Q1 2024 GXO Logistics Inc Earnings Call
Welcome to the Gx, though first quarter 2024 earnings conference call and webcast.
Camilla: My name is Camilla and I'll be your operator for today's call.
At this time all participants are in a listen only mode.
Camilla: Later, we will conduct a question and answer session.
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Camilla: Please note that this conference is being recorded.
Speaker Change: Before the call begins let me read a brief statement on behalf of the company regarding forward looking statements the use of non-GAAP financial measures and the company's guidance.
Speaker Change: During this call the company will be making certain forward looking statements within the meaning of applicable securities laws, which by their nature.
Speaker Change: A number of risks uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements.
Speaker Change: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The 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 the extent required by law.
Speaker Change: The company also may refer to certain non-GAAP financial measures as defined under applicable FCC rules during this call.
Speaker Change: Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release.
Speaker Change: And the related financial tables are on its website.
Speaker Change: Unless otherwise stated all results reported on this call are reported in United States dollars.
Speaker Change: The company will also remind you that it's guidance incorporates business trends to date and what it believes today to be appropriate assumptions.
Speaker Change: The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates changes in global economic conditions, and consumer demand and spending labor market and global supply chain constraints inflationary pressures and the very.
Speaker Change: Risk factors detailed in its filings with the S E C.
Speaker Change: It is not possible for the company to actually predict demand for its services and therefore actual results could differ materially from guidance.
Speaker Change: 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 on the company's website.
Speaker Change: I will now turn the call over to Gx, those Chief Executive Officer, Malcolm Wilson Mr.
Malcolm Wilson: Mr. Wilson you may begin.
Malcolm Wilson: Thanks, Camilla and good morning, everyone.
Malcolm Wilson: I appreciate you joining us today for our first quarter 2024 earnings call.
Malcolm Wilson: With me in Greenwich.
Speaker Change: Barish Oren Chief Financial Officer, Richard Carlson, our Chief revenue Officer, and Kristine Kubacki, our new.
Kristine Kubacki: <unk> Chief strategy Officer.
Kristine Kubacki: As you will have seen two weeks ago, we issued preliminary results for the first quarter of 2024 in conjunction with our bond offering to finance the acquisition of wind Thompson.
Kristine Kubacki: These results reflect the resiliency of our business model on the acceleration of outgrow.
Kristine Kubacki: Today, we'll walk you through our first quarter and discuss our outlook.
Kristine Kubacki: Look for the remainder of this year as well as for our longer term 2027 targets.
Kristine Kubacki: Gx, so had a strong start to 2024.
Kristine Kubacki: We generated revenue of $2.5 billion or 6% year over year, and adjusted EBIT D E F $154 million.
Kristine Kubacki: We delivered positive organic revenue growth for the quarter and continued to gain market share.
Kristine Kubacki: When we last spoke we said that the fourth quarter was the bus them for organic growth and that's reflected in the sequential improvement in the first quarter as well as the sales pipeline activity we're seeing.
Kristine Kubacki: We signed approximately $250 million of new business up 55% year over year, including new contracts with Boeing gas Michelin Puma and WH Smith.
Kristine Kubacki: More than half of these new contract wins came from customers sourcing too is all partnering with us for the first time.
Kristine Kubacki: Earlier this week, we announced a landmark new 'twenty, our partnership with Levi's in Germany, where we have been building our presence following our acquisition of Clipper.
Kristine Kubacki: This will be a highly automated newly outsourced operation with a lifetime value of nearly $1 billion.
Kristine Kubacki: This is just one example of the trend we're seeing what customers are looking for longer term partnerships to address the fulfillment needs.
Kristine Kubacki: To that end our sales pipeline is growing and ended the quarter at $2.2 billion, a 12 month high.
Kristine Kubacki: With more than replenish the pipeline up to converting a quarter of a billion dollars of new wins.
Kristine Kubacki: We're continuing to see larger deal sizes and longer contract lengths. Additionally, the turn over of the pipeline is accelerating creating more new business opportunities.
Kristine Kubacki: Another highlight of the quarter was the announcement of the acquisition of wind comes in which we closed last week.
Kristine Kubacki: We can cancel and exemplifies our M&A strategy.
Kristine Kubacki: It expands gx social presence in strategic growth verticals in the U K, including aerospace and industrials, providing gx. So if a springboard to offer these services across Europe.
Kristine Kubacki: It will be accretive to earnings per share in 2024, excluding synergies on a pro forma basis and double digit accretive including full run rate cost synergies.
Kristine Kubacki: When it comes in and builds upon our proven track record of leveraging newly acquired platforms to drive growth through revenue synergies for.
Kristine Kubacki: For example, see cichlid per acquisition, we think security. So you don't have a strategy to establish a meaningful operating presence in Germany, the largest economy in Europe.
Kristine Kubacki: As of the end of the first quarter, Germany is the fourth largest pipeline in all of Gx. So one of the fastest growing.
Kristine Kubacki: We're converting it with high quality deals light Levi's.
Kristine Kubacki: Similarly, when we acquired PFS in the fourth quarter of 2020 free we set out to leverage the combination of check so its global footprint with PFS, He's leadership position in health and beauty jewelry and Wuxi right.
Kristine Kubacki: Since the acquisition, we've integrated the two businesses and the expanded legacy PFS customers like glossy eh and refi beauty across multiple geographies.
Kristine Kubacki: This is proof positive of our execution of our M&A strategy, and especially of our ability to capitalize upon the strengths of companies we acquire.
Kristine Kubacki: We're speaking to major global customers every day and as Richard will discuss in a moment our consistent thread.
Kristine Kubacki: In our discussions is the expectation of a gradual recovery of consumer goods demand.
Kristine Kubacki: Businesses are building for the future planning the fulfillment strategies to meet their expected needs and we're positioning ourselves to take market share by providing best in class solutions.
