Q4 2024 GXO Logistics Inc Earnings Call
Rob: Welcome to the GXO fourth quarter and full year 2024 earnings conference call and webcast. My name is Rob and I'll be your operator for today's call.
Rob: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Please note this conference is being recorded.
Rob: Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures, and the company's guidance.
Rob: During this call, the company will be making certain forward-looking statements within meeting of applicable securities law, which, by their nature, involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements.
Rob: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings.
Rob: The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements except to extent required by law.
Rob: The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call.
Rob: Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release, and the related financial tables are on its website.
Rob: Unless otherwise stated, all results reported on this call are reported in U.S. dollars.
Rob: The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions.
Rob: The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints.
Rob: inflationary pressures, and the various factors detailed in its filings with the SEC.
Rob: It is not possible for the company to actually predict demand for its services and therefore actual results could differ materially from guidance.
Rob: You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures, in the Investors section on the company's website.
Rob: I'll now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.
Malcolm Wilson: Thank you Rob and good morning everyone. I appreciate you joining us today for our fourth quarter and full year 2024 earnings call.
Malcolm Wilson: With me in Greenwich are Baris Oran, our Chief Financial Officer, and Kristine Kubacki, our Chief Strategy Officer.
In 2024, we had some great operational highlights.
Malcolm Wilson: We delivered record revenue and adjusted EBITDA. Notably, our adjusted EBITDA grew 30% year-over-year in the fourth quarter.
We drove organic growth acceleration every quarter throughout the year.
Malcolm Wilson: We had a stellar sales year, caused over a billion dollars of new business wins for the second year in a row, grew our relationships with our customers and won a landmark 2.5 billion dollar deal in the health sector.
Malcolm Wilson: For the fourth quarter of 2024, we generated revenue of $3.3 billion and we delivered adjusted EBITDA of $251 million in line with our expectations.
Malcolm Wilson: For the full year 2024, we generated $11.7 billion of revenue, growing 20% of which 3% was organic.
Malcolm Wilson: I'd like to highlight that closing the year at $11.7 billion means we've nearly doubled our revenue since 2020, which was the last year before we spun off from XBO.
to $790 million of adjusted EBITDA.
Malcolm Wilson: During the year, we updated our guidance to take into account our acquisition of Wincanton and we're very pleased that we've delivered $815 million of adjusted EBDA for the full year in line with our expectations.
Malcolm Wilson: 2024 was the second year in a row that GXO caused over a billion dollars of new business wins. We've won exciting contracts with new brands like Levi's, LG, Puma and the German coffee chain Chibo.
Malcolm Wilson: We also grew enormously with our existing customers in the year.
Malcolm Wilson: Our land and expand strategy has been a cornerstone of our long-term partnerships and we expanded into new geographies with more than 40 of our legacy customers including Boeing, Guess, Michelin
and Nespresso.
Malcolm Wilson: Also in the fourth quarter, we won a major new contract, a long-term $2.5 billion total lifetime value fulfilment operation in the healthcare sector.
Malcolm Wilson: This opportunity came through a legacy relationship we gained from our acquisition of Clipper Logistics in 2022.
Germany is now our fastest growing market.
Malcolm Wilson: These accomplishments are proof positive of our successful M&A and commercial strategies. On that note about M&A, in 2024, we completed our acquisition of Wincanton.
Malcolm Wilson: This is a growing business that will bring us expertise in key verticals like aerospace and industrials where we plan to accelerate our growth.
Malcolm Wilson: Turning to our Outlook for this year, we expect to deliver 3-6% organic growth with $840 million to $860 million of adjusted EBITDA for the full year 2025.
Malcolm Wilson: Our guidance range reflects our strong core business growth which is netted against capacity realignments by a small number of long term customers where we have worked together to adjust their footprints to fit their future needs.
Malcolm Wilson: Our guidance also reflects the impact of the current FX environment and our prudent expectations on the timing of in-year integration benefits from Wincanton.
Malcolm Wilson: We expect to have an interim update on the CMA's regulatory review in the next week.
Speaker Change: Before I pass the mic to Baris to cover the detail behind our financial targets, I'd like to touch upon the key drivers of our growth in 2025 and beyond.
First, the fundamentals of our business.
Speaker Change: The structural tailwinds of outsourcing, automation and e-commerce will continue to drive our long-term growth. Brands around the world are facing unprecedented supply chain complexity.
Speaker Change: and we're bringing the benefit of our scale, expertise and tech-enabled solutions to help them solve their most complex problems.
Second.
Speaker Change: Leadership in technology continues to be a key differentiator for GXR. We've long been the leader in tech-enabled fulfilment, and in 2024 we made rapid progress towards our vision of the AI-enabled warehouse.
Speaker Change: I'll ask Kristine to give you more details on that in just a moment.
Speaker Change: Third, we strengthened our sales organisation in 2024, not only in our traditional verticals but in new verticals and geographies.
These investments have already begun to bear fruit.
Speaker Change: We've closed more than a billion dollars of new business wins in 2024, including in strategic growth areas like the health sector and a range of verticals in Germany like aerospace and defence, food and beverage and omni-channel retail.
Speaker Change: In North America, we won significant business in the technology sector, including a major contract managing data centres.
Speaker Change: Our pipeline is up 15% year-over-year as of the end of the fourth quarter, and our pipeline in the Americas is up 20%.
This momentum will continue to drive a long-term growth.
Speaker Change: With that, I'll hand you over to Baris, who will walk you through the financials and our guidance. Baris, over to you.
