Q2 2025 GXO Logistics Inc Earnings Call

Welcome to the gxo second quarter, 2025 earnings conference call and webcast. My name is Shamaley and I'll be your operator for today's call at this time. All participants are in a listen-only mode. Later, we will conduct a question and answer session.

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during this call, the company will be making certain for licking statements within the meaning of applicable Securities Law which by their nature involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements,

a discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings.

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

The company Also may refer to certain non-gaap Financial measures as defined under applicable SEC rules during this call.

Reconciliations of such non-gaap Financial measures to the most comparable gaap measures are contained in the company's earnings release and the related Financial tables are on its website.

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

The company will also remind you that its guidance incorporates business Trends to date and what it believes today to be appropriate assumptions, the company's results are inherently unpredictable and may be materially affected by many factors including fluctuations. In foreign exchange rates changes in global economic conditions and consumer demand and spending

Labor market and global supply chain constraints.

Inflationary pressures and the various factors detailed in its filings with the SEC.

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

You can find a copy of the company's earnings release which contains additional important information regarding forward-looking statements and non-gaap financial measures in the investor section on the company's website.

I will now turn the call over to gxo chief executive officer. Malcolm Wilson, Mr. Wilson, you may begin.

Thanks jamali and good morning, everyone.

Thanks for joining us this morning.

With me and Greenwich today are bearish, oron our Chief Financial Officer and Christine Quebec our chief strategy officer.

We're pleased to have built on our momentum from the first quarter and delivered a great second quarter.

We saw new business wins of 307 million up 13% year-over-year, including with the lights of axon Nobel Boeing L'Oreal, Nestle Pratt, and Whitney and fermo Fisher.

Our new business wins for the first half of the Year toll over half a billion dollars.

We delivered record revenue of 3.3 billion and 212 million of adjusted ebit da up 13% year-over-year.

In June, we raised our full year guidance for organic Revenue growth, adjusted ebitda and adjusted diluted earnings per share. And today, given a better than expected performance in the first half of 2025, where again, raising our full year, adjusted ibida, guidance, to a new range of 865 million to 885 million an increase of 25 million Visa V, our initial range

this quarter, we received final regulatory approval for our strategic acquisition of wind Canton,

This will unlock growth opportunities in the industrial and Aerospace markets for gxo across Europe.

The gxo on Wing Canton, teams are already collaborating on a range of strategic customer tenders across, both the o space and defense.

Verticals.

We'll be kicking off the integration of the 2 companies in the coming weeks and we still expect to deliver the Lion's Share of the Run rate 60 by the end of 2026 which is ahead of our previous expectation. On top of that.

We also expect to gain significant Revenue synergies, over the coming years.

With that in mind, I'd like to take a moment to welcome our new colleagues from wind Canton. It's a stellar organization and light gxo. It's clear that the High Caliber of the people is why wind Canton has been able to build such an incredible business.

We designed, in partnership with Google Cloud, specifically for the complexities of supply chain operations.

Gxo IQ leverages AI to provide a modular scalable means to Startup customer operations more quickly, run them, more reliably and access, a broad Suite of value, added software applications.

Gxo IQ reflects the best of gxo, innovation and progress. We've made over the past few years.

Where operators first?

With a Relentless focus on adding value to our customers Global Supply chains.

I'm extremely proud of our great second quarter performance.

This week marks GX Source 4th anniversary, since we became a publicly traded company and it's worth putting our accomplishments in context.

In the 4 years, since the spin, we signed nearly 4 and a half billion dollars of new customer contracts.

Undertaken free, very successful acquisitions and nearly doubled the size of the business, all while remaining an investment-grade balance sheet company.

Our customer satisfaction scores are at an all-time high. We're in the process of finalizing. A nearly 20-year expansion of our business with a top 15 us retailer.

We will now operate with this customer in all 3 regions. We've also renewed and expanded with 2 of our top customers including H&M into a multi-year agreements across multiple geographies.

These long-term Global Partnerships speak volumes about the value. We create for our customers and our ability to solve complex challenges when they need it. Most

gxo Remains the market leader in automated fulfillment with more than doubled. The number of robots deployed in our operations over the past 4 years, increase the percentage of our Revenue, that's processed by automation to about 50% and made groundbreaking advances in Warehouse AI.

Our sales pipeline remains robust, at 2.4 billion, exclusive of the wing. Canton sales pipeline. It has grown by more than a third since the last full year, prior to the spin and it's more diverse than ever before.

Reflecting our new business wins today. Gxo is very well positioned to drive profitable growth into 2026 and Beyond.

Before I turn it over to barish, I want to say a few words. About the additional news. We announced yesterday.

Irish plans to step down from his role as Chief Financial Officer to pursue New Opportunities. He will remain with gxo serving as our CFO until a successor, is named

Have deeply appreciated, bearish his partnership over the past 4 years.

He has been dedicated not only to the performance of the company but to our customers and our people, he's been instrumental in instilling capital and cost discipline while maintaining strong momentum on new business wins.

gxo is well, positioned, thanks in large part to his valuable contributions

and with that,

I'll turn it over to barish.

Barish over to you.

Thanks Morgan.

It has been an honor to work with you and the team to build gxo into a true industry leader.

