Q4 2020 Pitney Bowes Inc Earnings Call
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[music].
Good morning, and welcome to the Pitney Bowes fourth quarter 'twenty 'twenty earnings Conference call. Your lines have been placed in a listen only mode. During the conference call until the question and answer segment. Today's call is also being recorded if you have any objections. Please disconnect.
Your lines at this time I would now like to introduced participants on today's conference call, Mr. Marc Lautenbach, President and Chief Executive Officer.
MS Anna Marie Chadwick Executive Vice President and Chief Financial Officer, Mr. Joe kind of Parnell, Vice President and Chief Accounting Officer, and Mr. Adam David Vice President Investor Relations and financial planning Mr. David will now begin the call with the Safe Harbor overview.
Good morning.
Included in this presentation are forward looking statements about our expected future business and financial performance for them.
We're looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections.
More information about these risks and uncertainties can be found on our earnings press release, our 2019 form 10-K annual report and other reports filed with the SEC that are located on our website at www Dot <unk> dot com and by clicking on Investor Relations.
Please keep in mind that we do not undertake any obligation to update any forward looking statements as a result of new information of our development.
Also for non-GAAP measures used in the press release or discussed in this presentation you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website.
Additionally, we have provided slides that summarize many of the points, we will discuss during the call.
The slides can also be found on our Investor Relations website.
Now, our president and Chief Executive Officer, Marc Lautenbach will start with a few opening remarks Marc.
Thank you Adam.
Good morning.
Let me start by saying how delighted I am the Ana is joining the team as our Chief Financial Officer.
On a held several executive positions at GE capital flow.
The <unk> recently been president and CEO of GE Capital's global legacy solutions and prior to that the <unk>.
Chief operating officer, and CFO of that business.
On a brings with our strong financial and operational experience and will fit into the PB culture very well.
Before I turn to the state of our business I would again like to recognize and thank our employees.
No one could have predicted how the world changed in 2020.
So I am very proud of how our team was prepared and manage through the challenges.
Their efforts and hard work showing the progress we made in our business throughout the year, if I had to choose one word to sum up our employees in 2020, it would be determined.
That is exactly what our team personifies.
The fourth quarter was a remarkable ending to an extraordinary year Rev.
Revenue at constant currency grew 23%.
To the best of our knowledge. This is the highest modern day organic growth rate on record for Pitney Bowes.
And our shipping related revenues comprised 54% of our total revenue.
For the quarter global ecommerce grew 60% with profit improving for the prior year and prior quarters, resulting in positive EBITDA.
Presort turned in flat revenue performance, which is a significant improvement from prior quarters and better than the market.
<unk> turned in strong performance growing both revenue and profit over prior year.
This was powered by a strong equipment sales.
<unk> digit growth in our SaaS based shipping offerings.
Solid performance in our services business.
<unk> is the business that many considered a melting ice cube.
However, the investments we've made on our digital channel and products, while also expanding our shipping offerings of <unk>.
On the new life to this business.
All these accomplishments would of been hard to imagine the few short years ago, but this is what I determined and focused team can do it.
Looking at the year from a broader lens when the pandemic hit we had two objectives.
First we needed to focus on the health and wellbeing of our employees and ensuring the company remains strong financially during the unpredictable time.
Secondly, we wanted to come out of this terrible moment as stronger company.
This is also true that moment of economic dislocation create opportunities and our team was determined to leverage the investments we've made over the last several years to capture those opportunities.
Pivoted to change our work protocols and practices.
Provided our employees the necessary PPE to be safe as they did their essential work.
We also took the important actions to fortify our balance sheet by refinancing our debt and we made prudent decisions to ensure we had a solid liquidity position.
It was apparent early on the company's financial position with solid when we turn to coming out of the pandemic stronger, which we are well on our way of achieving for.
From an annual perspective global ecommerce turned on $1 6 billion on revenue growing on a record rate of just over 40%.
This business one of the new customers and achieve scale much earlier than we had planned.
Simultaneously, we accelerated our planned network build out by several years.
The certainly wasn't our estimate of selling but the business is on a much better place than it was 12 months ago.
Okay.
While the ecommerce astonishing growth understandably gets a lot of attention the transformation of our centex business tells on equally remarkable story.
Importantly, the business performed well relative to the middle market.
But even more enduring the business has moved to a natural adjacency and shipping.
This is a new large growth area, which along with the ongoing transformation of our financial services business and.
And a meaningful contribution from our global services group Leverages, our core strength.
The Panama is on the transformation of <unk> is the growth of shipping revenue, which is now a meaningful offset to our declining mail business.
Also notable U S shipments of our low end and middle market devices grew 13% for the year.
