . . . . .

Speaker Change: [inaudible]

Speaker Change: Unknown Executive, Baris Oran, Jason Seidl, Brian Ossenbeck, Kevin Gainey, David Zazula, Unknown Executive, Baris Oran, Jason Seidl, Brian Ossenbeck, Kevin Gainey, David Zazula,