Pitney Bowes - Earnings Call - Q4 2020
February 2, 2021
Transcript
Speaker 0
Good morning, and welcome to the Pitney Bowes Fourth Quarter twenty twenty Earnings Conference Call. Your lines have been placed in a listen only mode during the conference call until the question and answer segment. Today's call is also being recorded. If you have any objections, please disconnect your lines at this time. I would now like to introduce participants on today's conference call, Mr.
Mark Lautenbach, President and Chief Executive Officer Ms. Anna Marie Chadwick, Executive Vice President and Chief Financial Officer Mr. Joe Catapano, Vice President and Chief Accounting Officer and Mr. Adam David, Vice President, Investor Relations and Financial Planning. Mr.
David will now begin the call with a safe harbor overview.
Speaker 1
Good morning. Included in this 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. More information about these risks and uncertainties can be found in our earnings press release, our 2019 Form 10 ks 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 used in the press release or discussed in this presentation, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally, we have provided slides that summarize many of the points we will discuss during the call. These slides can also be found on our Investor Relations website. Now our President and Chief Executive Officer, Mark Lautenbach, start with a few opening remarks. Mark?
Speaker 2
Thank you, Adam, and good morning. Let me start by saying how delighted I am that Ana is joining the team as our Chief Financial Officer. Ana held several executive positions at GE Capital, most recently being President and CEO of GE Capital's Global Legacy Solutions and prior to that the Chief Operating Officer and CFO of that business. Ana brings with her strong financial and operational experience and will fit into the PB culture very well. Before I turn to the state of our business, I would again like to recognize and thank our employees.
No one could have predicted how the world changed in 2020, but I'm very proud of how our team was prepared and managed through the challenges. Their efforts and hard work showing the progress we made in our business throughout the year. If I had to choose one word to sum up our employees in 2020, it would be determined. And that is exactly what our team personifies. The fourth quarter was a remarkable ending to an extraordinary year.
Revenue at constant currency grew 23%. To the best of our knowledge, this is the highest modern day organic growth rate on record for Pitney Boats. And our shipping related revenues comprised 54% of our total revenue. For the quarter, Global Ecommerce grew 60% with profit improving from prior year and prior quarters, resulting in positive EBITDA. Presort turned in flat revenue performance, which is a significant improvement from prior quarters and better than the market.
And SendTech turned in strong performance, growing both revenue and profit over prior year. This was powered by strong equipment sales, double digit growth in our SaaS based shipping offerings and a solid performance in our services business. SendTech is a business that many considered a melting ice cube. However, the investments we have made in our digital channel and products, while also expanding our shipping offerings have given new life to this business. In all, these accomplishments would have been hard to imagine a few short years ago, but this is what a determined and focused team can do.
Looking at the year from a broader lens, when the pandemic hit, we had two objectives. First, we needed to focus on the health and well-being of our employees and ensuring the company remained strong financially during this unpredictable time. Secondly, we wanted to come out of this terrible moment a stronger company. It is often true that moments of economic dislocation create opportunities and our team was determined to leverage the investments we have made over the last several years to capture those opportunities. We pivoted to change our work protocols and practices and provided our employees the necessary PPE to be safe as they did their essential work.
We also took the important actions to fortify our balance sheet by refinancing our debt and we made proved decisions to ensure we had a solid liquidity position. It was apparent early on that the company's financial position was solid and we turned to coming out of this pandemic stronger, which we are well on our way of achieving. From an annual perspective, Global Ecommerce turned in $1,600,000,000 in revenue, growing at a record rate of just over 40%. This business won new customers and achieved scale much earlier than we had planned. Simultaneously, we accelerated our planned network build out by several years.
It certainly wasn't always smooth sailing, but the business is in a much better place than it was twelve months ago. While e commerce astonishing growth understandably gets a lot of attention, the transformation of our SendTech business tells an equally remarkable story. Importantly, the business performed well relative to the mail market, but even more enduring, the business has moved to a natural adjacency in shipping. This is a new large growth area, which along with the ongoing transformation of our financial services business and a meaningful contribution from our global services group leverages our core strengths. Epitomizing the transformation of SendTech is the growth of shipping revenue, which is now a meaningful offset to our declining mail business.
Also notable, U. S. Shipments of our low end and middle market devices grew 13% for the year. These multipurpose devices provide new value to clients as compared to our previous generation, single purpose mailing machines. I'm also particularly pleased with our cash performance in the fourth quarter and the year.