I feel this is the right moment to embrace New Opportunities and I do so with immense gratitude and pride in all that they have accomplished since the spin.

It is gratifying to know, gxo has a bright future ahead.

Now, turning to the quarter.

As Malcolm mentioned in the second quarter of 2025 jxo delivered records. Revenue of 3.3 billion. Growing 16% year-over-year all which 6% was organic

This was our highest quarter organic growth in 9 quarters.

Dynamic. Trade environment.

Our strongest organic growth in the quarter was in the Army Channel, retail and Technology articles.

We now have about 800 million dollars of incremental Revenue secured for 2025.

Which in combination with our retention rated mid-90s puts us in excellent shape to achieve or improve upon our fully organic growth targets.

We delivered adjusted DBT of 212 million.

Our margins expanded by 90 basis points, sequentially.

As a sizable automated startups and productivity initiatives, we mentioned last quarter, make sure more quickly than expected.

And we sold improved space utilization in our shared network.

We continue to leverage our sgna more effectively, due to our Central efficiencies programs.

We recorded net income of 28 million and adjusted net. Income of 66 million.

Our diluted earnings per share was 23 cents and our adjusted diluted earnings per share increased to 57 cents.

Our free cash flow in the second quarter, primarily reflects the payment for the 1-time regulatory item. We booked last quarter.

We are on track to deliver our target of 25% to 35% adjusted EBITDA to free cash flow conversion for the full year.

Our operating return on invested Capital remains, valuable our Target.

We remain disciplined in our Capital expenditures and working Capital Management. This allows us to continue to invest into our business with high returns.

Our leverage levels remain steady at 3 times, net debts.

Even after repurchasing shares during the first half of the year.

In the second quarter, we repurchased.

2.6 billion shares at an average price of $34.86 in total, in the first half of the year we have repurchased.

5.4 million shares or about 4% of the total shares outstanding.

As an average price of $37.34.

This represents a 26% discount to our every share price over the last 30, trading days.

And in June Moody's, upgraded jxo credit rating.

We are proud that we now hold investment-grade ratings from all three major agencies for the first time since the spin, which reflects the scale and resilience of our contractual business model.

Do you remain laser focused on our catalog location and continue to prioritize investments in Technologies and services that drive the greatest returns?

Our focus in 2025, will continue to be on accelerating, our organic growth and the integration of wind cancer.

The expect to see accelerated growth opportunities coming from our acquisitions.

as Malcolm mentioned, given our excellent operating performance in the first half of 2025 and following our guidance update in June, they are raising

Are fully inhabit the guidance again.

As a reminder for 2025, we now expect to deliver organic Revenue, growth of 3 and a half to 6 and a half percent up from our initial guidance of 3 to 6%.

hey Justin ebta of 865 million to 885 million up from our initial guidance of 840 million to 860 million

Adjusted diluted earnings per share of $2.43 to $2.63.

Up from our initial guidance of $2.40 to $2.60 and adjusted ebta to free cash, flow conversion of 25% to 35%.

We are excited about our increasing momentum. We now have greater visibility than ever of the benefits. We will be capturing as you bringing in Canton and gxo businesses together.

These benefits will begin to be realized during the remainder of this year and will material the ramp up throughout 2026.

And we are already on our way to capturing the Strategic growth opportunity. We have targeted with this acquisition.

Is delivered. All sides. Are you for our customers and our shareholders?

With that, I'll pass the mic to Christine Christine over to you.

Thanks Bosch. Good morning, everyone.

We're very pleased with our results for the second quarter of 2025.

I'd like to first touch upon our value creation strategy.

Which is a part of our long-term growth algorithm that makes gxo resilient across all parts of the cycle.

This strategy focuses on gxo ability to use our global scale, our deep Tech, and operational, expertise, and our obsession with our customers.

To capitalize on the secular Tailwinds that we believe will drive the future of fulfillment.

As Malcolm described the Tailwind driving, the market, align with our core competencies.

We've made meaningful progress on growing our Global relationships with blue chip customers.

Operating best-in-class automated operations.

And expanding into high growth verticals.

This is what gxo has proven we do best.

Just to touch upon a few of our most immediate opportunities.

First.

We've discussed before how we use AI in our operations.

But we're also playing a significant role in the cloud and AI value chain.

The logistics Market opportunity for technology is estimated to be 28 billion dollars today.

And as infrastructure need, for AI grows our opportunity will only continue to expand.

Second, we're making inroads into the healthcare Market.

Which is a 34 billion dollar opportunity.

We're about to start operations for our Landmark deal with England's national health services supply chain.

Our first significant win in healthcare and our largest contract win of all time.

Third, we're seeing strong demand from customers in Germany, the largest economy in Europe,

We launched a flagship highly automated Omni Channel fulfillment facility for Levi last year.

Which has established our foothold in this total addressable Market of 72 billion dollars.

Finally, the largest opportunity of all.

We continue to see momentum in our industrial and Aerospace businesses.

This was 1 of our fastest growing verticals throughout the first half of this year.

We're already collaborating on 12 RFD in the last 18 months.

as we grow with our existing customers and expand into new geographies, our technology Advantage, becomes more valuable

Our industry-leading automation software and AI Solutions. As Malcolm mentioned, provide the foundation for our long-term profitable growth strategy. And with that, I'll pass the mic back to bearish.

