Pitney Bowes(PBI) - 2024 Q1 - Quarterly Report

Part I - Financial Information Financial Statements The Q1 2024 financial statements show total revenue of $830.5 million, a net loss of $2.9 million, and a total stockholders' deficit of $392.4 million, with improved operating cash flow Condensed Consolidated Statements of Operations Q1 2024 saw total revenue of $830.5 million, a $9.7 million income before taxes, and a narrowed net loss of $2.9 million, driven by reduced SG&A expenses Q1 2024 vs Q1 2023 Statement of Operations (in thousands) | Financial Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $830,509 | $834,538 | (0.5%) | | Business services | $535,597 | $523,491 | +2.3% | | Support services | $96,333 | $105,284 | (8.5%) | | Equipment sales | $77,403 | $82,610 | (6.3%) | | Total Costs and Expenses | $820,835 | $845,525 | (2.9%) | | Selling, general and administrative | $216,197 | $242,120 | (10.7%) | | Income (loss) before taxes | $9,674 | ($10,987) | Improved | | Net Loss | ($2,885) | ($7,737) | Improved | | Diluted Net Loss Per Share | ($0.02) | ($0.04) | Improved | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $4.10 billion, total liabilities $4.50 billion, and total stockholders' deficit widened to $392.4 million Balance Sheet Summary (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,582,098 | $1,691,917 | | Cash and cash equivalents | $516,092 | $601,053 | | Goodwill | $729,291 | $734,409 | | Total Assets | $4,103,047 | $4,272,185 | | Total Current Liabilities | $1,625,420 | $1,730,409 | | Long-term debt | $2,076,054 | $2,087,101 | | Total Liabilities | $4,495,402 | $4,640,761 | | Total Stockholders' Deficit | ($392,355) | ($368,576) | Condensed Consolidated Statements of Cash Flows Q1 2024 saw improved net cash used in operations at $12.5 million, with total cash and equivalents decreasing by $85.0 million to $516.1 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash from operating activities | ($12,525) | ($39,714) | | Net cash from investing activities | ($11,841) | ($41,413) | | Net cash from financing activities | ($58,433) | ($79,442) | | Change in cash and cash equivalents | ($84,961) | ($158,220) | | Cash and cash equivalents at end of period | $516,092 | $511,761 | Notes to Condensed Consolidated Financial Statements Notes detail segment reporting changes, a $60-$70 million restructuring plan with $62 million incurred, $2.13 billion total debt, and a high 129.8% effective tax rate - Effective January 1, 2024, the company moved its digital delivery services offering from the Global Ecommerce segment to the SendTech Solutions segment, with prior period financials recast to reflect this change[40] - The 2023 worldwide restructuring plan is expected to cost $60-$70 million and be substantially complete by mid-2024, with total charges reaching $62 million as of Q1 2024, including $4.3 million charged in the current quarter[100][101] - Total debt as of March 31, 2024, was $2.13 billion, and the company was in compliance with its financial covenants, including a maximum leverage ratio and a minimum interest coverage ratio[104] - The effective tax rate for Q1 2024 was an unusually high 129.8%, compared to 29.6% in Q1 2023, attributed to minimal consolidated pre-tax income combined with unfavorable tax adjustments related to U.S. taxation of foreign operations[109] Management's Discussion and Analysis (MD&A) Management forecasts flat to low single-digit revenue decline for 2024, with $75-$85 million in restructuring savings, and Q1 2024 revenue at $830.5 million with improved pre-tax income Outlook The 2024 outlook projects flat to low single-digit revenue decline, stable EBIT margins, segment-specific trends, and restructuring savings offset by higher costs - 2024 Outlook: - Consolidated Revenue: Flat to a low single-digit decline - EBIT Margins: Relatively flat compared to 2023 - SendTech Solutions: Revenue and profit declines expected - Presort Services: Revenue, margin, and profit improvement expected - Global Ecommerce: Revenue growth in domestic parcels, with margin and profit improvements[125] - The company expects annualized cost savings from its restructuring program to exceed the $75-$85 million target by the end of 2024, though these savings are expected to be significantly offset by higher interest, tax, and restored variable compensation costs[125] Overview of Consolidated