The increase in our cash is a result of disciplined execution and a great team effort. It's a fairly remarkable accomplishment to meaningfully increase operating cash flow in the middle of a pandemic, one of the most significant economic dislocations since the Depression. All that being said, transformations are always messy and never a straight line, and transformations in the middle of a pandemic are particularly complicated. The unprecedented increase in demand in the e commerce market created cost inflation, particularly in labor and transportation costs in the fourth quarter, which had a deleterious impact on our profit in e commerce. This quarter tested capacity throughout industry.
Admittedly, was a challenge in order to optimize our service, we more than doubled our labor and set up three new facilities to help meet the demand. While these facilities along with the newer flagship sites we opened late last year works through typical growing pains, they've also become a critical part of our overall network, handling over one quarter of our total domestic parcels in 2020. In addition, our use and reliance of third party transportation this peak, both in cost and service was challenged, which was in line with broader industry trends. To mitigate this, we proactively upgraded packages at a cost to try to maintain service. Going forward, we see opportunity to balance our use of third party transportation and our own PB fleet assets, which performed above expectations this peak.
We will continue to invest to become more efficient across each of these areas. As I've said in the past, it is now within our four walls to manage the cost structure and generate efficiencies. I am often asked about the anatomy of transformations and I think it's worth repeating. Transformations have a certain arc to them: quick wins, sustained investments, revenue growth, and then profitable revenue growth. The most highly correlated factors for successful transformations are revenue growth and employee engagement.
We've achieved revenue growth the last several years and our employee engagement in the middle of the pandemic reached new highs. While there continues to be tremendous uncertainty in our economy and how the pandemic will play out, we are poised to enter the last stage of successful transformations, profitable revenue growth. I am proud of what the team has accomplished, but we all recognize there is more work to do. I'm excited about this next chapter of our transformation. We're on the precipice of accomplishing what very few companies have ever done.
With that, let me turn it over to Joe to take you through our results.
Speaker 3
Thank you, Mark, and good morning. Let me start by providing an overview of our full year results followed by the details of our fourth quarter. Unless otherwise noted, my statements made during our call will be on a constant currency basis when talking about revenue comparisons and on an adjusted basis when talking about earnings related items, including EPS and cash flow. Reconciliations of all non GAAP to GAAP measures can be found in the schedules posted with our earnings press release and on our Investor Relations website. For the full year, revenue was $3,600,000,000 which was growth of 11% over prior year and is our fourth consecutive year of constant currency revenue growth.
Global e commerce grew 41%, Presort Services declined less than 2% and SendTech declined 7%. Adjusted EPS was $0.30 and GAAP EPS was a loss of $1.06 As a reminder, GAAP EPS includes a non cash goodwill impairment charge that we recorded in the first quarter. GAAP cash from operations was $298,000,000 and free cash flow was $279,000,000 Free cash flow increased $91,000,000 over prior year. Through the year, there were a few noteworthy items that principally benefited free cash flow. First, our focus on collections resulted in a strong improvement in our DSO.
We also saw a higher level of Presort and PB Bank customer deposits in part due to initiatives to support our clients. Second, finance receivables declined at a greater rate largely in the second quarter as a result of the lower placements of our equipment due to the pandemic. You can see the trend starting to improve as our SendTech business built momentum through the 2020 as businesses began to reopen. And finally, CapEx. Early on when the pandemic surfaced, we made the prudent decision to reprioritize investments and reduce spending given the level of uncertainty in the market at the time.
There were other puts and takes through the year as we typically experience, but these areas are the key drivers to understanding the strong free cash flow we generated for the year. Looking at our balance sheet and capital allocation, we ended the year with $940,000,000 in cash and short term investments. For the year, we used free cash flow to return $34,000,000 to our shareholders in the form of dividends. Our capital expenditures totaled $105,000,000 and reflect investments made throughout the year in new and existing facilities, our technology and our products. As part of our ongoing transformation, we also made $20,000,000 in restructuring payments.
Within our Pitney Bowes Bank, customer deposits grew to $617,000,000 and Wheeler Financial funded $16,000,000 in new deals for the year. From a debt perspective, we ended the year with under $2,600,000,000 in total debt, which is a reduction of $175,000,000 from prior year. In terms of our net debt, when you take our cash and short term investments and finance receivables into consideration, our implied net debt position on an operating company basis was about $550,000,000 at year end. Turning to the details of the fourth quarter. We delivered $1,000,000,000 in revenue, which represents growth of 23%.
