Q4 2021 Pitney Bowes Inc Earnings Call
[music] Your conference will begin momentarily please continue to hold.
Good morning, and welcome to the Pitney Bowes fourth quarter, 'twenty, 'twenty, one and full year earnings conference call.
Speaker 1: Good morning and welcome to the Pitney Bell's fourth quarter, 2021, and full year earnings conference call. Your lines have been placed in a list-nomely mode during the conference call until the question and answer segment.
Lines have been placed in a listen only mode. During the conference call until the question and answer segment.
Speaker 1: Today's call is also being recorded. If you have any objections, please disconnect your lines at this time.
Today's call is also being recorded if you have any objections. Please disconnect your lines at this time.
I would not I would now like to introduce participants on today's conference call. Mr. Marc Lautenbach, President and Chief Executive Officer, Ms. Anna Maria Chadwick Executive Vice President and Chief Financial Officer and me.
Speaker 1: I would now like to introduce participants on today's conference call. Mr. Mark Lottonbach, President and Chief Executive Officer, Ms. Anna Maria Chadwick, Executive Vice President and Chief Financial Officer, and Mr. Ned Zacher, Vice President and Vester Relations. Mr. Zacher will now begin the call with the safe harbor overview.
Mr. Nat Becker, Vice President Investor Relations, Mr. Zach or will now begin the call with a safe Harbor overview.
Speaker 2: Good morning, everybody. This is Ned Zacker. I manage the investor relations program for Piddy Boes, and I'd like to welcome everyone to the call this morning. We very-
Good morning, everybody. This is Ned Jakob.
I manage the Investor Relations program for Pitney, Bowes and I'd like to welcome everyone to the call. This morning, we very much appreciate your participation.
Part of my duties includes covering the usual and customary safe Harbor information for these calls so please bear with me for just a few minutes.
Speaker 2: Part of my duties include covering the usual and customary safe harbor information for these calls. So please bear with me for just a few minutes.
Speaker 2: Included in today's presentation are four looking statements about our expected future business and financial performance.
Included in today's presentation are forward looking statements about our expected future business and financial performance.
Forward looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections.
Speaker 2: Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projection.
For more information about these risks and uncertainties. Please see our earnings press release, our 2020 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.
Speaker 2: For more information about these risks and uncertainties, please see our earnings press release, our 2020 Form 10K annual report, and other reports file with the SEC that are located on our website at www.pb.com and by clicking on investor relief.
Please keep in mind that we do not undertake any obligation to update any forward looking statements as a result of new information or developments.
Speaker 2: Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or development.
Speaker 2: Also, for non-gab measures that are used in this press release or discussed in this presentation, you can find reconciliation to the appropriate gab measures in the tables attached to our press release and also on our investor relations website. Additionally, we provided a-
Also for non-GAAP measures that are used in this 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 provided a slide presentation on our Investor Relations website that summarize many of the points, we will discuss during today's call.
Speaker 2: summarize many of the points we will discuss during today's call.
Our format today is gonna be familiar.
Speaker 2: Our format today is going to be familiar. Mark Lawton back, our president, and chief executive officer.
Mark logging back our president and Chief Executive Officer will begin with opening remarks, which will be followed by an Chadwick, our chief financial officer, who will provide a deeper discussion of our financial results.
Speaker 2: We'll begin with opening remarks, which will be followed by Anna Chadwick, our chief financial officer, who will provide a deeper discussion of our financial results.
I'd now like to turn the presentation over to Mark Mark the floor is yours.
Speaker 3: I'd now like to turn the presentation over to Mark. Mark the floor is yours. That's that. If you want another one. Thank you for joining us.
That's net.
Good morning, everyone.
Thank you for joining us this morning.
Others have said it like it has gone up.
Thank you it's not just the P. B team that's our industry colleagues.
Speaker 3: Thank you to not just the PV team, but our institute colleague and all other central employees, which is the young and the work during the holiday season.
And all other essential M y.
Did you all have to work during the holiday season.
There's no doubt, but the collective work of so many people in our country and our economy or a much better place than otherwise would have been okay.
Speaker 3: There's no doubt that the collective work of so many people for our country and our economy in a much better place than otherwise would have been the case.
Speaker 3: As our question has been, I will provide a perspective on the year and I will discuss the quarter in detail.
As our company has long I'll provide our perspective on the year.
And I don't want this past quarter in detail.
I'll also provide my take on the water in a minute.
Speaker 3: I will also provide my take on the quarter in a minute. The suffice is to say that there are many different cross-parents running through the period.
Goodbye.
Any different cost price running through the period.
Speaker 3: Pre-SARC performs exceptionally well. One that successfully emotionally away to some difficult, high chain issues and turn into solid quarter.
These are all exceptionally well.
That successfully negotiated their way through some difficult supply chain issues and turned in a solid quarter.
Speaker 3: G.C. had a very successful peak season in terms of providing this service to our customers.
Did you say you had a very successful peak season in terms of providing good service to our customers.
Speaker 3: but right ear changes and consumer buying behaviors creating a different financial resolve than expected.
Well right ear changes in consumer buying behavior or anything there.
Different financial resolvable.
Speaker 3: Okay, back to this topic in a moment. So let me elaborate on the annual results first.
Okay.
In a moment.
Well, let me elaborate on the annual results first.
I have said for a while.
Speaker 3: I just said for an hour that the final chapter of this successful transformation is possible everywhere. In 2021, the rule revenue and our researches, for sure, not everything was perfect. And we have all from them, the 2021 was another report we got forward.
After almost impossible transformation.
Profitable revenue growth.
'twenty one.
Revenue and earnings per share.
Sure.
Perfect.
We are far from done.
Well a lot of important step forward.
Fantastic piece of art had very good years and in that regard.
Speaker 3: fantastic pre-short, had very good years and imagined it with two businesses, Grubernau and Propos, for the year.
The two businesses grew revenue and profit earlier.
