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Pitney Bowes Announces Second Quarter 2017 Financial Results

STAMFORD, Conn. — (BUSINESS WIRE) — August 1, 2017 — Pitney Bowes Inc. (NYSE: PBI), a global technology company providing innovative technology solutions to power commerce, today reported financial results for the second quarter 2017.

Quarterly Financial Results:

"We continued to make progress on our strategic agenda in the second quarter, investing in our brand, systems, products, and capabilities,” said Marc B. Lautenbach, President and CEO, Pitney Bowes. “While our financial performance improved in certain areas, it was short of the capabilities and the potential we have created. That said, our financial performance was indicative of a company going through a transformation. Today, we are well-positioned to take advantage of the investments we have made to create the conditions for long-term success.”

Second Quarter 2017 Results

Revenue totaled $821 million for the quarter, which was a decline of two percent as reported and flat at constant currency versus prior year.

Digital Commerce Solutions revenue grew 4 percent as reported and 7 percent at constant currency. Small and Medium Business (SMB) Solutions revenue declined 3 percent as reported and 2 percent at constant currency. Enterprise Business Solutions revenue declined 4 percent as reported and 3 percent at constant currency.

GAAP earnings per diluted share (GAAP EPS) were $0.26, which included $0.09 for restructuring and asset impairment charges as well as a gain of $0.03 from the gain on sale of technology for a mining industry application, used mostly in Australia, to a channel partner. Adjusted earnings per diluted share (Adjusted EPS) were $0.33. GAAP and Adjusted EPS included a benefit of $0.05 from the resolution of tax examinations.

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

    Second Quarter*

2017

 

2016

GAAP EPS       $0.26       $0.28  
Restructuring charges and asset impairments, net $0.09 $0.09
Gain on sale of technology ($0.03 ) -
Discontinued operations           -             $0.01    
Adjusted EPS $0.33 $0.39
* 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 $31 million while free cash flow was $18 million. In comparison to the prior year, free cash flow decreased primarily due to the timing of accounts payable and accrued liability payments, as well as the lower net income. During the quarter, the Company used cash to pay down $150 million of debt, pay $35 million in dividends to shareholders and $7 million for restructuring payments.

Debt Management

During the quarter, the Company issued $400 million of 3.875 percent 5-year fixed rate notes. The Company used a portion of these proceeds to repay a $150 million term loan in the second quarter. The Company intends to use the remaining proceeds, together with cash on-hand and other financing options, to repay the $385 million notes that come due in September.

Second 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.

SMB Solutions Group

 
($ millions) Second Quarter
 

Y/Y

 

Y/Y

Revenue

2017

 

2016

Reported

Ex Currency

North America Mailing     $341       $343   (1 %) -
International Mailing

95

108

(11

%)

(7

%)

SMB Solutions $436 $451 (3 %) (2 %)
 
EBIT
North America Mailing $121 $147 (18 %)
International Mailing

14

12

12

%

SMB Solutions $135 $159 (15 %)
 

North America Mailing

Equipment sales grew again this quarter driven by Mail Finishing, which includes the initial SendPro products launched last year. Field sales and inside sales, along with the web channel experienced strong growth in the quarter. This growth in equipment sales was offset by a decline in the recurring revenue streams, largely around lower service, financing and rental revenue. EBIT margin was lower than prior year largely due to the decline in recurring streams.

International Mailing

Equipment sales and recurring revenue streams both contributed to the revenue decline. The equipment sales decline was driven by weakness in the UK, France and Italy which was partially offset by growth in Japan. EBIT margin increased versus prior year due to improved equipment sales margins and lower expenses.

Enterprise Business Solutions Group

 
($ millions) Second Quarter
 

Y/Y

 

Y/Y

Revenue

2017

 

2016

Reported

Ex Currency

Production Mail     $86       $96   (11 %) (10 %)
Presort Services

118

116

2

%

2

%

Enterprise Business $204 $212 (4 %) (3 %)
 
EBIT
Production Mail $ 8 $13 (41 %)
Presort Services

19

21

(9

%)

Enterprise Business $27 $34 (21 %)
 

Production Mail

Equipment sales declined versus prior year largely due to lower sorter equipment placements, partially offset by higher inserter equipment sales. Support services revenue declined as a result of the shift last year of some in-house mail production clients moving to third party service bureaus who tend to self-service. EBIT margin declined from prior year primarily as a result of the decline in revenue in addition to the mix of inserter equipment sales.

