PITNEY BOWES INC /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Key Initiatives: GEC exit progressing well, expected to be largely complete by year-end with $150 million in one-time costs, improving go-forward earnings by $136 million annually. Cost efficiency initiatives: net cost savings forecast increased to $150 million to $170 million from $120 million to $160 million. Cash optimization: largely completed overseas cash repatriation, bringing $117 million back to US, and cash pooling system implemented. Pitney Bowes Bank initiative: selling select captive lease receivables to accelerate cash realization.
• Business Unit Insights: Presort has consistent revenue growth, improving margins, and opportunities for organic growth and M&A. SendTech is a market leader in shipping, with opportunities in SaaS shipping market. Financial services and Pitney Bowes Bank driving cash generation and lending services.

Segment Performance

• SendTech: Revenue was $313 million, down 4% year-over-year. Key drivers included product migration to new IMI technology, temporary increase in cancellation rates, lower equipment upgrade opportunities, and higher mix of lease extensions. Shipping-related revenue grew 8% and now comprises 17% of segment revenue. Gross profit was $209 million, down 4% year-over-year. EBIT was $104 million, up 5% versus prior year.
• Presort: Revenue was $166 million, up 9% year-over-year, driven by higher volumes and pricing. EBIT was $46 million, up 59% versus prior year, thanks to revenue improvements and reduced operating expenses.

Guidance

• Full year 2024 revenue expected to decline at low-single-digit rate. EBIT guidance raised to $355 million to $360 million. Factors: cost removal and Presort performance positive, SendTech IMI migration headwind, fourth quarter 2023 large government deal impact, $5 million one-time benefit not repeating in Q4, and $10 million seasonal/one-time costs.

Risks

• IMI Migration Impact: Temporary uptick in cancellation rates and equipment sales decline during SendTech's IMI migration, which could continue as a headwind until normalization.
• Debt and Capital Allocation: Uncertainties around debt restructuring and balancing near-term maturities, higher cost debt, and fees.

Question and Answer

Q: About SendTech's IMI migration and future impact A: IMI migration largely complete, attrition moderating, with equipment sales decline expected to continue through 2025 then stabilize. Cancellation rates temporary uptick, expected to normalize.

Q: Presort's volume sustainability and pricing A: Presort performing well, expecting continued strong results, with team and performance driving positive outlook.

Q: Corporate expenses and cost savings increase A: Corporate expenses up due to variable compensation headwind; increased cost savings from indirect/external spend like insurance, contract renegotiations, and vendor outsourcing.

Q: GEC exit progress A: GEC wind down progressing well, largely complete by year-end, prioritizing resolution of legacy obligations.

Q: Future expansion ideas and share repurchase A: Presort opportunities for organic growth and M&A; SendTech looking to expand into e-commerce SaaS shipping; capital allocation evaluated quarterly, with dividend announced and ongoing review of share repurchase.

Q: Lance's permanent CEO appointment process A: Board's Value Enhancement Committee ran thorough search process, Lance stood out for exceeding expectations on turnaround, change management skills, and compelling path forward.