Global e commerce grew 60% and both Presort and SendTech were flat to prior year. For the quarter, adjusted EPS was $0.13 and GAAP EPS was $0.11 EPS for the quarter reflects a $03 tax benefit, primarily related to deferred tax balances in certain international tax jurisdictions. GAAP cash from operations was $111,000,000 in the quarter and free cash flow was $97,000,000 Free cash flow grew $16,000,000 over prior year, predominantly driven by the timing of working capital. During the quarter, we used free cash flow to reduce debt $31,000,000 invest $24,000,000 in capital expenditures and pay $9,000,000 in dividends. Turning to the P and L, starting with revenue performance as compared to prior year.
Business services grew 43% and equipment sales grew 15%. We had declines in support services of 4% and rentals of 8%, while financing and supplies both declined approximately 10%. Gross profit was $311,000,000 and gross margin was 30%. This is a decline of about nine points from prior year, which largely reflects the shifting mix of our portfolio and higher cost of service driven by the influx of parcel demand in Global Ecommerce. SG and A was $242,000,000 or just under 24% of revenue, which is a six point improvement from prior year.
Within SG and A, unallocated corporate expenses were 54,000,000 which were $2,500,000 higher than prior year. It is important to note that full year unallocated corporate expenses were $200,000,000 which were $11,000,000 lower than prior year, primarily due to lower employee related expenses. R and D expense was $9,500,000 or about 1% of revenue, which was about zero five point improvement from prior year. EBIT was $62,000,000 and EBIT margin was 6%. Compared to prior year, EBIT declined $3,000,000 and EBIT margin declined about 2%, largely driven by the lower gross profit.
Interest expense, including financing interest expense, was $38,000,000 which was relatively flat to prior year. The provision for taxes on adjusted earnings was less than $1,000,000 and our tax rate for the quarter was 1%, bringing our annual tax rate to 13%. Average diluted weighted shares outstanding at the end of the quarter were about $177,000,000 Let me now discuss the performance of each of our business segments this quarter. Within Global Ecommerce, revenue was $518,000,000 which was growth of 60% over prior year and the first time we achieved over $500,000,000 in quarterly revenue. Compared to prior year, volumes grew by 50% or more across each of our lines of business.
Domestic Parcels volumes grew 76% to just under 65,000,000 parcels. Digital volumes grew 50% and cross border volumes grew 76%. Looking at EBIT, we recorded a loss of $15,000,000 This was an improvement of $3,000,000 from prior year and $5,000,000 from prior quarter. EBIT margin also improved three points from prior year and two points from prior quarter. EBITDA was $3,000,000 which was an improvement from prior year and prior quarters.
Revenue growth over prior year benefited from the significant demand. This was offset by higher costs driven partly by the market dynamics, which we are seeing a significant higher transportation spot market and higher labor costs. The increase in peak demand also put pressure on our productivity. We will continue to invest across our network to drive efficiencies, reduce costs and improve service for our clients, which will come in part from automation across our network. We are addressing our labor structure, more from temporary labor to permanent, which will yield a more productive workforce.
We are also looking at our transportation network and opportunities where it makes sense for us to become less reliant on the spot market along with becoming more efficient at capturing deeper postal discounts. Additionally, similar to the market, we will capture a surcharge in 2021 along with our annual general rate increase. Within Presort Services, revenue was $135,000,000 which is flat to prior year. Overall average daily volumes declined 2%. First Class Mail volumes declined 3%, while Marketing Mail volumes grew 2%.
Marketing Mail and Bound Printed Matter volumes grew 26%. As we have discussed in the past, this is still a relatively small part of the portfolio, but representing new revenue and profit stream for us. EBIT was $13,000,000 and EBIT margin was 10%. EBITDA was $21,000,000 and EBITDA margin was 16%. EBIT and EBITDA margins were relatively in line with prior quarters and declined from prior year largely due to higher medical claims and increased labor costs as well as COVID related direct costs for the health and safety of our facility workers.
Turning to our SendTech segment. Revenue was $376,000,000 which was flat to prior year excluding the impact of currency and represents growth of 1% on a reported basis. Mark talked about the investments we have made in our Sendtech business around our digital capabilities, including our channel and products. We are bringing new value to our clients through our multipurpose devices and we are leveraging our digital channel to attract new clients to our offerings. In the fourth quarter, SendTech shipping related revenues grew nearly 30% to $35,000,000 And our SaaS based SendPro Online offering grew its paid subscriptions by over 70%.