Before we move to Q&A, I want to take a moment to express my appreciation and gratitude to welcome. ACU concludes his tenure as CEO gxo.

Leadership jxo has flourished.

They have nearly doubled the size of the business.

Completed 3, transformative, Acquisitions and emerged as the global leader in Warehouse Automation and AI.

He leads us on a high note, records quarter to the revenues groundbreaking Automation, and AI developments.

Record customers satisfaction and an investment grade balance sheet.

With a clear line of sight, we foresee profitable growth for years to come.

His leadership has shaped not just our results, but our future.

It has been an honor to be part of the chapter with them.

And with that, we'll turn it over to chmali and will transition to Q&A.

We will now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate a line is in the question queue.

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1 moment, please while we pull for questions.

Our first question comes from the line of Stephanie Moore with Jeffrey's, please proceed with your question.

Hi, good morning, thank you and Malcolm. It was it's been great to work with you over the last 4 years and you will definitely be missed and we wish you the best of luck as you move on to your your next Endeavors and in life going forward. So great working with you.

Thanks very much. Stephanie. Much appreciated.

You know, can you maybe highlight what has changed from a geographic and, and Market perspective, just as the first half, you know, progressed and the nice acceleration and growth from 1 key to 2q. Thank you.

Sure, Stephanie, let me, uh, let me give you a bit of an overview of what we're seeing on the ground right now. And probably a good starting point is just to look across our 3, big, uh, regions, uh, here in North America, uh, Continental Europe and, and the UK. So, first and foremost, when we think about our Continental Europe business and our UK activity, we saw growth in volumes through. Uh, the last quarter UK, definitely improving Trend in quarter 2 compared to quarter 1.

Flight quarter 1 in North America, really. It was our strongest region. Uh in terms of volumes which was largely due to the customer mix in North America. We have a strong exposure to Aerospace and Technology. Infrastructure customers. These have all been performing very, very good better than we could have anticipated. We've also seen some stronger than expected performance in consumer verticals here in North America.

Um, when we think about inventory levels across our business, there's nothing really to speak about in that regard, so at an inventory level.

The incremental levels of inventory that we were seeing in the earlier part of the year. They've all now really dissipated and we see normal levels of inventory, in the warehouses, normal customer levels of infantry everything that we would expect to see right now just as we're starting to prepare for the holiday season.

What I can also add is when we look into Q3, we're already a third of the way through Q3 all of the trends that we've seen in quarter 2 have remained pretty consistent. So, what I mean by that is

uh,

when we look at the existing volumes, what we're forecasting on the go forward, the certainty that we can see in new business startups. So, um, Christine mentioned about the, uh, business in the health sector in the UK. But there's a plethora of large new contracts, all starting up for us all well, planned, all in good order. So, all of these things are giving us a really strong View for the second half of the Year companies, performing very well and we're benefiting as we have done from those secular demand trends that we've seen historically in e-commerce.

No more in healthcare Aerospace. And importantly in the defense industry, and of course, Ai and the cloud infrastructure benefits that we're seeing are all playing a part.

I think 1 thing to add, um, we're already in the Deep detail of planning Peak holiday season with our customers. Uh, and while the operating environment is definitely Dynamic, we can all, uh, we can all say that. We definitely remain in a very balanced outlook for the rest of this year. We're seeing customers really preparing in Earnest for, what will be a good holiday season? Um, they're committing costs. So, that's a strong sign of verbal belief in the second half of the year and the pace of ramp up that we normally experience in that period of time. So we've got a strong level of confidence in delivering the full year organic outlooks that we've talked about

Um, also taking a little early look at 26, you know, the level of new business that we've actually signed this year. It's been incredibly strong, a strongest ever. So this strong, uh, view, we have on new business momentum, the phasing that's taken us into 26. Its meaning that we really have a significantly high level of incremental Revenue already booked

For next year, uh, that's bigger than we've ever had before. Uh, so overall a very good outlook but I, I do want to kind of say 1 last point, you know, as a management team, I think we've had a reputation for being prudent, uh, and that's sometimes never a bad thing to be. And I think it's for all of those reasons that, you know, we're we're choosing right now to maintain that conservative conservative View for the rest of the year. We're maintaining that organic growth midpoint guide of 5%.

of course, there are a lot of opportunities right now for us to do better than our plan, but right now,

Conservative approach for the remainder of the year.

Thank you Malcolm. Well you answered my second question which was around peak season so I will just pass it on from here thanks again. Okay thanks Stephanie and there's been a pleasure to uh to uh talk with you. Thank you. Thank you.

Thank you.

Our next question comes from the line of Chris Weatherbee with Wells Fargo. Please proceed with your question.

Yeah. Hey thanks. Good morning guys and and congrats Malcolm, it has been a pleasure working with you and and congrats to looking forward to still. I think having you around maybe another couple quarters here but uh, but uh, obviously it's been a pleasure working with you both.

Thanks Chris. Thank you, Chris.

