GXO Logistics, Inc.

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. 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. 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. 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. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release are 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. Company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. 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. Unless otherwise stated, all results reported on this call are reported in United States dollars. Company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures, and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore actual results could differ materially from guidance. 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. I'll now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, you may begin.

Thank you, Rob, and good morning, everyone. I appreciate you joining us today for our fourth quarter and full year 2024 earnings call. With me in Greenwich are Barry Schoran, our Chief Financial Officer, and Christine Kabecki, our Chief Strategy Officer. In 2024, we had some great operational highlights. We delivered record revenue and adjusted EBITDA. Notably, our adjusted EBITDA grew 30% -over-year in the fourth quarter. We drove organic growth acceleration every quarter throughout the year. 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 deal in the health sector. 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. For the full year 2024, we generated $11.7 billion of revenue, growing 20% of which 3% was organic. 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. We entered 2024 expecting to deliver $760 million to $790 million of adjusted EBITDA. 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 EBITDA for the full year in line with our expectations. 2024 was the second year in a row that GXO caused over a billion dollars of new business wins. We won exciting contracts with new brands like Levi's, LG, Puma, and the German coffee chain, XBO. We also grew enormously with our existing customers in the year. 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. Also in the fourth quarter, we won a major new contract, a long-term $2.5 billion total lifetime value fulfillment operation in the healthcare sector. This opportunity came through a legacy relationship we gained from our acquisition of Clipper Logistics in 2022. The Clipper deal also gave us a foothold in Germany and I'm pleased to report that we've grown our revenue there by 60% -over-year as of the end of 2024. Germany is now our fastest growing market. 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. This is a growing business that will bring us expertise in key verticals like aerospace and industrials where we plan to accelerate our growth. Turning to our outlook for this year, we expect to deliver 3 to 6% organic growth with $840 million to $860 million of adjusted EBITDA for the full year 2025. 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. 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. We expect to have an interim update on the CMA's regulatory review in the next week. Before I pass the mic to Barish 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, the structural tailwinds of outsourcing, automation and e-commerce will continue to drive our long-term growth. Brands around the world are unprecedented supply chain complexity. And we're bringing the benefit of our scale, expertise and tech enabled solutions to help them solve their most complex problems. Second, leadership in technology continues to be a key differentiator for GXO. We've long been the leader in tech enabled fulfillment. And in 2024, we made rapid progress towards our vision of the AI enabled warehouse. I'll ask Christine to give you more details on that in just a moment. Third, we strengthened our sales organization in 2024, not only in our traditional verticals, but in new verticals and geographies. These investments have already begun to bear fruit. We 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 defense, food and beverage and omni-channel retail. In North America, we won significant business in the technology sector, including a major contract managing data centers. 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 our long-term growth. With that, I'll hand you to Barish who will walk you through the financials and our guidance. Barish,

