PBI 10-Q Quarterly Report March 31, 2023

PITNEY BOWES INC /DE/

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pbi-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 1-03579

PITNEY BOWES INC .

(Exact name of registrant as specified in its charter)

State of incorporation:

Delaware

I.R.S. Employer Identification No.

06-0495050

Address of Principal Executive Offices:

3001 Summer Street,

Stamford,

Connecticut

06926

Telephone Number:

(203)

356-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $1 par value per share

PBI

New York Stock Exchange

6.7% Notes due 2043

PBI.PRB

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of April 28, 2023, 175,625,660 shares of common stock, par value $1 per share, of the registrant were outstanding.

PITNEY BOWES INC.

INDEX


		Page Number

Part I - Financial Information:

Item 1:	Financial Statements

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022	3

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022	4

	Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3:	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4:	Controls and Procedures	37


Part II - Other Information:

Item 1:	Legal Proceedings	38

Item 1A:	Risk Factors	38

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 6:	Exhibits	39


Signatures		40

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)


	Three Months Ended March 31,
		2023		2022
Revenue:
Business services		$	523,491	$	597,384
Support services		105,284		110,352
Financing		67,049		72,029
Equipment sales		82,610		89,296
Supplies		38,835		41,061
Rentals		17,269		16,820
Total revenue		834,538		926,942
Costs and expenses:
Cost of business services		446,317		503,215
Cost of support services		36,840		37,134
Financing interest expense		14,536		11,602
Cost of equipment sales		57,171		63,771
Cost of supplies		11,225		11,517
Cost of rentals		5,428		5,309
Selling, general and administrative		242,120		242,785
Research and development		10,493		11,334
Restructuring charges		3,599		4,184

Interest expense, net		22,342		22,124
Other components of net pension and postretirement (income) cost		( 1,710 )		844
Other income, net		( 2,836 )		( 11,901 )
Total costs and expenses		845,525		901,918
(Loss) income before taxes		( 10,987 )		25,024
(Benefit) provision for income taxes		( 3,250 )		4,203


Net (loss) income		$	( 7,737 )	$	20,821



Basic net (loss) earnings per share		$	( 0.04 )	$	0.12



Diluted net (loss) earnings per share		$	( 0.04 )	$	0.12

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands)


	Three Months Ended March 31,
		2023		2022
Net (loss) income		$	( 7,737 )	$	20,821
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $ 174 and $( 167 ), respectively		10,887		( 17,565 )
Net unrealized (loss) gain on cash flow hedges, net of tax of $( 687 ) and $ 1,768 , respectively		( 2,062 )		5,333
Net unrealized gain (loss) on investment securities, net of tax of $ 1,028 and $( 5,146 ), respectively		3,272		( 15,522 )

Amortization of pension and postretirement costs, net of tax of $ 1,142 and $ 2,461 , respectively		3,489		7,736
Other comprehensive income (loss), net of tax		15,586		( 20,018 )
Comprehensive income		$	7,849	$	803

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except per share amount)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	511,761	$	669,981
Short-term investments (includes $ 2,388 and $ 1,882 , respectively, reported at fair value)	15,614		11,172
Accounts and other receivables (net of allowance of $ 6,083 and $ 5,344 , respectively)	271,496		343,557
Short-term finance receivables (net of allowance of $ 11,683 and $ 11,395 , respectively)	551,348		564,972
Inventories	94,016		83,720
Current income taxes	19,318		8,790
Other current assets and prepayments	125,746		115,824


Total current assets	1,589,299		1,798,016
Property, plant and equipment, net	411,793		420,672
Rental property and equipment, net	26,955		27,487
Long-term finance receivables (net of allowance of $ 10,221 and $ 10,555 respectively)	636,518		627,124
Goodwill	1,069,660		1,066,951
Intangible assets, net	74,028		77,944
Operating lease assets	287,703		296,129
Noncurrent income taxes	44,595		46,613

Other assets (includes $ 231,732 and $ 229,936 , respectively, reported at fair value)	390,298		380,419
Total assets	$	4,530,849	$	4,741,355

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	800,050	$	907,083
Customer deposits at Pitney Bowes Bank	594,546		628,072
Current operating lease liabilities	53,848		52,576
Current portion of long-term debt	262,439		32,764
Advance billings	86,802		105,207
Current income taxes	981		2,101


Total current liabilities	1,798,666		1,727,803
Long-term debt	1,910,529		2,172,502
Deferred taxes on income	268,193		263,131
Tax uncertainties and other income tax liabilities	23,778		23,841
Noncurrent operating lease liabilities	256,158		265,696
Other noncurrent liabilities	213,561		227,729
Total liabilities	4,470,885		4,680,702

Commitments and contingencies (See Note 13)

Stockholders’ equity:
Common stock, $ 1 par value ( 480,000 shares authorized; 323,338 shares issued)	323,338		323,338

Retained earnings	5,060,852		5,125,677
Accumulated other comprehensive loss	( 819,978 )		( 835,564 )
Treasury stock, at cost ( 147,714 and 149,307 shares, respectively)	( 4,504,248 )		( 4,552,798 )
Total stockholders’ equity	59,964		60,653
Total liabilities and stockholders’ equity	$	4,530,849	$	4,741,355

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net (loss) income	$	( 7,737 )	$	20,821

Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization	39,897		42,002
Allowance for credit losses	4,308		2,024
Stock-based compensation	3,245		4,495
Amortization of debt fees	2,118		1,479
(Gain) loss on debt redemption/refinancing	( 2,836 )		4,993
Restructuring charges	3,599		4,184
Restructuring payments	( 4,641 )		( 3,285 )
Pension contributions and retiree medical payments	( 19,938 )		( 13,517 )
Gain on sale of assets	—		( 14,372 )
Gain on sale of businesses	—		( 2,522 )


Changes in operating assets and liabilities, net of acquisitions/divestitures:
Accounts and other receivables	69,841		33,086
Finance receivables	15,596		( 172 )
Inventories	( 10,226 )		( 7,936 )
Other current assets and prepayments	( 8,380 )		( 25,426 )
Accounts payable and accrued liabilities	( 103,990 )		( 38,647 )
Current and noncurrent income taxes	( 6,070 )		( 3,836 )
Advance billings	( 18,672 )		2,422
Other, net	4,172		4,769


Net cash from operating activities	( 39,714 )		10,562
Cash flows from investing activities:
Capital expenditures	( 28,666 )		( 32,555 )
Purchases of investment securities	( 5,180 )		( 3,988 )
Proceeds from sales/maturities of investment securities	5,976		11,020
Net investment in loan receivables	( 12,879 )		( 11,230 )
Proceeds from asset sales	—		50,766
Proceeds from sale of businesses	—		9,016


Other investing activities	( 664 )		5,000


Net cash from investing activities	( 41,413 )		28,029
Cash flows from financing activities:


Repayments of debt	( 31,018 )		( 100,595 )
Premiums and fees paid to redeem/refinance debt	—		( 4,759 )
Dividends paid to stockholders	( 8,725 )		( 8,688 )
Customer deposits at Pitney Bowes Bank	( 33,526 )		( 12,959 )
Common stock repurchases	—		( 13,446 )
Other financing activities	( 6,173 )		( 5,411 )
Net cash from financing activities	( 79,442 )		( 145,858 )
Effect of exchange rate changes on cash and cash equivalents	2,349		( 2,638 )
Change in cash and cash equivalents	( 158,220 )		( 109,905 )
Cash and cash equivalents at beginning of period	669,981		732,480


Cash and cash equivalents at end of period	$	511,761	$	622,575

See Notes to Condensed Consolidated Financial Statements

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

1. Description of Business and Basis of Presentation

Description of Business

Pitney Bowes Inc. (we, us, our, or the company) is a global shipping and mailing company that provides technology, logistics, and financial services to small and medium sized businesses, large enterprises, including more than 90 percent of the Fortune 500, retailers and government clients around the world. These clients rely on us to remove the complexity and increase the efficiency in their sending of mail and parcels. For additional information, visit www.pitneybowes.com .

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2022 Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2023. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2022 (2022 Annual Report).

During the second quarter of 2022, we determined that $ 5 million of cash outflows were incorrectly classified as operating activities instead of investing activities within the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2022. During the second quarter of 2022, we corrected this misstatement for the six months ended June 30, 2022. The impact of the adjustments is not material to the consolidated financial statements for any prior quarterly or annual periods.

Factors Affecting Comparability

Certain transactions and changes occurred during 2022 that impact the comparability of our 2023 financial results to the prior periods. These transactions and changes include:

• The sale of our Borderfree cross-border ecommerce solutions business (Borderfree) in July 2022. Accordingly, reported revenue and costs for the first half of 2022 include revenue and costs for Borderfree. Net income of Borderfree in the first half of 2022 was not significant.