Speaker 3: I think it's worth noting that the conventional ones in 4pv have been a GFC's revenue and profit improvement about running the crime and our traditional benefits, which many of the carcass has not been as good.
I think it's worth noting the conventional wisdom for PD has been that you probably won't run the decline in our traditional model, which might be a tad baas multinationals.
In 2021 .
Speaker 3: In 2021, that paradigm changed, and Louis Vesha has increased work and sent us to put those goals in a different subject.
I'm, showing we have more initiatives in presort and some debt.
But theres also a different trajectory.
No.
Speaker 3: Now, all of the differences have clear landsides to revenue growth and profit growth. This one is imaginable.
All right.
And Pablo.
This wasn't imaginable and few short years ago.
Well, Jay you're seeing play out on one whether Europe welding capabilities.
Speaker 3: For GEC 21 or the year of building case of duties and capacity. In that...
Okay.
We invested in new facilities.
Speaker 3: New automation, transportation, and most important way, we're investing in our people.
New automation.
Transportation and most importantly, we're investing a lot of people.
Speaker 3: We believe that e-commerce shipping market continues a very attractive, Ronald and Terran's, albeit with some hard to predict.
We believe that e-commerce shipping market continues to have very attractive long tail lines.
I'll be out with some hard to predict short term dynamics.
Speaker 3: Our capability and value proposition continue to resonate in the market.
Our capabilities and value proposition.
To resonate in the market.
Speaker 3: After record revenue growth of 41% in 2020, we grew on top of that in 2021. And we continue to win new customers.
After a record revenue growth of 41% from 'twenty to 'twenty.
On top of that in 2020 one.
We continue to win new customers.
Speaker 3: And in 198 new levels, with 387 new signings during 2021.
And in 198, new logos with 387, new signings during 2020 one.
Importantly, our customer satisfaction continue to improve in 2020 , one which is a vital indicator of future success.
Speaker 3: Importantly, a customer satisfaction continued to improve in 2021, which is a vital indicator of future success.
On a profit per wallet after three quarters is probably prudent.
Speaker 3: For a profit performance, after three quarters of strong improvement, the fourth quarter clearly turned out different than we thought due to what has been a well-reported change in consumer buying behavior as a pathetic and supply chain issues continue to linger for the retail sector, including our clients. This was a good start.
Currently turned out different than we thought due to what it's been a while reported change in consumer buying behavior.
And supply chain issues.
Well the retail sector.
We're doing our part.
This is a good segue to the fourth quarter.
First the easy part.
Speaker 3: And as they think of getting a mirror knife, two-shot head match, what we have standing quarter and center care very good quarter. Most of these businesses are on and that's for the suggests date.
Well I think they're getting a matter of months.
Are you starting to have an absolutely outstanding quarter, sometimes had a very good quarter.
These businesses are on an excellent trajectory.
Speaker 3: In GEC, our principal motivation for the fourth quarter once you deliver a successful audit, peak season for home, and we did that.
And Jay Z, our principal amortization for the fourth quarter once you deliver a successful holiday pizza.
Paul.
And we did that.
Speaker 3: Our service level improved dramatically from 2020, and we ensured our clients' shipment made it to the consumers in time for the holidays.
Our service levels have improved dramatically from 2020, and he shared a client shipments.
Consumers in time for the holidays.
Given the circumstances.
Speaker 3: During a circumstances, that is the spot change challenges across the globe. A lot of our standards have been relatively new come into this market. Great service is vital for PD.
The supply chain challenges across the globe all of our status with that.
Much of this market right.
Great service was vital for P. J.
That being said the financial performance as well.
Speaker 3: That being said, the financial performance of this is not what we expected and the disappointment.
It was not what we expected.
This appointment.
So at home.
Speaker 3: You can overcomplicate the poor dynamics, but the just whether there's recomb and expected a certain viral partial.
You can over complicate the fourth quarter dynamics.
As we planned and expected at certain body about parcels.
As forecast with Angela and reenter laughable.
Speaker 3: with interlops and re-interlops with their clients.
We bought a capacity problem against the vitamin anticipated impact.
Speaker 3: We built our capacity plan against the volume we anticipated, and in fact, we probably overbuilt our capacity a touch against the planned volume because we were determined to deliver successfully for our clients.
But we probably over about a capacitive touch against the plan by them, because we were determined to deliver successfully or clients.
And simply said, we never got the volume than we expected.
Speaker 3: It's been well-reported that consumers responded to the blend of supply chain issues, plus COVID, plus the holiday, with new ways to buy that provide a certainty of delivery. We see this with accelerated purchases.
While reported okay.
Consumers responded to the blender supply chain issues, plus COVID-19 possible all that well.
More ways to buy that provide the certainty of the liberty.
That's what it's all really purchases.
More traffic in stores.
Speaker 3: more traffic in stores and with online and move towards just cars and then sort of pick up.
Online and move towards gift cards and in store pickup.
Speaker 3: To agree, we saw this in some of our market research in the quarter, that our strong bias would turn ensuring we had appropriate capacity available for our customers. So we did that by down labor and transportation until late in the quarter.
So it was really we saw wasn't talking about market research in the world, but our strong bias towards ensuring we have appropriate capacity available for our customers.
We did that by about labor and transportation.
Late in the quarter.
Once we decided to dial down in transportation and labor.
Speaker 3: Once we decided to dial down transportation and labor, we did it quickly, though it was too late to change the outcome for the quarter. This clearly created a disappointing financial result, but from our perspective, the unexpected change in consumer buying behavior was an aberration caused by the intersection of the pandemic, ongoing global supply chain issues, and the holiday season.
Did it quickly that was too late to change the outcomes of the border. It's good clearly a disappointing financial result.
My perspective, Yeah, I expect a change in consumer buying behavior like the aberration qualified the intersection of the pandemic I'm going to go with supply chain issues and the holiday season.
Speaker 3: To be clear, the luckily this year's operation has been indicative of long-term e-commerce trends.
