Pitney Bowes Announces First Quarter 2019 Financial Results

STAMFORD, Conn.–(BUSINESS WIRE)–Pitney Bowes Inc. (NYSE: PBI), a global technology company that provides
commerce solutions in the areas of ecommerce, shipping, mailing, and
data, today announced its financial results for the first quarter 2019.

Quarterly Financial Results:

  • Revenue of $868 million, a decline of 3 percent; a decline of 2
    percent when adjusted for the impact of currency; a decline of 1
    percent when adjusted for both the impact of currency and market exits
  • GAAP EPS of ($0.01), which included a $0.10 loss related to the
    previously announced sale of direct operations in 6 smaller European
    markets
  • Adjusted EPS of $0.12
  • GAAP cash from operations of $70 million; free cash flow of $32 million
  • Repurchased $39 million of stock, or 5.6 million shares
  • The Company is updating its 2019 annual guidance

“While we delivered first quarter revenue that was largely in-line with
our expectations, we fell short on profitability. Clearly, we are not
pleased with our profit performance, but are confident that the actions
we are taking will improve profitability and continue to position us for
sustained growth for the long-term,” said Marc B. Lautenbach, President
and CEO, Pitney Bowes. “We continued to make progress against our
long-term objectives as we move our portfolio of business to the growth
areas of the market. For the second consecutive quarter, our Commerce
Services business was the largest component of our overall revenue and
our shipping-related revenues counted for approximately one-third of our
total revenue.”

First Quarter 2019 Results

Revenue totaled $868 million, which was a decline of 3 percent versus
prior year. Revenue declined 2 percent versus the prior year when
adjusted for the impact of currency and declined 1 percent when adjusted
for both the impact of currency and the previously announced sale of
direct operations in 6 smaller European markets (market exits).

Commerce Services revenue grew 5 percent as reported and 6 percent
adjusted for currency. Small and Medium Business (SMB) Solutions revenue
declined 10 percent as reported and 9 percent when adjusted for the
impact of currency. SMB revenue declined 7 percent when adjusted for
both the impact of currency and market exits. Software Solutions revenue
declined 4 percent as reported and 2 percent adjusted for currency.

GAAP earnings per diluted share (GAAP EPS) were ($0.01), which included
a $0.10 loss related to the market exits.

Adjusted earnings per diluted share (Adjusted EPS) were $0.12.

GAAP and Adjusted EPS include a $0.03 per share impact for a charge
related to a SendPro C tablet replacement program to address an
underlying battery longevity issue.

The Company’s earnings per share results for the first quarter are
summarized in the table below:

     
First Quarter*
        2019     2018
GAAP EPS ($0.01)     $0.32
Discontinued operations       $0.01     ($0.05)
GAAP EPS from continuing operations ($0.01) $0.27
Loss from market exits $0.10
Restructuring charges, net $0.01
Transaction costs       $0.01    
Adjusted EPS $0.12 $0.28
 
*   The sum of the earnings per share may not equal the totals above due
to rounding.
 

GAAP Cash from Operations and Free Cash Flow Results

GAAP cash from operations during the quarter was $70 million and free
cash flow was $32 million. Compared to the prior year, free cash flow
was lower partially due to the timing of reserve account deposits and
the decline in net income offset by the timing of working capital
requirements.

The Company repurchased $39 million worth of its shares and returned $9
million in dividends to its common shareholders.

Adoption of New Lease Accounting Standard

The company adopted the new lease accounting standard, ASC 842,
effective January 1, 2019 using a modified retrospective approach, which
requires the Company to recognize and measure leases at the beginning of
the earliest period presented. Beginning with the quarter ending March
31, 2019, the Company’s financial information will reflect adoption of
the standard with prior periods adjusted accordingly. Certain
reclassified historical financial information on a basis consistent with
the new standard can be found within the Financial Reporting section of
the Company’s Investor Relations web site, or at www.investorrelations.pitneybowes.com/financial-information
This reclassified historical information does not take into account any
other reclassifications that may be made to historical financial
information to conform to the current year presentation.

First Quarter 2019 Business Segment Reporting

The business reporting groups reflect how the Company manages these
groups and the clients served in each market.

The Commerce Services group includes the Global Ecommerce and Presort
Services segments. Global Ecommerce facilitates global cross-border
ecommerce transactions and domestic retail and ecommerce shipping
solutions, including fulfillment and returns.
Presort Services
provides sortation services to qualify large volumes of First Class
Mail, Marketing Mail and Bound and Packet Mail (Standard Flats and Bound
Printed Matter) for postal workshare discounts.