• A change in the presentation of revenue for digital delivery services effective October 1, 2022, from a gross basis to a net basis. Accordingly, in 2023, revenue and costs of revenue for certain digital delivery services are reported on a net basis as business services revenue; whereas for the first nine months of 2022, revenue and cost of revenue for these services are reported as business services revenue and cost of business services, respectively. The change primarily impacts our Global Ecommerce business.

Accounting Pronouncements Adopted in 2023

On January 1, 2023, we adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which requires disclosure of gross write-offs of finance receivables by year of origination. The adoption of this standard did not have a material impact on our financial statement disclosures.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The transition to new reference interest rates will require certain contracts to be modified and the ASU is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The accommodations provided by the ASU are effective through December 31, 2024, and may be applied at the beginning of any interim period within that time frame. We continue to assess the impact of this standard on our condensed consolidated financial statements.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

2. Revenue

Disaggregated Revenue

The following tables disaggregate our revenue by source and timing of recognition:


	Three Months Ended March 31, 2023
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	348,391	$	158,902	$	16,198	$	523,491	$	—	$	523,491
Support services	—		—		105,284		105,284		—		105,284
Financing	—		—		—		—		67,049		67,049
Equipment sales	—		—		19,995		19,995		62,615		82,610
Supplies	—		—		38,835		38,835		—		38,835
Rentals	—		—		—		—		17,269		17,269
Subtotal	348,391		158,902		180,312		687,605		$	146,933	$	834,538

Revenue from leasing transactions and financing	—		—		146,933		146,933


Total revenue	$	348,391	$	158,902	$	327,245	$	834,538

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	77,064	$	77,064
Products/services transferred over time	348,391		158,902		103,248		610,541
Total	$	348,391	$	158,902	$	180,312	$	687,605


	Three Months Ended March 31, 2022
	Global Ecommerce		Presort Services		SendTech Solutions		Revenue from products and services		Revenue from leasing transactions and financing		Total consolidated revenue
Major products/service lines
Business services	$	418,527	$	160,544	$	18,313	$	597,384	$	—	$	597,384
Support services	—		—		110,352		110,352		—		110,352
Financing	—		—		—		—		72,029		72,029
Equipment sales	—		—		21,299		21,299		67,997		89,296
Supplies	—		—		41,061		41,061		—		41,061
Rentals	—		—		—		—		16,820		16,820
Subtotal	418,527		160,544		191,025		770,096		$	156,846	$	926,942

Revenue from leasing transactions and financing	—		—		156,846		156,846


Total revenue	$	418,527	$	160,544	$	347,871	$	926,942

Timing of revenue recognition from products and services
Products/services transferred at a point in time	$	—	$	—	$	78,373	$	78,373
Products/services transferred over time	418,527		160,544		112,652		691,723
Total	$	418,527	$	160,544	$	191,025	$	770,096

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Our performance obligations for revenue from products and services are as follows:

Business services includes fulfillment, delivery and return services, cross-border solutions, mail processing services and shipping subscription solutions. Revenue for fulfillment, delivery and return services and cross-border solutions and mail processing services is recognized over time using an output method based on the number of parcels or mail pieces either processed or delivered, depending on the service type, since that measure best depicts the value of goods and services transferred to the client over the contract period. Contract terms for these services initially range from one to five years and contain annual renewal options. Revenue for shipping subscription solutions is recognized ratably over the contract period as the client obtains equal benefit from these services through the period.

Support services includes providing maintenance, professional and subscription services for our equipment and digital mailing and shipping technology solutions. Contract terms range from one to five years , depending on the term of the lease contract for the related equipment. Revenue for maintenance and subscription services is recognized ratably over the contract period and revenue for professional services is recognized when services are provided.

Equipment sales generally includes the sale of mailing and shipping equipment, excluding sales-type leases. We recognize revenue upon delivery for self-install equipment and upon acceptance or installation for other equipment. We provide a warranty that the equipment is free of defects and meets stated specifications. The warranty is not considered a separate performance obligation.

Supplies includes revenue from supplies for our mailing equipment and is recognized upon delivery.

Revenue from leasing transactions and financing includes revenue from sales-type and operating leases, finance income, late fees and investment income, gains and losses at the Pitney Bowes Bank.

Advance Billings from Contracts with Customers


	Balance sheet location	March 31, 2023		December 31, 2022		Increase/ (decrease)
Advance billings, current	Advance billings	$	78,363	$	97,904	$	( 19,541 )
Advance billings, noncurrent	Other noncurrent liabilities	$	949	$	906	$	43

Advance billings are recorded when cash payments are due in advance of our performance. Revenue is recognized ratably over the contract term. Items in advance billings primarily relate to support services on mailing equipment. Revenue recognized during the period includes $ 57 million of advance billings at the beginning of the period. Advance billings, current, at March 31, 2023 and December 31, 2022 also includes $ 8 million and $ 7 million, respectively, from leasing transactions.

Future Performance Obligations

Future performance obligations include revenue streams bundled with our leasing contracts, primarily maintenance and subscription services. The transaction prices allocated to future performance obligations will be recognized as follows:


	Remainder of 2023		2024		2025-2028		Total
SendTech Solutions	$	193,946	$	220,083	$	293,623	$	707,652

The amounts above do not include revenue for performance obligations under contracts with terms less than 12 months or revenue for performance obligations where revenue is recognized based on the amount billable to the customer.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

3. Segment Information

Our reportable segments are Global Ecommerce, Presort Services and SendTech Solutions. The principal products and services of each reportable segment are as follows:

Global Ecommerce: Includes the revenue and related expenses from domestic parcel services, cross-border services and digital delivery services.

Presort Services : Includes revenue and related expenses from sortation services to qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.

SendTech Solutions: Includes the revenue and related expenses from physical and digital mailing and shipping technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats.

Management measures segment profitability and performance using adjusted segment earnings before interest and taxes (EBIT). Adjusted segment EBIT is calculated by deducting from segment revenue the related costs and expenses attributable to the segment. Adjusted segment EBIT excludes interest, taxes, unallocated corporate expenses, restructuring charges and other items not allocated to business segments. Costs related to shared assets are allocated to the relevant segments. Management believes that adjusted segment EBIT provides investors a useful measure of operating performance and underlying trends of the business. Adjusted segment EBIT may not be indicative of our overall consolidated performance and therefore, should be read in conjunction with our consolidated results of operations. The following tables provide information about our reportable segments and a reconciliation of adjusted segment EBIT to net (loss) income.


		Revenue
	Three Months Ended March 31,
		2023		2022
Global Ecommerce		$	348,391	$	418,527
Presort Services		158,902		160,544
SendTech Solutions		327,245		347,871
Total revenue		$	834,538	$	926,942


		Adjusted Segment EBIT
	Three Months Ended March 31,
		2023		2022
Global Ecommerce		$	( 34,206 )	$	( 13,696 )
Presort Services		26,905		19,632
SendTech Solutions		96,671		104,575
Total adjusted segment EBIT		89,370		110,511
Reconciliation of Adjusted Segment EBIT to net (loss) income:
Unallocated corporate expenses		( 56,349 )		( 57,834 )
Restructuring charges		( 3,599 )		( 4,184 )
Interest expense, net		( 36,878 )		( 33,726 )
Proxy solicitation fees		( 6,367 )		—

Gain (loss) on debt redemption/refinancing		2,836		( 4,993 )
Gain on sale of assets		—		14,372
Gain on sale of businesses, including transaction costs		—		878

Benefit (provision) for income taxes		3,250		( 4,203 )


Net (loss) income		$	( 7,737 )	$	20,821

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

4. Earnings per Share

The calculation of basic and diluted earnings per share (EPS) is presented below.


	Three Months Ended March 31,
		2023		2022
Numerator:




Net (loss) income		$	( 7,737 )	$	20,821
Denominator:
Weighted-average shares used in basic EPS		174,626		174,115
Dilutive effect of common stock equivalents (1)		—		3,919
Weighted-average shares used in diluted EPS		174,626		178,034



Basic net (loss) earnings per share		$	( 0.04 )	$	0.12



Diluted net (loss) earnings per share		$	( 0.04 )	$	0.12

Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive:		8,148		9,590

(1) Due to the net loss for the three months ended March 31, 2023, an additional 4.7 million of common stock equivalents were also excluded from the calculation of diluted earnings per share.

5. Inventories

Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or net realizable value. Inventories consisted of the following:


	March 31, 2023		December 31, 2022
Raw materials	$	28,372	$	25,539
Supplies and service parts	35,239		27,573
Finished products	30,405		30,608


Total inventory, net	$	94,016	$	83,720

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

6. Finance Assets and Lessor Operating Leases

Finance Assets

Finance receivables are comprised of sales-type lease receivables, secured loans and unsecured loans. Sales-type leases and secured loans are from financing options for the purchase or lease of Pitney Bowes equipment or other manufacturers' equipment and are generally due in installments over periods ranging from three to five years . Unsecured loans comprise revolving credit lines offered to our clients for postage, supplies and working capital purposes. These revolving credit lines are generally due monthly; however, clients may rollover outstanding balances. Interest is recognized on finance receivables using the effective interest method. Annual fees are recognized ratably over the period covered and client acquisition costs are expensed as incurred. All finance receivables are in our SendTech Solutions segment and we segregate finance receivables into a North America portfolio and an International portfolio.