Um, maybe just following up on the last question. I guess, you know, as you think about the or the pace of organic Revenue growth, um, it seems like things are beginning to fall into place particularly as it pertains With the Wind Canton deal. Maybe some of the verticals of that opens up, you have the healthcare opportunities coming online as well. So I guess as you think about the organic Revenue Pace, you know, you obviously increase the the range for this year. I guess, as we maybe take a step back, look out to 26. Maybe Beyond. Do you think we're at the point obviously, economically dependent here to some extent that we could see organic Revenue growth, kind of react back into those upper single digit, ranges to sort of things. Feel like they're starting to fall in place in terms of the pipeline and the opportunities that you guys are seeing in support that.

Chris, let me, let me give you uh, some update on that. I mean, I think in general terms, I think we we definitely have been through a couple of years of slow growth uh partly down to the economy. Uh partly down to transitioning new customers when we consider wink Canton, uh, definitely. That's going to be a big contributor in terms of Revenue growth, but also bottom line. Remember, there are around 60 million dollars of cost synergies alone. Baked into the wing Canton deal. We'll see roughly about 14 million of that this year, and we'll see the Lion Share of the combined 60 million between now, and the end of 2026. So that's going to be a big driver on the ebitda. It's all help. Our margin. Uh, recovery for sure also but win Canton in its own right. You know, it grew Its Top Line by 10% in the second quarter. It's performing incredibly well, so

with the integration starting in the next few weeks.

Our teams are already right now, collaborating on, just a ton of new major customer attenders and particularly in verticals that we've never operated really with any scale in uh North America defense Aerospace. We're very strong in it in Europe, almost non-existent but we can can it has some Stellar customers?

In these areas and I've got no doubt it will be a springboard for the business growth in those areas. And I think also, right now, we are starting to see the extra sales that we're seeing right now through 2025, I think a testament to the changes to organization that we made at the start of uh this year and early and later it parts of last year where we changed our sales organization. You'll remember that we brought in a new Chief Revenue officer. Richard Corson, we changed around some of our sales organization and the metrics that they perform about. So, all of these things play very much for a stronger growth. Of course, we have to have 1 eye on the wider macroeconomy, I think, right now, we're we're heading out of the uncertainty window of tariffs that customers are stabilizing down in their thinking,

About that. So I think really, uh, Future's looking very, very good for the business and of course, I can't not mention the fact, we've got a stellar new CEO joining us in just about a week's time. And I'm really looking forward to welcoming uh, Patrick. You know, he's going to bring his own style and his own style of dynamic into the business, which I think will be incredibly good for gxo for the future.

Okay. Very, very helpful. Certainly seems like there's opportunities here 1, quick, follow-up. Um, in terms of BuyBacks, I guess, how do you think about that opportunity going forward? Noted the price that you bought shares at, um, relative to where we are today, is this still something that you want to lean into, as you look forward or is this Capital allocation, take a little bit of a different sort of approach as we move forward into the second half?

Second quarter at 34.86 2.6 million shares and total of 5.4 million shares of about 4 4% of the shares outstanding at a discount of 26%.

On to our average share price over the last 30 days. Um we've been very careful about maintaining our credit metrics and I'm pleased to note that after receiving an upgrade from Moody's in June gxo again holds investment grade credit rating from all 3 agents since for the first time since the spin we continue to see our shares as attractively valued. But as always, we have balanced our share purchase against our Capital location priorities including organic growth and leverage levels and we do have a lot of organic growth um to go after ahead of us.

So so that suggests that maybe the organic growth opportunities are a little bit more outweigh the BuyBacks at the current in the current environment at the moment. The the return from organic organic growth is very high. That's that has been always our number 1 Focus but we'll take a look at share BuyBacks as uh, prices become more attractive and balanced against the credit metrics.

Okay, that's very helpful. Thanks for the time this morning. Appreciate it.

Thanks guys. Thank you, Chris.

Thank you.

Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.

Uh, great thanks for the time. Uh, and welcome again. Congratulations. Uh, on your tenure and good luck in the future. Um, so maybe also thanks for the color in response to the the first question. Uh, maybe it's a follow-up. Their kind of very few companies. In this environment are raising the guidance, let alone twice in 2 months, uh, I'm not sure. I fully understand again, what is driving that rate of change? I think you said, uh, in your response that, uh, inventory levels are normal right now, so it can't be, companies stocking up. So, how much of that?

Space of.

In a relative basis is.

Natural related to supply chain shifts. Is it just companies being excited about consumer demand over the next 12 months? Like what what is driving that uh increased rate of change?

I know it's very sheer. Um as far as our profitability and concerned we are seeing a sequential Improvement. We've seen a sequential Improvement in Q2 and we expect to see another sequential Improvement in the second half versus the first up. This is driven by our strong momentum on the site level efficiencies

Increasing maturity of our startups in the second quarter which we expect to continue through the second half of the year on top. We have better space utilization in our shared user Network and we have tight cross controls these, give us confidence that you'll see the margins improve in the second half of the year.

As far as the revenue is concerned for the second half of the year, we expect to have more contributions from net, new business wins. And we have taken a prudent approach for on our expectations for the contributions from our existing operations. This is all embedded in our guidance. And we also expect slight Improvement in customer retention to further, improve compared to the first half. I mean, this is a, this is a momentum and as it was recalled since 2017, our organic growth has been slightly over 8% kagar. So we are getting the momentum is faster and faster to get into a higher growth, both on revenue and Abita

Right? And the question was kind of is that because the macro is just improving or you guys are doing an awesome job or or what is driving that acceleration. It is, it is primarily driven by aita improvements are primarily driven internal actions on strong momentum on site level efficiencies maturity of the startups and better space utilization that those are the things we've been working on for 12 months and you're seeing the results now.