Good luck with this year's aberration as indicative of longer term ecommerce trolls.
Speaker 3: That says we are taking a series of options to ensure that we are going to let ourselves against this outcome in the future. The adjusted changes include majority of the analytics and the pilot forecasting process.
That said, we have taken a series of actions to ensure we don't promote ourselves.
Jim.
Just as a child doesn't marginally it Alex and a pirate forecasting process.
Speaker 3: It's worth noting that we're able to take a shot at the realm of hot by a building in just a couple of weeks.
Worth noting.
We were able to take a chunk of the variable comp, Alabama, and just a couple of ways.
Speaker 3: And what said are an a very confident and e-commerce-registered market opportunity are given a final and mostly the capabilities we are building, particularly in the team.
And with that I remember every possible and e-commerce logistics market opportunity, our business model and mostly the capabilities, we're building, particularly in the team.
Let me sum it up.
Speaker 3: Well, you are different from the one I thought it would be. I'll characterize the year as successful.
Jumping right in some ways, but I thought it would be I would characterize the year are successful.
Speaker 3: We got a year with a very successful debt re-pianting, most substantial capabilities in our GSE business, improved our clients.
You've got a year with a very successful debt refinancing no substantial capabilities and our G suite business improve.
To improve our client satisfaction generating significant cash flow and reduce debt.
Notwithstanding the challenges of Covid continues to be highly engaged.
Speaker 3: The matter is that it was an increase in revenue and EPS for 2021.
And that result was an increase in revenue and EPS for 2020 one mark.
Speaker 3: More to do, but we continue to strongly that we're on the right path across our entire portfolio. Thank you for your time, your attention, and I-
More to do but we continued with strong light, but we're on the right path.
Higher portfolio.
Thank you for your time and your attention a lot we care about them.
Thank you Mark let me start by providing an update on the full year, followed by details of our fourth quarter.
Speaker 4: Thank you, Mark. Let me start by providing an update of the full year, followed by details of our fourth quarter. Unless otherwise noted, I will speak to revenue comparisons on a constant currency basis and other items such as EBITDA, EPS, and cash flow on an adjusted basis.
Unless otherwise noted I will speak to revenue comparisons on a constant currency basis, and other items, such as EBIT, EBITDA EPS and cash flow on an adjusted basis.
Speaker 4: For the full year, total revenues grew 3% to 3.7 billion. This is our fifth consecutive year of consolidated revenue growth.
For the full year total revenues grew 3% to $3 7 billion.
This is our fifth consecutive year of consolidated revenue growth.
Speaker 4: Ibit was 203 million, 6% lower than the prior year.
If it was 203 million, 6% lower than the prior year.
Speaker 4: As Mark mentioned, the aggregate growth of pre-credits centic was more than offset by lower global e-commerce results and somewhat higher unallocated expense.
As Mark mentioned, the aggregate growth pre surgeon centric was more than offset by lower global ecommerce result, and somewhat higher unallocated expenses.
I'll come back to global E Commerce performance Mummy currently.
Speaker 4: I'll come back to Global E-commerce Performance Momentary.
Speaker 4: Adjusted EPS for the year was 32 cents versus 31 cents last year. Gap EPS-
Adjusted EPS for the year was 32 cents.
Versus 31 cents last year.
GAAP EPS was a loss of one cent.
As a reminder, GAAP EPS includes unusual items, primarily related to our debt refinancing expense another restructurings.
Speaker 4: As a reminder, Gap EPS includes unusual items primarily related to our debt refinancing expense and other restructuring.
Speaker 4: Gap cash from operations was 302 million. Flat to last year.
GAAP cash from operations was $302 million.
Two last year.
Speaker 4: Free cash flow was 154 million, despite the anticipated increase in our capital spending. For the year, capital spending was 184 million versus 105 million a year ago. In addition, over the...
Free cash flow was $154 million, despite the anticipated increase in or capital spending or.
For the year capital spending was 184 million versus $100 5 million a year ago.
In addition over the course of the year.
We have made strides with our working capital efficiency as days sales outstanding improved to 40 days at year end from 45 days in prior year.
Speaker 4: We have made strides with our working capital efficiency as day sales outstanding improved to 40 days at year end from 45 days in prior year.
Speaker 4: looking at a balance sheet and capital allocation.
Looking at our balance sheet and capital allocation.
Speaker 4: liquidity remains strong as we ended the year with cash and short-term investments of 747 million and an on-drawing revolt.
Liquidity remains strong as we ended the year with cash and short term investments of 747 million.
An undrawn revolver.
We also took advantage of the favorable real estate market by organizing the sale and leaseback of our Shelton facility, which is expected to generate approximately 50 million of proceeds in the first quarter.
Speaker 4: We also took advantage of the favorable real estate market by organizing a sale and leaseback of our Shelton facility, which is expected to generate approximately 50 million of proceeds in the first quarter.
Total debt has declined 241 million at year end 'twenty 'twenty.
Two $2 3 billion.
When you take into account, our finance receivables cash and short term investments our implied operating company debt.
$533 million.
Let's move next to the specifics of the P&L, starting with full year results versus prior year.
For the year.
Equipment sales grew 10% and business services increased 6%.
Support services and financing were down three and 15% respectively supplies and rentals were each down marginally.
Gross profit was $1 2 billion and gross margin declined 190 basis points to 32%.
This decline is largely driven by the shifting mix of our portfolio.
SG&A was 922 million 41 million lower than 'twenty 'twenty.
SG&A as a percentage of revenue was 25%.
200 basis points better.
Then last year.
Unallocated corporate expenses were $200 8 million, an increase of 4% largely due to higher insurance expenses.
EBITDA was 366 million versus 376 million for the prior year.
EBITDA margin was 10% for 2021 .
A decrease of roughly 60 basis points.
Interest expense was $144 million down 10 million from prior year.
Our tax rate was 3%.
And as we previously stated we expect to return to more normalized levels in 2022.
Diluted shares outstanding were approximately $179 1 million.