over to you. Good morning, everyone. Before reviewing the numbers, I would like to particularly highlight the strong sales here we have had. First, as Malcolm mentioned, we won more than a billion dollars of new business in 2024 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. Second, we noted last quarter that demand for new e-commerce facilities was growing. 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. And third, we finished the year with a robust pipeline, giving us confidence in our long-term growth. For the full year of 2024, we generated revenue of $11.7 billion, growing 20%, of which 3% was organic. Our 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. Our adjusted diluted earnings per share was $2.80, up from $2.59 for the full year of 2023. Our operating income for the full year 2024 was $218 million, and we delivered net income of $138 million. 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. Our adjusted diluted earnings per share was $1 in the fourth quarter, up from $0.70 in the fourth quarter of 2023. Our fourth quarter operating income was $101 million, growing 16% year over year, and net income was $100 million, growing 37% year over year. Our operating return on invested capital at 46% remains well above our long-term target. In 2024, we again converted more than 30% of our adjusted EBITDA to free cash flow. We delivered an outstanding $127 million of free cash flow in the fourth quarter. We remain laser-focused on capital effectiveness and continue to prioritize investment in technologies and services that drive the greatest return for our customers. 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 Vincanton in the second quarter. As we focus on the leveraging and integration throughout 2025, M&A is not on our short-term agenda. Now turning to our guidance. For the full year 2025, we expect to deliver organic revenue growth of 3 to 6%. We anticipate a sequential acceleration of organic growth throughout the year, similar to what we have seen in 2024. Given the phasing of new business wins and the customer capacity realignment impacting the first quarter, our organic growth trajectory is underpinned by our strong sales performance, where we close more than a billion dollars of new business wins for the second year in a row. We have $627 million of incremental revenue booked for 2025, which is 10% higher than where we were at this point last year. And at the same time, our pipeline has grown 15% -over-year as of the end of 2024. Our investments in our sales organization are creating the momentum for our long-term growth. We also expect to deliver $840 million to $860 million of adjusted EBTA. As Malcolm highlighted, our guidance range reflects a sequentially increasing adjusted EBTA throughout the year. 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, post-peak season, we have worked with a few of our large customers to realign their footprints, to fit their future needs. You will note from our revenue guidance that we have been able to almost completely offset this rationalization impact through new wins. But due to the maturity curve of startups, we'll see improved profitability throughout the year. This means that these realignments will predominantly affect our adjusted EBTA in the first quarter. 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 EBTA and an increase in our effective tax rate in 2025. At the midpoint of our range, we expect to convert about 30% of adjusted EBTA into free cash flow, in line with our historical performance. We expect our growth to continue to accelerate sequentially throughout 2025. 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 Christine. Christine, over to you.

Thanks, Barish. Good morning, everyone. We're pleased with our results for the full year 2024. As Malcolm and Barish mentioned, the investments we've made in our business are driving great results. 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. As we discussed last quarter, we began piloting our first proprietary AI applications in select warehouses across the US last year. We've now launched 22 instances of our proprietary AI apps across three key warehouse functions, proactive replenishment, skew dimensioning, and order routing. Our tools have delivered exciting results over the past few months, including productivity improvements of three to four times in stock replenishment for a major sporting goods retailer, a 50% improvement in order allocation, plus a 22% improvement in cart and fill rates, which drove efficiency and decreased transportation costs for an omni-channel retailer, and a record-setting inbound process for 35,000 skews as we prepared to launch a new e-commerce operation. We have a number of other modules in development, including volume prediction, slotting, and pick optimization. GXO's strategy for AI within the four walls of the warehouse focuses on improving productivity and de-bottlenecking the flow of product. Our 2025 roadmap prioritizes layering additional modules on sites where we're already live with AI to compound the impacts of these powerful tools. We run mega sites for household name brands all over the world, and we're focused on scaling the impact of our AI across multiple warehouse processes in parallel. We're excited about this technology and the tangible results it's driving. We're receiving positive customer feedback on how our AI is transforming their fulfillment operations, 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.

Thanks, Christine. We've delivered a record-setting year, advanced our commercial and tech strategies, and built momentum to accelerate our growth in 2025 and beyond. I'd also like to share our pride that GXO received numerous awards in 2024, from being recognized as the number one logistics provider on Newsweek's list of America's most reliable companies, to receiving accolades for our innovative use of AI and awards for our partnership with customers like Nestle and Whirlpool. We greatly appreciate the industry's recognition of our outstanding performance and innovation. And before we close, I'd like to thank our employees for their excellent performance during peak and throughout the whole of 2024. 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. 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. With that, we'll hand the mic back to Rob for Q&A.

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 one from your telephone keypad and a confirmation tone to indicate your line in the question queue. You may press star two if you like to withdraw your question from the queue. 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. Thank you. And our first question is from the line of Stephanie Moore with Jeffery. Please receive your question.

Good morning. This is Joe Hoffman on for Stephanie Moore. Thank you so much for taking our questions and thanks for the informed with slide deck and all the details you provided in the prepared remarks. Can we unpack a little bit more about what's happening in the first quarter with that 15 million evidah hit? It just seems like a pretty heavy hit. There, as you mentioned, it was only a couple of customers. So could we kind of maybe talk about exactly what's going on? Were these customers just really a lot more profitable than kind of the new business that you're bringing in? Or is there a cough flag between when these customers are realigning their capacity and you're backfilling the sites? And maybe my follow up to that would be, to the print, have you already found customers or tenants to kind of take over those new sites? Thank you.