Understood, uh, and maybe as a quick follow-up. Um, the AMD space has been, uh, really hot for the last year or so can you just share a few more details on on your business here? Kind of US versus Europe, the size of the business, the growth rate, Etc,

Today I have about 500 million in our pipeline related to Industrial and a and d and that has doubled over the last uh 18 months. And we really are just at the Starting Gate with wind. Can we just begun the collaboration with the team there with the 12 um rfps that we have with them? So as we begin the integration, this is just going to continue to unlock. Um, and we're really excited about the opportunity set that this means not only for 26, but into the end of the decade at least,

Understood, thank you.

Thank you.

my um, Scott, uh

Saint burger with Oppenheimer and Company, please proceed with your question.

Uh thanks very much. Good morning, everyone and Malcolm. Best wishes congrats had a great career really enjoyed working with you. Thanks Scott much appreciated.

Yeah. Um I guess the first 1 probably uh well Malcolm probably for you. Um the this was a this quarter was was Heavy um on the mix of uh new activity over half came from New activity. Um and that's been um just a contribution of uh new activity versus Outsourcing um re versus via competitors has really moved around recently. Could you kind of speak to what we should see you going forward? And uh maybe a little bit about what's behind that? Thanks.

Yeah, for sure Scott I mean second quarter was a very strong quarter but actually we saw really strong momentum in e-commerce. And obviously, we've always been in a kind of leading position in terms of supporting e-commerce customers generally but more than half of the wins that we had uh was coming actually from the e-commerce area, the percentage of Revenue coming from e-commerce.

Really pretty much balanced across all of the Big 3 regions that were operating in but definitely e-commerce. And we also saw outsized growth in Reverse Logistics and again, this definitely pointing to the kind of structural strengthening of e-commerce activities. It's always been a growth engine for our business. I think economically Wise, It's slowed for a couple of years. It's definitely now on the return and we've seen that uh with uh strong strength over the first half of the year and when we look at the sales pipeline I come on to that in a second definitely see that going forward. We've also in the last 12 months started up several, very large scale automation, e-commerce sites. So those are including some of the ones we mentioned earlier on in the call Levi is a good example but also big automated facilities with people like Puma zalando where we're actually operating the largest e-commerce facility.

In France.

Uh so generally things are on the on a good trend on that and last thing I think to say is it's widely reported that while you know today we can kind of think about sales and e-commerce that that number is definitely going to rise in the future. E-commerce really lends itself. Incredibly well to reverse Logistics where we enjoy slightly improved margins but also Automation and I mean in automation I think we're in a great place. Maybe. Christine you want to just, uh, jump in and add a little comment on this, but I think automation is a space where we've made it our own. I think we're pretty much in a, uh, a leading position now across the industry, Christine

Thanks Malcolm had got it, it's Christine here. Um, just to talk reverse Logistics represents a a over 10% of our current pipeline but looking at the activity in the new winds around e-commerce that certainly is going to drive the demand for reverse Logistics and AI is enhancing our reverse capabilities and driving that opportunity for future growth. As you know, about a third of e-commerce orders are returned on average, which really reflects the material drag on our on our customers margins and returns are an extremely complicated complex operation. Um, and if we can help unlock with AI, the opportunity to rapidly resell products and we're help them on help our customers.

Is unlock further margins. Some of the AI tools that we've taken on the inbound side around Proactive replenishment, or actually, using that same tool to, to, uh, on the on the back end side for reverse reverse Logistics to help with those capabilities. So I think it further differentiates our Tech offering and will help Drive our reverse Logistics opportunities in the future.

Across the your, your 3 main, geographic regions and just discuss kind of timing of what we should expect to see and maybe Financial impact across the p&l and the cash flow statement. Thanks.

Sure. Scott. Um, we have gone live with our first phase 2 of our Erp implementation versus UK that's on live and everything is working. Well, they're paying they're collecting so far everything's good, which will create a lot of synergy and a lot of cost reduction.

Um, and next we will go to us. We will uh start building the US capabilities and from there we will go to Continental Europe. This is going to give us a lot of productivity at the back office level and we will Accelerate synergies from our Acquisitions in an accelerated way. And that will be you will see the impact in our Evita reduce sgna and bottom line. We're very excited about it. It's a it's going to take us to the next level.

Thanks very much.

Thank you.

Thank you. Our next question comes from the line of Ryan osen Beck with JP Morgan please proceed with your question.

Hey, good morning. Thanks for taking the questions Malcolm, congrats and best of luck in your next Adventures, wherever that might be

Thank you, Brian.

Uh, so just start with you a question on.

When Canton, it sounds like there's some good rfps going already. Um.

cost synergies sound like they're they're on track and ramping up but

is it too early? I guess when when will we hear a little bit more about the revenue synergies? And the opportunities is, is this something we should assume is sort of like, uh, Clipper and what that ultimately yielded, how are you thinking about that? And when should we hear a little bit more about, you know, quantifying what that might mean?