Shipping is a high margin stream that contributes about 10% to SendTech's overall revenue today, with great opportunity for future growth still in front of us. The impact of shipping is also resonating in our financing portfolio as those clients grew their shipping volumes by 65% over prior year. Equipment sales grew 15% over prior year, driven by strong placements of our SendPro C and Mailstation multipurpose products. Our value proposition continues to resonate with our clients. Our SendPro mail station is a replacement option for our lower volume mailers and ideal for remote setups or branch offices of larger organizations.
Since launching in April, we have shipped approximately 20,000 mail station units. The growth in equipment sales is a significant improvement from prior quarters, particularly against the decline of 32% we saw in the second quarter at the height of the COVID lockdowns. Supplies declined 10%, which is an improvement from prior quarters on increased usage and demand. In The U. S, 70% of our supplies transactions were conducted online in the fourth quarter, which is up nine points from the same period last year.
Support Services declined 4%, which is also an improvement from recent quarters. And combined, rentals and financing revenues declined 9% in the quarter. We turned in strong EBIT performance of $118,000,000 which represents growth of $5,000,000 over prior year. EBIT margin was 31%, which improved one point over prior year and is within the range projected in our long term model. EBITDA was $126,000,000 and EBITDA margin was 34%, both improving over prior year.
The quality of our financing portfolio remains healthy and delinquency rates are trending down from the initial small uptick that we saw earlier in the year as a result of the pandemic. We continually monitor our delinquency rates and take a very disciplined approach to managing our credit risk. Let me close with an update on 2021. Given the ongoing uncertainty in the market around the pandemic and uncertain macroeconomic conditions, we will speak more broadly to our 2021 outlook. We expect annual revenue to grow over prior year in the low to mid single digit range, making 2021 the fifth consecutive year of constant currency growth.
We also expect adjusted EPS to grow over prior year. Within our segments, we expect global e commerce revenue to grow in the low double digit range, and we also expect this business to demonstrate significant profit improvement. We expect the momentum we saw in the 2020 for SenTec, particularly around our shipping capabilities and new multipurpose devices to continue through 2021 and help partially offset the decline in recurring related revenues. We also expect the improvement in volume trends we saw in Presort in the 2020 to continue through 2021. There are also a few headwinds to be aware of on a year to year basis that will partly offset the overall business unit improvements.
In 2020, we recorded Ryuk insurance proceeds. In 2021, we expect higher employee related costs as it relates to variable compensation. Additionally, we expect our annual tax rate on adjusted earnings to be in the 23% to 27% range, which is higher than where we ended 2020. We expect lower free cash flow in 2021, primarily due to the specific items I discussed earlier in my comments that benefited 2020 and are not expected to continue at the same level in 2021. Looking at the timing through the year, our portfolio continues to shift to markets that are growing, particularly around shipping.
As a result, the fourth quarter will continue to be our largest quarter for the year. Specifically in the first quarter, we expect revenue to grow over prior year in the high single digit to low double digit range and EPS to be relatively in line with prior year. With that, operator, please open the line for questions.
Speaker 2
Thank you.
Speaker 0
Your first question comes from the line of Ananda Baruah from Loop Capital. Congrats
Speaker 4
on an overall solid execution and performance. Mark, a couple if I could. Just with regards to the remark a moment ago about significant profit improvement in e commerce in 2021, Can you just put a little context around that for us? And I suppose that would seem to suggest you could have you could find a quarter or two perhaps with profitability throughout the year. And I'm asking I guess I'm using operating profit not EBITDA profit.
And then I have a follow-up. Thanks.
Speaker 2
Sure. Thank you for the question. So as you look at the dynamics of that business, I would point to kind of two clumps of dynamics. The first is the efficiencies that we control inside of our business. And as Joe pointed out, in the I would say the middle of last year, we added three new facilities.
And as we got close to peak, added 2,500 new employees. I put that in context, that's half of the workforce. So I expect those dynamics, our own efficiency and productivity to improve on a year to year basis. Also, as Joe pointed out, we were more dependent in the fourth quarter on the spot market for transportation than I would have liked. And obviously, when that happens, you don't control your own destiny to the extent that you would want to.
And at the same time, when you're hiring less employees, you're subject to the rate at the time. So I think from the perspective of the dynamics that we control, there's lots of reason to believe that things are going to continue to improve. And while I know you asked your question in the context of operating profit, I don't shouldn't be lost that we were positive from an EBITDA perspective in the fourth quarter for the first time in a long time. The other set of dynamics that are important, which are not in our control are around labor inflation and transportation inflation. My expectation is those dynamics are going to continue for a bit, but I expect them to moderate as we get throughout the year.
