GXO Logistics, Inc. Price & Performance (GXO)

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 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 the SEC. Is not possible for the company to actually predict demand for its services in [indiscernible] 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 of the company's website. [indiscernible] I'll now turn the call over to GXO's Chief Executive Officer, Malcolm Wilson. Mr. Wilson, 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 Sheuran, our Chief Financial Officer and Christine Kovecki, our Chief Strategy Officer. In 2024, we had some great operational highlights [indiscernible] 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.

We had a stellar sales year closed over $1,000,000,000 of new business wins, for the second year in a row grew our relationships with our customers and won a landmark $2,500,000,000 deal in the health sector For the fourth quarter twenty twenty four, we generated revenue of $3,300,000,000 and we delivered adjusted EBITDA of $251,000,000 in line with our expectations. For the full year 2024, we generated $11,700,000,000 of revenue growing 20% of which 3% was organic, I'd like to highlight that closing the year at $11,700,000,000 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 $760,000,000 to $790,000,000 of adjusted EBITDA During the year, we updated our guidance to take into account our acquisition of Wing Canton, [indiscernible] we're very pleased that we've delivered $815,000,000 adjusted EBITDA for the full year in line with our expectations. 2024 was the second year in a row that GxO caused over $1,000,000,000 of new business wins. We've won exciting contracts with new brands like Levi's, LG Puma, and the German coffee chain [indiscernible] We also grew enormously with our existing customers in the year. Our land and expand strategy has been a cornerstone of our long term partnership and we expanded into new geographies with more than 40 Boeing Guess Michelin and Nespresso.

Also in the fourth quarter, we won a major new contract a long term $2,500,000,000 total life time 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 CLIPA deal also gave us a foothold in Germany and I'm pleased to report that we've grown our revenue there by 6% year over year as of the end of twenty twenty four.

Germany is now our fastest growing market. These accomplishments are proof positive of our On that note, about M and A, in 2024, we completed our acquisition of Wing Canton, 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 $840,000,000 to $860,000,000 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 their future needs. Our guidance also reflects the impact of the current FX [indiscernible] and our prudent expectations on the timing of in year integration benefits from Wyncanton. 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 facing unprecedented supply chain complexity [indiscernible] we're bringing the benefit of our scale expertise and tech enabled solutions to help them solve the most complex problems Second, leadership in technology continues to be a key differentiator for Gxor 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 in 2024, not only in our traditional verticals but in new verticals and geographies, these investments have already begun to bear fruit We close 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 over to Barish who will walk you through the financials and our guidance.

Bearish over to you. Good morning, everyone. Before reviewing the numbers, I would like to particularly highlight the strong sales year we have had. First, as Malcolm mentioned, we won more than $1,000,000,000 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 one 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 $11,700,000,000 growing 20% all 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 $815,000,000 growing 10% Our adjusted EBITDA margin was 7% for the full year. Our adjusted diluted earnings per share was $2.8 up from $2.59 for the full year of 2023. Our operating income for the full year 2024 was $218,000,000 and we delivered net income of $138,000,000 In the fourth quarter, we generated revenue of $3,300,000,000 growing 25% year over year. We delivered adjusted EBITDA of $251,000,000 growing 30% year over year.

Our adjusted diluted earnings per share was $1 in the fourth quarter, up from $0.7 in the fourth quarter of twenty twenty three. Our fourth quarter operating income was $101,000,000 growing 16% year over year and net income was $100,000,000 37% year over year. Our operating return in vessel capital at 46% remains well above our long term targets. In 2024, we again converted more than 30% of our adjusted EBITDA to free cash flow. We delivered an outstanding hundred and $27,000,000 of free cash flow in the fourth quarter. We remain laser focused on capital effectiveness and continue to prioritize investments in technologies, and services that drive the greatest return for ARKAS. Our balance sheet continues to strengthen Our net leverage was 2.7x as of the end of the fourth quarter. Down from the peak of 3.1 times following the acquisition of Bincanten in the second quarter.

