Pitney Bowes Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Pitney Bowes is a global commerce technology company serving ecommerce fulfillment, shipping and returns, cross-border ecommerce, presort services, mailing and shipping technology, and financing markets. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the same periods in 2020.
Reportable segments are Global Ecommerce, Presort Services, and SendTech Solutions. Results continued to reflect COVID-19 effects, including labor and transportation constraints, supply-chain disruption, changing mail and parcel volumes, and customer operating restrictions.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $899.2 million | $837.5 million | $1.814 billion | $1.634 billion |
| Income (loss) from continuing operations | $20.9 million | $(0.3) million | $(6.8) million | $(218.8) million |
| Net income (loss) | $19.9 million | $(3.3) million | $(11.7) million | $(211.8) million |
| Diluted EPS | $0.11 | $(0.02) | $(0.07) | $(1.24) |
| Operating cash flow | Not separately disclosed | Not separately disclosed | $144.7 million | $86.4 million |
| Cash and cash equivalents | $799.5 million | Not provided | $799.5 million at June 30 | $862.9 million at June 30 |
Q2 continuing-operations operating margin was approximately 2.3%, compared with approximately breakeven in the prior-year quarter. Six-month continuing-operations margin was approximately negative 0.4%, compared with approximately negative 13.4% in 2020. The filing does not present a consolidated GAAP gross margin.
- Q2 revenue increased 7% as reported and 6% at constant currency. Six-month revenue increased 11% as reported and 10% at constant currency.
- Q2 segment EBIT was $112.4 million, up 15%; six-month segment EBIT was $219.6 million, up 15%.
- Q2 revenue by segment was $418.4 million for Global Ecommerce, $134.6 million for Presort Services, and $346.2 million for SendTech Solutions.
- Q2 segment EBIT was $(10.8) million, $16.1 million, and $107.1 million, respectively.
- Six-month capital expenditures were $83.7 million, compared with $60.0 million in 2020.
Liquidity, debt and capitalization
- Cash, cash equivalents and short-term investments totaled $814 million at June 30, 2021, including $211 million held by foreign subsidiaries.
- Net cash provided by operating activities was $144.7 million. Investing activities used $68.0 million and financing activities used $199.0 million, resulting in a $122.0 million decrease in cash.
- Total debt was $2.428 billion at June 30, 2021, including $97.0 million classified as current and $2.331 billion classified as long-term. The estimated fair value of debt was $2.483 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.
- The company repaid or redeemed approximately $1.334 billion of previously outstanding notes and term-loan borrowings and recorded a $52.4 million pre-tax loss on debt refinancing.
- The $500 million revolving credit facility had no outstanding borrowings at June 30, 2021. The company was in compliance with applicable debt covenants.
- Quarterly dividends continued at $0.05 per share; $17.3 million was paid during the first six months. The company stated that future dividends remain subject to board approval.
Material changes versus the prior comparable period
- Revenue growth was led by business services, equipment sales and supplies. Q2 business services revenue increased 7%, equipment sales increased 49%, and supplies increased 18%; financing revenue declined 14% because of a declining financing portfolio.
- Global Ecommerce revenue rose 5% in Q2 and 20% for the first six months, but higher transportation, postal and labor costs pressured margins. Q2 segment EBIT loss improved to $10.8 million from $18.9 million.
- Presort Services revenue increased 14% in Q2 and 7% for the first six months, with higher First Class and Marketing Mail volumes. Q2 EBIT increased 28% to $16.1 million.
- SendTech Solutions revenue increased 8% in Q2 and 3% for the first six months. Equipment sales improved, but financing and support-services revenue declined. Q2 EBIT increased 3% to $107.1 million.
- Six-month SG&A expense declined 2%, primarily due to lower credit-loss provisions and professional fees, partially offset by higher employee-related expenses. R&D expense increased 14% for the first six months.
- Prior-year results included a $198.2 million goodwill impairment charge, which materially depressed 2020 earnings. The 2021 period included no goodwill impairment charge.
- During Q2, the company sold Tacit, a U.K.-based software consultancy, for $28 million of net proceeds and recognized a $10 million pre-tax gain.
- Discontinued operations produced a $1.0 million loss in Q2 and a $4.9 million loss for the first six months, including a working-capital adjustment and a tax charge related to prior business sales.
Guidance, outlook, risks and unusual items
Management expects consolidated 2021 revenue growth in the low- to mid-single-digit range versus 2020. Global Ecommerce is expected to grow, but below 2020 rates, with anticipated margin and profit improvements from pricing and operational initiatives. Presort Services is expected to continue growing and improving margins through productivity, automation and facility optimization. SendTech Solutions revenue is expected to decline, partly offset by growth in cloud-enabled shipping solutions and multipurpose devices.
Management cautioned that the COVID-19 pandemic, new variants, labor and transportation availability, supply-chain disruption, and the global semiconductor shortage could materially affect results, particularly SendTech equipment supply during the remainder of 2021. Other stated risks include declining physical mail volumes, postal and USPS-related changes, customer concentration, credit losses, competition, cybersecurity and privacy risks, access to capital markets, interest and foreign-exchange rates, tax and regulatory changes, banking regulations, and intellectual-property claims.
Restructuring charges were $7.7 million for the first six months, with an $8.4 million restructuring reserve remaining at June 30; most payments are expected over the following 12 to 24 months. The company also has approximately $38 million of lease payments for leases not yet commenced.
Management believes existing cash and investments, operating cash generation and available borrowing capacity will fund cash needs for the next 12 months. Pending litigation was not expected by management to have a material effect, although litigation outcomes remain inherently unpredictable.
Important facts for investors to verify
- Whether Global Ecommerce can improve profitability despite persistent transportation, postal and labor-cost inflation.
- The effect of the semiconductor shortage and broader supply-chain constraints on SendTech equipment sales and customer deliveries.
- Cash generation after elevated capital expenditures, debt refinancing costs, dividends and scheduled debt maturities.
- Debt covenant compliance, refinancing requirements and exposure to variable interest rates and LIBOR transition.
- Whether the stated low- to mid-single-digit 2021 revenue outlook remains achievable as COVID-19 conditions and mail volumes evolve.
- Credit quality and allowance adequacy for the approximately $1.141 billion net finance-receivables portfolio.
- The future sustainability of dividends given debt levels, modest stockholders’ equity of $53.4 million, and the six-month net loss.
- The effect of discontinued-operation adjustments, restructuring payments, legal contingencies and other unusual items on future earnings and cash flow.