PITNEY BOWES INC DE

Previous wording

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend," "will," "forecast," "strategy," "goal," "should," "would," "could," "may" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference speak only as of the date of those documents.

Current wording

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend," "will," "forecast," "strategy," "goal," "should," "would," "could," "may" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof.

Previous wording

•the potential adverse effects of the Ecommerce Restructuring (as defined below) on our operations, management and employees and the risks associated with operating our business during the restructuring process and exit from the Global Ecommerce segment

Current wording

•the risks and uncertainties and potential adverse effects of the Ecommerce Restructuring on our operations, including ability to achieve anticipated benefits, management and employees and the risks associated with operating our business during the restructuring process and exit from the Global Ecommerce segment

Previous wording

•our ability to successfully implement the 2024 Plan (as defined below) and achieve expected cost reductions and improved efficiencies in connection therewith

Current wording

•our ability to successfully implement the 2024 Plan and achieve expected cost reductions and improved efficiencies in connection therewith

Previous wording

In connection with the contemplated GEC Chapter 11 Cases, we entered into a Restructuring Support Agreement (the “RSA”) with the Ecommerce Debtors to provide for, among other things, an orderly wind-down of the Ecommerce Debtors, shared services between the Company and the Ecommerce Debtors for a period of time, a global settlement between the Company and the Ecommerce Debtors, and a senior secured, super-priority debtor-in-possession term loan (the “DIP Facility”) in an aggregate principal amount of up to $47 million.

Current wording

In connection with the GEC Chapter 11 Cases, we entered into a Restructuring Support Agreement (the “RSA”) with the Ecommerce Debtors to provide for, among other things, an orderly wind-down of the Ecommerce Debtors, shared services between the Company and the Ecommerce Debtors for a period of time, a global settlement between the Company and the Ecommerce Debtors, and a senior secured, super-priority debtor-in-possession term loan (the “DIP Facility”) in an aggregate principal amount of up to $47 million.

Previous wording

Within SendTech Solutions, mailing-related revenues are expected to decline driven by lower meter populations due to the migration to cloud-based solutions and a higher mix of lease extensions versus new lease sales but will be partially offset by growth in our shipping offerings. While the near-term impact of the shift to lease extensions versus new lease sales will result in declining equipment sales, this results in stable and continued cash flows over the lease term.

Current wording

Within SendTech Solutions, mailing-related revenues are expected to decline driven by lower meter populations due to the migration to cloud-based solutions and a higher mix of lease extensions versus new lease sales. We expect this decline to be partially offset by growth in our shipping offerings. The shift to lease extensions versus new lease sales will result in declining equipment sales in the near term; however, the long term impact will be more stable and continued cash flows over the lease term.

Previous wording

At the end of the second quarter of 2024, we approved a worldwide cost reduction initiative (the "2024 Plan") to realize cost reductions and improve efficiencies. During the second quarter, we eliminated 367 positions and incurred pre-tax charges of $26 million. We expect these actions to generate annualized pre-tax savings of approximately $60 million by the end of 2025.

Current wording

During the second quarter of 2024, we approved a worldwide cost reduction initiative (the "2024 Plan") to realize cost reductions and improve efficiencies. Through the third quarter of 2024, total charges under this plan were $61 million, of which $7 million is included in discontinued operations. Exclusive of savings anticipated as a result of the Ecommerce Restructuring, we expect these headcount actions to generate significant annualized savings. We anticipate incurring additional charges in future periods related to further workforce reductions contemplated by the 2024 Plan. Actions under the 2024 Plan are expected to be substantially complete by the end of the first half of 2025.

Previous wording

Financial Results Summary - Three and Six Months Ended June 30:

Current wording

Financial Results Summary - Three and Nine Months Ended September 30:

Previous wording

Revenue increased $17 million in the second quarter of 2024 compared to the prior year period primarily due to higher business services revenue of $33 million, partially offset by lower support services revenue of $9 million and lower equipment sales of $7 million.

Current wording

Revenue decreased $4 million in the third quarter of 2024 compared to the prior year period primarily due to lower support services revenue of $11 million and lower equipment sales of $10 million, partially offset by higher business services revenue of $19 million.