These multipurpose devices provide new value to clients as compared to our previous generation single purpose milling machines.
I'm also particularly pleased with our cash performance in the fourth quarter and the year the.
The increase in our cash is the result of disciplined execution and a great team effort.
It's a fairly remarkable accomplishment to meaningfully increase operating cash flow in the middle of the pandemic one of the most significant economic dislocation since the depression.
All of that being said transformations are always messy and number of straight line and transformations in the middle of the pandemic, particularly of complicated.
The unprecedented increase in the band and the ecommerce market credit cost inflation, particularly in labor and transportation costs on the fourth quarter, which had a deleterious impact on our profit in ecommerce.
This quarter test the capacity throughout.
Great.
Admittedly it was a challenge in order to optimize our service we more than doubled our labor instead of three new facilities to help meet the demand.
While these facilities along with the newer flagship sites. We opened late last year worked through typical growing pains. They have also become a critical part of our overall network handling over one quarter of our total domestic parcels in 2020.
In addition, our use and reliance of third party transportation This peak.
And cost and service was challenge, which was in line with the broader industry trends.
To mitigate this we proactively upgrade packages at a cost to try to maintain service.
Going forward, we see opportunity to balance our use of third party transportation and our own PV assets, which performed above expectations. This peak, we will continue to invest to become more efficient.
Each of these areas.
As I've said in the past is now within our four walls to manage the cost structure and generate efficiencies.
I am often asked about the anatomy of the transformations and I think it's worth repeating.
Transformations have a certain arc to them.
Quick wins.
Sustained investments revenue.
Revenue growth and then profitable revenue growth.
The most highly correlated factors for successful transformations, our revenue growth and employee engagement we.
We have achieved revenue growth the last several years and our employee engagement in the middle of the <unk> reached new highs.
While there continues to be tremendous uncertainty in our economy and how the pandemic will play out we are poised to enter the last stage of successful transformations profitable revenue growth.
I am proud of what the team has accomplished but we all recognize there is more work to do I'm excited about this next chapter of our transformation.
We're on the precipice of accomplishing that very few companies of ever done.
With that let me turn it over to Joe to take you through our results.
Thank you Marc and good morning, let me start by providing an overview of our full year results followed by the details of our fourth quarter unless otherwise noted my statements made during our call will be on a constant currency basis, when talking about revenue comparisons and on an adjusted basis when talking about earnings related items, including.
The EPS and cash flow.
Reconciliations of all non-GAAP to GAAP measures can be found in the schedules posted with our earnings press release and on <unk>.
Investor Relations website.
For the full year revenue was $3 6 billion, which was growth of 11% over prior year and as of our fourth consecutive year of kind of think currency revenue growth.
Global ecommerce grew 41% presort services declined less than 2% and syntech declined 7%.
The adjusted EPS was <unk> 30.
And GAAP EPS was the loss of $1 <unk>.
As a reminder, GAAP EPS includes a noncash goodwill impairment charge that we recorded in the first quarter.
GAAP cash from operations was $298 million and free cash flow was $279 million.
Free cash flow increased $91 million over prior year.
Through the year there were a few noteworthy items principally benefited free cash flow.
First our focus on collections resulted in a strong improvement in our DSO. We also saw a higher level of pre sort in PB bank customer deposits in part due to initiatives to support our clients.
The second finance receivables declined on a greater rate largely in the second quarter as the result of the lower placements of our fintech equipment due to the pandemic.
You can see the trend starting to improve as our fintech business built momentum through the second half of 2020.
<unk> began to reopen.
And finally capex early on when the pandemic surfaced, we made the prudent decision to re prioritize investments and reduced spending given the level of uncertainty in the market at the time.
There were other puts and takes through the year as we typically experience, but these area of the key drivers to understanding the strong free cash flow we generated for the year.
Looking at our balance sheet and capital allocation, we ended the year with $940 million in cash and short term investments.
For the year, we used free cash flow to return $34 million to our shareholders in the form of dividends.
Our capital expenditures totaled $105 million and reflect the investments made throughout the year and new and existing facilities on our technology and our products.
As part of our ongoing transformation, we also made $20 million and restructuring payments within our Pitney Bowes bank customer deposits grew to $617 million and Wheeler financial funded $16 million in new deals for the year from.
From a debt perspective, we ended the year with under $2 6 billion in total debt, which is the reduction of $175 million from prior year.
In terms of our net debt when you take our cash and short term investments and finance receivables into consideration our implied net debt position on an operating company basis was about $550 million at yearend.
Turning to the details of the fourth quarter.
We delivered $1 billion in revenue, which represents growth of 23%.
