Q3 2024 GXO Logistics Inc Earnings Call
Welcome to the <unk> third quarter 2024 earnings conference call and webcast.
Rob: My name is Rob and I'll be your operator for today's call.
Rob: At this time all participants are in listen only mode. Later, we will conduct a question and answer session.
Rob: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Rob: Please note this conference is being recorded.
Rob: 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 of the company's guidance.
Rob: During this call the company will be making certain forward looking statements within the meaning of applicable securities law, which by their nature involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements.
Rob: A discussion of factors that could cause actual results to differ materially.
Rob: 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 to the extent required by law.
Rob: Yeah.
Rob: The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during the call.
Rob: Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables on its web site.
Rob: Unless otherwise stated all results on this call are reported in the United States dollars.
Rob: The company will also remind you that it's guidance incorporates business trends to date and what it believes today to be appropriate assumptions.
Rob: 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 and the various factors detailed in its filings with the SEC.
Rob: It is not possible for the company to actually predict demand for our services and therefore actual results could differ materially from guidance.
Rob: 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.
Rob: In the investors section on the company's website.
Rob: I'll now turn the call over to Jack <unk>, Chief Executive Officer, Malcolm Wilson, Mr. Wilson, you may begin.
Malcolm Wilson: Thanks, Rob and good morning, everyone. I appreciate you joining us today for our third quarter 2024 earnings call.
Rob: With me in Greenwich are bearish, Oren, Chief Financial Officer, and Kristine Kubacki, our Chief strategy Officer.
Rob: G XO has delivered a stellar third quarter.
Rob: We've posted record revenues and adjusted EBITDA, we have increasing momentum in our business, including continued acceleration in our sequential organic growth.
Rob: During the quarter, we signed $226 million of new business wins.
Rob: We continue to grow with top brands like guess, Jimmy shock Oh Gee.
Rob: L'oreal.
Rob: We've recently expanded our partnership with Zelle undo them together opened the largest outsourced e-commerce, where have you seen friends, which is highly automated.
Rob: Our sales pipeline has grown 30% year over year, and I was stunned at over $2 $4 billion of high quality opportunities its highest level in more than two years.
Rob: As of the end of the third quarter, we've won about $750 million of new business year to date, we've got several major projects that we expect to sign in the fourth quarter.
Rob: 'twenty 'twenty four has been making a being a record setting year for new business wins G. XO.
Rob: Looking ahead to the fourth quarter, we're ready for the peak season.
Rob: We've mentioned that we saw the bottom of the inventory cycle in the fourth quarter of last year as we head into this year's peak, we're seeing and this should level was returning to normal and demand for E. Commerce capacity is accelerating.
Rob: Our customer service satisfaction scores are at an all time high.
Rob: I would depend a bit let's say has recently been recognized by Newsweek, which ranked as the top logistics provider among America's most reliable companies.
Rob: As commercial activity picks so momentum I.
Rob: I would technology differentiation through the deployment of automation and AI is creating a multiplier effect in the efficiencies we deliver for our customers.
Rob: On the back of a real world results. We are proud to have been recognized with a supply chain Excellence award for our leadership in what I would say I find logistics money just a few weeks ago.
Rob: Our technology differentiation is also helping us win new business.
Rob: Our ongoing strong sales performance, coupled with our targeted M&A in key geographies and hard to penetrate vertical is driving our long term growth.
Rob: In Germany, we've jumpstarted the girl survive base needs on the back of our acquisition of Clipper in 2022 I states of the onsite and dull Megan is that full capacity. We've had a successful startup of the 'twenty a billion dollar contract with Levi's.
Rob: We're now in May and we have a strong pipeline of other opportunities in Germany.
Rob: More recently on the back of Iraq acquisition of PFS in 'twenty, two 'twenty three we've grown our beauty and wellness business with several leading brands, including beauty Pi Glossier and l'oreal.
Rob: Similarly, we believe Iraq acquisition of Wincanton will enable us to accelerate our growth in attractive verticals like aerospace industrials and public sector. We're pleased to know that we've recently signed a cornerstone deal in Europe with a leading U S aerospace provider.
Rob: In light of this continued strong performance, we're reaffirming our full year guidance for 'twenty 'twenty four we have clear evidence with through the trough and we intend to build from here.
Rob: Looking further ahead in 2025, we expect an acceleration of growth across all three regions.
Rob: She natural Europe is leading the pack with a graph in Germany, and the run pingo several large automated warehouses.
Rob: Our strong sales performance and a long term contractual business model give us confidence in our multiyear growth outlook.
Rob: 'twenty 'twenty seven targets.
Speaker Change: Paresh will now walk you through the quarter and our reaffirmed guidance.
Rob: Barrish over to you.
Paresh: Thanks, and welcome good morning, everyone.
Paresh: In the third quarter, we generated record revenues of $3.2 billion.
Paresh: Our year over year revenue growth of 28% means <unk>.
Rob: Track to meet our 2027 top line growth target do you see it in a half million dollars to $16 billion.
Rob: In the quarter, we saw organic revenue growth of 3%, which has accelerated sequentially throughout the years.
Rob: The improving trajectory reflects the growing contribution of new facility start ups each quarter.
Speaker Change: And do you expect it to continue as you move into 2025.
Rob: Our adjusted EBITDA. This quarter was also records.
Rob: $293 million up 12% year over year ish.
Rob: We have also seen sequential margin expansion through off dish and we expect this trend to continue.
Rob: D C a margin uplift due to a better space utilization are.
Rob: Most of the tenants next week.
Rob: Our adjusted diluted earnings per share was 17, nine cents up 14% year over years.
Rob: Year to date, we have delivered $363 million of cash flow from operations, which is an increase of 6% year over year our.
Rob: Our free cash flow year to date is $124 million and we are on track to deliver over 30% adjusted EBITDA to free cash flow conversion for the full year.
Rob: Our operating return on invested capital remains beliveau, our target at 38% as we continue to invest in high return projects to fuel our organic revenue growth in line with our capital location strategy.
Rob: Our balance sheet is growing stronger our net leverage was two nine times as of the end of the third.