Previous wording

•Restructuring charges increased $10 million compared to the prior year period primarily driven by actions taken under the 2023 and 2024 Plans.

Current wording

•Restructuring charges increased $17 million compared to the prior year period primarily driven by actions taken under the 2024 Plans.

Previous wording

•Costs of revenue (excluding financing interest expense) increased $9 million primarily due to higher cost of business services of $19 million, partially offset by lower cost of equipment sales of $6 million and lower cost of support services of $3 million.

Current wording

•Costs of revenue (excluding financing interest expense) decreased $9 million primarily due to lower cost of equipment sales of $4 million, lower cost of support services of $3 million and lower cost of business services of $2 million.

Previous wording

Revenue increased $13 million in the first half of 2024 compared to the prior year period primarily due to higher business services revenue of $45 million, partially offset by lower support services revenue of $18 million, lower equipment sales of $12 million and lower supplies revenue of $3 million.

Current wording

Revenue decreased $42 million in the first nine months of 2024 compared to the prior year period primarily due to lower support services revenue of $29 million, lower equipment sales of $22 million and lower supplies revenue of $3 million, partially offset by higher business services revenue of $13 million.

Previous wording

Total costs and expenses decreased $96 million compared to the prior year period primarily due to a non-cash goodwill impairment charge of $119 million in the prior year period. Other factors contributing to the decrease include:

Current wording

Total costs and expenses decreased $19 million compared to the prior year period primarily due to:

Previous wording

•Costs of revenue (excluding financing interest expense) decreased $1 million primarily due to lower cost of equipment sales of $10 million and lower cost of support services of $7 million, partially offset by higher cost of business services of $19 million.

Current wording

•Costs of revenue (excluding financing interest expense) decreased $67 million primarily due to lower cost of business services of $38 million, lower cost of equipment sales of $14 million and lower cost of support services of $10 million.

Previous wording

•SG&A expense decreased $28 million compared to the prior year period primarily driven by lower salary expense of $19 million due to savings as a result of the 2023 Plan, non-cash foreign currency revaluation gains on intercompany loans of $5 million, lower professional and outsourcing fees of $3 million and lower expenses from various cost savings initiatives, partially offset by higher variable compensation expense of $13 million and incremental CEO and Board transition costs and strategic review costs of $11 million.

Current wording

•SG&A expense decreased $14 million compared to the prior year period primarily driven by lower salary expense of $26 million due to savings from the 2023 and 2024 Plans, lower professional and outsourcing fees of $16 million, lower marketing expenses of $2 million and various other expense savings totaling approximately $25 million from cost savings initiatives, partially offset by higher variable compensation expense of $28 million, incremental CEO and Board transition costs and strategic review costs of $14 million and non-cash foreign currency revaluation losses on intercompany loans of $13 million.

Previous wording

•Restructuring charges increased $9 million compared to the prior year period primarily driven by actions taken under the 2023 and 2024 Plans.

Current wording

•Restructuring charges increased $30 million compared to the prior year period primarily driven by actions taken under the 2023 and 2024 Plans.

Previous wording

Effective January 1, 2024, we moved the digital delivery services offering from the Global Ecommerce segment to the SendTech Solutions segment in order to leverage our technology and innovation capabilities to better serve our clients. Prior periods have been recast to conform to our current segment presentation.

Current wording

Effective January 1, 2024, we moved the digital delivery services offering from the former Global Ecommerce segment to the SendTech Solutions segment in order to leverage our technology and innovation capabilities to better serve our clients. Prior periods have been recast to conform to the current segment presentation.

Previous wording

Management measures segment profitability and performance by deducting from segment revenue the related costs and expenses attributable to the segment. Segment results exclude interest, taxes, unallocated corporate expenses, restructuring charges, goodwill impairment and other items not allocated to a business segment.

Current wording

Management measures segment profitability and performance by deducting from segment revenue the related costs and expenses attributable to the segment. Segment results exclude interest, taxes, corporate expenses, restructuring charges, goodwill impairment and other items not allocated to a business segment.

Previous wording

SendTech Solutions revenue decreased $8 million in the second quarter of 2024 compared to the prior year period. Support services revenue declined $9 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $7 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. These revenue declines were partially offset by an increase in business services revenue of $8 million primarily driven by growth in enterprise shipping subscriptions of $4 million and digital delivery services of $3 million due to growth in shipping labels printed.

