PITNEY BOWES INC /DE/
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
OR
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number:
1-03579
(Exact name of registrant as specified in its charter)
| State of incorporation: |
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I.R.S. Employer Identification No. |
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| Address of Principal Executive Offices: |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
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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.
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þ | Accelerated filer | ☐ | Non-accelerated filer | o | ||||||||||||
| Smaller reporting company |
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Emerging growth company |
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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 26, 2024,
178,875,218
shares of common stock, par value $1 per share, of the registrant were outstanding.
PITNEY BOWES INC.
INDEX
| Page Number | ||||||||
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023 | ||||||||
| Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 | ||||||||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 | ||||||||
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Item 6:
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Exhibits
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2
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, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue: | |||||||||||
| Business services | $ |
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$ |
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| Support services |
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| Financing |
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| Equipment sales |
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| Supplies |
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| Rentals |
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| Total revenue |
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| Costs and expenses: | |||||||||||
| Cost of business services |
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| Cost of support services |
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| Financing interest expense |
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| Cost of equipment sales |
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| Cost of supplies |
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| Cost of rentals |
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| Selling, general and administrative |
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| Research and development |
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| Restructuring charges |
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| Interest expense, net |
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| Other components of net pension and postretirement income |
(
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(
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| Other income |
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(
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| Total costs and expenses |
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| Income (loss) before taxes |
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(
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| Provision (benefit) for income taxes |
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(
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| Net loss | $ |
(
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$ |
(
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| Basic net loss per share | $ |
(
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$ |
(
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| Diluted net loss per share | $ |
(
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$ |
(
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See Notes to Condensed Consolidated Financial Statements
3
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net loss | $ |
(
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$ |
(
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| Other comprehensive (loss) income, net of tax: | |||||||||||
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Foreign currency translation, net of tax of $(
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(
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Net unrealized loss on cash flow hedges, net of tax of $(
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(
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(
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Net unrealized (loss) gain on investment securities, net of tax of $(
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(
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Amortization of pension and postretirement costs, net of tax of $
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| Other comprehensive (loss) income, net of tax |
(
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| Comprehensive (loss) income | $ |
(
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$ |
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See Notes to Condensed Consolidated Financial Statements
4
PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except per share amount)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Short-term investments (includes $
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Accounts and other receivables (net of allowance of $
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Short-term finance receivables (net of allowance of $
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| Inventories |
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| Current income taxes |
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| Other current assets and prepayments |
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| Total current assets |
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| Property, plant and equipment, net |
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| Rental property and equipment, net |
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Long-term finance receivables (net of allowance of $
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| Goodwill |
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| Intangible assets, net |
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| Operating lease assets |
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| Noncurrent income taxes |
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Other assets (includes $
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| Total assets | $ |
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$ |
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| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ |
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$ |
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| Customer deposits at Pitney Bowes Bank |
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| Current operating lease liabilities |
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| Current portion of long-term debt |
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| Advance billings |
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| Current income taxes |
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| Total current liabilities |
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| Long-term debt |
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| Deferred taxes on income |
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| Tax uncertainties and other income tax liabilities |
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| Noncurrent operating lease liabilities |
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| Other noncurrent liabilities |
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| Total liabilities |
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| Commitments and contingencies (See Note 13) |
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| Stockholders’ deficit: | |||||||||||
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Common stock, $
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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Treasury stock, at cost (
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(
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(
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| Total stockholders’ deficit |
(
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(
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| Total liabilities and stockholders’ deficit | $ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
5
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ |
(
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$ |
(
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Adjustments to reconcile net income or loss to net cash from operating activities:
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| Depreciation and amortization |
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| Allowance for credit losses |
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| Stock-based compensation |
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| Amortization of debt fees |
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Gain on debt redemption
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(
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| Restructuring charges |
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| Restructuring payments |
(
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(
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| Pension contributions and retiree medical payments |
(
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(
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| Other, net |
(
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| Changes in operating assets and liabilities, net of acquisitions/divestitures: | |||||||||||
| Accounts and other receivables |
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| Finance receivables |
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| Inventories |
(
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(
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| Other current assets and prepayments |
(
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(
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| Accounts payable and accrued liabilities |
(
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(
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| Current and noncurrent income taxes |
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(
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| Advance billings |
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(
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| Net cash from operating activities |
(
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(
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| Cash flows from investing activities: | |||||||||||
| Capital expenditures |
(
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(
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| Purchases of investment securities |
(
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(
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| Proceeds from sales/maturities of investment securities |
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| Net investment in loan receivables |
(
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(
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| Other investing activities, net |
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(
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| Net cash from investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Principal payments of debt |
(
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(
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| Dividends paid to stockholders |
(
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(
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| Customer deposits at Pitney Bowes Bank |
(
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(
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| Other financing activities, net |
(
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(
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| Net cash from financing activities |
(
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(
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| Effect of exchange rate changes on cash and cash equivalents |
(
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| Change in cash and cash equivalents |
(
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(
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
6
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
During the three months ended March 31, 2024, the Company identified an error and recorded an out of period adjustment of $
5
million to correct the understatement of revenue in prior periods, of which $
4
million originated in 2020 and prior. The impact of the adjustment is not material to the consolidated financial statements for any prior interim or annual periods and is not expected to be material to the 2024 annual period.
