Pitney Bowes Inc. (NYSE:PBI) Q4 2023 Earnings Call Transcript

Pitney Bowes Inc. (NYSE:PBI) Q4 2023 Earnings Call Transcript February 1, 2024

Pitney Bowes Inc. beats earnings expectations. Reported EPS is $0.07, expectations were $0.03. PBI isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the Pitney Bowes Fourth Quarter 2023 Earnings Conference Call. Your lines have been placed in a listen-only mode during the conference call until the question-and-answer segment. Today’s call is also being recorded. If you have any objections, please disconnect your lines at this time. I would now like to introduce participants on today’s conference call. Mr. Jason Dies, Interim Chief Executive Officer; Ms. Ana Maria Chadwick, Executive Vice President and Chief Financial Officer; and Mr. Philip Landler, Vice President Investor Relations and Global Strategy. Mr. Landler will now begin the call with a Safe Harbor overview.

Philip Landler: Good morning. I’m Philip Landler. Thank you for joining us. I manage the Pitney Bowes Investor Relations program and part of my duties include covering the Safe Harbor information for these calls. So let me briefly cover that. Included in today’s presentation are forward-looking statements about our future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release, our 2022 Form 10-K annual report and other reports filed with the SEC that are located on our website at www.pb.com, and by clicking on Investor Relations.

Please keep in mind we do not undertake any obligation to update forward-looking statements as a result of new information or developments. Also for non-GAAP measures that are used in the press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release. Finally, we have provided a slide presentation and spreadsheet with historical segment information on our website. And now, I’d like to turn the call over to our Interim CEO, Jason Dies.

Jason Dies: Good morning, and thank you for joining the call and your ongoing investment and interest in Pitney Bowes. Over the past 120 days, I’ve spent a lot of time getting valuable feedback and viewpoints from our shareholders and core stakeholders. This input has helped reinforce my assessment of our key opportunities and the challenges we’re working to address. Most importantly, these conversations have increased my optimism about the future here at Pitney Bowes. Later in the call, I’ll discuss my work with the senior management team and the Board to develop a set of strategic and operational priorities for 2024. Let me start today by giving a high level overview of Q4 performance at the enterprise level, as well as across each of our segments.

We made good progress this quarter, growing adjusted EBIT $14 million year-over-year but still have work to do. At the enterprise level we are on track with our cost reduction and restructuring efforts after increasing our original targets late last year. We are seeing the benefit from these efforts show up in segment and overall profitability. And Ana will provide more details. SendTech and Presort executed well in the quarter, SendTech Group EBIT as a result of gross margin expansion, simplification and cost reduction actions. These gains are enabling us to shift resources towards investments in our shipping capabilities, where we see meaningful long term profitable growth potential. Presort grew revenue and recorded its highest ever EBIT in a quarter, which is a testament to the great work of the team.

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Q&A Session

We will continue to capitalize on our excellent operational and client support capabilities to create value in this segment. Global Ecommerce delivered improved fourth quarter profitability year-over-year and sequentially, demonstrating the value of our network in peak and on a go forward basis. Domestic parcel volumes grew 13% to 61 million parcels. We are continuing to take actions and review options to realize the value of this segment. I’d like to thank all of the PB teams for their dedication to serving our clients in the holiday season and throughout the year. Next, I want to spend a minute outlining the strategic and operational priorities that will help us build on current momentum and continue to transform in 2024 and beyond. First, we will continue to streamline the organization and reduce cost.

The cost reduction program we previously announced started to yield savings in 2023, and we expect to increasingly realize these benefits throughout 2024. Although we are on target on the restructuring side, we will continue to look for additional ways to increase efficiency. Second, we’re driving more accountability into our businesses. In addition to changes in how we operate and measure performance, we have also made some initial and important changes to our overall organizational structure. We have integrated the majority of our marketing functions under segment leadership to improve focus. We are also combining SendTech globally under Shemin Nurmohamed, who will have full responsibility for strategy and execution in our 10 geographies worldwide.