Hi, it's Baris here. Good morning. 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. The difference compared to full year bridge is that we have a larger impact from customer capacity alignments and new site implementations. We have positive net means from a revenue standpoint in Q1 and capacity alignments are primarily in mature sites and our startups take time to reach the glide path. 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, there's a handful of contracts that have driven this impact. These are one-off in nature. Let me give you some detail. First, there is a customer that we have seen a relative large mature site exit. We have continued to win new business from this customer and we'll have four sites going live throughout 2025. Number two, one of our automated customers have realigned capacity in their network and given the prime location of operations, we have held the lease and already secured another customer which will contribute profits in the second half of 2025. Number three, another long-standing mature site customer has realigned their network because of lower consumer volumes. They remain a good customer for GXO and on top, as we've highlighted, we face some effects and pension has been about 20 million dollars or so in 2025 versus 2024. When you add those back, the underlying performance is quite healthy.

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. Networker alignment is a short-term impact. They are not lost customers. In fact, as I highlighted, we are opening new sites for one of these customers and for the other site, we are reallocating it to another customer. The productivity of course will ramp up. As we have highlighted in 2022, 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 very much. Thank you. Our next questions come from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.

Thanks very much. Good morning. I'm curious to hear about how transactional volume with existing customers has been trending. 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. How should we expect that to look in 2025? 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.

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 Barish to comment on. When we think about the fourth quarter, definitely our continental Europe business that was showing the fastest growth and that growth has really carried on into 2025. We mentioned earlier 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 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. They're a little bit cautious about the go forward and those tax rates will start to impact in April. So I would say our UK business softened a little bit but actually still very vibrant and obviously you heard earlier our sales pipeline very strong and that notable very, very big win in a new vertical health care. Here in the US definitely we've seen a pick up in mood from the consumer focus business and we can see that reflected in our stronger sales pipeline. We did very well in the last quarter when it comes to volumes and we expect that to progress forward. Not withstanding the point that Barish has just made where momentarily in quarter one you do see this impact of us realigning some customer volumes on some of our big customers. Very small number but it's a point for our quarter one. It's too early to gauge what impact tariffs will 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 you know 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 and that's good because a lot of these new verticals they're less sensitive to consumer behavior and you know that really builds to the strength of the resilience of the business. I'm sure all of these factors are contributing to this 15 percent year over year growth that we're in ourselves pipeline. Farish maybe you can add a little bit more detail on percentages. Sure Malcolm.

We have seen sequential improvement in our revenue growth, organic revenue growth in 2024 and we do expect sequential improvement in 2025. Within that in Q4 our underlying customer volumes were slightly positive in the fourth quarter. That's less than a percent positive and when we look into the entire year of 2025 we expect underlying customer volumes to be flattish for the entire 2025.

Great thanks for that guys appreciate the geographic and ed market discussion. I guess I'll do my follow-up with regard to that healthcare win. It sounds like 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 business in healthcare? Is this something that you think you can penetrate rapidly? Or I believe you said in the past it would be helpful via acquisition which I know is on hold while win canton's occurring. Just curious your ability to ramp healthcare with this new win organically in any incremental detail you can share about this new contract. Thanks.

Yeah Scott it's Malcolm here again. Look it's a milestone win. You know it's a huge piece of business that we anticipate starting in the second half of this year. We are under very strict confidentiality agreements. 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. Already I can see that in our UK sales pipeline and a lot of enquiries already coming in in continental Europe. We have a very large catchment of interested customers who will come in really on the back of this very prestigious win that really opens up a huge range of services that we're providing for the customer. So in that regard very very positive outlook for the way forward in healthcare and that's a really brand new vertical for us that we're achieving without actually having to undertake any M&A. It's a homegrown organic huge big opportunity for us. On win canton I mean win canton business is trading very very well but it's clear for us that we can achieve with that what we've achieved in healthcare. Healthcare really came from embryonic business relationships that came out of the clipper M&A. It was one of the things we saw in clipper 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. In win canton the highlights that we see in new verticals it's the industrial sector, defense, aerospace. I think we'll achieve the same successes. It might take us a year two years following integration that's normal for top line synergy benefits. You're seeing that right now it's a couple of years since clipper but we're pretty confident we'll see the same levels of successes coming out of the win canton deal. Great thank you.