As we focus on deleveraging and integration throughout 2025, M and 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 strong sales performance where we closed more than $1,000,000,000 of new business wins for the second year in a row, we have $627,000,000 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% year over year as of the end of twenty twenty four. Our investments in our sales organization are creating the momentum for our long term growth. We also expect to deliver $840,000,000 to $860,000,000 of adjusted EBITDA. As Malcolm highlighted, our guidance range reflects a sequentially increasing adjusted EBITDA 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 [indiscernible] through new wins. But due to the maturity curve of start ups, we'll see improved profitability throughout the year. This means that these realignments will predominantly affect our EBITDA in the first quarter. We expect our full year adjusted diluted earnings per share to be in the range of $2.4 to $2.6 reflecting our guidance on adjusted EBITDA and an increase in our effective tax rate, in 2025. 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.

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 Wing Canton our results will accelerate. [indiscernible] I'll pass the mic to Christine.

Christine, over to you. Thanks, Besh.

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 U. S. Last year. We We've now launched 22 instances of our proprietary AI apps across three key warehouse functions. Proactive replenishment, SKU dimensioning, and order routing. Our tools have delivered exciting results over the past few months. [indiscernible] productivity improvements of three to four times in stock replenishments for a major sporting goods retailer. A 50% improvement in order allocation plus a 22% improvement in carton fill rate drove efficiency and decreased transportation costs for an omni channel retailer. And the record setting inbound process for 35,000 SKUs as we prepare to launch a new e commerce operation. We have a number of other modules in development. Including volume prediction, [indiscernible] and pick optimization, DXO's strategy for AI within the four walls of the warehouse focuses on improving productivity, and debottlenecking the flow of product. Our 2025 roadmap prioritizes layering additional modules on [indiscernible] 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 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 Americas, 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 rate outstanding performance And before we close, I'd like to thank our employees for their excellent performance during [indiscernible] and throughout the whole of 2024. Our customer satisfaction scores reached an all time high as of the end of twenty twenty four 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. [indiscernible] we'll hand the mic back to Rob for Q and A. Thank you.

At this time, we'll be conducting a question and answer session. Thank you. And our first question is from the line of Stephanie Moore with Jefferies.

Please proceed with your question. Good morning. This is Joe Hoffman 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. Can we unpack a little bit about more about what's happening in the first quarter with that $5,015,000,000 dollars EBITDA hit? It just seems like a pretty heavy hit. Barish, you mentioned it was only a couple of customers. So could we kind of maybe talk about exactly what 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 cost lag 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 extent that you have some customers leaving some sites or reducing their footprint, have you already found customers or tenants to kind of take over those new sites? Thank you.

Hi, Barish. It's Barish here. Good morning. We expect low single digit organic revenue growth in Q1 and we expect to deliver around $155,000,000 of adjusted EBITDA the midpoint of our range. The difference compared to full year bridge is that we have a larger impact [indiscernible] customer capacity alignments and new site implementations. We have positive net wins from a revenue standpoint in Q1 And capacity realignments are primarily in mature sites and our start ups 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. [indiscernible] coming back to your 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 site 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 twenty twenty five.

Number three, another long standing mature site customer has realigned their network Because of lower consumer volumes they remain a good customer for GxTalk. And on top, as we've highlighted, we face some FX and pension headwind about $20,000,000 to $15,000,000 or so in 2025 versus 2024. And when you add those back, the underlying performance is quite healthy.

Got it.

So much. And 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.

Network realignment is a short term impact They are not lost customers. In fact, as you as I highlighted, we are opening new sites for one of these customers And for the other side, We are reallocating it to another customer As we have highlighted in 2022, we had a similar short term impact from the new startups and you have seen how this was result quickly throughout the year. Our history speaks for itself. Thank you.

Our next question comes from the line of Scott Schneeberger with Oppenheimer.

Please proceed with your question.

I'm curious to hear about how transactional volume with existing customers has been trending It's 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. Should we expect that to look in 2025? And I'm not sure if this development with these two or three customers affect 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 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 U. K, 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 healthcare Here in The U. S, definitely, we've seen a pickup in mood from the Consumer Focus business, and we can see that reflect We did very well in the last quarter when it comes to volumes and we expect that to progress forward Notwithstanding 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.

Too early to gauge what impact tariffs will have on our U. S. Business. But 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.

Also, as we highlighted in quarter three, we've definitely seen a pickup in our e commerce and omni channel commercial activities. So again, just to highlight, 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 that's really builds to the strength of the resilience of the business. I'm sure all of these factors are contributing to this 15% year over year growth that we're seeing in our sales pipeline. Barish, 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 improvements in 2025. Within that, in Q4, our underlying customer volumes were slightly positive in the fourth quarter. That's less than 1% And when we look into the entire year of 2025, we expect underlying customer volumes to be flattish for the entire twenty twenty Great. Thanks for that guys. Appreciate the geographic and ed market to 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? This something that you think you can penetrate rapidly? Or I believe you said in the past it would be helpful the acquisition, which I know is on hold while Wynnton is occurring Just curious, your ability to ramp healthcare with this new win organically and any incremental detail you can share about this new contract?