Third, we are realigning assets and resources to better leverage our technology and innovation capabilities to create client value, with specific focus on accelerating SendTech’s shipping growth. To that end, effective January 1 of this year, we moved GEC’s digital shipping business into SendTech. That includes our global carrier library and API technology to create and manage multi-carrier shipping options. This will drive product development and engineering efficiencies as we upgrade existing solutions and develop new ones. Also, since SendTech, recently launched a go-to-market model that prioritizes growth in shipping, having our digital offers combined in one channel will drive additional synergies and an improved client experience. Fourth, we’re focused on more disciplined capital allocation and strengthening our balance sheet.

As we continue to execute on corporate cost reductions and realize business unit efficiencies, we plan to allocate capital in a manner that balances near term and long term interests of our investors. In closing, one quarter in, I am optimistic about what lies ahead for Pitney Bowes. As we look ahead in 2024, we will continue to operate with intensity and prioritize actions that support increased operational discipline and accelerate our shift into targeted shipping growth paths. We understand the challenges and also the opportunities we have. 2023 was a year of significant change for Pitney Bowes and 2024 will bring additional transformation, which I expect to be very positive. And now I’d like to turn it over to Ana to discuss our Q4 results in more detail.

Ana Maria Chadwick: Thank you, Jason, and good morning, everyone. I will focus my comments on the financial performance in the fourth quarter. Full year 2023 results and additional commentary can be found in our press release. Unless otherwise noted, I will speak to revenue comparison on a constant currency basis, and other items such as EBIT, EBITDA EPS and free cash flow on an adjusted basis. For the quarter, total revenue was $872 million, a decline of 4% versus prior year. EBITDA was $103 million, an improvement of $15 million year-over-year. EBIT was $63 million and $14 million higher than prior year. EBIT improvement was mostly offset by higher interest expense. Adjusted EPS was $0.07, versus $0.06 in prior year. GAAP EPS was $1.27 loss in the quarter.

GAAP EPS includes a non-cash goodwill impairment charge of $1.24 related to the global Ecommerce segment. GAAP EPS also includes an $0.08 restructuring charge, and a $0.02 non-cash charge related to a foreign currency loss on intercompany loans. Let’s dive into our three business segments. I’ll start with SendTech, which had a solid quarter, especially on the bottom line. SendTech reported EBIT growth of 7% on revenue of $327 million in the quarter, down 5% compared to prior year. As previously discussed, we continue to experience secular decline in our meter [ph] base and an increasing shift towards lease extensions, given where we are in our product lifecycle. Both dynamics are putting pressure on near term revenues. This quarter shipping-related revenues declined 7% and now comprise 13% of SendTech’s total revenue.

Prior year included a couple of large transactions that had a high proportion of in-period, shipping-related equipment and professional services revenue. Looking beyond these transactions, we made meaningful progress in sustainable shipping growth. The fourth quarter was our single biggest quarter in terms of implementing new enterprise subscriptions. Our enterprise offerings provide leading shipping capabilities that are often integrated into multiple client systems to solve complex workflows. The high level of new implementation bodes well for the future of the business as these transactions come with a high portion of recurring revenue. Though early days, SaaS subscription revenue from our shipping products grew 42% in the quarter. We remain confident about the growth potential of our shipping solutions.

As Jason mentioned, we are making changes in two key areas. First, we are shifting more resources to our shipping go-to-market. And second, effective January 1, we moved the digital shipping solutions in global Ecommerce to SendTech, streamlining our leadership, product development investment, and leveraging our new go-to-market. Segment financials will be recasted for this change, when we report earnings next quarter. We continue to refresh our product base with new USPS-compliant technology. At year end, we were 72% through the migration and even further along for the low and mid volume products. At this stage of the migration, we continue to see more fixed term lease extensions versus new lease transactions. As a reminder, the financial impact of this shift will be near term pressure on equipment sales, generally offset by higher margin financing revenue spread over the term of the lease extension.