Turning to the details of the fourth quarter total revenue for the period was 984 million, which was a decline of 4% from prior year.
As you are all very aware year over year comparisons continue to include the impact of Covid on our and many other companies.
Compared to 2019 total revenues were 18% higher.
For our global ecommerce segment, the increase was 46%.
The point is.
While revenues in the quarter were down from prior year. It's important to note that we have held onto the vast majority of the revenue gains we have experienced post COVID-19 .
Adjusted EPS was six and GAAP EPS was 1%.
Free cash flow was 39 million in cash from operations was $85 million.
During the quarter, we paid 9 million in dividends and eight 7 million in restructuring payments.
Capital expenditures totaled $43 million in the quarter.
Let me now turn to each segment's performance.
Within global ecommerce revenue in the quarter declined 9% to $473 million driven.
Driven primarily by lower than expected domestic parcel volumes.
Inside of Global E Commerce revenue from digital services was fractionally lower in the quarter, while cross border revenue was down low single digits.
Domestic parcel revenue experienced low double digit declines.
As you consider this quarter's top line performance.
We think there are important context.
As we all wrestle with the challenges associated with COVID-19.
Compared to for Q1 9, Global E Commerce revenues were up 46%.
Specifically on volumes, we processed 47 million domestic parcels in the quarter up from 41 million in the third quarter, though down from Covid impacted fourth quarter, 'twenty, 'twenty, where we handled almost 65 million parcels.
EBITDA for the quarter was a loss of $20 million well if it was a loss of 41 million.
Let me unpack those numbers.
We budgeted and planned for four key domestic parcel volumes that were approximately 20% more than we actually received.
We built that plan based on our own models, our experiences in previous peak periods and with terrific cooperation and input from our clients.
We also built that plan with an eye on delivering very strong service levels, which was an imperative in the context of our efforts to build a world class logistics operation.
At the end of the day, 99% of the parcels we shipped reached their destination.
<unk> for the holidays as a result, the feedback from our clients has been gratifying.
Which is a contrast to peak 2020.
In addition average delivery times in the quarter improved by 25% compared to early 2021 we.
We are much better position with our clients as we continue to improve service levels and win new business.
As I noted earlier domestic parcel volumes ran below our expectations and.
And we believe it was driven by three primary factors.
First the well reported supply chain issues for our customers limited their available inventory for E Commerce.
Second.
It's also been well reported that many customers elected to shop be a brick and mortar rather than online too.
To be sure they could actually obtain what they were shopping for a timely manner.
Lastly, some customers, who shopped online opted for in store pickup or gift cards to ensure certainty by the holidays.
On the cost side, we held onto valuable transportation and labor costs, well into the fourth quarter to make sure we generated outstanding service levels for our clients and because they believed e-commerce volumes would pick up as the quarter moved on.
We accomplished our service level goals.
But in the end our expense levels were designed to handle higher volumes and resulted in financial performance that did not meet our expectations.
It bears repeating that our experiences in the fourth quarter of 'twenty, 'twenty and 2021 illustrates the significant challenges associated with planning and executing in a COVID-19 world.
In December we began to scale back our variable cost.
We have seen meaningful improvement in labor cost per piece down, 40% and we're making steady progress on transportation cost per piece with early results showing a reduction of about 20%.
Going forward, we will focus our investments on network efficiencies reduce per parcel cost and further improve service for our clients.
We expect to reap the benefits of the investments we have made in automation, including high volume sortation sort to light and robotics.
In addition, we will continue to optimize our network routes and in source transportation resources to move away from high cost alternatives.
As previously announced.
We initiated our general rate increase on January 1st across all lines of business and we expect those increases to hold given our service performance in peak and overall market conditions.
It is important to note that we continue to work very closely with our clients and have seen our weekly volume forecasting accuracy returned to pre peak levels.
While our financial results did not meet expectations.
Operational moves we made during 2021 created a much different much.
Much better experience for our customers in this year's peak season, which is a very positive takeaway for the long run health of the business.
Turning to pre certain pre start had another terrific quarter revenue was 156 million, 16% better than prior year EBITDA was up 43% to 30 million despite double digit increase in labor and transportation costs.
EBIT improved 80% to $23 million versus support Q2 thousand 20.
This is the fourth consecutive quarter of revenue growth driven by volume gains, especially from marketing mail, along with higher revenue per piece.
We continued to experience significant benefit from network and technology investments.
As well as process improvement measures that resulted in year over year productivity gains.
We feel good about the prospects for presort heading into 2022 .
Especially for the first half.
Driven by continued market share gains and marketing mail additional efficiencies gained through five digit sorting.
With the opening of two new market Las Vegas and Orlando.
Moving to the Centex segment.
<unk> revenue was $354 million, which was down 5% from the fourth quarter of 2020.
EBITDA was 116 million and EBIT came in at $109 million, a decrease of 9% for both.
Margins declined primarily as a result of lower high margin financing revenues.
Shifts in business mix as well as much higher freight cost were the primary factor in the margin decrease.
Lowered credit reserves were an offset to some degree.
To be clear, we continue to implement price increases to offset higher freight cost, which has become a familiar theme across the global supply chain landscape.
Equipment sales were down 7% for the quarter in part driven by ongoing supply chain challenges as well as a tough compare in last year's fourth quarter.
For the year equipment sales were up over 10% driven by increased penetration of our ongoing product refresh.
Our SaaS based subscription revenues grew 10% and paid subscribers for our central online product were up 52% over prior year Sam.
<unk> online is a cloud based product that enables customers to manage and track their mail and parcels with multi carrier alternatives to find the best rate and delivery options.
Our new centric product and offerings have been gaining traction in the marketplace led by the central family.
Which is an all in one system to select carriers.
Parcels gained.
<unk> postage discounts and manage spend.
In North America more than 28% of our revenue comes from these new products and we have begun to launch these products in select international markets.
In addition, we're also seeing strong demand for our cents per mile station.
