The Coresight Research team attended Pitney Bowes’ 2019 investor day on May 29, 2019, in New York City. The event featured presentations from the company’s CEO, CFO and leaders of its SMB solutions, financial services, software and data services and commerce services business units. Marc Lautenbach, President and CEO Lautenbach kicked off his presentation with a discussion of Q1 results, which he termed disappointing; however, the company’s long-term opportunity and strategic outlook remain attractive. He cited several characteristics of a transformation (as opposed to a turnaround), stressing that Pitney Bowes was in transformation. Lautenbach’s presentation focused on the following points:

• Management is taking necessary actions to create long-term value.
• Revenue growth is expected improve as the product portfolio continues to shift to growth markets.
• The global e-commerce business is expected to be profitable in 2020.
• Earnings before interest and taxes (EBIT) for the SMB business is expected to be flat or better in 2021.
• Pitney Bowes expects to deliver earnings and free-cash-flow expansion.

There are eight components to building long-term value, according to Lautenbach:

1. Strategy: reducing the complexity of mailing and shipping, striving for operational excellence and leveraging economies of scale and experience.
2. Innovation: Receiving a higher share of new products (20% today vs. 5% in 2012), achieving best-of-breed operational performance in the enterprise business platform, leveraging the company’s commerce cloud to enable new products and services, and the company plans to launch new enterprise products in 2019.
3. Culture: Pitney Bowes features a value-driven, high-performance culture, has improved all employee engagement metrics since 2013 and is narrowing the gap with or exceeding metrics of other high-performance companies.
4. Clients: Net Promoter Scores (NPS) improved in all business units in 2018, the net satisfaction score for pb.com reached a record high in 2018, more than 750,000 global SMB clients are benefiting from new value-added services and the company has more than 700 global ecommerce clients today vs. only one client and capability in 2012.
5. Employees: The company invested $18 million in the annual wages of hourly employees in 2018, now 56% of open jobs are filled by internal candidates, 42% of the global workforce (and 28% of senior executives) are female, and people of color comprise 47% of the company’s workforce.
6. Governance and Board: the company has separate CEO and chairman positions, 40% of the board consists of women and the company’s executive compensation program was redesigned to align with performance.
7. Community: Dedication to education remains a priority, and the Pitney Bowes Foundation provided 155,000 students with 4.3 million hours of education last year and supported more than 1,800 organizations through matching gifts.
8. Financial Stewardship: While the company’s total shareholder return is lagging, Pitney Bowes has reported two consecutive years of revenue growth, reduced operating expense by $400 million, reduced gross inventory by 70%, reduced debt-related obligations by more than $1 billion and returned $1.3 billion to shareholders.

Lautenbach concluded his remarks with a summary of the company’s long-term strategy:

• The company has taken holistic actions to drive long-term value.
• Pitney Bowes is building off its core capabilities to expand into natural adjacencies.
• Revenue growth is an important step for future earnings expansion.

Jason Dies, EVP and President, SMB (Small and Medium Business) Solutions Dies began with a discussion of SMB’s evolution. He made the following key points:

• The company is redefining its opportunity through natural adjacencies.
• SMB’s evolution is happening now.
• SMB has a path to growth and flat or better EBIT in 2021 vs. 2020.

The acceleration of Pitney Bowes’ evolution, particularly after 2015, is shown in the figure below. [caption id="attachment_89409" align="aligncenter" width="720"] Source: Company reports[/caption]   Key SMB strategic priorities for 2019 include the following:

1. Simplifying and repositioning the portfolio: Expanding value via a simplified portfolio, centering on making and shipping, featuring an open platform that is Internet of Things (IoT) connected and which reduces complexity and cost.
2. Creating new offerings in SMB shipping: Pitney Bowes plans to capitalize on natural adjacencies, leverage economies of scale and experience, develop multi-channel devices and provide new offerings and gain new clients.
3. Accelerating the speed of innovation globally: The company recently completed more product launches in countries such as Australia, Canada, France, Germany, India, Japan and the UK, with each launch increasing the speed of innovation and learning, gaining local expertise and resulting in new partnerships.
4. Driving new value beyond sending: The Pitney Bowes ecosystem offers financial services, data and analytics, a growing ecosystem of partners, an expending developer community and strengthens activation and consumption capabilities.

The diagram below illustrates how embracing global SMBs, other areas such as third-party financing, apps and adjacencies plus leveraging the partner ecosystem can grow Pitney Bowes’ addressable market and raise its long-term growth rate. [caption id="attachment_89410" align="aligncenter" width="720"] Source: Company reports[/caption]   Christopher Johnson, SVP and President, Financial Services Johnson’s remarks centered on three key points for financial services.

