Q4 2024 Vestis Corp Earnings Call
Welcome to the Vestas Corporation fiscal fourth quarter and full year 2024 earnings conference call.
At this time, all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation.
If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
To enable others to hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Michael Aurelio, Vice President in VESTA Relations.
Michael Aurelio: Thank you Ashley and good morning everyone. Welcome to the Vestas Corporation fiscal fourth quarter in full year 2024 earnings call. With me here today are President and CEO Kim Scott and our CFO Rick Dillon.
Michael Aurelio: As a reminder, a telephonic replay of this call will be available on the Investor Relations section of the Vestas.com website shortly after the completion of the call.
Michael Aurelio: Also, access to the materials discussed on today's call are available on the Vestas website under the Investor Relations section.
Speaker Change: Before we begin, I would like to remind you that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: These include remarks about management's future expectations, beliefs, estimates, plans, and prospects.
Speaker Change: Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission.
We do not undertake any duty to update them.
Speaker Change: With that, I would like to turn the call over to Kim.
Kim Scott: Over the past year, our team has been hard at work building a strong foundation that will allow Vestas to capitalize on the tremendous opportunity ahead. To each of our 20,000 dedicated teammates, thank you for your continued commitment and support of our customers and shareholders.
Kim Scott: We delivered solid fourth quarter financial results that were in line with our expectations for revenue and ahead of our expectations for adjusted EBITDA. Fourth quarter revenue was $684 million and on a full year basis, fiscal 2024 revenue was $2.8 billion.
Kim Scott: We are very pleased with our fourth quarter adjusted EBITDA performance, which allowed us to deliver $353 million in EBITDA for the full year, representing a margin of 12.6 versus our guidance of 12 to 12.4%.
Kim Scott: As a reminder, our 2024 results include the impact of incremental public company costs, which impacted fourth quarter and full year 2024 margin by 75 basis points and 65 basis points respectively.
Kim Scott: We continue to generate strong free cash flow in line with our conversion target. That has supported our strategic priority to de-lever, and we ended the year with a 3.6 times net leverage ratio.
Kim Scott: I want to focus my discussion today on simple but important themes.
We are building commercial momentum.
We continue to drive efficiencies across our operations.
and we remain highly focused on elevating our customers' experience.
Kim Scott: A lot is working well at Vestas, which we will talk about today, but we still have more room to go. And that's what excites me regarding the opportunities ahead. We are committed to achieving best-in-class performance related to retention, sales, and margins. And I'm encouraged by what we're beginning to see.
Kim Scott: As I move through my prepared remarks, I will also touch on some cost initiatives that give us great confidence in our ability to deliver against our commitments in fiscal 2025.
Kim Scott: and set us up for continued profitable growth as we move into physical 2026 and beyond.
Kim Scott: I'll begin with the commercial progress we are seeing, including our national account wins and pipeline, success with the small to medium enterprise customer base, and achievements in route sales with existing customers.
Kim Scott: I'm pleased with the development of our sales capabilities, and we expect an acceleration in new business wins in FY25, with incremental volume, outpacing lost business beginning in the second quarter.
Kim Scott: Over the past year, we have been focused on growth with national accounts.
Kim Scott: a segment of the market that was not a growth priority for the company in the past. These accounts add route density, make our routes more efficient, and leverage our excess plant capacity. And they can carry an incremental margin above our corporate average margin.
Kim Scott: I'm really proud of major recent wins in this segment, including a large multi-year deal with a leading national food services company spanning multiple product categories across both uniforms and workplace supplies.
Kim Scott: We see potential for this account to become one of our largest customers over the next several years. We also won a large expansion award as part of a recent renewal with an existing top 10 customer in the restaurant industry.
Kim Scott: As a long-time partner, this customer valued our service and saw the benefit of further consolidating its business with a trusted national service provider.
Kim Scott: This lane expansion is expected to more than double our revenue with the customer when fully ramped.
Michael Aurelio: The current state of our National Account Pipeline is the strongest I've seen during my tenure at Vestas, with a record high for both new logos and risk-weighted revenue in the pipeline.
Michael Aurelio: Turning to our small to medium enterprise customer base, I'm also pleased with the early results we've seen in the field cells under our new leadership and structure.
Michael Aurelio: Beginning in early September, our new head of field sales began making significant changes to our sales training and processes, including implementing more tactical selling strategies for targeting competitor business and converting non-programmers.
Michael Aurelio: Since then, we have seen a greater than 10% year-over-year increase in per-seller productivity. In one specific region, we saw seller productivity hit a level that we believe represents best in class for our industry, and a level that is multiples higher than our company-wide level in fiscal 2024.
Michael Aurelio: These recent data points demonstrate what is possible from our sales team.
Michael Aurelio: As sales headcount has attrited over the past year, we have purposely delayed the replenishment of the team.
Michael Aurelio: Now, with a strong leader in place, we are institutionalizing a world-class sales process.
Michael Aurelio: strengthening our field sales leadership and are ready to expand the size of our team.
Michael Aurelio: We will be introducing these teammates into a better structure with stronger leadership and sound sales processes that will set them up for success and reduce teammate turnover going forward.
Michael Aurelio: In addition to new customer acquisition, we also continue to deliver strong results from route sales. Our route sales increased approximately 50 percent in fiscal 2024 and added more than 100 basis points of in-year revenue growth at high margin flow-through.
