GXO Logistics, Inc. (GXO) Earnings Call Transcript & Summary

The trends that we're seeing is the challenges that you just described are making supply chains more complex for companies. They want to be less integrated. They want to focus their management bandwidth, their attention, their investments on their core business.

Sure.

So as part of that, you're seeing a lot of focus on onshoring, moving product closer to the home base. And I think that trend will continue very strongly. I do think that with the complexity of the world and the challenges that you just described, companies are looking to go to people like GXO who have the expertise to deal with the complexity of the supply chain of starting up operations, implementing automation, robotics, deploying AI as well as having the scale of being in 27 countries and operating in dozens and dozens of free trade zones. So I think that's a real benefit that we can deploy for our customers. And through the first half of this year, around 17% of our wins have come from companies who have pushed their supply chain into the supply base. Historically speaking, about 1/3 of our wins have typically been by big blue chip companies that are using vendors to step in and manage their supply chain. And so those trends will continue. And I think as the world continues to be more challenging, more complex, more and more companies are going to look for people like GXO to handle the complexity of that.

Got it. also kind of just going back to the chaos of the last 6 years, how has trade policy moving to a multipolar world again, brought renewed scrutiny of global supply chains, where you store your inventory near shoring, what does all of this mean to you? Kind of in some ways, to your point, supply chains have become more complex and some ways it actually became simplified if you're near assuring stuff, if you're storing more inventory places close with the end customer, what does it mean for you?

Want to pick that 1 up?

No, I think the complexity that we've seen is increasing our value proposition. So in fact, you think about maybe where supply chains were in further off places, then those weren't regions that we were playing in. But certainly, as we're moving those supply chains to North America, and we're doing more of the warehousing, the fulfillment here in North America or in Continental Europe, that helps us because it's right in our background. So -- and I think you're seeing that in our pipeline as well. We've -- as Mark mentioned, our pipeline is near a record. And in this last quarter, and the end of June, we ended at $2.3 billion, I'm sorry. And 3 weeks later, our pipeline was up to $2.7 billion. So I think our customers are certainly -- the value proposition is resonating. They're looking for partners to help them with not only their complex challenges that they're facing today, but really with our Chief Commercial Officer's strategy, it's about how are we partnering with them and looking out 10 years. How are their supply chains? What's the real strategic things that they're doing and how can we help them not only over the next, like I said the next month, but really over the next 5 years.

Got it. I wanted to spend something I'm talking about the competitive environment because I think 1 of the amazing things about your businesses that is basically 2 companies globally who can do what you do yourself and obviously, you're a large peer. Is that still the case? Do you expect that to still be the case going forward? Do you think some of the more regional competitors are getting more sophisticated, and as companies look to, like you said, kind of outsource their supply chains, is it basically a 2-player game or do you think some of the others can kind of continue to be competitive?

Well, I would say this, we don't rest on our accomplishments, right? We're very focused on continuing to be the #1 player in the market for us. We are the only sole warehouse logistics company in the marketplace, pure-play warehouse logistics. And it's a very fragmented industry. So there's lots of opportunities for us to grow our competition as well as maybe the smaller companies. And so what I would say is I worry about all of them, as it relates to their focus on growing. They're focused on their business. Everybody is going faster, looking to deploy automation, robotics and AI. And so we can't stand still. We need to continue to move the ball forward. We've been a market leader, I would say, in adopting automation, robotics and AI. Our CEO is very, very focused on deploying the technology to support our customers, but also deploying that technology to drive operational efficiency and execution. We've done pilots from a humanoid standpoint, Patrick's talked a lot about that. But as we think about how warehouse logistics looks in 5 years, it's obviously going to look a lot different than it is today. And so we can't just sit back and rest on the fact that we're #1 in the U.K. We need to continue to focus on getting better, gaining market share, winning new business, and that's all part of the 4-pillar strategy. And really, when you think about our business, we're in the -- we're called or kind of placed in the transportation sector. I really view ourselves as we're morphing into a tech services company. right? Really, we provide services. We solve our customers biggest challenges, which is the supply chain. And today, more and more of our ability to solve those problems are related to technology. It's the automation and it's robotics and then the ever-emerging internal work that we've done from AI as well as using complementing that with external AI, it's allowing us to be more efficient, to be more reactive to support our customers' ever-changing needs. And today, it's more dynamic than ever.

