Q4 2022 GXO Logistics Inc Earnings Call
Welcome to the Jack So Q4 and full year 2022 earnings conference call and webcast. My name is Kevin and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. If anyone should require operator assistance during the call.
<unk>. Please press star zero on your telephone keypad. Please note. This conference is being recorded before the call begins let me read a brief statement on behalf of the company regarding forward looking statements. The use of non-GAAP financial measures and company guidance. During this call. The company will make certain forward looking statements within the meetings.
Applicable securities laws, which by their nature involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements a discussion of factors that could cause actual results to differ materially is contained in the company's other SEC filings.
Forward looking statements in the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward looking statements except to 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 related financial tables or on its web site.
Yes, otherwise stated all results reported on this call are reported in United States dollars. The company will also remind you that it's guidance incorporates business trends to date and what I'm pleased today to be appropriate assumptions.
The company's results are inherently unpredictable and maybe 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.
These factors detailed in our filings with the SEC.
It is not possible for the company to actually predict demand for 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 investors section of the company's website I'll now turn the call over to Jim.
<unk> Chief Executive Officer, Malcolm Wilson, Mr. Wilson, you may begin.
Thank you, Kevin and good morning, everyone.
I appreciate you joining us today for our fourth quarter and full year 2022 earnings call.
With me in Greenwich are bearish all wrong.
<unk> financial officer.
It will frame, our chief commercial officer, and Marc Maun, Duke Chief Investment Officer.
It was a pleasure.
To dedicate some time a few weeks ago at our Investor day to share a deeper dive into our business.
The value, we add and our strategy for the coming years.
As a reminder, during our Investor day presentation, we announced our financial targets for 2027, which are as follows.
We will more than double our top line from the end of 'twenty 'twenty $1 billion to $17 billion and deliver compounded annual organic growth of between eight and 12%.
We will nearly triple our adjusted EBIT da over the same period to about $1.6 billion.
Well generate more than $2 billion of free cash flow by 2027.
We'll de lever operating return on invested capital of above 30%.
And just to reiterate.
These long term targets do reflect our expectations of a softer macroeconomic environment in the near term, which we anticipate will be the case for the majority of 2023.
For the benefit of everyone. We posted the transcripts on video on our Investor site.
But today, we're here to focus on a 2022 full year earnings outperformance in the fourth quarter and our 'twenty to 'twenty three outlook.
So let's turn to that.
For the fourth quarter, we delivered excellent financial and operational performance, we generated revenue of $2.5 billion, reflecting organic growth of 7.5% and adjusted EBITDA of $205 million.
These results reflected robust new business drove strong year over year, adjusted EBITDA growth and sustained margin expansion through the second half of the.
For the full year, we delivered revenue of $9 billion organic growth, a 15.4% and adjusted EBITDA of $728 million at the top end of the range, we provided at our Investor day.
In addition to our strong operational performance during this year's peak season.
We also increased our overall warehouse attack by about 40% year over year with pilots ramp ups and roll outs of several different types of operational technology across all of our geographies.
Additionally to enable customers to quickly scale capacity and specifically during peak with trials, a new approach, where we deployed several hundred pieces of check to.
Volume spikes.
For the customers who participated in this pilot who were experiencing volume surges of up to 200% vis a via normal peak day. This was an incredible enabler of success during this year's holiday season.
The fourth quarter was also a busy time for us internally.
As we kicked off the smooth integration of the clip business.
We've already made huge progress on realizing our cost synergies and now expect the bulk of the over $40 million to come within the first two years.
Importantly, we also signed the first of what we expect will be several significant customer contracts combining clip of customer relationships and gx all kept a bit let's say.
These revenue synergies will be substantial in the coming years.
They will also be above and beyond the $40 million of cost synergies.
In the fourth quarter, Jack so achieved a stellar level of new business wins closing nearly $200 million of new contracts, including partnerships with barilla Boeing.
Boeing Farfetch.
Kingfisher be a Nike and sharp ninja.
I also want to take a moment to say thank you to all of our Gx all colleagues, who delivered a strong peak season unfold yeah.
And who strive every day to make our organization a great place to work.
I'm proud that just last week, we were named one of the top 50 companies in the U S for diversity.
Now turning to 2023, we're pleased to reaffirm our guidance of 6% to 8% organic revenue growth and $700 million to $730 million of adjusted EBIT da.
Given the business, we've already closed for the fourth quarter of 2022 combined with a strong sales pipeline, we're starting the a with a high degree of visibility to our growth.
So in closing it's been a great fourth quarter and we're proud to have delivered another stellar year in 2022.
Looking ahead in 2023, we're laser focused on delivering our guidance and executing on our long term business plan and we're looking forward to continuing to create value for our customers our employees and our shareholders.
With that I'll hand, you over to bill to have more color on our commercial landscape.
Bill over to you.
Thank you Malcolm and good morning, everyone.
During our Investor day.
We talked about the GSO difference.
Our unique combination of technology scale and expertise.
Which drives our partnerships with amazing brands and grows that market share.
Our new business wins from the fourth quarter of 2022 contributed nearly $200 million to future revenue growth.
Therefore for 2023.
All of our wins to date have accumulated to around $661 million of gross in year revenue.
Looking beyond the fourth quarter, our sales momentum is strong.
We've continued to win great contracts early in the first quarter of 2023.
One of which as Malcolm mentioned as far fetched to.