Current wording

SendTech Solutions revenue decreased $14 million in the third quarter of 2024 compared to the prior year period. Support services revenue declined $11 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $10 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. These revenue declines were partially offset by an increase in business services revenue of $8 million primarily driven by growth in our shipping subscriptions, including enterprise subscriptions and growth in digital delivery services of $3 million due to client mix.

Previous wording

Adjusted segment EBIT was $101 million in the second quarter of 2024 compared to $97 million for the prior year period.

Current wording

Adjusted segment EBIT was $104 million in the third quarter of 2024 compared to $99 million for the prior year period.

Previous wording

SendTech Solutions revenue decreased $16 million in the first half of 2024 compared to the prior year period. Support services revenue declined $18 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $12 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. Supplies revenue declined $3 million primarily driven by a declining meter population. These revenue declines were partially offset by an increase in business services revenue of $17 million primarily driven by growth in enterprise shipping subscriptions of $7 million and digital delivery services of $6 million due to growth in shipping labels printed.

Current wording

SendTech Solutions revenue decreased $30 million in the first nine months of 2024 compared to the prior year period. Support services revenue declined $29 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $22 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. Supplies revenue declined $3 million primarily driven by a declining meter population. These revenue declines were partially offset by an increase in business services revenue of $25 million primarily driven by growth in our shipping subscriptions, including enterprise subscriptions and growth in digital delivery services of $9 million due to client mix.

Previous wording

Gross margin was flat compared to the prior year period; however, gross margin percentage increased to 66.7% from 65.1% compared to the prior year period. The increase in gross margin percentage was primarily driven by improvements in business services gross margin due to growth in enterprise shipping subscriptions and growth in digital delivery services. Despite revenue declines, gross margin percentage for support services, equipment sales and supplies were comparable to the prior year period.

Current wording

Gross margin declined $9 million; however, gross margin percentage increased to 66.7% from 65.6% compared to the prior year period. The increase in gross margin percentage was primarily driven by improvements in business services gross margin due to growth in enterprise shipping subscriptions and growth in digital delivery services. Gross profit margin for support services, equipment sales and supplies was comparable to the prior year period as we reduced costs in response to lower revenues in the current period.

Previous wording

Adjusted segment EBIT was $202 million in the first half of 2024 compared to $192 million for the prior year period.

Current wording

Adjusted segment EBIT was $306 million in the first nine months of 2024 compared to $292 million for the prior year period.

Previous wording

Despite a 2% decrease in total mail volumes, revenue increased $4 million in the second quarter of 2024 compared to the prior year period primarily due to pricing actions to mitigate inflationary pressures. The processing of First Class Mail and Marketing Mail Flats/Bound Printed Matter contributed revenue increases of $3 million and $1 million, respectively.

Current wording

Revenue increased $14 million in the third quarter of 2024 compared to the prior year period primarily due to a 3% increase in total mail volumes and pricing actions. The processing of First Class Mail contributed the revenue increase of $14 million.

Previous wording

Despite a 2% decrease in total mail volumes, revenue increased $10 million in the first half of 2024 compared to the prior year period primarily due to pricing actions to mitigate inflationary pressures. The processing of First Class Mail and Marketing Mail Flats/Bound Printed Matter contributed revenue increases of $8 million and $2 million, respectively. Revenue was also favorably impacted by a $5 million adjustment related to prior periods. Refer to Note 1 Basis of Presentation for further information.

Current wording

Revenue increased $29 million in the first nine months of 2024 compared to the prior year period primarily due to pricing actions. The processing of First Class Mail and Marketing Mail Flats/Bound Printed Matter contributed revenue increases of $22 million and $8 million, respectively, which was partially offset by a revenue decrease from Marketing Mail of $1 million. Revenue was also favorably impacted by a $5 million adjustment related to prior periods. Refer to Note 1 Basis of Presentation for further information.

Previous wording

Gross margin increased $23 million and gross margin percentage increased from 28.3% in the prior period to 34.3% primarily due to the increase in revenue and the continuing benefits from investments in automation and higher-throughput sortation equipment. Gross margin also benefited from lower transportation costs of $4 million driven by improvements in network management.