Baris: Good morning everyone. Before reviewing the numbers, I would like to particularly highlight the strong sales year we have had.
Baris: First, as Malcolm mentioned, we won more than a billion dollars on new business in 2024.
Baris: with an average contract length above our long-term average of five years, including a massive win in the health sector, which is a target growth vertical for us.
Baris: Second, we noted last quarter that demand for new e-commerce facilities was growing.
Baris: And, we are pleased to note that we have finished the year with about 60% more new business won in e-commerce year over year.
Baris: And third, we finish the year with a robust pipeline, giving us confidence in our long-term growth.
Baris: For the full year of 2024, we generated revenue of $11.7 billion, growing 20%, of which 3% was organic.
are organic revenue growth accelerated sequentially throughout the year.
led by our Omnichannel Retail and Consumer Goods Business.
We delivered adjusted EBITDA of $815 million, growing 10%.
Our adjusted EBITDA margin was 7% for the full year.
Baris: are adjusted. Resulted earnings per share was $2.80 up from $2.59 for the full year of 2023.
Baris: In the fourth quarter, we generated revenue of $3.3 billion, growing 25% year-over-year.
We delivered adjusted EBITDA of $251 million, growing 30% year-over-year.
Baris: are adjusted. Delivered earnings per share was $1 in the fourth quarter, up from $0.70 in the fourth quarter of 2023.
Baris: Our fourth quarter operating income was $101 million, growing 16% year-over-year, and net income was $100 million, growing 37% year-over-year.
Baris: Our operating return on invested capital at 46% remains well above our long-term target.
Baris: In 2024, we again converted more than 30% of our adjusted EBITDA to free cash flow.
Baris: We delivered an outstanding $127 million of free cash flow in the fourth quarter.
Baris: We remain laser focused on capital effectiveness and continue to prioritize investment in technologies and services that drive the greatest return for our customers.
Baris: Our balance sheet continues to strengthen. Our net leverage was 2.7 times as of the end of the fourth quarter, down from the peak of 3.1 times following the acquisition of Minkanton in the second quarter.
Baris: As we focus on deleveraging and integration throughout 2025, M&A is not on our short-term agenda.
Now turning to our guidance.
Speaker Change: For the full year 2025, they expect to deliver organic revenue growth of 3 to 6 percent.
Speaker Change: We anticipate a sequential acceleration of organic growth throughout the year.
similar to what we have seen in 2024.
Speaker Change: given the phasing of new business wins and the customer capacity realignment impacting the first quarter.
Speaker Change: Our organic growth trajectory is underpinned by our strong sales performance.
Speaker Change: There we close more than a billion dollar of new business wins for the second year in a row.
We have $627 million of incremental revenue booked for 2025.
Speaker Change: which is 10% higher than where we were at this point last year.
Speaker Change: And, at the same time, our pipeline has grown 15% year-over-year as of the end of 2024.
Speaker Change: Our investments in our sales organization are creating the momentum for our long-term growth.
Speaker Change: We also expect to deliver $840 million to $860 million of adjusted EBTA.
Speaker Change: As Malcolm highlighted, our guidance range reflects a sequentially increasing adjusted EBTA throughout the year.
Speaker Change: This improvement will be driven primarily by the maturity ramp-up of new startups, progressively offsetting the impact of a few customer capacity realignments in the first quarter.
Double-clicking on the realignments.
Speaker Change: Post-peak season, we have worked with a few of our large customers to realign their footprints.
to fit their future needs.
Speaker Change: You will note from our revenue guidance that we have been able to almost completely offset this rationalization impact through new wins.
Speaker Change: But, due to the maturity curve of startups, we'll see improved profitability throughout the year.
Speaker Change: This means that these realignments will predominantly affect our illicit EBITDA in the first quarter.
Thank you.
Speaker Change: We expect our full-year adjusted diluted earnings per share to be in the range of $2.40 to $2.60, reflecting our guidance on adjusted EBITDA and an increase in our effective tax rate in 2025.
Speaker Change: At the midpoint of our range, we expect to convert about 30% of our adjusted EBITDA into free cash flow.
in line with our historical performance.
Speaker Change: We expect our growth to continue to accelerate sequentially throughout 2025.
Speaker Change: We are working on a number of measures to improve our operating profitability, including continuous improvement measures at the site level, and when we begin the integration of Wincanton, our results will accelerate faster.
I'll pass the mic to Kristine. Kristine, over to you.
Thanks, Baris. Good morning, everyone.
We're pleased with our results for the full year 2024.
Speaker Change: As Malcolm and Baris mentioned, the investments we've made in our business are driving great results.
Speaker Change: Today, I'd like to update you on the progress we're making toward our vision of an AI-enabled warehouse and how our strategy for 2025 will support our future growth.
Speaker Change: As we discussed last quarter, we began piloting our first proprietary AI applications in select warehouses across the U.S. last year.
Speaker Change: We've now launched 22 instances of our proprietary AI apps across three key warehouse functions.
Proactive Replenishment, Skew Dimensioning, and Order Routing.
Speaker Change: Our tools have delivered exciting results over the past few months, including...
Speaker Change: Productivity improvements of three to four times in stock replenishments for a major sporting goods retailer.
Speaker Change: A 50% improvement in order allocation, plus a 22% improvement in carton fill rate, which drove efficiency and decreased transportation costs for an omni-channel retailer.
Speaker Change: and a record-setting inbound process for 35,000 SKUs as we prepare to launch a new e-commerce operation.