The SMB Solutions group offers mailing and shipping solutions,
financing, services, supplies and other applications for small and
medium businesses to help simplify and save on the sending, tracking and
receiving of letters, parcels and flats.
This group includes the
North America Mailing and International Mailing segments.

Software Solutions provide customer engagement, customer information,
location intelligence software and data.

The results for each segment within the group may not equal the
subtotals for the group due to rounding.

         

Commerce Services

($ millions) First Quarter
Revenue 2019     2018     Y/Y

Reported

Y/Y

Ex Currency

Global Ecommerce $266 $247 8% 9%
Presort Services 135 134 0% 0%
Commerce Services $401 $381 5% 6%
 
EBITDA
Global Ecommerce $2 $7 (72%)
Presort Services 22 33 (34%)
Commerce Services $24 $40 (40%)
 
EBIT
Global Ecommerce ($15) ($8) (89%)
Presort Services 15 27 (44%)
Commerce Services $0 $19 (98%)
 

Global Ecommerce

Revenue increased from prior year driven by growth in domestic parcel
and shipping solutions volumes partially offset by lower cross border
volumes. EBIT and EBITDA margins declined from prior year driven by a
shift in the mix of business to faster growing, lower margin services.
Margins were also impacted by investments in market growth
opportunities, which includes marketing programs and new facilities,
operational excellence initiatives and higher labor costs. Additionally,
margin was impacted by a temporary delay in the approval of one of the
Company’s Negotiated Service Agreements with the USPS, which has
subsequently been approved.

Presort Services

Revenue growth was driven by higher volumes of Standard Class, First
Class and Flats processed offset by lower revenue per piece. EBIT and
EBITDA margins declined from prior year primarily due to higher labor
and transportation costs. A changing client mix towards larger clients
drove the lower revenue per piece, which also contributed to the margin
decline.

                     

SMB Solutions

($ millions) First Quarter
Revenue 2019 2018

Y/Y
Reported

Y/Y
Ex Currency

Y/Y Ex Currency
& Market Exits*

North America Mailing $315 $341

(7%)

(7%)

(7%)

International Mailing 79 98

(20%)

(14%)

(6%)

SMB Solutions $394 $439

(10%)

(9%)

(7%)

 
EBITDA
North America Mailing $117 $136

(14%)

International Mailing 14 20

(28%)

SMB Solutions $131 $156

(16%)

 
 
EBIT
North America Mailing $111

 

$129

(14%)

International Mailing 12

 

16

(26%)

SMB Solutions $122

 

$145

(15%)

 

* Excluding $9 million related to market exits and $6 million
related to the impacts of currency

 

North America Mailing

Revenue declined on lower equipment sales and recurring revenue streams.
EBIT and EBITDA margins were impacted by a charge of $9 million related
to a SendPro C tablet replacement program to address an underlying
battery longevity issue. The tablet upgrade provides the latest
technology and results in an improved client experience.

International Mailing

Excluding the effect from currency and market exits, equipment sales and
recurring revenue streams both contributed to the revenue decline. The
equipment sales decline was driven by weakness in Germany and France
partially offset by growth in the UK and Japan. EBIT and EBITDA margins
decreased versus prior year primarily driven by the lower revenue.

     

Software Solutions

($ millions) First Quarter
2019     2018     Y/Y

Reported

    Y/Y

Ex Currency

Revenue $73 $76 (4%) (2%)
EBITDA $4 $5 (12%)
EBIT $2 $2 (32%)
 

Software Solutions

Revenue declined from prior year driven by lower license revenue
partially offset by higher data updates, SaaS and services revenue.
Revenue also benefited from continued growth in smaller deals. Prior
year license revenue benefited from a $7 million Location Intelligence
deal. EBIT and EBITDA margins decreased from prior year largely driven
by the lower license revenue.

2019 Guidance

The Company is updating its 2019 annual guidance and now expects:

  • Revenue, on a constant currency (CC) basis, to be in the range of 1
    percent to 3 percent growth when compared to 2018.
  • Adjusted EPS from continuing operations to be in the range of $0.90 to
    $1.05.
  • Free cash flow to be in the range of $200 million to $250 million.
    Free cash flow guidance includes the funding of third party financing
    initiatives.

This guidance discusses future results, which are inherently subject to
unforeseen risks and developments. As such, discussions about the
business outlook should be read in the context of an uncertain future,
as well as the risk factors identified in the safe harbor language at
the end of this release and as more fully outlined in the Company’s 2018
Form 10-K Annual Report and other reports filed with the Securities and
Exchange Commission.