Kristine Kubacki: One way we're doing this is through our intensified commitment to leading the market in automated and AI driven fulfillment.
Kristine Kubacki: Oh, it's imation is a key tenant of our value proposition and we're the first mover in trialing the integration of cutting edge automation light humanoids and AI inside the four walls of the warehouse.
Kristine Kubacki: We've recently introduced some exciting innovations in AI first the warehouse optimization pilot, we mentioned last quarter. It was a success driving a productivity increase of approximately 15% and we're rolling out across our site as.
Kristine Kubacki: We speak.
Kristine Kubacki: Second we've recently piloted a proprietary workforce management too, which we developed in house.
Kristine Kubacki: I went to makes more than 15 million decisions per minute to streamline inventory replenishment, adding about 7% of capacity at no additional cost.
Kristine Kubacki: We will be deploying the solution broadly across our operations starting this year.
Kristine Kubacki: All of this to say I'm delighted with the way our business is performing and we anticipate continued acceleration in organic revenue growth throughout 2024 and beyond.
Kristine Kubacki: With our growing pipeline and accelerating pace of new business wins, I will focus on automation and sales excellence and the pace of outsourcing in this 450 billion dollar total addressable market Gx. So is set to take significant market share.
Kristine Kubacki: Over the long term.
Kristine Kubacki: No.
Kristine Kubacki: Did you over to Richard to update you on what we're hearing from our customers right.
Richard Carlson: Richard over to you.
Richard Carlson: I can smell Kim good morning, everyone.
Richard Carlson: Had the pleasure of meeting some of you over the past few years as the leader of Gx those European business.
Richard Carlson: My new role as Chief revenue Officer, My mission is to convert a significant market opportunity Malcom, just mentioned into outsized growth Fitch, etc.
Richard Carlson: And we're off to a great start of doing just that.
Richard Carlson: As malcom highlighted our new sales wins signed in the first quarter totaled $250 million, which was an increase of 55% year on year.
Richard Carlson: We're on track to outperform our $1 billion of new wins from 'twenty to 'twenty three.
Kristine Kubacki: We still have the bluish the blue chairs and what we're hearing from our customers. Both current and perspective is they need to build efficiencies into their operations to support our future growth.
Kristine Kubacki: As a result, we're seeing demand strengthening.
Kristine Kubacki: I'd like to underline a few of the sales highlights from the quarter, which underpin our confidence in our growth trajectory.
Kristine Kubacki: First our pipeline stands at $2 $2 billion quarter on quarter.
Kristine Kubacki: We added more than $1 billion of new opportunities in the first quarter alone.
Kristine Kubacki: Second our customers are making the decisions to outsource their supply chains reflect in returning confidence in the long term outlook.
Kristine Kubacki: Consequence sales cycles are short and then I know the pipeline is delivering results faster with deals getting larger and contracts are getting longer.
Kristine Kubacki: Third significantly more than half of our wins in the first quarter were with customers outsource and I'll turn it to Jack So just to pull them for the very first time.
Jack: And finally in addition to new logos, we're also expanding our relationships with existing customers.
Kristine Kubacki: We serve more than a quarter of the fortune 100 companies and the success of our London next model strategy is evident in the half of our revenues come from our customers, we partner with more than one country.
Kristine Kubacki: We're seeing these trends develop across all regions.
Kristine Kubacki: For example, this coming Friday, we'll be cutting the ribbon on our new warehouse that is the largest building in the state of Maryland.
Kristine Kubacki: We support in personal care and appliance manufacturer color in this two 1 million square foot facility.
Kristine Kubacki: The solution consolidates three sites into a single automated operation handles all of colonized problems across the retail and direct to consumer enabling their growth and combined in fulfillment with high value added services like product tested.
Kristine Kubacki: We've also recently expanded our 13 year partnership with global Apparel Company guess originally in Europe across the ocean to the U S. Turning it into a global partnership.
Kristine Kubacki: Just had previously run the North American operations in house, and they've entrusted us to help them unlock value in their supply chain buyout was all set.
Kristine Kubacki: We now offer three sites for gas in Italy, the Netherlands, and that was the U S.
Kristine Kubacki: These are examples of our consultative approach, where we engage with our customers at the highest levels of leadership to design a solution that fits their needs.
Kristine Kubacki: In Europe as Malcolm mentioned, we just announced that we're alarmed Mount Levi's win.
Kristine Kubacki: We're delighted to take on the newly outsourced highly automated operation for an iconic global brand.
Kristine Kubacki: I was in Germany last week to visit the site, which is Levi super hub, allowing levi's to supercharge their omnichannel growth strategy.
Kristine Kubacki: It was extremely excited to kick off the partnership.
Kristine Kubacki: I'm the momentum on both sides a palpable.
Kristine Kubacki: This is Germany's greenness warehouse with phenomenal sustainability features that raised about in the logistics industry.
Kristine Kubacki: This new win is especially significant because it exemplifies why our brands such as Levi's Partyless with Gerry so to transform their operations and drive a competitive advantage through that supply chain.
Kristine Kubacki: As Malcolm mentioned in the past few months, we scaled up our sales and account management teams, while intensifying our focus on high growth verticals and geographies to really capitalize on the opportunity.
Kristine Kubacki: We've had an excellent first quarter and our investments in our team structure and processes have already translated into pipeline growth and new partnerships with blue chips across the globe.
Kristine Kubacki: This is why I'm confident that we'll deliver strong growth in new sales wins in 2024 and beyond taking share of our enormous addressable market.
Kristine Kubacki: And with that I'll pass the mic to publish to take you through our detailed financials, our 'twenty to 'twenty four guidance and our 2027 targets barish.
Publish: Over to you.
Publish: Good morning, everyone.
Publish: We started the year on strong footing and we are pleased to see a continuation of the positive trends, we noted last quarter.
Publish: And the return to organic revenue growth do you believe that the fourth quarter was the bottom.
