Baris Oran: Hi Chris, it’s Baris here. Let me take that. We expect higher growth in 2024. We already signed nearly $600 million of a new business impacting 2024 and we will continue to sign more business, which we expect to grow given the good outsourcing opportunities in our pipeline throughout this year. There has been a really a great outsourcing opportunity in all geographies we see right now. Our services are high in demand. We expect to see positive, but lower contribution from pricing and look for steady underlying customer turnover. There will continue to be some impact, at least at the start of the year, from the lower footprint of our customers, given their lower inventory levels, which gives us roughly 2% to 5% organic growth in 2024. Our growth will accelerate given the ramp up of customer projects we have and easier year-over-year comp. And if you look into our earlier trading results in January and as we talk to our customers, that view is confirmed.
Chris Wetherbee: Okay. And just so I’m clear, though, should we assume sort of still somewhat negative in the first part of the year turning positive as we move forward? So 1Q maybe still is a little on the negative side, or are you able to turn positive based on what you see through January?
Baris Oran: In Q1, we definitely expect an improvement over Q4, and the earlier trading results are showing us that.
Chris Wetherbee: Okay, helpful. And then the follow-up would just be translating that to the EBITDA side. I guess as we think about the potential for incremental margins is ‘24 a year, well, you’ll be able to see maybe some degree of expansion there. I guess can maybe talk a little bit about the puts and takes that are going on there. I know you have some of the cost efficiencies flowing from ‘23 to ‘24. You have PFS, I’m just kind of curious about the moving parts there?
Baris Oran: Sure. Our margins yet again prove how strong this business model is. Our EBITDA percentage margin will be steady in 2024. Nominally, we expect $760 million to $790 million, with a midpoint of around $775 million. Our organic growth, supported by deployment of robotics, automation, and outsourcing will contribute to our margin expansion. PFS is trading well and will contribute. Our central efficiencies program, which we highlighted in detail, will provide an incremental $14 million benefit, and we’ve gone through the details in the earlier call. And all of this balanced with our investment in our capabilities and organization, including our sales and business development teams, where we see phenomenal opportunities, our automation focus, which is selling really, really well, and our investment in our cloud-based systems turning our potential into performance and will fuel our growth in the future.
Chris Wetherbee: Okay. Thanks for the time. Appreciate it.
Baris Oran: Thank you.
Operator: Thank you. Our next questions come from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions.
Scott Schneeberger: Thanks very much, good morning. A couple questions, I guess the first one Baris for you following up on Chris’s question. Could you speak to maybe a year-over-year bridge outlining kind of the primary drivers of adjusted EBITDA in 2024 versus ‘23. What are some of the big puts and takes that we’re looking at year-over-year? Thanks.
Baris Oran: Sure. The largest components are organic growth and we expect that to accelerate throughout the year. As we highlighted, we’ve been a lot more outsourcing projects and technology, our automation and robotics is a huge enabler on that one. PFS will continue to trade well and contribute to our results. Central efficiencies, which we have gone through in detail, both will contribute $14 million, and we will continue to invest in our capabilities in our organization. To give you a further highlight on what those investments are. We are investing in our sales and business development teams, automation and robotics implementation teams. We are moving to cloud both our data centers and software. This is in progress, both financial, HR, IT systems across the board.
And we are actively working on outsourcing with a third-party on some non-course support functions activities. This was all part of the plan and we’re moving forward in early part of 2024 on those plans. All of those, as you would recall, was what we highlighted in our capital market day and was going to give you a full-year effect over $100 million by 2026.
Scott Schneeberger: Great, thanks, Baris. I guess, probably from Malcolm or Adrian primarily, you guys have highlighted today, I mean, GXO is a really large target addressable market. It gets significantly larger when customers who don’t yet outsource their warehouse and supply chain operations to a third-party provider get involved. And clearly, your mix of contract wouldn’t increase substantially year-over-year. So I guess my multi-part question here is, it sounds like reverse logistics is a big driver of this outsourcing trend? What type of growth rate are you getting? It sounds like it’s above the average, but what type of growth rate are you getting in reverse logistics? And do you anticipate that accelerating? And then also, kind of this follow on, with outsourcing a more meaningful mix, what type of growth new business win run rate do you anticipate over the coming few years?