Finance receivables consisted of the following:


	March 31, 2023						December 31, 2022
	North America		International		Total		North America		International		Total
Sales-type lease receivables
Gross finance receivables	$	971,663	$	149,227	$	1,120,890	$	967,298	$	158,167	$	1,125,465
Unguaranteed residual values	38,688		8,628		47,316		38,832		8,798		47,630
Unearned income	( 242,564 )		( 47,243 )		( 289,807 )		( 239,238 )		( 48,334 )		( 287,572 )
Allowance for credit losses	( 13,458 )		( 2,873 )		( 16,331 )		( 14,131 )		( 2,893 )		( 17,024 )
Net investment in sales-type lease receivables	754,329		107,739		862,068		752,761		115,738		868,499
Loan receivables
Loan receivables	313,945		17,426		331,371		311,887		16,636		328,523
Allowance for credit losses	( 5,423 )		( 150 )		( 5,573 )		( 4,787 )		( 139 )		( 4,926 )
Net investment in loan receivables	308,522		17,276		325,798		307,100		16,497		323,597
Net investment in finance receivables	$	1,062,851	$	125,015	$	1,187,866	$	1,059,861	$	132,235	$	1,192,096

Maturities of gross finance receivables at March 31, 2023 were as follows:


	Sales-type Lease Receivables						Loan Receivables
	North America		International		Total		North America		International		Total
Remainder 2023	$	279,986	$	52,333	$	332,319	$	229,683	$	17,426	$	247,109
2024	299,265		44,812		344,077		31,141		—		31,141
2025	207,186		28,061		235,247		24,666		—		24,666
2026	126,392		16,005		142,397		15,966		—		15,966
2027	55,014		6,320		61,334		10,122		—		10,122
Thereafter	3,820		1,696		5,516		2,367		—		2,367
Total	$	971,663	$	149,227	$	1,120,890	$	313,945	$	17,426	$	331,371

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Aging of Receivables

The aging of gross finance receivables was as follows:


	March 31, 2023
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Past due amounts 0 - 90 days	$	963,890	$	146,958	$	310,819	$	17,321	$	1,438,988
Past due amounts > 90 days	7,773		2,269		3,126		105		13,273
Total	$	971,663	$	149,227	$	313,945	$	17,426	$	1,452,261


	December 31, 2022
	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Past due amounts 0 - 90 days	$	959,203	$	155,596	$	308,872	$	16,503	$	1,440,174
Past due amounts > 90 days	8,095		2,571		3,015		133		13,814
Total	$	967,298	$	158,167	$	311,887	$	16,636	$	1,453,988

Allowance for Credit Losses

We provide an allowance for credit losses based on historical loss experience, the nature of our portfolios, adverse situations that may affect a client's ability to pay and current economic conditions and outlook based on reasonable and supportable forecasts. We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.

We established credit approval limits based on the credit quality of the client and the type of equipment financed. We cease financing revenue recognition for lease receivables and for unsecured loan receivables that are more than 90 days past due. Revenue recognition is resumed when the client's payments reduce the account aging to less than 60 days past due. Finance receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Activity in the allowance for credit losses for finance receivables was as follows:


	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Balance at January 1, 2023	$	14,131	$	2,893	$	4,787	$	139	$	21,950

Amounts charged to expense	395		238		1,097		55		1,785
Write-offs	( 1,683 )		( 267 )		( 1,109 )		( 46 )		( 3,105 )
Recoveries	614		111		648		—		1,373
Other	1		( 102 )		—		2		( 99 )
Balance at March 31, 2023	$	13,458	$	2,873	$	5,423	$	150	$	21,904

	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
Balance at January 1, 2022	$	19,546	$	3,246	$	3,259	$	167	$	26,218

Amounts charged to expense	297		47		616		143		1,103
Write-offs	( 1,640 )		( 360 )		( 1,341 )		( 117 )		( 3,458 )
Recoveries	744		—		761		—		1,505
Other	13		( 143 )		2		( 9 )		( 137 )
Balance at March 31, 2022	$	18,960	$	2,790	$	3,297	$	184	$	25,231

The table below shows write-offs of gross finance receivables by year of origination.


	March 31, 2023
	Sales Type Lease Receivables										Loan Receivables		Total
	2022		2021		2020		2019		Prior
Write-offs	$	455	$	675	$	412	$	250	$	158	$	1,155	$	3,105

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Credit Quality

The extension of credit and management of credit lines to new and existing clients uses a combination of a client's credit score, where available, a detailed manual review of their financial condition and payment history, or an automated process. Once credit is granted, the payment performance of the client is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes to ensure that our global strategy is executed, collection resources are allocated and enhanced tools and processes are implemented as needed.

Over 85 % of our finance receivables are within the North American portfolio. We use a third-party to score the majority of this portfolio on a quarterly basis using a proprietary commercial credit score. The relative scores are determined based on a number of factors, including financial information, payment history, company type and ownership structure. We stratify the third party's credit scores of our clients into low, medium and high-risk accounts. Due to timing and other issues, our entire portfolio may not be scored at period end. We report these amounts as "Not Scored"; however, absence of a score is not indicative of the credit quality of the account. The third-party credit score is used to predict the payment behaviors of our clients and the probability that an account will become greater than 90 days past due during the subsequent 12-month period.

• Low risk accounts are companies with very good credit scores and a predicted delinquency rate of less than 5 %.

• Medium risk accounts are companies with average to good credit scores and a predicted delinquency rate between 5 % and 10 %.

• High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent. The predicted delinquency rate would be greater than 10 %.

We do not use a third-party to score our International portfolio because the cost to do so is prohibitive as there is no single credit score model that covers all countries. Accordingly, the entire International portfolio is reported in the Not Scored category. This portfolio comprises less than 15 % of total finance receivables. Most of the International credit applications are small dollar applications (i.e. below $ 50 thousand) and are subjected to an automated review process. Larger credit applications are manually reviewed, which includes obtaining client financial information, credit reports and other available financial information.

The table below shows gross finance receivables by relative risk class and year of origination based on the relative scores of the accounts within each class.


	March 31, 2023
	Sales Type Lease Receivables												Loan Receivables		Total
	2023		2022		2021		2020		2019		Prior
Low	$	77,542	$	266,461	$	193,093	$	127,566	$	81,723	$	32,032	$	243,405	$	1,021,822
Medium	15,687		49,635		36,497		27,075		18,527		8,744		55,282		211,447
High	1,251		5,104		3,358		2,806		1,326		996		6,080		20,921
Not Scored	40,595		58,689		38,828		19,716		10,064		3,575		26,604		198,071
Total	$	135,075	$	379,889	$	271,776	$	177,163	$	111,640	$	45,347	$	331,371	$	1,452,261

	December 31, 2022
	Sales Type Lease Receivables												Loan Receivables		Total
	2022		2021		2020		2019		2018		Prior
Low	$	286,297	$	206,511	$	140,800	$	95,485	$	34,721	$	12,674	$	239,635	$	1,016,123
Medium	53,419		40,669		27,013		19,668		6,751		3,441		56,048		207,009
High	6,492		3,840		3,119		1,942		750		508		6,800		23,451
Not Scored	71,435		53,831		29,957		19,232		5,889		1,021		26,040		207,405
Total	$	417,643	$	304,851	$	200,889	$	136,327	$	48,111	$	17,644	$	328,523	$	1,453,988

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Lease Income

Lease income from sales-type leases, excluding variable lease payments, was as follows:


	Three Months Ended March 31,
		2023		2022
Profit recognized at commencement		$	31,822	$	35,040
Interest income		38,931		42,283
Total lease income from sales-type leases		$	70,753	$	77,323

Lessor Operating Leases

We also lease mailing equipment under operating leases with terms of one to five years . Maturities of these operating leases are as follows:


Remainder 2023	$	15,217
2024	17,812
2025	19,591
2026	5,808
2027	2,205
Thereafter	434
Total	$	61,067

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

7. Intangible Assets and Goodwill

Intangible Assets

Intangible assets consisted of the following:


	March 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	$	155,718	$	( 83,997 )	$	71,721	$	155,715	$	( 80,188 )	$	75,527
Software & technology	22,020		( 19,713 )		2,307		22,000		( 19,583 )		2,417

Total intangible assets	$	177,738	$	( 103,710 )	$	74,028	$	177,715	$	( 99,771 )	$	77,944

Amortization expense for the three months ended March 31, 2023 and 2022 was $ 4 million and $ 8 million, respectively.