Rob: Third quarter down from 3.1 times last quarters.
Speaker Change: Do you expect leverage levels over around two and a half to two six times by the end of this year.
Speaker Change: As you prioritize paying down debt after the encounter any acquisition and about two times by the end of treated 385.
Rob: You can't and is performing above our previous expectations delivering double digit revenue growth and reinforcing our excitement about this acquisition.
Rob: Our focus is really 25 will be accelerating our organic growth and the integration will be canceled.
Rob: M&A is not on our short term agenda.
Rob: We are reaffirming our 2020 for guidance. This year, we expect to deliver organic revenue growth of 225%.
Rob: Adjusted EBITDA of $805 million to $835 million.
Rob: Adjusted EBITDA to free cash flow conversion of 30% to 40%.
Rob: And adjusted diluted earnings per share of two.
Rob: Our 73 cents to $2.93.
Rob: We also expect to continue to deliver and operating return on invested capital of about 30%.
Rob: We are executing well on our value creation framework.
Speaker Change: Is it particular growth enterprise you deliver predictable operating return the message capsule.
Rob: And resilient growth in revenue and adjusted EBITDA.
Rob: Adjusted diluted earnings per share and cash flow throughout the cycle.
Rob: Do you remain laser focused on creating long term shareholder value.
Christine Chris: With that I'll pass the mic to Christine Chris.
Christine Chris: Kristine over to you.
Christine Chris: Thanks Paresh. Good morning, everyone. We're pleased with our results this quarter today I'd like to update you on the macro trends, we're seeing and how gx as automation differentiation reinforces our confidence in our long term growth algorithm.
Christine Chris: We operate in an attractive market with an outsize growth trajectory, that's driven by secular supply chain trends, including complexity ecommerce outsourcing and automation.
Christine Chris: These tail winds have driven our resilient growth across different parts of the cycle and they are accelerating as customers' needs for scaled automated solutions continue to increase.
Christine Chris: First we're seeing an uptick in ecommerce commercial activity.
Christine Chris: This is a long term structural tailwind that has been a key growth driver for us over the past five years.
Christine Chris: At an industry level about a quarter of all retail sales today come from E. Commerce and this proportion is expected to grow by more than 10 percentage points over the next decade.
Christine Chris: Nine shopping returned to its structural growth trajectory.
Christine Chris: We're seeing this effect translate into our own results, 60% of our new sales wins in the third quarter originated from E Commerce fulfillment.
Christine Chris: Second our supply chain has become increasingly complex customers are relying more and more on scaled tech forward logistics experts like EXL.
Christine Chris: This has been driving an acceleration of outsourcing for fulfillment activities.
Christine Chris: About a third of our new business wins this year to date have come from newly outsourced business.
Christine Chris: At around 40% of our coupon 4 billion dollar pipeline is made up of customers looking to outsource for the first time.
Christine Chris: The acceleration of outsourcing is in part a result of the recovery of E Commerce and it drives customers to look for a partner with scale automation and the ability to manage complexity.
Christine Chris: <unk> is well positioned to capture growth from these trends because of our global scale and expertise in automation.
Christine Chris: We're the market leader in tech enabled fulfillment and customers come to us to drive efficiency.
Christine Chris: And unlock value in their supply chains.
Christine Chris: Over the past several months <unk> has been piloting our first proprietary AI application and select warehouses in the U S.
Christine Chris: Our tool streamlines, our customers' fulfillment processes by using machine learning to predict SKU demand in the near term.
Christine Chris: The sheer volume of data analyzed by our tool produces highly accurate forecast of inventory flows down to the SKU level.
Christine Chris: These insights enable our operations teams to optimize the layout of the warehouse and match resources with demand.
Christine Chris: Our initial pilots have far exceeded our expectations delivering predictive accuracy levels above 90% and productivity improvements of three to four times in stock replenishment.
Christine Chris: Which drive increased capacity of 6% to 8% at no additional cost.
Christine Chris: We're thrilled with the early success of AI and we're scaling it across our footprint.
Christine Chris: AI is going to change the way warehouses are run over the next few years and our leadership in this space is a key driver of our long term profitable growth.
Christine Chris: And with that I'll hand, it back over to Malcolm.
Malcolm Wilson: Thanks Christine.
Malcolm Wilson: We built on our momentum from the first time and delivered record revenue and adjusted EBITDA in the third quarter.
Malcolm Wilson: Pint lines tons, that's a two year high and we're on track to deliver a record year of new business wins bolstering our confidence in our long term growth targets.
Malcolm Wilson: During the quarter you may have seen media speculation about inbound interest in acquiring Jack so we.
Christine Chris: We don't comment on market speculation.
Christine Chris: We're focused on the great quarter, we've just had them on delivering a strong finish to the.
Speaker Change: With that we'll hand, the mic back to Robb for Q&A.
Robb: Thank you well.
Robb: Well now be conducting a question and answer session.
Speaker Change: Like to ask a question at this time you May press Star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: Let me first start to if you like to withdraw your question from the queue.
Speaker Change: All participants are using speaker equipment it.
Robb: May be necessary to pick up your handset before pressing the star keys.
Robb: One moment, please we poll for questions and once again that starwood. Thank you.
Speaker Change: Thank you and our first question today comes from the line of Stephanie Moore with Jefferies. Please proceed with your question.
Speaker Change: Hi, Good morning, everyone. This is Joe Hoffman on for Stephanie more Malcolm I guess, you've talked a lot about some of the trends you're seeing but I was hoping maybe we can unpack kind of by geography, what you're seeing across.
Speaker Change: Continental Europe, the U K and the U S. In terms of organic growth and maybe if you could also kind of splice out into you know.
Speaker Change: Retail versus industrial just kind of a high level thoughts on what you're seeing on the trends across geographies right.
Speaker Change: Yes sure Joe Good morning, So first thing I mean, it's a good quarter for us so record top and bottom line results organic revenue growth and adjusted EBITDA margins, all consuming to improve quarter by quarter. When we look at the three regions. What we're seeing is.