Michael Aurelio: We have sustained this momentum into 2025, with route sales continuing to grow more than 50% on a year-to-day basis and in line with our objectives for 2025.
Michael Aurelio: Now I would like to discuss the initiatives we are driving related to efficient operations.
Michael Aurelio: We also have line of sight to a number of initiatives that will further drive costs out of the business in fiscal 2025, which I will discuss momentarily.
Let me start with our excess capacity.
Michael Aurelio: We are well positioned to accelerate volume growth without the need for a step up in CapEx.
Michael Aurelio: We believe we have approximately 35% underutilized wash capacity in our current plant footprint. This gives us the highly attractive opportunity to grow volumes and drop operating leverage without the need to spend meaningful capex for additional equipment or new plants.
Michael Aurelio: We continue to deliver strong advancements with our network optimization and merchandise reuse initiative.
Michael Aurelio: We expect to realize meaningful cost savings from these areas in fiscal 2025, which will come from a combination of fiscal 2024 carryover benefits, as well as additional in-year actions.
Michael Aurelio: Finally, we are executing against a portfolio of cost takeout initiatives throughout FY25 that will enhance our cost structure as we move through the year. These include further improving our field operations cost profile and rationalizing our back office GNA.
Michael Aurelio: We have already executed against many of these efficiency opportunities in the first quarter, underpinning our confidence and our ability to deliver our commitments this year.
Michael Aurelio: Now I want to discuss an area of our strategy where we are moving in the right direction, but still have opportunity to continue to improve the customer experience.
Michael Aurelio: We remain laser focused on delivering a best-in-class customer experience that will support retaining and growing with our existing customers.
Michael Aurelio: Importantly, our physical 2024 retention rate improved by 150 basis points year over year to 91.9 percent, which will position us better entering 2025 versus 2024.
Michael Aurelio: We are pleased with the year-over-year improvement and the fiscal 2024 rate.
Michael Aurelio: As we've mentioned in the past, there can be some seasonality in this metric, and we believe it is most useful to evaluate retention on a full-year basis. That said, we are also pleased that our fourth quarter retention improved more than 400 basis points year-over-year, and what has historically been our lowest quarter of the year from a seasonality perspective.
Michael Aurelio: As a reminder, our retention in the fourth quarter of fiscal 2023 included the impact of national account losses and customer response to significant fiscal 2023 pricing action.
Michael Aurelio: We are keenly focused on continued improvement in service measures, responding quickly to our customers' needs, and always putting the customer first.
Michael Aurelio: We believe we can further improve our retention rate in fiscal 2025, and we feel good about where the year has started, with a retention rate of 93.7% in October.
Michael Aurelio: To further illustrate the changes we have been implementing, I want to highlight two new operational initiatives that are currently underway.
Michael Aurelio: These include a new on-time delivery notification and measurement system that will allow us to better measure and manage our delivery performance, as well as a new standard operating procedure for our plants to control product shortages.
Michael Aurelio: We have observed an almost 50% reduction in shortage-related service requests at the pilot locations and are preparing for a network-wide rollout in the near future.
Michael Aurelio: I'm excited about the way our organization has rallied around this powerful cultural shift as we embrace a customer-first mindset underpinned by robust improvements in our operating procedures.
Speaker Change: Now I'd like to end by discussing our outlook and guidance for fiscal 2025.
Speaker Change: We expect fiscal 2025 revenue of $2.8 to $2.83 billion and adjusted EBITDA of $345 to $360 million.
Speaker Change: This represents revenue growth of approximately 0 to 1% and a margin of 12.3 to 12.7%.
Speaker Change: It's important to note that our guidance excludes the benefit of one-time customer exit billings and revenue from the large direct sale customer that we exited in fiscal 2024 as part of our profit improvement strategy for that line of business. Rick will discuss this in more detail in his prepared remarks.
Speaker Change: Adjusted for these impacts, we expect to deliver core revenue growth of 1-2% and adjusted EBITDA margin expansion of 40 basis points, which we believe is a better view of the current trajectory of the business and our underlying performance.
Speaker Change: This core growth will be driven by positive contribution from both net volume growth and pricing. Specifically, we continue to build momentum with new sales and have now lapped headwinds from outsized 2023 carryover loss business.
Speaker Change: Additionally, we continue to realize net price increases with our customers, and we expect pricing to be a positive year-over-year contributor to growth in FY25.
Speaker Change: And EBITDA growth approaching or exceeding 10% in the back half of the year. This instills great confidence that we will enter 2026 with momentum.
Speaker Change: To conclude, I'll come back to the three initial themes I shared at the beginning of my discussion. A lot is working well at Vestas. We are building commercial momentum and we are seeing continued success with our Efficient Operations Initiative.
Speaker Change: In addition to our logistics optimization, we are executing against a portfolio of cost initiatives that will support the delivery of our results as we move through FY25.
Speaker Change: Through the course of FY25, we will continue to identify opportunities to make our operations more efficient, allowing us to further improve our cost structure.
Speaker Change: And lastly, we are building a customer-centric culture with a keen recognition of the importance of delivering an outstanding customer experience in order to grow the lifetime value of our customer base.
Speaker Change: We remain focused on executing against our strategy, and I'm excited about the opportunity ahead for Vestas.