Global ecommerce grew 60% in both presort incentives were flat to prior year.
For the quarter adjusted EPS was <unk> 13.
And GAAP EPS was <unk> 11.
EPS for the quarter reflect the <unk> tax benefit primarily related to deferred tax balances in certain international tax jurisdictions.
GAAP cash from operations was $111 million in the quarter and free cash flow was $97 million.
Free cash flow of grew 16 million over the prior year predominantly driven by the timing of working capital.
During the quarter, we used free cash flow to reduce debt $31 million invest $24 million in capital expenditures and pay $9 million on dividends.
Turning to the P&L, starting with revenue performance as compared to prior year.
Business services grew 43% in equipment sales grew 15%, we had declines in support services of 4% and rentals of 8%, while financing and supply of both declined approximately 10%.
Gross profit was $311 million and gross margin was 30%.
This is a decline of about nine points from prior year, which largely reflects the shifting mix of our portfolio and higher cost of service driven by the influx of parcel demand and global ecommerce.
SG&A was $242 million or just under 24% of revenue, which is a six point improvement from prior year.
Within SG&A unallocated corporate expenses were $54 million, which were $2 $5 million higher than prior year.
It is important to note the full year unallocated corporate expenses were 200 million, which were $11 million lower than prior year, primarily due to lower employee related expenses.
R&D expense was $9 5 million or about one percentage of revenue, which was about <unk> five point improvement from prior year.
EBIT was $62 million and EBIT margin was 6% compared to prior year EBIT declined $3 million and EBIT margin declined about 2% largely driven by the lower gross profit.
Interest expense, including financing interest expense was $38 million, which was relatively flat to prior year the.
The provision for taxes on adjusted earnings was less than $1 million and our tax rate for the quarter was 1%, bringing our annual tax rate to 13%.
Average diluted weighted shares outstanding at the end of the quarter were about $177 million.
Let me now discuss the performance of each of our business segments. This quarter.
Within global ecommerce revenue was $518 million, which was growth of 60% over prior year and the first time, we achieved over $500 million in quarterly revenue.
Compared to prior year volumes grew by 50% or more across each of our lines of business.
Domestic parcels volumes grew 76% to just under 65 million parcels.
Digital volumes grew 50% and cross border volumes grew 76%.
Looking at EBIT, we recorded a loss of $15 million.
This was an improvement of $3 million from prior year and $5 million from prior quarter.
EBIT margin also improved three points from prior year and two points from prior quarter EBITDA was $3 million, which was an improvement from prior year in prior quarters.
Revenue growth over prior year benefited from the significant demand. This was offset by higher costs driven partly by the market dynamics, which we are seeing a significant higher transportation spot market and higher labor costs.
The increase in peak demand also put pressure on our productivity.
We will continue to invest across our network to drive efficiencies reduce cost and improve service for our clients, which will come in part from automation across our network. We are addressing our labor structure of shifting more from temporary labor to permanent which will yield of more productive workforce. We are also looking at our transportation net.
Where it can opportunities where it makes sense for us to become less reliant on the spot market.
Along with becoming more efficient and of capturing deeper postal discounts.
Additionally, similar to the market.
We will capture of surcharge in 2021, along with our annual general rate increase.
Within Presort services revenue was $135 million, which was flat to prior year.
Overall average daily volume declined 2% first class mail volume declined 3%, while marketing mail volumes grew 2%.
Marketing mail blast and bound printed matter of volumes grew 26%.
As we have discussed in the past this is still a relatively small part of the portfolio, but representing new revenue and profit stream for us.
EBIT was $13 million and EBIT margin was 10% EBITDA.
EBITDA was $21 million and EBIT margin was 16% EBIT.
EBIT and EBIT margins were relatively in line with prior quarters and declined from prior year, largely due to higher medical claims and increased labor costs as well as the COVID-19 related direct costs for the health and safety of our facility workers.
Turning to our <unk> segment revenue was $376 million, which was flat to prior year, excluding the impact of currency and represents growth of 1% on a reported basis.
Marc talked about the investments we have made in our <unk> business around our digital capabilities, including our channel and products, we are bringing new value to our clients through our multi purpose devices and we are leveraging our digital channel to attract new clients to our offerings.
In the fourth quarter Centex shipping related revenues grew nearly 30% to $35 million.
And our SaaS based Centro online offering grew its paid subscriptions by over 70%.
Shipping is of high margin stream the contributes about 10% to centex overall revenue today with great opportunity for future growth still in front of us.
The impact of shipping is also resonating in our financing portfolio and as those clients grew their shipping volumes by 65% over prior year.