Speaker Change: Deep growth across all of the regions. So our continental European business. That's that's kind of leading the pack, it's benefiting from a surge of growth in Germany, but all of the countries are actually performing very well.
Speaker Change: U K business, that's a really combing our stronger and stronger I think he is benefit from the AR from the recent elections.
Speaker Change: Elections on the search and say that you know that has provided and here in North America again, yeah, absolutely really vertical by vertical but generally we're in a better trend overall.
Speaker Change: Overall, the team myself, Richard Carson Barrish, the rest of the team I mean, we definitely are feeling that were out of the trough that we've been in for the last 12 months and we're getting back to a more normal kind of growth type of metrics. So we're definitely building for a much stronger 2025, where do you think.
Speaker Change: Boat sales, there's no doubt the investments that we made at the start of the changing our organization in fact investing in our sales organization is definitely starting to pay dividends and you always know off taste.
Speaker Change: Talking strongly about clause, one and the rest of the year. So in the quarter 226 million. It is a good number youre today 750, 463 already flowing into 2025 and there's some great projects in our hopper that we're still anticipating.
Speaker Change: Assign between now and the end of the that's what's giving us confidence about the strong result of business new business wins.
Speaker Change: J P. Can go for this year I think it's going to be a great year for us when I look across the different verticals that were working gain.
Speaker Change: Pretty much across all the geographies what we've seen is actually in the last quarter Aerospace and defense have been very strong in terms of our business Tech and retailers don't really well food and beverage they've probably been there like God of the group are you know as we've seen in the last quarter.
Speaker Change: Most pleasingly for us because I think we're in E fulfillment leisure in the marketplace. We've seen a return a returning amount of investment from customers any fulfillment project, so big increasing number of projects in the shadow pipeline and actually in the quarter, if a film and drove.
Speaker Change: More than half of our new business signings. So I think all we know very very good quarter.
Speaker Change: Finally, what are what I would like to comment on it as well because it's impacting across all of our regions last year, you'll recall that we we commenced a new organization. We are we've Adrian start heading go power automation teams. That's now starting to show benefits were really awesome.
Speaker Change: Seeing benefits coming from the deployment of an increased amount of tactical automation and AI and I've got no doubt that's one of the things that's helping the productivity improvements that are driving it's one of the things that's starting to assist in our margin expansion and I think we will.
Speaker Change: See that progress.
Speaker Change: Into 2025, so overall, good Oh, all of our regions doing well and for the first time and our you know varies a little bit by region, but generally a positive message across all of our business.
Speaker Change: Great and maybe just one follow up I'm surprised by the strength in Aero I guess, maybe from my seat. So could you talk about I'm guessing, it's new wins are offsetting any potential disruptions would love to get your thoughts on the drilling on the strength in aerospace.
Speaker Change: Yeah, well listen it's a good call out Joe and one of the things I mentioned, we invested heavily at the start of the so two things to talk about aerospace. One is the fact that we invested in sales our sales organization not just here in North America, where we are a very strong.
Speaker Change: In aerospace and defense, but also taking those skill sets and putting them into Europe, and it's a long process to gain accreditation.
Speaker Change: And in a different geographical market, particularly for things like aerospace and defense. So I think we're now starting to see the rewards of those investments plus Oh little Wincanton, He's still quite new for US you know it has a very good reputation in the U K for Aero specials, those two things.
Speaker Change: <unk> combine have allowed us to secure.
Speaker Change: Very for US a big Blue Chip organization, New contract set in Europe with a big U S. Aerospace manufacturer, we're incredibly pleased by that because it's a sure sign that the strategies that we're putting in place. They don't have an overnight impact you know some of these things.
Speaker Change: You do have to see over 12 months or even a two year period very similar to the German expansion that we're seeing now which really comes on the back of that Clipper integration that took place two years ago, but you know we owe a lot of the expansion now in Germany to that I'm sure Aerospace we're gonna do incredible.
Speaker Change: Well in Europe, it's a huge market.
Speaker Change: Very few competitors.
Speaker Change: Will be the new Kid on the block and I think we'll do really well.
Speaker Change: Thanks, so much Nelson.
Speaker Change: Our next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions.
Scott Schneeberger: Thank you very much good morning, everyone I I'd like to jump in here organic growth, it's been progressively better throughout the year as as you all had had guided what's what's your confidence level heading into the fourth quarter and.
Speaker Change: Given our comparisons from from 24 and trajectory that Youre seeing any commentary in the 25 would be appreciated. Thanks.
Speaker Change: Scott Hi, smoke them here again.
Speaker Change: We take a really high level and then I hope I didn't over too bearish, because I think it's really important and so.
Speaker Change: So first and foremost you know in in I really of comments, we've reaffirmed our guidance for the no. You know guidance is is twofold. So what do we think about our top line clearly, it's still a relatively wide range and that's coming as a consequence of the different possible.
Speaker Change: Companies that can come out of the BC you know holiday trading season last year. It was incredibly subdued this year inventory levels in our warehouses are bad so we're seeing that if he didn't so some of our customers doing sales promotion, what but in the end the proof will we only see you.
Speaker Change: As we get into December so we have sort of wide range on top line.
Speaker Change: Importantly on the bottom line I think we are running with a high level of confidence that we'll deliver our adjusted EBIT, yeah, it's pretty much in alignment with expectations I think will be very close to the midpoint of our full year 2024 guidance not confidence, it's really coming from.
Speaker Change: Combination of fundamentals.
Speaker Change: Fundamentals of our business you know we are a high degree of visibility with our bottom line due to the nature of our contracting models, we have a reasonable proportion of our business is open they are cost plus type contracts and also we have been driving as I mentioned a lot of value creation.
Speaker Change: Including the deployment of all of the increasing amount of tactical automation and AI, playing a more and more big apart. So Q4 is a big step for.
Speaker Change: For us in the EBIT, Dan and I don't think it's really worthwhile I really value bearish just to go in the north of that level of detail just to give you because I think it's really important that bearish would you would you would you comment on that sure.
Scott Schneeberger: Scott on the typically in our business view, they expect to see a sequential improvement in our normal EBITDA from Q3 into Q4 last year was an exception because of the sluggish retail sales environment, which drove low inventory and turnover looking at this year's expectations. We're lapping that effect from Q4 of last year.
