Pitney Bowes Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Pitney Bowes is a global shipping and mailing company providing technology, logistics and financial services. The filing covers the three and nine months ended September 30, 2023, compared with the same periods in 2022. Reportable segments are Global Ecommerce, Presort Services and SendTech Solutions.
Comparability is affected by the July 2022 sale of Borderfree and by the October 2022 change from gross to net revenue presentation for certain digital delivery services.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $783.8 million | $830.9 million | $2.395 billion | $2.629 billion |
| Revenue change | (6%) | — | (9%) | — |
| Income (loss) before taxes | $(16.7) million | $10.1 million | $(178.6) million | $32.5 million |
| Net income (loss) | $(12.5) million | $5.5 million | $(161.8) million | $30.6 million |
| Diluted EPS | $(0.07) | $0.03 | $(0.92) | $0.17 |
| Net cash from operating activities | — | — | $(14.5) million | $9.2 million |
Q3 total costs and expenses were $800.5 million, down from $820.8 million, but exceeded revenue. Nine-month costs and expenses were $2.573 billion, down only 1% despite the 9% revenue decline.
At September 30, 2023, cash and cash equivalents were $557.7 million and short-term investments were $21.7 million, for total cash and short-term investments of approximately $579.4 million. Total debt was $2.158 billion, including $56.5 million classified as current. Stockholders’ equity was a deficit of $125.1 million, compared with positive equity of $60.7 million at December 31, 2022.
Cash decreased by $112.3 million during the first nine months to $557.7 million. Investing cash flow was $(95.4) million, including $77.6 million of capital expenditures. Financing cash flow was $(2.1) million and included $26.3 million of dividends paid.
Segment performance and material changes
- Global Ecommerce: Q3 revenue declined 12% to $313.2 million and nine-month revenue declined 16% to $974.3 million. Q3 adjusted segment EBIT was a loss of $41.7 million, compared with a loss of $34.9 million. Cross-border volume weakness and lower digital delivery revenue more than offset domestic parcel growth. Nine-month adjusted segment EBIT was a loss of $114.0 million versus a loss of $77.4 million.
- Presort Services: Q3 revenue increased 5% to $152.5 million and adjusted segment EBIT increased 42% to $29.1 million. Nine-month revenue rose 2% to $454.5 million and adjusted segment EBIT increased 44% to $76.5 million. Pricing actions, network management, automation and higher-throughput equipment offset lower mail volumes.
- SendTech Solutions: Q3 revenue decreased 4% to $318.1 million, while adjusted segment EBIT increased 3% to $97.8 million. Nine-month revenue decreased 5% to $966.0 million and adjusted segment EBIT decreased 1% to $291.9 million. Equipment, support and supplies revenue declined, partly offset by cloud-enabled shipping solutions and improved gross margin.
Consolidated adjusted segment EBIT was $85.2 million in Q3 and $254.3 million for the first nine months, compared with $80.9 million and $271.0 million, respectively, in the prior-year periods.
Debt, liquidity and unusual items
- The company issued $275 million of senior secured notes due March 2028 at SOFR plus 6.9%. Proceeds were used to redeem the March 2024 notes and repay $30 million of the March 2026 term loan.
- The company purchased $39 million of March 2024 and March 2027 notes and recognized a $3 million gain. Scheduled term-loan repayments totaled $27 million.
- The company had no borrowings under its $500 million revolving credit facility and was in compliance with its debt covenants at September 30, 2023. Borrowings under the revolving facility, term loans and March 2028 notes are secured.
- A $118.6 million non-cash goodwill impairment charge was recorded in the first half of 2023 for Global Ecommerce. Management stated that changes in revenue growth, margins, operating income or discount-rate assumptions could result in additional impairment.
- Restructuring charges were $42.6 million for the first nine months, including $39.0 million under the 2023 restructuring plan. The plan targets elimination of 850–950 positions and facility/process changes.
- All available-for-sale investment securities were in unrealized loss positions at September 30, 2023, with aggregate unrealized losses of $57.6 million. Management expected to hold the securities until recovery or maturity and recorded no material credit-loss impairment.
Guidance, outlook and risks
Management expects full-year 2023 comparable consolidated revenue to decline 3%–4% and adjusted EBIT margins to remain relatively flat compared with 2022. The company expects Global Ecommerce domestic parcel growth and margin improvement, but continued cross-border and digital delivery weakness. Presort Services is expected to deliver revenue, margin and profit growth. SendTech expects new products and cloud-enabled shipping solutions to partly offset declining mailing-related revenue.
The 2023 restructuring plan is expected to generate annualized cost savings of $75 million–$85 million by the end of 2024, with total charges of $60 million–$70 million and cash-related charges of $50 million–$60 million. Actions are expected to be substantially complete by the end of the first half of 2024.
Management believes available cash, operating cash flow and revolving-credit capacity will be sufficient to fund cash needs for the next 12 months. Key risks include declining physical mail volumes, Global Ecommerce execution and customer concentration, higher interest rates and debt costs, inflation, fuel and transportation costs, economic weakness, supply-chain disruptions, USPS and postal-market changes, customer credit losses, cybersecurity, foreign exchange, regulatory changes and competition.
The board continues to consider quarterly dividends, but future payments are not assured. The March 2028 note agreement limits annual dividends to the lesser of $36 million or a 6.25% maximum dividend yield, subject to additional restrictions.
Investor verification points
- Verify the sustainability of liquidity and debt-service capacity given negative year-to-date operating cash flow, approximately $2.158 billion of debt and elevated variable interest rates.
- Assess whether Global Ecommerce domestic parcel growth can offset persistent cross-border weakness and whether further goodwill impairment is possible.
- Track execution, cash costs and realized savings from the 850–950-position restructuring plan.
- Reconcile reported revenue trends for 2023 with the Borderfree divestiture and net revenue presentation change for digital delivery services.
- Monitor Presort Services mail volumes, pricing effectiveness and USPS-related risks.
- Confirm the availability and terms of the revolving credit facility, compliance with covenants and the company’s ability to maintain dividends.
- Evaluate exposure to customer credit losses, interest-rate increases, unrealized investment losses and other macroeconomic pressures.