Ravi, I would just add, I mean, you talked about the competitive dynamics I mean, our market is massive. I mean we talked about in excess of a $500 billion TAM. And us and our nearest competitor, we make up small percentages of that. So we're still our largest -- 70% of the market is still done in-house today. And we've acquired a tremendous amount of capabilities with the M&A that we've done over the last 5 years and 10 years. And so now we are continuing to unlock even across our core markets, these new strategic growth verticals. We have a tremendous playing field and a tremendous runway of organic growth opportunities we've seen in the pipeline that wins. So I don't -- again, I don't think we're resting on our laurels, but I think it's up for us to go grab and we have a tremendous opportunity on the organic growth runway.

Got it. Mark, you mentioned AI and robotics. I have a bunch of questions on that. Kristine knows that. So it's coming your way. But before we get there, just one more on competition. Obviously, there was a lot of headline focus on Amazon announcing the Supply Chain Solutions business earlier this year. You guys came out and said, "Hey, maybe that's a competitor to GXO or direct. But the rest of what we do is really complex." And can you just unpack that a little bit and maybe what investors are missing kind of still focused on that potential risk?

Yes. Let me jump into this and then I'll hand it off to Kristine. But Yes, lots of questions since April on this topic. And hey, Amazon is a massive company with a lot of capability, and they do a great job of what they do. But when we look at what we do for our customers in many ways, they are very specific customized services, site specific, 1 site, 1 location with very bespoke automation technology that's being deployed from a warehouse management system standpoint. I think the criticality of our -- or the ability of us to customize solutions for that individual customer, right, is what makes us different than Amazon. I'm not quite sure, Amazon is huge. They have a lot of space. They have great technology. And I think in many ways, they're looking to utilize the assets that they have. Do they really want to start up and build a brand-new warehouse for one customer and set up a solution for that. I don't know, right? I would say this though, we can't sit back and assume that they don't want to be a competitor. We need to make sure that we're continuing to strengthen our company from a growth standpoint, from an execution standpoint, from an automation, robotics standpoint. So that we don't give our customers an excuse to go look at somebody else. But I think at the end of the day, in RFPs, we don't see them in our competitive bids. We don't compete against them. Our solutions are very bespoke and very tailored towards our customers. I think we do a great job of protecting our customers' data and their data integrity. So I think there's a lot of differences between the GXO and Amazon, and if you want to add to it.

Yes.

Sounds great. Again, maybe switch gears a little bit. Talking about the margin opportunity. Obviously, lots going on here, a pipeline of new business, shifting mix towards better mix product maybe looking at kind of that move towards more fixed variable contracts. There's the GXO way, which is kind of a bunch of productivity initiatives you have. So what are the building blocks of margins look like over the next few years?

Yes. Well, you made some mention, I think the commercial excellence strategy that we have will accelerate growth and allow us to expand margins, right? But holistically, when we look at the opportunity for us to expand our margins and achieve the type of margins that we believe our company should generate is really going to be focused on further deployment of automation, robotics and AI. AI via the GXO-IQ technology, the middleware that connects the systems and the warehouses as well as the GXO way, which is with our new COO, driving standard operating KPIs measurements, true robust continuous improvement projects, the right types of KPIs, Lean, Six Sigma, running our warehouses like a small factory. Our warehouses are like a small factory. The only difference is we don't own the inventory. So from a flow standpoint, removing bottlenecks. So the GXO IQ has shown us to improve the day-to-day operations by connecting the data within the different automated solutions, whether it's warehouse management systems, the demand platform from our customers, the auto store, connecting all those allows us throughout the day to pivot through the challenges of loads came in late, somebody called in sick today. The product is missing here. it is adaptive and gets smarter every single day that we were in the operation. So we've been on that journey. We've rolled out 50 or 60 sites. And over the next couple of years, the goal is to roll out GXO IQ across the entire portfolio. But with the GXO way, driving productivity, driving efficiencies in our locations. We have 150,000 employees. That is a lot of people across 27 countries. The team has done a great job of managing that and servicing our customers, and we've done that without what I'll call a real operating platform, right, a management operating system and what Bart is bringing on board is the operating methodology. So we talk about automation and robotics. I talked about AI, but adaptive technology. How do we adapt technology that has a return on investment that reduces our need from a labor standpoint. And we've continued to deploy that. Right now, we have 17,000 pieces of automation throughout our portfolio. By the end of the year, we'll approach 20,000. So for us, continue to rely and adopt automation, robotics, making those investments and rolling out GXO IQ, but a big productivity initiatives that we have from a labor standpoint is implementing labor management systems and I compare that to a manufacturing operation. Right now, we're piloting 6 pilots in our regions. We've picked 2 providers, 2 vendors. -- and labor management systems, today, we have a clocking system we clock in when you come in the door, and then you have once, you clock out, you clock back in and then you clock out, you go home. People get paid. Labor management systems enable us to have people clock on a job and clock off a job. That enables us to understand how long it takes somebody to do a job. Look at the variability of that job. And based on those jobs, you add up all your jobs in your factory to determine the amount of manpower that you need. You can drive accountability, you can understand where there's challenges. Today, it took Johnny 12 minutes to do this job. Tomorrow, it took 20 minutes this day and took 15. So establishing what I call like to call in my own manufacturing has champion times, each job, what is the champion time? What is the best time possible. and then translating that into a standard, and then we create standards in the factory and hold people accountable to those standards. And so for us, I think this is a way to think about our business through a manufacturing mindset to drive productivity and efficiency. So we've got the tool set of automation in IQ to help us from a slotting and a picking standpoint. But now you have labor management tools that can be deployed to the management teams there to know what their people are doing and when they're doing it, when they're productive when they're not productive. And so I think that's a huge breakthrough. So when we think about getting our margins to our target margins over the next couple of years. Those are between the commercial excellence the automation, robotics and labor management systems and the management operating system, these will deliver the results that we're talking about. For us, it's how do we make sure we have enough bandwidth to scale and deploy these timely to achieve the benefits in the time lines that we have laid out for ourselves. And so we're really excited about this. We have to remember that as a company, we didn't have a COO, we didn't have a CCO at the beginning of the year, okay? Karen came in with no people as part of her team. So she's building a team. She's building account excellence. Bart is building his team. We didn't have global procurement. We're bringing -- we're building that organization. He's hiring an implementation solutions managed leader for the business so that we can then take the business at this scale. We can drive it at the enterprise level. we can share best practices across the organization. We can put ourselves in a position where as opposed to focusing regionally "Hey, I have a great execution implementation team in the U.K. Let me pick them up and drop them into the Ampac where I've got a problem." That's what I'm used to seeing -- and those are that's the path that we're on to go achieve those types of productivity efficiencies. Now some of it will be shared with customers. It would be an open book. But I also think it will make us more competitive. There's an opportunity for us to increase our margins, but it makes us more cost competitive. And I also think it allows us to deliver a better service to our customers so that when we talk about retention, 95%. How do we improve that to 96% or 97%. That's the path, that's the journey that we're on.