Our next question comes from the line of Chris Weatherby with Wells Fargo. Please just do with your question.

Yeah hey thanks good morning guys. I guess just sort of conceptually on some of these customer losses or adjustments I guess you know there's 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 either penalty for closing 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 a relatively high retention rate probably because the portfolio was relatively balanced in terms of renewal risk but kind of curious about how we think should think about that going forward.

Chris hi it's Malcolm here nice to hear from you. Chris it's very much a kind of one-off event you know as Barish mentioned we did experience something similar way back in 2022. It just happens that you know we've got two or three large customers very strategic customers for us. We have business with these customers on multiple geographies you know relationships very very strong. On one hand you know we see a need we identify 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 clearly an opportunity to do things differently that will bring greater efficiency well we wouldn't be doing our job if we didn't identify that and work with the customer to actually make that happen and that's pretty much what's happened here. We have good visibility on those kind of things we were able to influence it we are not in any way financially damaged as a consequence because clearly our contracts are back to back that's a feature of our company that's one of the things that make our earnings relatively highly predictable as you've seen over the years and in this instance as Barish mentioned it's really a consequence of the move of relatively mature business coming to an end happens to be a number of incidents in one quarter and then new business starting up very quickly but as you as you've heard us mention in the past there is generally a small lag when we start new business we don't achieve mature contract profitability generally it takes about six months for us to reach those levels and that's really what you're seeing and you're seeing that it 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 and and it's one of the reasons why our our guide for the year looks a little lower than probably people might have expected

okay all right that's helpful i appreciate it and then on 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 just some different dynamics of the book of business that you have today are there some other factors we should be considering hi

chris is barish here our free cash flow for q4 was 127 million and 251 million for 2024 we delivered around slightly over 30 free cash flow conversion in 2025 we targeted a similar 25 to 35 conversion 30 points at the middle of the range a similar outcome to what delivered in 2024 prior to our 2024 free cash flow guidance we did not contemplate and the canton acquisition and we delivered on the lower end of this range this was due to the funding of and integration and final payments of the transaction cost it in aggregate came around 70 million dollars for the year and we are generating strong underlying cash flow and this is in line with our history

okay so it's when canton is a slightly different cash profile if we think about 2025 or there's still some of these integration or sort of financing costs that that impacts free cash for 25

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 a midpoint 30 percent free cash flow range in 2025

okay thank you very much appreciate the time thank

you

our next questions are from the line of basket majors with cisco hannah international please receive your question

if we look back on your organic growth history it's been since mid-22 since you've been in that long-term range of double digits and i understand this has corresponded with you know a pretty meaningful change in the the fulfillment and in retail framework from the kind of pandemic peak that ended mid-22 but can we talk long-term is there an opportunity to maybe lower that expectation and and set yourself up for the opportunity to exceed in a world where mid-single digits has really been more common than the double digits that you know 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 how you're feeling about that you know going out two or three years thank you

yeah mascom hi it's malcolm here um luke i i think you're right since 22 i think we've certainly lived through some uh turbulent environments across all the different geographies that our company works in you know we we can recall kind of you know the fact that we've had in major territories in europe we've had a war which hopefully we can see signs that that's going to come to an end and you know we've had various different uh issues in terms of global supply chains and economic environments that we've been facing we have a we have a long-term guide out there i think right now further to say uh probably best not to so much comment 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 there's definitely right now uh you know we have an uncertainty about the timing of when we will start the wing canton integration and just as a reminder you know on that one specific topic you know we know that we will achieve around 55 million dollars of integration cost saving synergies once we start the integration that's pretty much safe one of the things we're having to reflect in this year's uh guide is right now we have an uncertainty of the timing of that initially uh we believe that we would have been starting that right from the get-go right from now january 2025 we've had to recognize that the cma process has prolonged on uh longer than we would have uh originally 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 reflecting it a much more prudent approach to the timing of that where we might have expected that uh the lion's share that 55 million to land in 2025 uh probably right now prudently we're no it's probably more like a 25 26 so i think all of these things are in play and uh you know as i say i think there'll be time for us to do some remodeling of all of the impacts of these different scenarios and for sure you know we'll target to be updating everyone with when we've got a little bit more clarity around all of these topics