Current wording

Gross margin increased $39 million and gross margin percentage increased from 29.3% in the prior period to 35.7% primarily due to the increase in revenue, lower transportation costs of $4 million driven by improvements in network management and the continuing benefits from investments in automation and higher-throughput sortation equipment.

Previous wording

SG&A expense increased $3 million primarily due to higher credit loss provision of $2 million.

Current wording

SG&A expense increased $2 million primarily due to higher credit loss provision.

Previous wording

Adjusted segment EBIT was $67 million in the first half of 2024, which includes a $5 million benefit from the revenue adjustment related to prior periods, compared to $47 million in the prior year period.

Current wording

Adjusted segment EBIT was $114 million in the first nine months of 2024, including the $5 million benefit from the revenue adjustment related to prior periods, compared to $76 million in the prior year period.

Previous wording

The majority of operating expenses are recorded directly or allocated to our reportable segments. Operating expenses not recorded directly or allocated to our reportable segments are reported as unallocated corporate expenses. Unallocated corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology, and research and development.

Current wording

The majority of operating expenses are recorded directly or allocated to our reportable segments. Operating expenses not recorded directly or allocated to our reportable segments are reported as corporate expenses. Corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology, and research and development.

Previous wording

Unallocated corporate expenses were as follows:

Current wording

Corporate expenses were as follows:

Previous wording

Unallocated corporate expenses for the second quarter of 2024 increased $4 million compared to the prior year period primarily due to higher variable compensation expense of $11 million, partially offset by lower professional and outsourcing fees of $4 million and lower salary expense of $3 million.

Current wording

Corporate expenses for the third quarter of 2024 increased $2 million compared to the prior year period primarily due to higher variable compensation expense of $16 million, partially offset by lower salary expense of $8 million due to savings as a result of the 2023 and 2024 Plans, lower marketing expenses of $3 million and lower expenses from various cost savings initiatives.

Previous wording

Unallocated corporate expenses for the first half of 2024 decreased $3 million compared to the prior year period primarily due to lower professional and outsourcing fees of $7 million, lower salary expense of $5 million and improvements driven by overall cost savings initiatives, which was partially offset by higher variable compensation expense of $15 million.

Current wording

Corporate expenses for the first nine months of 2024 decreased $1 million compared to the prior year period primarily due to lower salary expense of $13 million due to savings as a result of the 2023 and 2024 Plans, lower professional and outsourcing fees of $9 million, lower marketing expenses of $3 million and lower expenses from various cost savings initiatives, which was partially offset by higher variable compensation expense of $32 million.

Previous wording

Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our ability to manage costs and improve productivity, our clients' ability to pay their balances on a timely basis and the impacts of changing macroeconomic and geopolitical conditions. At June 30, 2024, we had cash, cash equivalents and short-term investments of $612 million, which includes $68 million held at our foreign subsidiaries used to support their liquidity needs. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our revolving credit facility will be sufficient to fund our cash needs for the next 12 months.

Current wording

Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our ability to manage costs and improve productivity, our clients' ability to pay their balances on a timely basis and the impacts of changing macroeconomic and geopolitical conditions. At September 30, 2024, we had cash, cash equivalents and short-term investments of $576 million, which includes $46 million held at our foreign subsidiaries used to support their liquidity needs. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our revolving credit facility will be sufficient to fund our cash needs for the next 12 months.

Previous wording

To facilitate the GEC Sale, on August 8, 2024, we amended the Credit Agreement and the note purchase agreement that governs our $275 million notes due March 2028. These amendments, among other things, permit the Ecommerce Restructuring, funding under the DIP Facility, amend certain covenants, including relief for expenses incurred pursuant to the Ecommerce Restructuring, release the guarantees provided by the Ecommerce Debtors and the liens on the assets of the Ecommerce Debtors, and reduce the total aggregate amount of permitted borrowings under the revolving credit facility from $500 million to $400 million.

