Q4 2024 United Parcel Service Inc Earnings Call
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Greg Alexander: Good morning. My name is Greg Alexander, and I will be your facilitator today
Greg Alexander: I would like to welcome everyone to the UPS fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer period. Any analyst that wants to ask a question, now is the time to press one and zero on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer. Sir, the floor is yours.
PJ Guido: Good morning, and welcome to the UPS fourth quarter 2024 earnings call. Joining me today are Carol Tomei, our CEO, Brian Dykes, our CFO, and a few additional members of our executive leadership team. Before we begin, I want to remind you that some of the comments we'll make today are forward looking statements within the federal securities laws and address our expectations for the future performance or operating results of our company.
Greg Alexander: These statements are subject to risks and uncertainties, which are described in our 2023 Form 10-K and other reports we file with or furnish to the Securities and Exchange Commission.
Greg Alexander: These reports, when filed, are available on the UPS Investor Relations website and from the SEC.
Greg Alexander: Now let me share a reporting change we've made between business segments. Effective with the fourth quarter of 2024, USPS air cargo results have been moved from supply chain solutions to the US domestic segment. We made this change to align with our management structure and to simplify intercompany allocations and reporting.
Greg Alexander: This change is visible in the web schedules that have been posted on the UPS Investor Relations website. Note that U.S. domestic revenue per piece and cost per piece metrics are not impacted by this change as USPS transacts with us on a weight basis, not on a per piece basis.
Greg Alexander: Unless stated otherwise, our discussion today refers to non-GAAP adjusted results. For the fourth quarter of 2024, GAAP results include a non-cash, after-tax, mark-to-market pension charge of $506 million.
Greg Alexander: Total after-tax transformation strategy costs of $73 million, after-tax asset impairment charges of $46 million, and an after-tax cost related to the withdrawal from a multi-employer pension plan of $14 million.
Greg Alexander: Additional details regarding year-end pension charges are included in the appendix of our fourth quarter 2024 earnings presentation that is posted to the UPS Investor Relations website.
Greg Alexander: Following our prepared remarks, we will take questions from those joining us via the teleconference. If you wish to ask a question, press 1 and then 0 on your phone to enter the queue.
Greg Alexander: Please ask only one question so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question.
Greg Alexander: Brian will wrap up our prepared remarks with more detail about our financial performance and our 2025 outlook and we'll leave plenty of time for questions.
Greg Alexander: But first, let me start by thanking UPSers for their hard work and efforts as we executed another outstanding peak.
Greg Alexander: For the seventh year in a row, we were the industry leader in on-time service during peak season, the most important time of the year for our customers.
Greg Alexander: In the face of a compressed holiday period, our people, enabled by the agility of our integrated network, did what they do best, and that's deliver for our customers.
Greg Alexander: Moving to our results, the positive momentum we saw in the third quarter continued into the fourth quarter. Compared to last year, consolidated fourth quarter revenue increased 1.5% to $25.3 billion.
Greg Alexander: Operating profit was $3.1 billion, an increase of 11.2% from last year, better than we expected, and consolidated operating margin was 12.3%.
Greg Alexander: Importantly, our U.S. domestic operating margin was over 10% for the quarter, reflecting improved revenue quality and strong expense control.
Greg Alexander: Looking at the full year, consolidated revenue was $91.1 billion, slightly above last year. Consolidated operating profit totaled $8.9 billion, and consolidated operating margin was 9.8%.
Greg Alexander: We generated $10.1 billion in cash from operations in 2024, and we returned $5.9 billion to shareowners in the form of dividends and share repurchases.
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Greg Alexander: Before I discuss our plans for 2025, let me share a few operational and financial highlights.
Greg Alexander: In 2024, we continue to grow our U.S. SMB penetration and finish the year with SMBs making up 28.9% of our total U.S. volume, an increase of 30 basis points from last year.
Greg Alexander: DAP, our digital access program, was a big driver of the increase. And in 2024, we generated $3.3 billion in global DAP revenue, a 17% increase year over year.
Greg Alexander: As we've discussed, we are moving from a scanning network to a sensing network through our Smart Package, Smart Facility RFID initiative.
Greg Alexander: Within Network of the Future, in 2024, we accelerated operational closures and completed nine more than planned, resulting in 49 operational closures, which included permanently closing 11 buildings.
Greg Alexander: And we did this while continuing to deliver outstanding customer service.
Greg Alexander: Today, about 63% of our U.S. volume flows through our automated facilities, compared to 60% in 2023.
Greg Alexander: Finally, we took actions in our healthcare logistics business to further support our growth plan.
Greg Alexander: And in December, we opened two state-of-the-art healthcare cross-doc facilities in Italy and Germany. These moves further expand our cold chain capabilities to serve a growing European market.
Greg Alexander: Before I talk about 2025, I'd like to take a short look back at the last five years.
Greg Alexander: In June of 2020, in the face of the COVID-19 pandemic, we launched our Better Not Bigger strategy, hinged on three elements, customer-first, people-led, innovation-driven.
Greg Alexander: For the first few years, we focused on growing select markets and optimizing financially attractive volume, including volume from SMBs and healthcare customers.
Greg Alexander: From 2020 through 2022, we delivered solid financial results in line with our strategy at a time when much of the world was struggling due to the challenges presented by the pandemic.
Greg Alexander: In 2023, our financial results faced unexpected challenges due to an unfavorable economic environment and a prolonged limber negotiation with the Teamsters.
Greg Alexander: While the labor negotiation caused volume and earnings disruption, we gained certainty regarding our labor costs for the next several years.
Greg Alexander: After wrapping the first year of our new labor contract, in the third quarter of 2024, positive momentum began to build, and we returned to volume, revenue, and operating profit growth.
Greg Alexander: We continue to drive productivity through several programs and focused on revenue quality.
Greg Alexander: And we took further actions to optimize our portfolio by selling our truckload brokerage business known as Coyote. And we entered into agreements to acquire Estafeta, a leading Mexican logistics integrator, and FrigoTramp.
Greg Alexander: We closed out 2024 with an outstanding peak, delivering best-in-class service and financial results ahead of our target.
Greg Alexander: But as we wrapped up 2024, it became clear to us that if we didn't address three specific challenges facing us in the U.S., we could lose momentum.
Greg Alexander: The first challenge relates to the dynamics of the U.S. small package market. Today, it's a slow growth market with changing package characteristics.
Greg Alexander: The second challenge comes from the concentration of volume and revenue we have with our largest customer.
Greg Alexander: Looking ahead, we project this business, if we take no action, will drive a diminishing return.