Speaker Change: We have a number of other modules in development including volume prediction, slotting, and pick optimization.
Speaker Change: GXO's strategy for AI within the four walls of the warehouse focuses on improving productivity and de-bottlenecking the flow of product.
Speaker Change: Our 2025 roadmap prioritizes layering additional modules on sites where we're already live with AI to compound the impacts of these powerful tools.
Speaker Change: We run mega sites for household name brands all over the world.
Speaker Change: And we're focused on scaling the impact of our AI across multiple warehouse processes in parallel.
Speaker Change: We're excited about this technology and the tangible result it's driving.
Speaker Change: We're receiving positive customer feedback on how our AI is transforming their fulfillment operations.
Speaker Change: And we look forward to formally launching this product as a key part of our commercial strategy to supercharge our growth.
And with that, I'll pass it back to Malcolm.
Malcolm Wilson: Thanks Kristine. We've delivered a record-setting year, advanced our commercial and tech strategies and built momentum to accelerate our growth in 2025 and beyond.
Speaker Change: I'd also like to share our pride that GXO received numerous awards in 2024, from being recognised as the number one logistics provider on Newsweek's list of America's most reliable companies
Speaker Change: to receiving accolades for our innovative use of AI and awards for our partnership with customers like Nestlé and Whirlpool.
Speaker Change: We greatly appreciate the industry's recognition of our outstanding performance and innovation.
Speaker Change: And before we close, I'd like to thank our employees for their excellent performance during, peak and throughout the whole of 2024.
Speaker Change: Our customer satisfaction scores reached an all-time high as of the end of 2024 and it's the hard work and dedication of our team members that enables us to delight our customers day in and day out.
Speaker Change: We are excited about our growth trajectory as we focus on delivering the best possible service to our customers and generating strong returns for our shareholders.
Rob: With that, we'll hand the mic back to Rob for Q&A.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, you may press star 1 from your telephone keypad and a confirmation tone to indicate your line is in the question queue.
Rob: You may press star two if you'd like to withdraw your question from the queue.
Speaker Change: For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, for our first question.
Speaker Change: Thank you. And our first question is from the line of Stephanie Moore with Jeffries. Please receive your questions.
Speaker Change: Hi, good morning. This is Joe Hafling on for Stephanie Moore. Thank you so much for taking our questions and thanks for the informative slide deck and all the details you provided in the prepared remarks.
Speaker Change: Can we unpack a little bit more about what's happening in the first quarter with that $15 million EBITDA hit? It just seems like a pretty heavy hit. Baris, you mentioned it was only a couple of customers, so could we kind of maybe talk about exactly what's going on for these customers?
Speaker Change: It's really a lot more profitable than kind of the new business that you're bringing in or is there a cost lag between when those customers are realigning their capacity in your...
Speaker Change: you know backfilling the sites and maybe my follow-up to that would be, you know, to the extent that you have some customers leaving some sites or reducing their footprint, have you already found, you know, customers or tenants to kind of take over those new sites? Thank you.
Hi, it's Baris here. Good morning.
Speaker Change: We expect low single-digit organic revenue growth in Q1, and we expect to deliver around 155 million of adjusted EBITDA at the midpoint of our range.
Speaker Change: The difference compared to Fourier Bridge is that we have a larger impact from customer capacity alignments and new site implementations.
Speaker Change: We have positive net wins from a revenue standpoint in Q1, and capacity realignments are primarily in mature sites, and our startups take time to reach the glide path.
Speaker Change: You would recall that we had a similar short-term impact from new startups in 2022 and how this was resolved quickly throughout the year. Now, coming back to the second part of your question,
Speaker Change: There is a handful of contracts that have driven this impact. These are one-off in nature. Let me give you some details. First, there is a customer that we have seen a relative large mature size exit.
Speaker Change: We have continued to win new business from this customer, and we'll have four sites going live throughout 2025.
Speaker Change: Number two, one of our automated site customers have real line capacity in their network and given the prime location of operations, we have held the lease
Speaker Change: and already secured another customer which will contribute profits in the second half of 2025.
Speaker Change: Number three, another long-standing mature site customer has realigned their network because of lower consumer volumes, they remain a good customer for JXO.
Speaker Change: And on top, as we've highlighted, we see some effects and pension has been about $20 million or so in 2025 versus 2024. And when you add those back, the underlying performance is quite healthy.
Speaker Change: Got it. Thanks so much. If I could just maybe ask one more question. Is there any confidence that this is not a structural issue and that this really is just kind of a one-off? I guess what would be stopping this as being just a continued trend throughout 2024? Thanks.
Speaker Change: Network alignment is a short-term impact. They are not lost customers. In fact, as I highlighted, we are opening new sites.
Speaker Change: for one of these customers, and for the other side, we are...
Speaker Change: reallocating it to another customer, the productivity of the of course will ramp up. As we have highlighted in 2022, we have we had a similar short-term impact from the new startups and you have seen how this was resolved quickly throughout the year.
Our history speaks for itself.
Thank you, Baris, so much.
Thank you.
Speaker Change: Our next questions come from the line of Scott Schneeberger with Oppenheimer. Please receive your questions.
Scott Schneeberger: Thanks very much. Good morning. I'm curious to hear about how transactional volume with existing customers
has been trending.
It's...
Scott Schneeberger: I'm curious how it looked in fourth quarter. I believe it was a progressive improvement year over year versus each of the preceding quarters of 2024.