This guidance excludes any unusual items that may occur or additional
portfolio or restructuring actions, not specifically identified, as the
Company implements plans to further streamline its operations and reduce
costs. Revenue guidance is provided on a constant currency basis. The
Company cannot reasonably predict the impact that future changes in
currency exchange rates will have on revenue and net income.
Additionally, the Company cannot provide GAAP EPS and GAAP cash from
operations guidance due to the uncertainty of future potential
restructurings, goodwill and asset write-downs, unusual tax settlements
or payments, special contributions to its pension funds, acquisitions,
divestitures and other potential adjustments, which could, individually
or in the aggregate, have a material impact on the Company’s
performance. The Company’s guidance is based on an assumption that the
global economy and foreign exchange markets in 2019 will not change
significantly.

Conference Call and Webcast

Management of Pitney Bowes will discuss the Company’s results in a
broadcast over the Internet today at 8:00 a.m. ET. Instructions for
listening to the earnings results via the Web are available on the
Investor Relations page of the Company’s web site at www.pitneybowes.com.

About Pitney Bowes

Pitney Bowes (NYSE:PBI) is a global technology company providing
commerce solutions that power billions of transactions. Clients around
the world, including 90 percent of the Fortune 500, rely on the accuracy
and precision delivered by Pitney Bowes solutions, analytics, and APIs
in the areas of ecommerce fulfillment, shipping and returns;
cross-border ecommerce; office mailing and shipping; presort
services; location data; customer information and engagement software;
services; and financing. For nearly 100 years Pitney Bowes has been
innovating and delivering technologies that remove the complexity of
getting commerce transactions precisely right. For additional
information visit Pitney Bowes, the Craftsmen of Commerce, at www.pitneybowes.com.

Use of Non-GAAP Measures

The Company’s financial results are reported in accordance with
generally accepted accounting principles (GAAP); however, in its
disclosures the Company uses certain non-GAAP measures, such as adjusted
earnings before interest and taxes (EBIT), adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA), adjusted
earnings per share (EPS), revenue growth on a constant currency basis
and free cash flow.

The Company reports measures such as adjusted EBIT, adjusted EPS and
adjusted net income to exclude the impact of special items like
restructuring charges, tax adjustments, goodwill and asset write-downs,
and costs related to dispositions and acquisitions.
While these
are actual Company expenses, they can mask underlying trends associated
with its business.
Such items are often inconsistent in amount
and frequency and as such, the adjustments allow an investor greater
insight into the current underlying operating trends of the business.

In addition, revenue growth is presented on a constant currency basis
to exclude the impact of changes in foreign currency exchange rates
since the prior period under comparison.
Constant currency
measures are intended to help investors better understand the underlying
operational performance of the business excluding the impacts of shifts
in currency exchange rates over the period.
Constant currency is
calculated by converting our current quarter reported results using the
prior year’s exchange rate for the comparable quarter.
In
addition, this quarter the Company reported the comparison of revenue
excluding the impact of currency and market exits to prior year, which
excludes the impact of changes in foreign currency exchange rates since
the prior period and also excludes the revenues associated with the
recent market exits in several smaller markets.
This comparison
allows an investor insight into the underlying revenue performance of
the business and true operational performance from a comparable basis to
prior period.
A reconciliation of reported revenue to constant
currency revenue, as well as reported revenue to “revenue excluding the
impact of currency and market exits” can be found in the Company’s
attached financial schedules.

The Company reports free cash flow in order to provide investors
insight into the amount of cash that management could have available for
other discretionary uses.
Free cash flow adjusts GAAP cash from
operations for capital expenditures, restructuring payments, unusual tax
settlements, special contributions to the Company’s pension fund and
cash used for other special items.
A reconciliation of GAAP cash
from operations to free cash flow can be found in the Company’s attached
financial schedules.

Segment EBIT is the primary measure of profitability and operational
performance at the segment level.
Segment EBIT is determined by
deducting from segment revenue the related costs and expenses
attributable to the segment.
Segment EBIT excludes interest,
taxes, general corporate expenses not allocated to a particular business
segment, restructuring charges and goodwill and asset impairments, which
are recognized on a consolidated basis. The Company has also included
segment EBITDA as a useful measure for profitability and operational
performance, and an additional way to look at the economics of the
segments, especially in light of some of the Company’s more recent,
larger acquisitions.
Segment EBITDA further excludes depreciation
and amortization expense for the segment. A reconciliation of segment
EBIT and EBITDA to net income can be found in the attached financial
schedules.