thank you malcolm

thank you our next questions are from the line of ravi shankar with morgan stanley please receive with your questions

hey great this is christine on for ravi um just wanted to maybe first ask about the sequential improvement through the year it does sound like there's some startup costs so does that imply more of like a hockey stick improvement in in qq and then you know seasonality or is it more of a dental slope um as some of that business kind of layers in would just love to understand a bit how how the year might look

hi christine it's marish here um there is seasonality in our numbers it has always been our q1 has always been the lowest and our q1 q4 has been the highest level of activity that basically um fulfillment activity consumer demand that's reflecting the seasonality but beyond that as we have highlighted uh this year specifically more prevalent in q1 we 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 implementation and we do expect every quarter to be better compared to the prior quarter q1 being from a revenue perspective still a growth quarter but from an ebita perspective we will have an impact of these capacity alignment and the ramp up of these new facilities and as we have highlighted as we've seen in 2024 2022 we will see an improvement every quarter in 2025

great thanks and if i can ask for my follow-up you referenced the management transition um certainly congratulations uh on the impending retirement but we'd just love to know a little bit more about um you know the the process of making that decision and maybe what you're looking for uh and a successor meltham

uh hi christine yeah for sure well lou uh the board we're in the middle of conducting a very thorough search of candidates both within and of course outside of the gxr and we're very confident that we'll find the right person to continue to deliver on the huge growth potential that this company has um uh you know i hope that we'll have identified the right person in the coming months and then it'll be just down to the specifics of the individual uh you know in terms of the actual starting point but hopefully this side of the summer should be possible um on my side luke my retirement it's a it's a personal decision i've worked in the industry for an awful long time but i have to say i'm absolutely committed i'm passionate to ensure that uh you know we'll have a very seamless hand over and we'll uh give the new ceo everything that we can do to help uh continue to propel this company in a very successful uh fashion and not not least to say you know new ceo is going to inherit just uh a stellar management team uh that's been working in the company now since it's been all the way back in 2021 and lastly look you know just to remind we did say earlier um since 2021 you know uh the last year prior to the spin this is a company that has doubled the size of its business uh we've grown ebitda every single year so it's a business that's in good shape after some fantastic you know strategic mna and really investing in a huge amount of new technology that's really going to help propel uh the benefits for customers for shareholders for the long term uh into the future so i think uh you know uh we're in a good environment it will be a very smooth transition into a new ceo

i appreciate that very much thank you

our next question come from the line of ari rosa with city please just see with your question

hey good morning um so you know it feels like now it's been a while since we've seen fx represent a headwind uh to to operations and to the financials i'm curious about the desire to be shift more of your geographic mix towards the united states and away from europe and uk obviously you talked about the growth in germany and and have done some acquisitions in the uk but i'm wondering as we look forward five or ten years out do you see the businesses being more focused on the u.s do you see that geographic mix shifting from what it is currently just some thoughts on that would be helpful thanks

very high it's malcolm here again blue as i think bearish mentioned earlier right now our focus of attention definitely is to is to you know get our debt down everything focused internally on the business or mna in the short term is really off the agenda but there's no doubt you know having completed a couple of mna in our europe arena we definitely feel that we want to grow more now in the north american business i think our north american business is doing incredibly well got a good management team in place great customer satisfaction but there are so many different opportunities new verticals that we've proven uh with companies like clipper with wincanton that you know when we achieve a vertical just as we did with the smaller mna here in north america of pfs we're able to grow quickly into those new verticals so definitely geographically our focus of attention when we are finally ready to look at further mna it will definitely be here in north america