Accounting Pronouncements Adopted in 2024
Effective January 1, 2024, we adopted 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 required certain contracts to be modified. The adoption of this standard did not have an impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
, which requires additional transparency for income tax disclosures, including the rate reconciliation table and cash taxes paid. This standard is effective for annual periods beginning after December 15, 2024. We are currently assessing the impact this standard will have on our disclosures.
In November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,
which requires enhanced disclosures about significant segment expenses and information used to assess segment performance. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently assessing the impact this standard will have on our disclosures.
7
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, 2024 | ||||||||||||||||||||
| 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 | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Support services |
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| Financing |
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| Equipment sales |
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| Supplies |
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| Rentals |
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| Subtotal |
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$ |
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$ |
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| Revenue from leasing transactions and financing |
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| Total revenue | $ |
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$ |
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$ |
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$ |
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| Timing of revenue recognition from products and services | ||||||||||||||||||||
| Products/services transferred at a point in time | $ |
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$ |
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$ |
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$ |
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| Products/services transferred over time |
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| Total | $ |
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$ |
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$ |
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$ |
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| 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 | $ |
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$ |
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$ |
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$ |
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$ |
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$ |
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| Support services |
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| Financing |
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| Equipment sales |
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| Supplies |
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| Rentals |
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| Subtotal |
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$ |
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$ |
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| Revenue from leasing transactions and financing |
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| Total revenue | $ |
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$ |
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$ |
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$ |
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| Timing of revenue recognition from products and services | ||||||||||||||||||||
| Products/services transferred at a point in time | $ |
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$ |
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$ |
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$ |
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| Products/services transferred over time |
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| Total | $ |
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$ |
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$ |
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$ |
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8
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. Revenues for fulfillment, delivery and return services, cross-border solutions, and mail processing services are 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
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
to
five years
. 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 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 the sale of 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 (the Bank).
Advance Billings from Contracts with Customers
| Balance sheet location | March 31, 2024 | December 31, 2023 | Increase/ (decrease) | ||||||||||||||||||||
| Advance billings, current | Advance billings | $ |
|
$ |
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$ |
(
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| Advance billings, noncurrent | Other noncurrent liabilities | $ |
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$ |
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$ |
(
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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 $
48
million of advance billings at the beginning of the period. Current advance billings shown above at March 31, 2024 and December 31, 2023 does not include $
8
million and $
7
million, respectively, from leasing transactions.
Future Performance Obligations
Future performance obligations primarily include maintenance and subscription services bundled with our leasing contracts.
The transaction prices allocated to future performance obligations will be recognized as follows:
| Remainder of 2024 | 2025 | 2026-2029 | Total | |||||||||||||||||||||||
| SendTech Solutions | $ |
|
$ |
|
$ |
|
$ |
|
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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.
9
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
3.
Segment Information
Effective January 1, 2024, we moved the digital delivery services offering from the Global Ecommerce segment to the SendTech Solutions segment in order to leverage our technology and innovation capabilities to better serve our clients. Prior periods have been recast to conform to our current segment presentation.
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 consumer logistics services for domestic and cross-border delivery, returns and fulfillment.
