Pitney Bowes Inc. Form 10-Q Summary
Business Context and Reporting Period
Pitney Bowes is a global shipping and mailing company providing technology, logistics and financial services through Global Ecommerce, Presort Services and SendTech Solutions. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Key Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Total revenue | $871.5 million | $899.2 million | $1,798.4 million | $1,814.4 million |
| Income from continuing operations | $4.3 million | $20.9 million | $25.2 million | $(6.8) million |
| Net income (loss) | $4.3 million | $19.9 million | $25.2 million | $(11.7) million |
| Diluted EPS | $0.02 | $0.11 | $0.14 | $(0.07) |
| Operating cash flow | Not separately provided | Not separately provided | $45.7 million | $144.7 million |
Q2 revenue declined 3% year over year, or 2% on a constant-currency basis. Six-month revenue declined 1% on an actual basis and was flat on a constant-currency basis. Q2 segment EBIT was $79.6 million, down 29%; six-month segment EBIT was $190.1 million, down 13%.
- Global Ecommerce: Q2 revenue fell 6% and segment EBIT was a loss of $28.8 million. Gross margin declined to 9.6% from 10.8%. Six-month revenue fell 2%, while gross margin improved to 10.8% from 8.9%; segment EBIT remained a loss of $42.5 million.
- Presort Services: Q2 revenue increased 3%, but gross margin declined to 19.9% from 23.4% and EBIT fell 20% to $12.9 million. Six-month revenue increased 8%, while gross margin declined to 21.2% from 23.6%.
- SendTech Solutions: Q2 revenue declined 2% and EBIT declined 11% to $95.6 million. Gross margin declined to 58.3% from 61.5%. Six-month revenue declined 3% and EBIT declined 10% to $200.1 million.
Cash and cash equivalents were $570.7 million at June 30, 2022, compared with $732.5 million at December 31, 2021. Cash, cash equivalents and short-term investments totaled $582 million, including $153 million held at foreign subsidiaries. Total debt was $2.220 billion, including $2.195 billion of long-term debt, compared with $2.324 billion at year-end 2021. No amounts were drawn under the $500 million revolving credit facility, and the company was in compliance with its debt covenants.
Net cash used in investing activities was $27.5 million, including $64.2 million of capital expenditures and $50.8 million of proceeds from asset sales. Net cash used in financing activities was $166.5 million, including $106.8 million of debt principal payments, $17.3 million of dividends and $13.4 million of share repurchases. The quarterly dividend was $0.05 per share.
Material Changes Versus the Prior Comparable Period
- Revenue pressure reflected lower cross-border ecommerce volumes, declining mailing-meter populations, a shift toward cloud-enabled products, and a declining lease portfolio.
- Transportation, fuel and labor costs increased, particularly in Presort Services, while supply chain constraints delayed equipment, automation and component deliveries.
- Q2 SG&A declined by $10 million, primarily due to lower variable compensation, while unallocated corporate expenses declined by $16 million.
- Operating cash flow decreased by $99 million in the first half, primarily due to collection timing, lower customer deposits, insurance premium payments and other working-capital changes.
- The company redeemed its April 2023 notes and recorded a $5 million pretax loss. Debt principal declined by approximately $107 million from year-end.
- On July 1, 2022, after the reporting date, the company completed the previously announced $100 million sale of its Borderfree business. Borderfree assets and liabilities were classified as held for sale at June 30.
- Foreign currency translation and investment-security losses drove other comprehensive loss of $69.7 million for the first half.
Guidance, Outlook, Risks and Unusual Items
Management expects 2022 consolidated revenue to range from a low-single-digit percentage decline to low-single-digit percentage growth compared with 2021. It expects margin improvement in the second half from productivity and pricing initiatives, while noting that transportation and labor demand and costs remain elevated.
Management is investing in physical networks, automation and technology across the segments and expects the current business mix and investments to create near-term margin pressure but support longer-term growth and margin improvement. The outlook depends on labor availability, fuel prices, supply-chain conditions, economic conditions, COVID-19 developments and geopolitical factors.
- COVID-19 effects and the risk of global recession remain unpredictable.
- Key operating risks include declining physical mail volumes, postal-market changes, USPS relationships, ecommerce demand, labor and transportation costs, supply-chain interruptions, inflation, competition, cybersecurity, foreign exchange and rising interest rates.
- Global Ecommerce goodwill was $339 million after the Borderfree-related divestiture. A triggering-event impairment test found no impairment, but estimated fair value exceeded carrying value by less than 20%; future deterioration could result in a noncash impairment charge.
- Q2 income tax benefit was $7 million despite a pretax loss of $3 million, principally due to a one-time tax basis adjustment related to the Borderfree sale. First-half results also benefited from approximately $3 million of prior-year adjustments.
- Available-for-sale investment securities had $43.1 million of gross unrealized losses at June 30, 2022. Management reported no credit-loss impairment and expects to hold the securities through recovery or maturity.
- Uncommenced real estate and equipment leases totaled $124 million in aggregate payments, primarily expected to begin in the second half of 2022 and in 2023.
- Management reported no material change in previously disclosed legal proceedings or risk factors, and stated that disclosure controls were effective.
Important Facts for Investors to Verify
- Whether second-half productivity and pricing initiatives offset labor, fuel, transportation and supply-chain cost inflation.
- Whether Global Ecommerce can return to profitability and whether its narrow goodwill fair-value cushion changes.
- The cash-flow effect of reduced operating cash generation, debt maturities, dividends, repurchases and new lease commitments.
- The completed Borderfree sale proceeds, accounting treatment and effect on future revenue, earnings and cash flow.
- Credit performance of the approximately $1.15 billion finance-receivables portfolio and the effect of rising interest rates on variable-rate debt.
- Future foreign-exchange movements, investment-security losses and the sustainability of tax benefits and other unusual items.