To support Reebok's brand launch and Omnichannel logistics throughout Europe .
This was a customer previously served by Clipper and is our first major cross sell with cut.
Coming shortly after completing the transaction.
This customer needed the breadth.
Flexibility global scale and expertise of GSO and a networked multi site operations across Europe .
They also needed this solution to go live within a few weeks of the contract being signed.
And a partner that could then deploy automation to drive efficiency and higher volumes in the future.
Now turning to our pipeline at $2.1 billion.
Were up versus the third quarter.
Reflecting our growing number of customers coming to <unk> in this environment.
And underscoring our confidence in future market share gains.
Importantly.
The pipeline is turning over rapidly.
We have lots of exciting growth opportunities in all of our verticals and geographies.
Including a number of sizeable outsourcing projects and expansions with existing customers.
Okay.
Now I'd like to take a moment to comment on what we're seeing on the ground and how this positively impacts our growth.
In 2022 as the World came out of the pandemic there was a clear realization of the importance of reassessing and rebuilding supply chains in order to emerge stronger.
The conversations we're having with our customers.
<unk> that they need and optimize supply chain solution today.
While at the same time, they're looking to strategically reposition their end to end supply chain for the future.
As the partner of choice GSO is leveraging our best in class technology to drive optimal accuracy speed and efficiency for our global Blue chip customers.
Let me give you two examples.
First the world's most advanced technology companies are turning to <unk> solutions.
In the fourth quarter, we expanded our partnership with one large U S tech customer by leveraging our transformational work over the past 12 months.
Last year, we took over one of their operations within 72 hours of signing the contract.
And within 30 days, we were meeting or exceeding all kpis.
Over the past year, we've transform their operations and delivered a 10% improvement in accuracy.
A 10% reduction in stock outs, and a 17% reduction in staff turnover.
And second.
The trend toward near shoring is gathering pace.
Over the coming years, roughly three five trillion dollars worth of global trade is forecast to come back onshore.
But the warehousing industry. This represents a multibillion dollar opportunity.
And we're already seeing this in our pipeline.
With many of our conversations related in some form to inventory management.
For example, just in case versus just in time.
Or diversification of their global warehouse footprint.
One area, we're seeing this theme emerging strongly is in the semiconductor sector.
And we are perfectly positioned to benefit given that <unk> is a critical partner to a number of the industry leaders in this space.
Overall, it's becoming clear to many of the world's leading brands that business as usual.
Is no longer an option.
The current environment is leading more and more companies to look to outsourcing as a solution.
And they are turning to experts like <unk>.
We stand ready to support customers all over the world.
As they look to us to help redesign their supply chains.
Taking advantage of our technology scale and expertise.
This GSO difference is why we are gaining market share.
And with that I'll turn it over to virus.
Thank you Bill and good morning, everyone.
As Mark mentioned for the full year, we generated revenue of $9 billion.
Adjusted EBITDA of $728 million and net income of $197 million.
Our adjusted diluted earnings per share for the full year 2022 is $2.85.
36% from $2 nine in.
In the prior year.
Driven by our EBITDA growth and aided by the addition of Creeper, which was EPS accretive in 2022 and there'll be more so in 2023.
We finished the year at the top of our guidance range with 15, 4% organic revenue growth.
We undertook a sizable bolt on acquisition in the form of Cripple logistics, which is well underway in terms of integration and also performing extremely well.
There's always impressively well executing this high level of growth you maintain our Brazilian contract mix drove high levels of customer retention at the mid to high nineties and increase the revenue drive from highly automated operations.
Moreover, our operating return on invested capital increased to 40% from 35% in the prior year.
Driven by the surge of our EBITDA.
Additionally, our free cash flow conversion at 33% was above our 30% guidance.
This is a business that is producing growth.
Returns free cash flow, while integrating a sizable acquisition.
Our strong cash conversion has enabled us to pay down $50 million of debt ahead of schedule.
And to rapidly reduce our leverage levels to one eight times trailing 12 months adjusted EBITDA.
From two one times at the end of the third quarters.
In the fourth quarter of 'twenty to 'twenty, two we generated revenue of $2 $5 billion.
Adjusted EBITDA of $205 million and net income of $46 million.
Our organic revenue growth rate was seven 5% in the quarter.
Despite tougher comps, reflecting the contractual nature of our pricing and our business.
And in the context of this strong revenue growth.
Adjusted EBITDA grew by 23% year over year. This quarter's three times our revenue growth.
Now turning to 'twenty to 'twenty three we are reiterating our guidance of organic revenue growth of six 8%, which reflects a softer macroeconomic environment. This year.
We are also reiterating our adjusted EBITDA guidance of $700 million to $730 million.
And that's including an assumption of approximately $17 million of headwind coming from foreign exchange and it is pension income.
Exactly as we mentioned on our Investor day four weeks ago.
Excluding these non operational factors, our 2023 EBITDA would be growing at high single digits.
To further emphasize the stability that this business enjoys we had that about 90% top line visibility for this year.
In terms of phasing, we expect the percentage seasonality of our revenue.
<unk> adjusted EBITDA by quarter to be very similar to what we have seen since the spin.
In addition, we have updated you during our Investor day presentation, a number of initiatives that will drive our EBITDA growth over the planning period through 2027.
These included gains from our core growth.
Automation and value added services.
That's attack and artificial intelligence.
Productivity initiatives and Cooper synergies.