Presort Services

The revenue growth was driven by higher Standard Class volumes processed along with improved revenue per piece related to Flats. EBIT margin declined from prior year driven by increased mail processing costs and the resolution of certain client contractual disputes.

Digital Commerce Solutions Group

 
($ millions) Second Quarter
 

Y/Y

 

Y/Y

Revenue

2017

 

2016

Reported

Ex Currency

Software Solutions     $86     $90 (4 %) (2 %)
Global Ecommerce

95

83

14

%

16

%

Digital Commerce $181 $173 4 % 7 %
 
EBIT
Software Solutions $8 $10 (26 %)
Global Ecommerce

(4

)

(1

)

>(100%)

Digital Commerce $4 $9 (63 %)
 

Software Solutions

The revenue decline was driven by lower license revenue. Revenue benefited from growth in Location Intelligence license revenue but was offset by lower Customer Information Management revenue. The Company is continuing to see progress in developing the indirect channel. EBIT margin declined from prior year largely driven by the lower licensing revenue.

Global Ecommerce

The sustained double-digit revenue growth was largely driven by strong volumes in the UK outbound marketplace as well as growth in domestic shipping. The EBIT loss was driven primarily by investments in market growth opportunities. The Company continues to invest in its cross-border solutions and domestic shipping capabilities.

2017 Guidance

Based on year-to-date results, the Company is narrowing its annual guidance range for revenue, adjusted EPS and free cash flow.

The Company’s guidance for the full year 2017 is now expected to be:

The Company is also narrowing its annual tax range on adjusted earnings. The Company now expects to be in the range of 31 percent to 33 percent as compared to the original range of 31 percent to 35 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.

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 powering billions of transactions – physical and digital – in the connected and borderless world of commerce. Clients around the world, including 90 percent of the Fortune 500, rely on products, solutions and services from Pitney Bowes in the areas of customer information management, location intelligence, customer engagement, shipping, mailing, and global ecommerce. And with the innovative Pitney Bowes Commerce Cloud, clients can access the broad range of Pitney Bowes solutions, analytics, and APIs to drive commerce. 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 our disclosures we use certain non-GAAP measures, such as adjusted earnings before interest and taxes, Adjusted EPS, revenue growth on a constant currency basis, free cash flow and Segment EBIT.

The Company reports measures such as adjusted earnings before interest and taxes (EBIT) and Adjusted EPS and adjusted income from continuing operations to exclude the impact of special items like restructuring charges, tax adjustments, goodwill and asset write-downs, and costs related to dispositions. 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. 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 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, 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.

In addition, Management uses segment EBIT to measure profitability and performance at the segment level. Segment EBIT is determined by deducting from 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. A reconciliation of Segment EBIT to the Company’s total Net Income can be found in the Company’s attached financial schedules.

Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also 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; competitive factors, including pricing pressures, technological developments, the introduction of new products and services by competitors, and fuel prices; our success in developing new products and services, including digital-based products and services, obtaining regulatory approvals, if needed, of new products if required, and the market’s acceptance of these new products and services; our ability to fully utilize the new enterprise business platform in the United States and successfully implement it internationally without significant disruptions to existing operations; a breach of security, including a cyberattack or other comparable event; the continued availability and security of key information systems and the cost to comply with information security requirements and privacy laws; the success of our investment in rebranding the Company; changes in postal or banking regulations; the risk of losing some of the Company’s larger clients in the Global Ecommerce segment; macroeconomic factors, including global and regional business conditions that adversely impact customer demand, foreign currency exchange rates, interest rates and labor conditions; capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs; management of outsourcing arrangements; integrating newly acquired businesses, including operations and product and service offerings; management of customer credit risk; and other factors beyond its control as more fully outlined in the Company's 2016 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 and six months ended June 30, 2017 and 2016, and consolidated balance sheets as of June 30, 2017 and December 31, 2016 are attached.

Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited; in thousands, except share and per share amounts)
 
  Three months ended June 30,   Six months ended June 30,

2017

  2016

2017

  2016
Revenue:
Equipment sales $ 158,625 $ 152,641 $ 321,599 $ 312,002
Supplies 63,228 65,274 130,046 137,325
Software 86,664 90,615 164,531 168,673
Rentals 95,999 102,869 195,869 206,959
Financing 83,653 91,609 169,398 189,032
Support services 115,299 131,418 234,146 259,678
Business services   217,903     201,460     442,422     406,806  
 
Total revenue   821,371     835,886     1,658,011     1,680,475  
 
Costs and expenses:
Cost of equipment sales 77,189 78,055 146,751 149,594
Cost of supplies 19,909 19,624 41,380 40,314
Cost of software 24,795 26,983 50,103 53,798
Cost of rentals 21,576 18,415 42,238 38,910
Financing interest expense 12,843 13,495 25,817 28,410
Cost of support services 73,190 74,742 146,544 149,991
Cost of business services 153,063 140,830 303,906 276,368
Selling, general and administrative 297,468 289,116 603,771 615,998
Research and development 32,958 34,513 64,814 61,081
Restructuring charges and asset impairments, net 26,927 26,076 29,009 33,009
Interest expense, net   27,600     20,799     53,276     40,100  
 
Total costs and expenses   767,518     742,648     1,507,609     1,487,573  
 
Income before income taxes 53,853 93,238 150,402 192,902
Provision for income taxes   4,952     33,394     36,368     70,418  
 
Income from continuing operations 48,901 59,844 114,034 122,484
Loss from discontinued operations, net of tax   -     (1,660 )   -     (1,660 )
 
Net income 48,901 58,184 114,034 120,824
Less: Preferred stock dividends attributable to noncontrolling interests   -     4,594     -     9,188  
 
Net income - Pitney Bowes Inc. $ 48,901   $ 53,590   $ 114,034   $ 111,636  
 
Amounts attributable to common stockholders:
Net income from continuing operations $ 48,901 $ 55,250 $ 114,034 $ 113,296
Loss from discontinued operations, net of tax   -     (1,660 )   -     (1,660 )
 
Net income - Pitney Bowes Inc. $ 48,901   $ 53,590   $ 114,034   $ 111,636  
 
Basic earnings per share attributable to common stockholders (1):
Continuing operations $ 0.26 $ 0.29 $ 0.61 $ 0.60
Discontinued operations   -     (0.01 )   -     (0.01 )
 
Net income - Pitney Bowes Inc. $ 0.26   $ 0.29   $ 0.61   $ 0.59  
 
Diluted earnings per share attributable to common stockholders (1):
Continuing operations $ 0.26 $ 0.29 $ 0.61 $ 0.59
Discontinued operations   -     (0.01 )   -     (0.01 )
 
Net income - Pitney Bowes Inc. $ 0.26   $ 0.28   $ 0.61   $ 0.59  
 
Weighted-average shares used in diluted earnings per share   187,377,059     188,362,278     186,944,571     190,806,261  
(1)   The sum of the earnings per share amounts may not equal the totals due to rounding.
 

Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited; in thousands, except share amounts)
 
 

June 30,

 

December 31,

Assets

2017

2016

Current assets:
Cash and cash equivalents $ 840,564 $ 764,522
Short-term investments 164,716 38,448
Accounts receivable, net 389,262 455,527
Short-term finance receivables, net 857,764 893,950
Inventories 121,478 92,726
Current income taxes 28,732 11,373
Other current assets and prepayments   89,061     68,637  
 
Total current assets 2,491,577 2,325,183
 
Property, plant and equipment, net 327,140 314,603
Rental property and equipment, net 182,997 188,054
Long-term finance receivables, net 662,384 673,207
Goodwill 1,604,320 1,571,335
Intangible assets, net 152,019 165,172
Noncurrent income taxes 75,105 74,806
Other assets   541,806     524,773  
 