Speaker Change: Although we have done some customers we have some customers who are seeing lower trading results.
Speaker Change: They might ideally like do you still expect seasonally look more normal as we have gone through the trough.
Speaker Change: In addition, we are managing note open capacity from our underutilized multi tenant warehouses, which is sometimes.
Speaker Change: Which is being a leisure focus for our organization. This is the area. We are seeing a margin improvement year over year in Q4 as well so multiple things cause that.
Speaker Change: The Q4 of last year, and the margin improvements coming from the better utilization of multi tenant network.
Scott Schneeberger: Great. Thank you both on that and then and then Paresh just a free cash flow conversion was quite strong in the third quarter could you just address that and maybe.
Speaker Change: Discuss that you maintained your 30% to 40% conversion for the full year are what are puts and takes for the fourth quarter with regard to our free cash flow conversion. Thanks, so much.
Speaker Change: Thank you you remain very confident in our ability to generate free cash flow for this year as you said $110 million in Q3 with respect to hear the results you are on track to deliver 30% to 40% strong working capital management and we are very diligent on our capital expenditures roughly two thirds of our Capex went through growth Capex you invest.
Speaker Change: <unk> for the future, but very very selective on where we put our capex dollars that drives our free cash flow.
Speaker Change: Thank you both.
Speaker Change: Okay.
Speaker Change: Our next question is from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question.
Chris Wetherbee: Yeah, Hey, Thanks, Good morning, guys I'm bearish I wanted to touch on the fourth quarter margin comment that you made so it sounds like you got some improvement coming sequentially I guess, a couple of things can you outline some of the.
Speaker Change: Dynamics that are going to help with that I guess, maybe we could talk a little bit about when can't then the potential for phase one or phase two I guess, probably synergies could be part of that not sure exactly how you guys think about that I know, there's a maybe some news coming up later.
Speaker Change: Later this week and then when do you think about the margins in the fourth quarter up sequentially can we also get up year over year.
Malcolm Wilson: Hi, Chris its Malcolm here, let me cover the Wink handsome point.
Malcolm Wilson: And I now hand, you over to bearish in terms of the the more detailed aspects on the margins. So we can cancel and clearly you know we're reviewing the.
Malcolm Wilson: Decisions the phase one decisions that came across last Friday, so were reviewing that in detail at the moment and clearly as we have on all the projects, we're gonna be engaging very constructively and collaborative way.
Malcolm Wilson: The CMA.
Malcolm Wilson: With kind of remaining pretty confident that we're going to see a positive I come to it it.
Malcolm Wilson: It's possible that we'll go into a phase two and you know frankly, I mean, we were prepared for all with the potential outcomes.
Malcolm Wilson: That might bring and it's not an uncommon environment by the way for a deal of this size to go into a phase two I think a good thing to say is you know being canceled.
Malcolm Wilson: As Barry mentioned, it's trading well, it's Oh trading performance wise on these pre deal.
Malcolm Wilson: Spectation. So we're very very pleased overall with it.
Malcolm Wilson: As it stands at the moment, we had planned to commence the integration of when cancer and so any kind of margin impact coming out of brain cancer and positively impact would only effectively occur from January onwards, So definitely at this stage, there's not really any positive news on <unk>.
Malcolm Wilson: It's coming from Wayne Johnson, it's more a negative aspect.
Speaker Change: It's a drag whilst we saw it before we actually start the integration maybe bearish, if you could shed a little bit more detail.
Malcolm Wilson: Sure.
Malcolm Wilson: <unk>.
Malcolm Wilson: Excluding being cancelled do you have include our margin every quarter. This year and then you look into the components of these this margin expansion every quarter, there's a sizable improvement coming coming from our office space utilization over a multitude of it every quarter and we expect that trend to continue.
Speaker Change: From Q3 to Q4 as well. Additionally, as Malcolm mentioned you have been working on a lot of adaptive.
Malcolm Wilson: A lot of efficiency program. That's also supporting our margin expansion from Q3 Q4, and normally you do expect a higher margin last year's Q4 was an anomaly and we expect to have normal trends.
Malcolm Wilson: Cuomo been CASM perspective.
Malcolm Wilson: Then you look at it in Kansas margins, there are lower than all of ours at the moment, but that is the upside in 'twenty to 'twenty five and onwards, then we start integrating the business and the capture of the synergies.
Speaker Change: Okay. That's very helpful. I appreciate that color on both on both fronts.
Speaker Change: Just a quick follow up on the pipeline. So obviously the pipeline has moved up nicely. We're at a pretty high level that we haven't been in a couple of years I guess.
Malcolm Wilson: We haven't seen volume necessarily inflect, but it does seem like interest is sort of picking up. So I guess you know Malcolm how how do you view this and I guess is there any way to kind of think about.
Malcolm Wilson: Conversion as we move through the next couple of quarters, I know, you're adding a lot of contracts here in 2024, but as we start to think about 25 and beyond. This is just sort of speak to an acceleration in that conversion rate just wanted to get a sense of how you guys are thinking about that pipeline and what it means for the business.
Speaker Change: Yeah, Chris It smells come here, so I think he's truthful youre right pipeline. So I think pipeline for us is a bit more diverse as well. So you'll have heard us talk a lot during 24 during the previous quarters about.
Malcolm Wilson: Stepping into existing customer activities, where customers are effectively come to us and so to outsource their existing in house business and we've effectively stepped in to an existing.
Malcolm Wilson: <unk> operation.
Malcolm Wilson: So very proud of them I think in the pipeline as I mentioned, we've also seen a big uptick in more strategic projects.
Malcolm Wilson: <unk> E fulfillment E fulfillment has been illiquid quiet.
Malcolm Wilson: Since since since the pandemic I guess, but no. What we're seeing is customers I think having a greater level of confidence to start investing again in big projects and we've got a number of projects that are going live right. Now I mentioned, there's a lot of doors to be Frank that's one off.
Malcolm Wilson: Four projects that we've got going live at the moment large automated well how do we see that will be fulfilling E fulfillment.