Scott Schneeberger: How should we expect that to look in 2025? And I'm not sure if this development with these two or three customers affects that. Maybe an answer with or without that involved for 2025. Thanks.
Malcolm Wilson: Hey Scott, hi, it's Malcolm. Let me give you a bit of an overview on volumes generally across the different regions and then probably there's a little bit more detail I'll ask Baris to comment on.
When we think about the fourth quarter, definitely...
Malcolm Wilson: Continental Europe business that was showing the fastest growth and that growth has really carried on.
Malcolm Wilson: into 2025. We mentioned earlier, you know, we are seeing very, very good output of sales pipeline wins in new markets like Germany. So, really, continental Europe going from strength to strength.
In the UK, since our last call, and probably really...
Malcolm Wilson: second half of the last quarter and where we are now, what we have seen is retail environment is softened a little bit and that's really a consequence of the recent government budget. Many of our customers are still working out the implications of the higher employment tax rates.
winning a new vertical health care.
Here in the U.S.
Malcolm Wilson: definitely we've seen a pick-up in mood from the consumer focus business and we can see that reflected in our stronger sales pipelines.
Malcolm Wilson: We did very well in the last quarter when it comes to volumes, and we expect that to progress forward. Notwithstanding the point that Baris has just made, where momentarily in quarter one you do see this impact of us realigning some customer volumes.
Malcolm Wilson: on some of our big customers, a very small number but it's a point for our quarter one.
It's too early to gauge what impact...
Malcolm Wilson: tariffs we'll have on our US business, but you know really generally our business is a domestic business, we don't think there's a likelihood of any material impacts feeding through in that regard. And also you know as we highlighted in quarter three, we've definitely seen a pick up in our e-commerce and omni-channel commercial activities.
So again, just to highlight...
Malcolm Wilson: Great news for big new wins, great news for growth in Germany. The strategy that we've got is...
really definitely working in terms of pushing into new verticals.
Malcolm Wilson: And that's good because a lot of these new verticals, they're less sensitive to consumer behaviour and, you know, that really builds to the strength of the resilience of the business.
Malcolm Wilson: I'm sure all of these factors are contributing to this 15% year-over-year growth that we're seeing in our sales pipeline. Baris, maybe you can add a little bit more detail on percentages?
Thank you. Sure Malcolm.
It sounds like are they where it came from a relationship and I know that's a vertical you've been looking to penetrate could you elaborate on how quickly now with that win that might help you garner more more business in health care is it something that you think you can penetrate rapidly or you I believe you said in the past it would be helpful.
Malcolm Wilson: The acquisition, which I know is on hold while wing Cannes occurring.
Malcolm Wilson: I'm just curious your ability to ramp health care with this new win organically and any incremental detail you can share about this new contract. Thanks.
Malcolm Wilson: Yeah, Scott taste smell come here again, it's it's a milestone win it.
Malcolm Wilson: A huge piece of business that we anticipate starting in the second half of this year.
Malcolm Wilson: We are under very strict confidentiality agreement so I can't mention the name, but I think it's fair to say you know, we're very proud to be partnering with this new customer.
Malcolm Wilson: Already I can.
Malcolm Wilson: Can say that in our UK sales pipeline and a lot of inquiries already common gaining in continental Europe, we have a very large catchment of interested customers who will come in are really on the back of this very prestigious.
Malcolm Wilson: When that really opens up a huge range of services that we're providing for the customer. So in that regard very very positive all the way forward in house now so really brand new vertical for us, but we're achieving without actually having to them to say any M&A, it's a homegrown organic.
Malcolm Wilson: Huge big opportunity for us.
Malcolm Wilson: When it comes in I mean, Wincanton business is trading very very well, but it's clear for us that we can achieve with that what we've achieved in health care health care really came from Embraer will make our business relationships that came out of the clipper M&A. It was one of the things we saw in.
Malcolm Wilson: When we were doing that deal this vertical plus the business that existed in Germany and that also has proven to be a huge success at wincanton. The highlights that we see new verticals as the industrial sector defense Aerospace I think will achieve the same success it might take us.
Malcolm Wilson: Two years following integration that's normal for top line synergy benefits that youre seeing that right now it's a couple of things.
Malcolm Wilson: Clipper.
Malcolm Wilson: Pretty confident we'll see the same levels of success is coming out of the Wincanton deal.
Speaker Change: Great. Thank you.
Malcolm Wilson: Okay.
Malcolm Wilson: Our next question comes from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question.
Chris Wetherbee: Yeah, Hey, Thanks, Good morning, guys I guess.
Chris Wetherbee: Just sort of conceptually on some of these customer losses or or adjustments.
Chris Wetherbee: I guess there was maybe some expectation that you guys would have been a bit more insulated to this and so maybe the question is are there aspects in the contract that would have allowed some sort of.
Chris Wetherbee: Is there a penalty for clothing or leaving a contract earlier or some other sort of mitigating factors included in it and I guess also as you think about sort of the go forward period was this one a unique dynamic where at the end of the fourth quarter, you had a higher number than normal contracts coming up for renewal. So I guess, we've always thought about our relatively high retention rate probably because of the.
Chris Wetherbee: Portfolio was relatively balanced in terms of renewal risk, but kind of curious about how we think should think about that going forward.
Chris Wetherbee: Chris I smell command nice nice too nice to hear from you and Chris is very much a kind of a one off event as Paresh mentioned, we did experience something similar way back in 2022. It just happens that we've got two or three large customers very strategic customer as far.