Publish: For the first quarter of 'twenty 'twenty four the generated revenue of two and a half billion dollars growing 6% year over year of which 1% was organic.
Publish: Our organic growth was led by our largest verticals.
Publish: The general retail and technology, particularly in the semiconductor space.
Publish: Our first quarter adjusted EBITDA was $154 million.
Publish: We recorded a net loss of $36 million, which was primarily driven by a one off legacy litigation expense.
Publish: Israel is one time transaction costs for Kansas, which are in line with the costs associated with our earlier acquisitions.
Publish: As you noted on our call last quarter our growth margins.
Publish: Diluted earnings per share and adjusted EBITDA This quarter reflect the optimization of our customer footprint, our productivity initiatives and our investments in our capabilities.
Publish: Our laser focus on these capabilities is paying off and.
Publish: And Youll see the results in our new business wins going forwards.
Publish: Our operating return on invested capital this quarter was below our target at 33% demonstrating our ability to continue to invest back into our business. It's high returns.
Publish: We expect to maintain this level of return going forwards.
Publish: In 2023 we surpassed all expectations on free cash flow and we continued to generate excellent free cash flow this quarter, which improved by $26 million year over year.
Publish: This underpins our confidence in our full year free cash flow conversion targets.
Publish: Our balance sheet remains rock solid and we are committed to our investment grade rating.
Publish: We are expecting leverage levels of about two and a half times by the end of this year.
Publish: And about 1.9 time by the end of next year.
Publish: We had no debt coming due in 'twenty to 'twenty four.
Publish: As you know one of our most important achievement. This quarter was the acquisition of being Canton, Michigan completed last week.
Publish: We acquired a bean counting it as a very attractive valuation taken into account the cost synergies, we expect to deliver.
Publish: We expect the deal will be accretive to earnings in 2024.
Publish: Double digit accretion to adjusted diluted earnings per share once we fully integrate.
Publish: And this level of synergy realization is borne out in our previous acquisitions of clipper and cuda and all of those U K operations.
Publish: Yeah.
Publish: The business also gives us an exciting exposure to industrial and aerospace sectors in Europe, with well position customers like D E systems, EDF and Alstom.
Publish: In canton carries a high proportion of resilient cost plus contracts, which even before to 45 million pounds of cost synergies, we expect to be in Canada to contribute will deliver very stable.
Publish: Slightly lower margins.
Publish: It is high returns and predictable cash flow.
Publish: Now returning to our guidance.
Publish: For the full year of 'twenty 'twenty four inclusive ovarian cancer do you now expect double digit adjusted EBITDA growth at the midpoint of our guidance range, which is $805 million to $835 million.
Publish: You have reiterated our previous organic revenue growth guidance of 2% to 5%.
Publish: Our first quarter organic growth shows an upward trend and we anticipate continued acceleration throughout the balance of the year.
Publish: April has shown an acceleration in organic growth versus the first quarters.
Publish: We expect to convert 30% to 40% of our adjusted EBITDA into free cash flow above our 30% long term time.
Publish: We have also updated our 2027 times.
Publish: These revised targets reflect our performance for 2023 and.
Publish: And our guidance for 2024.
Publish: Additionally.
Publish: Following the close of our acquisition of being canceled and the expected impact of this transaction is embedded in our new plant.
Publish: Our revised 2027 targets, which include 15, and a half to a $16 billion of revenue and.
Publish: 125 to $1 $3 billion of adjusted EBITDA reflect the following over the next suites.
Publish: First double digit organic revenue growth.
Publish: On average over the period from 2024 to 27.
Publish: As we grow our wins and market share, reflecting a gradual recovery in our customers' volumes.
Publish: Through 2024 and 2025.
Publish: And second margin expansion through our focus on business development technology and automation with a significant focus on AI is village close to that geez, we expect to deliver bromine cancer.
Publish: He had a clear path to achieve compounding double digit topline growth with 15% adjusted EBITDA CAGR and even faster growth in adjusted diluted earnings per share.
Publish: <unk> growth is accelerating.
Publish: And they are delivering operating return on invested capital and free cash flow conversion ahead of our long term targets.
Publish: We have just completed a great acquisition at an attractive valuation and we will continue to allocate capital in the best interest of our shareholders.
Publish: With that I'll hand, it back over to Malcolm.
Malcolm Wilson: Thanks, Paresh, we've had a strong start to 2024.
Malcolm Wilson: We're seeing growing demand from global Blue chip customers as they focus on building the future of their supply chains.
Malcolm Wilson: We're positioning gx, so to take market share as customers build efficiencies into their operations to support the future growth and we're making big moves in automation and AI.
Malcolm Wilson: Our laser focus on profitable growth gives me great confidence in achieving our long term targets and creating outsized shareholder value.
Malcolm Wilson: And with that we'll hand, the mic back to Camilla and transition to Q&A.
Camilla: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question Kim.
Camilla: And you May press star two if you'd like to remove your question from the queue.
Camilla: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Camilla: One moment, please while we poll for questions.
Camilla: Thank you. Our first question comes from the line of Stephanie more with Jefferies. Please proceed with your question.
Stephanie Lynn Benjamin Moore: Hi, good morning, Thank you.
Stephanie Lynn Benjamin Moore: Hi, I wanted to start with just that the organic growth performance. If you could touch on the one key performances and maybe really focusing on that maybe that same store sales or volume component, but as importantly, how that bridges to the full year expectations for 'twenty 'twenty four and just what you're hearing in the underlying.
Stephanie Lynn Benjamin Moore: The operating environment getting confidence and in those in that target. Thank you.
Stephanie Lynn Benjamin Moore: Hi, Stephanie good morning, its malcom here.
Malcolm Wilson: And Stephanie while we're not seeing any mature.
Malcolm Wilson: Material change in customer volumes, particularly on the consumer good side what.