Results Q1 2024 total revenue decreased slightly to $830.5 million, while total costs fell by $25 million, primarily due to reduced SG&A, improving net loss - Total costs and expenses decreased by $25 million year-over-year, mainly due to a $26 million reduction in SG&A from lower salary expenses, foreign currency gains, and other cost-saving initiatives[128] - Net interest expense increased by $7 million compared to the prior year, primarily due to higher interest rates[128] Segment Results Q1 2024 segment results show Global Ecommerce EBIT loss widening, Presort Services EBIT up 50% on 7% revenue growth, and SendTech Solutions EBIT up 6% Segment Performance - Q1 2024 vs Q1 2023 (in thousands) | Segment | Revenue Q1 2024 | Revenue Q1 2023 | Adjusted EBIT Q1 2024 | Adjusted EBIT Q1 2023 | | :--- | :--- | :--- | :--- | :--- | | Global Ecommerce | $333,265 | $340,641 | ($35,427) | ($33,172) | | Presort Services | $169,807 | $158,902 | $40,329 | $26,905 | | SendTech Solutions | $327,437 | $334,995 | $101,278 | $95,637 | | Total Adjusted Segment EBIT | | | $106,180 | $89,370 | - Global Ecommerce: Revenue fell $7 million due to a $30 million decline in cross-border services, partially offset by a $23 million increase in domestic parcel delivery revenue, with gross margin decreasing significantly from 4.3% to 1.0%[132][133] - Presort Services: Revenue grew $11 million despite a 2% volume decrease, driven by pricing actions, and gross margin expanded from 29.2% to 36.8% due to revenue growth and automation investments[135][136] - SendTech Solutions: Revenue declined $8 million, as lower support services and equipment sales were partially offset by a $9 million increase in business services revenue (shipping subscriptions and digital delivery), with gross margin percentage improving from 65.0% to 66.6%[138] Liquidity and Capital Resources The company maintains $538 million in liquidity and a $500 million credit facility, is debt covenant compliant, and improved operating cash flow despite continued net use - The company maintains liquidity with $538 million in cash and short-term investments and an undrawn $500 million secured revolving credit facility[142][144] - The company is in compliance with its debt covenants, but the maximum leverage ratio covenant becomes more restrictive on June 30, 2024 (decreasing from 4.25x to 4.0x), and the minimum interest coverage ratio becomes more restrictive on March 31, 2025 (increasing from 1.75x to 2.0x)[143] - Quarterly dividends of $0.05 per share, totaling $9 million, were paid, with future dividend payments capped by the terms of the March 2028 note purchase agreement[148] Quantitative and Qualitative Disclosures about Market Risk No material changes were reported regarding market risk disclosures from the 2023 Annual Report - There were no material changes to the disclosures made in the company's 2023 Annual Report regarding market risk[150] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The Interim CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[152][153] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, such controls[152] Part II - Other Information Legal Proceedings The company is involved in various litigations, with management expecting no material adverse effect on the business - The company states that the final outcome of outstanding legal matters is not expected to have a material adverse effect on its business (See Note 13)[110][155] Risk Factors No material changes to risk factors from 2023 Annual Report, but a new risk highlights uncertainties from recent senior management and Board changes - A new risk factor was added concerning recent changes in senior management and the Board of Directors, which could create uncertainty and negatively impact business operations, employee retention, and access to capital[156] Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases occurred in Q1 2024, with a remaining authorization of $3 million - No common stock was repurchased in Q1 2024, and the company has a remaining authorization to purchase up to $3 million of its common stock[157] Exhibits Filed exhibits include CEO/CFO certifications, a Cooperation Agreement with Hestia Capital, and various XBRL data files - Exhibits filed with the 10-Q include CEO/CFO certifications, a Cooperation Agreement with Hestia Capital Partners, and various XBRL data files[159]