Pitney Bowes Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2023. Pitney Bowes is a global shipping and mailing company providing technology, logistics and financial services through Global Ecommerce, Presort Services and SendTech Solutions.
Financial Performance and Position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $834.5 million | $926.9 million | Down 10% reported; down 9% constant currency |
| Income before taxes | $(11.0) million | $25.0 million | Declined by $36.0 million |
| Net income/(loss) | $(7.7) million | $20.8 million | Declined by $28.6 million |
| Diluted EPS | $(0.04) | $0.12 | Unfavorable change |
| Operating cash flow | $(39.7) million | $10.6 million | Declined by $50.3 million |
| Capital expenditures | $28.7 million | $32.6 million | Down $3.9 million |
Revenue declines were concentrated in business services, which decreased to $523.5 million from $597.4 million. Support services, financing and equipment sales also declined. Total costs and expenses decreased 6% to $845.5 million, but the reduction did not offset the revenue decline. Higher interest expense, proxy solicitation fees and the absence of prior-year asset-sale gains also pressured results. The effective tax rate was 29.6%, compared with 16.8% in the prior-year quarter.
Segment adjusted EBIT was $89.4 million, compared with $110.5 million. Global Ecommerce reported a $34.2 million adjusted EBIT loss, versus a $13.7 million loss; Presort Services increased adjusted EBIT to $26.9 million from $19.6 million; and SendTech Solutions decreased adjusted EBIT to $96.7 million from $104.6 million.
Cash and cash equivalents were $511.8 million at March 31, 2023, down from $670.0 million at December 31, 2022. Cash, cash equivalents and short-term investments totaled $527 million, including $140 million held by foreign subsidiaries. Management stated that available liquidity, operating cash flow and borrowing capacity are expected to fund cash needs for the next 12 months.
Total debt was $2.173 billion, including $262.4 million classified as current debt. The company had no borrowings under its $500 million secured revolving credit facility and was in compliance with its debt covenants. Debt fair value was $1.803 billion. The company purchased $26 million of notes and made $7 million of scheduled term-loan repayments during the quarter.
Material Changes Versus the Prior Comparable Period
- Global Ecommerce revenue declined 17%, primarily because of lower cross-border volumes, the 2022 sale of Borderfree and a change from gross to net revenue presentation for certain digital delivery services.
- Global Ecommerce gross margin fell to 6.2% from 12.0%, and adjusted EBIT loss widened by $20.5 million.
- Presort Services revenue declined 1%, while adjusted EBIT increased 37% due to pricing actions, automation, network management and higher throughput per labor hour. Mail volumes sorted declined 9%.
- SendTech Solutions revenue declined 6%, but gross margin percentage improved to 64.4% from 63.5%. Adjusted EBIT declined 8% because of lower revenue.
- Operating cash flow turned negative, primarily due to the net loss and higher payments of accounts payable and accrued liabilities. Investing cash flow also declined because Q1 2022 included proceeds from asset and business sales.
- Reported comparability is affected by the July 2022 Borderfree divestiture and the October 2022 change in digital delivery revenue presentation.
Guidance, Outlook, Risks and Unusual Items
Management expects 2023 comparable revenue to range from a low-single-digit decline to a low-single-digit increase versus 2022, with adjusted EBIT growth expected to outpace revenue performance. The company expects domestic parcel growth, continued cross-border softness, Presort pricing and efficiency benefits, and growth from SendTech cloud-enabled shipping products to partially offset declining mailing-related revenue.
In May 2023, management approved a worldwide restructuring plan involving the elimination of 400–500 positions, process centralization, increased automation and selected facility closures or consolidations. Expected charges are $40 million–$50 million, expected cash payments are $20 million–$30 million, and annualized cost savings are expected to reach $35 million–$45 million by the end of 2024. The actions are expected to be substantially complete by the first half of 2024.
Management expects 2023 interest expense to be approximately $30 million higher than in 2022 because of higher interest rates. The company plans to refinance $262 million of debt due within the next 12 months, including the March 2024 notes; if acceptable capital-markets terms are unavailable, it expects to use cash and revolving-credit capacity.
Key risks include declining physical mail volumes, USPS and postal-market changes, Global Ecommerce execution and customer concentration, inflation and labor and transportation costs, higher interest rates, refinancing and capital-market access, customer credit risk, supply-chain disruptions, cybersecurity, foreign-exchange movements, banking regulation and potential goodwill impairment. The Global Ecommerce reporting unit's estimated fair value exceeded carrying value by less than 10% at December 31, 2022, making future impairment sensitive to changes in assumptions.
The company recognized a $2.8 million gain on debt redemption or refinancing in Q1 2023. Q1 2022 included $14.4 million of gains on asset sales and $2.5 million of gains related to a business sale. The company reported $47.6 million of gross unrealized losses on available-for-sale securities but stated that it intends to hold the securities until recovery or maturity and did not recognize a credit impairment loss.
Investor Verification Points
- Verify the trajectory of Global Ecommerce cross-border volumes, domestic parcel profitability and the potential for goodwill impairment.
- Assess the company's ability to refinance the $262 million of debt due within 12 months on acceptable terms.
- Monitor cash conversion, negative Q1 operating cash flow and the decline in cash balances.
- Track execution, charges, cash payments and realized savings under the 2023 restructuring plan.
- Reconcile reported revenue trends for the Borderfree divestiture and the digital delivery revenue-presentation change.
- Evaluate exposure to higher interest rates, inflation, labor and transportation costs, postal volumes and USPS-related changes.
- Review customer credit quality, finance-receivable delinquencies and allowance adequacy.
- Confirm the continuation and affordability of the quarterly dividend; the board considers the dividend each quarter and provides no assurance of continuation.