Malcom: What we have seen as a more positive trend as we've gone through quarter, one when we compare quarter one into quarter four we can see sequential improvements and as Barry just mentioned.
Malcom: In early part of quarter two April already we can see that trend does continue to go forward. When we see the three regions that we're working in Continental Europe, well, that's continued to be very resilient I cant say its growing but its equally not deteriorating is very resilient.
Malcolm Wilson: Compared to what we've seen in the past.
Malcolm Wilson: Our U S business that it makes and it reflects the wide range of different industries that we're servicing.
Malcolm Wilson: Consumer volumes are now stable.
Malcolm Wilson: U K in fact, that's been our strongest growth market during quarter. One I mean, it's interesting that in fact it was the first to show signs of slow down in 'twenty, three and it seems to be the first to show really strong signs of improving so all in all that's the picture that we see.
Malcolm Wilson: If I look across every chart retrieval, what we can see consumer demand for goods very different than consumer demand for services for goods. It continues to be slow kish.
Malcolm Wilson: Companies are starting to restock.
Malcolm Wilson: We can see that from the dialogue that we have with Iqos. The most I think we've seen the bottom of the Destocking environment and what we clearly didn't say engage.
Malcolm Wilson: Customers in order to meet the plans, they're going to need to start to restocking through the course of the so that's that's a good sign for us, but I do want to level set you know overall, it's a sluggish environment in 'twenty four.
Malcolm Wilson: Just as you see from many of the parcel carriers and the real estate companies.
Malcolm Wilson: No the destocking activity that impacted particularly in the small proportion of our business, where we have multi customer size. So we have capacity, but overall from our Q1 highlights perspective, you know sales pipeline is all business wins are all <unk>.
Malcolm Wilson: Customer decision, making is speeding or that's probably the most important aspect $2 5 billion top line, 6% girl you know a $154 million.
Malcolm Wilson: In line with consensus Wincanton D O S. Barish mentioned, that's a deal done at a very attractive.
Malcolm Wilson: Price.
Malcolm Wilson: Increases in automation and AI. So overall, we're off to a really good start barish, maybe you can comment on the actual.
Baris Oran: Evolution of our growth as we expect this year sure. Let me first start with Q1, the bridge to our 1% organic growth in the first quarter is roughly new business contributing around six 5%.
Baris Oran: Volumes, including customer consolidation of footprint sequentially improved from Q4, but still negative year over year around minus 3%.
Baris Oran: Pricing, mainly inflation is about 2% and the remainder is coming from the retention in line with our long term averages as more convention April already shown an improvement versus the prior year quarters. If I look at the entire year of 'twenty to 'twenty four the bridge for our organic growth is which was about <unk>.
Baris Oran: 5%.
Baris Oran: New business expected to contribute around 9% as we continued to see a lot of takeover in place and all sourcing projects such as Blue eyes.
Baris Oran: Number two volumes Clos coastal additional footprint expects it to be around minus 3%.
Baris Oran: Pricing, primarily inflation around 2% and the remainder coming from the impact of retention, which we expect to be in line with our long term averages that's our bridge for the entire year.
Speaker Change: Got it.
Speaker Change: That's very clear I will leave it at that thank you so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.
Scott Andrew Schneeberger: Thank you very much good morning to everyone I wanted to focus on this this new win.
Scott Andrew Schneeberger: Levi's pretty exciting for you.
Scott Andrew Schneeberger: When will that start to contribute just a just an idea of when that so how that's going to ramp and then also are there. If you just kind of shared the contribution you're anticipating from new business wins, but you theres been some discussion of this the speeding up Malcolm you mentioned of our decision making.
Scott Andrew Schneeberger: If you could just kind of work in what Youre seeing there much appreciated and then and then lastly, as part of this.
Scott Andrew Schneeberger: A long term contract 20 years is this a is this a new trend we're seeing on a levi's and I think we've seen that with other deals recently.
Scott Andrew Schneeberger: Good morning, Scott, It's Richard cost and are delighted to meet you. This morning.
Richard Cawston: My first earnings call. So I am looking forward to a great conversation. Thanks.
Speaker Change: Thanks for the question.
Richard: We're super proud about this win with Levi's underpins our progression into Germany that we set out to do last year. Following the acquisition of flip her that gave US a strong foundation.
Speaker Change: Europe's largest economy and we absolutely should be there with our automation, our knowhow and our agility and our laser focus in the warehouse and I think if you recall last year, we opened up a speculative warehouse, which we don't normally do in Germany, because we sell the culinary opportunity is so big and I am pleased to announce that that.
Speaker Change: Warehouses full now, including aerospace windows that have come into us in this region.
Speaker Change: Pivoting to Levi's, so it's a great iconic brand we entered into a consultative process.
Speaker Change: <unk> partnership that's what reflects the 20, yes, yeah. This is a high investment.
Speaker Change: Germany's greenish warehouse or the development Ace is a very big deal. So the partnership really reflects that level of scale automation investment, but you know levi's as an iconic brand 270, a year ago. When you think about these sort of partnerships and that lifestyle. It is entirely normal.
Speaker Change: When will it go live June we stopped very slowly we ramp up the new automation, we start off taking over around 70 colleagues from Levi's welcome them them into outrageous thousands strong European workforce and will ramp up over the 12 to 18 months to full production, which.
Speaker Change: Which is around 750.
Speaker Change: Paul 60, so million units. So this really will be a super hopefully value where are we are absolutely thrilled to become that partner.
Speaker Change: Thanks, Richard I appreciate that the I'm going to follow up I think barish pie for you I just.
Speaker Change: These 2027 financial target update could you bridge, what's changed from your prior 2027 financial target update to what you have now just kind of compare and contrast, the two thanks so much.
Richard: No problem since January 2023 guidance, you've seen the realities of a lower volume environment reflected in 2023 and.
Speaker Change: And 2024 guidance, which is which led us to revise our expectations for 2027.