Malcolm Wilson: Scott, It’s Malcolm here. Let me take the first part of that, and then I’ll ask Baris to comment on some of the numbers. You’re absolutely right, reverse logistics, it’s a huge growth area for our business. Right now, across our total company, it’s starting to represent high-single-digits of our combined activities. And when I look at the sales pipeline, it’s very clear to see there’s a huge number of projects coming through with a high degree element of reverse logistics. If you remember back right to the beginning of GXO, we always talked about those big tailwinds, more and more companies outsourcing their logistics. Well, absolutely in ‘23, we can see that in absolute action. You know, 40% of our business wins coming from that category.
That’s a real growth, probably outstripping our own expectations even. We also talked about automation, and Adrian has already touched on that. And again, those outsourcing contracts, people outsourcing sometimes for the first time, automation plays a huge part of it, because people are catching up, they’re recognizing that efficiency is everything and automation is a simple way for us to drive that. And then lastly, e-fulfillment, we don’t talk so much about it but it’s still one of our fastest growing activities. And again, automation playing a big part of it. So these are the trends we’re seeing as we’ve seen in ‘23. We think we’re going to continue to see those growth engines across our business. And really, I think we’re in a super position to capitalize on that as GXO.
Baris?
Baris Oran: Yes, reverse revenue is growing faster, and we expect that to grow faster yet again in 2024. And when you look in our investment strategy, what sells right now really, really well is outsourcing, automation, robotics, and that’s where we are putting our human capital and monetary capital. We are giving up our team and talent in the business development and also implementation teams on automation. This is a huge cycle and GXO is winning through differentiation and automation.
Scott Schneeberger: Thanks.
Operator: Thank you. Our next questions come from the line of Ravi Shanker with Morgan Stanley. Please proceed with your questions.
Ravi Shanker: Thanks. Good morning, everyone. Good job with the progress on the pipeline of new business. Can you elaborate on that a little bit more? I think, Malcolm, you said that there was some transformative projects in there. Can you expand on that a little bit? And also, are you seeing any changes in customer behavior? Are people like looking to run with less inventory than before because of higher interest rates or something?
Malcolm Wilson: Yes, hi Ravi, Malcolm here. Good morning, let me cover those few topics and I’ll also ask Adrian to come in on the shape of the pipeline and what customers are saying. As I mentioned right at the beginning of this call, one of the very pronounced points that we’ve seen in 2023, and no surprise, customers are eager to look how we can improve, how we can bring new efficiency, help them in the task of becoming more efficient in their own organizations. And clearly, automation plays a huge part of that. It’s really leaning into our wheelhouse. We’re seen in the marketplace as an innovator able to help organizations bring more efficiency. And again, no surprise, a huge amount of our business wins, a companies who are looking to outsource, looking to partners like GXO for the very first time.
It’s been a big source of growth and I think that’s a trend that we’re going to continue to see. So higher interest rates, higher inflation, all driving people to need to look for more efficiency. Adrian, may be useful just to share on some of that metric in the context of automation also?
Adrian Stoch: Yes, thanks, Malcolm. So this is Adrian. Good morning, everyone. What’s occurring in the industry is a very exciting flywheel combo effect between outsourcing and automation. And the need for enterprise digital transformation is leading organizations to reexamine their entire supply chains, because they understand that they need to go through this reexamination to stay competitive for today and increase resilience for the long-term. And we see this transformational trend in the numbers that both Malcolm and Baris have cited this morning where 40% of our wins comes from outsourcing and over half will lead to revenue from automated operations. And we need to keep in mind that this trend, we’re really just at the starting point of this — what’s occurring.
And our excitement is not only because of the potential benefits from automation, but because this industry is still predominantly very manual, and companies understand that in order to get the resilience that they need for the future, they need to elevate how they’re viewing supply chains and what they’re doing today to be in that position for competitive resilience in the future.
Malcolm Wilson: And Ravi, just one last point. You asked about inventory levels, I guess one of the trends we saw in the latter part of last year was organizations really adjusting inventory levels to suit the sale of goods. People need less inventory if they’re selling less products. So no doubt whatsoever we saw that trend. We think that will start to reverse as economies pick up. No doubt we missed customer volumes in last year, but really we expect those will start to return as general macro starts to strengthen across all of the geographies that we’re seeing. So definitely, that’s something that we’re looking for in ‘24.