I think, uh, Brian. I think, uh, if thinking about, uh, the Clipper acquisition, it's too, because broadly around 18 months to start really realizing significant, uh, revenue synergies. And actually, uh, the large contract, the largest the company's ever signed with the uh, British National Health Service, in fact, that's a direct result of that Clipper acquisition. So broadly, you can see it's taking on average around 2 years, and that's a combination of, of course, customers generally are already contracted, so they will go to tender. And, uh, you know, obviously, they will look more favorably on a Wayne cancer in the future, as it becomes integrated in G8. So, because it has a much larger, uh, business offering multi geography, very different than the original Wing, Canton organization. The focus areas, I think, as Christine touched on earlier.

Space. They have great business in this area defense in particular and defense, I guess it's likely, uh, to be an industry that's going to do incredibly well everywhere around the world in the coming years. Uh, so I think it's uh very opportune time that we will gain a strong foothold in defense area across all of Europe. It's not just those 2 though. Um, when Canton is highly exposed to infrastructure projects nuclear industry, uh, lot of civil uh, activities and and some healthcare as well. So it's actually a real Plumb level of business that we're bringing on board. And as I mentioned earlier, our teams are already actually collaborating on a number of very, very large, uh, bids in defense, in particular in Aerospace. I think I would definitely be watching this space towards the end of

2026 and early 2027. That's about the right time where we should anticipate new contracts starting to fall and they'll be big ones. Uh, you know, in the same in the same thought process as the, uh, National Health because that's the nature of how these big activities in defense are contracted across Europe. So very, very positive. Uh, Way Forward, as I mentioned earlier, we'll be starting the full-scale integration of the 2 companies.

Maybe just 1 last thing to comment on when Canton uh, because I wouldn't want it to be overlooked as part of the regulatory approval. We did agree to dispose of a very small amount of the wing Canton business.

Just like so many of our customers, they're minded about the holiday season. So I think it's probably likely to be an event. That actually happens as we move into 26, as we get beyond the holiday season and start the new year. So just to finish off, on the win Canton, uh, information. But I, I hope that's a pretty comprehensive update for you, Brian.

Yeah, thanks Mark on, that's very helpful. Um,

let me just 1 more on, just general thoughts on Supply chains and how they've obviously shifted and probably still over the next couple of years. But we passed the point of, I don't know, Peak disruption now that we've got a little bit more certainty on tariffs. Um,

Peak season, you gave some commentary on and inventory levels. But just wanted to hear the general comments you hear from some of your bigger customers or are they Duncan Consulting the footprints um is all that churn more or less over and you feel like that stabilized you know relative to what we've seen in the last couple of years. Thanks.

Brian. I think, overall churn has definitely stabilized. I think our retention on existing customers is growing, but I think as an overview of our industry, uh, you know, unusually right now, there are no big Dynamic events. You know, I don't see right now, any port disruptions. I don't see anything happening in manufacturing. So actually we're in a relatively calm, period. That's not to say that. That might

All change tomorrow, who knows what can happen in the world, but I think definitely the only Trend we see right now is a general trend of businesses moving manufacturing, moving Reliance away from uh, China and more towards, uh, you know, Western environments. That's something we've seen across, most of our customers. Obviously, the Tariff aspects of discussion earlier in the year probably influenced some of that. But I think it's beyond that. That's probably the 1 trends.

Uh, you know, so that's a good trend for us. But other than that, no, I think we're entering a more calmer environment and uh, customers are able to make more longer term decisions. And that's what we're seeing in the projects and the sales pipeline, uh, that we've got right now.

Oh, bearish. Maybe you can add a little bit to my uh comments. Yes. Um,

On the empty space on our shared users Network. We have been able to consolidate and sell them to some of our open space and from this point on we expect modest positive contribution in our margins moving forward and hypothetically the opportunity exits are over 10 million dollars and gradually. We're getting their utilization is getting better and the marginal Improvement is going to get there in Q3 and Q4

Okay. Thanks very much. Appreciate it.

Thanks Brian.

Thank you. Our next question comes from the line of our Rosa with City. Please proceed with your question.

Yeah, hi. Uh, good morning. Uh, just wanted to Echo everyone's comments. Uh, congrats Malcolm, it's been a pleasure working with you and barish. Uh, a little surprised, uh, on on the, uh announcement, but, uh, congrats to you as well. Uh, have always enjoyed, uh, speaking with you and, and working with you. Um, so, uh, for my first question, just pretty straightforward. Uh, it, it seems like capex, uh, took a step down, uh, year-over-year in the first half. Um, just wanted to get get some color on what drove that step down, and what we should be expecting there for the second half of the year.

Our capex. In the second quarter was about 41 million dollars down from 84 million in Q2 of last year. And our, uh, 2024 capex was about 2 and a half percent, um, of which roughly 2/3 was related to growth. We will have around 2 and a half to 3% in capex. We are very uh, aware of the environment. And uh we are very delicious in our analysis on where we utilize our cap capital dollars to have the best returns for our shareholders.

But you know is is that is that changing capex, reflective of anything whether it's future growth or startup startup costs or anything of that sort.

No, we have an active dialogue with our customers, some of our customers.

Working capital side, sometimes we were more Union to work on the capital expenditure side. We look at the entire project as a return return on invested capital and irr and want to get the best return for our shareholders and provide the best service for our customers. It has no bearing on the future growth of the company.