Equipment sales grew 15% over prior year, driven by strong placements of our son proceed and mill station multipurpose products.
Our value proposition continues to resonate with our clients.
On a central mill station is the replacement option for our lower volume mailers and ideal for remote setups for branch offices of larger organizations.
Since launching in April we have shipped approximately 20000 mill station units the.
The growth in equipment sales is the significant improvement from prior quarters, particularly against the decline of 32%. We saw on the second quarter at the height of the Covid Lockdowns.
Supplies declined 10%, which is an improvement from prior quarters on increased usage and demand in the U S. 70% of our supplies transactions were conducted online in the fourth quarter, which is up nine points from the same period last year.
Support services declined 4%, which is also an improvement from recent quarters.
The combined rental and financing revenues declined 9% in the quarter.
We turned in strong EBIT performance of $118 million, which represents growth of $5 million over prior year EBIT.
EBIT margin was 31%, which improved one point over prior year and is within the range projected and our long term model ebay.
EBITDA was $126 million in EBIT margin was 34% both improving over prior year.
The quality of our financing portfolio remains healthy and delinquency rates are trending down from the initial small uptick that we saw earlier in the year as a result of the pandemic.
We continually monitor our delinquency rates and take a very disciplined approach to managing our credit risk.
Let me close with an update on 2021, given the ongoing uncertainty in the market around the pandemic and uncertain macroeconomic conditions, we will speak more broadly to our 2021 outlook, we expect annual revenue to grow over prior year in the low to mid single digit range, making 2021.
For the fifth consecutive year of constant currency growth.
We also expect adjusted EPS to grow over prior year.
Within our segments, we expect global ecommerce revenue to grow in the low double digit range and we also expect this business. The demonstrate significant profit improvement we expect the momentum we saw in the second half of 2020% tech, particularly around our shipping capabilities and new multipurpose devices to continue through.
<unk> 2021, and helped partially offset the decline in recurring related revenues.
We also expect the improvement in volume trends, we saw in presort in the second half of 2020 to continue through 2021.
There are also a few headwinds to be aware of on a year to year basis that will partly offset the overall business unit improvements.
In 2020, we recorded write insurance proceeds in 2021, we expect higher employee related costs as it relates to variable compensation. Additionally, we expect our annual tax rate on adjusted earnings to be in the 23% to 27% range, which is higher than where we ended 2000.
'twenty.
We expect lower free cash flow in 2021, primarily due to the specific items I discussed earlier in my comments that benefited 2020 and are not expected to continue at the same level in 2021.
Looking at the timing through the year, our portfolio continues to shift to markets that are growing particularly around shipping as a result, the fourth quarter will continue to be our largest quarter for the year specifically in the first quarter, we expect revenue to grow over prior year on the high single digit to low double digit range.
And EPS to be relatively in line with prior year with that operator. Please open the line for questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press one net zero on your telephone keypad.
To withdraw your question at any time by repeating the one zero command if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one of them zero at this time and one moment. Please for your first question.
Your first question comes from the line of Ananda Baruah from loop capital. Please go ahead.
Hey, good morning, guys. Thanks for taking the question and congrats on an overall.
It sounds on all of our solid execution and performance.
Mark a couple of if I could just with regards to the remark on them. They go about significant profit improvement.
In ecommerce in 2021 can you just put a little context around that for us and.
I suppose that would seem to suggest you could have you could find the quarter or two perhaps with with profitability throughout the year I'm asking I guess I'm using operating profit not EBITDA profit and then add the follow up.
Sure. Thank you for the question so.
So as you look at the dynamics of that business.
Would point are kind of two comps.
The dynamics are the.
First of the efficiencies that we control inside of our business.
And.
As Joe pointed out.
And now I.
I would say the middle of last year.
Added three new facilities and as we got close to peak we added.
2500.
New employees for that in context.
Half of the work force.
So I expect those dynamics of our own of efficiency and productivity.
To improve on a year to year basis.
Also as Joe pointed out we were more dependent in the fourth quarter on the spot market.
For transportation.
Alright.
And obviously when that happens you don't control your own destiny and to the extent of.
You would want to.
And at the same time, when you are hiring lots of employees.
Subject to the rate of the time so.
I think from the perspective of the dynamics that we control.
There's lots of reason to believe that things are going to continue to improve and while I know you ask your question.
In the context of <unk>.
Operating profit.
I don't Shouldnt be lost that we were positive from an EBIT of perspective in the fall.
Fourth quarter.
For the.
The first time on a long time.
The other set of dynamics that are important which are non <unk>.
Which are not of our control are around labor inflation on transportation.
Inflation.
My expectation is of those dynamics are going to continue for.