Chris Wetherbee: As we our business with these customers on multiple geographies you know relationships very very strong on one hand, we see a need we identified to the customer you know, we're always out to optimize the business that we have with customers for the long run and when we can see clear.
Chris Wetherbee: Lee and opportunity to do things differently that will bring greater efficiency, while we won't be doing our job. If we didn't identify that and work with the cost estimates are actually.
Chris Wetherbee: It may not happen and that's pretty much what's happened here.
Chris Wetherbee: We have good visibility on those kinds of things we were able to influence it.
Chris Wetherbee: Not in any way.
Chris Wetherbee: Financially damaged as a consequence, because clearly our contracts are back to back that's a feature of our company that is one of the things that make our earnings relatively highly predictable as you've seen over the years.
Chris Wetherbee: And in this sense as bearish mentioned, it's really a consequence of the move of relatively mature business.
Chris Wetherbee: Two N and happens.
Chris Wetherbee: It happens to be a number of incidents in one quarter and then new basically starting off very quickly, but as you as you've heard us mention in the past there is generally a small lag when we start a new business, we don't achieve mature contract profitability generally.
Chris Wetherbee: It takes about six months for us to reach those levels and that's really what you're seeing and you're seeing that is primarily focused in Q1. When you look at the phasing of the rest of our business. The rest of this year is quite a normal phasing, but clearly it's having an impact in our quarter one numbers.
Chris Wetherbee: One of the reasons why our our guide for the year looks a little lower than probably people might have expected.
Speaker Change: Okay, Alright, that's helpful. I appreciate it and then.
On the free cash flow, so I noticed that the guidance I think the conversion rate is 25 to 35 I think in the past. It's been 30 to 40. So can you walk us through sort of what's happening from a cash perspective. There are some different dynamics of the book of business that you have today or are there. Some other factors we should be considering.
Speaker Change: Hi, Chris its very shared our free cash flow for Q4 was $127 million and $251 million for two one.
Speaker Change: 324, we delivered around slightly over 30% free cash flow conversion in 2025, we target a similar 25% to 35% conversion 30 points at the mid to middle of the range is similar to ours come to what we have delivered <unk> 84.
Speaker Change: Prior to our 'twenty to 'twenty four free cash flow guidance, we did not contemplate the lead candidate acquisition and delivered on the lower end of this range. This was due to the funding and integration and final payments all the transaction costs.
Speaker Change: In aggregates came around $70 million for the year and we are generating strong underlying cash flow and this is in line with our history.
Speaker Change: Okay. So it's win win canton is little slightly different cash profile. As we think about 2025 are there still some of these integration or sort of financing cost that impacts free cash for 25.
Speaker Change: There will be some integration costs. The transaction has not been fully gone through the CMA approval. So there are some transaction costs that are happening in 2025, so hence our guide for.
Speaker Change: Midpoint, 30% free cash flow range in 2025.
Speaker Change: Okay. Thank you very much appreciate the time.
Speaker Change: Thank you.
Speaker Change: Our next questions are from the line of basketball majors with Susquehanna International. Please proceed with your questions.
Speaker Change: If we look back on your organic growth history, it's been since mid 'twenty two since you've been in that long term range of double digits and I understand this is corresponded with.
Speaker Change: Pretty meaningful change in the fulfillment and in retail framework from the kind of pandemic peak that ended mid 'twenty two.
Speaker Change:
Speaker Change: But can we talk long term and is there an opportunity to maybe lower that expectation in and set yourself up for the opportunity to really.
Speaker Change: We exceed in a world where mid single digits, who's really been more common than the double digits that you've really sort of initially built the business around coming out of the pandemic. When you spun off just any long term thoughts on that and and how you're feeling about that you know going out two or three years. Thank you.
Speaker Change: And that's come high smell come here.
I think youre right things 22, I think we've certainly lived through some turbulent environments across all the different geographies that our company works and you know we can recall kind of.
Speaker Change: You know the fact that we've had in our major territories in Europe, we've had a wall, which hopefully we can see signs that that's going to come to an end.
Speaker Change: And we've got various different issues.
Speaker Change: Issues in terms of global supply chains, and economic environments that we've been facing we offer we have a long term guide.
Speaker Change: I think right now I referred to say probably best not to so much comments about that long term target setting that we've done because we have to recognize this year, we are going to be in a management transition.
Speaker Change: Definitely right now.
Speaker Change: We have our own search and say about the timing of when we will start the wincanton integration and just as a reminder.
Speaker Change: Not one specific topic you know, we know that we will achieve around.
Speaker Change: $55 million.
Speaker Change: All.
Speaker Change: Integration cost saving synergies once we start the integration that's pretty safe one of the things, we're having sort of reflecting this year's guide is right now.
Speaker Change: We have an uncertainty of the timing of that initially we I believe that we would have been starting that right from the get go right from know January.
Speaker Change: 25, we've got to recognize that the CMA process as prolonged.
Speaker Change: Longer than we would have.
Speaker Change: <unk> expected, we still firmly believe that will be a favorable outcome, we expect to hear from them. During the course of next week, but clearly I think it's the right thing for us to do to be prudent and to reflect a much more prudent approach to the timing of that where we might have expected that.
Speaker Change: The lion's share of that $55 million to land in 2025.
Speaker Change: Probably right now prudently with feeling no it's probably more like a 25 26. So I think all of these things are in play.
Speaker Change: And as I say I think there'll be time for us to do some remodeling of all of the impacts of these different scenarios I'm for sure what we will target to be updating everyone.
