Great. Next up, we have longtime friends of Laguna, GXO, and very happy to welcome CFO Mark Suchinski, and Chief Strategy Officer Kristine Kubacki. Thank you so much for being here.
Thank you.
It has been an interesting 12 months for everybody, especially for you guys, lots going on. Obviously with macro, kind of idiosyncratically, with you guys as well. Maybe you can start by just giving us an update on business trends, and how they have trended versus your expectations, especially since the last time you spoke with us on the Q call.
Yeah, thanks. Things really haven't, I think, materially changed since our last earnings call. We started the year with the assumptions that volumes would be flat. As we've progressed throughout the year, at least through the first half of the year, what we've seen is maybe B2B a bit stronger—
Okay.
—than we had anticipated. B2C, maybe a little bit softer than we had anticipated. But overall, I would say, when you think about the breadth of our customers, 30% of our customers are blue-chip Fortune 100. We've got a very diversified customer base.
We have a lot of our customers in certain sectors that are growing very strongly, like aerospace and defense, like data centers. There's a little bit of a natural hedge as it relates to how diversified our business is and how global we are. We're in 27 different countries. We're in the U.S., the U.K., and continental Europe. Overall, I think volumes, and from a market backdrop, we feel pretty good about where our plans are. I would say, overall, when we think about our business, it's longer cycle in nature. Typically, our contracts are five years—
Yep.
—in length. As well as I think when you look at our business over the last five years, you don't see the type of cyclicality you see in some transport areas. We don't go as high as some, we don't go down as low.
Yep.
It's a little bit more resilient and I would say that as we move into the peak season here, I would expect those trends to continue where B2B is a little bit stronger, a little bit softer. But obviously, with the macro going on and the conflicts in the Middle East and where fuel prices are, it's something we continue to keep an eye on.
Got it. That's super helpful. Maybe to unpack that a little bit, any particular color around the strength in B2B and the weakness in B2C? Especially weakness in B2C, it feels like e-commerce is doing reasonably well. Do you think it's idio to you guys, or do you think it's marketplace? Any color there?
No, I think you're right. I think e-commerce continues to do quite well, right? That continues to be fairly resilient. I think that the consumer continues to be fairly resilient. Even in light of where fuel prices are.
Yep.
It is not just our higher growth verticals like aerospace and defense and data centers and some other industrials. We are seeing other parts of our business continue to be fairly resilient, and I think that is a great testament to the strength of the customers that we have and the book of business that we have built over the last five years.
Understood. If e-commerce is doing reasonably well, does that feel like the, especially European, food and bev, kind of non-e-commerce retailers are probably where the softness is?
A little bit there. I would say—
We have heard that from others as well, by the way.
Yeah. Continental Europe, I think not as much as the U.K..
Yep.
I think we're seeing a little bit more softening in the U.K. and Ireland. A little less so from a continental Europe standpoint. Our North America business has been a little bit stronger along those lines.
Got it. You guys are one of the best peak season checks of the companies in our coverage. What are you seeing out there? Some of the early reads we're getting from the trucking guys is that this appears to be a very strong peak season. Maybe that's just supply driven on their side. So what are you hearing from your customers so far?
At this point in time, they've launched the summer campaigns. Inventories are filling. From a seasonality standpoint, the third quarter is shaping up how we had expected. At this point in time, I think the season has kicked off. The trends that we had expected when we laid out the plan at the beginning of the year, we're seeing a reaffirmation by our customers at this point in time. There's still more to go between now and the end of the year before we get to Black Friday and the higher part of the season. At this point in time, I would just say we're not seeing any pullback in light of where the global economy is.
Understood. Obviously, you guys have made great progress or continued to build on your progress on the pipeline of new business. Can you talk about some of the trends there, both geographically and segment-wise?
Well, I think it's a testament to Patrick and the strategy that he's laid out. As he came on board as a CEO, we've pivoted from growing and scaling the business via M&A to a pivot of we've scaled off enough, we've got the capabilities. Now let's go deploy those capabilities. Right? Let's go grow the business. Let's focus on organic growth. Let's focus our attention on maybe where we've underperformed, like North America. Let's focus on these higher growth, higher margin type verticals like aerospace and defense, and data centers. As part of that overall strategy, we established a corporate Chief Commercial Officer that is focused on customer excellence.