Or conversely, what will happen is the industry will price for those dynamics. So yes, we do expect that business to become significantly better from a EBIT and an EBITDA perspective in 2021.
Speaker 4
That's really helpful. And just a quick follow-up to that is, you guys mentioned well, the announcement that you're going to carry sort of recently you're going to carry as part of the surcharge forward and then the comments just a few moments ago about anticipating a surcharge benefit. Maybe that's not the right context, but sort of some surcharge above and beyond in calendar twenty twenty one sort of typical rate increases. Can you just give us a little context around, I guess, around near term and if it's distinct from sort of the comment you made about overall 2021? To what degree, if any, do you think you guys can benefit from those surcharges?
And I guess I am asking a little bit about sort of is there a distinction between near term, maybe second half of the year? Sure. That's it for me. I appreciate it.
Speaker 2
You bet. So thanks for the question. So if you think about
Speaker 3
the
Speaker 2
pricing dynamics, there's what I would characterize as the fairly standard vanilla pricing increase, which the industry is used to and has been the habit over the last several years. That is in place and we expect that to hold. The peak pricing is on top of that. And to a degree, it's tailored to individual customer situations. So if you look at the fourth quarter, what we saw was our pricing increases actually held.
So the prices that we put in place around the peak, we realized the large preponderance of the value from those price increases. What happened is the transportation labor costs consumed most of the price increases. So I expect that the price increases will continue to hold and the variable is less around pricing and more around what happens to costs. If you kind of step back and say what's going on from a broader perspective, there's been such an incredible influx of demand in the industry. You've had different participants in the industry take different approaches to they've either tried or haven't tried to accommodate that.
So we're one of the players that's trying to step up and take more demand, but the net effect of all that demand is it's put a fair amount of pressure on the prices of some of the individual costs within those businesses. So I would say right now we're at point of disequilibrium from a pricing and cost perspective. That's going to work itself out. And I think as you bifurcated your question between the first half and the second half of the year, I'm not as confident it's going to work itself out in the first half, but I do think it will work itself out as we get to the second half
Speaker 5
of the year.
Speaker 4
And that's really helpful. So would that mean that if it doesn't completely work itself down the first half of the year, there's some potential for say like a net cost, I can just say net margin, net profit benefit for you guys to some degree in the first half and then it normalizes in the second half and then it would probably be a neutral situation?
Speaker 2
Yes, I'm not going to go there. I mean, there's too many unknowns to offer that level of precision answer. I'd be tricking you if I had that degree of confidence and the timeframe that these things are going to work themselves out beyond the fact that I'm confident they will work themselves out.
Speaker 4
That's really helpful, Mark. Thanks a lot. Thanks, guys.
Speaker 2
You're welcome. Thank you.
Speaker 0
Your next question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead.
Speaker 6
Hey, good morning, Mark. I just wanted to understand a little bit about the global e commerce and talking about transportation and maybe controlling your own destiny there. Does that mean that you'll have to buy trucks or does that mean that you just need to get have contracts in place so that you can maybe control that cost more?
Speaker 2
I suppose if I just answered yes, you would find that an unsatisfying answer.
Speaker 6
You're probably right.
Speaker 2
No, I'm just kidding. Yes, the answer is, we are looking at the balance of how much we are dependent on the spot market. So just to kind of calibrate it for you, I mean, we're probably 25 dependent on the spot market through the first several quarters of last year. And then in the fourth quarter, it went up just short of 50%. So that's got two implications.
First of all, you're economically vulnerable to whatever is going out the spot market at that point in time. And the second is that you can't control your own destiny and service levels to the extent that you like. So my expectation is that for sure, will look at trying to have contracts that have got more certainty in terms of both cost and service levels. But on top of that, I'd be surprised if we didn't have more trucks as we entered into next year's peak.
Speaker 6
And Mark, could that increase cost, I guess could 2021 be you have another really strong quarter from a revenue standpoint in global e commerce, but you have the cost, these costs may be related to the growth of the business and therefore becomes a little difficult to get the margin that you're anticipating?
Speaker 2
Got it. Good question. So we lease the trucks. So it's from that perspective, both the cost and the revenue should match. So I would expect in general that that would not be a disruption to our profitability, but it might.