Greg Alexander: The third challenge is the reliance we have had with the USPS for our SurePost product.
Greg Alexander: In this case, the USPS is changing its operating model, which we believe puts service at risk.
Greg Alexander: So, we've taken actions to address all three of these challenges head-on, including doubling down on revenue quality and serving the customer segments we want to serve best.
Greg Alexander: First, we've reached an agreement in principle with our largest customer for a significant reduction in volume, lowering their volume with us by more than 50% by the second half of 2026.
Greg Alexander: With this, we will right size our network and retain the volume that is nutritive for us and for our customer.
Greg Alexander: Second, effective this year on January 1st, we no longer use the USPS for our SurePost product.
Greg Alexander: Service is a fundamental part of our value proposition, and by insourcing this product, we can be certain we deliver great service with no material impact to our financial performance.
Greg Alexander: In connection with these changes, while I'm incredibly proud of the productivity actions taken by our leaders, we've realized we're not done.
Greg Alexander: We are reconfiguring our US network and have launched multi-year initiatives. We're calling efficiency reimagined
Greg Alexander: Which tackle our processes from end to end from peak hiring practices to processing payments and more Efficiency reimagined should drive approximately 1 billion dollars in savings
Greg Alexander: These significant business and operational changes, coupled with the foundational changes that we've already made.
Greg Alexander: will put us further down the path to becoming a more profitable, agile, and differentiated UPS that is growing in the best parts of the market, namely healthcare, B2B, S&B, and international.
Greg Alexander: We've got some work to do to make this all happen, but there's no better team than the UPS team. We will deliver.
Greg Alexander: As Brian will detail, in 2025, these actions are expected to result in expanded operating margins and an improvement in return on invested capital.
Greg Alexander: And by taking these actions, we expect by the fourth quarter of 2026, to have a US domestic operating margin of at least 12%.
Brian Dykes: With that, thank you for listening, and I'll now turn the call over to Brian.
Thank you, Carol, and good morning, everyone.
Brian Dykes: Our financial performance in the fourth quarter was better than we expected due to our focus on revenue quality and excellent cost management.
Brian Dykes: The positive momentum that we began in the third quarter continued throughout our busiest time of the year.
Brian Dykes: This morning I'll cover four areas, starting with our fourth quarter results.
Brian Dykes: Followed by a review of our full year 2024 results, including cash and shareholder returns.
Brian Dykes: Then I'll provide more detail on the business and operational changes we are making.
Brian Dykes: And I'll close with our expectations for the market and our financial outlook for 2025.
Brian Dykes: Starting with our consolidated performance, in the fourth quarter we delivered revenue and operating profit growth and margin expansion.
Brian Dykes: This is a continuation of the momentum that we showed in the third quarter and the first time in three years that we've shown growth in the fourth quarter on all three of these financial metrics.
Brian Dykes: In the fourth quarter, we generated $25.3 billion in consolidated revenue, an increase of 1.5% compared to the fourth quarter of last year.
Brian Dykes: Consolidated operating profit was $3.1 billion, an increase of 11.2% versus the fourth quarter of 2023.
Brian Dykes: and consolidated operating margin was 12.3%, an increase of 110 basis points compared to the fourth quarter of last year.
Brian Dykes: Deluded earnings per share was $2.75, up 11.3% from the fourth quarter of 2023.
Now moving to our segment performance.
Brian Dykes: U.S. Domestic delivers strong fourth quarter results driven by gains in revenue quality and outstanding cost management.
Brian Dykes: And during the compressed 2024 peak season, our average on time service led the industry by 470 basis points over our closest competitor, which drove high demand for our services, allowing us to continue winning new customers throughout peak.
Brian Dykes: For the quarter, U.S. average daily volume, or ADV, was flat to last year. Ground average daily volume increased 2.1% year-over-year, while total air average daily volume was down 12.9%.
Brian Dykes: Excluding the volume decline from our largest customer, Total Air ADV grew, driven by demand from healthcare and high-tech customers.
Brian Dykes: Within ground, surepost ADV as a percentage of total ADV increased slightly compared to the third quarter of 2024.
Brian Dykes: Through the power of our matching algorithm, we increased Sherpaus redirects by 660 basis points sequentially from the third quarter, which resulted in half of the Sherpaus volume being delivered by UPS drivers.
Brian Dykes: For the quarter, total B2B average daily volume was down 1% year-over-year. However, we saw B2B growth from healthcare customers, including healthcare SMBs.
Brian Dykes: In terms of customer mix, we saw strong ADV growth from S&V customers, which grew 4.5% in the fourth quarter, driven by double-digit growth in December.
Brian Dykes: In the fourth quarter, S&Bs made up 27.8% of total U.S. volume.
Brian Dykes: This was the highest fourth quarter concentration we've seen in 10 years.
Brian Dykes: For the quarter, U.S. domestic generated revenue of $17.3 billion, up 2.2% compared to last year due to the strength of small package in December and increases in air cargo.
Brian Dykes: In the fourth quarter, the revenue per piece growth rate flipped positive for the first time this year and was up 2.4% year-over-year, which was a sequential improvement of 460 basis points from the third quarter of this year.
Brian Dykes: Breaking down the components of the 2.4% revenue per piece improvement.
Brian Dykes: Base rates increase the revenue per piece growth rate around 250 basis points.
Brian Dykes: Strong keep rates on our holiday demand surcharge increased the revenue per piece growth rate by 110 basis points.
Brian Dykes: The net impact of customer mix combined with product mix and lighter weights decreased the revenue per piece growth rate by 80 basis points.
Brian Dykes: Lastly, fuel drove a 40 basis point decline in the revenue per piece growth rate.
Brian Dykes: Through our Network of the Future initiative, we exceeded our initial target by completing 49 operational closures this year, including 11 buildings.
Brian Dykes: By leveraging our technology and increasing automation, we processed and delivered the same amount of volume in the fourth quarter as last year, but we did it with 3 million fewer hours while delivering excellent service.
Brian Dykes: We lowered small package block hours within our air network in response to changing volume levels.
Brian Dykes: Purchase transportation and other expenses declined as we insource 50% of Surepost volume during the fourth quarter and we tightly manage rental equipment through PEAT.
Brian Dykes: Lastly, our safety performance was better than we expected and drove a benefit in casualty expense.
Brian Dykes: Looking at cost per piece, throughout the fourth quarter and the peak period, we leveraged technology and our proven practices to hold the increase to just 0.9%.
Brian Dykes: The U.S. domestic segment delivered $1.8 billion in operating profit, an 11% increase compared to the fourth quarter of 2023, and the operating margin was 10.1%, a year-over-year increase of 80 basis points.