Malcolm Wilson: In our stable all of our sites prior to hearing now so they're going live and they'll take they'll take a reasonable amount of time, you know six months to fully ramp pulp into main volumes book, then we will start to see the benefit of those as we progress.
Malcolm Wilson: Into 2025, and I think the oldest thing again just building on what I mentioned earlier to I think it was Scott or it may have been Joel was that you know the investments that we've made in the sales team we were seeing no more and more population in our sales pipeline of projects full.
Malcolm Wilson: All verticals.
Malcolm Wilson: Eric you probably wouldn't associate with <unk>.
Malcolm Wilson: <unk>. So so we're very very pleased with all of our Omnichannel business and if a film and it's been the bedrock of our business growth over many years and we can see that coming back returning I think it's a sign of more confidence in the economies in all the geographic regions that we work.
Malcolm Wilson: Can gain but it's bolstered by new projects that we're starting to see for the first time I think it will take us momentum to start winning those projects that's why and.
Malcolm Wilson: That's why we were just so pleased about the aerospace steel in Europe, It's the first and I think it would be the first of many so it's giving us the shape of the pipeline I think we're in a healthy environment as we as we're heading into 2025.
Speaker Change: Got it that's very helpful. Appreciate the time this morning.
Speaker Change: Thanks again.
Speaker Change: Our next questions are from the line of Ravi Shanker with Morgan Stanley. Please proceed with your questions.
Ravi Shanker: Great. Thanks morning, everyone would love a little more color on your views on peak season, I know you addressed it a little bit, but I think one of the parcel companies.
Malcolm Wilson: Mentioned that their customers are telling them that they are seeing more customers potentially going into store to buy this peak season, given how compressed it might be are you hearing something similar from your customers and also are you agnostic given.
Malcolm Wilson: Given your position in supply chain between Oh shoppers are shopping in store collecting in store versus buying online.
Malcolm Wilson: Yeah, Hi, its Malcolm here.
Malcolm Wilson: We are relatively agnostic on that when we talk you know basically spent omnichannel really what we mean is where we work with customers that really well.
Malcolm Wilson: Seldom. These days do you have a big fully fully dedicated E. Fulfillment warehouse, we do have a lot of those type of size, but increasingly in order to help our customers maximize.
Malcolm Wilson: The most efficient use from our balance sheet, we how organize our I T and our systems are all designed to pick from common stock wherever it's been paid onto a pallet and loaded onto a trailer to be delivered into a brick and mortar mall or wherever it is actually being picked and individually packaged them put into.
Malcolm Wilson: You know our bag and I'm, putting to work kind of Upi sort of a fedex or a U S post type of delivery network, So where did they were a bit agnostic in terms of which which comes good.
Malcolm Wilson: And I think you know great. If shoppers are returning into the malls, that's great news, but I would say that we are seeing across our business a resurgence of where we were at.
Malcolm Wilson: Probably as we were going gain and coming out the pandemic with a lot of customers, making very strategic decisions about putting capacity done for the future of E. Fulfillment. So I think E fulfillment is definitely.
Malcolm Wilson: Reestablishing itself as one of the big Windows for the channels to the consumer.
Malcolm Wilson: That's what we're seeing.
Speaker Change: Understood that's very helpful and maybe for a follow up just to go back to the topic of human <unk>, which you guys are addressed in the last call you've been talking about it for like three to four months now and you've kind of piloting for a while.
Malcolm Wilson: What are you hearing from customers are they interested in this technology can do they view this as next level automation and a real step up or are you having to make those unbounded and people are still and I hate to say call me in five years or something.
Speaker Change: Hi, Ravi its Christy here.
Speaker Change: No I think we're seeing a lot of interest across the space both from customers and certainly this is really where an area. It's an emerging space and I think we're really have the potential to create even more value for our customers. I mean, as you know seemed like a great bed, where existing robotic solutions have matured in recent years and there really <unk>.
Speaker Change: Capable of some dynamic tasks and human way and they're able to make a human like decisions. We see the humanoid category will significantly grow really over the next two to three years and therefore, we're really leaning in in a very capital efficient way with our operational incubator program, we're partnering with cutting edge developer.
Speaker Change: Across the space to shape into real World use cases in fact, I visited one of our facilities in Atlanta and saw our agility robot are performing in the warehouse.
Speaker Change: In fact, this we announced just this last quarter another humanoid provider, we're working with we're excited to partner with reflex Robotics. In addition to agility and App tronic they'll like AI. This space is moving at a very fast pace.
Speaker Change: And <unk> is at the forefront of piloting in railroad operations in our fulfillment centers. So it's really continues to fuel our tech differentiation over time.
Speaker Change: Certainly we will have more to say about this space, but a lot of interested I like a lot of interest in the space.
Speaker Change: Very good accuracy.
Speaker Change: Our next question is from the line of Brian <unk> with Jpmorgan. Please proceed with your question.
Brian: Hey, Thanks, good morning.
Brian: Now maybe you can just provide a little more context now it's been a few days since you've got the notification from the from the CMA can you provide any detail in terms of what they're actually looking at it and he said you feel confident you'll get to a.
Brian: Favorable resolution, but just wanted to see if you had any further comments on that and particularly what they're looking at and asking for now you've had a few days to actually see what the documents.
Brian: Yes, Brian.
Speaker Change: For sure Yeah. So.
Brian: It's a as I say, it's it's not actually it's not uncommon for a deal of this size to go into what the CMA classes of phase two type of approach. They see some much more detailed process, which is good and basically will work with the CMA to make some clarification.
Brian: In terms of the different market verticals that exist in the U K U K is highly competitive.
Brian: Environment, you know there's no question about that.
Brian: As a British Guy I, probably well equipped to comment on that it's a highly competitive environment.
Speaker Change: So our intention is to do some detailed work with the CMA teams over the coming months I think what that will do is it will help us clarify greatly the saturation and as I mentioned you know we were confident we will secure a good satisfactory positive outcome through the process.
