PITNEY BOWES INC quarterly report, Q3 FY2022

Pitney Bowes Inc. — Form 10-Q Summary

Business context and reporting period

Pitney Bowes is a global shipping and mailing company providing technology, logistics, financing and related services to small and medium-sized businesses, large enterprises, retailers and government clients. This filing covers the three and nine months ended September 30, 2022. Reportable segments are Global Ecommerce, Presort Services and SendTech Solutions.

Borderfree was sold effective July 1, 2022. Prior-year results were not recast, and third-quarter 2021 revenue included approximately $14 million from Borderfree.

Key financial metrics

Metric	Q3 2022	Q3 2021	YTD 2022	YTD 2021
Total revenue	$830.9 million	$875.4 million	$2.629 billion	$2.690 billion
Income from continuing operations	$5.5 million	$8.5 million	$30.6 million	$1.7 million
Net income (loss)	$5.5 million	$9.1 million	$30.6 million	$(2.6) million
Diluted EPS	$0.03	$0.05	$0.17	$(0.02)
Net cash from operating activities	Not separately provided	Not separately provided	$9.2 million	$216.2 million
Cash and cash equivalents	$596.6 million at September 30, 2022	$732.5 million at December 31, 2021
Total debt	$2.217 billion at September 30, 2022	$2.324 billion at December 31, 2021

Third-quarter net income margin was approximately 0.7%, compared with approximately 1.0% in the prior-year quarter. Year-to-date net income margin was approximately 1.2%, compared with a slight net loss margin in the prior-year period.

Third-quarter revenue declined 5%, or 4% at constant currency. Year-to-date revenue declined 2%, or 1% at constant currency.
Total segment EBIT was $80.9 million in the quarter and $271.0 million year to date, down 18% and 15%, respectively.
Segment EBIT margins were approximately 9.7% in the quarter and 10.3% year to date, versus 11.3% and 11.8% in the comparable periods.
Global Ecommerce revenue declined 11% in the quarter and 5% year to date; segment EBIT losses were $34.9 million and $77.4 million, respectively.
Presort Services revenue increased 4% in the quarter and 7% year to date, while EBIT declined 2% and 6%, respectively.
SendTech Solutions revenue declined 2% in the quarter and year to date, while EBIT declined 4% and 8%, respectively.

Material changes versus the prior comparable period

Global Ecommerce performance weakened because of lower cross-border and digital delivery volumes, foreign exchange pressure and the Borderfree divestiture. Third-quarter Global Ecommerce gross margin declined to 5.7% from 8.5%.
SendTech Solutions margins declined as high-margin support and financing revenue decreased, reflecting a declining meter population, migration toward cloud-enabled products and fewer lease extensions.
Presort Services benefited from pricing actions and productivity improvements, but higher transportation, fuel and labor costs pressured margins.
SG&A declined $15 million in the quarter and $20 million year to date, primarily due to lower variable compensation and professional fees. Unallocated corporate expenses declined 13% in both periods.
Operating cash flow fell by $206.9 million year to date, driven by working-capital timing, lower collections, increased payments to suppliers and employees, higher taxes and interest, and increased inventory.
Debt declined by approximately $113 million, primarily from redeeming the remaining $90 million of April 2023 notes and making scheduled term-loan repayments. The company recognized a $5 million pre-tax loss on the debt redemption.
The company sold its Borderfree business for $93 million of net proceeds and recognized a $4 million pre-tax gain. It also recognized a $14 million gain on the sale and leaseback of its Shelton, Connecticut office building.
Foreign currency translation and investment-security losses drove other comprehensive loss of $55.4 million in the quarter and $125.1 million year to date. Stockholders’ equity declined to a deficit of $8.3 million at September 30, 2022.

Liquidity, debt and cash flow

Cash, cash equivalents and short-term investments totaled $607 million, including $152 million held by foreign subsidiaries. Cash and cash equivalents ended the period at $596.6 million.
The company had no borrowings under its $500 million secured revolving credit facility and was in compliance with all debt covenants at September 30, 2022.
Year-to-date investing cash flow was positive $16.4 million, including proceeds from business and asset sales, partially offset by capital expenditures of $97.5 million and derivative settlements.
Year-to-date financing cash flow was negative $136.2 million, including $113.0 million of debt principal payments, $26.0 million of dividends and $13.4 million of share repurchases.
Management stated that existing cash and investments, operating cash generation and available revolving-credit capacity should be sufficient to fund cash needs for the next 12 months.

Guidance, outlook, risks and unusual items

Management expects fourth-quarter revenue to benefit from seasonal holiday shipping volumes and new clients, but cautioned that inflation, recessionary conditions, labor and transportation constraints, fuel costs and geopolitical developments could adversely affect volumes and costs.
For full-year 2022, management expects constant-currency revenue to range from a low-single-digit percentage decline to low-single-digit percentage growth, EBIT to range from a high-single-digit percentage decline to a mid-single-digit percentage increase, and free cash flow to be positive.
The company is investing in Global Ecommerce and Presort Services networks, shipping solutions, lockers, financing offerings, technology and process upgrades. Management expects these investments to pressure near-term margins while supporting longer-term growth and margin improvement.
Global Ecommerce goodwill was $339 million after the Borderfree divestiture. The reporting unit passed its impairment test, but estimated fair value exceeded carrying value by less than 20%; adverse changes in revenue, profitability, volumes, costs or interest rates could result in a future impairment charge.
Principal risks include declining physical mail volumes, USPS and postal-market changes, ecommerce demand and supply-chain disruptions, labor and transportation costs, inflation, rising interest rates, customer credit risk, foreign exchange, cybersecurity, regulation, capital-market access and geopolitical developments.
Restructuring charges were $4.3 million in the quarter and $12.7 million year to date. Remaining restructuring reserves were $5.3 million, expected to be paid primarily over the next 12 to 24 months.
The company has entered into $104 million of real estate and equipment leases that had not commenced at September 30, 2022; most were expected to commence in the fourth quarter of 2022 or in 2023.
Management reported no material changes to previously disclosed legal proceedings, risk factors or market-risk disclosures. Pending litigation was not considered reasonably likely to have a material effect, although litigation outcomes remain inherently unpredictable.

Important facts for investors to verify

Whether Global Ecommerce volumes, margins and goodwill recover after the Borderfree divestiture and amid continued cost pressure.
Whether the company achieves its full-year 2022 revenue, EBIT and positive free-cash-flow outlook despite sharply lower year-to-date operating cash flow.
Debt maturities, variable-rate exposure and the effect of rising interest rates on financing costs and liquidity.
The sustainability of dividends and share repurchases given the September 30 stockholders’ equity deficit and limited remaining repurchase authorization of approximately $3 million.
Customer credit performance, finance-receivable losses and the adequacy of related allowances in a potential recession.
The sensitivity of Global Ecommerce goodwill and other assets to changes in revenue growth, profitability, discount rates and foreign currency.
The effect of Borderfree’s divestiture and the lack of prior-period recasting when comparing reported revenue and segment trends.