Moving to our international segment.
Brian Dykes: For the second quarter in a row, our international business grew revenue and operating profit and expanded operating margins.
Brian Dykes: Total international average daily volume growth flipped positive for the first time in three years and was up 8.8% year over year.
Brian Dykes: International domestic average daily volume increased 5.8 percent compared to last year, driven by strong performance in Canada.
Brian Dykes: And on the export side, average daily volume increased 11.7% year over year, with all regions delivering ADV growth.
Brian Dykes: Asia export average daily volume was up 15.4 percent, delivering growth for the third consecutive quarter.
Brian Dykes: And at the country level, 17 of our top 20 export countries grew export ADV, led by Mexico and Germany.
Brian Dykes: And in Germany, which is our largest export market, export average daily volume increased 8.6% compared to last year.
Brian Dykes: International Generated Positive Operating Leverage, driven by our ongoing network optimization and cost management efforts.
Brian Dykes: Operating profit in the international segment was $1.1 billion, an increase of 18.1% year-over-year. Operating margin in the fourth quarter was 21.6%, an increase of 210 basis points from a year ago.
Moving to Supply Chain Solutions.
Brian Dykes: In the fourth quarter, revenue was $3.1 billion. Revenue decreased $306 million, with a reduction impacted by $588 million in revenue from Coyote in the 2023 period. Revenue within our forwarding and logistics businesses increased $282 million.
Brian Dykes: Looking at the key drivers, air and ocean forwarding revenue is up 10.3%, led by continued strong market demand out of Asia.
Brian Dykes: and logistics revenue grew by 16.2%. In the fourth quarter, supply chain solutions generated operating profit of $284 million, down $24 million year over year, which included an impact of $13.5 million of operating profit from Coyote in the same period in 2023.
Brian Dykes: Operating margin in the fourth quarter was 9.3 percent, an increase of 20 basis points compared to last year.
Brian Dykes: For the full year 2024, revenue was $91.1 billion, a slight increase over 2023. We delivered operating profit of $8.9 billion and a consolidated operating margin of 9.8%.
Brian Dykes: We generated $10.1 billion in cash from operations and continue to follow our capital allocation priorities.
Brian Dykes: We invested $3.9 billion in CapEx. We distributed $5.4 billion in dividends. We repaid $3.8 billion in debt that matured during the year. And at the end of the year, our debt to EBITDA ratio was 2.25 terms.
Lastly, we completed $500 million in share buybacks in 2024.
Brian Dykes: And in the segments for the full year, in U.S. domestic operating profit was $4.5 billion, and operating margin was 7.5 percent. The international segment generated $3.4 billion in operating profit, and operating margin was 18.7 percent.
Brian Dykes: Execution is already well underway and these actions together will create a more agile and profitable UPS.
Let me provide more detail on what we're doing.
Brian Dykes: I'll start with the agreement in principle we've reached with our largest customer to significantly reduce the volume we deliver for them.
Brian Dykes: The accelerated decline has already begun and will step up meaningfully so that by the second half of 2026, their volume will be down by more than 50% of what it was at the beginning of the year.
Brian Dykes: Lower overall volume levels from this customer will lead to lower revenue dollars in the near term. However, we expect to grow revenue per piece through shifting our customer mix and by leveraging our architecture of tomorrow pricing technology.
Brian Dykes: This will enable us to continue the strong base rate improvements in 2025 that we delivered from our enterprise and S&B customers in the second half of 2024.
Brian Dykes: Additionally, we will double down on growing volume and revenue in the best parts of the market for us, including S&B, healthcare, and B2B.
Brian Dykes: And in terms of S&Bs, this year we expect to take the S&B percent of our U.S. volume to 32 percent, and the momentum will continue for the longer term.
Brian Dykes: Now looking at cost. As we bring volume down, we will not only reduce the hours and miles associated with this volume, we will be able to take out fixed costs to match our capacity to our new expected volume levels.
All facets of the network are included in the reconfiguration.
Brian Dykes: The right sizing of our U.S. capacity allows us to accelerate our network as a future initiative. We will be able to more quickly bring down less efficient capacity by further investing in automation across the network, getting us to a more efficient U.S. network faster.
Brian Dykes: The capital requirements to run our reconfigured network will also decrease.
Brian Dykes: We will share more details on our execution plan on our first quarter earnings call in April.
Brian Dykes: Now turning to the changes we've made with SharePost. As of January 1st, we began delivering 100% of our SharePost volume, and in mid-January, we implemented a 9.9% average rate increase on SharePost.
Brian Dykes: The changes we made give us greater point-to-point operational control and the ability to provide better service to our customers.
Which brings me to our Efficiency Reimagined Initiative.
Brian Dykes: Lower overall volume and a reconfigured U.S. network create an opportunity for us to increase efficiency by redesigning processes from end to end. Through Efficiency Reimagined, we expect to deliver approximately $1 billion in savings.
Brian Dykes: Pulling it all together, even while we're undergoing the largest network reconfiguration in our history, we expect to expand U.S. domestic operating margin in every quarter of 2025, with the full year operating margin approaching 9%.
Brian Dykes: As the impact of our cost-out efforts increase over the next 18 months, we expect the pace of operating margin improvement to accelerate into 2026, where we expect by the fourth quarter to generate a 12% U.S. operating margin.
Brian Dykes: And we see even more upside potential in the longer term.
Turning to guidance for 2025.
Brian Dykes: Real exports and global industrial production are both expected to increase around 2% year-over-year.
Brian Dykes: In the U.S., manufacturing is expected to turn positive for the first quarter of 2025 after seven quarters of negative year-over-year growth, and the consumer is expected to remain resilient.
Brian Dykes: Moving to our 2025 financial outlook. For the full year 2025 on a consolidated basis, revenue is expected to be approximately $89 billion, and operating margin is expected to be approximately 10.8%.
Brian Dykes: Our guidance for 2025 does not reflect any significant potential global trade implications due to changes in tariffs.
Brian Dykes: Now let me give you a little color on the segment.
Brian Dykes: Looking at U.S. Domestic, as a result of the actions we're taking, full-year 2025 revenue is expected to decline 2.3% year-over-year.
Brian Dykes: Driven by an ADV reduction of about 8.5 percent, partially offset by strong expected revenue per piece growth of approximately 6 percent, and we will wrap the newly onboarded USPS air cargo business. We expect the intended volume and revenue declines to accelerate as we progress throughout the year.
