Good morning, and welcome to the Pitney Bowes Fourth Quarter 2021 and Full Year Earnings Conference Call. [Operator Instructions] Today's call is also being recorded. [Operator Instructions] I would now like to introduce participants on today's conference call. Mr. Marc Lautenbach, President and Chief Executive Officer; Ms. Ana Maria Chadwick, Executive Vice President and Chief Financial Officer; and Mr. Ned Zachar, Vice President, Investor Relations. Mr. Zachar will now begin the call with the safe harbor overview.

Good morning, everybody. This is Ned Zachar. 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. 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. 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.pb.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 or developments. 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. Our format today is going to be familiar. Marc Lautenbach, our President and Chief Executive Officer; will begin with opening remarks, which will be followed by Ana 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 Marc. Marc, the floor is yours.

Thanks, Ned, and good morning, everyone. Thank you for joining us this morning. [Indiscernible] it, but you can't say enough. Thank you to not just the PB team but to our industry colleagues and all other essential employees who did the [indiscernible] ring the holiday season. There's no doubt that the corrective work of so many people in our country and our economy in a much better place than otherwise would have been the case. As our customer has been, I will provide a perspective on the year, and Ana will discuss the quarter in detail. I will also provide my take on the quarter in a minute. This surprises to say that there are many different crosscurrents running through the period. Presort performed exceptionally well, SendTech successfully negotiating the way through some difficult supply chain issues and turn in a solid quarter. GSE had a very successful peak season in terms of providing good service to our customers but (inaudible) year changes in consumer buying behavior, creating a different financial results than expected. I'll come back to this topic in a moment. So let me elaborate on the annual results first. I have said for a while that the final chapter of a successful transformation is profitable revenue growth. And in 2021, we grew revenue and earnings per share. For sure, not everything was perfect, and we are [indiscernible] with another important step forward. SendTech and Presort had very good years and in aggregate with 2 businesses grew revenue and profit for the year. I think it's worth noting with the conventionalism for PB caring our GEC's revenue and profit improvement with outrun declines in our traditional businesses, which may characterize as melting icebergs. In 2021, that paradigm changed and new initiatives in Presort and SendTech have put those…

Thank you, Marc. 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 EBIT, EBITDA, EPS and cash flow on an adjusted basis. For the full year, total revenues grew 3% to $3.7 billion. This is our fifth consecutive year of consolidated revenue growth. EBIT was $203 million, 6% lower than the prior year. As Marc mentioned, the aggregate growth of Presort and SendTech was more than offset by lower global e-commerce results and somewhat higher unallocated expenses. I'll come back to global e-commerce performance momentarily. Adjusted EPS for the year was $0.32 versus $0.31 last year. GAAP EPS was a loss of $0.01. As a reminder, GAAP EPS includes unusual items primarily related to our debt refinancing expense and other restructurings. GAAP cash from operations was $302 million, flat to last year. 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 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. Looking at our balance sheet and capital allocation. Liquidity remains strong as we ended the year with cash and short-term investments of $747 million and an undrawn revolver. 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 since year-end 2020 to $2.3 billion. When you take into account…

[Operator Instructions] 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 as investors getting confident in that? Thank you.

Sure. Let me start and I'll let Ana add. So we continue to be very confident in that market opportunity. We're 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 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 an EBIT perspective as well as an EBITDA perspective. And I expect it to be EBITDA positive in 2022. We see that kind of progressing throughout the year, the stronger second half, partially just because that's the way that business always operates with peak but also as some of the supply chain issues that our customers are facing or begin to even out to touch and consumer buying behaviors - back to the [indiscernible] So we expect substantial improvement. We expect to be EBITDA positive this year. And the team has a plan to be EBIT positive. But obviously, I would consider that plan pretty high risk right now based on the quarter that we're coming off of, and we're not banking 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 in the future. Because obviously, right now, 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 and pretty significant investment phase? And then I have a follow-up. Thank you.

Sure, maybe. This is Anna. Let me start by saying that we expect to continue to have strong free cash flow into the future. And as I mentioned previously with the amount of uncertainties and some of the timings of COVID and all the uncertainties out there, we're not giving anything more specific. But I will say that there are a few areas that we will focus on. So first, we have done significant investment in capital expenditures in 2021, and we will continue to invest in 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 day sales outstandings had a significant drop of about 5 days -- and we continue to focus on collections, but that rate of improvement is going to be difficult to match. So I think those are 2 kind of currents going in different directions. But again, the overall business, we expect to generate healthy 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 some of the maturities coming up, we feel good with maturities coming up in '23 that our existing plans for free cash flow can absolutely pay for that. I also mentioned that we have the pending 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 the next 2 to 3 years and then we'll define as we progress on that. I hope that answers your question.

