Pitney Bowes(PBI) - 2020 Q4 - Annual Report

Part I Business Pitney Bowes provides global commerce solutions in ecommerce, shipping, mailing, and financing, organized into Commerce Services and Sending Technology Solutions - The company operates through three main business segments organized into two groups[11][13][14] - Commerce Services: Includes Global Ecommerce (domestic parcel services, cross-border solutions, digital delivery services) and Presort Services (mail sortation for postal discounts)[11][12][13] - Sending Technology Solutions: Offers physical and digital mailing/shipping technology, supplies, and financing options through its subsidiary, The Pitney Bowes Bank[14] - The company's business is seasonal, with a larger percentage of revenue earned in the fourth quarter due to increased shipping volumes during the holiday season[16] - As of the report date, the company has over 11,500 employees, with approximately 80% located in the United States[27] Executive Officers | Name | Age | Title | Executive Officer Since | | :--- | :--- | :--- | :--- | | Marc B. Lautenbach | 59 | President and Chief Executive Officer | 2012 | | Johnna G. Torsone | 70 | Executive Vice President and Chief Human Resources Officer | 1993 | | Daniel J. Goldstein | 59 | Executive Vice President and Chief Legal Officer and Corporate Secretary | 2010 | | Christoph Stehmann | 58 | Executive Vice President, International Sending Technology Solutions | 2016 | | Jason C. Dies | 51 | Executive Vice President and President, Sending Technology Solutions | 2017 | | Gregg Zegras | 53 | Executive Vice President and President, Global Ecommerce | 2020 | | Ana Maria Chadwick | 49 | Executive Vice President and Chief Financial Officer | 2021 | Risk Factors The company faces significant risks from the ongoing COVID-19 pandemic, USPS financial health, declining physical mail, business transformation challenges, cybersecurity threats, and macroeconomic factors - COVID-19 Pandemic Risks: The pandemic continues to impact operations by accelerating the decline of physical mail, increasing costs for safety protocols, creating labor and transportation challenges, and affecting client financial stability[37] - Mailing and Shipping Industry Risks: The company is dependent on the financial health of national posts, especially the USPS. Deterioration in their services or financial condition, changes in postal regulations, or loss of contractual relationships could adversely affect business[39][40][41] - Business Operational Risks: The shift to lower-margin package delivery services requires significant volume growth to maintain profitability. The company also faces risks from the loss of large ecommerce clients, reliance on third-party suppliers, fluctuating transportation costs, and competition for labor[43][44][46] - Cybersecurity and Technology Risks: The company is vulnerable to cyberattacks, which could disrupt operations and lead to liability. The report discloses two significant cyber-events in October 2019 (RYUK ransomware) and May 2020 (Maze ransomware), which resulted in business interruption costs and data exfiltration, respectively[55][58] - Macroeconomic and Regulatory Risks: Potential credit rating downgrades could increase borrowing costs and limit access to capital markets. The business is also exposed to foreign exchange fluctuations, changes in international trade policies and tariffs, and environmental regulations[62][64][66] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[69] Properties The company leases numerous facilities worldwide, including its corporate headquarters, fulfillment centers, and over 50 sortation centers, which are deemed adequate for current needs - The company leases most of its facilities, including its corporate headquarters, fulfillment centers, and over 50 operating centers for Global Ecommerce and Presort Services[69] - A key facility for the SendTech Solutions segment is a leased manufacturing and distribution center in Indianapolis, which stores a majority of its products, supplies, and inventories[69] Legal Proceedings Information regarding legal proceedings is detailed in Note 16 of the financial statements - Information on legal proceedings is detailed in Note 16, Commitments and Contingencies[70] Mine Safety Disclosures This item is not applicable to the company - Not applicable[70] Part II Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'PBI', with no share repurchases in 2020, and its stock significantly underperformed major indices over five years - The company did not repurchase any common stock in 2020. As of December 31, 2020, $16 million remains under the share repurchase authorization[73] - The company's stock significantly underperformed its peer group and major indices over the five-year period ending December 31, 2020. A $100 investment in PBI in 2015 was valued at $39 in 2020, compared to $203 for the S&P 500 and $175 for the peer group[74] Selected Financial Data The five-year financial summary shows 2020 revenue growth to $3.55 billion but a