Okay. Understood uh, that's helpful. Uh, and then uh, just for my second question, Malcolm, uh, you know, as as you transition or as the company transitions to a new new CEO with Patrick coming in. As you mentioned here shortly. I, I was hoping you could just, uh, kind of reflect on gxo position. It sounds like a lot is really progressing nicely right now, but just what did what advice would you give to Patrick? What would you? Uh, advised him to, uh, focus on to be aware of, as, as he thinks about kind of planning his tenure as CEO? Uh, and, you know, particularly as he thinks about, um, you know, giving an Outlook, uh, to us and to the investment Community, uh, for the next couple of years. Thanks.

Sure. Yes, I mean look uh it's a great question to ask and then Patrick uh, he's a seasoned leader, you know. Yeah, he's a great choice for the business going forward. He's from this industry so I exactly this very much I can explain to Patrick that he doesn't already know. He's a seasoned veteran of the logistics industry. And you know, his former employers loss is definitely gxo game, you know, with delighted to have him join.

Joining the business. Uh, I'm sure Patrick will take some time during the rest of this year to reflect, to get to know the business. All companies are different in their Dynamic. Uh, and, you know, I'm looking forward to, uh, seeing in the future. The, the, the work that Patrick does, I think he'll be a great new CEO for our organization. He bring new ideas and look, I'm not going to steal Patrick's fun there. You can, uh, ask him yourself, uh, that question, uh, on our next earnings, which will be leading. And uh, I'm sure he by that time, he'll have some initial thinking, uh, already in his mind. But uh, you know, the company's going across into a safe Pair of Hands but very much, a dynamic Pair of Hands that is very well equipped. You know, to move this business to the next level on I think uh We've almost doubled the size of the business in the last 4 years.

No reason. Uh, why we can't continue that Stellar level of growth whilst also improving the business in terms of its margins. Its overall Dynamic, uh, and the kind of customers in different industries that we work in, is it's ready to the companies. I think in a great position to become much more Diversified and, you know, we're bringing a new leader in who really is very much equipped to help, uh, the company in that Journey.

That that's really encouraging. Uh thanks for the time Malcolm bars.

Thank you very much. Thank you.

Thank you.

Our next question comes from the line of Bruce Chen with stifel please. Proceed with your question.

Hey, good morning. This is uh, Matt my last con for Bruce. Thanks for taking our question, Malcolm. Congratulations to you as well. Um, just uh, with regards to governance. I know we've touched on this, but obviously several new board members with some deep industry expertise.

Uh, new CEO, incoming announced CFO transition. We're curious if uh, you could comment on how how if any strategic priorities have changed, perhaps,

You know, any broad Strokes of operational or shareholder, you know, Focus adjustments that the Border company uh might be looking for would be helpful. Thanks.

Yeah, no, I think. Um, uh, Matt. Let me, uh, let me answer that, uh, that point for you. I mean, look, we've refreshed our board and, uh, it's good to see when you look at the new board members. Um, what you're seeing is a lot of very experienced industry. Expertise coming into the business, we've we've added effectively, another 5, new, uh, sorry. A big fan, another 7 new directors, uh, over the course of 2025. So, you know, team members, including former Chief

Think about how that might look. I think we have to, uh, give Patrick time to, uh, get to know the company. Uh, also our new board members time to acclimatize to G8. So and I'm sure that, you know, things will start to unfold as we start the planning process for 2026 and Beyond.

Thanks a lot.

Thank you.

Our next question comes from the line of Jeff Kaufmann with vertical research Partners, please, proceed with your questions.

Thank you very much. And then Malcolm, I'll Echo what everyone else has said really enjoyed. Working with you, the last 4 years and best of luck. Uh, bearish I'll have plenty of time to tell you that as well. Um, thank you a couple things detail questions, uh, for bearish.

So um, how do I think about uh, the 4X impact on revenues, just based on where things are today uh, for the next couple quarters.

Um, as you know, Jeff you don't hedge our Revenue. So whatever the spot rates are for, that quarter will be reflected. Moving forward into our reporters, Revenue growth in Q3, and Q4 is, you would recall in 2024. The average FX rate for Euro was 108 and pound was 128.

So, you need to, you need to reflect a higher number, uh, in your reports of revenue, forecast for Q3 and Q4 accordingly. In Q2 alone, we had about 4% of our 16% Revenue. Growth was coming from foreign exchange,

and then with the, uh, thoughts on the divestiture of the small piece of wind Canton that you are, are going to be divesting, do we treat that as a discontinued operation or, or do we wait until the transaction to um, to put that impact in,

It's a it's a small business and it's important to note that we don't need to finalize the vesture. In order to start the integration is, we have ring fence the relevant portion of encounters business. We can start integration right away, the relevant parameters that are 100 million dollars of Revenue on an annual basis. So uh it's really not material for the entire uh, financial statements of the company.

Okay, and then, final question, um, with debt to EBA running at about 3 times on a trailing basis. Um, ideally, where would you like to see that before the company, uh, was to re-engage with strategic acquisitions?