Speaker Change: Lastly, in response to preliminary proposals received for potential acquisitions of Vestas, we have retained Centerview Partners and Weill Gottschall.
Speaker Change: I want to emphasize that our management and board are focused on maximizing shareholder value. As a public company, we will always do what is in the best interest of shareholders.
Speaker Change: Given the confidentiality and sensitivity around this topic, we will not answer questions regarding this during our call. Thank you in advance for your understanding. With that, I'd like to turn the call over to Rick.
Rick Dillon: Thanks Kim and good morning everyone. So let's start with four quarter revenue bridge on slide eight.
Rick Dillon: Revenue of $684 million decreased by 4% year over year. The impact of volume growth was more than offset by lost business in the quarter.
Rick Dillon: Volume growth from recurring revenue including new customers and expanding our existing customer penetration through cross-selling provided approximately 700 basis points of growth in the quarter.
Rick Dillon: New customers contributed approximately 600 basis points of growth, and existing customers' growth contributed 100 basis points, with route sales up 18% year-over-year.
Rick Dillon: Net customer losses reduced for quarter revenues by approximately 900 basis points.
Rick Dillon: The loss business impact consists of $5 million from known customer losses as we exit 2023, and $60 million from customer losses during the fiscal year.
Unknown Speaker.
Rick Dillon: As Kim noted, we improved four-quarter retention by over 400 basis points year-over-year and full-year retention by 150 basis points, ending the year at 91.9 percent. As a result of this improvement, retention will be less of a headwind in fiscal 25 than we have seen in fiscal 24.
Rick Dillon: 60 basis points of in-year pricing actions was more than offset by the negative impact from the rollback of significant prior year pricing actions as we progress through the fourth quarter of 2023 and the front half of 2024.
Rick Dillon: Direct sales drove a 60 basis point decline in the fourth quarter year over year driven almost entirely by the lost revenue from the large direct sale national account previously disclosed.
Rick Dillon: Excluding the impact of the direct sale business, our uniform business was down 6% year over year, and workplace supplies down 3% year over year.
Moving on to slide 9, an adjusted EBITDA.
Rick Dillon: Adjusted EBITDA was $81 million in the fourth quarter of fiscal 24, down approximately $32 million from the fourth quarter of 23.
Rick Dillon: The operating leverage on new business was more than offset by the impact of lost business and the rollback of pricing gains that favorably impacted the fourth quarter of twenty three.
Rick Dillon: The incremental margin on new sales volume was approximately 34%, which reflects incremental amortization costs and sales commissions on new customer wins. The approximately 57% decremental margin on lost business was met of final exit billings during the quarter.
Rick Dillon: Incremental Pubco costs were approximately $5 million in the quarter and $18 million for the full year. We expect these costs to be down approximately $5 million in fiscal 25 as we exit the transition service agreement with Aramark and are fully operational on a standalone basis.
benefits from lower incentive compensation costs.
Rick Dillon: Our network and logistics optimization efforts and lower energy costs were offset by expected increase in labor year-over-year, pricing erosion, as we discussed earlier, and the impact of PubCo costs.
Rick Dillon: The EBITDA margin was 11.8% for the quarter versus 15.8% in the fourth quarter of 23. The decline in margin is attributable primarily to lower net volume erosion, a pricier
Rick Dillon: Bollier, Rosemary Price, year over year and incremental public company costs.
Turning to cash flow slides on slide 10.
Rick Dillon: We generated approximately $63 million in cash from operations in the fourth quarter, and $239 million for the fiscal year, net of approximately $23 million in one-time cash-spend related costs.
Rick Dillon: This excludes the benefit from our accounts receivable securitization in the quarter and the proceeds from the sale of the joint venture which was completed subsequent to the fiscal year end.
Rick Dillon: We continue our focus on inventory management through sales and operations planning and garment reuse initiatives, driving a $10 million reduction in inventory during the year as we focus on having the right inventories in our distribution centers and operating facilities to support growth.
Rick Dillon: Net capital expenditures were approximately $23 million during the fourth quarter of 2024 and $74 million for the year, $7 million ahead of last year's spending.
Rick Dillon: Free cash flow in the quarter was $40 million and $165 million for the fiscal year. Our free cash flow conversion was in excess of 100% of net income and 47% of adjusted EBITDA for the full year fiscal 2024.
Rick Dillon: I want to reiterate that this free cash flow includes approximately $22 million in one-time spend costs and does not include the impact of the AR Securitization Facility completed in the fourth quarter.
Rick Dillon: Turning to slide 11, we are committed to strengthening our balance sheet through deleveraging. We continue to channel available cash to voluntary loan principal reduction. We have made principal payments of approximately a hundred five million, which include eighty five million in voluntary payments in fiscal 24.
Rick Dillon: I am pleased to report that our net debt total of $1,278,000,000 compares to our net debt of $1,633,000,000 to start the year, representing a debt pay down of more than $350,000,000 since the start of the year.
Rick Dillon: As previously reported, we completed the sale of a Japanese joint venture in October, subsequent to the quarter end. The $35 million of after-tax proceeds were also used to repay long-term debt.
Rick Dillon: These are significant debt reductions and highlights the strong operating cash flow our business generates and the effective job our teams have done managing cash and our balance sheet.
Rick Dillon: We ended the quarter with a net debt to EBITDA ratio of 3.6 times and remain confident in our ability to get to our targeted leverage level of 1.5 to 2.5 times.