Pitney Bowes has provided a quantitative reconciliation to GAAP in
supplemental schedules. This information can be found at the Company’s
web site
www.pb.com/investorrelations

This document contains “forward-looking statements” about the
Company’s expected or potential future business and financial
performance. Forward-looking statements include, but are not limited to,
statements about its future revenue and earnings guidance and other
statements about future events or conditions.
Forward-looking
statements are not guarantees of future performance and involve risks
and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not
limited to: declining physical mail volumes; changes in, or loss of, our
contractual relationships with the U.S. Postal Service or posts in other
major markets; changes in postal regulations; competitive factors,
including pricing pressures, technological developments and the
introduction of new products and services by competitors; the United
Kingdom’s potential exit from the European Union (Brexit); our success
in developing and marketing new products and services, and obtaining
regulatory approvals, if
required; changes in banking regulations
or the loss of our Industrial Bank charter; changes in labor conditions
and transportation costs; macroeconomic factors, including global and
regional business conditions that adversely impact customer demand,
foreign currency exchange rates and interest rates; changes in global
political conditions and international trade policies, including the
imposition or expansion of trade tariffs and other factors as more fully
outlined in the Company’s 2018 Form 10-K Annual Report and other reports
filed with the Securities and Exchange Commission.
Pitney Bowes
assumes no obligation to update any forward-looking statements contained
in this document as a result of new information, events or developments.

Note: Consolidated statements of income; revenue and EBIT by business
segment; and reconciliation of GAAP to non-GAAP measures for the three
months ended March 31, 2019 and 2018, and consolidated balance sheets as
of March 31, 2019 and December 31, 2018 are attached

 
Pitney Bowes Inc.
Consolidated Statements of (Loss) Income
(Unaudited; in thousands, except share and per share amounts)
         
 
Three months ended March 31,
2019 2018
Revenue:

Equipment sales

 

$ 89,787 $ 106,708

Supplies

 

50,953 59,993

Software

 

73,318 76,294

Rentals

 

22,157 24,965

Financing

 

97,043 100,349

Support services

 

128,621 140,650

Business services

 

  406,523     387,624  

Total revenue

 

  868,402     896,583  
 
Costs and expenses:

Cost of equipment sales

 

63,665 62,469

Cost of supplies

 

13,550 16,947

Cost of software

 

23,383 24,129

Cost of rentals

 

9,715 12,748

Financing interest expense

 

11,364 11,064

Cost of support services

 

41,779 46,065

Cost of business services

 

327,046 294,379

Selling, general and administrative

 

300,982 302,810

Research and development

 

21,774 24,495

Restructuring charges

 

3,598 904

Other components of net pension and postretirement cost

 

(638 ) (1,719 )

Interest expense, net

 

27,602 32,014

Other expense

 

  17,710      

Total costs and expenses

 

  861,530     826,305  
 
Income from continuing operations before taxes 6,872 70,278
Provision for income taxes   8,301     18,795  
(Loss) income from continuing operations (1,429 ) 51,483
(Loss) income from discontinued operations, net of tax   (1,230 )   8,487  
Net (loss) income $ (2,659 ) $ 59,970  
 
Basic (loss) earnings per share attributable to common stockholders:

Continuing operations

 

$ (0.01 ) $ 0.28

Discontinued operations

 

  (0.01 )   0.05  

Net (loss) income

 

$ (0.01 ) $ 0.32  
 
Diluted (loss) earnings per share attributable to common
stockholders:

Continuing operations

 

$ (0.01 ) $ 0.27

Discontinued operations

 

  (0.01 )   0.05  

Net (loss) income

 

$ (0.01 ) $ 0.32  
 
Weighted-average shares used in diluted earnings per share   185,970,755     188,174,983  
 
 
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited; in thousands, except share amounts)
         

Assets

March 31,

2019

December 31,

2018

Current assets:

Cash and cash equivalents

 

$ 838,905 $ 867,262

Short-term investments

 

65,405 59,391

Accounts receivable, net

 

412,661 456,138

Short-term finance receivables, net

 

684,436 758,511

Inventories

 

68,876 62,279

Current income taxes

 

21,897 5,947

Other current assets and prepayments

 

134,929 100,625

Assets of discontinued operations

 