significant loss from continuing operations of ($191.7 million), with diluted EPS of ($1.12) Five-Year Selected Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $3,554,075 | $3,205,125 | $3,211,522 | $2,784,007 | $2,656,172 | | (Loss) income from continuing operations | $(191,659) | $40,149 | $181,705 | $180,039 | $210,861 | | Net (loss) income | $(181,544) | $194,609 | $241,811 | $243,528 | $92,805 | | Diluted (loss) earnings per share (Continuing) | $(1.12) | $0.23 | $0.96 | $0.96 | $1.12 | | Total assets | $5,220,137 | $5,466,900 | $5,938,419 | $6,634,606 | $5,837,133 | | Total debt | $2,564,393 | $2,739,722 | $3,265,608 | $3,830,335 | $3,364,890 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, total revenue grew 11% to $3.55 billion driven by Global Ecommerce, but total segment EBIT fell 16% to $414 million due to higher costs and a goodwill impairment charge Overview For 2020, total revenue increased 11% to $3.55 billion primarily from Global Ecommerce, but total Segment EBIT declined 16% to $414 million due to higher costs and COVID-19 impacts Revenue by Type (2020 vs 2019) (in thousands) | Revenue Type | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Business services | $2,191,306 | $1,710,801 | 28% | | Support services | $473,292 | $506,187 | (6)% | | Financing | $341,034 | $368,090 | (7)% | | Equipment sales | $314,882 | $352,104 | (11)% | | Supplies | $159,282 | $187,287 | (15)% | | Rentals | $74,279 | $80,656 | (8)% | | Total revenue | $3,554,075 | $3,205,125 | 11% | Revenue & EBIT by Segment (2020 vs 2019) (in thousands) | Segment | 2020 Revenue | 2019 Revenue | % Change | 2020 EBIT | 2019 EBIT | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Global Ecommerce | $1,618,897 | $1,151,510 | 41% | $(82,894) | $(70,146) | (18)% | | Presort Services | $521,212 | $529,588 | (2)% | $55,799 | $70,693 | (21)% | | Commerce Services Total | $2,140,109 | $1,681,098 | 27% | $(27,095) | $547 | >(100)% | | SendTech Solutions | $1,413,966 | $1,524,027 | (7)% | $441,085 | $490,322 | (10)% | | Total Segment EBIT | | | | $413,990 | $490,869 | (16)% | - The COVID-19 pandemic significantly increased volumes in the Global Ecommerce segment but also led to higher postal, labor, and transportation costs. The SendTech Solutions segment was adversely impacted by business shutdowns and remote work[87][88] - For 2021, the company expects modest revenue growth and margin improvements from pricing initiatives and operational efficiencies, though uncertainty from the COVID-19 pandemic remains[90][91] Results of Operations In 2020, Global Ecommerce revenue surged 41% but its gross margin and EBIT declined due to higher costs, while Presort Services and SendTech Solutions saw revenue and EBIT decreases - Global Ecommerce: Revenue grew 41% in 2020, driven by higher volumes in domestic parcel delivery (36% growth) and cross-border solutions (5% growth). However, gross margin declined to 8.5% from 14.1% due to increased postal, transportation, and labor costs, leading to an EBIT loss of $83 million[93] - Presort Services: Revenue decreased 2% due to lower First Class and Marketing Mail volumes, partially offset by acquisitions. Gross margin fell from 25.8% to 22.8%, and EBIT declined 21% due to higher labor costs and COVID-19 impacts[94][95] - SendTech Solutions: Revenue decreased 7%, with declines in supplies (-15%), equipment sales (-11%), rentals (-8%), and support services (-7%). EBIT decreased 10% due to the revenue decline and a $10 million higher credit loss provision, partially offset by $47 million in expense reductions[97][99] - Consolidated SG&A expense decreased 4% ($41 million) in 2020 compared to 2019, driven by lower professional fees, employee-related expenses, and travel costs[102] - A non-cash, pre-tax goodwill impairment charge of $198 million was recorded in the first quarter of 2020 related to the Global Ecommerce reporting unit[105] Liquidity and Capital Resources As of December 31, 2020, the company held $940 million in cash, with operating cash flow increasing to $302 million, and managed debt through a new term loan and tender offer Cash Flow Summary (in thousands) | Activity | 2020 | 2019 (As Revised) | | :--- | :--- | :--- | | Net cash provided by operating activities | $301,972 | $267,883 | | Net cash (used in) provided by investing activities | $(75,692) | $457,550 | | Net cash used in financing activities | $(235,371) | $(670,299) | | Change in cash and cash equivalents | $(2,992) | $57,180 | - In February 2020, the company secured a five-year $850 million term loan maturing in January 2025 with an interest rate of LIBOR + 5.5%[114] - In March 2020, the company purchased $928 million of notes due between 2021 and 2024 via a tender offer, resulting in a $37 million loss on early debt extinguishment[114][327] - The company has a $500 million secured revolving credit facility expiring in November 2024. There were no outstanding borrowings under this facility at year-end 2020[115] Contractual Obligations (in millions) | Obligation | Total | Due in 2021 | Due in 