Yes, Scott, it's Malcolm here again. Look, it's it's a milestone win. 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 we're very proud to be partnering with this new customer already I can see that in our U. K. Sales pipeline and a lot of inquiries 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 press win that really opens up a huge range of services that we're providing for the customers. 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 and A. It's a homegrown organic big opportunity for us On Wyncanton, I mean Wyncanton 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 CLIPR M and A. It was one of the things we saw in CLIPR when we were doing that deal.

This vertical the business that existed in Germany and that also has proven to be a huge success. In Wyncanton, the highlights that we see in new verticals, it's the industrial aerospace, think will achieve the same successes 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 Wyncanton deal.

Great. Thank you. Our next question comes from the line of Chris Wetherbee with Wells Fargo.

Please proceed with your question.

Hey, thanks. Good morning, guys.

I guess just sort of conceptually on some of these customer losses or adjustments, I guess, 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 factor included in it. And I guess also you think about sort of the go forward period, was this one a unique dynamic where at the end of the fourth a higher number than normal contracts coming up for renewal. So guess we've always thought about a relatively high retention rate probably because the portfolio was relatively risk.

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 As Barish mentioned, we did experience something similar way back in 2022. It just happens that we've got two or three large customers very strategic customers for us. We have business with these customers on multiple geographies, relationships very, very strong. On one hand, we see a need.

We identified to the customer. We're always out to optimize the business that we have with customers for the long run. When we can see clearly opportunity to do things differently that will bring greater efficiency, But we won'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 [indiscernible] 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've heard us mention in the past, there is generally a small lag when we start new business. We don't [indiscernible] 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 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 it's one of the reasons why 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 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 can you walk us through sort of what's happening from a cash perspective? There's just some different dynamics of the book of business that you have today? Or are there some other factors we should be considering?

Hi, Chris. It's Varish here.

Our free cash flow for Q4 was $127,000,000 and $251,000,000 for 2024 we delivered around slightly over 30% free cash flow conversion in 2025, target a similar 25% to 35% [indiscernible] A similar outcome to what we have delivered in 2024. Prior to our 2024 free cash flow guidance, we did not contemplate the Encanto acquisition and we delivered on the lower end of this range this was due to the funding and integration final payments of the transaction costs in aggregate came around $70,000,000 For the year. And we are generating strong underlying cash flow and this is in line with our [indiscernible] Okay. So it's Wyncanton is a little slightly different cash profile as we think about 2025 or there's still some of these integration or sort of financing costs that impacts free cash for 2025?

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 midpoint 30% free cash flow range 2025. Okay.

You very much. Appreciate the time.

Thank you.

Our next questions are from the line of Vasco Majors with Susquehanna International.

Please proceed with your question.

If we look back on your organic growth history two since you've been in that long term range of double digits. And I understand this is corresponded with a pretty meaningful change in the fulfillment and retail framework from the kind of pandemic peak that ended mid-twenty two. But can we talk long term? Is there an opportunity to maybe lower that expectation and set yourself up for the opportunity to really exceed in oral where mid single digits has 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 how you're feeling about that going out two or three years? Thank you.

Mascom, hi, it's Malcolm here. Luke, I think you're right, it seems 'twenty two, I think we've certainly lived through some turbulent environments across all the different geographies that our company works in. In. We can recall kind of 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 we've had various different issues in terms of global supply chains and economic environments that we've been facing. We have have a long term guide out there I think right now, fair to say, 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 we have uncertainty about the timing of when we will start the Wing Canton integration. And just as a reminder, on that one specific topic, we know that we will achieve around $55,000,000 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 guide is right now, we have an uncertainty of the timing of that.

Initially, we believe that we would have been starting that right from the get go, right from no January 2025. We've had to recognize that the CMA process has prolonged longer than we would have 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 reflect in it a much more prudent approach to the timing of that, where we might have expected that the lion show that $55,000,000 to land in 2025 probably right now, prudently, we're feeling no, it's probably more like a 25%, 26%. So I think all of these things are in play. 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 And for sure, 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 question is from the line of Ravi Shankar with Morgan Stanley.