Brian Dykes: Full year operating margin is expected to be approximately 8.8 percent, an increase of 130 basis points compared to 2024.
Brian Dykes: And to provide a little shape for the first quarter, which has one fewer operating day compared to the first quarter of 2024, we expect revenue to increase nearly 1% year over year, despite ADV being down approximately 4%. And we expect to expand operating margin by approximately 140 basis points year over year.
Brian Dykes: Moving to the international segment, we expect mid-single digit ADV growth throughout the year, but with lower demand-related surcharges than we've seen in prior years.
Brian Dykes: For the year, we expect 2025 revenues to increase approximately 2.5% year-over-year with an operating margin of around 18.6%.
Brian Dykes: And looking at the first quarter, we expect revenue to be flattish compared to the same period last year and operating margin to be moderately down year over year due to lower demand related surcharges.
Brian Dykes: And in supply chain solutions for the full year 2025, we expect revenue to be approximately $11 billion and operating margin to be approximately 8.5%.
Brian Dykes: In SES in the first quarter, revenue is expected to decline about $500 million due to the reduction in revenue associated with Coyote in the same period last year.
Brian Dykes: Operating margin in SES in the first quarter is anticipated to be low to mid-single digits due to pressure from purchase transportation costs related to our mail innovations business.
Brian Dykes: We expect the first quarter to be the lowest SES operating margin in 2025.
Brian Dykes: For modeling purposes, in total, below the line, we expect approximately $780 million in expense, with a little more than half in the back half of the year.
Brian Dykes: We expect pension expense to be approximately $37 million for the full year 2025, which is $306 million higher than in 2024, primarily due to the impact of market shifts and interest rates on our pension assets last year.
Brian Dykes: We included a slide in the appendix of today's webcast deck to provide you more detail on pension. The webcast deck is available on the UPS Investor Relations website.
Brian Dykes: Now let's turn to our expectations for cash and the balance sheet.
Brian Dykes: We expect free cash flow to be approximately $5.7 billion, including our annual pension contribution of $1.4 billion.
Brian Dykes: Capital expenditures are expected to be about $3.5 billion. While we are accelerating our Network of the Future initiative, our reconfigured U.S. network should require less investment in vehicles and aircraft as we right-size the capital base.
Brian Dykes: We are planning to pay out around $5.5 billion in dividends in 2025, subject to board approval.
Brian Dykes: We expect to buy back around $1 billion of our shares.
Brian Dykes: And lastly, we expect the tax rate for the full year to be approximately 23.5%, as we expect the current U.S. corporate tax regime to remain.
But that operator, please open the lines for questions.
Speaker Change: Thank you. Your first question today comes from the line of Tom Wadowicz from UBS. Please go ahead.
Tom Wadowicz: Good morning. You got a lot of a lot of big things going on. One wanted to see if you could talk a little bit more about how can we build confidence that
Speaker Change: So that as opposed to seeing deleveraging and margin pressure, that you're seeing the margin improvement that you're talking about. So, yeah, I think just a bit more of kind of how that equation can play out, recognizing that we think of the network is having a fair bit of fixed cost to start with. Thank you.
Speaker Change: Tom, happy to do that. But maybe I'll just start by talking about the Amazon announcement. We've been a partner to Amazon for nearly 30 years.
Speaker Change: and we hold that company in high regard. Amazon is our largest customer, but it's not our most profitable customer. Its margin is very dilutive to the U.S. domestic business.
Speaker Change: Our contract with Amazon came up this year, and so we said it's time to step back for a moment and reassess our relationship. Because if we take no action, it will likely result in diminishing returns.
Speaker Change: So we considered a number of different options and landed on what we think is the best option for our company. And that is to accelerate the glide down of their volume with us, as we commented in our prepared remarks, by more than 50% by June of 2026.
Speaker Change: As you pointed out, Tom, there are a lot of assets and resources that support that Amazon volume. But as we glide down the volume, we will also be gliding out those assets and resources, which gives us the margin expansion that we've explained.
Now,
Speaker Change: I'll turn it over to Brian so you can explain how the cost will come out. Sure. Thank you. And Tom, as we said before, clearly there's a lot of stakeholders involved here. We needed to make this announcement so we can engage with those stakeholders.
Speaker Change: But you're absolutely right in your intuition that this is going to require a reconfiguration of the network so that we bring the fixed asset base, the buildings, the vehicles, the aircraft in line with the new volume levels.
Speaker Change: Unknown Speaker But I do think that is the key here, that is the mission, and quite frankly, it's already underway with our team. PJ Guido And one reason for a glide down over 18 months rather than 6 months, because we wanted to make sure that we didn't strand cost. Now clearly our labor costs will flex with volume. As volume goes up, we have more hours. As volume comes down, we have less hours. So that's just part of the DNA of how we operate our business.
Speaker Change: We have, I think, proven in 2024 that we can close buildings, because with Network of the Future, we did just that. We closed down 11 buildings with improved service.
Speaker Change: Unknown Operator Sure, thanks. And good question, Tom. Just to give you comfort here, you'll know that five facilities already in January have been partially or completely closed.
Speaker Change: And this year, we'll have 140 active Network of the Future projects, 61 of them will go live this year. Of course, just driving up the number of shipments that run through our automated facility.
Speaker Change: Unknown Speaker So that gives me a lot of confidence, gives our people a lot of confidence. So we we feel good about these, these moves and we're ahead of schedule.
Great, thank you.
Speaker Change: Your next question comes from the line of Jordan Ellinger from Goldman Sachs. Please go ahead.
Jordan Ellinger: Yeah, hi, just to follow up on the short post side of things.
Jordan Ellinger: Unknown Speaker Yeah, maybe give some sense for how much volume sort of is going to be pulled into the network, you know, can can the network as it's currently constituted today, you know, ready from day one, to move all the volume that the post office had done. So and then maybe along with that, you know, can you touch a little bit is this
Jordan Ellinger: Some of this bringing Shorepost in-house Designed in part at least to replace or infill some of the Amazon business going out and in terms of network density things
Jordan Ellinger: Well, Jordan, thanks for the question. Let's step back for a moment on SurePost. All SurePost products are sorted through our buildings.
Jordan Ellinger: In the Brown Network. So as we came to the decision to in source all of it and have it all delivered by our network, it was simply a matter of well service.
Jordan Ellinger: Up until this year, we had been injecting into the last mile network of the USPS, and the service there was good.
Jordan Ellinger: But as I think you know, the USPS is changing their operating model, and as a result of those changes, we were going to have to insert upstream into their sorting facilities.
Jordan Ellinger: And we were very concerned about service deterioration. At the same time, they were going to increase their cost to us.