Got it. So lots of blocking and tackling. At the same time, you guys are also working on the moonshot projects. want to make sure we talk about robotics here. You're going to hit a lot of the basic details here. But again, you guys are already leaders in warehouse robotics what people would know to be -- considered to be warehouse automation at the moment. But at the same time, we're also running 45 pilots on humanoid robots. So what have your learnings been so far? What still needs to be done here? What's the pathway for that to expand into something across all your operations?

Well, we think humans are the way in the future. right? They are -- humanoids humanities have been advanced greatly in the last couple of years, not only from an ability standpoint, from a cost standpoint. And so over time, complementing automation, robotics and AI with humanoid is going to be groundbreaking. If you think about a humanoid, they don't get injured, they're higher levels of quality, they can work multiple shifts and that get tired. And so over the next couple of years, technology is advancing so quickly. A couple of years ago, had could maybe pick up a box. Today, humanoid actually have fingers and dexterity and actually can pick things up. The issue with hematites today is they can't work at the speed of a human. And so there's the process of how do we improve the overall efficiency and it will be done, no different than robotics years ago where robotic arms and over time, it got faster. It went through earnings. So today, 2026, when we think about the advancements of technology every single day, the advancements are it's quicker and quicker, quicker. And so before you blink your eye, we'll be in the business of deploying humanoids, who are working side by side with humans in our facilities. We're super excited about that.

Clearly, it's super exciting, maybe really quickly -- what does the humanoid do for you that is different than a dedicated warehouse, like a locus or a gray orange robot like dedicated warehouse robot, what additional can the humanoid form factor do for you?

Well, I think the biggest difference is a gray orange or load are these AGVs that bring the product to a human bring it and take it away. But they can't pick the product off the shelf. So the are a great tool from a planning standpoint, this is what we need. It goes out on the floor. It brings the carts to the employees. The employees have their order. They've got to go into bins and pick them out. we can now complement the AGVs with a humanoid at a station where they'll actually be able to pick the parts or the products out of the bins and put them in boxes. And so the goal is, over time, is to allow the humanoids and the rest of our technology to do the simple part of the work and use humans to do the more complex decision-making. And so that's how we see building out the technology and complementing automation, robotics, AI and the human factor. And I say this jokingly sometimes, but at some time in the future, maybe we're looking at a complete lights out warehouse.

Sure. Very exciting times. Very much looking forward to your Investor Day in November as well, I think is going to be a big catalyst for the stock. But Mark and Kristine, thanks so much for being here.

Thank you for having us.

Thank you so much.