Rick Dillon: I'll conclude by providing a few details on our fiscal 2025 outlook on slide 12.
Rick Dillon: Again, we expect revenue of $2.8 to $2.83 billion and adjusted EBITDA of $345 to $360 million. This results in a revenue growth from approximately 0 to 1% and an EBITDA margin of 12.3 to 12.7%.
Speaker Change: As Kim noted, our revenue guide reflects the absence of $13 million in one-time exit cost billings in fiscal 24 and $15 million associated with strategic exit of a large direct sale customer in 2024.
Speaker Change: Excluding these items, core revenue growth is expected to be 1 to 2 percentage points, reflecting our national account and field sales growth trajectory, as well as continued improvement in our route sales and positive net pricing in fiscal 25.
Speaker Change: From an EBITDA perspective, these two items represent approximately $18 million, and thus on a similar core view, we expect the underlying business to grow mid-single digits in 2025.
Speaker Change: As you think about the phasing of our guidance for the next year, it is important to note that both of these items, along with Fiscal 23 carryover pricing, primarily impacted the front half of 2024, and the back half of Fiscal 24 is more indicative of the starting point for our business heading into Fiscal 25.
Speaker Change: As a result, we anticipate Q1 of fiscal 25 revenue and EBITDA will look similar to the fourth quarter of 24, with incremental improvement throughout the year as we continue to implement our strategic initiatives and cost structure enhancements.
Speaker Change: In closing, we're excited about the momentum of our business. We are confident in our ability to deliver against our 2025 commitments and our trajectory heading into 2026.
Speaker Change: This concludes our prepared remarks today. Kim and I want to thank everyone for joining us, and we will now open the line for questions.
Operator. Thank you.
Speaker Change: Thank you, and the floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.
Speaker Change: Again, we ask that you pick up your handset when posing your question to provide optimal sound quality. Thank you. Our first question is coming from Andy Whitman with Baird. Please go ahead.
Speaker Change: Great, thank you for taking my questions and thank you for all the detail on your initiatives inside the company during the quarter. That's all very helpful context. Kim, I just thought I'd have you elaborate a little bit more on kind of the status of...
Speaker Change: The price comes maybe for the first for the first half of this year a little tougher, but
Speaker Change: but underline that and with the new base for the second half, it gets a little bit better. Can you just maybe just put a little bit more meat on that bone and talk about kind of the discussions you're having and what gives you the confidence that the pricing environment is firming up after 24, which is kind of a transition year.
Speaker Change: Yeah, thanks, Andy. It's good to hear from you this morning. So as we said in our prepared remarks, pricing will be a positive contributor for our business in FY25. So you're right, we've got some headwinds and some comps we've got to deal with in the first half of the year. But as we move into the back half of the year, we will see pricing coming through the business.
Speaker Change: We also have done a great deal of work around, you know, our culture and our customer first focus and our delivery metrics and our shortages. And so the things that I talked about around the service enhancements are really starting to take root inside the organization. Also, our new Chief Operating Officer, Bill Seward, has really done an outstanding job out the gate in stealing this customer service and customer first mindset. All of that is giving our team more confidence to hold price, to take price, and to be really confident about the service that we provide and the value of the service that we provide. So we are starting to see momentum in the organization around standing behind price and being confident in taking that price. And you'll start to see that flowing in the back half.
Okay, great. And then I just thought I would
Speaker Change: Ask for just an update on the overall rollout of your network densification strategies. Obviously, you've been doing this for some time, and it's always incremental. You're doing kind of market by market at a time. How far along are you on this? How much did you do in the quarter? And how much more is planned for 2025? Anything around that topic I think would be helpful for all of us. Thank you.
Speaker Change: I'm so we'll see good dollars flowing through and good cost out coming in 25 from the rollover as well as the new events and you'll see it again in 26.
Speaker Change: That's super helpful. I just had one final question and I'm guessing this one's probably more for Rick
Speaker Change: And the question is just really just to help people get their expectations set for their models through the year, having to do with the $28 million of items that were kind of beneficial last year that were kind of one time or exit charges or things of that nature. Where do those fall in terms of a quarterly cadence? I just want to make sure that we all kind of look at the revenue and the margins that happen from those on a year over year basis and try to get those right. So any context you could give on that, I think would be helpful for us to kind of level set expectations.
Speaker Change: Sure, and that really speaks to the front half back half nature of our guidance.
Speaker Change: The there's roughly about 13 million of exit costs. If you think about those, they happen primarily in the front half of the year, almost split evenly across the first two quarters, and a similar discussion around the exit of a large
Speaker Change: National Direct Cell Account, really front half weighted, with similar quarterly growth in the front half. Both of those work their way out of the system here in the front half and we return to
Speaker Change: not lapping that headwind when we get to the back half of the year.
Okay, super helpful. Thanks, guys. Have a good day.
Thanks, Sandy.
Speaker Change: Thank you. We will take our next question from Shlomo Rosenbaum with CFO. Please go ahead.
Hi, good morning. Thank you for taking my questions.
Kim, I want to follow up on your comment about
Speaker Change: The Salesforce attrition that you kind of let happen, you know, as you're trying to work through getting a new sales leader, and you're looking to kind of, you know, add to your sales force.