Net.
But I expect them to moderate.
As we get throughout.
The year for Conversely, what will happen is the industry of all we'll price for those dynamics.
Yes, we do expect that business to become significantly better from the EBIT and EBIT perspective.
2021.
That that's really helpful. On just a quick follow up to that day.
You guys mentioned.
While the announcement that you are going to carry the sort of recently you of any carry.
The partners surcharge forward and in the comments just the few moments ago about.
Anticipating a surcharge benefit.
Maybe that's not the right contacts.
But sort of some sub surcharge of above and beyond the calendar 'twenty one.
For the typical rate increases.
Can you just give us a little context around.
<unk>.
I guess around near term end of the distinct from sort of the comment you made about about overall 21.
To what degree if any do you.
Thank you guys can can benefit from for those surcharges and I guess I am asking of them other than about sort of is there a distinction between near term.
The second half of the year.
Sure on that that's what for.
On the I appreciate it.
So thanks for the question. So can you talk about the.
The.
Pricing dynamics.
What I would characterize as the fairly standard vanilla.
Pricing increase which the industry is used to and has been the habit over the last several years.
That is in place and we expect.
On that too.
Hold the.
The <unk>.
Pete.
Pricing.
On top of that and to a degree of it.
Tailored to individual customer situations.
So.
If you look at the fourth quarter, what we saw was.
Our pricing increases actually help so the prices that we put in place around.
On the peak.
Were realized.
The you know the large preponderance of the value from those price increases what happened.
As the transportation on labor costs.
<unk> the most of the price increases.
Specs that the price increases will continue to hold and the other variables less around pricing and more around what happens to cost.
If you just kind of step back and say, what's going on for Matt.
You know a broader perspective theres been such an incredible influx of demand in the industry.
<unk> had different participants in the Ministry of Tech.
Definitely the approaches to how the.
Either Todd or haven't tried to accommodate that so you know we're one of the players that's true.
Hard to step up and take more demand, but the net effect of all of that demand is thats put on.
A fair amount of pressure on the prices of some of the individual costs within those businesses. So I was the right now.
The point of.
The second of whereby them from a price and a cost perspective, that's going to work itself out and I think he knows.
As you.
Bifurcated Youre question between the first half of the second half of the year.
That is confidence kind of work itself out in the first half, but I do think of it will work itself out because we get the the second half of the year.
And that's really helpful and so would that mean that.
If it doesn't completely worked itself out in the first half of the year. There is some potential for say like a net margin the net costs given the sale.
The net margin net op profit benefit for you guys at some degree in the first half and then the normalizes in the second half and then it would probably be a neutral situation.
Yes, im not going to go there I mean, there is there's too many unknowns.
Off of that level of precision on the answer.
It'd be truck on the if I have that degree of confidence in the <unk>.
Timeframe of these things are going to work themselves out beyond the fact that I am confident they will work themselves out.
That's really helpful. Marc Thanks, a lot.
Youre welcome. Thank you.
Your next question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead.
Hey, good morning, Marc I, just wanted to understand a little bit about the global ecommerce and talking about transportation and maybe controlling your own destiny. There does that mean that you'll have to buy trucks or does that mean that you just need to get have contracts in place.
So that you can maybe control of that cost more.
I suppose if I just answered yes, you would find that on unsatisfying answer.
Probably right.
No.
Yes, the answer of.
We are working at the <unk>.
Balance of how much we are dependent on the spot Marc So just to kind of.
Calibrate that for you I mean, we're probably 25% dependent on the spot market for the first several quarters of last year.
And the the fourth quarter.
Just short of 50%.
So that's got to applications first of all of your economically.
<unk>.
The vulnerable to whatever is going on at the spot market at that point in time.
On the second.
Is that you can't control your own destiny on service levels to the extent that you like so.
So my expectation is that for sure. We will look at trying to have contracts that have got more.
Certainty in terms of both cost and service levels.
But on top of that I'd be surprised if we didn't have more trucks as we entered into next year.
And more could that increase.
Of course.
Could 2021 B you have another really strong quarter from a revenue standpoint on global ecommerce, but you have the cost these costs may be related to the growth of the business and therefore.
Becomes a little difficult to get the margin.
Youre anticipating.
Got a quick question for us so.
We used the we leased the trucks.
From that perspective the.
Most of the cost on the revenue should match so you know.
Would expect in general of that that will not be there.
Disruption to our profitability, but Mike the other thing that Josh.
On the side of our fleet performed really well.
The fourth quarter of both in terms of of economics as well as service levels. So.
The.
Impact of being dependent on third parties.
As you know for sure you're vulnerable to whatever is going on within the <unk>.