Speaker Change: D C 'twenty 'twenty four gradually improving but it's just like Suez slug of shares. So if I go into the components of our EBITDA targets from the prior.
Speaker Change: Target to the current time, but there are three components.
Speaker Change: To a third of this impact comes from re Beijing to lower volume levels in the consumer verticals, we have seen in 2023 and forecasting in 2024. The <unk> effect is already in our numbers is primarily behind us.
Speaker Change: Another third is as a result of customer realization of footprint given the code product demand, which has impacted our revenues and also led to a slightly lower margin contribution.
Speaker Change: And the last one is before we still expect to see a marginal from automation and give us significant wins in the first outsourcing this ramp up is simply being.
Speaker Change: Pushed out but simply spud in 'twenty three you've won a lot of first time, all sourcing projects with low capital intensity and automation you can see that in our realization of free cash flow in 2023, so that those three items is the bridge from the prior 287 targets. So the current one.
Speaker Change: Okay. Thanks Paresh.
Paresh: Thank you.
Paresh: Our next question comes from the line of Jason Seidl with TD Cowen. Please proceed with your question. Thank.
Jason H. Seidl: Thank you operator.
Jason H. Seidl: Good morning from this this analyst here at.
Jason H. Seidl: The impressive amount of new business wins wanted to explore sort of what's going on in the marketplace a little bit.
Jason H. Seidl: You mentioned Youre, taking market share do you think you're taking market share from existing players who are offering automated services or do you think you're taking more market share from players that aren't offering automation also can you talk a little bit more about your technology offerings, including AI and how you think they're helping you.
Jason H. Seidl: You sort of wind business, and then I have a follow up on a weekend.
Jason H. Seidl: Yeah.
Jason H. Seidl: Right great. Thank you, Jason It's Richard Carlson again, I'll answer anyway, So our focus hey, good morning, our focus is on this massive Tom we household first time outsourcing and we're seeing that in and the number of deals in our pipeline and you've seen our park of those customers come into our trusts first highlight several already Smith.
Jason H. Seidl: Humor, a cast off et cetera.
Jason H. Seidl: And what they are looking for is our skill set to help them automate automation is as you've never been in a more than 40% of our activity in each and every tender every submission we make and it's all every discussion with the customer why is that well it makes the efficiency mobile optimized it covers.
Jason H. Seidl: Difficult as like labor shortages, and the Arrow Arrow why CS are strong and they they are levels of automation our ever improving so it's absolutely as I think they want from us and it's absolutely a skill set and agility gx hope can bring to this massive tam.
Speaker Change: Makes sense.
Speaker Change: And Jason Hi, It's Malcolm here I think you you've been you mentioned you had a follow up on Wincanton, Let me, let me cover that.
Malcolm Wilson: So clearly.
Malcolm Wilson: We're very delighted to have made this agreement with Wincanton deals now close.
Malcolm Wilson: It's a it's a stupid deal for us it's a great company, Great management team great great team of people I'm Super close to the most and I do want to kind of comment that we've been really bowled over by the very positive feedback we've had from all of the Wincanton management.
Malcolm Wilson: Organization and teams and indeed, the cost of them is so big big shy with tight for that we're very pleased about that.
Malcolm Wilson: That's a business that.
Malcolm Wilson: This is going to bring us a lot of revenue synergies, we have not yet done the detailed work on it but what we can say on our past experience all former M&A with people like Qunar go and collect.
Malcolm Wilson: Cliff parent PFS, we can see very clearly the same characteristics, it's going to importantly, open up big new vertical as far as so industrials.
Malcolm Wilson: Our strength in the U K this is going to make it a strength area overall Spanish as Paresh mentioned, some some really big blue chip customers public sector spending and these are all things we can convert not just in the U K, but across continental Europe wide business. So it's very very good from that perspective, it's accretive.
Malcolm Wilson: Pretty much from the get go and that even in advance of the synergy savings that we're going to be bring game gained 45 million of cost savings I assume it's a law, but he's spank in line with what our experience is if they are in clipper in PFS in all around midnight, so very very strong.
Malcolm Wilson: And so it's really a very attractive deal from all of that.
Malcolm Wilson: Syed.
Malcolm Wilson: At last call me exercise, but there's still some regular search process for us to go in that's starting now.
Malcolm Wilson: That will be concluded by the end of the we have a lot of experienced people working on that with the work with the CMA just as we did with cliffs.
Speaker Change: I expect a satisfactory outcome on that Mike.
Malcolm Wilson: My last comment is you know I mentioned earlier, our U K business it seems to be the market.
Malcolm Wilson: Seeing the earliest real recovery of consumer good spending so it's great news that they were doing this deal right now I think the timing of it is is really very very good.
Speaker Change: Barish, maybe just to finish off I mean, we have got wing canton in our 24 plan <unk> seen our plan going up to 27, maybe just with a bearish to call it out in detail for everyone.
Malcolm Wilson: Sure.
Baris Oran: This is a sizeable business top line of around $1 4 billion pounds, one 8 billion of which we will be capturing eight months in our P&L around $1 1 billion.
Speaker Change: And the EBITDA contribution this year.
Speaker Change: We will be about $45 million going from their consensus I FRS EBITDA.
Speaker Change: And adjusting for the Air Force the U S. GAAP adjustments and that will that is already included in our plan and taken into account.
Speaker Change: One thing we have done do you expect you can soon acquisition prior to cost synergies will be accretive.
Speaker Change: Three cents per share in 2024, net accretion increased to double digit percentages as we complete the integration very attractive valuation. We are very excited on the integration and potential prospects of inkjet.
Speaker Change: Oh, well, that's some great color if I could just quickly follow up here, how should we look at future M&A sort of after wincanton guys or are you looking at expanding into some different geographies.
Speaker Change: Yes.
Speaker Change: Jason It's Malcolm here again, I think right now.