Presort Services
: Includes revenue and related expenses from sortation services that qualify large volumes of First Class Mail, Marketing Mail and 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, general corporate expenses, restructuring charges, goodwill impairment charges and other items not allocated to a particular business segment. 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 income or loss.
| Revenue | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Global Ecommerce | $ |
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$ |
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| Presort Services |
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| SendTech Solutions |
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| Total revenue | $ |
|
$ |
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| Adjusted Segment EBIT | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Global Ecommerce | $ |
(
|
$ |
(
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| Presort Services |
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| SendTech Solutions |
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| Total adjusted segment EBIT |
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| Reconciliation of adjusted segment EBIT to net income or loss: | |||||||||||
| Interest expense, net |
(
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(
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| Unallocated corporate expenses |
(
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(
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| Restructuring charges |
(
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(
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| Proxy solicitation fees |
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(
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Gain on debt redemption
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| Foreign currency gain on intercompany loans |
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| Transaction costs |
(
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| (Provision) benefit for income taxes |
(
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| Net loss | $ |
(
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$ |
(
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10
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 (EPS)
The calculation of basic and diluted earnings per share is presented below. The sum of the earnings per share amounts may not equal the totals due to rounding.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Numerator: | |||||||||||
| Net loss | $ |
(
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$ |
(
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| Denominator: | |||||||||||
| Weighted-average shares used in basic EPS |
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Dilutive effect of common stock equivalents
(1)
|
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| Weighted-average shares used in diluted EPS |
|
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| Basic net loss per share | $ |
(
|
$ |
(
|
|||||||
| Diluted net loss per share | $ |
(
|
$ |
(
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|||||||
| Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive: |
|
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(1)
Due to the net loss for the three months ended March 31, 2024 and 2023, an additional
4.5
million and
4.7
million, respectively, 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,
2024 |
December 31,
2023 |
||||||||||
| Raw materials | $ |
|
$ |
|
|||||||
| Supplies and service parts |
|
|
|||||||||
| Finished products |
|
|
|||||||||
| Total inventories | $ |
|
$ |
|
|||||||
11
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 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
to
five years
. Unsecured loans are revolving credit lines offered to our clients for postage, supplies and working capital purposes. Unsecured loans 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, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| North America | International | Total | North America | International | Total | ||||||||||||||||||||||||||||||
| Sales-type lease receivables | |||||||||||||||||||||||||||||||||||
| Gross finance receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Unguaranteed residual values |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Unearned income |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Allowance for credit losses |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Net investment in sales-type lease receivables |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Loan receivables | |||||||||||||||||||||||||||||||||||
| Loan receivables |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Allowance for credit losses |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Net investment in loan receivables |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Net investment in finance receivables | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
Maturities of gross finance receivables at March 31, 2024 were as follows:
| Sales-type Lease Receivables | Loan Receivables | ||||||||||||||||||||||||||||||||||
| North America | International | Total | North America | International | Total | ||||||||||||||||||||||||||||||
| Remainder 2024 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| 2025 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| 2026 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| 2027 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| 2028 |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Thereafter |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
12
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, 2024 | |||||||||||||||||||||||||||||
| Sales-type Lease Receivables | Loan Receivables | ||||||||||||||||||||||||||||
|
North
America |
International |
North
America |
International | Total | |||||||||||||||||||||||||
| Past due amounts 0 - 90 days | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Past due amounts > 90 days |
|
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| Sales-type Lease Receivables | Loan Receivables | ||||||||||||||||||||||||||||
|
North
America |
International |
North
America |
International | Total | |||||||||||||||||||||||||
| Past due amounts 0 - 90 days | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Past due amounts > 90 days |
|
|
|
|
|
||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
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 establish credit approval limits based on the client's credit quality and the type of equipment financed. We cease financing revenue recognition for lease receivables and 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.