Speaker Change: When we've got a little bit more clarity around all of these topics.
Malcolm Wilson: Thank you Malcolm.
Speaker Change: Thank you. Our next questions are from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Christine: Hey, Great. This is christine on for Robbie.
Christine: Just to maybe first ask about.
Speaker Change: This sequential improvement through the year. It does sound like there are some startup costs. So does that imply more of like a hockey stick improvement in Q2, and then no seasonality or is it more of a gentle slope asthma that business kind of layers, then we'd just love to understand a little bit how how the year might look.
Christian: Hi, Christian it's better to share.
Speaker Change: There is seasonality in our numbers. It has always been our Q1 has always been the lowest in our Q4 Q4 has been the highest level of activity. It basically fulfillment activity consumer demand that's there.
Speaker Change: Reflecting this seasonality, but beyond that as we have highlighted.
Speaker Change: This year, specifically more prevalent in Q1, you see a low single digit organic revenue growth and the difference is primarily coming from first capacity realignments and the ramp up of new site implementations and we do expect every quarter to be.
Speaker Change: Compared to the prior year quarter Q1, being from a revenue perspective still a growth quarter for us from an EBITDA perspective, you will have an impact all of these capacity alignment realignment and the ramp up of these new facilities and as we have highlighted as we've seen in 'twenty 'twenty four 'twenty three.
Speaker Change: Two we will see an improvement every quarter in 2025.
Speaker Change: Great. Thanks, and if I can ask my follow up you referenced demand transition certainly congratulations on the impending retirement, but would just love to know a little bit more about you know that.
Speaker Change: So I think I'm, making that decision and maybe what you're looking for.
Speaker Change: Malcolm.
Malcolm Wilson: Hi, Christine Yeah for sure.
Malcolm Wilson: The board, where we're in the middle of conducting a very thorough search.
Speaker Change: <unk>, both within and of course outside of the G X. So I'm, we're very confident that we'll find the right person to continue to deliver on the huge growth potential that this company has.
Speaker Change: I hope that we will have identified the right person in the coming months and then it will be just dive into the specifics of the individual.
Speaker Change: In terms of the actual starting point, but hopefully Ah.
Speaker Change: This side of the Soma should be possible.
Speaker Change: On my side my retirement.
Speaker Change: Personal decision I've worked in the industry for an awful long time, but I have to say I'm, absolutely committed and passionate to ensure that we all have a very seamless handover and will give the new CEO everything that we can do to help continue to propel.
Speaker Change: This company in a very successful.
Speaker Change: <unk> no no at least to say you know when you say, you're always going to away and high rate just a stellar management team that's been working in the company since its spin all the way back in 2021 and lastly.
Speaker Change: Just to remind we did say earlier.
Speaker Change: Since 2022 of them are.
Speaker Change: The last year prior to the spin this is a company that is doable.
Speaker Change: Size of its business, we've grown ebay yeah every single year. So it's a business that's in good shape. After completing some fast untested strategic M&A and really investing in a huge amount of new technology, that's really going to help propel.
Speaker Change: The benefits for customers for shareholders for the long term.
Speaker Change: Into the future. So I think you know.
Speaker Change: We're in a good environment.
Speaker Change: It will be a very smooth transition into a new CEO.
Speaker Change: Appreciate that very much. Thank you.
Speaker Change: Our next questions come from the line of Ari Rosa with Citi. Please proceed with your question.
Ari Rosa: Hey, good morning.
Speaker Change: So.
Speaker Change: It feels like now it's been awhile since we've seen FX represent a headwind to two operations into the financials I'm curious about the desire to maybe shift more of your geographic mix towards the United States and away from Europe and U K are obviously, you talked about the growth in Germany and have done some acquisitions in the U K, but I'm wondering.
Speaker Change: As we look forward five or 10 years out do you see the business as being more focused on the U S. Do you see that geographic mix shifting from what it is currently.
Speaker Change: Some thoughts on that would be helpful. Thanks.
Malcolm Wilson: Hi, its Malcolm here again.
Malcolm Wilson: I'm, sorry, I think bearish mentioned earlier right now our focus of attention definitely east to east too.
Malcolm Wilson: Get our debt down.
Malcolm Wilson: Everything focused internally on the basically so M&A in the short term is really off the agenda, but theres no doubt.
Speaker Change: Having completed a couple of M&A in our Europe Arena, we definitely feel that we want to grow more in the North American business I think our North American business is doing incredibly well a good management team in place.
Great customer satisfaction.
Speaker Change: There are so many different opportunities new verticals that we've proven.
Speaker Change: Companies like Clipper with.
Wayne Johnson: Wayne Johnson.
Wayne Johnson: We achieved a new vertical just as we did with the smaller M&A here in North America of PFS, we're able to grow quickly into those new vertical so definitely geographically our focus of attention. When we are finally ready to look at further M&A. It will definitely be hearing North America.
Wayne Johnson: Yes.
Speaker Change: Got it Okay very helpful. And then just for my follow up Malcolm.
Speaker Change: It seems like for those of US who have followed <unk> for some time and it's different iteration within X P. O. Prior to that it seems like there are periodically. These these events, where theres a customer loss or kind of a restructuring of a contract that causes a little bit of a downward surprise in terms of relative to perhaps what the street was expecting I'm just wondering if.
Speaker Change: There's a way to better insulate yourself from these types of events. So you know these surprises don't happen as often or is it just the nature of the business do you think just your thoughts around that would be helpful. Thank you.