In the fourth quarter with shareholder value in mind, you launched the efficiencies project, we discussed in the Investor day.
Which will contribute through 2023.
We booked the first $18 million in restructuring costs. These actions will have a less than two year cash on cash payback.
Turning to our balance sheet, we expect that our leverage will be around one and a half times by the end of the year.
And that's driven by our strong ongoing cash conversion of roughly 30%.
After six quarters as a publicly traded company our predictable results and our guidance reflects our secular growth contractual infrastructure like trades.
This is a business with high degree of resiliency and long term visibility, which gives us great confidence entering into 2023.
And now I'll pass you over to Marc.
Thanks Paresh.
<unk> has delivered another strong quarter take.
Taking share through tech leadership and through the tremendous value that we deliver to our customers.
This business combines predictability and growth at its bedrock.
Firstly on predictability.
Unlike a transactional business model, where pricing is driven by short term supply and demand.
Our pricing is driven by long term contracts with inflation protection embedded within them.
Combine that.
With a large and diversified pipeline that we continue to convert upon.
And it should come as no surprise to have bearish say that we have well over 90% revenue visibility for this year.
Secondly on growth.
We've won contracts was $661 million of gross revenue for 2023.
That equates to 7% gross revenue wins.
As 2020 twos revenues of $9 billion.
And if our pipeline is anything to go by.
There will inevitably be further wins in both Q1 and Q2 of this year that will likely contribute even further to 2020 three's growth.
Combined these gross wins.
With a low attrition rates.
In an inflationary environment and you can see why we are so confident about our 6% to 8% organic revenue growth for this year.
We've done six quarters without missing a beat.
We successfully undertaken a significant acquisition that is already delivering accretion.
And in January we were pleased to share our five year strategic plan.
This management team delivers on its promises.
With that we'll open the call up to Q&A.
Thank you and I'll be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to move your question from a Q1 moment. Please while we pull for questions our first.
Question today is coming from Stephanie more from Jefferies. Your line is now live.
Hi, good morning.
Good morning, Bonnie.
Yeah, I think so.
Well it might be helpful to just give us a little bit of color of what you're seeing in the macro landscape.
Between the U S and Europe and then.
Beyond that what macro assumptions, how do you kind of baked into your guidance.
Sure.
Thanks, Stephanie let me take that its Malcolm and.
What we're seeing on the ground as growth across all of our regions in North America Continental Europe , The U K.
We've got particular pockets of really good strength, but at the same time, we've also got softness in certain of the market. So it's a real mixed bag.
The environment in North America is our is our strongest.
Strongest condition well when we look at U K Continental Europe .
These markets have been a little bit more affected by the softer macro higher energy higher mortgage cost is impacting on the consumers' disposable incomes.
Interestingly when we look at the different verticals that we work in across all of our regions. We can see different say, so typically our industrials arris aerospace technology verticals, they've been particularly strong overall all of our warehouses are in a good state of Utah.
<unk>, we don't have any empty space and importantly, our customers are very happy with what we're doing for them.
In terms of inflation I think we're through the worst of it and I can point to our last quarter, where traditionally we have to pay wage supplements to attract the levels of team members into our business to cope with the holiday season. This last peak season, we have not been required to do that so I think we're definitely further west of inflation.
I really want to call out or when I think about 23, the level of new business that we're seeing in our pipeline. It remains very very strong and of course, we've just signed $200 million of new customer contracts as really very very good for the end of the.
When I put all of these things together, that's really giving us a strong confidence on a 6% to 8% organic growth for the year ahead, and I'll I'll ask Marc just to give a build out of that number but I'll just finish by saying you know we're already through January January has given us a good start business is absolutely in the law.
I met with our expectations I think as a management team, we can say with <unk>.
Prudent about 2023, but also we're cautiously optimistic for the year ahead.
Mark maybe you could just a bit more detail yeah. Thanks, Malcolm Steph, it's small cat happy Wednesday so.
A couple of points I'm, just going to reiterate exactly what Malcolm said in terms of our confidence.
Paresh made a great point, we have over 90% revenue visibility for 2023, and that's what we mean when we say that this business is infrastructure like contractual based as a business model. So we're not a retailer and we're certainly not a transactional business. So I love. It when you ask the macro question because we are a different breed of asset.
So in terms of the 6% to 8% organic revenue growth for 2023, the walk is a relatively easy one.
There were two buckets to consider net new business wins in the first bucket and existing customer growth.
So on net new business wins, we've got $661 million worth of wins already for 2023 in the bag that is a gross number which when you compare it with the 9 billion of revenue from last year. In 2022 gives you seven 3% gross growth.
Now in terms of the calculation to this number you should take off obviously attrition, let's call. It roughly low single digits from what we said about penetration rates.
And then equally you need to add on something as Malcolm said in terms of.
Being able to achieve new wins in both Q1 and Q2 of this year and that will allow you to essentially take those numbers and get within touching distance of the 6% to 8% already even before you've considered the base existing operations growth. So if you turn to the second side of it we've done that new business wins turning to the <unk>.
Base business, you've got two things price and volume.
If you combine the two I think a good gauge for 2023 is roughly low single digits and that's in line with our recent run rates as well. So you can see net new business wins existing customer growth gets you comfortably as Malcolm said to 6% to 8% and now can use the word prudent this is a prudent and sensible forecast from a prudent incentive.
Bill payment and it's also worth noting in terms of this idea of duration in this business and visibility. We also have $177 million already signed for 2024. So you've got growth you've got your resiliency and you've got your predictability staff.