2022-2023 | Due in 2024-2025 | After 2025 | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt maturities | $2,610 | $216 | $630 | $1,303 | $461 | | Interest payments on debt | $966 | $132 | $217 | $106 | $511 | | Operating lease obligations | $280 | $52 | $79 | $58 | $91 | | Purchase obligations | $244 | $244 | — | — | — | | Total | $4,235 | $674 | $955 | $1,492 | $1,114 | Critical Accounting Estimates Management identifies critical accounting estimates including revenue recognition, goodwill impairment (with a $198 million charge in Q1 2020), credit loss allowances, income tax reserves, and pension benefit assumptions - Goodwill Impairment: A test in Q1 2020 for the Global Ecommerce reporting unit, prompted by weaker performance and macroeconomic uncertainty, resulted in a non-cash, pre-tax goodwill impairment charge of $198 million. The annual test in Q4 2020 indicated no further impairment[129][287] - Allowances for Credit Losses: The total allowance for credit losses as a percentage of finance receivables increased from 2% at year-end 2019 to 3% at year-end 2020, reflecting the adoption of ASU 2016-13 and the economic outlook[132][234] - Pension Benefits: The calculation of pension obligations is sensitive to assumptions. For 2021, the discount rate for the main U.S. plan will be 2.55% (down from 3.35% in 2020) and the expected rate of return on assets will be 5.60% (down from 6.25% in 2020)[137][138] - Revenue Recognition: Management must allocate revenue among multiple performance obligations (e.g., equipment sale, maintenance, meter services) based on relative standalone selling prices, which impacts the timing of revenue recognition[125][126] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency and interest rate risks, using forward contracts and interest rate swaps to hedge these exposures, with a one-percentage point interest rate change impacting pre-tax income by $7 million - The company actively hedges foreign currency risk for the British Pound, Canadian Dollar, and Euro using forward contracts[142] - At December 31, 2020, 46% of the company's debt consisted of variable-rate obligations. Interest rate swaps are used to mitigate this exposure[143] - A hypothetical one-percentage point change in the effective interest rate on variable-rate debt would have resulted in a $7 million impact to pre-tax income[143] Financial Statements and Supplementary Data This section contains the company's consolidated financial statements, including the independent auditor's report and related notes - The independent auditor's report from PricewaterhouseCoopers LLP provides an opinion that the financial statements are presented fairly and that the company maintained effective internal control over financial reporting as of December 31, 2020[171] - The auditor's report identifies the Goodwill Impairment Assessment for the Global Ecommerce Reporting Unit as a Critical Audit Matter, highlighting the significant management judgment involved in estimating the unit's fair value[179][180] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None reported[146] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes reported - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[147] - Management's report on internal control over financial reporting concluded that such controls were effective, and this was audited by PricewaterhouseCoopers LLP[148] Other Information The company reports no other information for this item - None reported[149] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the upcoming 2021 Proxy Statement - Most information required by this item is incorporated by reference from the 2021 Proxy Statement[151] Executive Compensation Information concerning executive compensation is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[154] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides equity compensation plan details and incorporates other security ownership information by reference from the 2021 Proxy Statement Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Number of securities to be issued upon exercise | Weighted-average exercise price | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 12,814,365 | $11.81 | 20,581,676 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 12,814,365 | $11.81 | 20,581,676 | Certain Relationships, Related Transactions and Director Independence Information for this item is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[157] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[158] Part IV Exhibits and Financial Statement Schedules This section provides an index to the consolidated financial statements and schedules, and lists all exhibits filed with the Form 10-K - Lists the consolidated financial statements and schedules, which begin on page 36 of the report[159][160] - Includes a detailed list of exhibits, such as the Certificate of Incorporation, By-laws, debt indentures, credit agreements, and various employee compensation plans[161][162] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None provided[163]