Uh Acquisitions is not in our short-term agenda. We would like our leverage to be lower first and as we have more room it gives us a lot of financial flexibility and optionality so we can act on opportunities as it comes. So ideally if it if it was 1 and a half to 2 times over time, it gives us enough flexibility to like act on opportunities. Of course, we'll take a look at the opportunities as they come, but short-term focus is organic growth, not, uh, m&a and uh, creating cash flow to continue to deliver the balance sheet.

That's all my questions. Thank you.

Thanks Jeff.

Thank you. Our next question comes from the line of Jason, uh, cycle with TD Cowen, please proceed with your question.

Thank you, operator. Good morning gentlemen, Malcolm congratulations. Um, wanted to, uh, go back to the reverse Logistics commentary about the strong growth, maybe you can put some numbers around it for us. I know it's a it's a pretty high margin type of business for you guys and then where did that growth come from? Is this coming from sort of new customers that you have or existing customers just growing their reverse Logistics trends.

Hi Jason, it's Christine. Here I can, I can start maybe Malcolm can can chime in, um, in terms of I mentioned about the pipeline and, and it's about a little over 10% of our of our pipeline. Um, and it, it's a, it's a high single digit, uh, low double digit, kind of, uh, in terms of our Revenue today, uh, that that we derive from reverse Logistics, but what's encouraging is again, it's you have the activity that, e-commerce, that new activity, and e-commerce that starts up. And again, about half of our wins, this quarter came from e-commerce. And really, that activity is what drives the demand for new reverse Logistics operations, uh, increasingly complex, but they have a big benefit for our customers that they really turn to us to help solve those challenges within the operations.

Uh, that has been started over the last 12 months and there's quite a number in our plan. Uh, during the remainder of this year, some just prior to the holiday season, some will be almost in the end of the holiday season, but really getting ready for next year. They won't be playing an active part of our customer service, the consumers, uh, this year. But against all of those, we can see, uh, activities running alongside on reverse Logistics and I think uh, definitely as e-commerce is definitely coming back. No question whatsoever about that. I think we've been a little bit uh, slow in its development over the past couple of years but there's definitely a trend coming back now, more and more customers engage with us in upgrading existing operations bringing in new sites and obviously a lot of new automation coming on board and that's really playing perfectly to gxo wheelhouse where we're able to.

Uh, not only deploy brand new automation, but with existing customers volumes are improving and allowing us to, uh, put in place, tactical, uh, automation that is under our own Direct Control. You know, we we move roughly over the last 4 years from that 40% to 50%. Automated that trend is going to carry on this company is going to be more and more automated and clearly as Barry share indicated that's good for our bottom line.

That's good for our margins and our EBITDA growth.

And Malcolm Christine that was helpful. Uh, for a follow-up here. I want to, I want to go back to uh, your organic growth. Obviously a great number in the quarter. Um, your range though, I was wondering, it, it seems like you're being. I think a little bit conservative on that low, end of the range given that, you know, we're more than a third way through the third quarter here. What would it take, uh, for it to fall back down to that low end of the range? Would that be sort of a macro event that was unforeseen. I just give me a little bit of color on it.

Yeah, at this point in time, I think it's difficult to foresee an event that would do that right now. And the reason I say that is look, we're already halfway through quarter 3, we can see already with a high degree of confidence where quarter 3 will run, uh, that leaves us, quarter 4. And we're already in a deep planning process for that holiday season. A lot of our revenues are tied in a lot of our income is tied in. So right now difficult to imagine an environment where we will be at the lower end of the range. As I mentioned earlier, I think, as a management team, we've approached a very conservative view on this organic growth for the rest of the year. And please appreciate, you know, we have a new CEO coming in. I think he's right and proper that he uh gets to know the business during the rest of this year. Uh, he he'll make

Decisions about whether we review that guide level, as we move into the, uh, second half of the year and later earnings calls. But right now, I think we're feeling very, very good about the remainder of this year, everything that we're seeing new customer startups, very well planned. They're going to be very well executed. Uh,

Not National Health uh, service business in. Its all right, is worth something in the range of 0.4 of a percent of organic growth. That's starting, uh, towards the end of this quarter beginning of quarter, uh, for so everything we can see would lead us to believe that. We're going to have a really good year, but as I mentioned,

It's right and proper right now. I think we just keep that very conservative approach.

No, that makes sense. Appreciate the time, as always.

Thank you.

Thank you.

And ladies and gentlemen, that is all the time we have for questions today and I'd like to hand the call back to Malcolm Wilson for closing remarks.

Thanks very much, Chairman. And look, we really appreciate you chairing the calls so well. So, on a personal note, as Baris mentioned today, it does mark my last earnings call, and I thoroughly enjoyed working with everybody over this last period. I've never been so much congratulated on my advancing years, but I do really appreciate all the warm comments that you've all given me.

Uh, this morning and indeed for barish as well, although he's not quite as advancing in yours as I am at this point in time.

Oh no, for me.

I want to thank all of our team members at gxo. Our loyal customers are specific call out for berries, oron, and our shareholders.

For trusting us on this journey.

I'm very, very pleased to be welcoming gxo incoming CEO. Executive officer, Patrick Keller. Patrick is going to be a super leader for the company. I'm very confident confident in his ability to lead the company into his next chapter of growth.

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

And thanks very much for joining us on our call. Thanks very much. Uh, chemaly will, uh, finish the call,

thank you, ladies and

Gentlemen, this concludes today's conference, thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.