Okay.
No got it that's.
Helpful and just a quick follow up here as you look at those puts and takes where do you.
And I think it sounds like new business wins as well as maybe the outperformance on the existing customer side.
It stands today, where do you think of the Q1.
Which one do you think has the greatest opportunity for upside.
Stephanie This is bill up I would tell you it's on the new business wins and I'll talk about this.
Probably more than once today, but let me break it down to three three points, we see happening number one is existing customers that are with us today that have seen the benefits of automation are doing growing with us and doing more automation that they've already seen its already been a proof point to them and they are growing so I'm talking to a company in March that has business with us in Europe in there.
Want to move to the U S and Canadian Canada, and Theyre looking at sites and they won't have automated sites. So that's why that's happening the same way from North America back to Europe and in the region. That's happening. So that's one part of the growth as people have gotten into the automated box they understand that the change in the supply chain for the future number two are the people that have not outsourced yet.
And that's becoming a growing part of our pipeline almost a third of our pork all the pre pipeline new business coming to US is brand new logos and these are companies that have not outsourced, but what they're seeing is they are behind the times. They see the change in supply chain. They realized that their existing team doesn't have the wherewithal to do that doesn't mean, they're not good teams there.
You don't have the ability and they haven't done the automation levels, we've got around the world.
So they are coming to us and asking us to look at their sites and do what we call takeover in place. So it was a big closes.
But December where that way and the ones. We already have in January of that where we're taking over an existing site. We're going to run the site for a period of time, we're going to get evaluated and reduced cost, but then we're going to transform it and automated so that's where our automation will grow and again they want an expert partner like us that knows how to do that and then finally.
What I would say is is those that are with us and those that are already outsourced, but haven't automated yet all want to automate again, they've seen the value of automation. They read about it in the press they've seen what other companies working with us and that's been able to do as we mentioned is that correct.
The market today.
We have proof points, we can now take them to sites, where they're seeing.
Tax improvement for customers, who are automated youre seeing all the benefits of what it means to labor labor.
Labor more efficient and more sticky weight, where your turnover rates go down. So all those things are happening. So we're very very excited about the opportunity in new business and that will continue with us as we go forward.
Great. Thank you guys. So much thank you.
Thank you. Your next question is coming from Scott Schneeberger from Oppenheimer. Your line is now live.
Oh, thanks, very much congratulations on your first year as a stand alone entity.
The I guess for my first question kind of a follow up from in Investor day, but I'm curious could you. Please bridge for US from a 2022 EBIT guide to 2023 EBITDA. The are the major puts and takes there and then there's I think I heard you say that we should be modeled.
[laughter] cadence for revenue consistent with in 'twenty, three consistent with 2022 and what would you say is similar a similar for EBITDA just curious on that thanks.
Hi, Scott.
The our EBITDA results for the year will be driven by as I mentioned, the headwinds, which are non operational in nature, roughly $70 million coming from FX and pension income and those who are compensated by the tailwind from our organic growth incremental revenues from legacy Clippers synergies from the legacy.
The integration.
In our central initiatives efficiencies project as you highlighted.
We started.
On the impact of FX, there has slightly improved for our 'twenty to 'twenty three guidance about the pension income is slightly worse. So the net effect is still $70 million.
If it was not for these non operational headwinds our EBITDA would have increased by about high single digits year over year.
And looking into the phasing of this years are phasing of EBITDA last year was about 21% in the.
First quarters.
384% in second quarters, 26% in third quarter, and 28% in the fourth quarter and we're going to be roughly about the same. This is the fulfillment business and this reflects our seasonality.
Great. Thanks appreciate that and then.
For a follow up just curious on capital allocation priorities in 2023, and then maybe if you can provide a little perspective on the M&A pipeline. Thanks.
Of course as always our priority is on shareholder value creation, the Ara growth enterprise and do you have a strong pipeline that Bill has mentioned and we have operating return on invested capital in excess of 30%.
Three year cash on cash payback for a five year project.
First term short term priority is to generate free cash flow maintain a strong investment grade balance sheet, which is very important for our customers.
We are such an integral part of their business. They want us to be financially strong we expect to return to leverage levels to about one and a half times by the end of Australia 23 at the end of the year of 2022, we stand at around one eight times down from two one times at the end of third quarter beyond this in the long term vivo.
Continuing to evaluate all the opportunities to create value for our shareholders specifically through accretive bolt on M&A. This year will evaluate alongside a potential returning capital back to shareholders through our buyback we do have a sizable pipeline of potential M&A targets. Both in the America, North America and Europe .
But we are waiting them against other opportunities investing in our stock through a buyback, but it is the short term our priority is paying down debt to create room for further capital allocation.
Great. Thanks very much.
Thank you.
Your next question is coming from Chris Wetherbee from Citigroup. Your line is now live.
Yeah, Hey, thanks, good morning, guys.
Maybe picking up a little bit longer term and thinking about the 2027 targets that you guys outlined at Investor day, So I understand the headwinds that you're seeing in 2023 and how that may.
Impact on EBITDA relative to 2022, the 2027 targets imply a pretty meaningful sort of reacceleration of the business in 'twenty four 'twenty five and beyond so can you give us a sense and I don't know if this is a question for bill a bearish in terms of like the the the visibility you have particularly to 2024 as you.