Which was launched in April 2020.
And to date, we have shipped over 50000 of these devices.
In global financial services, we are very pleased with the portfolio credit performance and continued to work to expand the value of our financing offerings. Lastly, we're seeing improving trends in total finance receivables.
Which bodes well for the future of financing revenues.
Let me now turn to the outlook.
For 2022 we expect annual revenue and EBIT growth in the low to mid single digits.
For first quarter, we expect our year to year EPS comparison to be impacted.
By prior year tax benefit that will not repeat this year.
In addition, we expect supply chain issues to linger in the first half.
More so than in the second half of the year.
We expect capital spending to be lower after last year's meaningful network expansion in global ecommerce.
Also working capital benefits in <unk> 2021 largely the previously mentioned reduction in day sales Outstandings are not expected to continue at the same levels in 2022.
I want to be clear, we also expect to generate healthy levels of free cash flow for full year 2022 .
We also note that our supply chain and Covid issues, hopefully dissipate, we expect to provide additional perspective on our future financial performance as we move through the year.
I'd like to close with a few comments on some key operational and financial progress the company made in 2020 one.
We completed a very successful debt refinancing in the first quarter, which substantially extended our debt maturity profile.
As I noted earlier.
We reduced debt by 241 million to $2 3 billion.
We generated very healthy levels of free cash flow, despite a material increase in capital investment.
Cross the portfolio.
Which are generating gains in productivity.
Pre sorting center in aggregate produce topline gains in the year, which is impressive for a mature businesses.
And in global ecommerce, we remain confident in the long term growth prospects of this sector the value of the network we have created.
And our ability to improve efficiency as we scaled the business.
Thank you very much and I'd like to ask the operator to open the line for questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your Touchtone phone, you'll hear an acknowledgment that you've been placed into Q and you can remove yourself from queue at any time by repeating the ones Euro command.
You're using a speakerphone please pick up your handset before pressing the numbers.
Once again for questions. Please press, one and then zero at this time.
Our first question will come from the line of Allen Klee of Maxim Group. Please go ahead.
Good morning for the global ecommerce segment could you give a little more detail about how you're thinking about and your confidence on shifting this to cash flow positive and then getting to the longer term margins.
How should we think about 2022 us.
Investors getting confident in and in the thank you.
Sure, let me start and I'll, let al to add.
So we continue to be very confident in that.
That market opportunity.
Very confident in the business model that we have and the team that we put on the field is fantastic in terms of 2022, obviously, we're coming off a quarter where.
Where we didn't have great visibility, so we're a little bit.
Cautious about being terribly specific but here's what I would say we expect substantial.
Improvement in that business from both a EBIT perspective, as well as an EBITDA perspective, and I expect it to be EBITDA positive.
2022.
We see that kind of progressing throughout the year with a stronger second half partially just because that's the way that business.
<unk> always operated with peak, but also as some of the supply chain issues that our customers are.
Facing they'll begin to.
Even out of touch and.
And you know consumer buying behaviors.
We've heard back from them. So we expect substantial improvement are we.
Expect to be EBITDA positive this year.
The team has a plan to be EBIT positive, but honestly I would consider that plan pretty high risk right now based on the quarter.
But we're coming off of and we're not banking in the corporate plan on it.
Thank you.
Thank you.
Our next question will come from the line of Shannon Cross with Cross Research. Please go ahead.
Thank you I was wondering if you could talk a bit more about cash flow drivers you know in in the future because obviously right now you're your debt profile is fine, but you do have several maturities coming up in a couple of years. So how do you think about the ability of the model to start driving incremental cash flow or are we still.
Within e-commerce in a pretty significant investment phase and then I have a follow up thank you.
Sure maybe this is Anna let.
Let me start by saying that you know we expect to continue to have a strong free cash flow into.
Into the future.
And as I mentioned previously.
With the amount of uncertainties and some of the timings of of Covid and all the uncertainties out there we were not giving anything more specific but I will say that there are few areas that we will focus on so first.
And we have done significant investment in capital expenditures in 2021 and we will continue to invest in our global ecommerce.
But probably at a slower rate because we will focus more of that instead of an expansion of capacity and optimization of the capacity that we have now put out there.
Second thing is.
The team here has done a great job focusing on our accounts receivable collections and I mentioned that our days sales outstanding had a significant drop of our about five days and we couldn't we continue to focus on collections, but that rate of improvement is going to be difficult to match. So I think those are two.
I'm kind of currents going in different directions, but again, the overall business, we expect to generate.
Healthy free.
Free cash flow and as Covid and supply chain challenges dissipate, we will come back with more specifics.
In terms of our ability to pay.
Pay some of the maturities coming up.
We feel good with our maturities coming up in 'twenty three that are existing plans for free cash flow can absolutely pay for that I also mentioned that we have the pending.
In closing of our sale leaseback for Shelton, which will generate approximately 50 million of free cash flow again, giving us even that more comfort into into the next two to three years and and then will define us as we progress on that hope that answers your question.
Can I just add the honest point, if I might so let me start with the bottom line, where we are a highway.
Highly confident in our balance sheet.
And now as we look at the maturities and the tenure of those maturities versus our cash flows.
What we've got.
Cash on the balance sheet.
No. There's no issue there so that's the most important part of it.
We're just dimensionalize something that honest because I think it's important that our investors understand so if you look at our long term plan for our G C network or build out so we have in 2021 completed.
Most of what we need to do so to the parent.
Capacity of our network is well beyond the volumes.
That were soon so we're in good shape.
Terms of the networks, we got one node that will build out the share in Chicago and then we've got to smaller nodes they'll probably get to 23 or 'twenty four and that's the that would be the complete network. So that the GEC cash consumption in terms of Capex.
Continue to.
Dialed down as Arnaud said rotate towards efficiency.
And optimization of what we have so as we think about cash flow generally oh.
The principal driver of the cash flow going forward.
