Vestis Corporation

Welcome to the Vestas Corporation Fiscal Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. To enable others to hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Michael Aurelio, Vice President, Investor Relations.

Thank you, Ashley, and good morning, everyone. Welcome to the Vestas Corporation Fiscal Fourth Quarter and Full Year 2024 Earnings Call. With me here today are our President and CEO, Kim Scott, and our CFO, Rick Dillon. As a reminder, a telephonic replay of this call will be available on the investor relations section of the Vestas.com website shortly after the completion of the call. Also, access to the materials discussed on today's call are available on the Vestas website under the investor relations section. Before we begin, I would like to remind you that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our periodic and current reports filed with the Securities and Exchange Commission. We do not undertake any duty to update them. With that, I would like to turn the call over to Kim.

Thank you, Michael. Good morning, everyone. Thank you for joining our fiscal fourth quarter 2024 earnings call. Vestas recently celebrated its first year anniversary as a standalone public company. And I want to begin by recognizing our teammates and the collective effort behind that milestone. Over the past year, our team has been hard at work building a strong foundation that will allow Vestas to capitalize on the tremendous opportunity ahead. To each of our 20,000 dedicated teammates, thank you for your continued commitment and support of our customers and shareholders. We delivered solid fourth quarter financial results that were in line with our expectations for revenue and ahead of our expectations for adjusted EBITDA. Fourth quarter revenue was $684 million, and on a full year basis, Fiscal 2024 revenue was 2.8 billion. We are very pleased with our fourth quarter adjusted EBITDA performance, which allowed us to deliver 353 million in EBITDA for the full year, representing a margin of 12.6 versus our guidance of 12 to 12.4%. Q4 adjusted EBITDA was 81 million versus our implied Q4 guide of 76 million. As a reminder, Our 2024 results include the impact of incremental public company costs, which impacted fourth quarter and full year 2024 margin by 75 basis points and 65 basis points, respectively. We continue to generate strong free cash flow in line with our conversion target. That has supported our strategic priority to delever, and we ended the year with a 3.6 times net leverage ratio. I want to focus my discussion today on simple but important themes. We are building commercial momentum. We continue to drive efficiencies across our operations, and we remain highly focused on elevating our customers' experience. A lot is working well at Vestas, which we will talk about today, but we still have more room to go. And that's what excites me regarding the opportunities ahead. We are committed to achieving best-in-class performance related to retention, sales, and margins, and I'm encouraged by what we're beginning to see. As I move through my prepared remarks, I will also touch on some cost initiatives that give us great confidence in our ability to deliver against our commitments in fiscal 2025 and set us up for continued profitable growth as we move into fiscal 2026 and beyond. I'll begin with the commercial progress we are seeing, including our national account wins and pipeline, success with the small to medium enterprise customer base, and achievements in route sales with existing customers. I'm pleased with the development of our sales capabilities, and we expect an acceleration in new business wins in FY25, with incremental volume outpacing lost business beginning in the second quarter. Over the past year, we have been focused on growth with national accounts, a segment of the market that was not a growth priority for the company in the past. These accounts add route density, make our routes more efficient, and leverage our excess plant capacity. And they can carry an incremental margin above our corporate average margin. I'm really proud of major recent wins in this segment, including a large multi-year deal with a leading national food services company spanning multiple product categories across both uniforms and workplace supplies. We see potential for this account to become one of our largest customers over the next several years. We also won a large expansion award as part of a recent renewal with an existing top 10 customer in the restaurant industry. As a longtime partner, this customer valued our service and saw the benefit of further consolidating its business with a trusted national service provider. This lane expansion is expected to more than double our revenue with the customer when fully ramped. The current state of our national account pipeline is the strongest I've seen during my tenure at Vestas, with a record high for both new logos and risk-weighted revenue in the pipeline. Turning to our small to medium enterprise customer base, I'm also pleased with the early results we've seen in the field sales under our new leadership and structure. Beginning in early September, our new head of field sales began making significant changes to our sales training and processes, including implementing more tactical selling strategies for targeting competitor business and converting non-programmers. Since then, we have seen a greater than 10% year-over-year increase in per-seller productivity. In one specific region, we saw seller productivity hit a level that we believe represents best in class for our industry, and a level that is multiples higher than our company-wide level in fiscal 2024. These recent data points demonstrate what is possible from our sales team. As sales headcount has attrited over the past year, we have purposefully delayed the replenishment of the team. Now, with a strong leader in place, we are institutionalizing a world-class sales process strengthening our field sales leadership and are ready to expand the size of our team. We will be introducing these teammates into a better structure with stronger leadership and sound sales processes that will set them up for success and reduce teammate turnover going forward. In addition to new customer acquisition, we also continue to deliver strong results from route sales. Our route sales increased approximately 50% in fiscal 2024 and added more than 100 basis points of in-year revenue growth at high margin flow through. We have sustained this momentum into 2025 with route sales continuing to grow more than 50% on a year-to-day basis and in line with our objectives for 2025. Now I would like