Total assets $ 6,037,348   $ 5,837,133  
 

Liabilities and stockholders' equity (deficit)

Current liabilities:
Accounts payable and accrued liabilities $ 1,339,287 $ 1,378,822
Current income taxes 17,349 34,434
Current portion of long-term debt 985,291 614,485
Advance billings   291,180     299,878  
 
Total current liabilities 2,633,107 2,327,619
 
Deferred taxes on income 214,287 204,289
Tax uncertainties and other income tax liabilities 51,112 61,276
Long-term debt 2,543,476 2,750,405
Other noncurrent liabilities   565,993     597,204  
 
Total liabilities   6,007,975     5,940,793  
 
Stockholders' equity (deficit):
Cumulative preferred stock, $50 par value, 4% convertible 1 1
Cumulative preference stock, no par value, $2.12 convertible 463 483
Common stock, $1 par value 323,338 323,338
Additional paid-in-capital 131,691 148,125
Retained earnings 5,152,241 5,107,734
Accumulated other comprehensive loss (859,315 ) (940,133 )
Treasury stock, at cost   (4,719,046 )   (4,743,208 )
 
Total Pitney Bowes Inc. stockholders' equity (deficit)   29,373     (103,660 )
 
Total liabilities and stockholders' equity (deficit) $ 6,037,348   $ 5,837,133  
 

Pitney Bowes Inc.

Business Segments - Revenue and EBIT

(Unaudited; in thousands)

 
  Three months ended June 30,   Six months ended June 30,
2017  

2016 (1)

  % Change   2017  

2016 (1)

  % Change

Revenue

 
 
North America Mailing $ 341,096 $

343,218

 

(1 %) $ 696,674 $

714,671

 

(3 %)
International Mailing   95,322     107,581   (11 %)   188,380     212,567   (11 %)
Small & Medium Business Solutions   436,418     450,799   (3 %)   885,054     927,238   (5 %)
 
Production Mail 85,570 95,874 (11 %) 174,525 183,299 (5 %)
Presort Services   118,452     115,765   2 %   251,129     243,161   3 %
Enterprise Business Solutions   204,022     211,639   (4 %)   425,654     426,460   (0 %)
 
Software Solutions 86,425 90,464 (4 %) 164,645 168,386 (2 %)
Global Ecommerce   94,506     82,984   14 %   182,658     158,391   15 %
Digital Commerce Solutions   180,931     173,448   4 %   347,303     326,777   6 %
 
Total revenue $ 821,371   $ 835,886   (2 %) $ 1,658,011   $ 1,680,475   (1 %)
 

EBIT

 
North America Mailing $ 120,877 $ 146,897 (18 %) $ 261,885 $ 307,728 (15 %)
International Mailing   13,969     12,468   12 %   27,238     23,644   15 %
Small & Medium Business Solutions   134,846     159,365   (15 %)   289,123     331,372   (13 %)
 
Production Mail 7,631 12,914 (41 %) 16,595 19,738 (16 %)
Presort Services   19,270     21,214   (9 %)   49,987     50,124   (0 %)
Enterprise Business Solutions   26,901     34,128   (21 %)   66,582     69,862   (5 %)
 
Software Solutions 7,555 10,151 (26 %) 10,304 7,579 36 %
Global Ecommerce   (4,030 )   (683 ) >(100%)   (8,300 )   (4,152 ) (100 %)
Digital Commerce Solutions   3,525     9,468   (63 %)   2,004     3,427   (42 %)
 
Segment EBIT (2) $ 165,272   $ 202,961   (19 %) $ 357,709   $ 404,661   (12 %)
 