Malcolm Wilson: Our focus is on digesting wincanton as Paresh mentioned, it's a sizable business and teams.
Malcolm Wilson: Teams, they're very skilful integrating business basically says as I mentioned when cancer comes with just a very admire both a team of people you know so we're really delighted on that but right now our focus throughout 'twenty four 'twenty five it's going to be really on the integration of that Ralph.
Malcolm Wilson: As we explain our business strategy is always to can say the M&A when it's appropriate when it can bring something new to basically Wincanton. Great example, new verticals.
Malcolm Wilson: The verticals that were not present.
Malcolm Wilson: And I was at a very difficult to enter without.
Malcolm Wilson: Actually being present in the market Clipper you remember when we quiet clipper two years ago. Now we said very clearly that this would give us a springboard into Germany and know to be Oh, Wow, you're really seeing the evidence of that strategy coming into life and.
Malcolm Wilson: That's what makes our M&A strategy I think a very exciting one so we're not really thinking about M&A for the future right now all mines on making a very smooth integration.
Malcolm Wilson: Delivering on what we've committed to in terms of the Wincanton deal.
Speaker Change: Makes sense appreciate the time as always gentlemen.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of David <unk> with Barclays. Please proceed with your question.
David: Hey, Thanks for taking my question.
David: Just noticing the cash flow guidance, a bearish has not changed from what you had previously had.
David: If you could talk about expectations on the cash flow side for the Wincanton.
David: Acquisition, and do you expect the profile and how that compared to $1.
Speaker Change: Of course, Hi, David.
Speaker Change: Cash flow in Q1 was actually better than last year about 26 million year over to Europe. Our strong Q1 puts on track to achieve 30% to 40% EBITDA or free cash flow conversion guidance. So when you're calculating the expectation for the entire year I would take the <unk>.
David: <unk> contribution and increased EBITDA number than your core merchant to cash flow. Our working capital management has been favorable we continue to be favorable in 2024, and despite investing very heavily in a lot of projects do you have a.
David: Very high capital discipline throughout the enterprise you have high cash flow duration expected. This year at all our long term target of 30% to 30 to 30% to 40% in 2024, and we still right high quality contracts with high return on invested capital.
Speaker Change: Thanks, and then on the LIBOR contract.
Speaker Change: Richard or whoever wants to take but are.
Speaker Change: I think you hinted at some automation opportunities and some existing automation can can you discuss the current automation level a facility there and what the automation opportunity might be.
Richard: Yeah, absolutely David So in fact, the Levi's is fully fitted out with state of the automation end to end processes. So I'm really.
David: Showcase a phenomenal.
David: Attributes to the site along with its ESG credentials as you know about 42% of our operations our automated that's split into.
David: Fixed automation around 30% and what we call adaptive test all around 12% and although the adaptive Tech is absolutely fly and these are the cobalt the robots the shuffles and they are a value driven technology, that's coming to the market you saw our digit a robot announced last year all human knowledge.
David: Paul or the earlier part of this year, so that sort of technology, we can plug and play into many existing operations and we can also use it to pivot mommy all operations into long term automated operations when we do that we improve the margin.
David: We generally drive longer duration contracts and we enjoy better returns that we share with our customer so it's a great thing.
Speaker Change: Great. Thanks, very much appreciate it.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Matt Malhotra with Deutsche Bank. Please proceed with your question.
Amit Singh Mehrotra: Hi, This is bad more for admit at Deutsche Bank. Thanks for taking our questions. Your 2027 EBITDA target has moved down more than your revenue target, implying a lower EBITDA margin can you, let us know why that's happening.
Amit Singh Mehrotra: Okay.
Amit Singh Mehrotra: Hi, Brian This is Brian Shea, let me take that question.
Brian Shea: Go look into how our margin is improving throughout the new plan from today to 227, there are primarily three buckets from today's margin.
Brian Shea: First is automation looking forward, we expect about 30 basis points of incremental margin from higher levels of automation ended up to technology deployment.
Brian Shea: We're particularly encouraged with how AI is improving the ROI of automation for our customers'.
Brian Shea: Number two the canton, we have great confidence in achieving the cost synergies of 45 million pounds, given our muscle memory of achieving higher percentage of revenues with Cooper integration. This 45 million pounds of the cooling to about 35 basis points of margin improvement after 2027 and the loss.
Brian Shea: Component is productivity and central efficiencies and synergies from prior acquisition. As a reminder, we have a run rate of about $40 million in 2024 from these programs and we expect another $35 million of savings. So around 30 basis of margin improvement. After 2027, so the three components.
Brian Shea: <unk> automation 30 basis points in canton, 35 basis points and productivity on central efficiencies, primarily giving us another 30 basis points margin improvement versus this year.
Speaker Change: Great. Thanks, and maybe a two parter in terms of still assuming the 10% revenue CAGR growth what is the confidence level in that and when can we see some operating leverage in the direct operating cost line. What can you do to drive less inflation in cost creep in that line item.
Speaker Change: We have a $2 $2 billion of pipeline increasing wins.
Speaker Change: And improving consumer environment is giving us great confidence as you look into the future it's going to be a gradual climb, but if I give you the entire bridge.
Speaker Change: Revenue organic revenue growth of 10%.
Speaker Change: Roughly expect that to come from 10% coming from new business.
Speaker Change: Volumes to have a low single digit impact contribution and that is expected to ramp up 24, and 'twenty five and heating do you think the potential in 'twenty six pricing to come around inflation.
Speaker Change: Beachwood took about 2% to 3% and the remainder is coming in line with inflation.
Speaker Change: <unk> business model is concerned we are working on central efficiency programs, which we have highlighted last year and youll see in our financials. This year, we are putting more and more efficiencies that he's going to give us further margin uplift taking cost out from our central central costs and support cost structure, let's remember Ben.