got it okay very helpful and then just for my follow-up malcolm uh it seems like for those of us who have followed gxl for some time and and uh it's different iteration within the xpo prior to that it seems like there are periodically these these events where there's a customer loss or kind of a restructure 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 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 just your thoughts around that would be helpful thank you

yeah it's a big company it's a big business and uh you know i think it's less so much a surprise uh from a management perspective because the way our contracts work we have long visibility we tend to be working well in advance with customers in terms of renewals but i think we have to recognize that the last two or three economies in all of the different regions that we work in and that's 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 you know the normal process that we go through with customers we identified that we had a just a small number of customers where we weren't not really delivering the operational efficiency that could from the footprints that we had working together and you know we would not be doing the right job for our customers not working with them identifying it working with them to do that realignment it's a i think it's a very rare occurrence you should look upon it very much as a one-time environment but you know for sure occasionally every every number of years we will find an environment where when we're taking account of the business and looking at different economic environments with customers remembering some of our customers are multiple hundreds of millions of dollars and sometimes they're on the up and sometimes the you know they're they're less uh have a less positive trajectory and of course that's when we we need to work together with them you know to get ready for the longer term future

got it okay thank you and malcolm congratulations on the pending retirement

thanks very much thank you for that

our next questions are from the line of kevin gainey with comston davis please proceed with your questions

good morning malcolm barrens christine i actually want to see if you could maybe give us a little bit of color on the customer pipeline and whether the dynamics there have changed um whether there's maybe like a higher sense of urgency to get things done or if there's more hesitation because of some of the you know rate tariff discussions etc just to kind of get what your customers are saying in the pipeline

yeah kevin hi it's malcolm here again very high level i think you know our pipeline's up 15 percent year over year we're running with a very strong pipeline at the moment uh about 2.3 billion dollars and i do want to say i should have called it out earlier you know we're very pleased with how wing canton business is trading it really contributed very well to our fourth quarter results but something we don't broadcast is we don't actually incorporate the wing canton sales pipeline in our numbers we're actually technically not allowed to because of the way the cma process works but you know you should have a have a knowledge of that that actually when we talk about our sales pipeline it really will be very very strong once we start that integration in all the different territories we're really seeing a lot of activities uh existing customers are very busy got lots of new projects i mentioned earlier definitely we've seen a resurgence of e-fulfillment projects e-commerce activities coming back in every region that we're working in the investments that we made at the start of 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 you can see that in the improvement in sales pipeline but also we added sales uh resources in new verticals and what's 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 at the point of the spin we were our business was probably about 50 percent really directly focused to the consumer environment and that can be good when consumers are running well but also you know it can it can flow through when consumer sentiments a bit less what we're doing right now i think will make the company a lot more resilient and i guess the last comment i would say because it's it's very topical you know we are seeing definitely particularly in our north american business we have seen recent activity from us customers looking to reorient supply chains taking account of maybe maybe future environments for tariffs wanting to bring business back we've we've had new inquiries coming as a consequence of the recent discussions about the de minimis exception you know this process ending it doesn't know we don't really work with customers that utilize that but that will probably drive more customers to put warehousing local you know into the market and in the end that will be good news for for gxr

i appreciate all the color um on that and then maybe we could kind of venture into competitive dynamics has there been we've heard of some resurgence from other competitors and growth and i was wondering are you guys seeing that as well and then whether there is even a higher sense of green shoots coming from warehousing

and kevin i would say we're not seeing any different environment today than we were maybe 12 months ago when we think about the competitive landscape you know there's a tiny number of companies that are capable of providing services on a global business on a global basis at scale as gxr can do those companies with her a year ago two years ago they're there today and they're very healthy competitors to us we we like those companies they're very responsible in the way in which they approach customers and their pricing strategies so we're very you know that that's a good catchment of people that we tend to see when we are working with customers and then likewise there's a there's a range of like local heroes there's small companies that frankly uh focus towards the kind of customers that are really less our kind of customers the sort of local regional type of players but overall i think gxr we're just really in a very good position the work in particular that our teams have done through 24 in driving more and more technology ai in particular now into our business is really helping tremendously to differentiate us and i've got no doubt it's one of the reasons we're winning business maybe maybe just on that topic i can just ask christine to comment because i mean we have got such a ton of new technology and ai coming through i mean we're very proud of it christine