Speaker Change: Yeah, It's a big company, it's a big business and.
Speaker Change: I think it's less so much a surprise.
Speaker Change: From a management perspective, because the way our contracts, where we have long visibility we tend to be working well in advance with customers in terms of renewables.
Speaker Change: I think we have to recognize not the last two or three years. There has been it's been a very changing environment.
Speaker Change: Economies in all of the different regions that we work in and that certainly for a very small number of our customers I think as we move towards the end of last year and getting ready for this year. The normal process that we go free with customers. We identified that we had to just a small number of customers.
Speaker Change: Sure.
Speaker Change: We would not really delivering the operational efficiency that we quote from the footprint that we had working together and you know we would not be doing the right job for our customers not working with them identifying and working with them to do that realignment. It's a I think it's a very rare occurrence you should look.
Speaker Change: Upon a very much as a one time environment.
Speaker Change: Sure occasionally every every number of years, we will find an environment, where when we're taking a kind of the business and looking at different economic environments with customers remembering some of our customers multiple hundreds of millions of dollars and sometimes they are on the op and sometimes.
Speaker Change: They're less.
Speaker Change: How about less positive trajectory and of course, that's when we need to work together with them to get ready for the longer term future.
Speaker Change: Got it okay. Thank you and welcome and congratulations on the pending retirement.
Speaker Change: Thanks, very much thank you for that.
Speaker Change: Our next questions are from the line of Kevin Gagne with Thompson Davis. Please proceed with your questions.
Kevin Gagne: Good morning, Malcolm parents Christine.
Kevin Gagne: I actually want to see if you could maybe give us a little bit of color on the customer pipeline and.
Kevin Gagne: Whether the dynamics there have changed whether there's maybe like a higher sense of urgency to get things done or.
Kevin Gagne: If theres more hesitation because of some of them you know.
Kevin Gagne: Tariff discussions et cetera, just to kind of get.
Kevin Gagne: What are your customers are seeing in the pipeline.
Malcolm Wilson: Yes, Kevin Kevin Hi, its Malcolm here again.
Kevin Gagne: Very high level I think.
Kevin Gagne: Our pipeline is up 15% year over year, we're running with a very strong pipeline at the moment.
Kevin Gagne: $2 $3 billion and I don't want to say I should have called it out earlier you know, we're very pleased with <unk>.
Kevin Gagne: Cancer business is trading at really contributed very well to our fourth quarter results, but something we don't broadcast is we don't actually incorporate the wing counts and sales pipeline in our numbers, we had actually technically not allowed to because of the way the CMA process works, but.
Kevin Gagne: You know you should have a I have a knowledge of that actually when we talk about our sales pipeline. It really will be very very strong once we saw that integration in all the different territories.
Kevin Gagne: We're really seeing a lot of activities existing customers a very basic got lots of new projects I mentioned earlier definitely we've seen a re surgeons of E fulfillment projects e-commerce activities coming back in every region that we're working in the <unk>.
Kevin Gagne: Vestments that we made at the start of 2024 are definitely showing big success and what I mean by that is in 2024, we we went through an exercise where we really upgraded some of our sales resources.
Kevin Gagne: Can see that in the improvement in sales pipeline, but also we added sales.
Kevin Gagne: Resolve is a new vertical and what is very pleasing to see right. Now is we're winning business in new verticals and generally the verticals that we've been targeting are the ones that give us less sensitivity to the consumer and that's good for this company because I think we have to recognize.
Kevin Gagne: At the point of this pain.
Kevin Gagne: Our business was probably about 50% really direct the focus to the consumer environment and that can be good when consumers are running well, but also it can it can flow through when consumer sentiments a bit less what we're doing right now I think we will make the company a lot more resilience I guess.
Kevin Gagne: The last comment I would say because it is very topical.
Kevin Gagne: We are seeing definitely particularly in our North American business, we have seen recent activity from U S customers.
Kevin Gagne: <unk> to reorient supply chains, taking account of maybe.
Kevin Gagne: <unk> be future environments for Thai rates wanting to bring business back.
Kevin Gagne: New inquiries coming as a consequence of the recent discussions about the de Minimis exception this process and it doesn't affect so as Ryan.
Kevin Gagne: Don't really work with customers that utilize that but that will probably drive more customers to put where how are you seeing local into the market and in the end that will be good news for <unk>.
Kevin Gagne: I appreciate all the color.
Kevin Gagne: On that [laughter].
Kevin Gagne: And then maybe we could kind of venture into competitive dynamics has there been.
Kevin Gagne: We've heard of some resurgence from <unk>.
Kevin Gagne: Other competitors.
Kevin Gagne: And growth and I was wondering are you guys.
Kevin Gagne: Seeing that as well and then whether there is.
Kevin Gagne: Even a higher sense of green shoots coming from warehousing.
Speaker Change: And Kevin I would say, we are not seeing any different environment today than we were maybe 12 months ago. When we think about the competitive landscape you know those are.
Kevin Gagne: Tiny number of companies that are capable of providing services on a global basis on a global basis at scale as <unk>, so kind of those companies with a year ago two years ago, the today and they're very healthy.
Kevin Gagne: Competitor Suez, we like most companies that very responsible in the way in which they approached Christmas on their pricing strategies.
Kevin Gagne: We're very that's a good catchment of people, but we tend to see when we are working with customers and then likewise, there's a range of light what we would term local heroes of small companies that frankly, our focus towards the kind of customers are really less our kind of customers that sort of local.