• Improved captive finance business: The annual rate of decrease in lease net finance receivables slowed to (3)% in 2017-2018, as compared to (11)% annually during 2013-2016.
• Launched Wheeler Financial from Pitney Bowes: In March 2019, Pitney Bowes launched Wheeler Financial, an FDIC-protected bank, which builds on the company’s long experience in equipment finance to serve the growing, underserved market of providing capital to small businesses. The bank aims to achieve loan volume of $50-70 million in 2019 and provide an accretive return on assets with above-industry performance.
• Enabled growth in commerce services and SMB: Growth in shipping lending has continued for nine consecutive quarters, which enabled more than 85% of volume resulting from of application program interfaces (APIs), totaling more than $165 million of credit extended to customers for shipping.

Bob Guidotti, EVP and President, Software and Data Solutions Guidotti outlined the company’s strategy to focus and build on market success.

• Leveraging core Pitney Bowes: The company has decades of name and address expertise, billions of verified addresses and high-quality data.
• Focusing on its strategic portfolio: This includes data monetization, customer information, location intelligence and digital customer management.
• Generating incremental lift with partners: Global and regional system-integrator partners participate in nearly half of new business opportunities.

Guidotti commented that the combination customer information, location intelligence, customer engagement and data could be a $6 billion segment within a $23-35 billion market opportunity, offering a 9%-11% long-term market growth rate and 15%-20% long-term EBIT margins. The business will focus on the FinServ, telco, government, retail, insurance and tech verticals. Differentiation across the four lines of business is as follows: [caption id="attachment_89411" align="aligncenter" width="720"] Source: Company reports[/caption]   The business aggregates data in multiple forms, including:

• Large-area information.
• Nearby information.
• Property information.
• Customer persona.
• Household / business
• E-mail and social-network handles

Data-centric products include:

• Addressing and enrichment.
• Location intelligence.
• Social enhancement.

Partners add capabilities and experience, geographic and industry presence and lift (new clients from solution development for verticals and new customer opportunities from industry hackathons). Lila Snyder, EVP and President, Commerce Services Commerce Services serves four core platforms. [caption id="attachment_89412" align="aligncenter" width="720"] Source: Company reports[/caption]   In Presort, Pitney Bowes handles 10% of the US Postal Service’s mail and 25% of its first-class mail. The division participates in attractive markets:

• Presort services: a $3-4 billion market, growing at 0-2%, with 15+% EBIT margins.
• Global e-commerce: a $40-44 billion market, growing at 12-14%, with 8-12% EBIT margins.

The Presort Services business is being transformed based on data-driven decision marking to standardize its operating model, hire staff according to mail volume, optimize its transportation network and align prices to value. Global e-commerce is fueling the company’s return to growth, with above-industry growth rates, processing more than 125 million physical parcels and touching more than 400 million parcels digitally, adding more than $1 billion of revenue in more than six years. The company’s marquee clients are shown below. [caption id="attachment_89413" align="aligncenter" width="720"] Source: Company reports[/caption]   Snyder discussed making the clients’ brands the hero, i.e., using the client’s branding on shipped products, in contrast to competitors (i.e., shipping companies) who use their own branding on shipping boxes. For example, Pitney Bowes recently released its Consumer Connect app to track the shipment of e-commerce products. Consumers check the status of a shipment an average of eight times between order and delivery. Pitney Bowes is also working to offer three-day guaranteed delivery, which still is “largely acceptable” for most consumers. [caption id="attachment_89414" align="aligncenter" width="720"] Source: PB Global Ecommerce Study 2018[/caption]   In addition, the company’s shipping API offers many capabilities, with more coming this year. [caption id="attachment_89415" align="aligncenter" width="720"] Source: Company reports[/caption]   Snyder also commented that significant e-commerce volume originates in international markets, for delivery to US customers. China alone ships 1.6 billion parcels to the US each year, and the UK was also outlined as a key geography. Finally, she predicted that the Global Ecommerce business will be profitable in 2020 as volumes and scale increase. Stan Sutula, EVP and CFO Sutula commented that revenue growth is shifting to higher-growth business (and Pitney Bowes aims to grow faster than its markets). [caption id="attachment_89416" align="aligncenter" width="720"] Source: Company reports[/caption]   The figure below summarizes the company’s long-term financial model in 2022. [caption id="attachment_89417" align="aligncenter" width="720"] Source: Company reports[/caption]   Finally, Sutula summarized his financial remarks as follows:

• Portfolio evolution is expected to deliver sustainable revenue growth.
• The portfolio is balanced in terms of providing growth and improved profitability.
• Management will continue to drive operational excellence.
• A balanced investment should deliver growth and competitive shareholder return.
• The company is maintaining the strategic flexibility to drive its valuation.