 
Reconciliation of segment EBIT to net income
 
Segment EBIT $ 165,272 $ 202,961 $ 357,709 $ 404,661
Corporate expenses   (50,134 )   (48,777 )   (105,290 )   (106,544 )
Adjusted EBIT 115,138 154,184 252,419 298,117
Interest, net (3) (40,443 ) (34,294 ) (79,093 ) (68,510 )
Restructuring charges and asset impairments, net (26,927 ) (26,076 ) (29,009 ) (33,009 )
Gain on sale of technology 6,085 - 6,085 -
Acquisition/disposition related expenses   -     (576 )   -     (3,696 )
Income before income taxes 53,853 93,238 150,402 192,902
Provision for income taxes   (4,952 )   (33,394 )   (36,368 )   (70,418 )
Income from continuing operations 48,901 59,844 114,034 122,484
Loss from discontinued operations, net of tax   -     (1,660 )   -     (1,660 )
Net income $ 48,901   $ 58,184   $ 114,034   $ 120,824  
(1)   Prior period amounts have been recast to conform to the current year presentation.
(2) Segment EBIT excludes interest, taxes, general corporate expenses, restructuring charges, and other items that are not allocated to a particular business segment.
(3) Includes financing interest expense and interest expense, net.
 

Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited; in thousands, except per share amounts)
 
  Three months ended June 30,     Six months ended June 30,  
2017   2016 Y/Y Chg. 2017   2016 Y/Y Chg.
 
Reconciliation of reported revenue to revenue excluding currency
Revenue, as reported $ 821,371 $ 835,886 (2 %) $ 1,658,011 $ 1,680,475 (1 %)
Unfavorable impact on revenue due to currency   10,621     NM     20,166     NM  
Revenue, excluding currency $ 831,992   $ 835,886   (0 %) $ 1,678,177   $ 1,680,475   (0 %)
 
 
Reconciliation of reported net income to adjusted earnings
Net income $ 48,901 $ 58,184 $ 114,034 $ 120,824
Loss from discontinued operations, net of tax - 1,660 - 1,660
Restructuring charges and asset impairments, net 17,751 16,931 19,104 21,559
Gain on sale of technology (5,605 ) - (5,605 ) -
Acquisition/disposition related expenses   -     364     -     2,539  
Net income, as adjusted 61,047 77,139 127,533 146,582
Provision for income taxes, as adjusted   13,648     42,751     45,793     83,025  
Income from continuing operations before income taxes, as adjusted 74,695 119,890 173,326 229,607
Interest, net   40,443     34,294     79,093     68,510  
EBIT, as adjusted 115,138 154,184 252,419 298,117
Depreciation and amortization   43,865     45,238     88,160     89,538  
EBITDA, as adjusted $ 159,003   $ 199,422   $ 340,579   $ 387,655  
 
 
Reconciliation of reported diluted earnings per share to adjusted diluted earnings per share
Diluted earnings per share $ 0.26 $ 0.28 $ 0.61 $ 0.59
Loss from discontinued operations, net of tax - 0.01 - 0.01
Restructuring charges and asset impairments, net 0.09 0.09 0.10 0.11
Gain on sale of technology (0.03 ) - (0.03 ) -
Acquisition/disposition related expenses   -     -     -     0.01  
Diluted earnings per share, as adjusted $ 0.33   $ 0.39   $ 0.68   $ 0.72  
 
Note: The sum of the earnings per share amounts may not equal the totals due to rounding.
 
 
Reconciliation of reported net cash from operating activities to free cash flow
Net cash provided by operating activities (1) $ 30,641 $ 95,091 $ 184,647 $ 158,584
Capital expenditures (40,701 ) (30,689 ) (76,621 ) (71,359 )
Restructuring payments 6,600 12,210 19,016 33,866
Pension contribution - - - 36,731
Reserve account deposits 21,860 9,110 2,514 (7,143 )
Other   -     146     -     335  
Free cash flow $ 18,400   $ 85,868   $ 129,556   $ 151,014  

(1)

 

Net cash provided by operating activities for the three and six months ended June 30, 2016 has been revised for a new accounting standard adopted January 1, 2017.


Contact:

Pitney Bowes Inc.
Editorial
Bill Hughes, 203-351-6785
Chief Communications Officer
or
Financial
Adam David, 203-351-7175
VP, Investor Relations