Building out your book I know, you're adding business to the 2024 pipeline now, but just sort of how do we think about that reacceleration and what's driving it.
Yes.
Recall, our EBITDA bridge in a in the capital markets day, a very sizable component of that was coming from our core growth and then followed by our mix changes, including automation and value added services, there was making roughly about 85% of the EBITDA bridge going going from.
<unk> $600 million to $1 $6 billion, it's D&O traded 387, and the remainder was basically adaptive technologies.
Efficiencies and Cooper synergies, there was making up most of that and growth is such an important part of that bridge and then do you think about our pipeline. We are on our way in line with our plan to execute on that Bill would you like to give you further comments on how our pipeline is building up and probably progress with management seven yes. Thank you Bob.
So.
A few things that are happening is one with the automation that Jim that's in place today, meaning just across the market, but the expertise that we've developed around that means that we are much more sticky with our customers to start so the customers we have.
Looking to expand with us and they're also looking to renew with US all of our large customers looking to renew because they don't have to go anywhere else to get the automation it's already here.
At the same time, the complicated thing to do at our industry is break somebody away from a competitor because theres a cost of move but the fact that we have the automation drives them. This way people are making decisions to have the last big closes we've talked about in December as I mentioned will take over places, but they won't take one was to take a replacement terminal one was from a competitor.
And the reason that came was because they didn't see the same value where they were after after.
10 year experience with the competitor that's not about the competitor it's about our automation is prowess.
And then finally, our churn our churn rate.
Our ability to turn up our pipeline, but also to grow our percentage close one or both of those things are happening again because of automation because of the solution and we're able to show tremendous value to our customers. So those things will grow the pipeline. They will also accelerate the pipeline and they are bringing more people into the pipeline. So all those things together give me.
Confidence for 2027 that we can get there.
Okay. Okay. That's helpful and then maybe thinking a little bit in your near term.
You mentioned I think clipper synergies were expected to happen post peak season, because it's difficult to do things materially before that so and I think you you sound a little bit more optimistic about getting things done on the earlier and maybe even an upside to the numbers can you talk a little bit about the cadence of what we should expect from corporate synergies in 2023, when will those be realized how quickly.
Sure let me take on the cost side and Bill you come in on the revenue side, what youre seeing from our wins and pipeline perspective, we have already kicked off the project and the EBITDA impact for this year is going to be about $10 million, but the run rate will be higher we are well on our way to meet the expectations, we set out.
And do you have a do you have an opportunity to beat that the expectation.
You called the EBITDA uplift from Clipper cost synergies was about 36 million pounds and $10 million will be realized in our EBITDA. This year.
Yes, Thank you and what we saw on my first visit to our legacy clinical site with Farfetch, the Netherlands back when we first made the transaction.
They have a great relationship with Farfetch when we got there we showed farfetch the capabilities of <unk> and that's why we have gained the new opportunity and I was talking to the team in Germany yesterday.
And they're seeing the same thing that the opportunities in Germany are expanding and growing because of the relationship.
And then finally, what we have where we have the.
The service repair technology that we're doing the clipper was already doing we're not bringing it to all of our customers across Europe and using it as a way to kind of catapulted platform. This out to them and this is a product that people can use if you're a retailer and you have any electronics coming back to you on our return process. We're the ones that can come in and repair that for you and that's a huge benefit for the market both the.
ESG and in revenue growth. So all those things are tremendous for us from the legacy <unk> company.
Okay. Thanks, very much for the time appreciate it.
Listen thank you.
Thank you. Your next question is coming from Amit Malhotra from Deutsche Bank. Your line is now live.
Thanks, Operator, hi, everyone I appreciate it.
The opportunity to ask question I.
I wanted to piggyback on Chris's question earlier on the ramp in EBITDA from.
From 23 to 27 basically you're forecasting.
More than doubling of EBITDA from 23 to 27, which.
She was like over 20% compounded annual growth number just given that there's not a lot of operating leverage in the business.
I would assume that that's kind of the revenue trajectory that you're also forecasting so.
Can you is that fairly linear in your mind like should we expect kind of a 20% plus.
Step up in revenue and EBITDA in 'twenty four to sort of start you on that path to the 27 target. If you can just give a little bit more color because it's a it's a huge step up in I guess, it would just be a little bit easier to understand the slope of that trajectory.
Sure Let me, let me kick it off here.
When you think about our trajectory it is reflecting in 2023, 6% to 8% organic revenue growth.
And it's based on a software make room environments and it is a prudent approach for this year and in January Theres.
Trading is in those lines of 6% to 8% organic growth sulfur.
As the global economies start accelerating we will see an expansion in our growth in 2024 and onwards, and thats going to get us to the Oxford 27 targets. That's all part of the plan that we have built it's a bottom up plan, it's not a top down plan and it is based on our customers forecast.
Bill mentioned, they are still investing in a lot of that.
Direct to consumer but also automation. So it takes a lot of the cost out theres a lot of discussions happening as they all sourcing and that's going to accelerate our growth.
Yes.
How are you doing what I, what I'd add to that is is that.
When we talk about the structural change that customers are going through in the past the company might come to us and want to open one site. Maybe two sites. This is an entire change of their supply chain. That's really what people are seeing as the supply chain. They had in place and operational for the future and they have to change. It. So we're talking about companies that may have 10 sites across the U S may have another five or six.