Speaker Change: Can you talk about like, you know, how many people you're looking to add or percentage wise, what you're looking to add, and then how long does it take from when you start, you bring someone on board until when they're really hit their stride, and you could expect them to deliver, you know, the type of revenue growth that you would expect from from a seasoned salesperson. And after that, I have another question.
Speaker Change: Okay, great. Well, good morning, Shlomo. Thank you for joining the call and for your question. So let me maybe just step back for a second and talk about how we think about our sales ramp.
Speaker Change: because there's really several levers inside that. We have an existing group of teammates who are here today, and as I mentioned in my prepared remarks, we are seeing great productivity improvements with those teammates. We're really proud of the work that they're doing under our New Self leadership.
Speaker Change: and we're seeing their revenue per head go up dramatically and we're very pleased about that. We're also setting those teammates up for success so that we retain them and they stay with the company and we lower turnover.
Speaker Change: The third lever is adding new teammates. And so what we're doing is closely monitoring productivity levels that we're getting from existing teammates. And we will turn the dial for adding new teammates as we see the need to replenish the team.
Speaker Change: We purposely did let teammates a trip starting in the second quarter, as I mentioned in our earnings call, in the second quarter, we allowed those teammates to a trip and we did not throw dollars at headcount to put bodies in place without the right processes.
Speaker Change: and the right leadership. Now we have that leadership, and we will add heads as needed to replenish the team while we monitor the productivity per head. And so we're going to turn all three of those dials, what's happening with turnover,
Speaker Change: what's happening with revenue per teammate, and then what is happening with new sales ads. And so as we move through the year, we'll turn those dials appropriately. So it wouldn't be appropriate for me to give you a number because that number could change depending on how fast our current teammates improve their level of performance, we will need less new teammates.
Speaker Change: To answer your question about how fast they ramp, our new leader has a very militant program of training sales teammates. And so we essentially, depending on their level of sales experience, when they come into the organization, can be between four and eight weeks approximately. So it really depends on their background and their experience, whether they go through the full eight-week onboarding and ramping protocol, or they go through a four-week program. So it depends on their skill and their level of experience in the industry, as well as in selling in other environments.
Speaker Change: the profile of those teammates, the set of experiences that teammate brings to the table, and then the onboarding and training and integration into Vestas that they go through. So I feel really, really good about our ability to continue to ramp our sales team. And we already have very strong evidence with early days with Pete, our new leader in place, demonstrating what is possible. I mentioned in my prepared remarks, we have seen an entire region hit levels that we believe are the watermark for the industry. And we were very far from that watermark, if you guys will recall, in prior discussions that we've had about sales productivity. And so I'm very excited about the strong green shoots that we're seeing coming from that team.
Speaker Change: Okay, thank you. And then can you just give us a little bit more detail on
Speaker Change: in progress that you're seeing in some of the things that were challenged. You listed three things before last quarter to new wins, not ramping as expected. You had service quality issues, and then you deliberately moderated pricing. We talked a little bit about pricing here, but are you seeing improvements in new wins and kind of ramping more the way that you'd expect? And can you quantify any improvements there and kind of the service quality issues?
Speaker Change: Yeah, so we absolutely are seeing progress and new wins. And I mentioned some very exciting national account wins, including that large food services provider that we brought into our portfolio. And we truly believe that that is an opportunity for that customer to become the largest customer that we have at Vestas. So that is very exciting. We also are seeing great what I call lane expansion. So including adding additional locations to an existing set of customers, and we've seen great progress there. I highlighted an example of that around one of our top 10 customers in the restaurant industry, who is now adding additional services with us adding additional locations with us, and they are growing, which means we are also growing with them. So I'm really
Speaker Change: Excited about the focus that we're seeing on the national account pipeline, as well as the frontline field sellers that we spoke about just a moment ago. So we are definitely seeing momentum.
Speaker Change: We also have an extensive and robust national account pipeline that is very thorough, rigorous, detailed, and being harvested by our national account team.
Speaker Change: You might recall that I mentioned on our last call that we have put new leadership over national accounts as well. A very proven leader inside our organization is now leading that team, and she's doing an outstanding job. So I'm very pleased with what we're seeing as it relates to frontline field sellers as well as harvesting a national account pipeline.
Speaker Change: From a service perspective, I also touched on some key areas that we are hyper focused on.
Speaker Change: Starting with culture, we are having a revolution inside this business around assessing over our customer, taking great care of our customer, putting our customer first and all we do. And we have brought in new leadership to also support that cause and Bill Seward, our new chief operating officer. So there is an energy across this organization around putting our customer first, like I've never seen during my time here. So I'm incredibly excited about what's happening with putting our customer first.
but we're also underpinning that with sound processes and discipline.
Speaker Change: We created a customer experience team as part of our restructure that we spoke about in the fourth quarter of last year when we moved to 10 regions. We also created a customer experience team.
Speaker Change: Our new COO, who is coming to us from a very disciplined background and set of experiences across the course of his career, is also militantly ensuring that our teammates follow those procedures. They have the tools and resources and training, but they're also held accountable to make sure that we follow those procedures and put our customers first.
Speaker Change: I mentioned the on-time delivery metric, which is outstanding, but it also includes an on-time notification to our customer, a digital notification to our customer that we delivered on the promise that we have bumped their docks.