Hot market.
But also you know we used our experience has been our fleet performed better in terms of service levels. When you don't perform well in terms of service levels of what happened was.
We ingested into the postal networks on what I would say it was.
Way that tried to maximize client service, but it certainly wasn't for economical so.
I think the payback on trucks is pretty pretty solid across both.
Benefits from savings on the spot market, but also in terms of.
Your postal cost, which was kind of the downstream costs.
Great and then just one last question Marc I think when you gave the first quarter guidance you set revenue high single digits low double digits, but EPS in line and I'm wondering why you might not get the benefit of the revenue growth to fall to the bottom line.
Yes.
If you look at the dynamics on I'll, let Adam elaborate of.
The fourth quarter in particular, we had strong revenue growth.
Didn't get quite the flow through to the bottom line that we had.
Anticipating the nets.
<unk>.
On the inflation rates for transportation and labor I think for the same dynamics are probably going to continue through the first quarter. So that's that's.
The same sort of dynamics that you saw on the fourth quarter I think will persist for at least through the first 90 days you know that being said we've seen some moderation on it.
Most of the transportation costs for the first 30 days Adam I'll, let you elaborate on.
Provide more contexts.
The other.
On the two items was our tax rate in the first quarter last year was relatively low so we expect a bit of a higher tax rate and we did receive some right of proceeds in the first quarter of last year. So I'd add those two points.
Thank you very much appreciate it.
Thanks for the question.
Your next question comes from the line of Shannon Cross from Cross Research. Please go ahead.
Alright. Thank you very much I wanted to dig a little bit into puts and takes for revenue for 2021.
It seems a little more.
I guess, the cautious than I would've expected given some of the trends that you're seeing so maybe if you can talk a bit about what youre seeing on the mail meter side as well as the.
Ecommerce I know, you've given first quarter, but just I mean do you think that the growth that you saw in third and fourth quarter as such in 'twenty that there were some one timers that won't repeat just trying to understand since the the trajectory seems fairly strong and then the follow up thank you.
Sure Great question, So I guess I would start with <unk>.
The macroeconomic statement on which you all fall as much.
As we do so you know when you have your own power of the chairman of the Federal Reserve side, it's the most uncertain economic times of his.
Lifetime.
That's a meaningful statement.
To me so Youre right channel. We are you know I would say, we're trying to be balance, but you know I think prudence dictates that you're cautious about how how the year unfolds.
If you break the dynamics between broadly speaking the mail on shipping I expect our mail businesses to perform better this year.
On a year to year basis. So if you look at the you know the.
Exit rate of.
Of the mailboxes Suntech on presort.
Those were.
For.
<unk>, which was an improvement throughout.
From throughout the year.
If you look at shipping.
I expect that the volumes are going to continue to be strong, but if you look at the.
The fourth quarter in particular, I was kind of a data point do I expect that we can last for 60% growth with you know.
Another 60% growth in the fourth quarter of the share I suspect not so I mean as you get into the back half of the year of the comparison of pretty difficult for them.
From a shipping perspective, so that those of the those are the dynamics.
Okay. Thank you and then I'm curious if.
If you.
Basically you said you that you've accelerated your network build out.
Relative to the plan.
<unk> had in the past if you go back to 2019, maybe than what you talked about.
Where are we now in terms of the build out and then also I'm curious.
How much youre investing in automation and new facilities, given the demand you're seeing in the network like where is your capacity utilization.
By the time, you get to the end of 'twenty one based on your estimates.
Just to get an idea of what's going to be required in the future. Thank you.
Yeah, I would say.
Hum.
Footprint of physical footprint perspective, we'll continue to.
Fine tune, our physical footprint or as you know couple of facilities.
All of these which we've outgrown.
And there's a.
A couple of places, where we might contemplate moving.
I would say the.
The overall basic footprint of the network.
Sure.
Appropriate to the demand, we're seeing and the change will be more in terms of the.
The size of.
The facilities and I think you know I would expect some changes there and then obviously it will depend on the demand environment, but not substantial automation is in front of us.
So we're.
We have pretty ambitious plans the automate our warehouses.
On that automation will rollout over the next couple of years candidly, we'd roll it out as fast as we could but the suppliers of a little bit constrained. So.
It will be depend on what the manufacturers' capabilities. So as an example, just to kind of dimensionalize. It for you.
And.
The shipping locations.
Technology available.
That does sortation and puts parcels on Fox, which is how the transfer of which is how the postal service.
And justice on their network, there's technology available to do that on an automated basis that in essence reduces the amount of manpower by half. So as quick as we can get that technology will get it but it also has a very good payback.