Speaker Change: One of the things probably that it will evolve is where we had planned to commence the integration of the business in early January I think he's first to say that we might see a delay on that process, probably stretching out into the beginning of the second quarter.
Speaker Change: Don't think beyond that but that's that's our expectation at the moment, because we have to respect that.
Speaker Change: They do a really good job and you know, it's it's quite correct and proper that we work with them you know to seek clarification on the points right.
Speaker Change: Okay. Thanks, that's helpful and then a follow up for.
Speaker Change: Paresh I guess, the you mentioned the multi tenant warehouse.
Speaker Change: <unk> efficiency several times it seems like it's been a pretty big factor for margin improvement. So can you give me more.
Speaker Change: So in terms of what's actually happening there these leases that you're.
Speaker Change: Let me go back to the market or are you getting more throughput through there with the bigger anchor tenants and you know is this I guess like a strategic rethink here that's going to be done this year, where do you have a little bit more of a push on this potentially as you go into next year with essentially.
Speaker Change: Better backdrop for volume thanks.
Speaker Change: Yes, we have invested quite heavily on and refocus our organization sales organization and business organization fitting the.
Speaker Change: Available capacity in our multi tenant network and it is giving us good results. So far so we have a number of available space.
Speaker Change: Anchor tenants testing highest throughout last call last couple of quarters, and that's giving us results.
Speaker Change: Also have looked into opportunities when diseases, we're coming to an end to not to renew those leases or consolidate those operations into our existing facilities and reduce our cost base. So both of these factors, but primarily coming from our sales focus and filling that space has driven the results.
Speaker Change: <unk>.
Speaker Change: Okay understood. Thank you.
Speaker Change: Thank you.
Speaker Change: The next questions are from the line of Brendan <unk> with Barclays. Please proceed with your question.
Speaker Change: Hi, good morning, and thanks for taking my question I was wondering if you guys could speak to the competitive backdrop, just around pricing of new deals.
Speaker Change: Less competitive or more especially as you get into the more automated contract discussion.
Malcolm Wilson: Hi, Hi, its Malcolm here, let me, let me comment on that so I think we've not seen really any changes to what we have been seeing really for the past year or two so what we see is typically for them.
Malcolm Wilson: Automated solutions, you know generally there's a law lab or a smaller group of organizations that are able to provide solutions and have have the credibility have the experience and reliability aspects.
Malcolm Wilson: Why we were very pleased by the way you know to be mentioned in the new news unusually articulate there are reliability say, we're seen as a highly reliable company. When it comes to standing go big large scale automated facility. So I think lesser number of competitors in those projects.
Speaker Change: Customers wanting to commit for longer periods of time, recognizing that those generally high level of investment both intellectually and capital wise that go into the sourcing of those projects. The facility that we've just gone live with in France, I mean, so long.
Speaker Change: Jason automated facility in France, it's it's like a big deal for the market. It's a big deal for US Big deal for the customer. So a lot of time goes into those kind of projects I think competitive landscape is theres not huge numbers of people. It's one of the reasons why we're able to enjoy slightly.
Speaker Change: Margins are down a more traditional manual activities and again you know when we think about more manual traditional warehousing activity typically it's not really the kind of business that we as a company are focused on if I look at our sales pipeline pretty much everything.
Speaker Change: Combing through with automation as a bedrock of the proposals that we made to customers.
Speaker Change: When we when we're dealing with a more manual low attack.
Speaker Change: Low added value type of solution clearly, there's a greater amount of competition for that kind of business, but it's really not the kind of business that we see as our go get.
Speaker Change: When we think about our business for the future sales growth.
Scott Schneeberger: I appreciate that Malcolm and then.
Speaker Change: Be closer in you know you guys definitely had a volume fall off with some of your core customers last year.
Speaker Change: Have core volume growth improved throughout the year I think that has been the case and is that looking better into the fourth quarter.
Speaker Change: Yeah, Let me, let me ask Paresh to comment on that yes.
Speaker Change: Our our volume environment has has been gradually improve throughout the throughout the year every quarter and as you look into Q4, we do expect a further improvement in the.
Paresh: The volume of our existing facilities and the impact on volume coming from network consolidation as well it will still be a negative number but it will be much better than Q3 and Q2.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of basketball majors with Susquehanna. Please proceed with your questions.
Speaker Change: Taking it altogether feels like you're cyclical commentary is as positive as it's been in call. It 15 months can you.
Speaker Change: Walk us through how that plays out.
Speaker Change: With some of the big buckets of organic growth into next year and really just thinking of 2025 I mean, it's just a bridge year to get back to the 10% organic growth implied in the long term guidance that you reiterated or is there are there scenarios if volumes continue to recover where you could actually be.
Speaker Change: Be at that level in 2025, thank you.
Speaker Change: I've asked me it's about assured.
Speaker Change: Every quarter, we had seen inorganic growth improvements that have been supported.
Speaker Change: Bye.
Speaker Change: Do you think he says he volumes, but also our investment in our sales and business development capabilities do you expect that trend to continue into 2025 and onwards. So we do expect an acceleration of our growth in 2025 compared to say three or four and last year Q4 was clearly the bottom and we have been.
Speaker Change: Going upwards since that as far as our organic growth did you see an acceleration.
Speaker Change: They are going to be providing further commentary on our Q4 earnings.
Speaker Change: It will help the guidance, but the direction is clearly up.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Jason Seidl with TD Cowen. Please proceed with your question. Thank you operator, Rob Mark Embarrass Kristine good morning.
Jason Seidl: You reiterated some more confidence in your 2027 guide this morning.
Jason Seidl: Has the walk to that changed any given that the organic growth is coming back and youre seeing some positives.
Speaker Change: E Commerce trends and then I guess on a follow up you talked about in the near term your appetite for M&A is going to be at least shelled is this something when you say near term as you know maybe the next two quarters or are we talking maybe back half of 'twenty five to resume that.
Speaker Change: Hi, Moshe.
Speaker Change: Our primary focus in the shorter term near term is paying down our debt and investing in our organic growth, which gives us phenomenal returns on invested capital. We expect that to continue in the earlier part of 2025 and onwards into the rest of 2025, it's early to talk about.