Jordan Ellinger: And that value proposition of an increased cost as well as deteriorating service.
Well, that didn't work for us.
Jordan Ellinger: So in the middle of December, we determined that we would insource 100% of the SurePost volume, which we have done. And I'm pleased to say that's gone very well for us. Yes, we have a few more delivery stops per car. But interestingly, we aren't driving more miles.
Jordan Ellinger: So when we look at the financial impact in sourcing shrimp post, we feel very good that it's actually not going to have a material impact to our business at all. Now, we did make a GRI increase, I will admit, but from an operating perspective, it's going swimmingly well. And Nathan, would you like to add? Yeah, sure.
Nathan: We've also adjusted our algorithm to really target stops or stop matching to 100 feet.
Nathan: of a regular stop. And certainly this helps us smooth the daily dispatch for our employees. So resources in terms of spiking one day versus another, we're able to flatten that and keep the staffing picture very linear for the company.
Nathan: In addition to that, of course, we're exploring different ways on how we can move the volume through slower networks because it is an economy service as we look at rail and how we leverage rail across the country, as well as ground movements to make sure that we're hitting our service portfolio.
Nathan: Early days show, as Carol had said, mileage index looks good, packages per car look good, the just overall performance right now, just really proud of the team and they continue to try to optimize the service as we go forward.
Nathan: And Nando, if I could just add one thing, because I think it relates to the prior question as well, because I think the investments that we have made in the network and the technology allowed us to insource
Speaker Change: Almost one and a half million stops within a matter of weeks. I think it's a testament to the operators, but also a testament to the agility that we've created into the network. And that will help us as we move forward with the reconfiguration that we're undertaking.
Speaker Change: The other thing I do think is important is that you should know is that we have included some expectation that there could be some churn, right? You know, with the GRI and the changing service, there are some customers that this might not work for, and we've taken that into account in our forecast.
Thank you.
Speaker Change: Your next question comes from the line of David Vernon from Bernstein. Please go ahead.
David Vernon: Hey, good morning. So a couple questions for you here on this on sort of the guidance and the growth outlook
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David Vernon: Brian, is there any way to think about what that number would look like if you had sort of adjusted the network at the start of the year? I'm just trying to get a sense for, you know, what the run rate level of margin would be if you didn't have the deleveraging that would ultimately come with lower volume.
Speaker Change: Unknown Speaker You know, the the organic or lack of organic growth in the small package business. And I'm just trying to get a sense for what you how you guys are thinking about the growth outside of the glide down in the next two years. Thank you.
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Speaker Change: Right, and that will be a combination of customer mix, product mix, but also the continuation of the good-based pricing discipline that we've shown in the first quarter.
Speaker Change: And David, on the growth algorithm, the small package market, excluding Amazon, is projected to grow in the low single digits in 2025, and we project to take share. One area of share will be on S&Bs. We're really proud of the performance we've seen with our S&B growth, nearly 29% of total business
Speaker Change: Unknown Speaker in the US in 2024. We're going to take that up to 32% in 2025, on our way to 35% in 2026 and beyond. That's just one aspect of growth. We can look at it through a customer segment, or we could also look at it through capabilities. And this is what we're really focused in right now, is focusing on complex logistics that differentiate us away from the rest of the competition.
Speaker Change: How did we grow SMBs? Because we've invested in our digital access platform. We've invested in pricing architecture of tomorrow, which is moving us from the art of pricing to the science of pricing, allow us to put more potential bids
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Speaker Change: PJ Guido, CTO Almost 3000 stores across the nation, helping them with time definite delivery into their stores, which helps drive their productivity. So we're going to take share in this, in this slower growth market, but we're not going to cap our margin because had we not accelerated the Amazon volume down, we would be capping our margin in a slow growth market. So now we have an opportunity to grow and grow margin too. Now you might put the map together for for David.
Speaker Change: there's a lot of moving parts in how we go from 24 to 25. But if you if you look at the change in the revenue, the 91 to the 89, take take SDS out of it, because that's really related to Coyote. And you've got about a billion and a half of revenue decline associated with Coyote. And you just look at the domestic business.
Speaker Change: Look, the actions that we're taking with our largest customer are going to draw down revenue about two and a half billion dollars. And then we've got growth, right, that's going to plug that gap of over a billion dollars, which as Carol said, is really focused in S&B, enterprise, and these differentiated capabilities that are going to allow us to grow in the market and take share.
and PJ Slauson. Thank you. Thank you.
I think that's absolutely the way to think about it.
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Speaker Change: Your next question comes from the line of Stephanie Moore from Jeffries. Please go ahead.
Speaker Change: Good morning, this is Joe Hassling on for Stephanie Moore. I maybe wanted to stick on that that point on the sure post in USPS
Well, it first starts with service.
Speaker Change: We pride ourselves on service. We have the leading on-time service of any competitor.
Speaker Change: And if you don't deliver on that value proposition, you can lose business. So we wanted to first deliver service. But then we wanted to make sure that we could make a buck on this business, too. So, Nando, you might just reemphasize how we're operationalizing the insourcing. Yeah, sure. So, in the past,
Nando: We'd really have only one shot to match a shipment to a UPS shipment, and that was the morning of arrival. Now we've got multiple days, and our technology is able to see through those days to match as many as we can. In fact, I think last year...
Nando: And again, I think one of the bigger ones is just smoothing or the ability to smooth dispatch across the week.
Nando: Which avoids any spikes and therefore we don't need to staff up to one day of the week
Nando: In reality, we staffed through the entire week, which brings its own inefficiencies.
Nando: And look, we've got the best dispatch technology that any company would want to have, and we are utilizing it to the fullest extent, and we don't mind what we see in terms of results right now. I think they've done a great job being efficient.
and putting that volume into our network.
Nando: And Matt, you might talk about how we are priced relative to the market. Yeah, so as Carol mentioned, look, we came out with the 9.9% GRI, and we made sure that we aligned the value to service. Number one, what's most important is to protect the service of our customers that we just highlighted.
Speaker Change: But I'd ask you just to remember a couple things. SharePost is a product in our
Full Portfolio.
Speaker Change: So when our customers buy they don't just buy the SharePost product
Speaker Change: They also buy our ground, you know, our ground residential, which is our premium offering. So both of these, you know, the product was designed and the way we priced it to be, it's an economy product that is less time sensitive, but both ground residential and ground sure post will provide service and reliability to our customers and we price accordingly to the value.