Future amortization expense as of March 31, 2023 is shown in the table below. Actual amortization expense may differ due to, among other things, fluctuations in foreign currency exchange rates, acquisitions, divestitures and impairment charges.


Remainder 2023	$	11,795
2024	15,727
2025	15,523
2026	14,534
2027	11,478
Thereafter	4,971
Total	$	74,028

Goodwill

Changes in the carrying value of goodwill by reporting segment are shown in the table below.


	December 31, 2022		Currency impact		March 31, 2023
Global Ecommerce	$	339,184	$	—	$	339,184
Presort Services	223,763		—		223,763
SendTech Solutions	504,004		2,709		506,713
Total goodwill	$	1,066,951	$	2,709	$	1,069,660

At December 31, 2022, the estimated fair value of the Global Ecommerce reporting unit exceeded its carrying value by less than 10 %. T he fair value of the reporting unit was estimated using a discounted cash flow model based on management developed cash flow projections, which included judgements and assumptions related to revenue growth rates, operating margins, operating income, and a discount rate. During the first quarter of 2023, there were no triggering events that required us to determine if the goodwill of this reporting unit was impaired. However, the judgements and assumptions used to estimate the fair value of this reporting unit at December 31, 2022 were inherently subjective and changes in any of the judgements or assumptions used could result in a different fair value determination in a future period.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

8. Fair Value Measurements and Derivative Instruments

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. An entity is required to classify certain assets and liabilities measured at fair value based on the following fair value hierarchy that prioritizes the inputs used to measure fair value:

Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. The following tables show, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis.


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities
Money market funds	$	13,523	$	201,911	$	—	$	215,434
Equity securities	—		15,327		—		15,327
Commingled fixed income securities	1,553		5,360		—		6,913
Government and related securities	10,370		18,869		—		29,239
Corporate debt securities	—		53,607		—		53,607
Mortgage-backed / asset-backed securities	—		126,737		—		126,737
Derivatives
Interest rate swap	—		12,697		—		12,697
Foreign exchange contracts	—		1,818		—		1,818
Total assets	$	25,446	$	436,326	$	—	$	461,772
Liabilities:
Derivatives

Foreign exchange contracts	$	—	$	( 53 )	$	—	$	( 53 )
Total liabilities	$	—	$	( 53 )	$	—	$	( 53 )

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities
Money market funds	$	29,087	$	238,536	$	—	$	267,623
Equity securities	—		13,233		—		13,233
Commingled fixed income securities	1,520		6,526		—		8,046
Government and related securities	10,253		18,796		—		29,049
Corporate debt securities	—		52,319		—		52,319
Mortgage-backed / asset-backed securities	—		126,882		—		126,882
Derivatives
Interest rate swap	—		15,283		—		15,283
Foreign exchange contracts	—		479		—		479
Total assets	$	40,860	$	472,054	$	—	$	512,914
Liabilities:
Derivatives

Foreign exchange contracts	$	—	$	( 1,472 )	$	—	$	( 1,472 )
Total liabilities	$	—	$	( 1,472 )	$	—	$	( 1,472 )

Investment Securities

The valuation of investment securities is based on the market approach using inputs that are observable, or can be corroborated by observable data, in an active marketplace. The following information relates to our classification within the fair value hierarchy:

• Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits and are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.

• Equity Securities : Equity securities are comprised of mutual funds investing in U.S. and foreign stocks. These mutual funds are classified as Level 2.

• Commingled Fixed Income Securities: Commingled fixed income securities are comprised of mutual funds that invest in a variety of fixed income securities, including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding, as reported by the fund manager. These mutual funds are classified as Level 1 when unadjusted quoted prices in active markets are available and as Level 2 when they are not actively traded on an exchange.

• Government and Related Securities: Debt securities are classified as Level 1 when unadjusted quoted prices in active markets are available. Debt securities are classified as Level 2 where fair value is determined using quoted market prices for similar securities or benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.

• Corporate Debt Securities: Corporate debt securities are valued using recently executed comparable transactions, market price quotations or bond spreads for the same maturity as the security. These securities are classified as Level 2.

• Mortgage-Backed Securities / Asset-Backed Securities: These securities are valued based on external pricing indices or external price/spread data. These securities are classified as Level 2.

Derivative Securities

• Foreign Exchange Contracts: The valuation of foreign exchange derivatives is based on the market approach using observable market inputs, such as foreign currency spot and forward rates and yield curves. These securities are classified as Level 2.

• Interest Rate Swaps: The valuation of interest rate swaps is based on an income approach using inputs that are observable or that can be derived from, or corroborated by, observable market data. These securities are classified as Level 2.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Available-For-Sale Securities

Investment securities classified as available-for-sale are recorded at fair value with changes in fair value due to market conditions (i.e., interest rates) recorded in accumulated other comprehensive loss (AOCL), and changes in fair value due to credit conditions recorded in earnings. There were no unrealized losses due to credit losses charged to earnings in the three months ended March 31, 2023.

Available-for-sale securities consisted of the following:


	March 31, 2023
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Government and related securities	$	35,263	$	—	$	( 7,442 )	$	27,821
Corporate debt securities	66,020		1		( 12,414 )		53,607
Commingled fixed income securities	1,759		—		( 206 )		1,553
Mortgage-backed / asset-backed securities	154,256		—		( 27,519 )		126,737
Total	$	257,298	$	1	$	( 47,581 )	$	209,718


	December 31, 2022
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Government and related securities	$	35,744	$	11	$	( 8,210 )	$	27,545
Corporate debt securities	66,300		—		( 13,981 )		52,319
Commingled fixed income securities	1,749		—		( 229 )		1,520
Mortgage-backed / asset-backed securities	156,352		—		( 29,470 )		126,882
Total	$	260,145	$	11	$	( 51,890 )	$	208,266

Investment securities in a loss position were as follows:


	March 31, 2023				December 31, 2022
	Fair Value		Gross unrealized losses		Fair Value		Gross unrealized losses
Greater than 12 continuous months
Government and related securities	$	17,515	$	2,388	$	17,063	$	2,753
Corporate debt securities	52,359		12,398		48,812		13,749

Mortgage-backed / asset-backed securities	117,321		26,504		114,839		28,040
Total	$	187,195	$	41,290	$	180,714	$	44,542

Less than 12 continuous months
Government and related securities	$	10,306	$	5,054	$	10,061	$	5,457
Corporate debt securities	1,180		16		3,508		232
Commingled fixed income securities	1,553		206		1,520		229
Mortgage-backed / asset-backed securities	9,416		1,015		12,042		1,430
Total	$	22,455	$	6,291	$	27,131	$	7,348

At March 31, 2023, approximately 99 % of total securities in the investment portfolio were in a loss position. However, we have the ability and intent to hold these securities until recovery of the unrealized losses or expect to receive the stated principal and interest at maturity. Accordingly, we have not recognized an impairment loss and our allowance for credit losses on these investment securities is not significant.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Scheduled maturities of available-for-sale securities at March 31, 2023 were as follows:


	Amortized cost		Estimated fair value
Within 1 year	$	2,601	$	2,388
After 1 year through 5 years	15,175		13,873
After 5 years through 10 years	72,323		60,012
After 10 years	167,199		133,445
Total	$	257,298	$	209,718

Actual maturities may not coincide with scheduled maturities as certain securities contain early redemption features and/or allow for the prepayment of obligations.

Held-to-Maturity Securities

Held-to-maturity securities at March 31, 2023 and December 31, 2022 totaled $ 23 million and $ 22 million, respectively. Held-to-maturity securities primarily consist of highly-liquid government securities with maturities less than two years .

Derivative Instruments

In the normal course of business, we are exposed to the impact of changes in foreign currency exchange rates and interest rates. We limit these risks by following established risk management policies and procedures, including the use of derivatives. We use derivative instruments to limit the effects of currency exchange rate fluctuations on financial results and manage the cost of debt. We do not use derivatives for trading or speculative purposes. Derivative instruments are recorded at fair value and the accounting for changes in fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge.

Foreign Exchange Contracts

We enter into foreign exchange contracts to mitigate the currency risk associated with anticipated inventory purchases between affiliates and from third parties. These contracts are designated as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is included in AOCL in the period that the change in fair value occurs and is reclassified to earnings in the period that the hedged item is recorded in earnings. At both March 31, 2023 and December 31, 2022, outstanding contracts associated with these anticipated transactions had a notional value of $ 1 million. Amounts included in AOCL at March 31, 2023 will be recognized in earnings within the next 12 months. No amount of ineffectiveness was recorded in earnings for these designated cash flow hedges.