Shannon, can I just add to one poibnt, if I might. So let me start with the bottom line. We are highly confident in our balance sheet. And now as we look at the maturities and the tenure maturities versus our cash flows and what we've got cash on the balance sheet, there's no issue there. So that's the most important part. I would just dimensionalize something that Ana said because I think it's important that our investors understand. So if you look at our long-term plan for our GEC network, our build-out, we have in 2021 completed most of what we need to do. So the current capacity of our network is well beyond the volumes that were seen. So we're in good shape in terms of the network. So we've got 1 node that we'll build out this year in Chicago. And then we've got 2 smaller nodes that will probably get to '23 or '24 and that's -- that will be the complete network. So the GEC cash consumption in terms of CapEx, we'll continue to dial down and as Ana said, rotate towards efficiency and optimization of what we have. So as we think about cash flow, generally, the principal driver of the cash flow going forward, is going to be from earnings and as GEC continues to improve. And candidly, we didn't talk about it as much as perhaps we could have -- but with Presort and SendTech being EBIT positive that not only secures the debt, but it also is an important source of cash going forward. Operator Thank you. Our next question will come from the line of Anthony Lebiedzinski of Sidoti & Company.

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? Just want to get a better sense as to how the customer mix has evolved, if you could put any metrics on it, that would be helpful. But just wanted to get a better understanding of the overall client mix within Global Ecommerce.

Sure. So the first thing I would say is that 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, versus today, I think when we bought this business, we had 100 or 150 customers. I think today, as we exited 2021, we had 430 customers. So you've seen a dramatic increase in the customer base. In terms of losing any customers, no, we haven't lost any customers, but that's candidly why it was so important for us, particularly coming off of the peak in 2020 where the industry 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, we were able to increase customers. The other point I would make is 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 assume the network was going to be under stress. So you've got to fight for customers every day. You 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 to to continue to earn our customers' business. But if you look at the overall trajectory of the customer base, it's continued to increase. And we like the mid-market. It is a market that's traditionally underserved, and you can get a little bit better economics.

That was very helpful. And then 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 2 segments as to how should we think about revenue and EBIT from Presort and SendTech? A – Ana Chadwick: Sure. I'll start and maybe Marc can add. We continue to expect Presort to be in the trajectory of growth, understanding that 2021 was a significant growth year. So we will see that trend continue. And then for SendTech there's initiatives around growth 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 longer than just 1 year, but we are in a good trajectory, and we expect, as Marc mentioned before, for both Presort and SendTech to continue similar trends of margins and healthy cash flows.

Got you. Okay. And then last question for me. 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? And any sort of guidance for the tax rate is how we should think about that for this year? A – Ana Chadwick: Yes. I mean, as I mentioned, it will be lower than 2021. 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.

It was from a CapEx perspective, I mean, if you look at 2020, I think it was a little over $100 million. Last year, it was a little over $180 million. The norm is somewhere in between those 2 numbers, I mean, probably snack out in the middle. So I think it's fair to expect a return to the norm.

We'll go next to the line of Kartik Mehta of Northcoast Research.

Marc, I'm not sure if you said this or not, if you have, I apologize. But in the past, you would talk about global e-commerce breakeven or maybe the way to think about it is 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, the shots are largely the same. I mean I would say what we're trying to assess is, given this new normal, whenever it lands, how does that affect the unit economics. So for example, if you look at our transportation costs pre-COVID they've more than doubled at the unit level. Conversely, under the side of it, price has gone up by 30% or 40%. So it's a little bit hard at the moment to be terribly precise when the fundamental building blocks of the economics are moving around. That being said, I continue to be -- this is an incredible opportunity and we don't see that changing at all. So we're at a moment in time where there's a little bit of uncertainty, but that doesn't cover our long-term view. In terms of volume, we always thought 250 million to 300 million parcels was kind of an important place to get to. And I still think that's an important place to get to. So that hasn't changed. But let me dimensionalize a little bit for you. So if you look at our exit rate for 2021 in terms of parcels, it's probably around 200 million parcels going into 2022. If that number goes from 200 million to 300 million, your fixed cost absorption between 200 million parcels and 350 million parcels provides probably $100 million of benefit to the bottom line. So there's -- this is a fairly light business model from a fixed cost perspective, but it is highly highway leveraged -- so right now, the inflection points on units, I think, still is kind of in the same basic ZIP code. But with the caveat that COVID 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 get settled in terms of how the unit -- particularly labor and transportation are settling out.

Thanks, Marc. And Ana, you talked a little bit about budgeting global e-commerce. 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 would you think it was a onetime issue and the process works going forward?

Sure. We think this is a onetime 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 interlock 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, we continue to follow the same process we've been doing.