Standing up that organization, really strengthening account management, focusing in our large customers as opposed to having three points of contact across our regions, having one point of contact, and then collaborating with the regions as we look at those customers that are in multiple regions. We're starting to see the fruits of that labor. Last time we spoke, pipeline, roughly $2.7 billion, continues to be near all-time highs. In the second quarter, contract wins up over $400 million, 30% higher than the prior year. 40% of our contract wins in the second quarter came from the higher growth, higher margin verticals, aerospace and defense, and data centers. The effort, the commercial excellence team, the leadership change in Americas and Asia-Pacific, where we've inserted a new president of the region as well as put in a new sales leader. The momentum is there. We've got the capability.
It's really focusing our efforts and targeting our sales, our go-to-market, our value proposition, to the right markets, to the right customer base. We've got great capability, and right now we've got the bandwidth to focus our attention on focusing on customer growth and execution, whereas the last couple of years, there's been a lot of time consumed around M&A and the integration. We're pivoting to the ongoing execution. At this point in time when we really look at the second quarter, one quarter doesn't make a trend.
Right. For us, we stacked another quarter. We felt really good at the time of our earnings release on where the contract wins were being projected for the third quarter. We continue to feel good about that. Our goal here is to deliver another strong contract win quarter as well as show a sequential improvement in organic growth in the third quarter. We're very focused on that, and we look forward to continuing to provide some positive news as we move through the rest of the year.
Got it. Maybe even looking back before the spin, is there a reason why you guys have been so good and so successful in Europe and kind of maybe not quite replicated that success in North America? Is it just a genesis of Norbert and kind of it started out with European strength and that's what you were good at? Is it an end market thing? Is it a capabilities thing? What's the answer to that?
Well, I don't have the history—
Of course, yeah, sure.
—being around approximately six months, but I would say the Norbert acquisition.
Yep.
—led to a lot of capabilities in the U.K. Also, our former CEO was based in London.
Sure.
When you have a significant acquisition made in that sector, and your CEO, who from a cultural standpoint was based in the U.K., you tend to gravitate towards what you know best.
Absolutely.
As a result of that, I think we've accomplished a lot in the U.K. and continental Europe. From a market standpoint, we're number one in the U.K. We did a couple of acquisitions to add to that. That part of our business is solidly in good shape. Mature, and we need to continue to execute with our current customers and look for some opportunities to win. Our UK &I team had a great win last year with NHS, the National Health Service in the U.K., and that's a big win for us. Now, as we think about maturing those sectors of our business, those regions of our business, now we can pivot to North America, which has been probably unsupported from a leadership standpoint.
We have the right leader in there, and we have the right focus. We think UK&I and continental Europe are in a good place from a capability and a customer standpoint. Our focus is pivoting to the largest economy in the world, which is North America, where the greatest potential of growth for us are, and really trying to take advantage of the North American market. Not only with the B2B and the higher-end verticals, but just in general, there is a lot of opportunities for us to grow in North America. Our team is excited. They have some momentum, and they are really ready to get after it.
Got it. Is North American success just about that renewed focus on the market? You said new local management team, regional management team as well. Do you need more skills and capabilities? Do you need more technology, or is it just a case of we have what we need, just go after the business?
Leadership changes are important.
Yep.
We have done that. Partnering them with our corporate chief commercial officer from a partnership and account management. She will bring in capabilities like digital marketing to help expand. For us, we have 340 sites in North America, 40,000 employees. It is a big-scale operation. We have a lot of capabilities in North America, and I think for us, it is being able to translate and communicate to new customers as it relates to the capabilities, the things that we are doing, like complex kitting and parts distribution from an aerospace and defense, like building racks for data centers, doing wiring. We have a value proposition. We have a lot of capabilities. It is our opportunity now as these RFP opportunities arise that we sell our story, right?
Make sure that we have the proper bandwidth to go support the growth, and make sure that we are prepared for the implementations because as we are growing faster, operational excellence is going to be needed to support the customer growth.
Got it. Another kind of big characteristic of a business is the percentage of open book versus fixed variable contracts. Is that something else that you are looking to address? Obviously, one gives you defensiveness, the other gives you operating leverage. Is part of this pivot also kind of looking at that mix?
