Pitney Bowes Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. Pitney Bowes is a global shipping and mailing company providing technology, logistics, and financial services. Reported comparisons are affected by the July 2022 sale of Borderfree and a change from gross to net revenue presentation for certain digital delivery services.
Key Financial Metrics
| Metric | Three months ended June 30, 2023 | Year-over-year change | Six months ended June 30, 2023 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $776.5 million | Down 11% | $1.611 billion | Down 10% |
| Loss before taxes | $151.0 million | Compared with $2.7 million loss | $161.9 million | Compared with $22.3 million income |
| Net income/(loss) | $(141.5) million | Compared with $4.3 million income | $(149.3) million | Compared with $25.2 million income |
| Diluted EPS | $(0.81) | Compared with $0.02 | $(0.85) | Compared with $0.14 |
| Net cash from operating activities | $(39.8) million for six months | Down from $45.7 million |
Revenue mix for the quarter: Business services $473.5 million, support services $103.3 million, financing $66.7 million, equipment sales $79.5 million, supplies $36.5 million, and rentals $17.0 million.
Segment performance: Global Ecommerce revenue declined 21% to $312.8 million and adjusted EBIT was a loss of $38.1 million. Presort Services revenue increased 3% to $143.1 million and adjusted EBIT increased 59% to $20.4 million. SendTech Solutions revenue declined 5% to $320.6 million, while adjusted EBIT increased 2% to $97.5 million.
Margins: Global Ecommerce gross margin declined to 4.4% from 9.6%; Presort Services gross margin increased to 27.3% from 19.9%; and SendTech Solutions gross margin increased to 64.6% from 62.0% in the second quarter. Consolidated operating margins were materially affected by restructuring charges and a $118.6 million goodwill impairment charge.
Liquidity, Cash Flow, and Debt
- Cash and cash equivalents were $541.7 million at June 30, 2023, compared with $670.0 million at December 31, 2022. Cash, cash equivalents, and short-term investments totaled $560.7 million.
- Six-month cash flows were $(39.8) million from operations, $(60.7) million from investing, and $(32.6) million from financing. Cash decreased by $128.3 million during the period.
- Total debt was $2.150 billion, including $265.0 million classified as current. Debt fair value was $1.744 billion.
- The company had no borrowings under its $500 million secured revolving credit facility and was in compliance with its debt covenants at June 30, 2023.
- In July 2023, the company issued $275 million of senior secured notes maturing in March 2028, with interest at SOFR plus 6.9%. Proceeds were intended to redeem the March 2024 notes and repay part of the March 2026 term loan.
- Management stated that existing cash and investments, operating cash flow, and revolving-credit capacity are expected to fund cash needs for the next 12 months.
Material Changes and Unusual Items
- Global Ecommerce goodwill was impaired by $118.6 million on a non-cash, pre-tax basis following a triggering event related to weaker performance and macroeconomic conditions. The remaining Global Ecommerce goodwill was $220.6 million.
- The company approved a worldwide restructuring plan expected to eliminate 400–500 positions. Total charges are expected to be $40–$50 million, with cash payments of $20–$30 million, and actions substantially complete by the first half of 2024.
- Management expects annualized cost savings of $35–$45 million by the end of 2024 from the restructuring plan.
- Proxy solicitation fees totaled $4.5 million in the second quarter and $10.9 million for the first six months.
- Interest expense increased because of higher interest rates. Management expects 2023 interest expense to be approximately $30 million higher than in 2022.
- Stockholders’ equity declined to a deficit of $75.5 million at June 30, 2023, from positive equity of $60.7 million at year-end 2022.
Outlook, Risks, and Contingencies
Management expects full-year 2023 consolidated revenue, on a comparable basis, to be relatively flat versus 2022, with adjusted EBIT growth outpacing revenue performance. Global Ecommerce is expected to benefit from domestic parcel growth but remain pressured by weaker cross-border volumes. Presort Services is expected to benefit from pricing actions, acquisitions, automation, and facility investments. SendTech expects growth in cloud-enabled shipping solutions to partly offset declines in mailing-related revenue.
Key risks include declining physical mail volumes; USPS and postal-market changes; loss of major customers; weak ecommerce demand; inflation, fuel, transportation and labor costs; higher interest rates; refinancing and capital-market access; supply-chain disruptions; foreign exchange; customer credit risk; cybersecurity and privacy requirements; banking regulation; competition; and geopolitical or recessionary conditions.
Management stated that outstanding litigation is not expected to have a material adverse effect, although litigation outcomes remain uncertain. The company also had $59 million of uncommenced real estate and equipment lease commitments, most expected to commence in the third quarter of 2023. No material off-balance-sheet arrangements were reported.
Investor Verification Priorities
- Verify the sustainability and timing of the projected $35–$45 million restructuring savings and the remaining $40–$50 million restructuring cost.
- Assess Global Ecommerce recovery prospects, particularly domestic parcel margins and cross-border customer and volume losses, and the risk of additional goodwill impairment.
- Review near-term refinancing needs, the July 2023 secured-notes issuance, variable-rate debt exposure, and compliance with amended debt covenants.
- Reconcile reported revenue trends for comparable purposes, including the Borderfree divestiture and digital-delivery revenue presentation change.
- Monitor liquidity and operating cash flow, given the six-month operating cash outflow, $265 million of current debt, dividend restrictions, and negative stockholders’ equity.
- Evaluate whether Presort Services margin improvements and SendTech profitability can offset continued weakness in Global Ecommerce and traditional mailing activity.