I think it's important instant. I think Ana said it in her comments, I mean, the forecast that we had received from clients up until the fourth quarter had been 98% or 99% accurate. So we're heavily reliant on our customers' forecast. And we're going to continue to be heavily reliant on our customers' forecast. As Ana 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 is because their forecasts have been so reliable, we probably weren't as open-minded as we should have been in terms of the possibility that the commits forecast. Now I'm not sure that's the bet I necessarily would have made in the middle of peak in supply chain crisis when there was so much focus, but we have weekly forecasts, daily forecast from clients. So you miss it for a week or so, I think we'll be a little more open-minded to how we adjust that forecast going forward.

Thank you. Next, we'll go to the line of Ananda Baruah of Loop Capital.

A few, if I could. Marc, do you have a view on this if Pitney was maybe more greatly exposed to the industry dynamics that you mentioned in the December quarter than some of the other shippers?

Yes. So 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 really heavily concentrated in the mid-market. I think we're still waiting to see customers report. But I think what you're going to find always my hypothesis is, the big box guys were able to take a series of actions that protected their supply chain more. So you read about Walmart or Costco or Target getting their own ships to their own plans, in a series of actions like that, those types of actions aren't available to the mid-market. So my expectation and the spot on the data that we've seen so far is we were more susceptible to what happened in the in the fourth quarter than others. That being said, there's a series of positive things that go along with the mid-market that I think on a longer-term basis, are very appealing. As I said, not the least of which is an underserved market that has very attractive economics. So we own -- UPS announced this morning, I thought they announced pretty good results. I will point out that -- if you look at their results versus our results in 2019, we've still grown faster. But UPS has a broadly diversified business. And I think in moments of choppy economics, choppy market behavior, a broadly diversified base helps.

That's really helpful. As it -- I mean are you thinking any differently about long-term volume opportunity in the industry. It sounds like not anecdotally, but I just want to ask the question.

I'm thinking about the same way. Listen, I mean it continues to be a market opportunity that's growing in normal times, 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 the big players, UPS, USPS, FedEx continue to raise prices. So all of the fundamentals of the market, as I look at from an economic perspective, are really attractive. And I like our business model. I like a business model where we've got 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 days, it's pretty dramatic. And I like our relationship with the postal service. So I do think when we look at the postal service data a little bit more closely, I think what we're going to find is their parcels were down for the quarter. as well. At least that's what they're reporting through December 15, they report again. But that being said, I mean, I'll go back to the first point. I think we're more susceptable with these types of market generations at the moment.

[Operator Instructions] We have a follow-up from the line of Ananda Brewer of Loop Capital.

Maybe you gave that. Okay. So no 1 else is on. I'll ask 1 or 2 more. So it does sound like you guys just from the prepared remarks and to 1 of the questions, it sounds like over time, you actually believe now there is a growth vector in SendTech?

Yes, I do. And it's driven by 2 things. First of all, if you look at the the business as they reconstituted itself. The shipping market that's addressable to them is larger than the mailing market. And it's growing as opposed to declining. So it's not growing as fast as e-commerce shipping, but it's growing. So all of a sudden, they're in an addressable market that's probably 3x as big as they were participating before in the aggregate of that market is growing. So I think it's going to take them another couple of years. But I think the shipping revenue, the shipping opportunity there is considerable. And then obviously, the financial services opportunity continues to be 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 in the prepared remarks, Marc, you mentioned some of the actions that you're taking as a result of what manifested in Q4. Could you just sort of rank force rank for us, like what's the most impactful 1 that you're taking first half of the year here?

Yes. I mean, so let me kind of separate the actions in the different buckets. So obviously, there's the processes and the work around the forecast that we do principally with our customers. So we talked about 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 all positive intentions. If you look at the second bucket I would characterize in terms of expense. It depends on how you want to characterize it. But as we exited the year and certainly in the first week of January, we had driven substantial labor and transportation out of the business. Part of that was kind of a candidly it was planned. I mean so you 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 is it's a little arcane. But it's around how we optimize the network. So said another way, how we absorb parcels from our clients, where they get sorted, where they go to next. So 1 of the things that happened in 2019 or 2020, when we saw the spike in volume is we started delivering to a lot more postal destinations, a lot deeper in the network. And we did that because the volumes seemed to warrant at the time. I think what we're going to look at now is, did we perhaps overdo that a touch. And if you ever do that touch, it affects your unit economics, it affects your service levels. So you have a unique opportunity if you kind of dial back some of the places you deliver to within the postal network, to improve your service levels and your cost at the same time. That's probably something we won't see the benefit of until we get into the second quarter, but it's a really good opportunity that's in front of us.