Interest Rate Swaps

We have interest rate swap agreements with an aggregate notional value of $ 200 million that are designated as cash flow hedges. The fair value of the interest rate swaps is recorded as a derivative asset or liability at the end of each reporting period with the change in fair value reflected in AOCL.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

The fair value of derivative instruments was as follows:


Designation of Derivatives	Balance Sheet Location	March 31, 2023		December 31, 2022
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	$	—	$	15
	Accounts payable and accrued liabilities	( 34 )		( 23 )

Interest rate swaps	Other assets	12,697		15,283

Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets and prepayments	1,818		464
	Accounts payable and accrued liabilities	( 19 )		( 1,449 )

	Total derivative assets	$	14,515	$	15,762
	Total derivative liabilities	( 53 )		( 1,472 )
	Total net derivative asset	$	14,462	$	14,290

Results of cash flow hedging relationships were as follows:


	Three Months Ended March 31,
	Derivative Gain (Loss) Recognized in AOCL (Effective Portion)				Location of Gain (Loss) (Effective Portion)	Gain (Loss) Reclassified from AOCL to Earnings (Effective Portion)
Derivative Instrument	2023		2022			2023		2022
Foreign exchange contracts	$	25	$	23	Revenue	$	—	$	—
					Cost of sales	1		14
Interest rate swap	( 2,586 )		7,210		Interest expense	137		137
	$	( 2,561 )	$	7,233		$	138	$	151

Nondesignated Derivative Instruments

We also enter into foreign exchange contracts to minimize the impact on earnings from the revaluation of short-term intercompany loans and related interest denominated in a foreign currency. These foreign exchange contracts are not designated as hedging instruments. Accordingly, the revaluation of intercompany loans and interest and the change in fair value of these derivatives are recorded in earnings. All outstanding contracts at March 31, 2023 mature within three months .

The impact on earnings from the change in fair value of these foreign exchange contracts, exclusive of the corresponding impact on earnings from the revaluation of the intercompany loans and related interest, was as follows:


		Three Months Ended March 31,
		Derivative Gain (Loss) Recognized in Earnings
Derivatives Instrument	Location of Derivative Gain (Loss)	2023		2022
Foreign exchange contracts	Selling, general and administrative expense	$	1,571	$	( 3,414 )

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, available-for-sale and held-to-maturity investment securities, accounts receivable, loan receivables, derivative instruments, accounts payable and debt. The carrying value of cash and cash equivalents, held-to-maturity investment securities, accounts receivable, loans receivable, and accounts payable approximate fair value. The fair value of available-for-sale investment securities and derivative instruments are presented above. The fair value of debt is estimated based on recently executed transactions and market price quotations. The inputs used to determine the fair value of debt were classified as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of debt was as follows:


	March 31, 2023		December 31, 2022
Carrying value	$	2,172,968	$	2,205,266
Fair value	$	1,803,375	$	1,856,878

9. Restructuring Charges

Activity in our restructuring reserves was as follows:


	Severance and other exit costs
Balance at January 1, 2023	$	7,647
Amounts charged to expense	3,599
Cash payments	( 4,641 )

Balance at March 31, 2023	$	6,605

Balance at January 1, 2022	$	5,747
Amounts charged to expense	4,184
Cash payments	( 3,285 )
Noncash activity	( 172 )
Balance at March 31, 2022	$	6,474

The majority of the restructuring reserves are expected to be paid over the next 12 to 24 months.

In May 2023, management approved a worldwide plan (the 2023 Plan) designed to improve profitability and cash flow by reducing complexity, streamlining processes, and driving further operational efficiencies. The 2023 Plan includes the elimination of 400 - 500 positions worldwide, in part, through the expansion of the Company’s shared services activities, further centralization and standardization of processes, increased automation and the closure and consolidation of select facilities in North America. Total charges are expected to be $ 40 million - $ 50 million, consisting of employee-related costs and facility consolidation costs. We expect to substantially complete these actions by the first half of 2024.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

10. Debt

Total debt consisted of the following:


	Interest rate	March 31, 2023		December 31, 2022
Notes due March 2024	4.625 %	$	227,083	$	236,749
Term loan due March 2026	SOFR + 2.0 %	345,500		351,500
Notes due March 2027	6.875 %	380,000		396,750
Term loan due March 2028	SOFR + 4.0 %	441,000		442,125
Notes due March 2029	7.25 %	350,000		350,000
Notes due January 2037	5.25 %	35,841		35,841
Notes due March 2043	6.70 %	425,000		425,000

Other debt		2,132		2,446
Principal amount		2,206,556		2,240,411
Less: unamortized costs, net		33,588		35,145
Total debt		2,172,968		2,205,266
Less: current portion long-term debt		262,439		32,764
Long-term debt		$	1,910,529	$	2,172,502

During 2023, we purchased an aggregate $ 26 million of the March 2024 notes and March 2027 notes and recognized a gain of $ 3 million. Additionally, we made scheduled principal repayments of $ 7 million on our term loans. At March 31, 2023, the interest rate on the 2026 Term Loan was 6.7 % and the interest rate of the 2028 Term Loan was 8.7 %.

The credit agreement that governs our $ 500 million secured revolving credit facility and term loans contains financial and non-financial covenants. At March 31, 2023, we were in compliance with all covenants and there were no outstanding borrowings under the revolving credit facility. Borrowings under the revolving credit facility and term loans are secured by assets of the company.

We have outstanding interest rate swaps that effectively convert $ 200 million of our variable rate debt to fixed rates. Effective January 2023, the reference rate of the interest rate swaps was amended to align with the secured revolving credit facility. Under the terms of the interest rate swaps, we pay fixed-rate interest of 0.585 % and receive variable-rate interest based on one-month SOFR plus 0.1 %. The variable interest rates under the term loans and the swaps reset monthly.

The Pitney Bowes Bank (the Bank), a wholly owned subsidiary, is a member of the Federal Home Loan Bank of Des Moines and has access to certain credit products as a funding source known as "advances." As of March 31, 2023, the Bank had yet to apply for any advances.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

11. Pensions and Other Benefit Programs

The components of net periodic benefit (income) cost were as follows:


	Defined Benefit Pension Plans								Nonpension Postretirement Benefit Plans
	United States				Foreign
	Three Months Ended				Three Months Ended				Three Months Ended
	March 31,				March 31,				March 31,
	2023		2022		2023		2022		2023		2022
Service cost	$	10	$	24	$	194	$	355	$	89	$	179
Interest cost	16,089		11,141		5,222		3,634		1,305		940
Expected return on plan assets	( 21,613 )		( 17,863 )		( 7,344 )		( 7,205 )		—		—

Amortization of prior service (credit) cost	( 5 )		( 11 )		70		68		—		—
Amortization of net actuarial loss (gain)	4,417		8,232		505		1,821		( 356 )		87

Net periodic benefit (income) cost	$	( 1,102 )	$	1,523	$	( 1,353 )	$	( 1,327 )	$	1,038	$	1,206
Contributions to benefit plans	$	1,127	$	1,138	$	15,033	$	8,221	$	3,778	$	4,158

12. Income Taxes

The effective tax rate for the three months ended March 31, 2023 was 29.6 %. The effective tax rate for the three months ended March 31, 2022 was 16.8 % and includes a benefit of $ 1 million associated with the 2019 sale of a business.

As is the case with other large corporations, our tax returns are examined by tax authorities in the U.S. and other global taxing jurisdictions in which we have operations. As a result, it is reasonably possible that the amount of unrecognized tax benefits will decrease in the next 12 months, and this decrease could be up to 15 % of our unrecognized tax benefits.

With regard to U.S Federal income tax, the Internal Revenue Service examination of our consolidated U.S. income tax returns for tax years prior to 2019 are closed to audit, but for review of the Tax Cuts and Jobs Act (TCJA) Sec 965 transition tax. On a state and local level, the Company is closed through 2017 in most jurisdictions. For our significant non-U.S. jurisdictions, Canada is closed to examination through 2017 except for a specific issue under current exam. For France, Germany and the U.K., the Company is closed through 2019, 2016, and 2020 respectively. We also have other less significant tax filings currently subject to examination.

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

13. Commitments and Contingencies

From time to time, in the ordinary course of business, we are involved in litigation pertaining to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of customers, employees, or others. Due to uncertainties inherent in litigation, any actions could have an adverse effect on our financial position, results of operations or cash flows; however, in management's opinion, the final outcome of outstanding matters will not have a material adverse effect on our business.

As of March 31, 2023, we have entered into real estate and equipment leases with aggregate payments of $ 62 million and terms ranging from three to seven years that have not commenced.