Speaker Change: The remainder of 2025 going back to our 2027 plan clearly we do see an acceleration of our growth. We are very excited about 2025.
Speaker Change: And the exploration and the components of our EBITDA bridge remain basically the same coming from our core Gulf, our automation adaptive technology and productivity projects.
Speaker Change: Buckets and the contribution that you're expecting from being Kenton, new business developments and synergies is the third bucket that should take us through at what its really sort of a plan and we are on track.
Speaker Change: That's very helpful. If I could throw in one more here can you give US you said really positive commentary about the E. Commerce side of things can you give us some more meat on the bone and talk a little bit about the returns business.
Malcolm Wilson: Yeah sure sure Jason its Malcolm here, So I think our returns obviously, it's an integral part of <unk>.
Speaker Change: E fulfillment.
Speaker Change: We tend to not returns business, it's very much aligned to E fulfillment, so where several of our customers as we've across a big wide range of our customers you know I feel like we do have been working in a bit of a trough of volumes over the last.
Speaker Change: 12 months really since the last quarter of 2023, which was really a very negative quarter for us. If you recall in the context of volumes. There's a lack of a holiday season lack of inventory levels. So last we've seen gradually business.
Speaker Change: Correcting in terms of volumes customer volumes coming back.
Speaker Change: Confident that we'll see.
Speaker Change: That same lift in terms of our returns business, we have established over the space of the Euro number of any specific return census for individual customers. We don't see any change in the trend of the volume of returns I know I know you you will have read some some REIT.
Speaker Change: Taylor's making efforts to lower down the amount of returns you know maybe impulse, saying.
Speaker Change: Costs for return of goods et cetera, et cetera, we're not really seeing an evidence of that.
Speaker Change: Basically what we are seeing is customers really being much more minded in terms of the speed of processing of those returns and actually maximizing the worth of the returns you know the detail of the actual return process and that's right in our realized obviously with the amount of technology.
Speaker Change: But we utilize that that's really good for us. So I think generally as we see E fulfillment projects starting to reemerge starting to be signed them as we mentioned with the Zee Lando project you know what what goes out from that warehouse.
Speaker Change: Proportion of it will come back.
Speaker Change: And we'll be ready to work with our customers to make the best processing of that.
Speaker Change: I appreciate the color and the time.
Speaker Change: Thanks, Jason.
Speaker Change: Our next question is from the line of Arey Rosa with Citigroup. Please proceed with your question.
Arey Rosa: Hi, good morning.
Arey Rosa: Malcolm is very encouraging to hear you talk about.
Arey Rosa: The return of demand from E fulfillment customers I'm curious if you could dig into that a little bit more and just talk about what you think is driving that demand as it is some of that related to <unk> investment in its own sales force or do you think it's more organic and related to the market and if it's the latter maybe you could talk about why that is.
Speaker Change: I'll give you some context on this I'm surprised to hear that a little bit given obviously the U S election happening today I would think maybe a lot of customers would be waiting to kind of see the outcome of that elections. So maybe you could talk about kind of election risk and then also what's driving that.
Speaker Change: That investment there thanks.
Speaker Change: Yeah. Good morning to you. So I think what we say is driving it is a combination of factors I think one you're absolutely right I don't think we can say.
Speaker Change: Say that the investments that we made earlier in the year in our sales organization. That's clearly having an impact you know we're picking up projects that maybe in the past we might not have picked up and I have kind of a fast it's 18, saying that because I think we are seeing in the market as a leader when it comes to E fulfillment.
Speaker Change: Right to field that we see every project.
Speaker Change: I'm sure every CEO in a kind of physician would want to say that but the reality of it is I'm sure. We don't see every single one so having a broader and more a wider sort of sales net is a good thing for us and don't forget it's not just always about retail space Oh.
Speaker Change: Only channel clothing food that we think about E fulfillment spreads into like Tech and even you know sitting here, saying some of the commodities. So I think widening our sales organization is helping goes but I think the fundamental thing that we're seeing right. Now is people are starting to.
Speaker Change: More confident about the economies in the different regions that we work in game and you mentioned about what's happening today here in the U S. It's a great day.
Speaker Change: But you know we can look at our business in Continental Europe, and most recently in the in the UK I don't think so much a matter of which party is winning an election.
Speaker Change: Brings a certainty and I think customers crave certainty you know they crave to know what is the situation for the future. So I think definitely when we look at Continental Europe U K, we're seeing customers, having a high degree of certainty interest rates inflation levels Oh.
Speaker Change: Trending in the right direction, and allowing people to make more strategic decisions invariably that involve investments that are going to be multiple year.
Speaker Change: Investments and that's why typically people are happy to sign longer term contracts I think win just to touch on the point that you mentioned about here in the U S. And you know clearly I think again people are waiting to make business decisions wherever it's about.
Speaker Change: You know, whether it's connected to terrorists and how that might shape up wherever it's just connected to individual states and how they might invest in the individual states of the U S. Whether that's here in the U S, Mexico, and so on and so forth.
Speaker Change: But I think decisions will come as a consequence of the grant to certain say that people will have in the future and I think we will see also starting to benefit us here in the U S. As we've seen it in the rest of our markets.
Speaker Change: Thank you for that color. That's that's very helpful and very encouraging just a quick one if I could for a follow up. So you mentioned about $750 million of new business has been one year to date and if I think about that against about two two and a half billion dollar sales pipeline. It looks like the win rate kind of north of 30%.
Speaker Change: And I think historically, we've talked about.
Speaker Change: So kind of them, having a win rate closer to 25% I'm curious if you're seeing that step up in and if so kind of what the what the factors there might be whether it's competitive dynamics or whether it's Jack so capabilities. Thanks.
Speaker Change: Yeah Henry.
Speaker Change: Well I'll, let Barry comment on it but what I would say at the high level is obviously when we examine our sales pipeline we have to recognize that all the.
Speaker Change: Verticals, all the services, where we really see you know as a leader if I think about E. Fulfillment is quite probable win a project because.