Speaker Change: And Joe, on the on the road point, I just want to point out, you know, one of the things we take a lot of pride in is getting the most out of our assets at UPS. We do. And you can see from our CapEx forecast, we are not going to be adding assets for this volume. It fits into the network. And as Zando said, we're able to work it into the dispatch. And we are focused on managing the capital base and driving ROIC higher, which you see in our 2025 guide.
PJ Guido, Transcription Operator Transcription Operator Transcription Operator
Thanks so much for the thoughtful answers, guys. Thank you.
Speaker Change: Your next question comes from the line of Ken Hexter from Bank of America. Please go ahead.
Ken Hexter: Hey Greg, good morning. Can you qualify what Amazon revenues were for the full year? I know this was the first time you gave a mid-year at 11.5%. I don't know if you gave a final year. But as Amazon takes back those volumes, can you maybe talk about
and the other one.
Ken Hexter: Yes, so for the full year, Amazon made up 11.8% of our total company revenue. From a competitive perspective, I think it's important to note that Amazon will remain a customer of UPS.
Ken Hexter: Amazon, when you think of them as delivering packages, you think of them as a vertically integrated retailer because that's what they are, ignoring their AWS business, but that's what they are, is a vertically integrated retailer who needs some help with some things and we're going to provide that help for them in a more nutritive fashion when we reach the accelerated glide ion. I will tell you, Ken, this was not their ask, this was us, this was UPS taking control of
and PJ Slauson.
Ken Hexter: Great. I guess if I could throw a follow-in. The case of the consolidated, the facility shutdowns, now you were talking about how you've already started that. Is there kind of numbers you can throw out, maybe update us on how quick you can get some of those out?
Ken Hexter: Yeah, Ken, as I mentioned before, we've got a lot of stakeholders that we need to talk to related to the network reconfiguration, we're going to lay that out for you on the first quarter call. It's fair to say it will accelerate as we go through the year, especially in the second half and then into the first half of 26. But but give give us until April and we'll we'll lay that plan out for you.
Great. Thanks. Appreciate the time. Thank you.
Speaker Change: Your next question comes from the line of Ari Rosa from Citigroup. Please go ahead.
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Ari Rosa: Hey, good morning. So a lot of changes underway. Carol, I was hoping maybe you could paint a picture for us of how you envision the future of UPS, say, five or 10 years from now. And specifically, you know, you talked about some of these growth areas. Maybe you could give us some color on how you see kind of the TAM of those.
Ari Rosa: of those growth areas, whether it's health care, SMB, and what role UPS plays within that market such that, you know, the top line revenue growth doesn't experience the material decline that I think a lot of people are perhaps concerned about this morning. Thanks.
Thank you for that question. I'd love to
Ari Rosa: Talk about our future, because I think our future is very bright. We are leaning into the segments of the market that value our end-to-end network, but we're doing it through differentiated capabilities. And so when you think about the future of UPS,
Think about complex logistics.
Ari Rosa: where we are providing solutions for the segments of the market that no one else has. Think about RFID tagging, which started as a productivity initiative for us, has turned into an inventory management opportunity and benefit for our upstream customers. Think about health care. Health care is such an opportunity for us. You know, the health care market growth slowed down a bit in 2024.
Unknown Speaker 5 percent.
Ari Rosa: So our health care revenue for the year about ten and a half billion dollars. We've got plans to take that to 20 billion dollars by 2026. And the TAM, the addressable market, just in complex, is over $80 billion. To break down that $10.5 billion for you, we've got $5 billion in complex, we've got $1.5 billion in clinical, and we've got about $4 billion in non-complex. So we are going to over-index on the complex and clinical over the next several years.
Speaker Change: Unknown Speaker ...on these differentiated opportunities, international diversification is also an opportunity for us. You know, a couple of years ago, we realized that manufacturers in China were moving to a China plus one strategy, where they weren't exiting China, but they were moving manufacturing to other locations like Vietnam.
Speaker Change: So we got ahead of it. We expanded our operations and we see in these trade lanes where we expanded operations.
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Speaker Change: Your next question comes from the line of Chris Weatherby from Wells Fargo. Please go ahead.
Hey, thanks. Good morning, guys.
Speaker Change: Carol, maybe I can pick up on that last point. You know, I think that the 2026 question is an important one. And I get the margin mix up as a result of some of the glide down here. But I guess as we think about this process, I mean, is there a way you can give us comfort that we won't be sort of in a flattish or maybe down earning scenario for a multi-year period of time? So I guess in other words, maybe more directly, can you grow earnings in 2026? And I guess if you can, can you walk us through maybe some of the parameters?
Unknown Executive, Brian Dykes, PJ Guido
Speaker Change: And I think that's absolutely a fair question. And as I thought about this last night, because I'm like, we're going to ask this question, we need to come out and do that for you. I'm not going to do it on today's call, we need to come out and do that for you in a thoughtful way. So we can give you the TAMs, we can show you how we're growing. We can do that in a thoughtful way. Brian, we'll figure out a time to do that this year. Maybe at the end of the first quarter, we'll figure out a time to do that. But is there any color that you want to share right now?
Speaker Change: Unknown Executive, Brian Dykes, PJ Guido, Unknown Executive, Brian Newman, PJ Guido,
Speaker Change: So as we progress through the quarter, we will expand domestic operating margin in every quarter of this year.
Speaker Change: We will expand it every quarter of this year, and we will finish with almost 130 basis points better than we finished last year. That's going to accelerate as we go into 2026, and we'll lay that out for you on a coming call. We're growing profit dollars, not just margin. We're growing profit dollars.
Speaker Change: And I think that we're not shrinking the profit dollars, we're growing the profit dollars.
Speaker Change: And that's something we can think about in 2026 as well. Absolutely, because we will accelerate the cost out related to the fixed cost.
Okay, that's helpful. Thank you. Yeah.
Speaker Change: Your next question comes from the line of Scott Group from Wolf Research. Please go ahead.
Hey, thanks. Good morning.
Speaker Change: Kyle, you said a few times that this business has been very dilutive to margin. I'm just wondering, like, would you characterize this as a mid single digit margin, a low single digit, a no margin business? That's the first thing, you know, I totally get the mix impact here. But when I just think about price, right, if we're losing 10 15% of the volume, and we
Speaker Change: To some extent need to backfill that. Does that in any way?
Speaker Change: change your pricing discipline? And then last thing, I know I'm asking a lot, but last thing, should we do you think we should just assume that the other 50% of this business goes away in a few years, when then when the contract comes up again?
So I'll answer the last part first.
I don't think so.
Think about returns.
Speaker Change: We have 5,200 UPS store locations that make it very convenient.
