Pitney Bowes Announces Third Quarter 2017 Financial Results
Wednesday, November 01, 2017
Press release from the issuing company
STAMFORD, Conn. - Pitney Bowes Inc. (NYSE:PBI), a global technology company providing innovative technology solutions to power commerce, today reported financial results for the third quarter 2017.
Quarterly Financial Results:
Transaction Completed and Debt Management:
“Our third quarter revenue performance was largely in-line with our expectations; however our bottom line results fell short as we continued to realign our businesses to higher growth areas and invest in new business opportunities, products and solutions,” said Marc B. Lautenbach, President and CEO, Pitney Bowes. “During the third quarter, we validated that the next chapter of revenue growth will come from shipping, parcels and address verification, all of which transcends our entire business. And while I was disappointed in our financial results in the third quarter, I am encouraged about our path forward as we continue to transform our company.”
Lautenbach continued: “We have made substantial progress against our strategic objectives over the past four years and remain committed to improving margins and driving efficiencies throughout the business by deploying a $200 million spend reduction program. The recent acquisition of Newgistics repositions the portfolio towards growth. With the Board of Directors and management team continuing to focus on enhancing shareholder value, we believe now is the time to explore a broad range of strategic alternatives that may have the potential to further unlock shareholder value.”
Third Quarter 2017 Results
Revenue totaled $843 million for the quarter, which was flat versus prior year.
Digital Commerce Solutions revenue grew 19 percent and Enterprise Business Solutions revenue increased 1 percent. Small and Medium Business (SMB) Solutions revenue declined 7 percent as reported and 8 percent at constant currency.
GAAP earnings per diluted share (GAAP EPS) were $0.31, which included $0.02 for transaction costs related to the Newgistics acquisition as well as $0.01 for restructuring charges. Adjusted earnings per diluted share (Adjusted EPS) were $0.33.
The Company’s earnings per share results for the third quarter are summarized in the table below:
GAAP Cash from Operations and Free Cash Flow Results
GAAP cash from operations during the quarter was $146 million and free cash flow was $109 million. Compared to the prior year, free cash flow decreased by $11 million primarily due to lower net income offset by favorable working capital, specifically within accounts payable and accrued liabilities. During the quarter, the Company used cash to pay down $385 million of debt, return $35 million in dividends to shareholders and pay $11 million for restructuring payments.
During the quarter, the Company issued $400 million 5 year fixed rate notes, $300 million 3 year fixed rate notes and borrowed $350 million in term loans. The Company used these proceeds together with cash on-hand to fund the Newgistics acquisition and redeem $385 million notes due September 2017. In October 2017, the Company also redeemed the $350 million notes that would have come due in May 2018.
Third Quarter 2017 Business Segment Reporting
The Company’s business segment reporting reflects the clients served in each market and the way it manages these segments. The reporting segment groups are the SMB Solutions group; the Enterprise Business Solutions group; and the Digital Commerce Solutions group. The segment results for the quarter and prior year may not equal the subtotals for each segment group due to rounding.
The SMB Solutions group offers mailing and office shipping solutions, financing, services, and supplies 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.
The Enterprise Business Solutions group includes the global Production Mail and Presort Services segments. Production Mail provides mailing and printing equipment and services for large enterprise clients to process mail. Presort Services provides sortation services to qualify large mail and parcel volumes for postal worksharing discounts.
The Digital Commerce Solutions group includes the Software Solutions and Global Ecommerce segments. Software Solutions provide customer engagement, customer information and location intelligence software. Global Ecommerce facilitates global cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions.
North America Mailing
The Company successfully launched the new SendPro C-Series product line in early September, and as such recognized less than a month of equipment sales from this new product during the quarter. Equipment sales declined largely due to lower sales in the top of the line products, where prior year included a large deal, and this year, a few deals did not close in the quarter. In addition, North America Mailing realized a lower level of client lease extensions, which impacted equipment sales. Recurring revenue streams declined, largely around lower rentals and financing revenue. EBIT margin was lower than prior year largely due to the decline and mix of equipment sales along with the decline in recurring streams.
Revenue declined largely due to lower recurring revenue streams. Equipment sales were relatively flat driven by growth in France and the UK, and offset primarily by weakness in Italy and Japan. EBIT margin decreased slightly from prior year.
Equipment sales declined versus prior year largely due to lower inserter equipment placements, which were partially offset by higher print equipment sales. Support services revenue was slightly favorable, but offset by a decline in Supplies revenue. EBIT margin declined from prior year primarily as a result of the decline in revenue and the mix of equipment sales.
Revenue growth was driven by improved revenue per piece along with higher Standard Class mail and Parcel volumes processed, but partly offset by lower First Class mail volumes. EBIT margin declined slightly from prior year driven by increased mail processing costs and investments in the Company’s new parcel sortation capabilities.
Revenue growth was driven by higher license revenue, primarily in Location Intelligence and Customer Information Management. License revenue also benefited from a large Location Intelligence deal that closed in the quarter. The Company is continuing to see progress in developing the indirect channel which showed solid growth. EBIT margin increased from prior year largely driven by the higher licensing revenue.
The sustained double-digit revenue growth was driven by strong performance in all of the cross-border geographies, as well as growth in domestic shipping. The domestic shipping increase is driven by end-to-end carrier services enabled by the Company’s shipping API’s. The EBIT loss was driven primarily by investments in market growth opportunities as well as the resolution of a vendor contractual dispute and a specific marketing program with a cross-border client. The Company continues to invest in its cross-border solutions and domestic shipping capabilities.
The Company is increasing its annual guidance range for revenue and lowering its annual guidance range for adjusted EPS and free cash flow.
The Company’s guidance for the full year 2017 is now expected to be:
The Company is lowering its annual tax range on adjusted earnings. The Company now expects to be in the range of 28 percent to 30 percent as compared to the previous range of 31 percent to 33 percent.
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 2016 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 and 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 2017 will not change significantly.
Review of Strategic Alternatives
The Pitney Bowes Board of Directors, together with management, is conducting a process to explore and evaluate strategic alternatives to further enhance shareholder value. The Board has not set a timetable for the process nor has it made any decisions related to any strategic alternatives at this time. There can be no assurance that the exploration of strategic alternatives will result in any particular outcome. The Company does not intend to provide updates unless or until it determines that further disclosure is appropriate or necessary.
The company has retained Lazard as its financial advisor and Cravath, Swaine & Moore LLP as its legal advisor to assist in the process.
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