Customer mix, revenue mix, I think over time continues to shift. 70% of our revenue is CPG, 30% is B2B. Over time, as we focus on the new higher growth verticals, the shift will change. That will help on the top line, it will help on the bottom line. As it relates to open book, it is not totally negative. It is low risk, very consistent cash flow. Open book will always be part of our overall portfolio. Today, open book is around 55% of our contracts. As I see over time, as we pivot and focus more growth in North America, which is more fixed type contracting, we grow faster there. It gives us an opportunity to leverage and grow margins. That pivot will continue to shift the mix of open book downward a bit.
More to the fixed side of things. Even some of our open book contracts, we are having lots of conversations in the U.K. about continuous improvement, where we make investments, where we get returns, how do we support the customers. I think there is some additional pricing strategies that can be deployed that would end up being a win-win for us and our customers. What you just described from a mix standpoint, those mix shifts, no doubt, and pivots will help us grow the top line, but I think it will have a meaningful impact on our margins.
Got it. Let us take a little bit of a step back here and focus on maybe some broader industry or macro trends. The world's been a chaotic place for at least six years, if not longer than that. It doesn't look like that's changing anytime soon. What has that done to corporates thinking about their supply chains, thinking about whether to outsource or not? Does that make them want to do it more, or does that make them want to say, "Hey, this is a core function for us, and so we need to do this in-house and have more control over it?"
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.
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. 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 out into the supply base.
Historically speaking, about a third of our wins have typically been by big blue-chip companies that are using vendors to step in and manage their supply chain. Those trends will continue. 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 six years, how has trade policy moving to a multipolar world, again, brought renewed scrutiny of global supply chains, where you store your inventory, nearshoring? What does all of this mean to you? Kind of in some ways, to your point, supply chains have become more complex. In some ways, it's actually become simplified if you're nearshoring stuff, if you're storing more inventory places closer to the end customer. What does it mean for you guys?
You want to pick that one up?
No, I think the complexity that we've seen is increasing our value proposition. In fact, you think about maybe where supply chains were in farther 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 that, the warehousing, the fulfillment here in North America or in continental Europe, that helps us because it's right in our background.
Sure.
As Mark mentioned, our pipeline is near a record, and in this last quarter, at the end of June, we ended at $2.3 billion, I'm sorry. Three weeks later, our pipeline was up to $2.7 billion. 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 five years.
Got it. I wanted to spend some time talking about the competitive environment, because I think one of the amazing things about your business is there's basically two companies globally who can do what you do yourself, and obviously, your 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? As companies look to, like you said, kind of outsource their supply chains, is it basically a two-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 number one player in the market. For us, we are the only sole warehouse logistics company in the marketplace.
Yep.
Pure play—
Yep
—warehouse logistics. 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. 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, 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.
Yep.
Our CEO is 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. As we think about how warehouse logistics looks in five years, it's obviously going to look a lot different than it is today.
Yep.
We can't just sit back and rest on the fact that we're number one 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 four-pillared strategy. Really, when you think about our business, we're called or kind of placed in the transportation sector. I really view ourselves as we're morphing into a tech services company.
Yep. Right.
Really, we provide services, we solve our customers' biggest challenges, which is the supply chain. Today, more and more of our ability to solve those problems are related to technology. It's the automation, and it's the robotics. 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. Today, it's more dynamic than ever.
Got it.
Ravi, I would just add, I mean, you talked about the competitive dynamics. Our market is massive. We talked about an excess of a $500 billion TAM. Us and our nearest competitors, we make up small percentages of that.
Yeah.
Still our largest, 70% of the market's still done in-house today. We've acquired a tremendous amount of capabilities with the M&A that we've done over the last five years and 10 years. 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 on the pipeline that wins.
Yep.
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, can I 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 Direct, but the rest of what we do is really complex." Can you just unpack that a little bit and maybe what investors are missing kind of still focused on that potential risk?