The other thing that Joe said, which we shouldn't lose sight of is our fleet performed really well in the fourth quarter, both in terms of economics as well as service levels. The impact of being dependent on third parties is for sure you're vulnerable to whatever is going on within the spot market, but also at least our experience has been that our fleet performed better in terms of service levels. When you don't perform well in terms of service levels, what happened was we ingested into the postal network and what I would say was a way that tried to maximize client service, but certainly wasn't very economical. So I think the payback on trucks is pretty solid across both benefits from savings in the spot market, but also in terms of your postal costs, is kind of the downstream costs.
Speaker 6
And then just one last question, Mark. I think when you gave first quarter guidance, you said revenue high single digits, low double digits, but EPS in line. And I'm wondering why you might not get the benefit of the revenue growth to fall to the bottom line?
Speaker 2
Yes. Well, I think if you look at the dynamics and I'll let Adam elaborate of fourth quarter in particular, we had strong revenue growth. We didn't get quite the flow through to the bottom line that we had anticipated and it's because of the inflation rates of transportation and labor. I think those same dynamics are probably going to continue through the first quarter. So that's those same set of dynamics that you saw in the fourth quarter, think will persist at least through the first ninety days.
That being said, we've seen some moderation at least of the transportation costs through the first thirty days. Adam, I'll let you elaborate and provide more context.
Speaker 5
Yes, Karzik. The other two items was our tax rate in the first quarter last year was relatively low. So we expect a bit of a higher tax rate and we did receive some Rive proceeds in the first quarter of last year. So I'd add those two points.
Speaker 6
Thank you very much. Appreciate it.
Speaker 2
Thanks for the question.
Speaker 0
Your next question comes from the line of Shannon Cross from Cross Research. Please go ahead.
Speaker 7
Thank you very much. I wanted to dig a little bit into puts and takes for revenue for 2021. Seems a little more, I guess, cautious than I would have expected given some of the trends that you're seeing. So maybe if you can talk a bit about what you're seeing on the mail meter side as well as e commerce. I know you've given first quarter, but just I mean do we do you think that the growth that you saw in third and fourth quarter was such in 2020 that there were some one timers that won't repeat?
Just trying to understand since the trajectory seems fairly strong. And then I have a follow-up. Thank you.
Speaker 2
Sure. Great question. So I guess I would start with a macroeconomic statement, which you all follow us much as we do. So when you have Jerome Powell, the Chairman of the Federal Reserve, say it's the most uncertain economic times of his lifetime, That's a meaningful statement, at least to me. So you're right, Shannon, we are I would say, we're trying to be balanced, but I think prudence dictates that you're cautious about how the year unfolds.
If you break the dynamics between broadly speaking mail and shipping, I expect our mail businesses to perform better this year on a year to year basis. So if you look at the exit rate of the mail business, SendTech and Presort, those were flattish, which was an improvement throughout the year. If you look at shipping, I expect that the volumes are going to continue to be strong. But if you look at the fourth quarter in particular is kind of a data point, do I expect that we can lap 60% growth with another 60% growth in the fourth quarter of this year? I suspect not.
So I mean, as you get into the back half of the year, the compares get pretty difficult from a shipping perspective. So that those are the dynamics.
Speaker 7
Okay. Thank you. And then I'm curious if you basically you said you've accelerated your network build out relative to the plans that you had in the past. So if you go back to 2019 maybe and what you talked about, where are we now in terms of the build out? And then also I'm curious how much you're investing in automation and new facilities given the demand you're seeing in the network?
Like where is your capacity utilization by the time you get to the 2021 based on your estimates? Just to get an idea of what's going to be required in the future. Thank you.
Speaker 2
Yes. I would say from a footprint physical footprint perspective, we'll continue to fine tune our physical footprint. There's a couple of facilities which we've outgrown and there's a couple of places where we might contemplate new facilities. I would say the overall basic footprint of the network is appropriate to the demand we're seeing and the changes will be more in terms of the size of the facilities. And I think I'd expect some changes there.
And then obviously, will depend on the demand environment, but not substantial. Automation is in front of us. So we're we have pretty ambitious plans to automate our warehouses. That automation will roll out over the next couple of years. Kendall, we'd roll it out as fast as we could, but the supply is a little bit constrained.
So it will depend on what the manufacturer's capability is. So as an example, to kind of dimensionalize it for you, in the shipping locations, there's technology available that does sortation and puts parcels and facts, which how the postal service ingests in their network. There's technology available to do that on an automated basis that in essence reduces the amount of manpower by half. So as quickly we can get that technology, we'll get it, but it also has a very good payback.
Speaker 7
Okay. And actually if I could just sneak one more in. If you think of e commerce and the growth you expect this year, how much of it do you think will come from existing customers you had signed as of the end of twenty twenty? And so you're just seeing those customers expand versus the need to go out and sign new logos to grow the business? And that's it.