Across Europe , they need to reset those sites, whether they do it in the existing location or whether they close those that outsource or do something else, but they need to change. So that's where the growth really starts to accelerate because it's not just we close one of the customers. We closed in the fourth quarter to this quarter. The plan is not just to do that one site. The plan is to do the other.
10 sites at this customer at these customers have as we go into the first one so the first one is that we'll build it and after that it will accelerate and will go through the other one so that's another big part of where the growth comes from.
Got it so just just paresh if I just want a clarification, so you're basically saying that growth kind of gets back to maybe low double digit trend.
Trends and then what bridges you to the 20 <unk>.
Percent plus EBITDA as it is the cost savings and efficiency is that the right interpretation of what you just said.
Right exactly that's the trajectory of it.
Testing right now.
Thank you and then just as a follow up if I could.
I wanted to also piggyback on the M&A question from Scot I think.
So I think I think historically you guys have been underrepresented in Canada, and Germany, and particularly like the pharma or health care vertical and Malcolm I wanted to ask you directly because I know you're you've been in this business for a few decades now and I know you knew the clipper Youll clipper asset in and do it well.
That was a real great opportunity for you do you see any opportunities like that I know, it's a fragmented market, but do you see any opportunities like in the <unk>.
And in verticals or geographies, where you don't have a lot of overlap today, where there's clipper like assets in those verticals and geographies that you know may not be available today, but something on your watch list. If you could just talk about that.
Yes, Amit thanks for the thanks for the question.
You know when we look across our business.
As Paresh mentioned I mean, right now our focus is on deleveraging our investment grade, but there'll be a time when you know where we're in a better shape than we were able to do M&A or buyback whichever is the better for our shareholders. When we look at M&A, we're always focused on.
Bringing something new in <unk> Quip is a great example, we brought check renovation tech innovation, we got into Germany, we brought new verticals like health care. So that's a really good example of how you Jack So look at M&A, we're not interested in buying.
Volume were the largest pure play.
Contract Logistics company in the World, We don't need volume what we're interested in is bringing something new that we don't currently do right now if I look across the landscape and probably right now let me think about the economic environment North America Super interesting for us.
There are a ton of hidden gems I'll now.
I read a and you know between bearish myself the rest of the team.
It's about cultivating business relationships with these companies you know on these in the wide arena.
Building a relationship with the business is far in advance and you know for sure right now we talk about things that maybe could be of interest in 'twenty, four or liquids sooner, but that's typically how we approach. It is the right approach for us and I think it sets us up for success for the longer term.
What would you be surprised if GSO did not do another deal.
Before the middle of 'twenty 'twenty, four would that be surprising to you or would that be kind of in line with your deleveraging focus.
Well it all depends on what's the set of opportunities we have in our hands, we will take a look at where the opportunities to reinvest in our stock is and what the opportunity to invest in an accretive M&A as well.
You look at the M&A opportunities can be scaled them off faster can we give them additional capabilities can we make them more profitable is going to be weighed against the shareholder share buyback. So that's probably going to have but by the end of 2023 we will have room.
Got it okay. Thank you very much I appreciate it everybody.
Thanks, Amit thank.
Thank you. Your next question is coming from Brian and I will come back from J P. Morgan. Your line is now live.
Hey, good morning, Thanks for taking the question.
Just to go back to quicker and the synergies you've quantified the cost ones. Obviously, it sounds like those are tracking a little bit faster than expected, but when do you think you'll be able to put more of a number around the room.
Revenue side it sounds like Farfetch was the first one navigating it might be a reasonable size now or maybe in the future.
But maybe you can put some context around that and how should we be thinking about the synergies now that there seems to be some momentum behind that.
Yes, Brian its smelter, let me let me let me cover that question. So obviously right from the get go we were focused on the cost synergies because those are easy for us to get to and we have to remember the op to October of last year, we were still under the hold separate order. So we were.
Really kind of prohibited from getting into too much detail with the clip of customer base since that point, though we've merged all of the sales organization and you're quite right. The Farfetch deal that bill referred to in the Netherlands features to classical example, they had a great relationship with a strong blue chip.
Akshay brand.
But really difficult for them to expand outside of the U K and the Netherlands.
With Jack So of course, it's a no brainer and.
We're delighted you know absolutely delighted to assign that new arrangement. Our sales teams are working together very diligently.
Focused on a number of different verticals pipeline is good pipeline is strong customers are readily accepting Jack so I mean, the really welcoming the new capabilities. The scale of our combined business. So you know we don't have the precise details yet it's not.
An exact science, but if I had to make a view on it I think it's going to be a number of hundreds of millions of dollars of incremental synergy type sales that we're going to see over the next couple of years, so they're coming from.
It's really the icing on the cake of what has already been a super piece of M&A.
And then if I can add to that I would add to that Brian is that is that the GSO direct network that we have really developed well in the in North America.
We're bringing that expertise to the European market.
And we're starting in the U K, where they're going to use the <unk>.
Legere legacy Clifford Clifford multi site locations to begin it and so that'll be another big AD for US a lot of good customers. There are a lot of opportunities in it.
It'll be the ability to showcase and grow that in the market.
Yes.
And Brian to Bill's point, we've got we've got the pedigree on Gx, our direct as he says I mean, we did very very well on that last year did about $300 million set of revenue.
It was up 32% year over year and the margins on that business are very strong roughly at 10, 8%. So there's lots of growth ahead, as both bill and Malcolm Seth.
Okay. Thank you for all that.
Follow up for bearish and he gave us the.