Speaker Change: for customers of Amazon to return their Amazon packages. We do that very, very well for Amazon.
Speaker Change: So there's a place of harmony, if you will, between our two companies. So I don't think it will go all away. I think we're landing at the right spot with this accelerated guy down. I think it would be inappropriate for me to talk about the profitability of any account.
[inaudible]
This is extraordinarily dilutive.
Brian, anything you want to add to that?
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Speaker Change: So you think you can reduce capacity one for one with the volume drop here? Yes.
Thank you guys, appreciate it. Thank you.
Speaker Change: Your next question comes from the line of Ravi Shankar from Morgan Stanley. Please go ahead.
Speaker Change: Great, thank you. Just a few things. You quantified the Amazon revenues a couple times now. Can you quantify what percentage of the U.S. domestic volumes are Amazon? Because I think that's a pretty important stat.
Speaker Change: So, so Robbie on the on the volume, if you think around 20% of the volume in the US network 2025, depending on on the time and the price.
Speaker Change: look on the returns and I'll let Matt talk a little bit about our returns portfolio in a second. But what I would say is there's a lot of there's a lot of return solutions in the market. Here's what I know.
Speaker Change: Our returns growth continues to grow with UPS Store. We have a great footprint, we have a great customer experience, and Matt, maybe you want to talk a little bit about how we've been adding to that. Yeah, I think Carol hit on it. When you think about the physical footprint that we have in the United States, 5,200 stores give us access in the proximity to, very, very close to most consumers in the U.S.
Speaker Change: and just the overall experience, right, is the key component. Returns in reverse logistics is hard to do.
Speaker Change: And this gives us a capability, and we continue to build on that. Let me just give you one other example, though. We've also added, if you remember, we acquired Happy Return.
Speaker Change: This compliments that return experience because now, not only do you have the physical, but you can also do the digital, which is a no box, no label, which drives a much better experience for the consumer, for UPS, and for our customers as well.
and I might dimensionalize the slide down.
Speaker Change: In a different way, just to help you in the modeling, between 21 and 24, on average, the glide down was about 250,000 packages per day per year.
Speaker Change: Between 24 and 26 on average, and of course, it's not the average is just an average, but the average between 24 and 26 will be 1.25 million packages per day per year.
Speaker Change: Your next question comes from the line of Brian Olsenbeck from J.P. Morgan. Please go ahead.
Thanks for taking the question.
Speaker Change: Follow-ups here. Given that big impact on volume, and I'm assuming Amazon was a pretty big peaker during peak season, can you talk about the broader implications for the network for peak season? I know you're going to give us more an update in April after, I'm assuming, you speak to the
Speaker Change: Teamsters about this big change, but can you give us a sense in terms of what may be complications you can encounter with that? Can you still reach Sunday delivery with SurePost? Thank you very much.
Speaker Change: So from a PEEC perspective, we'll operate PEEC like we do every other year. We won't have as many leases, I suspect. We won't, but we'll operate just like we do any other year. Nando, what would you like to add? So regarding PEEC, we stretch our network with variable costs. So we'll rent equipment, we'll set up temporary SOAR facilities.
Speaker Change: A lot of that's not going to be required. We'll lease aircraft, we won't need to. We rent tractors and trailers and shifters and all that stuff from our vendors. And clearly, as the volume settles, that's an opportunity for us to
and PJ Slauson. Thank you.
The End
and PJ Slauson. Thank you. Thank you.
Speaker Change: Your next question comes from the line of Basco Majors from Susquehanna. Please go ahead.
Basco Majors: Carol and Nando, I think we've seen more change in the parcel space in the last two years than the prior 15. Can we talk, another big picture question here, when we roll out to 2027-28
Basco Majors: Number one, do you think that we've seen the last of the big shoes to drop on some of the changes to the competitive landscape, call structures, that sort of thing with you and your competitors, or could there be more seismic shifts? And you already talked a bit on a previous question about where you think UPS wins in that long-term landscape.
Basco Majors: Can you talk a little bit about your competitors, like where do FedEx Ground and Ground Economy win and have an advantage? Where does USPS Ground Advantage win? Where do the regional or gig economy players win? Just to think about the competitive landscape more holistically longer term. Thank you.
Basco Majors: Well, there's a lot to that question, and we were focusing our comments today pretty much on 25 and cheating in a little bit to 26, but happy to think big picture on 27 and 28.
Basco Majors: I think the world is changing and the rate of change is accelerating.
It's hard to imagine a big, you know.
Speaker Change: Unknown Speaker I don't think we fully understand the impact of generative AI and what it can mean for productivity amongst industries broadly.
Speaker Change: Certainly is an opportunity for us to drive productivity and better customer experience.
Speaker Change: Would it put us at a competitive disadvantage to anyone I can't see that in fact I think we're ahead of most companies in this space, but I need to be mindful that that's changing We need to be mindful that
Speaker Change: Traye follows policy and tariffs aren't necessarily good for trade so they may be changing trade lanes I don't know if it's a big shoe to drop but it could be changing trade lanes but we do know the largest trade lanes in the world, they're in Asia and we're expanding our air hub in Hong Kong and building new in Philippines so we're going to be ready to take advantage of these
Speaker Change: Tocies EPM Clearance and Process Contents. While not enabling through out our business, it create stickiness with customers, like we've never seen before. Perhaps that's a big shoe to drop.
Speaker Change: Because our churn improved more last year than it's been since I got here. So from a competitive positioning perspective, I do believe stickiness puts us at a point of differentiation.
Speaker Change: Now, perhaps when we come back, Brian, and do the addressable markets and where we're going to grow and the revenue, we can talk more about our competitive positioning. But trust me on this.
Speaker Change: We take every competitor and we tear it apart to understand where we may have a gap and how we might need to fill that gap. I'll give you two examples. In Europe last year, we didn't have an economy product and that was a problem for us.
Speaker Change: So our IT team, working with our pricing team and our operating team in Europe, they fast trained that, tracked that, didn't they, Kate? Sure did. Growing double digits. Growing double digits.
Speaker Change: We needed to offer a weekend solution. What did we do on weekend, Kate? Rolled it out first mover in Canada and now in Europe and major countries, especially in Western Europe and both of them exceeding
Speaker Change: The revenue targets and doing better on the cost side of it because we just built it into our regular efficiency that we do around the world. So if we see a gap that we need to fill, we do it.
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Thank you.
Speaker Change: Your next question comes from the line of Bruce Chan from Stiefel. Please go ahead.