Thank you.
Speaker 2
We don't I mean, I suspect we will continue to sign new clients, we'd like to. The plans are really not predicated on. The plan is predicated on keeping the customers we have with some nominal amount of growth underneath it. We had a very successful year last year in terms of signing new customers. Our focus now is making those customers successful.
Speaker 7
Thanks.
Speaker 0
Your next question comes from the line of Alan Klee from the Maxim Group. Please go ahead.
Speaker 8
Good morning. Well, I thought I heard you say with Global Ecommerce that you had a price increase plus a surcharge. Could you tell us how much of the revenue in the quarter came from just the peak surcharge?
Speaker 2
Let me defer to Joe or Adam on that number.
Speaker 5
I can take that one, Alan. Yeah, mean, Alan, we don't want to give a specific number out as far as the peak surcharge obviously for competitive reasons, but it certainly did help our revenue. However, it's important to keep in mind that the largest item by far driving the revenue year to year increase was our volumes. As we talked about, volumes increased by over 50% or more across all our lines of businesses. It was really the volume increase that drove most of the revenue from a year to year perspective.
Speaker 8
Thank you. And you highlighted your ability in 2020 to decline SG and A as a percent of revenue, do you anticipate in 2021 that SG and A as a percent of revenue will decline again? And do you think that CapEx in 2021 will be higher or lower than 2020?
Speaker 2
Adam, let me take that.
Speaker 5
Yeah. So I'll answer the second part first. So CapEx, Alan, as you recall in the second quarter when the pandemic hit, we talked about reprioritizing our spend and we did that. So our CapEx came in much lower than in prior years. As we look into 2021, we expect CapEx to return back to normal levels.
A lot of those investments in CapEx will go to the points Mark talked around automation and building out the efficiencies for e commerce. As far as SG and A as a percent of revenue, yeah, I mean as we look forward across our long term plan, we expect that SG and A as a percent of revenue to continue to improve. There's opportunities and continues to be opportunities in shared services to reduce costs. We continue to benchmark all the shared services. There's opportunity there.
Another example is within our SendTech business on how we go to market. Right? We've done a lot of work shifting our go to market from direct sales to inside sales, which is a more efficient channel. We've certainly sold more over the web now, is the most efficient channel. And I think as we look forward here, we'll continue to shift more and more of our sales via the web.
So certainly continued opportunity from an SG and A front.
Speaker 2
I would just add on that. I mean our model, if you look at our long term model, it suggests that while revenue continues to increase at moderate levels, expense either stays flat or comes down. So it's and that's one of the dynamics that creates leverage of the business model.
Speaker 8
Great. And my last two questions related to SendTech. One, the increase in new business equipment, can you just dig into that a little bit of what's behind that and the potential for that to continue? And then second, I know for Wheeler Financial, you don't want to give how much it's not prudent to say we're planning to put this much money to work. But in general,
Speaker 2
if
Speaker 8
you could just remind us how much excess deposits are available and have you changed your view of like that we want to pull back on Wheeler that maybe there's an opportunity to expand that in 2021? Thank you.
Speaker 2
Sure. Let me take both of those if I might. So within Semtech, there were a couple of different factors that drove equipment sales. First of all, in the fourth quarter, there was a large government deal, which we realized some of the revenue from in the fourth quarter. We'll realize more of the revenue from that deal in 2021.
But that being said, as Joe pointed out, the low and middle end devices grew fairly substantially last year and that's because we had new value principally shipping that was embodied in those devices. So the product was relatively new. So you always get a little bit of an initial surcharge on revenue as you introduce new products. But I'm fairly confident that we've tapped into something that's a pretty important revenue source for us going forward. So whether or not every quarter looks like the fourth quarter, we'll see.
But as Joe pointed out and I would reiterate, the decline of the core mail market is now substantially being offset by shipping revenue in SendTech, and I expect that dynamic to continue. As it relates to Wheeler, we still think that's an important opportunity for the company. We have I'll defer to Joe or Adam, but 300 or $400,000,000 of deposits that we would like to put to work. We think those deposits are economically advantaged in terms of costs, and we think there's great opportunities to put that money to work in a way that drives incremental earnings. If you look at how our thinking has evolved, however, when this business started, we had envisioned it as principally a lease based business.