13
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, 2024 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Amounts charged to expense |
|
(
|
|
|
|
||||||||||||||||||||||||
| Write-offs |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Recoveries |
|
|
|
|
|
||||||||||||||||||||||||
| Other |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Balance at March 31, 2024 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Sales-type Lease Receivables | Loan Receivables | ||||||||||||||||||||||||||||
|
North
America |
International |
North
America |
International | Total | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Amounts charged to expense |
|
|
|
|
|
||||||||||||||||||||||||
| Write-offs |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Recoveries |
|
|
|
|
|
||||||||||||||||||||||||
| Other |
|
(
|
|
|
(
|
||||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
The table below shows write-offs of gross finance receivables by year of origination.
| March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales Type Lease Receivables | Loan Receivables | Total | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ||||||||||||||||||||||||||||||||||||||||||
| Write-offs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Sales Type Lease Receivables | Loan Receivables | Total | |||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | Prior | |||||||||||||||||||||||||||||||||||||
| Write-offs | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||
14
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 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 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 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. 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, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales Type Lease Receivables | Loan Receivables | Total | |||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | ||||||||||||||||||||||||||||||||||||||||||
| Low | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Medium |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| High |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Not Scored |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales Type Lease Receivables | Loan Receivables | Total | |||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ||||||||||||||||||||||||||||||||||||||||||
| Low | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Medium |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| High |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Not Scored |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
15
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, | |||||||||||
| 2024 | 2023 | ||||||||||
| Profit recognized at commencement | $ |
|
$ |
|
|||||||
| Interest income |
|
|
|||||||||
| Total lease income from sales-type leases | $ |
|
$ |
|
|||||||
Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of
to
five years
.
Maturities of these operating leases are as follows:
| Remainder 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| Total | $ |
|
|||
16
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 consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
||||||||||||||||||||||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
| Software & technology |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total intangible assets | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||
Amortization expense for both the three months ended March 31, 2024 and 2023 was $
4
million.
Future amortization expense as of March 31, 2024 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 2024 | $ |
|
|||
| 2025 |
|
||||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| Thereafter |
|
||||
| Total | $ |
|
|||
Goodwill
Changes in the carrying value of goodwill by reporting segment are shown in the table below.
| December 31, 2023 | Currency impact |
March 31,
2024 |
|||||||||||||||
| Presort Services | $ |
|
$ |
|
$ |
|
|||||||||||
| SendTech Solutions |
|
(
|
|
||||||||||||||
| Total goodwill | $ |
|
$ |
(
|
$ |
|
|||||||||||
17
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, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||
| Money market funds | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Commingled fixed income securities |
|
|
|
|
|||||||||||||||||||
|
Government and related securities
|
|
|
|
|
|||||||||||||||||||
| Corporate debt securities |
|
|
|
|
|||||||||||||||||||
| Mortgage-backed / asset-backed securities |
|
|
|
|
|||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swap |
|
|
|
|
|||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||
| Money market funds | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Equity securities |
|
|
|
|
|||||||||||||||||||
| Commingled fixed income securities |
|
|
|
|
|||||||||||||||||||
|
Government and related securities
|
|
|
|
|
|||||||||||||||||||
| Corporate debt securities |
|
|
|
|
|||||||||||||||||||
| Mortgage-backed / asset-backed securities |
|
|
|
|
|||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swap |
|
|
|
|
|||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
18
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Investment Securities
The valuation of investment securities is based on a 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
•
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.
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 recorded in accumulated other comprehensive loss (AOCL), and changes in fair value due to credit conditions recorded in earnings. There were no unrealized losses charged to earnings in the three months ended March 31, 2024.
Available-for-sale securities consisted of the following:
| March 31, 2024 | |||||||||||||||||
| Amortized cost | Gross unrealized losses | Estimated fair value | |||||||||||||||
| Government and related securities | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Corporate debt securities |
|
(
|
|
||||||||||||||
| Commingled fixed income securities |
|
(
|
|
||||||||||||||
| Mortgage-backed / asset-backed securities |
|
(
|
|
||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
|||||||||||
19
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
| December 31, 2023 | |||||||||||||||||
| Amortized cost | Gross unrealized losses | Estimated fair value | |||||||||||||||
| Government and related securities | $ |
|
$ |
(
|
$ |
|
|||||||||||
| Corporate debt securities |
|
(
|
|
||||||||||||||
| Commingled fixed income securities |
|
(
|
|
||||||||||||||
| Mortgage-backed / asset-backed securities |
|
(
|
|
||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
|||||||||||
Investment securities in a loss position were as follows:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Fair Value | Gross unrealized losses | Fair Value | Gross unrealized losses | ||||||||||||||||||||
| Greater than 12 continuous months | |||||||||||||||||||||||
| Government and related securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Corporate debt securities |
|
|
|
|
|||||||||||||||||||
| Mortgage-backed / asset-backed securities |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Less than 12 continuous months | |||||||||||||||||||||||
| Corporate debt securities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Commingled fixed income securities |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
At March 31, 2024, all securities in the investment portfolio were in an unrealized 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.