14. Stockholders’ Equity

Changes in stockholders’ equity were as follows:


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Total equity
Balance at January 1, 2023	$	323,338	$	—	$	5,125,677	$	( 835,564 )	$	( 4,552,798 )	$	60,653

Net loss	—		—		( 7,737 )		—		—		( 7,737 )
Other comprehensive income	—		—		—		15,586		—		15,586
Dividends paid ($ 0.05 per common share)	—		—		( 8,725 )		—		—		( 8,725 )
Issuance of common stock	—		( 3,245 )		( 48,363 )		—		48,550		( 3,058 )


Stock-based compensation expense	—		3,245		—		—		—		3,245

Balance at March 31, 2023	$	323,338	$	—	$	5,060,852	$	( 819,978 )	$	( 4,504,248 )	$	59,964


	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Total equity
Balance at January 1, 2022	$	323,338	$	2,485	$	5,169,270	$	( 780,312 )	$	( 4,602,149 )	$	112,632

Net income	—		—		20,821		—		—		20,821
Other comprehensive loss	—		—		—		( 20,018 )		—		( 20,018 )
Dividends paid ($ 0.05 per common share)	—		—		( 8,688 )		—		—		( 8,688 )
Issuance of common stock	—		( 6,980 )		( 39,767 )		—		43,833		( 2,914 )


Stock-based compensation expense	—		4,495		—		—		—		4,495
Repurchase of common stock	—		—		—		—		( 13,446 )		( 13,446 )
Balance at March 31, 2022	$	323,338	$	—	$	5,141,636	$	( 800,330 )	$	( 4,571,762 )	$	92,882

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

15. Accumulated Other Comprehensive Loss

Reclassifications out of AOCL were as follows:


		Gain (Loss) Reclassified from AOCL
	Three Months Ended March 31,
		2023		2022
Cash flow hedges

Cost of sales		$	1	$	14
Interest expense, net		137		137
Total before tax		138		151
Income tax provision		34		37
Net of tax		$	104	$	114

Available-for-sale securities
Financing revenue		$	10	$	( 2 )
Selling, general and administrative expense		—		( 13 )
Total before tax		10		( 15 )
Income tax provision (benefit)		2		( 3 )
Net of tax		$	8	$	( 12 )

Pension and postretirement benefit plans

Prior service costs		$	( 65 )	$	( 57 )
Actuarial losses		( 4,566 )		( 10,140 )

Total before tax		( 4,631 )		( 10,197 )
Income tax benefit		( 1,142 )		( 2,461 )
Net of tax		$	( 3,489 )	$	( 7,736 )

Changes in AOCL, net of tax were as follows:


	Cash flow hedges		Available for sale securities		Pension and postretirement benefit plans		Foreign currency adjustments		Total
Balance at January 1, 2023	$	12,503	$	( 39,440 )	$	( 716,056 )	$	( 92,571 )	$	( 835,564 )
Other comprehensive (loss) income before reclassifications	( 1,958 )		3,280		—		10,887		12,209
Reclassifications into earnings	( 104 )		( 8 )		3,489		—		3,377
Net other comprehensive (loss) income	( 2,062 )		3,272		3,489		10,887		15,586
Balance at March 31, 2023	$	10,441	$	( 36,168 )	$	( 712,567 )	$	( 81,684 )	$	( 819,978 )


	Cash flow hedges		Available for sale securities		Pension and postretirement benefit plans		Foreign currency adjustments		Total
Balance at January 1, 2022	$	3,803	$	( 6,249 )	$	( 756,639 )	$	( 21,227 )	$	( 780,312 )
Other comprehensive income (loss) before reclassifications	5,447		( 15,534 )		—		( 17,565 )		( 27,652 )
Reclassifications into earnings	( 114 )		12		7,736		—		7,634
Net other comprehensive income (loss)	5,333		( 15,522 )		7,736		( 17,565 )		( 20,018 )
Balance at March 31, 2022	$	9,136	$	( 21,771 )	$	( 748,903 )	$	( 38,792 )	$	( 800,330 )

PITNEY BOWES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)

16. Supplemental Financial Statement Information

Activity in the allowance for credit losses on accounts and other receivables and other assets is presented below. See Note 7 for information regarding the allowance for credit losses on finance receivables.


	Three Months Ended March 31,
	2023		2022
Balance at beginning of year	$	5,864	$	29,179

Amounts charged to expense	2,523		921
Write-offs, recoveries and other	( 2,304 )		( 19,519 )
Balance at end of period	$	6,083	$	10,581

Accounts and other receivables	$	6,083	$	10,061
Other assets	—		520
Total	$	6,083	$	10,581

Other income, net consisted of the following:


	Three Months Ended March 31,
		2023		2022
(Gain) loss on debt redemption/refinancing		$	( 2,836 )	$	4,993


Gain on sale of assets		—		( 14,372 )
Gain on sale of businesses, including transaction costs		—		( 2,522 )
Other income, net		$	( 2,836 )	$	( 11,901 )

In 2022, we entered into a sale and leaseback agreement for our Shelton, Connecticut office building and received proceeds of $ 51 million and recognized a gain of $ 14 million and received proceeds of $ 9 million and recognized a gain of $ 3 million on the prior year sale of a business.

Supplemental cash flow information is as follows:


	Three Months Ended March 31,
	2023		2022

Cash interest paid	$	53,721	$	49,430
Cash income tax payments, net of refunds	$	2,781	$	8,079
Noncash activity
Capital assets obtained under capital lease obligations	$	721	$	8,721

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference speak only as of the date of those documents.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our results of operations, financial condition and forward-looking statements are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. While conditions related to the COVID-19 pandemic have improved, the pandemic continues to be dynamic, and near-term challenges across the economy remain; and the effects that they may have on our, and our clients' businesses remain uncertain. Other factors which could cause future financial performance to differ materially from expectations, include, without limitation:

• declining physical mail volumes

• changes in postal regulations or the operations and financial health of posts in the U.S. or other major markets, or changes to the broader postal or shipping markets

• our ability to continue to grow and manage unexpected fluctuations in volumes, gain additional economies of scale and improve profitability within our Global Ecommerce segment

• the loss of some of our larger clients in our Global Ecommerce and Presort Services segments

• the loss of, or significant changes to, United States Postal Service (USPS) commercial programs or our contractual relationships with the USPS or USPS' performance under those contracts

• the impacts of inflation and rising prices, higher interest rates and a slow-down in economic activity, including a global recession, to the company, our clients and retail consumers

• changes in labor and transportation availability and costs

• the impacts on our cost of debt due to recent increases in interest rates and the potential for future interest rate hikes

• declines in demand for our ecommerce services resulting from supply chain delays or interruptions affecting our retail clients, or changes in retail consumer behavior or spending patterns

• competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors

• changes in foreign currency exchange rates, especially the impact a strengthening U.S. dollar could have on our global operations

• global supply chain issues adversely impacting our third-party suppliers' ability to provide us products and services

• expenses and potential impacts resulting from a breach of security, including cyber-attacks or other comparable events

• our success at managing customer credit risk

• changes in banking regulations, major bank failures or the loss of our Industrial Bank charter

• changes in tax laws, rulings or regulations

• capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs

• our success in developing and marketing new products and services and obtaining regulatory approvals, if required

• the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws

• changes in international trade policies, including the imposition or expansion of trade tariffs, and other geopolitical risks

• our success at managing relationships and costs with outsource providers of certain functions and operations

• increased environmental and climate change requirements or other developments in these areas

• intellectual property infringement claims

• the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks

• impact of acts of nature on the services and solutions we offer

Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in our 2022 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

OUTLOOK

We expect consolidated revenue in 2023, on a comparable basis, to range from a low-single digit decline to a low-single digit increase as compared to 2022, and we expect the percentage of adjusted EBIT growth to outpace revenue performance.

Within Global Ecommerce, we anticipate growth in Domestic Parcel, partially offset by continued softness in our Cross-border operations. We anticipate Domestic Parcel margin and profit improvements from higher parcel volumes and the investments we made in our facilities and network. We expect our cross-border operations to be adversely impacted by macroeconomic challenges and a reduction in parcel volumes primarily from two clients in 2023 compared to 2022.

Within Presort Services, revenue is expected to benefit from pricing actions designed to offset inflationary pressure on costs, a full year of mail volumes from prior year acquisitions and growth in Marketing Mail and Bound and Packet Mail volumes, which are expected to offset the impact on revenue from the expected decline in First Class Mail volumes. We expect margin and profit improvements driven by our investments in automation and facilities consolidation.

In SendTech Solutions, we expect revenue growth from new products and our cloud-enabled shipping solutions to partially offset an expected decline in mailing related revenues. Overall segment margins are expected to remain strong.

In May 2023, management approved a worldwide plan (the 2023 Plan) designed to improve profitability and cash flow by reducing complexity, streamlining its operating processes, and driving further operational efficiencies. The 2023 Plan includes the elimination of 400-500 positions worldwide, in part, through the expansion of the Company’s shared services activities, further centralization and standardization of processes, increased automation and the closure and consolidation of select facilities in North America. Total charges are expected to be $40 million - $50 million. Total cash payments are expected to be $20 million - $30 million of which a majority will be paid in 2023. We expect to substantially complete these actions by the first half of 2024. As a result of the 2023 Plan, we expect annualized cost savings of $35 million - $45 million by the end of 2024.