That's great context. Okay. Cool. Last 1 for me is, do you guys have any visibility to potential advertising impact to your suppliers, your mid-market suppliers, given the supply chain disruption and the change in consumer behavior in December quarter? A – Marc Lautenbach: I'm not sure I understand the question. Ananda Prosad Baruah

Well, so 1 of -- like as we have been monitoring the situation went through December quarter, I guess 1 of the things that was coming up in our work was that there may be an advertising impact as a result of the change in tier behavior. A – Marc Lautenbach: Yes. A little bit out of my ballot, but it's reasonable to assume if you are supply constrained, and you're a retailer or a consumer products company, you're going to dial back advertising. So I don't have any specific there on that, but that's probably a reasonable expectation.

And we have a follow-up from Allen Klee of Maxim Group.

I had two questions. First, given the attractiveness of the financing segment, I wanted to touch on Wheeler Financial. Can you tell us how much money was put to work in '21? How much excess bank deposits you now have? And how you think about if more money could be put to work in '22?

Sure. Let me take this one. So for Wheeler specific, which is our equipment lending and leasing, since inception, we've put to work about a little over $40 million, $44 million, $45 million. And we currently have receivables in the bank 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 in the bank, we also have other growth initiatives around shipping financing and working capital, for which we also have around that kind of $30 million mark of receivables. So 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. We are working on additional initiatives and at due time, we'll be putting that out there. The other thing I wanted to comment is, and I mentioned this during the script is we feel very good about the quality that we've been not only putting on, on the books, but our delinquency trends 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 just -- that's a really important point. It kind of ties back to Shannon's original question in terms of the debt. There was some question as we entered COVID about what you're going to see in terms of delinquencies, what you're going to see in terms of losses. What we planned to at the time was when we went through the last financial crisis in 2009 that we had very low losses had very high credit and that turned out to be true again. So I just think it underlines the fact that this is a really solid business. It's a very well-run business and highly reliable in terms of producing cash.

That's great. And then lastly, could you just update us on 2 relatively (inaudible) -- well, whatever last couple of months announcements, one was talk a little about what you're doing with smart lockers. You made an announcement in Canada, you're doing some stuff in the U.S. And then in November, you announced the acquisition of a Singapore-based Cresco data. So if you could just give us a little color on both of those, what's going on there. A – Marc Lautenbach: Sure. No, I'll start, and Marc, please feel free to add to that. So on the locker space, it's a really good adjacency to our existing SendTech portfolio. And it provides another way for touchless receipt and delivery of packages and mail materials and things like that. There are, of course, opportunities around universities and maybe office spaces and other areas that the team is actively pursuing. And we anticipate in that area, and that ties really nicely to that shipping strategy that we mentioned. Yes, go ahead, No, go ahead and finish off, and I'll add.

I'll just maybe mention in terms of the acquisition, we're very excited because the acquisition, again, goes into that shipping space and it allows greater connectivity with the retail base for us to further do offerings and connect to our platforms as we continue to grow the shipping. But Marc, go ahead. A – Marc Lautenbach: Yes. So I mean I'd say, listen, both are important initiatives to take advantage of the shipping opportunity for SendTech. Lockers as Ana pointed out, is a near-term adjacency. We will not likely ever invest in metal but we will invest in 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, the company bought in Singapore likewise was focused on shipping and 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 opportunity come alive. So both were nice acquisitions are nice tuck-ins, and we'll continue to look for those kinds of opportunities to accelerate our initiatives and shipping and to make SendTech to growth business.

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, thank everyone for joining this call. I know there's a lot to unpack. Now let me conclude with a couple of thoughts. We're pleased with the progress we've made overall last year as I said, everything wasn't perfect, but overall, I thought it was an important step forward. Equipment sales were better, Presort is hitting on all cylinders. We expect that to continue new products in SendTech are really getting traction and then we're moving those products around the world. Debt levels are down and free cash flow was solid to the conversation we had with Shannon. Clearly, we've got work to do in Global Ecommerce, but it's obviously a challenging environment, and it's hard to balance supply and demand in COVID. I have to remind myself every once in a while that we've owned that business for 4 years and 2 of the 4 years that we've owned that business have been in a global pandemic. So it's in some ways, what is unusual for the rest of the world has kind of been the normal for the last 2 years and as we've built that business and grow that business. With this year's delivery performance, we've earned client trust. And that's incredibly important. At the end of the day, the market is there. Importantly, we've got really good brand permission vis-a-vis all the other participants to win this market. I love our business model. I like the fact that principally variably based. I like our relationship with the Postal Service and we have a really incredible leadership team in place. One of my great disappointments for the quarter besides the financial performance does the team worked so hard to prepare for the [Operator Instructions] Beginning at 10 a.m. Eastern Time today and running through midnight, March 1. You may access the AT&T replay system by dialing 1-866 207-1041 and entering the access code of 114-2410, international dialers may dial 1 (402) 970-0847. Those numbers once again are 1 (866) 207-1041 or 1 (402) 970-0847 with the access code of 114-2410. That does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.