Speaker Change: We have dropped their product. We have taken their sold product, and we did what we said we're going to do when we said we were going to do it. Our customers are now getting that automated notification from us, which I think is going to drive transformation in the industry related to how we touch and communicate and interface with customers in this industry. So I'm delighted about that. And then lastly, we called out shortages, making sure every piece of product got on the truck and delivered to the customer as needed. And we also have now been testing a new procedure for our facilities to follow. In our pilot locations, we've seen a 50% improvement in reducing shortages just in the pilot locations. So that will be rolled out over the course of the year as well. So all in, I can tell you that great things are happening here at Bustos for our customers.
Unknown Executive, Ricky Dillon
Speaker Change: On your last question around pricing, we've already touched on that. We're absolutely seeing pricing momentum in the business. We do have tough comps to lap in the first half of the year, so you will see pricing emerging in the third and fourth quarter of the year and contributing on a positive basis for the balance of the year.
Okay, thanks. Well, I appreciate your your question.
Speaker Change: Thank you. We'll take our next question from Stephanie Moore with Jeffries. Please go ahead.
Speaker Change: This is Harold Lonto on for Stephanie Moore. So I guess, you know, good progress you made on the leverage profile.
Speaker Change: I guess when looking at 2025, how much do you plan to deliver in 2025, and I guess, and achieve your target, and I guess, if you could talk about any progress you've been seeing from the ARC organization?
Uh sure.
Speaker Change: I would say in 2025, we expect to continue, as we've said, this year, really devote any quote unquote excess cash towards de-levering. And we did that over the past year, in addition to driving de-levering from really focusing on managing our balance sheet.
Speaker Change: So from the AR securitization, there was about $233 million of operating cash benefit from doing that initial draw from the facility. And as we've talked about, we also have sold a Japanese joint venture.
Speaker Change: We did that subsequent to the quarter. That gives us an additional $35 million to channel towards that.
Speaker Change: and this past year, we did some asset sales that also provided cash for us against that. So we expect to continue to leverage our balance sheet. There are more opportunities there. And as I've noted, we're excited that we continue to meet our cash conversion targets.
Speaker Change: and using that cash to continue down the path of delivery, while also maintaining our 3% CapEx investment.
Speaker Change: So we're not giving a retention target for the year. But what what I can tell you is we continue to improve related to retention. So we are very pleased with the progress that we made in FY 24 versus FY 23. We are entering FY 25 on solid footing as it relates to mitigating rollover losses. If you'll recall, we had to face rollover losses from FY 23 into FY 24. And we had to absorb absorb those losses throughout the course of the year. We're very pleased that we're entering in a much stronger position as we come into FY 25.
Speaker Change: We improved our rate in 24, as I mentioned in my prepared remarks, and we expect that we will continue to improve throughout FY25. Also, I mentioned our October performance, which is 93.7% retention. We're very pleased to see that progress as we move through the first quarter.
Thank you.
Speaker Change: Thank you. We will take our next question from Manav Patnaik with Barclays. Please go ahead.
Speaker Change: Hi, good morning. This is Ronan Kennedy. I'm from MNOPT. Thank you for taking my question. Could I just ask for some further insight with regards to the cost initiatives perhaps?
Speaker Change: some further context and or quantification. I know you said that there is an expectation to realize meaningful cost savings of 24 benefits. I think you referenced some actions being taken in the current quarter, et cetera, around improving field services, DNA, et cetera. Can you expand upon that in terms of quantification, timeline for realization, run rate, that type of thing?
Speaker Change: Thanks for raising your question. It's good to hear from you this morning. So absolutely. And I think it's really important and we want to make sure that everyone understands this. We are absolutely taking appropriate action to ensure that we have the right cost structure inside this business. And of course, we're always going to be diligent about doing that. One of the key components of our strategy is efficient operations. So we've been constantly looking at and evaluating and finding ways to take costs out of our system. And we've been very diligent about doing that. We do have some carryover that will come from 24 into 25. But also I want to provide assurances to all of you that we have a very strong foundation in place to deliver our FY 25 commitments.
Unknown Executive, Ricky Dillon
Speaker Change: That's very helpful, thank you. And then may I confirm on the CapEx 3% of revenues, I think you referenced again being underutilized, I think to the score of 35%. How should we think about what the CapEx and the investments are being made and the areas of focus there for investment?
Speaker Change: As we said on when we launched that we would channel first two years.
Speaker Change: ABS system, but those investments are project specific, delivering specific returns.
Speaker Change: And so, as Kim noted, we are at 35% capacity. We do have 35% capacity within our existing facilities, and so that CapEx is not needed to build new buildings, but we are still investing on equipment and processes within our facilities.
Speaker Change: Thank you. And then could you just comment as to where you think you are in terms of whether the, you know, it's the famous sports analogy, what ending with regards to automation of equipment in the plant, use of ABS, et cetera, broader technology?
Speaker Change: Yeah, I'll take that. So, you know, just in general, I would say a couple of things. For those of you who have been following us for a while, you would know that we moved
network
Speaker Change: that allows us to do that. So we feel really good about the operating platform. We have a great IT stack. So we already feel great about the systems that we have in place.
Speaker Change: and we're very pleased about that. Where we're leveraging technology is really for our customers. You might recall that we launched a world-class portal that our customers are using to do quite a bit of self-serve and management of their accounts and we continue to evolve that portal and we continue to add new features. Also spoke about our on-time delivery notification which allows our frontline teammates that are serving our customers to also notify them automatically and electronically when we've provided that service so that they have that information at their fingertips. And so we're really merging the technology stack that we have to create new initiatives for our customers that are creating a positive experience.