Certain factors beyond our control could have adverse impacts on our 2023 results including, but not limited to, reduced consumer spending due to inflationary pressures and rising prices, higher interest rates, a slow-down in economic activity, higher fuel and transportation costs and other adverse geopolitical developments. Inflationary pressures and rising prices could put increase pressure on wages, particularly warehouse and transportation employees, and result in higher component costs. Higher fuel and freight costs could also adversely impact our operations. We expect interest expense for 2023 will be about $30 million higher than 2022 due to the recent increases in interest rates and additional increases anticipated in 2023.

OVERVIEW OF CONSOLIDATED RESULTS

Factors Affecting Comparability

Certain transactions and changes occurred in 2022 that impact the comparability of our 2023 financial results to the prior periods. These transactions and changes include:

Constant Currency

In this discussion, we refer to revenue growth on a constant currency basis. Constant currency measures exclude the impact of changes in currency exchange rates from the prior period under comparison. We believe that excluding the impacts of currency exchange rates provides investors with a better understanding of the underlying revenue performance. Constant currency change is calculated by converting the current period non-U.S. dollar denominated revenue using the prior year’s exchange rate. Where constant currency measures are not provided, the actual change and constant currency change are the same.

Financial Results Summary - Three Months Ended March 31:


	Three Months Ended March 31,
					Favorable/(Unfavorable)
	2023		2022		Actual % Change		Constant Currency % change
Total revenue	$	834,538	$	926,942	(10)	%	(9)	%
Total costs and expenses	845,525		901,918		6	%
(Loss) income before taxes	(10,987)		25,024		>(100%)
(Benefit) provision for income taxes	(3,250)		4,203		>100%
Net (loss) income	$	(7,737)	$	20,821	>(100%)

Revenue decreased 10% (9% at constant currency) in the first quarter of 2023 compared to the prior year primarily due to a decrease in business services revenue. Revenue also declined due to lower equipment sales, support services revenue and financing revenue.

Total costs and expenses declined $56 million compared to the prior year primarily due to:

• Costs of revenue (excluding financing interest expense) decreased $64 million primarily due to lower cost of business services of $57 million and lower cost of equipment sales of $7 million.

• Selling, general and administrative (SG&A) expense was flat compared to the prior year period as incremental proxy solicitation fees of $6 million and higher outsourcing fees of $4 million were offset by a decline in consulting fees of $6 million and lower variable compensation expense of $4 million.

• Interest expense represents interest on our outstanding debt, net of interest income. We allocate a portion of total interest expense to financing interest expense based on our effective interest rate and average finance receivables for the period. Total interest expense, net, including financing interest expense, for the first quarter of 2023 increased $3 million compared to the prior year period primarily due to rising interest rates which resulted in higher interest expense on our debt of $6 million, which was partially offset by higher interest income of $3 million.

• Other income, net for the first quarter of 2023 declined $9 million compared to the prior year period primarily driven by gains on asset sales in the first quarter of 2022. Other income for the current period includes a $3 million gain on the purchase of debt.

The effective tax rate for the three months ended March 31, 2023 and 2022 was 29.6% and 16.8%, respectively.

Net loss for the quarter was $8 million compared to net income of $21 million in the prior year period.

SEGMENT RESULTS

Management measures segment profitability and performance by deducting from segment revenue the related costs and expenses attributable to the segment. Segment results exclude interest, taxes, unallocated corporate expenses, restructuring charges, and other items not allocated to a business segment.

Global Ecommerce

Global Ecommerce includes the revenue and related expenses from domestic parcel services, cross-border services and digital delivery services. Our domestic parcel services provide retailers domestic parcel delivery and returns services for its end consumers through our nationwide parcel sortation centers and transportation network. Our cross-border services offers our clients a range of services to manage their international shopping and parcel shipping experience. Using our digital delivery services, clients can purchase postage, print shipping labels and access shipping and tracking services from multiple carriers. Delivery and return parcels using our digital delivery services are not physically processed through our network.

Financial performance for the Global Ecommerce segment was as follows:


	Three Months Ended March 31,
							Favorable/(Unfavorable)
	2023			2022			Actual % Change		Constant Currency % change
Business Services Revenue	$	348,391		$	418,527		(17)	%	(16)	%
Cost of Business Services	326,746			368,468			11	%
Gross Margin	21,645			50,059			(57)	%
Gross Margin %	6.2		%	12.0		%

Selling, general and administrative	53,210			60,861			13	%
Research and development	2,641			2,894			9	%
Adjusted segment EBIT	$	(34,206)		$	(13,696)		>(100%)

Global Ecommerce revenue decreased 17% (16% at constant currency) in the first quarter of 2023 compared to the prior year period. The change in revenue presentation for digital delivery services and the sale of Borderfree impacted current period revenue by $38 million and $12 million, respectively, adversely contributing a 12% revenue decline. Global Ecommerce revenue was also adversely impacted by lower cross-border parcel volumes primarily driven by changes in how two of our largest clients access our services, which contributed a 7% revenue decline and a decline in the number of shipping labels printed for digital delivery services contributed a revenue decline of 3%. These declines were partially offset by an increase in domestic parcel delivery volumes contributing revenue growth of 6%.

Gross margin decreased $28 million and gross margin percentage decreased to 6.2% from 12.0% compared to the prior year period. Cross-border services gross margin declined $16 million, primarily due to a decline in higher-margin parcel volumes. Digital delivery services gross margin declined $5 million primarily due to the decline in the number of shipping labels printed. The sale of Borderfree contributed a decline in gross margin of $4 million. Offsetting these declines, domestic parcel delivery services gross margin increased $1 million compared to the prior year primarily due to higher parcel volumes.

Selling, general and administrative expenses declined $8 million, primarily due to lower amortization expense of $4 million and lower credit card fees of $3 million.

As a result of the factors above, adjusted segment loss for the first quarter of 2023 increased $21 million to a loss of $34 million compared to the prior year period.

Presort Services

We are the largest workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large volumes of First Class Mail, Marketing Mail, and Marketing Mail Flats and Bound Printed Matter for postal worksharing discounts.

Financial performance for the Presort Services segment was as follows:


	Three Months Ended March 31,
							Favorable/(Unfavorable)
	2023			2022			Actual % Change		Constant Currency % change
Business Services Revenue	$	158,902		$	160,544		(1)	%	(1)	%
Cost of Business Services	112,496			124,652			10	%
Gross Margin	46,406			35,892			29	%
Gross Margin %	29.2		%	22.4		%

Selling, general and administrative	19,446			16,212			(20)	%

Other components of net pension and postretirement costs	55			48			(15)	%
Adjusted segment EBIT	$	26,905		$	19,632		37	%

Total mail volumes sorted in the quarter declined 9% compared to the prior year quarter. Revenue decreased 1% driven by the decline in mail volumes offset by pricing actions to mitigate inflationary pressures on costs. The processing of Marketing Mail and First Class Mail contributed revenue declines of 2% and 1%, respectively, which was partially offset by an increase in revenue of 2% from the processing of Marketing Mail Flats and Bound Printed Matter.

Gross margin increased $11 million and gross margin percentage increased from 22.4% to 29.2% compared to the prior year period. These margin improvements were driven by investments we made in network management, automation and higher-throughput sortation equipment. As a result of these investments, transportation costs declined $5 million due to improved network management and production labor costs declined $4 million due to higher mail throughput per labor hour.

Selling, general and administrative expenses increased $3 million primarily due to higher salaries and variable compensation expense.

As a result of the above, adjusted segment profit increased $7 million, or 37%, compared to the prior year period.

SendTech Solutions

SendTech Solutions provides clients with physical and digital mailing and shipping technology solutions and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats, as well as supplies and maintenance services for these offerings. We offer financing alternatives that enable clients to finance equipment and product purchases, and a revolving credit solution that enables clients to make meter rental payments and purchase postage, services and supplies and an interest-bearing deposit solution to clients who prefer to prepay postage. We also offer financing alternatives that enable clients to finance or lease other manufacturers’ equipment and provide working capital.