Current wording

In August 2024, we amended the Credit Agreement and the note purchase agreement that governs our $275 million notes due March 2028. These amendments, among other things, permit the Ecommerce Restructuring, funding under the DIP Facility, amend certain covenants, including relief for expenses incurred pursuant to the Ecommerce Restructuring, release the guarantees provided by the Ecommerce Debtors and the liens on the assets of the Ecommerce Debtors, and reduce the total aggregate amount of permitted borrowings under the revolving credit facility from $500 million to $400 million.

Previous wording

The Credit Agreement contains certain financial covenants that require us to maintain, on a quarterly basis, a maximum leverage ratio and a minimum interest coverage ratio, both of which are defined and calculated in accordance with the Credit Agreement. The maximum leverage ratio was 4.0x as of June 30, 2024 and the minimum interest coverage ratio was 1.75x as of June 30, 2024 and increases to 2.0x as of March 31, 2025. As of June 30, 2024, we were in compliance with these financial covenants.

Current wording

The Credit Agreement contains certain financial covenants that require us to maintain, on a quarterly basis, a maximum leverage ratio and a minimum interest coverage ratio, both of which are defined and calculated in accordance with the Credit Agreement. As of September 30, 2024, we were in compliance with these financial covenants.

Previous wording

In connection with the contemplated GEC Chapter 11 Cases, the Company, through one of its wholly owned subsidiaries, will provide funding to the Ecommerce Debtors through the DIP Facility. We expect our funding requirements under this facility will not exceed $47 million. The DIP Facility will bear interest at 10%, and matures on November 29, 2024, unless otherwise extended by the parties.

Current wording

In connection with the GEC Chapter 11 Cases, the Company, through one of its wholly owned subsidiaries, agreed to provide funding to the Ecommerce Debtors through the DIP Facility up to a maximum amount of $47 million. Through September 30, 2024, we provided cash funding of $28 million. It appears unlikely that the DIP Facility will be repaid in full. The DIP Facility bears interest at 10%, and matures on November 29, 2024, unless otherwise extended by the parties.

Previous wording

Cash flows from operating activities in the first half of 2024 improved $120 million compared to the prior year period driven primarily by a decline in finance receivables and lower payments of accounts payable and accrued liabilities.

Current wording

Cash flows from operating activities in the first nine months of 2024 improved $109 million compared to the prior year period driven primarily by a decline in finance receivables and lower payments of accounts payable and accrued liabilities.

Previous wording

Cash flows from investing activities for the first half of 2024 improved $33 million compared to the prior year period primarily due to higher cash from investment activity of $14 million, lower capital expenditures of $14 million and lower investments in loans receivable of $11 million, partially offset by lower cash receipts from settlements of derivative contracts of $6 million.

Current wording

Cash flows from investing activities for the first nine months of 2024 improved $29 million compared to the prior year period primarily due to lower cash outflows from discontinued operations of $16 million, lower investments in loans receivable of $18 million, higher cash from investment activity of $16 million and lower cash payments from settlements of derivative contracts of $7 million, partially offset by DIP Facility funding of $28 million.

Previous wording

Cash flows from financing activities for the first half of 2024 declined $28 million compared to the prior year period primarily due to a decrease in customer account deposits at the Bank of $53 million, partially offset by lower repayments of debt of $26 million.

Current wording

Cash flows from financing activities for the first nine months of 2024 declined $66 million compared to the prior year period primarily due to lower cash flows from changes in customer account deposits at the Bank of $73 million, partially offset by lower fees paid to refinance debt of $6 million.

Previous wording

We paid dividends of $9 million in the quarter and $18 million through June 30, 2024. Each quarter, our Board of Directors considers whether to approve the payment of a dividend. Under the terms of the March 2028 note purchase agreement, the annual amount of permitted dividend payments is capped at the lesser of $36 million or a maximum dividend yield of 6.25%. In addition, share repurchases would further limit this amount. We currently expect to continue paying a quarterly dividend; however, no assurances can be given.

Current wording

We paid dividends of $9 million in the quarter and $27 million through September 30, 2024. Each quarter, our Board of Directors considers whether to approve the payment of a dividend. Under the terms of the March 2028 note purchase agreement, the annual amount of permitted dividend payments is capped at the lesser of $36 million or a maximum dividend yield of 6.25%. In addition, share repurchases would further limit this amount. We currently expect to continue paying a quarterly dividend; however, no assurances can be given.