It's gonna be from earnings and as Jussi continues to improve and in candidly you know we didn't talk about it you know as much as perhaps we could have but with presort and centex being EBIT positive.
Not only secures the the death, but it also is an important source of cash going forward.
Okay.
Thank you.
Our next question will come from the line of Anthony Lipinski of Sidoti and company. Please go ahead.
Good morning, guys. Thank you for taking the questions. So first on global ecommerce you guys talked about adding new customers.
Just wondering as far as the overall customer mix has there been any notable churn as far as have you lost any notable customers. So just wanted to get a better sense as to how the customer mix.
Has evolved if you could put any metrics on it that that'd be helpful. Because it just just wanted to get a better understanding of the overall client mix within global ecommerce sure. So the first thing I would say is the customer mix is heavily skewed toward mid market retailers, that's an important.
Point.
The second thing I would say if you look at when we bought this business in 2017.
Sir.
I think when we bought this business, we had 100 or 150 customers.
I think today as we exited <unk> 2021 we had 400.
30 customers, so you've seen a dramatic increase in the in the customer base.
In terms of losing any customers no. We haven't lost any customers, but that's you know candidly why it was so important for us, particularly you know.
Coming off of the peak in 2020, where you know the industry has struggled to provide good service that we were so focused on providing.
A high level of service to our customers. So we didn't lose any customers and candidly you know we were able to increase customers. The other point I would make as you know we deferred a fair amount of.
Business that we won in the fourth quarter into the first quarter, because we were trying to be disciplined in terms of not adding to the network at a time, where we assumed the network will soon be under stress. So.
Uh huh.
You've got to fight for customers every day, you know you've got and that tends to be on service levels and price. So we're never complacent here.
And we need to continue to improve our service levels too.
To continue to earn our customers' business.
But if you look at the overall trajectory of our customer base.
It's continued to increase and we like the mid market.
It is a market, which traditionally underserved and you can hear me.
It does get a little bit better economics.
Thank you that was very helpful and then as.
As far as the guidance for 2022 I know you guys touched on global ecommerce you expect improvement there can you touch on the other two segments as to how should we think about revenue and EBIT.
So some pretty sore than centex.
Sure I'll start and then maybe mark can add them, we continue to expect our pre shirt to to being the trajectory of growth understanding that 12.
2021 was a significant growth a year. So we will see that trend continue.
And then for for Centex.
There's initiatives around a growth of of shipping.
And that is taking good traction in the market it might be out a few years as we aim to.
Have the rate of reduction of our traditional mailing be more than offset by the shipping so that could take us just a little bit.
Are longer than just one year, but we are in a good trajectory and we expect as Mark mentioned before for both presort incentive to continue similar trends of margins and healthy cash flows.
Gotcha, Okay, and then last question for me and what should we expect as far as Capex. I know you said that it's going to be lower but can you perhaps put a number on that as to what you expect for capex are there any sort.
<unk> guidance for the tax rate. This how we should think about that for this year.
Yeah. It mean for Capex as I mentioned, you know it will be.
Lower than than 'twenty, 'twenty, one and.
We will continue to assess as the year progresses in terms of our tax rate, we expect that to go back to more normal levels of the low 20 percentage type.
Range as we progress here into 2022.
For me the artifacts from a Capex perspective, I mean, if you look at 'twenty 'twenty thing.
It was a little over 100 million last year was a little over $180 million. The norm is somewhere in between those two numbers and probably smack Dab in the middle So.
It's fair to expect a return to the norm.
Okay. Thank you best of luck.
Thank you we'll go next to the line of Kartik Mehta of Northcoast Research. Please go ahead.
Hey, good morning, Mark I'm not sure. If you said this or not and if you have I apologize, but in the past you would talk about global ecommerce breakeven or maybe the way to think about it as number of parcels shift and I'm wondering if that metric has changed or if your thoughts have changed at all as the business has evolved.
No. That's that's are largely the same I mean I would say.
You know what we're trying to assess as you know given this new normal whenever it land how does that affect the unit economics. So for example, if you are.
Look at our transportation costs.
Pre COVID-19 .
More than doubled at a unit level.
Conversely, I ended the side of it you know price has gone up by 30 or 40%.
So it's a little bit hard at the moment to be terribly precise one.
The fundamental building blocks of the economics are moving around.
You know that being said I continue to see this as an incredible opportunity and we don't see that changing.
At all so now we're at a moment in time, where there's.
A little bit of uncertainty.
But that doesn't power or long term.
In terms of volume, we always thought you know 250 to 300 million parcels was kind of important place to get to.
Still think that's an important place to get to so that hasn't changed but let me dimensionalize it a little bit for you. So if you look at you know.
Our exit rate.
For 2020 , one in terms of parcels.
Around two.
200 million parcels, you know going into 2022.
As that number goes from 200 to 300 your fixed cost absorption now between 200 million parcels and 350 million parcels provides probably a $100 million of benefit to the bottom line. So you know there's this is there.
Thoroughly right.
Our business model from a fixed cost perspective, but it is highly highly leveraged.
So right now the inflection points I mean, I think still is a kind of in the same basic ZIP code, but with a caveat that COVID-19 has changed a lot. So we're touching up the long term plan and candidly when we get that finalized we're going to have an investor day, but I need to give the team a little bit more time to.
To get settled in terms of how the unit.
Particularly labor and transportation are settling out.
Thanks Morgan.
You talked a little bit about budgeting and global ecommerce and unfortunately in the fourth quarter. It didn't turn out as you anticipated.
Have you had have you changed any of the methodology for the budget gone more conservative or what do you think it was a one time issue and the process works going forward.
Oh sure. So we we think this is a a one time issue and our methodologies.
In terms of the financial planning stay the same what I will say in terms of our forecasting, especially as we enter lock ourselves with our clients more.
We're definitely.
Working towards gathering much more operational data early on in the process. So that we can give the lead time to the operations, whether it's the parcel profile or other things around the parcel. So that we can have a better connection between the client forecast.