to discuss the initiatives we are driving related to efficient operations. As I've discussed in the past, we have excess capacity in our facilities. which means if we continue to deliver on the commercial improvements I outlined, we could see significant operating leverage. We also have line of sight to a number of initiatives that will further drive costs out of the business in fiscal 2025, which I will discuss momentarily. Let me start with our excess capacity. We are well positioned to accelerate volume growth without the need for a step up in CapEx. we believe we have approximately 35% underutilized wash capacity in our current plant footprint. This gives us the highly attractive opportunity to grow volumes and drop operating leverage without the need to spend meaningful capex for additional equipment or new plants. We continue to deliver strong advancements with our network optimization and merchandise reuse initiative. We expect to realize meaningful cost savings from these areas in fiscal 2025, which will come from a combination of physical 2024 carryover benefits as well as additional in-year actions. Finally, we are executing against a portfolio of cost takeout initiatives throughout FY25 that will enhance our cost structure as we move through the year. These include further improving our field operations cost profile and rationalizing our back office G&A. We have already executed against many of these efficiency opportunities in the first quarter, underpinning our confidence and our ability to deliver our commitments this year. Now I want to discuss an area of our strategy where we are moving in the right direction, but still have opportunity to continue to improve the customer experience. We remain laser focused on delivering a best in class customer experience that will support retaining and growing with our existing customers. Importantly, our physical 2024 retention rate improved by 150 basis points year over year to 91.9%, which will position us better entering 2025 versus 2024. We are pleased with the year over year improvement and the fiscal 2024 rate. As we've mentioned in the past, there can be some seasonality in this metric, and we believe it is most useful to evaluate retention on a full year basis. That said, we are also pleased that our fourth quarter retention improved more than 400 basis points year over year, and what has historically been our lowest quarter of the year from a seasonality perspective. As a reminder, our retention in the fourth quarter of fiscal 2023 included the impact of national account losses and customer response to significant fiscal 2023 pricing actions. We are keenly focused on continued improvement in service measures, responding quickly to our customers' needs and always putting the customer first. We believe we can further improve our retention rate in fiscal 2025, and we feel good about where the year has started with a retention rate of 93.7% in October. To further illustrate the changes we have been implementing, I want to highlight two new operational initiatives that are currently underway. These include a new on-time delivery notification and measurement system that will allow us to better measure and manage our delivery performance, as well as a new standard operating procedure for our plants to control product shortages. We have observed an almost 50% reduction in shortage-related service requests at the pilot locations and are preparing for a network-wide rollout in the near future. I'm excited about the way our organization has rallied around this powerful cultural shift as we embrace a customer-first mindset underpinned by robust improvements in our operating procedures. Now I'd like to end by discussing our outlook and guidance for fiscal 2025. We expect fiscal 2025 revenue of $2.8 to $2.83 billion and adjusted EBITDA of $345 to $360 million. This represents revenue growth of approximately 0% to 1% and a margin of 12.3% to 12.7%. It's important to note that our guidance excludes the benefit of one-time customer exit billings and revenue from the large direct sale customer that we exited in fiscal 2024 as part of our profit improvement strategy for that line of business. Rick will discuss this in more detail in his prepared remarks. Adjusted for these impacts, we expect to deliver core revenue growth of 1% to 2% and adjusted EBITDA margin expansion of 40 basis points, which we believe is a better view of the current trajectory of the business and our underlying performance. This core growth will be driven by positive contribution from both net volume growth and pricing. Specifically, we continue to build momentum with new sales and have now lapped headwinds from outsized 2023 carryover lost business. Additionally, we continue to realize net price increases with our customers, and we expect pricing to be a positive year-over-year contributor to growth in fiscal 25. Furthermore, and what's most exciting, is that as we deliver our fiscal 25 plan, we also lap tough comps in the first half of the year and thus expect to begin to deliver revenue growth of 3 to 4 percent and EBITDA growth approaching or exceeding 10 percent in the back half of the year. This instills great confidence that we will enter 2026 with momentum. To conclude, I'll come back to the three initial themes I shared at the beginning of my discussion. A lot is working well at Vestas. We are building commercial momentum and we are seeing continued success with our efficient operations initiative. In addition to our logistics optimization, we are executing against a portfolio of cost initiatives that will support the delivery of our results as we move through FY25. Through the course of FY25, we will continue to identify opportunities to make our operations more efficient, allowing us to further improve our cost structure. And lastly, we are building a customer-centric culture with a keen recognition of the importance of delivering an outstanding customer experience in order to grow the lifetime value of our customer base. We remain focused on executing against our strategy, and I'm excited about the opportunity ahead for Vestas. Lastly, in response to preliminary proposals received for potential acquisitions of Vestas, we have retained Centerview Partners and Weill Gottschall. I want to emphasize that our management and board are focused on maximizing shareholder value. As a public company, we will always do what is in the best interest of shareholders. Given the confidentiality and sensitivity around this topic, we will not answer questions regarding this during our call. Thank you in advance for your understanding. With that, I'd like to turn the call over to Rick.