Okay, and actually if I could just sneak one more on if you think of ecommerce and the growth you expect this year how much of that do you think will come from existing customers. You had signed as of the end of 2020, and so youre just seeing those customers expand versus the need to go out and find new logos.
To grow the business and that that's it thank you.
I mean I suspect we will continue.
Continued to sign new clients with life to the plants that really not credit card on the plans predicated on keeping the customers we have.
With some nominal amount of growth on our new debt, we had a very successful year of last year in terms of signing of the customers are focused on all aspects of those customer successful.
Thanks.
Your next question comes from the line of Allen Klee from the Maxim Group. Please go ahead.
Good morning.
Well I thought I heard you say with global ecommerce that you had a price increase plus the surcharge could you tell us how much of the how much of the revenue in the quarter came from just the the peak surcharge.
Let me defer the gel or out of them on that number.
I can take that one Alan.
Yes, I mean, we don't want to give a specific number out as far as the peak surcharge, obviously for competitive reasons, but it certainly did help our revenue.
However, it's important to keep in mind that the largest item by far of driving the revenue year on year increase was our volumes as we talked about volumes increased by over 50% or more across all our lines of businesses. So.
Yes. It was really the volume increase that drove most of the revenue from a year to year for perspective.
Thank you and you highlighted your.
Ability in in 'twenty to decline SG&A as a percentage of revenue do you anticipate in in 'twenty one.
SG&A as a percentage of revenue will decline again and do you think the capex in 'twenty, one will be higher or lower than 'twenty.
Adam let me take that.
Yes.
I'll answer the second part first so capex Alan as you recall in the second quarter when the pandemic hit we talked about re prioritizing our spend and we did that so our capex came in.
Much lower than in prior years as we look into 2021, we expect capex to return back to normal levels of lot of those investments and Capex will go to the point Marc talked around around automation and building out the efficiencies for ecommerce.
As far as SG&A as a percentage of revenue.
We look forward across of our long term plan, we expect that SG&A as a percentage of revenue to continue to improve.
Theres opportunities and continues to be opportunities in shared services.
To reduce costs, we continue to benchmark all of the shared services there is opportunity there.
Another example is within our <unk> business.
On how we go to market right. We've done a lot of work shifting our go to market from the direct sales to inside sales, which is the more efficient channel.
We've certainly sold more over the web now which is the most efficient channel and I think as we look forward here, we will continue to shift more and more of our sales via the web. So certainly continued opportunity from an SG&A front.
I would just add on that I mean, our model. If you look on our long term model would suggest that.
<unk> revenue continues to increase at moderate levels of expense.
Either stays flatter satisfied or comes down so it's yeah.
One of the day.
Men dynamics that creates leverage of of what the business model.
Great and my last two questions related to syntax one.
The increase in new business equipment could you.
Just dig into that a little bit of what's behind that and the potential for that to continue and then second I know for Wheeler financial you don't want to.
Give how.
How much it's not prudent to say we are planning to put this much money to work but in general.
If you could just remind us how much excess deposits are available and have you.
Changed your view of like that we want to pull back on where the maybe there is an opportunity to expand that.
In 'twenty one thank you.
Sure let me take both of those if I might so within Suntech.
There were a couple of different factors that true drove equipment sales force of all on the fourth quarter. There was a large government deal, which we realized some of the revenue from on the fourth quarter will realize more of the revenue from that deal.
In 2021, but that being said.
As Joe pointed out.
The low and middle end devices grew fairly substantially last year and that's because.
We had no new value.
The.
Principally shipping that was on bottomed in those devices.
So the.
Product was relatively new so you always get a little bit of.
Yeah on the initial surcharge.
On revenue as you introduce new products.
But.
Im fairly.
Confident that we've tapped into something that's a pretty.
The important revenue source for us going forward.
So you know.
Whether or not.
The required it looks like the fourth quarter, we'll see but as Joe pointed out and I would reiterate.
The the decline of the core of mail market is now.
Substantially being offset by shifting revenue on the Suntech and I expect that dynamic to continue.
As our rates.
Sure.
We still think that's an important opportunity for the company we have.
I'll defer to John, but three or $400 million of deposits.
That we would like to put to work.
We think of.
Deposits are economically advantaged.
In terms of.
On a cost.
We think there's great opportunities to put that money to work in the way that drives incremental earnings.
If you look at how our thinking has evolved however, when this business started.
We had envisioned it is principally the.
Lease space business.
I'd say as our thinking has evolved.
We've moved more to working capital loans for shipping somewhat analogous to what we've done for the mail market over the last.
Several decades the.
Vantage of that as those.