Speaker Change: As it relates to our plants, you know, we're just getting started, to be honest with you. I think there's tremendous opportunity to continue to optimize the layouts in our plants, the flow of product through our plants. We have good technology that allows us to look at labor productivity and to understand our teammates' productivity in the facilities. But there is great opportunity to create better lean layouts and footprints in those facilities, and that's not even a part of our current short-term plan, so more opportunity to come there in the future.
Speaker Change: That's very helpful. Thank you very much. Appreciate it. Thank you. Appreciate your questions.
Speaker Change: We will take our next question from Tim Mulrooney with William Blair. Please go ahead.
Speaker Change: Hi, good morning. This is Luke McFadden on for Tim O'Rooney. Thanks for taking our questions today. Maybe just to start here, one on guidance. I'm curious for your 2025 outlook.
what the assumptions are as it relates to underlying performance.
Speaker Change: in your uniforms and workplace supplies categories and should we expect performance in those service offerings to vary at all across our U.S. and Canada reporting segments.
Speaker Change: So you're referring to the mix, Luke, the mix of workplace supplies versus uniforms?
Speaker Change: That's correct. Yeah, just kind of expectations for performance there. As we move through 2025.
Sure.
Speaker Change: We expect, in terms of overall mix, we expect the mix you're seeing to sustain itself as we continue to execute the strategy on cost selling. When you talk about some of the national account pipelines, and even our field sales, you will start to see uniform winds pick up, and therefore you'll see some growth in the uniforms and workplace supplies. But we do expect workplace supplies to continue to outpace uniforms.
Speaker Change: Excellent. Really helpful. Thanks. And then maybe just switching gears here. Obviously, you guys have seen some really nice improvement on the customer retention front. I noticed a comment in the slide deck around improving frontline employee retention as well.
Speaker Change: Maybe you could just speak to that a bit. Perhaps how employee churn has historically trended and maybe what you've been doing differently now to support better retention on that frontline.
Speaker Change: Yeah, I appreciate you noticing that we're really proud of the work that we've done to take great care of our frontline teammates.
Speaker Change: We have made significant strides really over the last three years, but in particular, we had step change last year as it related to employee turnover. These are our outstanding teammates that serve us in our plants and serve our customers in our plants on the frontline, as well as our route service representatives that are out delivering and taking great care of our customers every day. So we need to be taking great care of them. So I'm really pleased with the way that our leaders have embraced our frontline teammate. We have started driving engagement processes, we're seeing very good performance related to employee engagement. And we've done a lot of things to make sure that our teammates know how valued and how important they are. And I can tell you in this business model, the best thing that we have, and the most important asset that we have to take care of our customers and our shareholders is to take care of our teammates.
Speaker Change: Going to make sure that they are thriving inside this organization. So we're really thrilled with the progress there. Thank you for pointing that out.
Great. Thanks so much.
Thank you.
Speaker Change: Thank you. We'll take our next question from Oliver Davis with Redburn Atlantic. Please go ahead.
Speaker Change: Hi Kim, hi Rick. Two questions for me. Can you give us an indication of the gap between the salesforce productivity in the region that you describe best class or best in class versus kind of the average across the company?
Speaker Change: and then the second one you mentioned some momentum on the on the national account side so can you discuss you know the reasons you're having a better success here and if there have been any changes to your your pricing strategy thanks
Speaker Change: Yeah, for sure. So we'll start with the frontline sales productivity that we spoke about. It is
Speaker Change: significantly higher, multiples higher than than what we have seen historically. So I will just let you know it's a dramatic step change, what we're seeing. And in fact, one of the regions, the region that is hitting that watermark is also a new field sales leader underneath Pete. So Pete has brought in some additional resources and leadership as well. And so we are really seeing a transformation happen here across this frontline sales team. And so I will just tell you it is significant and meaningful. So once we're able to, you know, institutionalize this as we are working to do and we will see all of these levels stabilize and start to rise.
Speaker Change: which is great. In your question related to what's happening with national accounts, you know, I mentioned in my prepared remarks, this was not a focus for the organization Pre-Spin and when I arrived here I was really kind of surprised to find that there was not a strong understanding of how important volume is for Vestas.
Speaker Change: And so when you understand that you have 35% idle plant capacity, and that pushing volume through that system is going to create massive operating leverage, you quickly grow to value the volume that you get from national account customers.
Speaker Change: And I will tell you at first blush, if you look at it very tactically, you might assume that it's not as profitable, perhaps, as SME business. And when you understand the attribute of density and the contribution that national accounts make, you get significant value from that volume. Those are very valuable accounts.
Speaker Change: Because our team did not understand that, there really was no focus or pipeline on new business for national accounts.
They were actually not out hunting national accounts.
Speaker Change: We've driven that education and that understanding across the organization now regarding how valuable these large pieces of volume are for our company. And we've put new leadership and we've renewed that team around hunting and winning national account customers. So we have developed a strong pipeline and we are marching through that pipeline, fostering those relationships and closing those deals. I mentioned two great wins. In particular, one of those was a new win, a new logo around national accounts that we believe will be potentially our largest customer over time.