Speaker Change: One of the foremost organizations in that field. There there are people that we compete with but really were one of the foremost. So I think you have to when we look at the pipeline you can see clearly that we have a greater success, where we're seen as being a leader where we see now is being you know tons of different reference sites.
Speaker Change: We can show customers as opposed to new verticals, where we still see as a new entrant.
Speaker Change: Go back to my comment about aerospace in Europe.
Speaker Change: One of the things that we're very pleased about coming along with the Wincanton dailies is actually a long standing reputation inert or space that will help us considerably.
Speaker Change: In building, an aerospace business not just in the U K, but across your without that.
Speaker Change: We could easily imagine that our win rate will be much much lower so the win rates that you're seeing I think recognize.
Speaker Change: Our core strength areas I think we're doing better I think we only quickly taking market share.
Speaker Change: But equally they equally recognized university coals.
Speaker Change: Our win rates will be much much lower just simply because we're a brand new entrant bearish, maybe you can give a little bit more detail alright, and Uh huh.
Speaker Change: Hi, Eric.
Speaker Change: As you recall, we had been investing in our sales teams and then we talk about investing in our sales teams that also includes investing in our sales processes to get better results from our existing pipeline to improve the pipeline and improve the wins from this pipeline. So youre seeing the results of that investment.
Speaker Change: Once the focus and the process improvements we have established in our entire commercial organization.
Speaker Change: Great that's wonderful to hear thank you for the time.
Speaker Change: Thank you.
Speaker Change: Thank you. Our final question today comes from the line of Tom <unk> with UBS. Please proceed with your questions.
Speaker Change: Yes. Good morning, So, let's see first I just wanted to ask and see if you could give any thoughts on the impact of sheen and team who in the market. They've been you know obviously growing a lot and I think.
Speaker Change: Evolving logistics strategy that you know, maybe there'll be more activity with them or with the.
Speaker Change: Logistics providers in the U S market. So I don't know if that's.
Speaker Change: If you're indifferent to that or if that has any impact in your kind of activity in.
Speaker Change: U S market.
Speaker Change: So that would be the first question is just the second one is on wallet share I think in the past you've had the nice idea or the traction where you do well with the customer with a couple of warehouses and then you can grow more with that existing customer. So is that still a significant driver or is it shifted more to some of the new customer win.
Speaker Change: <unk>.
Speaker Change: Or maybe a bigger factor in the pipeline. Thank you.
Speaker Change: Yeah, Yeah, Tom It smells and let me let me give you some some background on those two points so well.
Speaker Change: In terms of she Xiang and T. Mo I don't think we see any particular impacts across our business, but it would be wrong to say that I mean, both of those companies have been highly successful and I've got no doubt that some of our customers will have reacted and will have modest.
Speaker Change: <unk> may be slightly their own strategies, but really across our business. We are not seeing any real impact as a consequence of those relatively new entrants to the market.
Speaker Change: So that's what I can say on that I can't I can only share with you what we are actually.
Speaker Change: Seeing.
Speaker Change: In terms of that situation I think in terms of.
Speaker Change: The second point.
Speaker Change:
Speaker Change: Maybe I can ask paresh to come I'm sure well can we have been.
Speaker Change: Growing in the wallet share of our existing customers.
Speaker Change: Giving us at least 50% of our wins then you're looking at a multi multiyear period and then you are looking to our large customers overall over multiple years, we've been gaining more and more wallet share from them with the help of our predictable services. Good service, we provide good value for money and glue.
Rich: Rich so that is a sign of our success and we grow with them. We go through them and we're getting more wallet share.
Speaker Change: That's not to say that we are not finding new business from new brands, new logos, but at the core of our business is to help our existing customers and Uh huh.
Speaker Change: Hep grow our wallet share with them to help them improve their productivity and.
Speaker Change: Consumer reach.
Tom: Tom just to add too bearish comment you know we mentioned earlier.
Speaker Change: The business is the landfill.
Speaker Change: Worth, noting that we signed our first agreement went live with our first operation with so long ago back in I think 2021 in central Europe, and I think actually Czech Republic.
Speaker Change: So you know our business a big flagship operation that has just gone live now in France is very much you know.
Speaker Change: It's really in action won't Barry She's just commenting on you know we've done a great job for our customer and their confidence and trust further activity to us and so many of the kinds of customers that we work with the big flagship operation with Levi's, We sincerely hope that you know the great job that way.
Speaker Change: Doing for the customer.
Speaker Change: Will will spur around you know two new projects and that's been typically how we've grown our business. It's one of the reasons. We tend to work with these large big blue to Blue Chip International organizations and I'm I've got no doubt that trend, we'll see as we go forward.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you ladies and gentlemen, that's all the time, we have for questions today I'll turn the floor back to Mr. Wilson for closing remarks.
Malcolm Wilson: Thanks, Rob and thank you for hosting our call today, we really appreciate that thanks also to everybody Who's participated I think we got some great questions. Some very insightful questions and I think Christine bearish and myself, we really appreciate it that we've been very pleased overall.
Malcolm Wilson: With the progress that has come through our third quarter and as a business I think we delivered strong business win this new business wins, and we're looking forward to even more.
Malcolm Wilson: Business growth and so we're going into the future sales pipeline is in good shape and I think you know a number of very exciting projects that are expected to conclude before the end of the year.
Speaker Change: Whenever we dealing with big projects, where there's always a slight possibility. They drift a few weeks, but I think we're in a good shape to have a very strong year of clause.
Speaker Change: Clause, one basis and that will set us up well for 2025 mm Bye rich just mentioned.
Speaker Change: Return of a law of E fulfillment approach X I think that's very pleasing for us to see it was always one of the big engines of these companies are high single digit double digit organic growth and it's great to see that starting to return and pulse is also good first to say.
Speaker Change: Real impact tangible impact in our results and our business coming from all of the different innovative work that our teams have been doing with new technologies. Christine was just mentioning and also AI, which is playing a greater part of.
Speaker Change: Everyday running off the.
Speaker Change: So I think where we are really feeling very excited about the next quarter quarter, four and as we move into the next year, so with that I'd like to wish everybody a great rest of the day and thanks again for joining us on the call and 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 have a wonderful day.