Speaker Change: This is a contractual business model you have high variable costs low fixed cost and limited limited operating leverage in our business model that has always been the case for Losties. The operating Leverages, primarily going to come from the central cost the site level cost of.
Speaker Change: SG&A and other items and you had been working on those and we have been taking cost out structurally.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Bascom majors with Susquehanna. Please proceed with your question.
Bascome Majors: And thanks for taking my questions I know, we're a long way from 2025, but can you talk to any of the items that you do have visibility to for next year give a debt paydown or incremental contribution or just the timing of some of the wincanton synergies as we think about.
Bascome Majors: The bridge to how you expect the business to perform out of this sort of cyclical drag you saw late last year into the early part of this year.
Bascome Majors: And secondarily, just DHL supply chain made some management changes.
Bascome Majors: Do you read anything to that as a strategic change or opportunity for you guys and just wanted to get your thoughts on that thank you.
Bascome Majors: Let me take the initial part as far as being constant contribution of <unk>.
Bascome Majors: All our of our numbers through our numbers and 325 beyond other items and more can you comment on the competitive environment.
Bascome Majors: As I mentioned in Kansas have about the top line of about $1 4 billion pounds, one $8 billion of which $1. One is going to be this year. Therefore, you should expect another 0.5, roughly $700 million into next year.
Bascome Majors: On the EBITDA side.
Bascome Majors: Full year EBITDA is around $80 million 45 will be this year and the remainder will be next year of course on top of that we will provide.
Bascome Majors: Cost synergy items into our guidance that we provided the guidance into 2025 and as you highlighted we do see an accelerated environment. This is embedded in our organic growth guidance of 327 targets welcome and thanks Paresh.
Paresh: Good morning basketball.
Paresh: On the on the aspects of.
Paresh: Competitive environment and I'll touch on DHL as well I mean did show it's a great company. It's a great team. So you know it's it's it's a company that we know really well and we like them.
Paresh: In terms of the overall competitive environment.
Paresh: Industry is consolidating I mean, wincanton I guess is a good example of that and you can see that in all of the major territories logic companies are getting larger and that's reflecting well customers are doing in one regard you know customers want to be supported by well all.
Bascome Majors: Nice strong financially.
Bascome Majors: Organisers companies.
Bascome Majors: These large automated solutions that Richard has mentioned.
Bascome Majors: It's really not easy for smaller companies to deploy those kind of solutions. So the very nature of our market more and more automation AI AI, it's really a revolution in a what we do now in the warehouse alongside automation all of these things it's really.
Bascome Majors: The best accomplish by large scale based on the season, that's why we see such a strong demand for.
Bascome Majors: For our services. That's why you see these kind of double digit new business type of numbers that we mentioned and that you are seeing traditionally over the period that we've been working so I think overall competitive environment.
Bascome Majors: It is water days.
Bascome Majors: No large scale companies.
Bascome Majors: <unk> sales is a tiny number of them.
Bascome Majors: And I think they are all set to do well from this consolidating market and the fact that solutions are becoming more and more complex safest companies like Gi gx. So.
Bascome Majors: Yeah.
Speaker Change: Thank you for the time.
Bascome Majors: Welcome.
Bascome Majors: Our next question comes from the line of Brian <unk> with Jpmorgan. Please proceed with your question.
Brian Shea: Hey, good morning, Thanks for taking the question.
Brian Shea: Just the first one maybe two quick follow ups.
Brian Shea: When canton Barish How're, you thinking about FX hedging.
Brian Shea: Is that in the guidance right now or are you still deciding without even be a big impact in <unk>.
Speaker Change: In your view and then maybe malcom following up on <unk> question on the synergy timing.
Brian Shea: Is this a sort.
Malcom: Sort of a multiyear timeline before you would get something to show up here kind of like what we're seeing in Germany with with clipper or are there some synergies that potentially could come faster on the revenue side.
Malcom: Sure sure Bryan, let me cover the Wincanton 0.1st and.
Speaker Change: I'll hand, you over to bearish on the other point. So we can synergize. Our experience is we shouldnt expect marching their way of synergies during the course of 'twenty four.
Speaker Change: We anticipate the review process to take place probably concluding before the end of the but we'll be in the busiest time of the AR.
Bearish: For our own business in the UK and in fact, the Wincanton basically so synergies so predominantly flow through during 'twenty, five and I would say probably the first half of 'twenty safe when we our client Clipper I remember at this time, we talked about a three year plan.
Bearish: <unk> delivered the synergy plan in around two years and I don't see really the wincanton environment be much different than that so from a finish point of view are high.
Bearish: High level of confidence about the values.
Bearish: We already have identified the different areas.
Bearish: Very doable, but we shouldn't really expect to see any any significant impact of that until 'twenty five.
Bearish: The first half of 'twenty.
Bearish: I'll hand, you over to bearish for the second part of your question.
Bearish: On the FX side as you know, we have sensitivity to the euro and pound roughly 1% movies moving our numbers by about $2 million and euro another 2 million pounds in homes, 1% move on each currency and we have so far undertaken decent volume of hedging around three quarters is.
Bearish: Unfortunately, the 'twenty four but we have not done the hedging for being tense and yet we will take a look at that.
Brian Shea: During the next couple of weeks.
Brian Shea: Our guidance today is primarily based on average exchange rates, roughly 1.08 euro and 124 pounds. So we will be looking into locking those so that we can derisk, the P&L or our shareholders.
Speaker Change: Alright, thank you for that and just to.
Speaker Change: Get Richard a question on the renewals here it sounds like you're still getting some momentum on first time outsourcers that percentage keeps coming up. So if you can give a little context as to.
Richard: Why do you think that's happening is this sort of something that once it turns it starts to build momentum and then maybe you can talk about why people are starting to make these decisions in ways that seem to be in.
Richard: Bigger percentages than perhaps we've seen more recently, thanks, yeah, yeah, absolutely Brian.