Bruce Chan: Thanks, operator. And good morning, everyone. I think it's very encouraging to see some of the proactive changes here. And maybe I'll just focus in on SPSF, because
Bruce Chan: It strikes me that the RFID initiative is very helpful in optimizing your assets with some of these, you know, fairly significant market developments. Looks like you're underway in phase two. So, you know, maybe what's the target for rollout across the entire package car fleet and you know, any comments that you have around the timeline, especially in the phase three would be great.
Amanda, would you like to take that?
Speaker Change: Yeah, so we've got a schedule of course prepared a dedicated team to execute the changes as we talk about the changes to You know the Amazon and and other
PJ Slauson. Thank you. Thank you. Thank you.
Speaker Change: That schedule is completely linked to our financial plan, and we have full confidence that we can execute those changes. In addition to what Carol mentioned earlier,
Speaker Change: especially with RFID tagging, we've got an opportunity to pull customers in where the stickiness just becomes.
Speaker Change: A real big discussion and decision if they ever want to really disconnect from that technology because it's going to not just help delivery of packages but also their back office environment.
Speaker Change: and Matt. We're really excited about that. We should be rolled out this year. And from a customer stickiness perspective, Matt, you can give a couple of examples. Yeah. Yeah. So it's so what Nando just highlighted and Carol framed is it's really important because we do get from RFID, we get some productivity.
PJ Guido: , PJ Guido, Brian Newman, PJ Guido, Brian Newman, PJ Guido, Brian Newman, PJ Guido,
PJ Guido: You know, we typically think industrial and high tech in some of these areas, but retail is a big driver through store replenishment. And this has really enabled us to win in this space.
Speaker Change: We've brought over, and if you heard Carol in her opening comments, she highlighted this, but 15 retailers that we've already on-boarded, and I would large...
Speaker Change: Unknown Speaker ...enterprise retailers in the United States that really that love the RFID capability because they have inbound visibility.
So what's hitting their docks
Speaker Change: and it allows them then to spread their workforce and how they inbound that volume.
Speaker Change: It also, again, it complements us from a commercial perspective because we can deliver many packages to those one location. The last piece I would add on to that, which when you couple this together, is we are able to give these retailers inbound delivery windows.
Speaker Change: And it allows them that flexibility. So you have the physical capability, but then you have the visibility through RFID. And we believe we're just on the edge of something great here to work with our retailers to continue to grow. So it improves their stocking. It reduces their labor hours. It's a win-win.
Speaker Change: So we'll continue to lean into that in a big way and we're ahead of the game here when we look around the competitive landscape around the world.
Great. Thank you.
Brandon Ogolenski: Your next question comes from the line of Brandon Ogolenski from Barclays. Please go ahead.
Brandon Ogolenski: Hi, good morning, and thank you for taking my question. Carol, maybe just a quick two-part one here on capital.
Brandon Ogolenski: Given that you know your right size in the domestic network right now What would be the right level of maintenance capex for the business and it's 3.5 the level you took it to this year, which is
Speaker Change: I think a pretty drastic cut from where you thought you'd be a year ago. Is that sustainable?
Speaker Change: And then I guess in that same context, how prudent is a billion dollar share repurchase this year with anticipated dividend payments of 5.5 billion, especially when your payout ratio looks like it's gonna be approaching 80% of trailing earnings when I think you're targeting something closer to 50. Thank you.
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Speaker Change: where we are able to tighten up is the volume drawdown will allow us to operate with, quite frankly, fewer vehicles, fewer aircraft and fewer buildings. And that's what we're anticipating. I think as you think about going forward, we will be managing the capital base. So thinking about CapEx in line with depreciation is where we think that we're going to need to manage it as we continue to automate, but also manage the capital base as we improve ROIC. That's realistic.
Speaker Change: If you go back and you look at kind of before we were allocating a lot of capital into a specific customer, that's kind of where we were.
Speaker Change: We had a benefit from 2024 on a tax payment that we will pay in 2025, but if you push that tax payment back into 2024, we're actually generating more cash in 2025 than we did in 2024, strong liquidity with access to capital from a dividend payout perspective, we're targeting 50% of earnings and we're higher than that. It's important to note, however, that it's distorted because of the below the line non-cash pension expense, and if you ignore the non-cash cut.
Speaker Change: Unknown Speaker ... excuse me, non-cash pension expense, the payout ratio isn't as ...
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Thank you.
And Greg, we have time for one more question.
Speaker Change: Okay, that question comes from the line of John Chappelle from Evercore ISI. Please go ahead.
John Chappelle: Brian, you talked about strong RPP growth of 6% for U.S. domestic, which is obviously going to be a big mix impact as well. But we're kind of hearing in the market, and Carol highlighted some of the challenges on kind of core volume of some pricing pressure overall, just on core organic business.
John Chappelle: Are you seeing any of that? Is there a little bit more competitive spirit out there, I guess, to kind of maintain and or grow share, just given some of the challenges in the core markets?
John Chappelle: I think our fourth quarter results are proof positive of the strength of our pricing approach. We had very strong keep rates on our base rates, as well as our holiday demand surge charge. Our GRI on our core business is 5.9%.
Speaker Change: Unknown Speaker You can break it down a third, a third, a third, can't you, Brian? Why don't you go ahead and do that? Brian Dykes That's right. So if you if you think about where that's coming from, Carol's exactly right. It's about a third from the strong base rate. And look, I'll be honest with you, there's nothing there's nothing sexy about it. This is a grind. And Matt and I spend every Monday morning going through, you know, how we're seeing the market evolve, the pricing, and looking at how customers are performing. And we've created a lot of discipline around that. It's a rational pricing environment, but we're getting really smart about how we do it. And that helps us get the key from that.
Speaker Change: That to Brian point it is an interesting step because in Q4 we really leaned in, on the premium segment 60% of our wins in Q4 we're in the premium segment, and that you know that's focused on the product that value our Indian network for Carole highlighted as as complex. The last thing I would just highlight is
Speaker Change: Look, we've talked to you about architecture of tomorrow, which is our price, you know, our pricing technology. And we've talked to you about, you know, deal manager, which allows us the ability to leverage pricing science for SMBs.
Speaker Change: is now a deal manager. It's in the fourth quarter, 96% of our deals, we've been able to price up to $10 million, all came through deal manager.
Speaker Change: which allows us speed, we can turn time, and we can customize them for unique for the customer. So it's given us a lot of flexibility to drive the right value for our customers, but also align our costs and our prices there.
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Thanks.
Speaker Change: I will now turn the floor back over to your host, Mr. PJ Guido.
PJ Guido: Thank you, Greg. This concludes our call. Thank you for joining and have a great day.