Yeah. Let me jump into this, then I will hand it off to Kristine. Lots of questions since April on this topic. Amazon is a massive company with a lot of capability, and they do a great job of what they do. When we look at what we do for our customers, in many ways, they are very specific customized services. Site-specific, one site, one location with very bespoke automation technology that is 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, is what makes us different than Amazon. I am not quite sure. Amazon is huge. They have a lot of space. They have great technology. I think in many ways, they are 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 do not know. I would say this, though, we cannot sit back and assume that they do not want to be a competitor. We need to make sure that we are continuing to strengthen our company from a growth standpoint, from an execution standpoint, from an automation robotics standpoint, so that we do not give our customers an excuse to go look at somebody else. I think at the end of the day, in RFPs, we do not see them in our competitive bids. We do not 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.
I think there is a lot of differences between a GXO and Amazon, and if you want to add to it.
I think you hit on it—
Yeah.
—well.
Sounds great. Again, maybe switch gears a little bit, talking about the margin opportunity, obviously lots going on here, pipeline of new business, shifting mix towards better mix product, maybe looking at 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 do the building blocks of margins look like over the next few years?
Well, you made some mention. I think the commercial excellence strategy that we have will accelerate growth and allow us to expand margins. 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.
Yep.
AI via the GXO IQ technology, the middleware that connects the systems in 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.
Sure.
From a flow standpoint, removing bottlenecks. 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 AutoStore. 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 run the operation. 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. 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. A management operating system, and what Bart is bringing on board is the operating methodology. 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? 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. For us, continue to rely and adopt automation robotics, making those investments, and rolling out GXO IQ. A big productivity initiative 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 six pilots in our regions. We've picked two providers, two vendors. Labor management systems, today, we have a clocking system. We clock in when you come in the door, and then you have lunch, 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 it took 15. So establishing what I like to call in my old manufacturing days, champion times. Each job, what is the champion time? What is the best time possible? Then translating that into a standard, then we create standards in the factory and hold people accountable to those standards.
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 toolset of automation and 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. 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 AI, 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 timelines that we have laid out for ourselves.
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 building that organization. He's hiring an implementation solutions 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 Americas and Asia-Pacific where I've got a problem.
Sure.
That's what I'm used to seeing.
Yep.
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 via open book.
Yep.
I also think it will make us more competitive. It'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. I want to make sure we talk about robotics here. You're going to hit on a lot of the basic details here, but again, you guys are already leaders in warehouse robotics. What people would know to be, or consider to be warehouse automation at the moment, but at the same time, you'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 humanoids are the way of the future.
Yep. All right.
Humanoids have been advanced greatly in the last couple of years, not only from an ability standpoint, from a cost standpoint. Over time, complementing automation, robotics, and AI with humanoids, is going to be groundbreaking. If you think about a humanoid, they do not get injured. They are higher levels of quality. They can work multiple shifts and not get tired. Over the next couple of years, technology is advancing so quickly. A couple of years ago, a humanoid could maybe pick up a box. Today, humanoids actually have fingers and dexterity and actually can pick things up. The issue with humanoids today is they cannot work at the speed of a human.
Sure.
There is the process of how do we improve the overall efficiency, and it will be done. No different than robotics years ago where robotic arms picked slow, and over time, it got faster. It went through learning. Today, 2026, when we think about the advancements of technology, every single day, the advancements are quicker and quicker. Before you blink your eye, we will be in the business of deploying humanoids who are working side by side—
Yep.
—with humans in our facilities.
Maybe—
We are super excited about that.
Clearly super exciting. Maybe really quickly, what does a humanoid do for you that is different than a dedicated warehouse, like a Locus or a GreyOrange robot, like dedicated warehouse robot? What additional can the humanoid form factor do for you?
Well, I think the biggest difference is a GreyOrange or Lowpad are these AGVs that bring the product to a human.
Okay.
Bring it and take it away.
Yep.
They can't pick the product—
Sure
—off the shelf. The Lowpads 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 in the 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. The goal 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.
Got it.
That's how we see building out the technology and complementing automation, robotics, AI, and the human factor. I say this jokingly sometimes, but, at some time in the future, maybe we're looking at a complete lights out warehouse.
Mm-hmm. Sure. Absolutely. Very exciting times. Very much looking forward to your Investor Day in November as well. I think it's going to be a big catalyst for the stock. Mark and Kristine, thanks so much for being here.
Thank you.
Thank you for having us.