Speaker Change: So great, great progress there around engaging the organization to hunt and win national accounts.
Speaker Change: Thank you. We'll take our next question from George Tong with Goldman Sachs. Please go ahead.
George Tong: Hi, thanks. Good morning. You mentioned pricing will be a positive. Hi. You mentioned pricing will be a positive contributor to revenue growth in fiscal 2025. Can you elaborate on how much pricing you're embedding into your guide? And when you might expect pricing increases to begin exceeding input cost increases given your service quality initiatives?
So, um,
We
George Tong: won't give exactly how much pricing is in the guide, but we
George Tong: as we talked about, it definitely flips positive as we, you know, we lap the impact of carryover pricing. And so it does have, it's a positive contributor to our guide in 2025.
George Tong: It's important to note that we continue to take price. You saw in your pricing in Q3 and Q4, we will continue those actions very disciplined and not as moderated because we talked about moderating our pricing in the back half of 24.
George Tong: will create a headwind, but expect positive net pricing for the year.
Speaker Change: Right, and the second half of the question around when you might expect pricing increases to begin to overtake input cost increases.
Speaker Change: I'm sorry, George. Can you say that again? I couldn't quite hear what you said.
Speaker Change: earning the right to take price, which we feel very confident we have done through our service initiatives and the work that we have done to put our customer first. And so we will continue to evolve pricing over time, we will continue to take pricing as appropriate with our customers. And we feel confident that we have a really solid plan in place to absorb inflation, to take price as appropriate, and also to drop costs out of the system as appropriate. I spoke a moment ago about the significant cost takeout actions that we've already implemented this year to set us up for success. And we will always continue to do that as well. So I think it's a healthy balance between price increases, and also self help and taking costs out of your system appropriately, to make sure that you underpin your commitments and drive the numbers that you need to drive. And that's what we're set up to do this year.
Speaker Change: Unknown Speaker, The Huffington Post, The Huffington Post, The Huffington Post, Unknown
Speaker Change: Got it. That's helpful. And then with respect to customer service, approximately what proportion of your branches is hitting your desired goals and how long do you think it'll take for the rest of your operations to achieve sufficient service quality?
Unknown Executive, Ricky Dillon
Thanks very much.
Thank you, George. Appreciate your questions.
Speaker Change: We do have time for one more question. We'll take our final question from Andrew Steinerman with J.P. Morgan. Please go ahead.
Andrew Steinerman: Hi, Kim. I actually have two questions. The first one, I still don't fully understand when looking at your fiscal 25, you're looking for enhanced client retention.
Positive Realized Pricing.
Andrew Steinerman: Improved new sales and cross-selling, but when you talk about core revenue, excluding the one-timers, you're just looking for one to two percent.
Speaker Change: Growth in fiscal 25. And let me just give you my second question. My second question, you caught my ear when you talked about kind of tactical selling strategies for both targeting competitive business and converting non-programmers. I was just hoping you could elaborate on this comment a little bit more, particularly about the competitive environment.
Speaker Change: Yeah, absolutely. So we'll start with the price and I'll let Rick come behind me with some numbers as well. But it's important, Andrew, to remember that we have some pricing headwinds in the first half of the year. So some costs that we're battling where we had some pricing that rolled over from 23 into the first quarter and beyond of 24. So we're lapping those headwinds. And that's part of the reason that you're seeing, if you look at the macro level, excluding those one timers, you're seeing a lower growth rate. But when you carve that out on an underlying basis, you are starting to see good growth emerge inside this business. And you particularly get to see that as we move into the back half because we lapped those costs.
Rick, anything you would add to that?
Rick Dillon: Sure, just based on the disclosures that we've given, we've got $37 million net carryover pricing in 2024, and if you split that, the back half was negative due to price erosion, the front half was positive.
and so it's that front half positive.
that we have to lap.
Rick Dillon: And again, just looking at our disclosures, that's about $57 million in the front half and a negative $20 in the back half to get you to the $37 million. We're talking about the $57 million.
Rick Dillon: but we do have in-year pricing and we will continue to have in-year pricing and it will be a positive sequential year-over-year pricing impact and so
Rick Dillon: You'll see that come through the numbers in the back half, but it's that
Rick Dillon: 57 million net 37 million that we've got a kind of lap here in terms of and that's what you're seeing in our year over year growth, but sequential. We're very pleased with what you're going to see from a pricing perspective next year.
Speaker Change: And then Andrew, in relation to your question around our tactical selling strategies and the great work we're doing to train our team and institutionalize those processes.
Speaker Change: We are being very, very thoughtful about how we're competing in the marketplace with really strong go-to-market and value proposition strategies for customers that are already rental customers and being served by one of our competitors versus customers that are non-programmers and we're selling the value of our rental program. So we've really bifurcated our focus, which is really allowing us to perform incredibly well with both of those audiences. And so we are competing and winning new business from our competitors, and we are also selling the value proposition to non-programmers and converting those as well. We're seeing a really healthy balance of competitive wins as well as conversions of non-programmers. So we really like the state of play and we like how we're performing and competing out there.
Speaker Change: in the marketplace. And we're really excited about some of these these wins that we've been bringing home of late. So more to come there, but great progress.
Appreciate it. Thank you.
Thank you.
Speaker Change: And this will conclude today's Vestas Corporation's fiscal fourth quarter and full year 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.