Financial performance for the SendTech Solutions segment was as follows:


	Three Months Ended March 31,
							Favorable/(Unfavorable)
	2023			2022			Actual % change		Constant Currency % change
Business services	$	16,198		$	18,313		(12)	%	(11)	%
Support services	105,284			110,352			(5)	%	(3)	%
Financing	67,049			72,029			(7)	%	(6)	%
Equipment sales	82,610			89,296			(7)	%	(6)	%
Supplies	38,835			41,061			(5)	%	(3)	%
Rentals	17,269			16,820			3	%	4	%
Total revenue	327,245			347,871			(6)	%	(5)	%

Cost of business services	6,667			9,882			33	%
Cost of support services	36,532			36,935			1	%
Cost of equipment sales	56,716			63,441			11	%
Cost of supplies	11,156			11,475			3	%
Cost of rentals	5,360			5,267			(2)	%
Total costs of revenue	116,431			127,000			8	%

Gross margin	210,814			220,871			(5)	%
Gross margin %	64.4		%	63.5		%

Selling, general and administrative	109,697			110,842			1	%
Research and development	5,044			5,539			9	%
Other components of pension and post retirement costs	(598)			(85)			>(100%)
Adjusted Segment EBIT	$	96,671		$	104,575		(8)	%

SendTech Solutions revenue decreased 6% (5% at constant currency) in the first quarter of 2023 compared to the prior year period. Equipment sales declined 7% (6% at constant currency) primarily due to unusually high demand in the last half of 2021 that translated into higher than normal installations in the first quarter of 2022. Support services revenue declined 5% (3% at constant currency) primarily due to the continuing shift to cloud-enabled products that do not include an annual maintenance agreement option. Financing revenue declined 7% (6% at constant currency) primarily due to $2 million of lower lease extensions as more clients are opting to lease new equipment rather than extend leases on existing equipment and lower late fees of $1 million.

Gross margin decreased $10 million primarily due to the decline in revenue, but gross margin percentage increased to 64.4% from 63.5% compared to the prior year period, primarily due to improvements in business services, equipment sales and rentals margins.

Adjusted segment EBIT decreased $8 million, or 8%, primarily due to the decrease in gross margin of $10 million, partially offset by lower operating expenses of $2 million.

UNALLOCATED CORPORATE EXPENSES

The majority of our operating expenses are recorded directly or allocated to our reportable segments. Operating expenses not recorded directly, or allocated to our reportable segments, are reported as unallocated corporate expenses. Unallocated corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology, and research and development.

Unallocated corporate expenses were as follows:


	Three Months Ended March 31,
						Favorable/(Unfavorable)
		2023		2022		Actual % change
Unallocated corporate expenses		$	56,349	$	57,834	(3)	%

Unallocated corporate expenses for the first quarter of 2023 decreased $1 million, compared to the prior year period primarily due to lower variable compensation expense of $4 million, partially offset by higher insurance costs of $1 million.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2023, we had cash, cash equivalents and short-term investments of $527 million, which includes $140 million held at our foreign subsidiaries used to support the liquidity needs of those subsidiaries. Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our clients' ability to pay their balances on a timely basis, the impacts of changing macroeconomic and geopolitical conditions and our ability to manage costs and improve productivity. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our $500 million revolving credit facility will be sufficient to fund our cash needs for the next 12 months.

Cash Flow Summary

Changes in cash and cash equivalents were as follows:


	2023		2022		Change
Net cash from operating activities	$	(39,714)	$	10,562	$	(50,276)
Net cash from investing activities	(41,413)		28,029		(69,442)
Net cash from financing activities	(79,442)		(145,858)		66,416
Effect of exchange rate changes on cash and cash equivalents	2,349		(2,638)		4,987
Change in cash and cash equivalents	$	(158,220)	$	(109,905)	$	(48,315)

Operating Activities

Cash flows from operating activities in 2023 declined $50 million compared to the prior year period. This decline was driven in part by lower net income and higher payments of accounts payable ($44 million) and accrued liabilities ($21 million), partially offset by higher cash of $53 million from changes in accounts and finance receivables.

Investing Activities

Cash flows from investing activities for 2023 declined $69 million compared to the prior year period as the prior year benefited from proceeds of $60 million from the sale of a business and our Shelton, Connecticut office building.

Financing Activities

Cash flows from financing activities for 2023 improved $66 million compared to the prior year period primarily due to lower net repayments of debt of $70 million and prior year common stock repurchases of $13 million, partially offset by a decline in reserve account deposits at the Bank of $21 million.

Financings and Capitalization

During 2023, we purchased an aggregate $26 million of the March 2024 notes and March 2027 notes in the open market and made scheduled term loan principal repayments of $7 million.

The credit agreement that governs our $500 million secured revolving credit facility and term loans contains financial and non-financial covenants. At March 31, 2023, we were in compliance with all covenants and there were no outstanding borrowings under the revolving credit facility. Borrowings under the revolving credit facility and term loans are secured by assets of the company.

We have $262 million of debt that is due withing the next 12 months, including our March 2024 notes. We are currently planning to refinance these notes in the U.S. capital markets. However, in the event we are unable to obtain acceptable terms and conditions in the U.S. capital markets, we plan to use a combination of cash on hand and capacity under our secured revolving credit facility to repay the obligation.

The Pitney Bowes Bank, a wholly owned subsidiary, is a member of the Federal Home Loan Bank of Des Moines. As a member, the Bank has access to certain credit products as a funding source known as "advances." As of March 31, 2023, the Bank had yet to apply for any advances.

Each quarter, our Board of Directors considers whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends. We expect to continue to pay a quarterly dividend; however, no assurances can be given.

Contractual Obligations and Off-Balance Sheet Arrangements

At March 31, 2023, we have entered into real estate and equipment leases with aggregate payments of $62 million and terms ranging from three to seven years that have not commenced. Most of these leases are expected to commence in the first half of 2023.

At March 31, 2023, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.

Critical Accounting Estimates

Goodwill

At December 31, 2022, the estimated fair value of the Global Ecommerce reporting unit exceeded its carrying value by less than 10%. T he fair value of the reporting unit was estimated using a discounted cash flow model based on management developed cash flow projections, which included judgements and assumptions related to revenue growth rates, operating margins, operating income, and a discount rate. During the first quarter of 2023, there were no triggering events that required us to determine if the goodwill of this reporting unit was impaired. However, the judgements and assumptions used to estimate the fair value of this reporting unit at December 31, 2022 were inherently subjective and changes in any of the judgements or assumptions used could result in a different fair value determination in a future period.

Regulatory Matters

There have been no significant changes to the regulatory matters disclosed in our 2022 Annual Report.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosures made in our 2022 Annual Report.

Item 4: Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding disclosures.

With the participation of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controls over financial reporting as of the end of the period covered by this report. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of March 31, 2023.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

See Note 13 to the Condensed Consolidated Financial Statements.

Item 1A: Risk Factors

There were no material changes to the risk factors identified in our 2022 Annual Report.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

We periodically repurchase shares of our common stock in the open market to manage the dilution created by shares issued under employee stock plans and for other purposes. There were no purchases of our common stock during the three months ended March 31, 2023. We have remaining authorization to purchase up to $3 million of our common stock.

Item 6: Exhibits


Exhibit Number	Description	Exhibit Number in this Form 10-Q

3(i)(a)	Amended and Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(i)(a) to the Form 8-K filed with the Commission on September 30, 2019)	3(i)(a)
3	Pitney Bowes Inc. Amended and Restated By-laws effective May 13, 2013 (incorporated by reference to Exhibit 3 to the Form 8-K filed with the Commission on May 15, 2013)	3

10	Pitney Bowes Inc. Key Employees' Incentive Plan (as amended and r estated January 23, 2023)	10




31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended	31.1
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended	31.2
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350	32.1
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350	32.2
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document
104	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL. (included as Exhibit 101).

* Pursuant to Item 601(a)(5) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish

supplementally a copy of any omitted attachment to the SEC upon request.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		PITNEY BOWES INC.

Date:	May 5, 2023

		/s/ Ana Maria Chadwick

		Ana Maria Chadwick
		Executive Vice President and Chief Financial Officer

		(Duly Authorized Officer and Principal Financial Officer)

		/s/ Joseph R. Catapano

		Joseph R. Catapano
		Vice President and Chief Accounting Officer
		(Duly Authorized Officer and Principal Accounting Officer)

TABLE OF CONTENTS

Part I. Financial Information Item 1: Financial Statements Item 2: Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2: Management S Discussion and Analysis Of Item 3: Quantitative and Qualitative Disclosures About Market Risk Item 4: Controls and Procedures Part II. Other Information Item 1: Legal Proceedings Item 1A: Risk Factors Item 2: Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6: Exhibits

Exhibits

3(i)(a) Amended and Restated Certificate of Incorporation of Pitney Bowes Inc. (incorporated by reference to Exhibit 3(i)(a) to the Form 8-K filed with the Commission on September 30, 2019) 3(i)(a) 3 Pitney Bowes Inc. Amended and Restated By-laws effective May 13, 2013 (incorporated by reference to Exhibit 3 to the Form 8-K filed with the Commission on May 15, 2013) 3 10 Pitney Bowes Inc. Key Employees' Incentive Plan (as amendedandrestated January 23, 2023) 10 31.1 Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended 31.1 31.2 Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended 31.2 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 32.1 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 32.2

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PBI 10-Q Quarter ended March 31, 2023

Exhibits