Pitney Bowes Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2021, compared with the three months ended March 31, 2020. The filing is unaudited and reflects ongoing COVID-19-related uncertainty.
Business context and reporting period
Pitney Bowes is a global commerce technology company operating through Global Ecommerce, Presort Services, and SendTech Solutions. Its offerings include parcel delivery, cross-border ecommerce, presort mail services, mailing and shipping technology, financing, supplies, and support services.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $915.2 million | $796.3 million | 15% increase |
| Loss from continuing operations | $27.7 million | $218.5 million | Improved by $190.9 million |
| Net loss | $31.5 million | $208.5 million | Improved by $176.9 million |
| Basic and diluted loss per share | $0.18 loss | $1.22 loss | Improved by $1.04 |
| Net cash from operating activities | $65.9 million | $67.4 million used | Improved by $133.3 million |
| Cash and cash equivalents at period-end | $680.7 million | $663.1 million | $17.7 million increase year over year |
Margins: Net loss margin was approximately 3.4% of revenue, compared with 26.2% in the prior-year quarter. Loss from continuing operations was approximately 3.0% of revenue. Total segment EBIT was $107.1 million, or approximately 11.7% of revenue, compared with $92.8 million, or 11.7%, in Q1 2020.
- Global Ecommerce: Revenue increased 41% to $413.1 million; segment EBIT was a loss of $26.4 million. Gross margin declined to 7.0% from 9.3% because of higher transportation, postal, and labor costs.
- Presort Services: Revenue increased 2% to $143.1 million; segment EBIT increased 21% to $19.1 million. Gross margin declined to 23.8% from 25.2% due primarily to higher labor, depreciation, and COVID-19 costs.
- SendTech Solutions: Revenue declined 1% to $359.0 million; segment EBIT increased 7% to $114.5 million. Gross margin declined modestly to 62.8% from 63.6%.
Liquidity, debt, and cash flow
- Cash, cash equivalents, and short-term investments totaled $696.9 million at March 31, 2021, including $227 million held by foreign subsidiaries.
- Total debt was $2.439 billion, compared with $2.564 billion at December 31, 2020. Long-term debt was $2.419 billion, and the current portion was $20.0 million.
- The company issued $400 million of 6.875% senior notes due 2027, $350 million of 7.25% senior notes due 2029, and entered into a $450 million secured term loan due 2028.
- The company redeemed $153 million of October 2021 notes, tendered $356 million of notes due 2022, 2023, and 2024, and repaid the remaining $818 million term loan due 2025.
- The $500 million secured revolving credit facility and the 2026 secured term loan were amended to extend maturities to March 2026. There were no revolver borrowings, and all debt covenants were satisfied at March 31, 2021.
- Debt refinancing generated a $51.4 million pretax loss in Q1 2021, recorded in other expense.
- Operating cash flow was $65.9 million. Investing cash use was $87.1 million, primarily reflecting capital expenditures of $43.3 million and net purchases of investment securities. Financing cash use was $218.3 million, largely reflecting debt repayment and refinancing activity.
- Management believes available cash, operating cash flow, and revolver capacity will be sufficient to fund cash needs for the next 12 months.
Material changes versus the prior comparable period
- Revenue increased $118.9 million, driven primarily by a $120.8 million increase in Global Ecommerce business services revenue.
- Segment EBIT increased $14.4 million, partly because Q1 2020 included a $10 million COVID-19-related credit loss charge in SendTech Solutions.
- The prior-year quarter included a $198.2 million goodwill impairment charge; no goodwill impairment was recorded in Q1 2021.
- Operating cash flow improved by $133.3 million, primarily because of stronger receivable collections, favorable working-capital timing, and a $38 million tax payment incurred in the prior year related to the sale of the Software Solutions business.
- Unallocated corporate expenses increased 31% to $57.5 million, driven primarily by higher variable compensation and sales tax expense.
- Discontinued operations produced a $3.9 million loss in Q1 2021, primarily from a tax charge related to the 2018 sale of the Production Mail business, compared with $10.1 million of income in Q1 2020.
- Stockholders’ equity declined to $19.2 million from $66.4 million at year-end 2020, primarily due to the quarterly net loss, dividends, and other comprehensive loss.
Guidance, outlook, risks, and unusual items
- Management expects modest consolidated revenue growth in 2021.
- Global Ecommerce is expected to continue growing, but not at the growth rates experienced during 2020. Management expects margin and profit improvement from pricing and operational initiatives, offset by transportation and labor cost pressures.
- Presort Services is expected to benefit from improving mail volumes, productivity initiatives, automation, and facility optimization.
- SendTech Solutions revenue is expected to continue declining, with cloud-enabled shipping solutions and multipurpose devices partially offsetting declines in traditional mailing, supplies, financing, and support services.
- COVID-19 remains unpredictable and may affect demand, labor availability and costs, transportation, supply chains, operations, and financial results. The filing specifically identifies the outbreak in India, where much of the company’s research and development is located.
- A global semiconductor shortage could adversely affect SendTech equipment availability during the remainder of 2021.
- Additional risks include declining physical mail volumes, postal and regulatory changes, dependence on USPS relationships, customer credit risk, competition, cybersecurity and privacy events, capital-market access, credit-rating downgrades, interest and foreign-exchange rates, trade policies, tax changes, and banking-regulatory matters.
- Following a February 2021 credit downgrade, interest rates on the May 2022 and April 2023 notes will increase by 0.25% beginning in Q2 2021.
- Pending litigation is not expected by management to have a material effect, although litigation outcomes are inherently unpredictable. Uncommenced leases totaled approximately $41 million.
Most important facts for investors to verify
- Whether Global Ecommerce can convert substantial revenue growth into sustainable positive segment EBIT despite transportation, postal, labor, and capacity costs.
- The pace of decline in SendTech’s traditional mailing, financing, supplies, and support-service revenue.
- Execution of the debt refinancing, future interest expense, credit-rating effects, covenant compliance, and access to the revolving facility.
- Availability and cost of labor, transportation, semiconductors, and other supply-chain inputs.
- COVID-19’s continuing effect on customer demand, operations, collections, and international activities.
- Credit performance of finance receivables and customer receivables, including the adequacy of allowances for credit losses.
- Whether the company can maintain dividends while stockholders’ equity remains very low and debt remains approximately $2.4 billion.
- The filing text does not provide a specific full-year earnings or cash-flow forecast; the outlook is limited primarily to qualitative revenue and segment expectations.