Loans, if you will of that working capital has a higher velocity to it.
It is a relatively reliable from a credit perspective and.
It's accretive to our shipping businesses. The other advantage of it as you know unlike.
When you were making loans when you take the residual value risk you don't take any residual value risk when you provided on working capital loans.
So.
Our rate and pace of playing those deposits to work will depend on economic conditions, but.
Convinced now as I was you know several years ago, that's of great economic opportunity just again to repeat you know there's a.
Customer base that we understand well from a credit perspective.
We have economic advantage in terms of the funding source.
And we've already gone through the <unk>.
<unk> of.
Acquired on those clients so as long as you stay on your installed base as long as you stay with them kind of capital that you kind of control.
And the structural advantages to the marketplace, which.
I continue to think of are very compelling.
Thank you very much.
Yeah.
Your next question comes from the line of Anthony <unk> from Sidoti. Please go ahead.
Yes, good morning, and thank you for taking the question. So first just wanted to follow up on the previous questions in regard to the.
Equipment sales so.
If we took back out the <unk> sales to the the large government deal that you had that.
<unk> have grown.
In the fourth quarter.
Equipment sales would've grown.
On the.
The overall total revenue is probably close enough that it was still kind of around the flattish out on this at the right recollection.
Yes, that's right Marc.
Got it okay. Thanks for that and then.
As far as your first quarter guidance.
You mentioned that you expected kind of EPS to be flat for me year ago could you give us a sense as to what's embedded in those expectations.
The profitability for each of the three main segments.
Adam I'll, let you handle that one.
I mean, Anthony we're not going to obviously give.
Segment by segment guidance here for the quarter.
As I mentioned I think it was Shannon who asked the question we do expect improvement here as we move forward throughout the quarter.
The first quarter as we mentioned we did have a lower tax rate last year on some right of proceeds but.
We certainly expect continued improvement from an EPS standpoint, as we move throughout the year with the fourth quarter naturally being our largest quarter right with the with the holiday season, any commerce being a bigger bigger piece of the <unk>.
Isn't it.
Got it okay.
You mentioned several of cost headwinds as far as transportation and labor.
Certainly seeing an increase there of any sort of you know of.
Of course, the tailwind that could materialize over the course of the year I know you talked a little bit about automation, but was there anything else there would be that the that.
You could call out.
Well I would say just general efficiencies. So again, if you think about the.
Operating dynamics with the GSA in particular, I mean, 2500 people that were brand new to their job as we entered in the peak, there's just a certain maturation of.
A skill that will yield efficiency and productivity all by itself so put automation aside.
It's not as quick as quick as we can but as the network settles out in the churn is just a little bit.
We would expect more more efficiencies.
Alright, Thank you best of luck.
And at this time there are no further questions I'd now like to turn the call back to Mr. Lautenbach for any additional remarks.
Yeah. Thank you and thanks for the question that's why I thought the questions were terrific and.
Instructive, so hopefully I answered for equally instructive.
Before I go on further I'd like to thank Joe kind of Ponto Joe is.
Ably.
Some of them firsthand the tool over.
Over the last.
A couple of months and done a terrific job in getting us through our year end close as well as.
Starting off of the ear and he's been a terrific partners such as the thank you for your your partnership and again, we're just delighted to have on on board.
As it relates to guidance of I understand the the desire for us to provide specific guidance you know candidly I'd like to get there as quickly as I can sort of as soon as we can give you.
A set of numbers that we have a degree of confidence that we will do that.
We understand the important from your perspective as well as the Investor perspective I just.
I think right now that we had the degree of confidence in how the.
How the year unfolds, particularly of the back half of the year to do that so.
We'll get to the ask quick one for Ken.
I would just pick up where I concluded my formal remarks on that is no. We are on the process of doing.
Something that very few companies have done you all follow.
A cadre of terrific companies, many of whom are now going through some of the same challenges that pitney Bowes has gone through over the last decade, the digital disruption of the business and our business models have become.
So disrupted.
The worst through the.
The preponderance of the things that we need to do in order to.
Recreate the company.
And you know as I said that that last chapter of profitable revenue growth is for.
Mark of the fully transformed company that moves on and you know as our.
Guidance suggested we believe we're poised to reach that so well.
We will continue to talk.
We would now like to do on Investor day of sometime in the first half of the year.
Kind of provide as much clarity to you as.
Possibly can so of course, we would have to do that in a way.
Whether that was either virtual or safe, but nonetheless, we want to be as transparent as the can so with that I will conclude this mornings.
Our remarks, and we'll look forward to talking to you soon take care.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.
Yeah.
Okay.
Adam are you guys saw.
Yeah.
Yeah.