Please proceed with your questions. Hey, Great. This is Christine on for Robbie.

Just wanted to maybe first ask about the sequential improvement through the year. It does sound like there's some start up costs, but does that imply more of like a hockey stick improvement in 2Q and then seasonality or is it more of a gentle slope as some of that business kind of layers in? We'd just love to understand a little bit how the year might look. Hi, Christine. It's Mauricio.

There is seasonality in our numbers. It has always been our Q1 head always been the lowest and our Q4 has been the highest level of activity [indiscernible] fulfillment activity, consumer demand, that's reflecting the seasonality. But beyond that, as we have highlighted, 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 from an EBITDA perspective, will have an impact of this capacity alignment, realignments 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. Certainly congratulations on the impending retirement, but would just love to know a little bit more about the process of making that decision and maybe what you're looking for in a successor at Malcolm? Hi, Christine. Yes, for sure. Well, Luke, the Board, we're in the middle of conducting a very thorough search of candidates, both within and of course outside of GXO. And we're very continue to deliver on the huge growth potential that this company has 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 in terms of the actual starting point. But hopefully, this side of the summer should be possible. On my side, Luke, my retirement, 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 we'll have a very seamless handover and we'll give the new CEO everything that we can do to help continue to propel this company in a very successful fashion and not not least to say, a new CEO is going to inherit just a [indiscernible] management team that's been working in the company now since its spin all the way back in 2021.

And lastly, Luke, just to remind, we did say earlier the last year prior to this spin, this is a company that has the size of its business. We've grown EBITDA every single year. So it's a business that's in good shape after completing some fantastic strategic M and A and really invest [indiscernible] really going to help propel the benefits for customers, for shareholders for the long term into the future. So I think we're in a good environment It will be a very smooth transition into a new CEO.

Appreciate that very much. Thank you. Our next question comes from the line of Ari Rosa with Citi.

Proceed with your question.

Hey, good morning. So So it feels like now it's been a while since we've seen FX represent a headwind to operations and to 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 UK. Obviously, you talked about the growth in Germany 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 business as 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.

Harry, hi. It's Malcolm here again. Look, as I think Barish mentioned earlier, right now, our focus of attention definitely is to get our debt down, everything focused internally on the business. So M and A in the short term is really off the agenda. But there's no doubt having completed a couple of M and A in our Europe arena, we definitely feel that we want to grow more now in the North American business. I think our North America business is doing incredibly well got good management team in place, great customer satisfaction opportunities, new verticals that we've proven with companies like Clipper, with Wing Canton that when we achieve a new vertical just as did with the smaller M and A here in North America of PFS we're able to grow quickly into those new verticals. So geographically, our focus of attention when we are finally ready to look at further M and A it will definitely be here in North America.

Got it. Okay, very helpful. And then just for my follow-up, Malcolm, it seems like for those of us who have followed GxO for some time and and different iteration within XPO prior to that. It seems like there are periodically these events where there's a customer loss or kind of a restructuring contract that causes a little bit of a downward surprise in terms of relative to perhaps what the Street was expecting. Just wondering if there's a way to better insulate yourself from these types of events. So so 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. Yes. It's a big company. It's a big business. And I think it's less so much a surprise from a management perspective because the way our contract 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 years, there has been it's been a very changing environment in [indiscernible] 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 through with customers, we identified that we had just a small number of customers were we were not really delivering the operational efficiency that we could from the footprints that we had working together. And 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, both for sure, occasionally, 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 they're less have a less positive trajectory. And of course, that's when we we need to work together with them 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 Thompson Davis.

Please proceed with your questions. Good morning, Malcolm. Barronsky, 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 whether there's maybe like a higher sense of urgency to get things done or there's more hesitation because of some of the rate tariff discussions, etcetera? Just to kind of get what your customers are seeing in the pipeline?