Kevin Gagne: Regional type of players, but overall I think Jack So we're just really in a very good position to work in particular that seems I filmed through 'twenty, four a driving more and more technology AI in particular no.
Kevin Gagne: <unk> business is really helping tremendously to differentiators and I've got no doubt, it's one of the reasons, we're winning business.
Kevin Gagne: Maybe maybe just on that topic I can just ask Christine to comment because I mean, we have just got such a ton of new technology and AI coming through I mean, we're very proud of a Christine Thank you Malcolm.
Christine: It really hit on quite a few of our opportunities and real world accomplishments that we've made over this year. We're certainly very early on in our proprietary AI development. We certainly were seeing real world results already today and I highlighted some of those modules I mean in my prepared comments, but certainly we're seeing fantastic results in terms of <unk>.
Christine: Activity increases of three to four times in specific parts of the processing and this is really versus a 20% improvement on your normal everyday continuous improvement type project. So really a leap forward in terms of the types of opportunities and outcomes that we're able to deliver for our customers and certainly really just continues to drive our <unk> differentiation.
Christine: As we look forward to our strategy in 2025 is to continue to rollout these AI modules across our warehouses.
Christine: Gonna be layering in as many proprietary AI modules and many hospital sites and.
Christine: We're already live with AI today, So we're really looking forward to harnessing this powerful effect.
Christine: Again, this will really continue to drive the exercise differentiation with our customers.
Speaker Change: Perfect I appreciate all the color.
Speaker Change: Our next questions are from the line of Uday kind of poker with TD Cowen. Please proceed with your question.
Speaker Change: Yes.
Speaker Change: Thanks, Hey, good morning. This is on for Jason Seidl.
Speaker Change: I guess it is.
Speaker Change: A clarification on the customer realignment, maybe following up on prior questions I understand the one off nature and <unk> and the the contracts kind of reaching maturity, but how prominent was the volume outlook itself as a consideration for customers and in doing this revaluation I guess I'm trying to understand like if the contract renewal outcome is linked to the near term macro outlook in any way like any framing from that respect.
Speaker Change: It would be helpful. Thanks.
Speaker Change: Hi, This is Barry sure as I mentioned, if I look into those those customers. They were driven primarily by the consumer volumes that they had in one customer we have open other sites are in other locations and in one side. It was in one side it was primarily.
Speaker Change: We're looking into their peak volumes and also the peak volume they looked into their 2 million 305 forecast and it was a prime location for us and we held onto the lease and we already secured another customer. So this is going to be a net beneficiary for us and the third one is the customer that you have out there.
Speaker Change: Very long relationships mature side, but because of the lower volumes they.
Speaker Change: They decided to go into decided to realign their network and they remain a good customer projects. So overall I'm not as concerned.
Speaker Change: The underlying volumes of our customers and existing existing sites is the low <unk>.
Speaker Change: <unk> digits positive in Q4, and we expect that to be flattish in 2025.
Speaker Change: Alright. Thank thanks, that's helpful and I guess the.
Malcolm Wilson: Follow up Mountain Malcolm you mentioned kind of the de minimus changes might be a positive. If you know I guess the volume flows into more warehousing as shippers kind of consolidate their freight I mean is that something that you're already seeing take place preemptively or is this something that you would anticipate just given the dynamics.
Speaker Change: Color there.
Speaker Change: I think we're seeing we're seeing inquiries coming in now to our sales team obviously.
Speaker Change: It's a north American issue and we don't today work with customers.
Speaker Change: Who who are willing to take that so for us from my perspective, we see that as a net positive impact we are pretty confident that a lot of those customers will ultimately need to convert.
Speaker Change: Existing supply change to have a presence.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Instead of what they are doing today, but I think it's a it's definitely something that we expect to see some benefits during the course of 2025.
Speaker Change: Okay, Thanks, everyone and congrats on the retirement market.
Speaker Change: Thank you.
Malcolm Wilson: Sorry, ladies and gentlemen at this all the time, we have for questions today I'd like to hand, the call back to Malcolm Wilson for closing remarks.
Speaker Change: Thanks, Rob and again, thanks for hosting our call today, we truly appreciate it.
Speaker Change: In the fourth quarter, we delivered a further sequential improvement in organic revenue growth and a year over year improvement in our adjusted EBITDA margins, leading to a 30% year over year.
Speaker Change: At EBITDA growth.
Speaker Change: Absolutely delighted to be showing some fantastic growth in the healthcare sector.
Speaker Change: With our largest ever win.
Speaker Change: And also in Germany, which is now our.
Speaker Change: Our fastest growing individual geography market.
Speaker Change: The acquisition of clip has really helped us to turbocharge, our opportunities in new verticals and the new region in Germany, no doubt whatsoever.
Speaker Change: Forward to doing exactly the same likewise with renal cancer and in the industrial verticals defense and aerospace, particularly in Europe, where we can see already a huge opportunity set.
Speaker Change: As alert King <unk>, so to help them successfully navigate these times the times that we're in.
Speaker Change: Leadership in using automation technology and efficiency benefits that we're now starting to see coming through deployment of AI.
Speaker Change: Becoming a growing importance.
Speaker Change: You know where were really told from our question is just how much they value that and how much they say that being a differentiator for <unk>.
Speaker Change: So with that I'd like to wish everybody a great rest of the day and I'd like to thank everybody for joining us on our call we've not let's close the call. Thank you.
Speaker Change: Thank you ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.