      4,854  
Total current assets 2,227,109 2,315,007
 
Property, plant and equipment, net 412,727 410,114
Rental property and equipment, net 41,862 46,228
Long-term finance receivables, net 545,360 536,369
Goodwill 1,754,259 1,766,511
Intangible assets, net 223,005 227,137
Operating lease assets 152,139 156,788
Noncurrent income taxes 61,700 66,326
Other assets   388,104     419,677  
Total assets $ 5,806,265   $ 5,944,157  
 

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable and accrued liabilities

 

$ 1,313,440 $ 1,390,362

Current operating lease liabilities

 

35,219 37,208

Current income taxes

 

5,697 15,284

Current portion of long-term debt

 

207,231 199,535

Advance billings

 

213,171 235,116

Liabilities of discontinued operations

 

      3,276  
Total current liabilities 1,774,758 1,880,781
 
Deferred taxes on income 257,639 254,353
Tax uncertainties and other income tax liabilities 51,950 39,548
Noncurrent operating lease liabilities 124,873 127,237
Long-term debt 3,047,661 3,066,073
Other noncurrent liabilities   463,028     474,323  
Total liabilities   5,719,909     5,842,315  
 
Stockholders’ equity:

Cumulative preferred stock, $50 par value, 4% convertible

 

1 1

Cumulative preference stock, no par value, $2.12 convertible

 

388 396

Common stock, $1 par value

 

323,338 323,338

Additional paid-in-capital

 

109,166 121,475

Retained earnings

 

5,267,615 5,279,682

Accumulated other comprehensive loss

 

(918,072 ) (948,961 )

Treasury stock, at cost

 

  (4,696,080 )   (4,674,089 )
Total stockholders’ equity   86,356     101,842  
Total liabilities and stockholders’ equity $ 5,806,265   $ 5,944,157  
 
 
Pitney Bowes Inc.

Business Segments

(Unaudited; in thousands)

             
 
 
Three months ended March 31,
2019 2018 % Change
REVENUE

Global Ecommerce

 

$ 266,254 $ 246,590 8 %

Presort Services

 

  134,847     134,458   0 %

Commerce Services

 

  401,101     381,048   5 %
 

North America Mailing

 

315,474 340,811 (7 %)

International Mailing

 

  78,509     98,430   (20 %)

Small & Medium Business Solutions

 

  393,983     439,241   (10 %)
 

Software Solutions

 

  73,318     76,294   (4 %)

Total revenue

 

$ 868,402   $ 896,583   (3 %)
 
EBIT

Global Ecommerce

 

$ (14,600 ) $ (7,711 ) (89 %)

Presort Services

 

  15,066     27,026   (44 %)

Commerce Services

 

  466     19,315   (98 %)
 

North America Mailing

 

110,613 128,568 (14 %)

International Mailing

 

  11,790     16,022   (26 %)

Small & Medium Business Solutions

 

  122,403     144,590   (15 %)
 

Software Solutions

 

  1,692     2,492   (32 %)

Segment EBIT (1)

 

$ 124,561   $ 166,397   (25 %)
 
EBITDA

Global Ecommerce

 

$ 1,858 $ 6,719 (72 %)

Presort Services

 

  21,986     33,188   (34 %)

Commerce Services

 

  23,844     39,907   (40 %)
 

North America Mailing

 

117,053 136,067 (14 %)

International Mailing

 

  14,208     19,632   (28 %)

Small & Medium Business Solutions

 

  131,261     155,699   (16 %)
 

Software Solutions

 

  4,172     4,736   (12 %)

Segment EBITDA (2)

 

$ 159,277   $ 200,342   (20 %)
 
 

Reconciliation of segment EBITDA to
net (loss) income

 

Segment EBITDA

 

$ 159,277 $ 200,342

Less: Segment depreciation and amortization

 

  (34,716 )   (33,945 )

Segment EBIT

 

124,561 166,397

Corporate expenses

 

  (55,689 )   (51,082 )

Adjusted EBIT

 

68,872 115,315

Interest, net (3)

 

(38,966 ) (43,078 )

Restructuring charges

 

(3,598 ) (904 )

Loss from market exits

 

(17,710 )

Transaction costs

 

(1,726 ) (1,055 )

Provision for income taxes

 

  (8,301 )   (18,795 )

(Loss) income from continuing operations

 

(1,429 ) 51,483

(Loss) income from discontinued operations, net of tax

 

  (1,230 )   8,487  

Net (loss) income

 

$ (2,659 ) $ 59,970  
 

Contacts

Editorial –
Bill Hughes
Chief Communications Officer
203/351-6785

Financial

Adam David
VP, Investor Relations
203/351-7175

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