thank you malcolm i certainly hit on quite a few of uh of opportunities in and real world accomplishments that we've made over this year we're certainly very early on in our our proprietary ai development we certainly in we're seeing real world results already today and i highlighted some of those modules i mean my prepared comments but certainly we're seeing fantastic results in specific parts of the processes and this is really versus of 20 improvement on your normal everyday continuous improvement type projects 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 this continues to drive our gxr differentiation you know as we look forward to our strategy in 2025 is to continue to roll out these ai modules across you know our warehouses and we're going to layering in as many proprietary ai modules in as many possible sites and we're really we're already live with ai today so we're really looking forward to harnessing this powerful effect again this will really continue to drive gxos differentiation with our customers

perfect appreciate all the color

our next questions are from the line of ouda conifer with td calendar who's to see with your questions

thanks hey good morning this is uh for jason sidle i guess it's just just a clarification on the customer realignments maybe following up on prior questions i understand the one-off nature in one queue and the the contract kind of reaching maturity but how prominent was the volume outlook itself as a consideration for customers in doing this evaluation i guess i'm trying to understand like if the contract renewal outcome is linked to the near-term macro outlook in any way it's any framing from that perspective would be helpful thanks

hi ouda this is barry sheer 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 up on other sites uh in other locations and in one site it was in one site it was primarily looking into their peak volumes and after the peak volume they looked into their 2025 forecast and it was a prime location for us and we held on to the lease and we already secured another customer so you this is going to be net beneficiary for us and the third one is a customer that we have a very very long relationships the mature site but because of the lower volumes they decided to go into it they decided to realign their network and they remain a good customer for gx so overall i am not as concerned on the underlying volumes of our customers and existing existing sites is very low single digits positive in q4 and we expect that to be fetish in 2025 all

right thanks thanks barry that's helpful and i guess as my follow-up malcolm you mentioned kind of the the de minimis changes might be you know a positive if you know i guess volume flows in the more warehousing as shippers kind of consolidate they're afraid i mean is that something that you're already seeing take place preemptively or is this something that you you anticipate just given the dynamics any color there

i think we're seeing we're seeing inquiries coming in now to our sales team prime obviously it's a it's a it's a it's a north american issue and we don't today work with customers who who who undertake that so for up from our perspective we see that as a net positive impact we're pretty confident that a lot of those customers will ultimately need

to

convert you know existing supply chains to have a presence here you know instead of what they are doing today but i think it's it's definitely something that we expect to see some benefits for during the course of 2025 okay

thanks everyone and congrats on the retirement thank you

sorry ladies and gentlemen at this solid time we have for questions today i'd like to hand a call back to malcolm wilson for closing remark

thanks rob and again thanks for hosting our call today which really appreciated and in the fourth quarter we delivered a further sequential improvement in organic revenue growth and the euro vr improvement in our adjusted ebda margins leading to a 30 euro vr adjusted ebda growth we're absolutely delighted to be showing some fantastic growth in the health care sector with our largest ever win and also in germany which is now our fastest growing individual geography market the acquisition of clipper has really helped us to turbocharge our opportunities in new verticals and the new region in germany no doubt whatsoever we look forward to doing exactly the same likewise with canton in the industrial verticals defense and aerospace particularly in europe where we can see already a huge opportunity customers are looking to gxo to help them successfully navigate these times the times that we're in leadership in using automation technology and efficiency the benefits that we're now starting to see coming through deployment of ai it's becoming of a growing importance and you know we're really told from our customers just how much they value that and how much they see that being a differentiator for gxo 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 with that let's close the call thank you

thank you ladies and gentlemen this concludes today's conference thank you for your participation you may disconnect your lines at this time and have a wonderful day