Pitney Bowes Inc. 2020 Q3 Form 10-Q Summary
Business Context and Reporting Period
Pitney Bowes is a global technology and commerce-services company operating through Global Ecommerce, Presort Services, and SendTech Solutions. This unaudited Form 10-Q covers the three and nine months ended September 30, 2020, compared with the same periods in 2019. Results were materially affected by COVID-19, which increased ecommerce volumes but reduced physical-mail activity, equipment installations, supplies usage, and customer payment stability.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|
| Total revenue | $891.9 million | $790.1 million | $2.526 billion | $2.374 billion |
| Income from continuing operations | $10.8 million | $5.3 million | $(208.1) million | $32.1 million |
| Net income (loss) | $11.4 million | $(3.1) million | $(200.4) million | $17.9 million |
| Diluted EPS | $0.07 | $(0.02) | $(1.17) | $0.10 |
| Cash flow from operations | Not provided for the quarter | Not provided for the quarter | $190.6 million | $182.3 million |
| Cash flow from continuing operations | Not provided for the quarter | Not provided for the quarter | $229.0 million | $166.4 million |
- Q3 revenue increased 13%; nine-month revenue increased 6% reported and 7% at constant currency.
- Q3 segment EBIT was $107.3 million, down 15%; nine-month segment EBIT was $298.1 million, down 20%.
- Cash and cash equivalents were $799.2 million at September 30, 2020, and cash plus short-term investments totaled approximately $820 million.
- Total debt was $2.595 billion, including $63.5 million classified as current debt. The company had no borrowings under its $500 million secured revolving credit facility at quarter-end.
- Total stockholders’ equity declined to $79.1 million from $286.1 million at December 31, 2019.
- Dividends paid during the first nine months totaled $25.7 million, or $0.15 per common share. No common stock was repurchased.
Segment Performance and Margins
| Segment | Q3 Revenue Change | Q3 EBIT | 9M Revenue Change | 9M EBIT |
|---|
| Global Ecommerce | +47% | $(19.8) million | +33% | $(68.1) million |
| Presort Services | $(3)% | $14.5 million | $(2)% | $42.8 million |
| SendTech Solutions | $(7)% | $112.6 million | $(10)% | $323.4 million |
- Global Ecommerce gross margin fell to 7.5% in Q3 from 13.8%, and to 9.1% for the first nine months from 15.2%, due to growth investments, COVID-related costs, labor pressures, and business mix.
- Presort Services gross margin declined to 23.4% in Q3 from 26.7% and to 23.3% for the first nine months from 25.1%, primarily because of lower mail volumes and COVID-related costs.
- SendTech Solutions gross margin declined to 63.3% in Q3 from 65.8% and to 63.6% for the first nine months from the prior-year 64.9% as lower equipment and supplies revenue offset cost reductions.
Material Changes Versus Prior Comparable Period
- Business services revenue rose 31% in Q3 and 23% year to date, driven by Global Ecommerce volume growth. All other major revenue categories declined year to date, including equipment sales down 19%, supplies down 17%, financing down 7%, and support services down 8%.
- COVID-19 shifted demand toward ecommerce and away from physical mail and office-based mailing. Global Ecommerce benefited from higher domestic parcel, cross-border, and returns volumes, while Presort and SendTech were pressured by lower mail volumes, reduced equipment installations, and lower supplies usage.
- The company recorded a $198.2 million non-cash goodwill impairment charge in Q1 2020 for Global Ecommerce. It also recorded $12.5 million of restructuring and asset-impairment charges and a $37.0 million loss on early debt extinguishment during the first nine months.
- Credit-loss provisions increased to $35.4 million from $22.1 million, reflecting COVID-related recessionary conditions, higher delinquencies, and expected customer credit losses.
- Cash flow from operations increased $8.3 million year over year despite the reported net loss, supported in part by lower finance receivables and working-capital changes.
Guidance, Outlook, Risks, and Unusual Items
- No formal numerical earnings or revenue guidance is provided in the filing.
- Management expects Global Ecommerce volumes to remain elevated into the fourth quarter, but higher labor demand, staffing shortages, capacity constraints, and peak-season costs may pressure profitability. The company added three facilities, upgraded an existing facility, and implemented peak pricing.
- Presort Services volumes improved in Q3 compared with Q2, and management expects improvement to continue, although labor costs and staffing challenges remain.
- SendTech equipment and supplies revenue improved sequentially from Q2 but remains exposed to remote work, reduced equipment usage, delayed installations, and potential COVID-19 resurgence. Management expects cloud-enabled shipping and mailing solutions to benefit from changing customer preferences.
- Management states that existing cash and investments, operating cash flow, and available revolver capacity should fund cash needs for the next 12 months, subject to COVID-19, customer collections, and macroeconomic conditions.
- The company completed a $850 million five-year term loan in Q1 2020 and used proceeds and cash to repurchase portions of outstanding notes. Credit-rating downgrades increased interest rates on certain notes, with additional increases expected in Q4 2020.
- COVID-19 could cause further declines in physical mail, supply-chain disruption, labor and productivity costs, customer bankruptcies, higher credit losses, reduced collections, additional credit-rating downgrades, and limited access to capital.
- The company received $15.3 million of insurance proceeds related to the October 2019 malware attack, including $6.3 million in Q3.
- Management reported no material changes to previously disclosed legal or regulatory matters and no material off-balance-sheet arrangements. Three new equipment leases commencing in Q4 carry aggregate payments of approximately $30 million.
Investor Verification Checklist
- Verify the sustainability and profitability of Global Ecommerce growth, including whether labor, capacity, and COVID-related costs improve.
- Monitor SendTech recurring revenue, equipment and supplies demand, financing receivable delinquencies, and credit-loss reserves.
- Review debt maturities, variable-rate exposure, credit-rating-related interest increases, and compliance with revolving-credit covenants.
- Assess liquidity after dividends, capital expenditures, debt service, customer-collection trends, and potential additional COVID-19 effects.
- Evaluate the sensitivity of the $1.142 billion goodwill balance to changes in Global Ecommerce revenue, margins, cash flows, discount rates, and terminal growth assumptions.
- Confirm future dividend decisions, as the filing states that quarterly dividends are expected but not guaranteed.