I would say as our thinking has evolved, we've moved more to working capital loans for shipping, somewhat analogous to what we've done for the mail market over the last several decades. The advantage of that is those loans, if you will, or that working capital has a higher velocity to it. It is relatively reliable from a credit perspective and it's accretive to our shipping business. The other advantage of it is unlike when you're making loans where you take residual value risk, you don't take any residual value risk when you're providing working capital loans. So our rate and pace of putting those deposits to work will depend on economic conditions, but I'm as convinced now as I was several years ago that it's a great economic opportunity.
Just again to repeat, there's a customer base that we understand well from a credit perspective. We have economic advantage in terms of the funding source and we've already gone through the expense of acquiring those clients. So as long as you stay in your installed base, as long as you stay within kind of capital that you can control, we bring structural advantages to the marketplace, which I continue to think are very compelling.
Speaker 5
Thank you very much.
Speaker 0
Your next question comes from the line of Anthony Lebiedzinski from Sidoti. Please go ahead.
Speaker 9
Yes, good morning and thank you for taking the question. So first, just wanted to follow-up on the previous questions in regard to the equipment sales. So if we took back out the equipment sales to the large government deal that you had, would that business have grown in the fourth quarter?
Speaker 2
Equipment sales would have grown. The overall total revenue is probably close enough that it was still kind of round to flattish. Adam, is that the right recollection?
Speaker 5
Yes, that's right, Mark.
Speaker 9
Got it. Okay. Thanks for that. And then as far as your first quarter guidance, you mentioned that you expect kind of EPS to be flat from a year ago. Can you give us a sense as to what's embedded in those expectations for profitability for each of the three main segments?
Speaker 2
Adam, I'll let you handle that one.
Speaker 5
Yeah. I mean, Anthony, we're not going to obviously give segment by segment guidance here for the quarter. As I mentioned, I think it was Shannon who asked the question, we do expect improvement here as we move forward throughout the quarter. First quarter, as we mentioned, we did have a lower tax rate last year and some Riot proceeds, but we certainly expect continued improvement from an EPS standpoint as we move throughout the year with the fourth quarter naturally being our largest quarter, right, with the holiday season and e commerce being a bigger piece of the business.
Speaker 9
Got it. Okay. And you mentioned several cost headwinds as far as transportation and labor, certainly seeing an increase there. Any sort of cost tailwinds that could materialize over the course of the year? I know you talked a little bit about automation, would anything else there be that you could call out?
Speaker 2
Well, I would say just general efficiencies. So again, if you think about the operating dynamics within GEC in particular, I mean, 2,500 people that were brand new to their job as we entered into peak, there's just a certain maturation of skill that will yield efficiency and productivity all by itself. So put automation aside, we'll get to that as quick as we can. But as the network settles out and matures just a little bit, we would expect more efficiencies.
Speaker 9
All right. Thank you. Best of luck.
Speaker 0
And at this time, there are no further questions. I'd now like to turn the call back to Mr. Luttenbach for any additional remarks.
Speaker 2
Yes, thank you. And thanks for the questions. I thought the questions were terrific and instructive. So hopefully our answers were equally instructive. Before I go any further, I'd like to thank Joe Catapano.
Joe has ably sat in for Stan Sotulla over the last couple of months and done a terrific job getting us through our year end close as well as starting off the year and he's been a terrific partner. So Joe, you for your partnership. And again, we're just delighted to have him on board. As it relates to guidance, I understand that the desire for us to provide specific guidance, candidly, I'd like to get there as quickly as I can. So as soon as we can give you a set of numbers that we have a degree of confidence in, we'll do that.
We understand the import from your perspective as well as the investor perspective. I just didn't think right now that we had the degree of confidence in how the year unfolded, particularly the back half of the year to do that. So we'll get to that as quickly as we can. I would just pick up where I concluded my formal remarks and that is we're on the precipice of doing something that very few companies have done. You all follow a cadre of terrific companies, many of whom are going through some of the same challenges that Pitney Bowes has gone through over the last decade and the digital disruption of business and how business models have become so disrupted, we're through the preponderance of the things that we need to do in order to recreate this company.
And as I said, that last chapter of profitable revenue growth is the mark of a fully transformed company that moves on. And as our guidance suggested, we believe we're poised to reach that. So we'll continue to talk. We would like to do an Investor Day sometime in the first half of the year, if we can, to provide as much clarity to you as we possibly can. So of course, we would have to do that in a way that was either virtual or safe, but nonetheless, we want to be as transparent as we can.
So with that, I will conclude this morning's remarks and we look forward to talking to you soon. Take care.
Speaker 0
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT and T teleconference.
Speaker 2
You may now disconnect.