And how it translates operationally into our sites, but to take a macro step back from a financial planning perspective.
No we continue to follow the.
The same.
The same.
Process, we've been doing.
It is important to them.
On the southern or Thomas I mean.
The forecast that we had received from client.
Until you know the fourth quarter had been 98 or 99% accurate. So we were.
We're heavily reliant.
On our customers forecast and we're going to continue to be heavily reliant on our customers forecast as Arnaud said, we're going to use a little bit more analytics, a little bit more sophistication in terms of how we plan with them and I think the other important thing as you know because their forecasts have been so reliable, we probably weren't as open minded as we should've been.
In terms of the possibility.
That they can miss a forecast now I'm not sure that the better necessarily would have made in the middle of peak in the supply chain crisis. When there was so much focus but you know we have weekly forecast they only forecast from highest okay. Miss it for a week or so you know I think will be a little more open minded to how we adjust that forecast going forward.
Thank you both I really appreciate it.
Thank you next we'll go to the line of Ananda Baruah of loop capital. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions a few a few if I could.
Mark do you are you have a view on if if anyway, maybe more green leaks those to the industry dynamics that you mentioned in the December quarter, and then some of the other shippers.
Yeah. So what we can do this earlier so the answer to that question is yes, I do think we are more exposed and here's why.
We are heavily heavily concentrated in the mid market.
I think you know, we're still waiting to see customers report, but I think what youre going to find at least my hypothesis is that the bill.
Box guys.
We're able to take a series of actions that protected their supply chain.
More so you can read about Walmart or Costco or target you know getting their own chips for their own planes.
A series of options like that those types of options are available to the mid market. So my expectation and then port on the data that we've seen so far is we were more susceptible to what happened.
The.
In the fourth quarter than others.
Being said, there's a series of positive things that go along with.
The mid market that.
I think on a longer term basis.
Our very appealing as I said, not the least of which is underserved market.
It has very attractive economics, so we all know you passing.
[noise] analysis wanted I thought there was a pretty good result, I will point out that if you look at their results versus our results in 2019, we've still grown faster, but they're broadly diversified business.
And you know I think in moments of.
Choppy economics choppy market behavior.
<unk> diversified base helps.
That's really helpful and.
Are you thinking any differently about long term value opportunity in the industry that sounds like not anecdotally, but but just wanted to ask the question.
<unk>.
I'm thinking about the same way I listen I mean does it continues to be a market opportunity that's growing in a normal time 12, 13 14, 15%. It continues to be a market opportunity. That's underserved continues to be a market opportunity.
That is short of capacity in general and you know the big players UBS USPS Fedex will continue to raise prices. So all of the fundamentals.
Of the market.
From an economic perspective.
A really attractive and you know I like our business model I like our business model. We've got you know less than 10% of our costs are fixed and we can.
Very up or down admittedly not in time to save a quarter always but if you look at the cost actions that we've taken on transportation labor over the last.
60 day is pretty dramatic.
And I like our.
Chip with postal service. So I do think the I mean, when we look at the postal service stayed a little bit more closely.
I think what we're fine.
There are parcels were down for the quarter.
Well at least that's what they're reporting through December 15th They report again.
But that being said I mean I'll go back to the first one I think where we're more susceptible who perhaps a market.
Operations at the moment.
That's super helpful. I'll see it there and then we're coming up on top of the hour. Thanks a lot.
Thank you once again for questions from the phone. Please press one and then zero.
[noise], we have a follow up from the line of Ananda Baruah of loop capital. Please go ahead.
There you go guys.
Okay. So no one else is Doug I'll ask one or two more.
So it does sound like you guys just from the pay remarks and Scott So what are the questions.
Sounds like over time, you actually believe now there was a factor in centex.
Yes, I do.
And it's.
It's driven by two things first of all if you look at the.
The business is there.
A reconstituted itself the shipping market, that's addressable to them as well.
Larger than the memory market.
And it's growing.
As opposed to declining so it's not growing as fast as ecommerce shipping, but it is growing so all of a sudden they're on a addressable market, that's probably three times as big as.
There are participating before and the aggregate of that market.
It's growing so I think that's gonna take them another couple of years.
But I think the shipping.
Revenue in the shifting opportunity there is considerable and then obviously you know the financial services opportunity continues to be a another layer of opportunity that we're pursuing as well.
Okay cool awesome.
And then just you mentioned some of the actions that you guys are taking on in the prepared remarks, Mark you mentioned some of the actions that you're taking as a result of what manifested in Q4 could you just you sort of rank.
Four separate force rank for us like what's the most impactful ones.
You're taking you know first half of the year here.
Yeah, I mean so.
Let me kind of separate though.
The actions in the different buckets. So obviously, there's the the.
The processes and the.
The work around the forecast that we do principally with our customers. So we've talked about you know better tools.
Better process with our customers being a little bit more open minded that it's hard for our customers to forecast even though.
With a positive attention if.
If you look at the the second bucket I would characterize in terms of.
Expense.
It depends on how you want to characterize it.
But you know as.
As we exited the year and certainly in the first week of January .
We have driven substantial labor and transportation out of the business part of that was kind of a.
Can we was planned until you're always dial up capacity for peak and then dial it back down.
But suffice it to say.
We dialed it back down pretty quickly.
In late December early January .
More work to do there so I'd say, we've got a little more work to do on transportation and labor.
And then the third thing that we're working on.
The little arcane, but it's around how we optimize the network. So said another way how we absorbed parcel.
From our clients, where they get sorted where they go to next so one of the things that happened.
2019, or 2020, when we saw the.
Hike in volume.
We started delivering to a lot more coastal destinations a lot deeper in the network and we did that because you know the volume seem to one at the time I think what we're going to work out in hours do we perhaps overdue that a touch and if you ever do that touch it affects your unit economics. It affects your service level. So you have a.
A unique opportunity.
If you kind of dialed back some of the places you deliver to within the postal network to improve their service levels and your cost at the same time, that's probably something we walk through the benefit of them until we get into the second quarter, but it's a really good opportunity that's in front of us.
