Pitney Bowes Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. The company is a global shipping and mailing provider with reportable segments consisting of Global Ecommerce, Presort Services, and SendTech Solutions. Results remain affected by COVID-19, labor and transportation constraints, and supply-chain disruption.
Financial Performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $875.4 million | $891.9 million | $2.690 billion | $2.526 billion |
| Income from continuing operations | $8.5 million | $10.8 million | $1.7 million | $(208.1) million |
| Net income (loss) | $9.1 million | $11.4 million | $(2.6) million | $(200.4) million |
| Diluted EPS | $0.05 | $0.07 | $(0.02) | $(1.17) |
| Net cash from operating activities | Not separately provided | Not separately provided | $216.2 million | $191.2 million |
Third-quarter revenue declined 2% year over year, while nine-month revenue increased 7% as reported and 5% on a constant-currency basis. Third-quarter income from continuing operations represented an approximately 1.0% revenue margin, compared with approximately 1.2% in the prior-year quarter. Nine-month continuing-operations income was approximately 0.1% of revenue, compared with a significant loss in 2020.
- Business services: Q3 revenue was $551.4 million, essentially flat year over year; nine-month revenue increased 11% to $1.689 billion.
- Support services: Q3 revenue decreased 3% to $113.4 million; nine-month revenue decreased 2% to $347.3 million.
- Financing: Q3 revenue decreased 17% to $71.9 million; nine-month revenue decreased 14% to $223.2 million, primarily reflecting prior-year investment-security gains, lower lease extensions, and lower fee income.
- Equipment sales: Q3 revenue increased 5% to $83.2 million; nine-month revenue increased 20% to $256.3 million.
Segments and Margins
| Segment | Q3 2021 revenue | Q3 2021 EBIT | 9M 2021 revenue | 9M 2021 EBIT |
|---|---|---|---|---|
| Global Ecommerce | $398.0 million | $(21.0) million | $1.230 billion | $(58.2) million |
| Presort Services | $139.3 million | $21.1 million | $417.0 million | $56.2 million |
| SendTech Solutions | $338.1 million | $99.0 million | $1.043 billion | $320.5 million |
- Global Ecommerce revenue fell 3% in Q3, primarily because of lower domestic parcel volumes. Q3 gross margin increased to 8.5% from 7.5%, but EBIT remained a loss and included an $8 million estimated cost related to a price assessment.
- Presort Services revenue increased 9% in Q3 and 8% for the nine-month period. Q3 gross margin increased to 25.9% from 23.4%, and EBIT increased 45%, supported by higher mail volumes, pricing, productivity, and network investments.
- SendTech Solutions revenue declined 5% in Q3. Gross margin decreased to 60.5% from 63.3%, and EBIT declined 12%, mainly because of lower financing and support-services revenue. Nine-month revenue was flat as reported and EBIT declined 1%.
Cash Flow, Liquidity, Debt, and Capitalization
- Operating cash flow was $216.2 million for the first nine months, up from $191.2 million in 2020, primarily due to higher income and improved receivables collections.
- Investing cash outflow was $111.7 million, including $140.9 million of capital expenditures, compared with $80.8 million of capital expenditures in the prior year.
- Financing cash outflow was $291.8 million, reflecting debt repayments, refinancing premiums and fees, dividends, and customer-deposit activity.
- Cash and cash equivalents were $729.1 million at September 30, 2021, down from $921.5 million at December 31, 2020. Cash, cash equivalents, and short-term investments totaled $743.2 million, including $230 million held by foreign subsidiaries.
- Total debt was $2.339 billion, compared with $2.564 billion at year-end 2020. Current debt was $24.7 million and long-term debt was $2.314 billion.
- The company issued $400 million of 6.875% notes due 2027, $350 million of 7.25% notes due 2029, and entered into a new $450 million secured term loan due 2028. Refinancing activities generated a $55.6 million pretax loss.
- The company had no borrowings under its $500 million revolving credit facility and was in compliance with applicable debt covenants at quarter-end.
- Stockholders’ equity was $48.7 million, down from $66.4 million at December 31, 2020. Dividends of $26.1 million were paid during the first nine months.
Outlook, Risks, and Unusual Items
Management expected 2021 consolidated revenue growth in the low- to mid-single-digit range. Global Ecommerce was expected to grow, but below 2020 growth rates, with anticipated margin improvement from pricing and operating initiatives partly offset by higher labor and transportation costs. Presort Services was expected to deliver revenue, margin, and profit improvement. SendTech Solutions was expected to experience overall revenue decline while cloud-enabled shipping solutions continued to grow.
- COVID-19 effects, supply-chain constraints, labor availability, transportation costs, and customer shipping volumes remain uncertain and could affect results through 2022.
- Other principal risks include declining physical mail volumes, postal and USPS-related changes, customer concentration, competition and pricing pressure, cybersecurity, credit risk, access to capital, interest and foreign-exchange rates, banking regulation, tax matters, and intellectual-property claims.
- The nine-month 2021 results included a $55.6 million debt-refinancing loss, a $10.2 million gain on the sale of the Tacit business, $11.4 million of restructuring charges, and $4.3 million of discontinued-operation losses.
- In November 2021, the company agreed to sell its Shelton, Connecticut facility for approximately $50 million and expected to record an estimated $15 million pretax gain. It also acquired CrescoData for $15 million in cash plus potential additional payments of up to $7 million.
- Pending litigation was not expected by management to have a material effect, although litigation outcomes remain inherently unpredictable. Uncommenced lease commitments totaled $20 million.
Investor Verification Items
- Verify whether the projected low- to mid-single-digit 2021 revenue growth and segment margin improvements were achieved.
- Monitor Global Ecommerce profitability, parcel volumes, the $8 million price-assessment charge, and continuing labor, transportation, and supply-chain pressures.
- Assess debt-service capacity, refinancing effects, covenant compliance, interest-rate exposure, and the availability of the revolving credit facility.
- Reconcile reported cash generation with the decline in cash balances and elevated capital expenditures.
- Evaluate the sustainability of dividends given the company’s low stockholders’ equity and continued leverage.
- Track the expected Shelton facility sale gain, the CrescoData acquisition, and any additional discontinued-operations or tax adjustments.