Richard: First time outsourcing as a secular tailwind I mean, we've just as Malcolm said.
Richard: Challenges are more complex. If you look at continued inflationary environment, our customers need us to help them save money and automation really is the only way you can deliver competitive advantage of that and you need to provide the light gx who's got a vast catalog.
Brian Shea: Resolve phase to deploy those quickly in an organized and integrated way.
Brian Shea: Those of the speech.
Brian Shea: Speed to market and the velocity, we're seeing that's really important because if you think about our book of business and our potential book of business. It's both the magnitude and how quickly it reflects refreshes and I think that refreshment of the pipeline, which is almost doubled in pace from the trailing 12 months.
Brian Shea: It's showing that customers are making decisions I'm not feeling more confident about the outlook. So yeah, we've got business coming to outsource them, where we can really help them with I would take out replace strategy.
Brian Shea: Customers, making decisions faster and all of that points to a really great yeah, where we expect to outperform our $1 billion in 2023 and 2024.
Speaker Change: Okay. Thank you for the time.
Speaker Change: Thank you.
Speaker Change: Thank you.
Brian Shea: Final question comes from the line of Kevin <unk> with Thomas Thompson Davis <unk> Company. Please proceed with your question.
Kevin: Good morning, everyone I appreciate the quest.
Kevin: Question I actually I think Paresh mentioned this earlier, but I wanted to make a comparison on the current pipeline versus the other.
Kevin: Bookings that you guys did in 'twenty three.
Kevin: And it goes to the appetite for automation I think previously you said that a lot of the bookings in twenty-three weren't very automate it and I was wondering how the pipeline for 'twenty four stacked up against that.
Speaker Change: Yes, absolutely.
Paresh: Absolutely, we see as we soon which demonstrated growth in our pipeline.
Paresh: Yeah.
Paresh: Of that pipeline on the 10.
Speaker Change: Our automation is a continuous elevated feature of that so in 2023 over half of our wins had an automated element within them.
Speaker Change: Our current pipeline, we see around $500 million of automation within that so you always have continued requirement as I said there's no.
Speaker Change: RF <unk> goes to a customer without automation, it and automation can come.
Speaker Change: As a ramp up we can build out at the beginning for example, like Levi, Although if you take the partnership they love.
Speaker Change: Bob partnership we announced last year, what we've just finished integrated in this year of savings rates.
Kevin: One of the largest wins in the Companys history, where automation not over over several steps in sequences and that'll just bringing to life more and more continued efficient set to help our customer be super competitive in that market.
Speaker Change: It sounds good and then maybe if you guys could touch on.
Kevin: If there's a change and maybe customer.
Kevin:
Kevin: How customers feel with Gx, so with the addition of Lincoln and the industrials opportunity set that they provide you guys.
Kevin: Yeah, Hi, Kevin its Malcolm here, Yeah, I mean, it's very early days, what we can say is when we think about our existing customers they've been very delighted. This deal because you can imagine we have many many customers here in North America.
Malcolm Wilson: That one just to provide services for them across all of Europe.
Malcolm Wilson: But you know there's always a hesitation with customers they like to be able to touch and feel and see in the lower cash and you know in the territory.
Malcolm Wilson: Like kind of services. So the addition of win 10 cents.
Kevin: Ally with snow to showcase many existing operations and I think that's when we come to talk about synergy savings. That's why we feel pretty good about not aspect likewise, when I consider the impacts in terms of when counting.
Kevin: Counting customers again, we've had really positive feedback there's very little.
Kevin: Customer crossover.
Kevin: The reason in fact, there is a small number of customers, where we have joint services, but in fact, the services that we actually offer a different services. So even in regards to those customers. They are actually quite pleased to for the first time. They will start to see a kind of common decision, making which will help the base.
Kevin: This planning process also so all in all I think it's been very very positive feedback many of the industrial close to them as they sit today in <unk> cancer in the public sector, our aerospace customers.
Kevin: What it does is it opens the door for then on Pan European services, and also where they have activities in North America for the first time as one organization will be able to support them. So generally I think we feel very good about the top line benefits that are going to come from this.
Kevin: Roll.
Kevin: Deal, but as we saw in cliff.
Kevin: Germany is really on fire for US now it's two years after the deal was stone and they'll stay.
Kevin: <unk> cost synergies you can be very predictable about the timing revenue synergies they need to work around our existing contract timings.
Kevin: Opportunities have changed so they tend to be a little bit longer lead time on those but we would expect to be really seeing material impact from a revenue opportunity synergy probably two years down the line is when you'll start to see.
Kevin: Lot of activity.
Speaker Change: I appreciate the color.
Speaker Change: Thank you you're welcome.
Speaker Change: Thank you ladies and gentlemen that is all the time, we have questions for today I'd like to hand, the call back to management for any closing remarks.
Speaker Change: Thanks, Camilla and thanks for hosting the call with US today, we really appreciate it.
Speaker Change: We've seen a growth inflect positively in quarter, one and believe that we'll see that continue.
Speaker Change: Sequentially improving throughout 2024 as consumer spending goes starts to recover we are driving great service and efficiency benefits for both new and our existing customer base and that's reflected in the 55%.
Speaker Change: First quarter, wanes, and Theyre not growing sales pipeline that rich its condensate home G. So we're investing to capture a greater share of a strengthening market, which continues to be driven by organizations Luke king to our expertise in the deployment of warehouse automation and technology.
Speaker Change: Jeez AI.
Speaker Change: As a company, we will continue to deliver great shareholder value and we look forward to showing the benefits of our acquisition of Wincanton during the balance of 'twenty 'twenty, four and beyond with that I'd like to wish everybody a great rest of the day. Thanks for joining us today and we appreciate.
Speaker Change: All of your attendance. Thank you.
Speaker Change: Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may now disconnect your lines at this time.
Speaker Change: Wonderful day.
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