Seasonality of EBITDA, which is helpful for modeling, but just from a bigger picture margin perspective, you got maturing contracts you've got some.
Mix within there you get quicker and then productivity.
On top of just more automation. So is this a year, where you feel like youre going to get some of those bigger benefits you've kind of baked into into 2027.
Is it could be more of a run rate as you get through the year like how should we be thinking about that that broader theme of that uplift on the margin line, which still seems to be a big part of the guidance going into 'twenty seven.
Yes.
Tuning of the contracts happened in Q4, you clearly see that as we communicated earlier in the second half of 2022, our margins were up.
And the implementation that drag is pretty much over at the end of the fourth quarter and when you think about the productivity gains and Cooper synergies. There. They are part of the guidance, we provided they will be providing around $10 million each contribution to.
2023, EBITDA of course is the run rate is going to be hires you're implementing those and the payback is about two years. So we will accelerate these efforts in 2023 and the.
The benefit is going to be more prevalent into 'twenty 'twenty, four and onwards and Thats. How are we going to get to a higher margin by 2020, So as you highlight.
Okay.
Okay I appreciate the time thank you.
Thank you.
Thank you next question is coming from Ari Rosa from Credit Suisse. Your line is now live.
Hey, good morning, So typically I know in your business. There is a post holiday drawdown in terms of labor and resources.
Just wondering given the kind of more muted.
Season, perhaps that we saw this year how.
How thats progressing and to what extent that that's kind of causing a shift in the business from fourth quarter to first quarter.
Hey, How're you doing.
We we had a drawdown as we would after any peak we had heads that we had to take out a chase. After the volume came off from peak and we did a very good job of that around the world around the world. So very very specific very clean and very well planned by the teams. So that went very well the volumes coming into this month.
But within the plan and obviously the new sales we see we're very excited about so all those things together have gone well.
Got it okay. That's helpful to hear.
And then in terms of the outlook for for $700 million to $730 million of EBITDA for this year I was hoping you guys could just speak to what are the biggest factors that would cause you to underperform that target or outperform that target. It sounds like there's some moving pieces.
Kind of on the below the line items, whether it's pension or FX.
Is that is that really what we should be concerned about in terms of downside risk to that target.
And potentially upside.
Well, if if some of those swing favorably given the high level of revenue visibility or are there other things that that we should be looking out for that kind of caused variance from that target.
We have a lot of revenue visibility so I wouldn't expect too much variability on the revenue side on the EBITDA side. It's also very.
Very visible from us, but if you would take a couple of millions here in this.
Patient is pretty much fixed for the entirety of it coming from the actuaries FX I mean, it's every percent movies closing about $2 million plus or minus so it's not that material quite frankly.
And then beyond that these productivity projects, we are highlighting and pushing out.
Some of those are taking place in Europe , which is a different environment for taking cost out compared to the U S and it's not an exact science. So it may go faster or slower and that will determine the cadence of our EBITA growth within 2020, but we're pretty confident in the range.
Got it okay. That's very helpful. Thanks for the thoughts.
Thank you.
Thank you. Your next question is coming from Allison <unk>.
From Wells Fargo. Your line is now live.
Hi, guys James on for Allison, just kind of wanted to touch back on.
Margin expansion and sort of the cost driven side has been addressed but kind of wanted to understand sort of the operating leverage on new business accounts.
And sort of understand what.
Sort of the outlook for sort of operating driven margin expansion might be like 6% to 8% still the realm, where you get.
Drag from new accounts or is in 'twenty. Three are you getting some additional headwinds from mix or ongoing investment just kind of wanted to understand sort of what range of organic.
Should we expect some of the operating driven margin expansion to come through.
Mhm.
The drag from our startups is pretty much done in Q4.
And we are expecting solid margin as bill highlighted from these new outsourcing contracts of course, any new outsourcing contract will have it's.
It's scaling up process, but we are we are getting even better about that youre getting margins much faster than last couple of years. So that should be helpful. And this business has modeled operating leverage the art is being highlighted in the capital markets day are.
The uptick is going to come from mainly from growth in <unk>.
And the thing I'd add to that is if you recall, we've had a lot of conversations around the kind of contracts and how we manage contracts and in 2022, you got to see one of the things we've been telling you for quite a while and that is that our contracts are solid and in a high inflationary area. We have the ability to go in and capture those costs back, which we've done and thats.
Why <unk> seen 20 to come out so strong and my point for saying that is so that abilities here as we go forward into 'twenty. Three also though we are making sure that all of our new contracts hit all the numbers that we put in all the ROIC C. We put it so we feel very strong that will be we'll be having or having.
Very strong hit on target and then technology as you know increases our margins and drives our cost for customers and that's why that's such a big accelerator.
Yeah.
Thank you.
You.
Thank you next question is coming from Bascom majors from Susquehanna. Your line is now live.
Good morning, you've talked over and over about how consistent your high 90% or mid to high 90% retention rate has been with your customers.
I believe that is through the fourth quarter can you talk a little bit about contracts that maybe coming up mid year have you received any notices that those customers may be exiting or go with another provider just understanding you know how much conviction you have that that stays mid to high ninety's as we get through the latter part of this year.
And it maybe tack on to that.
How far would you like to go.
Into this year or early next before you think we've kind of cyclically dodged a dip in that rate. Thank you.
Yeah.
Yeah, that's good smell come here.