Oh, that's great context.
Okay Cool last one for me is you guys have any visibility too.
Potential advertising impact to your suppliers, maybe wasn't suppliers given the supply chain disruption and.
Changing consumer behavior.
In December quarter, I'm, not sure I understand the question.
Well, so one of one of.
The monitoring the situations with the December quarter, I guess, one of the things you know that that was coming up and our work was that there may be an advertising impact.
So it would be.
Behavior.
Yeah, a little bit up a little bit out of my belly work.
But it's reasonable to assume a few our supply concerns in euro retailer.
Or a consumer products company, you're going to dial back advertising. So I don't have any specific data on that but that's.
That's probably a reasonable expectation.
Appreciate it.
Thanks, a lot guys I appreciate it thank you.
Thank you and we have a follow up from Allen Klee of Maxim Group. Please go ahead.
Good morning, I had two questions first given.
Given the attractiveness of the financing segment I wanted to touch on Wheeler financial could you tell us how much money was put to work in 'twenty one.
How much.
Excess bank deposits you now have and how you think about if more money could be put to work in in 'twenty two thank you.
Sure Let me take this one.
So four Wheeler specific we choose our equipment lending and leasing since inception, we've put to work about a full a little over 40 million 44 $45 million.
And we currently have receivables are in the bank are shy of about $30 million.
We also have other growth initiatives and I just want to be clear I know Wheeler is more specific about kind of the equipment arm, but.
But in the bank. We also have other growth initiatives around shipping financing on working capital.
For a week.
We also have around that kind of 30 million Mark of receivables. So you know what when you take a step back our combined growth initiatives.
At the bank.
Are roughly around 25% of the current receivable base that we have there and we intend to continue to grow that aim.
We are working.
Working on an additional initiatives and in due time will be will be putting that out there.
The other thing I wanted to comment is and I mentioned, destroying the script is we feel very good about the quality that we've been not only putting on the books, but.
Or delinquency trends and and the quality of our portfolio.
And that gives us really a solid footing for that further growth.
So I hope that.
Answers. Your question I think that's just that's a really important point that kind of ties back to Shannon's original question you know in terms of the debt there was some question.
As we entered Covid about what youre going to see in terms of doing what is what are you going to see in terms of losses.
What we pointed to at the time was when we went through the last financial crisis.
2009 that we had very low losses.
I have very high credit.
That turned out to be true again.
Hey, good underlying the fact that this is a really solid business its a very well run business.
And highly reliable in terms of producing.
Cash.
That's great and then lastly could you just.
So on two relatively recent well whatever [laughter] last couple of months announcements one was.
Talk a little about what youre doing with smart locker. She made its announcement in Canada, you're doing some stuff in the U S and then.
In November you announced the acquisition of a Singapore based Chris Koh data. So if you could just give us a little color on both of those.
What's going on there. Thank you.
Tom you want to talk about if you want me to.
Sure I'll start and Mark please feel free to add to that so under locker space. It's a it's a really good adjacency to to our existing centex a portfolio and you know it provides another way for a touch.
Less receipt and delivery of packages and mail materials and things like that there.
There are of course opportunities around universities, and maybe office spaces and other areas that the team is actively pursuing and and we anticipate.
Growth in that area and that that ties really nicely to two that shipping strategy that we mentioned.
Yeah, I'm, sorry, I'm sort of Oh go ahead Mark.
I'll go ahead and finish off and all that.
I'll just just maybe you mentioned in terms of the acquisition you know, we're we're very excited because.
The acquisition again goes into that shipping space and it it allows greater connectivity with our with the retail base for us to to further do offerings and connect to our platforms as as we continue.
To grow the shipping.
But go ahead, yes, I imagine with them both both are.
Important initiatives to take advantage of the shipping opportunity for center.
Walkers of Ana pointed out as a near term adjacencies.
We will not likely ever invest in metal, but we will invest in.
And the intellectual property and maybe some labor in order to take advantage of that opportunity and that's what.
We did in Canada. The second opportunity you know the company about in Singapore, Likewise was focused on shipping.
And you know.
How it is that you enable that opportunity what carriers.
You use in some of the other.
Digital capabilities that you need in order to make the option come alive. So both were you know a nice acquisitions are nice tuck ins.
And we'll continue to work for those kinds of opportunities to accelerate our.
Initiatives in shipping and to make some tactical RF business.
Great. Thank you so much.
Thank you and there are no further questions in queue. So I'll turn it back to Mr. Lautenbach for any closing remarks, great. Thanks, operator, and again, thanks, everyone for joining this call I know theres a lot to unpack it.
Let me conclude with a couple of thoughts.
We're pleased with the progress you've made overall last year.
As I said everything was perfect but overall.
Important step forward.
<unk> sales were better presort is hitting on all cylinders and we expect that.
To continue our new product incentive.
We're really getting traction and we're moving those products around the world.
Debt levels are down and free cash flow was solid.
Conversation, we have with Shannon.
Clearly, we've got work to do in global Commerce, but it's obviously a challenging.
The environment, and that's hard to balance supply and demand and Covid I have to remind myself every once in a while that we've owned that business for four years and two of the four years that we've owned that business have.
I have been in a global pandemic.
And in some ways what is unusual.
Unusual for the rest of the world is kind of in their normal for the last two years and as we've built that business and grow that business.
She was delivered performance we've earned client trust.
That's incredibly important at the end of the day the markets there.
Importantly, we've got really good brand permission vis vis all the other participants to win this market.
I Love our business model I like the fact that principally variable and base our life our relationship with the postal service and we have a really incredible leadership team in place.
Great disappointments for the quarter. Besides the financial performance as the team worked so hard to prepare for the quarter was so well prepared.
You know honestly.
The volume was disappointing, but their work will pay importance dividends going forward. So again, thank you for everyone and we'll be around to answer whatever questions. You have in the coming days. Thank you.
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