Kevin, hi, it's Malcolm here again. Very high level. I think our pipeline is up 15% year over year. We're running with a very strong pipeline at the moment, about $2,300,000,000 I do want to say, I should have called it out earlier, ignore We're very pleased with how Wyncanton business is trading. It really But something we don't broadcast is we don't actually incorporate the Wincanton sales pipeline in our numbers. We're actually technically not allowed to because of the way the CMA process works. But you should 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, existing customers are very busy. Got lots of new projects. I mentioned earlier, death [indiscernible] 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 2024 are definitely showing big success what I mean by that is 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 resources in new verticals And what's very pleasing to see right now we're winning business in new verticals. And generally, the vertical that we've been targeting are the ones that give us less sensitivity to the consumer and that's good for this company because think we have to recognize at the point of this spin our business was probably about 50% really directly focused to the consumer environment. And that can be good when consumers are running well, but also 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, we are seeing definitely [indiscernible] we have seen recent activity from U. S. Customers looking to reorient supply chains taking account of maybe future environments for tariffs wanting to bring business back, we've had new inquiries coming as a consequence of the recent discussions about the de minimis, exception, this process ending, it doesn't affect us right now. We don't really work with customers that utilize that. But that will probably drive more customers port warehousing local into the market. And in the end, that will be good news for GxO.

I appreciate all the color on that.

And then maybe we could kind of venture into competitive dynamics Has there been we've heard of some resurgence from [indiscernible] 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?

Kevin, I would say we're not seeing any different environment today than we were maybe twelve months ago when we think about the competitive landscape. There's a tiny number companies that are capable of providing services on a global business on a global basis at scale [indiscernible] GXO Those companies were there a year ago or two years ago, they're there today and they're very healthy competitors to us. We like those companies. They're very responsible in way in which they approach customers and their pricing strategies. So we're very that's a good catchment of people that we tend to see when we are working with customers. And then likewise, there's a range of like what we would term local heroes. They're small companies that frankly a focus to us, the kind of customers that are really less our kind of customers, the sort of local regional type of players. But overall, I think GXO, 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 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 it. Christine, Thank you, Malcolm.

I certainly hit on quite a few of of 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 we're seeing real world results already today and I highlighted some of those modules in my prepared comments But certainly, we're seeing fantastic results in terms of productivity increases of three to four in specific parts of the processes. And this is really versus a 20% improvement on your normal everyday [indiscernible] to really 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 GXO differentiation As we look forward to our strategy in 2025, it's to continue to roll out these AI modules across our warehouses And we're going to be 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 GxO's differentiation with our customers.

Perfect. Appreciate all the color.

Our next questions are from the line of Uday Khanaparra with TD Thanks. Hey, good morning. This is Jose on for Jason Seidl.

I guess, just a clarification on the customer realignments, maybe following up on prior questions. I understand the one off nature in 1Q and the the contracts kind of reaching maturity, but how prominent was the volume outlook itself as a consideration for customers doing this revaluation. I guess I'm trying to understand If the contract renewal outcome is linked to the near term macro outlook in any way? Like any framing from that perspective would be Hi, Udi. This is Boris here. As I mentioned, if I look into those customers, they were driven primarily by consumer volumes that they had In one customer, we have opened other sites 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 [indiscernible] it was a prime location for us and we held on to the lease and we already secured another customer. So this is going to be net beneficiary for us. And the third one is a customer that we have a very, very long relationships and mature side But because of the lower volumes, They decided to go into they decided to realign their network and they remain a good customer for GxDot.

So overall, I'm not as concerned The underlying volumes of our customers and existing existing sites very low single digits positive in Q4 and we expect that to be flattish in 2025.

All right.

Thanks, Barry.

That's helpful.

I guess as my follow-up, Malcolm, you mentioned kind of the de minimis changes might be a positive if volume flows into more warehousing as shippers kind of consolidate their freight. I mean, that something that you're already seeing take place preemptively or is this something that you anticipate given the dynamics? Any color there?

I think we're seeing inquiries coming in now to our sales team, obviously, it's a North American issue. And we don't today work [indiscernible] customers who undertake that. So 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 existing supply chains to have a presence here instead of what they're 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. Everyone and congrats on the retirement Malcolm. Thank you.

Sorry. Ladies and gentlemen, this is all the time we have for questions today. I'd like to hand the call back to Malcolm Wilson for closing remarks.

Thanks, Rob. And again, thanks for hosting our call today. It's really appreciated. 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 adjusted EBITDA growth absolutely delighted to be showing some fantastic growth in the healthcare 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 what [indiscernible] We look forward to doing exactly the same [indiscernible] with Wing Canton in the industrial verticals, defense, and aerospace, particularly in Europe, where we can see already 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 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, Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation.

May disconnect your lines at this time and have a wonderful day.