No we have no visibility of N ecosystem or are not being very happy and wanting to work with the <unk>. So.
You know when we look at the retention is a very important number for us. It reflects high late in terms of the kind of service the initiatives that we're bringing into the business relationship with our customers so with.
Something we worked hard throughout 'twenty, one and 'twenty, two and I think we're about the right level now I don't see any reason whatsoever, why you will see any change on those.
<unk>.
When we think about the look forward clearly you know our business is it's a long term long lead.
<unk> contracted business. So typically our sales organization and all of the teams that are talking to customers now about projects stretching out even into 'twenty four 'twenty five in some instances we've got projects on the drawing board with Big Blue chips that will only activate in 'twenty five.
Really a very long runway of visibility on our business I think were feeling relatively confident even against what we think we can all agree is a slightly softer macro outlook for the rest of 2023 I think we're all feeling you know as I mentioned earlier cautiously confident about the year ahead.
Thank you Malcolm.
Okay.
Thank you. Our next question today is coming from Jason Seidl from Cowen. Your line is now live.
Thank you operator, a gentleman good morning wanted to go back to the comments you made about near shoring or you know obviously, it's a trend we're all seeing over here and I think you said over time.
3.5 trillion, we will come back on shore do you see that sort of changing your your geographic exposure over time and sort of piggybacking on the two questions on acquisitions do you think theyre really tap into that acquisitions are going to be necessary over the next let's call. It three to five years.
Yes. Thank you.
Bill what I would tell you is that I think that it won't change the geographic geographical makeup much mainly because very simple.
Most of the where the customers and consumers are going to be in North America, and Europe and U K. So when they onshore they've gotta onshore to those areas or nearby so you'll obviously see and we're seeing that some work in Mexico, but it's going to be coming to into.
Into the markets.
And the trend and that is goes back to what we've been talking about that trend is accelerating the need for disbursed a leverage of people supply chain I mean, you've heard in the news what Intel has talked about in terms of what they're going to do in the marketplace that causes support for companies like that around the around the north American market to be able to get all.
The suppliers, they're going to need to manage those sites. So thats the kind of process. We believe is going to happen and we see happening and that's why there's such a great opportunity in that for the three pls.
So says hey look three of the half trillion dollars.
We have some goods coming back onshore that's about a seventh of global trade. If you imagine the typical warehousing costs around 3% to 6% of our typical customer you can see that that is a multibillion dollar opportunity within a $500 billion Tam.
Don't get lost in those numbers $500 billion time in the context of a business. That's just a $9 billion of revenue. If there is gonna be a gravitation towards scale. In this industry is we think that is clearly a long road ahead in terms of growth for this business.
That's great color guys and my follow up actually is going to go to the reverse logistics you called it out how the importance of a piece was it can you put some meat on the bone for us in terms of the growth rate in your reverse logistics business compared to your base business.
What I can tell you is that all of the networks and all of the supply chain. We're working on all have a huge focus on.
A more optimized return process. The example, we've used some of the customers. We're working with has been we've been able to generate 10 times the benefit of what they had before by taking a a.
Analytical approach to their returns to knowing what the best returns out of managed at the best time. So all companies are looking at all companies know that they have to improve their return process to approve improve their bottom line.
So is it safe to say that reverse logistics is outperforming your base business without putting numbers.
Yes.
Okay perfect gentlemen, appreciate the time as always thank you. Thank you.
Thank you. Your next question is coming from Bruce Chan from Stifel. Your line is now live.
Thank you operator, good morning, everyone.
Bill maybe one for you you talked about the multi tenant model over at Clipper and I'm. Just wondering if there are any meaningful margin differences between those two setups single versus multi tenant and then when you think about your 2027 targets does that incorporate any changes in you know what the mix looks like.
In those two start ups relative to how your businesses today.
Yes, sure I'll address that.
The margin part I'm sorry.
Yeah, I'll I'll address the multi use.
So what customers like about that is they get the ability to to streamline their processes as they would in any GSO site, but they get to do it across a site where they're sharing the costs. So it's a big benefit very flexible a big opportunity and as Mark mentioned, we have great margins, great growth on that and I'll, let Barry talk about the benefit of that to us.
Sure Bill than you would be called the the bridge, we have even in the capital markets a $600 million to $1 $6 billion. You will recall that second largest component was automation and value added services of $140 million of incremental EBITDA into 'twenty 'twenty seven they didnt.
That bucket within the value added services. We have this shared the warehouse model, which we which bill has highlighted the launch of <unk> in UK and the rest of the geographies. We operate in the U S. You do have higher margin from Jake So direct and you're striving to get higher margin in U K and elsewhere from J&J. So.
Direct as well.
Thank you.
Ladies and gentlemen, that's all the time, we have for questions today I'd like to hand, the call back to management for any closing remarks.
Thanks, Kevin and listen thanks for hosting our call today I appreciate that so today. It marks our sixth earnings call as a publicly traded company and they see another great quarter and I have to say 2020. So it's been a good full year for us.
Before we close I just want to thank everyone for the support that you're giving to Jack so well today during our recent Investor day event.
Really good we're very pleased that as a management team I think we were able to do a deeper dive.
To showcase the differentiated value proposition and the longest term strategic thinking and the financial targets that will take us through to 2027.
We're really looking forward to executing on this plan and creating more value for our customers.
Our employees and of course, our shareholders. So we have that many science I wish everybody a great rest of the day. Thanks for your attendance.
Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.