Scheduled maturities of available-for-sale securities at March 31, 2024 were as follows:
| Amortized cost | Estimated fair value | ||||||||||
| Within 1 year | $ |
|
$ |
|
|||||||
| After 1 year through 5 years |
|
|
|||||||||
| After 5 years through 10 years |
|
|
|||||||||
| After 10 years |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
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, 2024 and December 31, 2023 totaled $
225
million and $
265
million, respectively. Held-to-maturity securities include certificates of deposits with maturities less than
90
days and highly-liquid government securities with maturities less than
two years
.
20
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Derivative Instruments
We are exposed to the impact of changes in interest rates and foreign currency exchange rates. We may use derivative instruments to limit the effects on our financial results from changes in interest rates and currency exchange rates. We do not use derivatives for trading or speculative purposes.
Interest Rate Swaps
At March 31, 2024, we had outstanding interest rate swap agreements that effectively convert $
200
million of variable rate debt to fixed rates. 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.
These swaps are designated as cash flow hedges and are recorded at fair value at the end of each reporting period. Changes in fair value are reflected in AOCL. The impact of these interest rate swaps was 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 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||
| Interest rate swap | $ |
(
|
$ |
(
|
Interest expense | $ |
|
$ |
|
|||||||||||||||||||||||
Foreign Exchange Contracts
During the quarter ended March 31, 2024, we did not enter into any foreign currency exchange contracts.
In the first quarter of 2023, we had outstanding foreign exchange contracts to mitigate the currency risk associated with anticipated inventory purchases between affiliates and from third parties. The impact of these derivative contracts on our financial results was not material.
In the first quarter of 2023, we also had outstanding foreign exchange contracts to minimize the impact on earnings from the revaluation of short-term interest-bearing intercompany loans denominated in a foreign currency. These foreign exchange contracts were not designated as hedging instruments and the revaluation of intercompany loans and the change in fair value of these derivatives were recorded in earnings. The mark-to-market adjustment on these foreign exchange contracts for the three months ended March 31, 2023, was a gain of $
2
million and significantly offset the corresponding loss on the revaluation of intercompany loans.
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, 2024 | December 31, 2023 | ||||||||||
| Carrying value | $ |
|
$ |
|
|||||||
| Fair value | $ |
|
$ |
|
|||||||
21
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
9.
Restructuring Charges
In May 2023, we approved a worldwide restructuring plan (the 2023 Plan) designed to improve profitability and cash flow. This will be achieved through the elimination of
850
-
950
positions worldwide in part through further centralization and standardization of processes, including the expansion of our shared services activities, increased automation, and the consolidation or closure of select facilities in North America. Total charges are expected to be $
60
-$
70
million and we expect to substantially complete these actions by the end of the first half of 2024. Total charges under the 2023 Plan to date are $
62
million.
Activity in our restructuring reserves was as follows:
| 2023 Plan | Prior Plan | Total | |||||||||||||||
| Balance at January 1, 2024 | $ |
|
$ |
|
$ |
|
|||||||||||
| Amounts charged to expense |
|
|
|
||||||||||||||
| Cash payments |
(
|
|
(
|
||||||||||||||
| Noncash activity |
(
|
|
(
|
||||||||||||||
| Balance at March 31, 2024 | $ |
|
$ |
|
$ |
|
|||||||||||
| Balance at January 1, 2023 | $ |
|
$ |
|
$ |
|
|||||||||||
| Amounts charged to expense |
|
|
|
||||||||||||||
| Cash payments |
|
(
|
(
|
||||||||||||||
| Balance at March 31, 2023 | $ |
|
$ |
|
$ |
|
|||||||||||
Components of restructuring expense were as follows:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | ||||||||||
| Severance | $ |
|
$ |
|
|||||||
| Facilities and other |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
22
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, 2024 | December 31, 2023 | ||||||||||||||
| Term loan due March 2026 |
SOFR +
|
$ |
|
$ |
|
||||||||||||
| Notes due March 2027 |
|
|
|
||||||||||||||
| Notes due March 2028 |
SOFR +
|
|
|
||||||||||||||
| Term loan due March 2028 |
SOFR +
|
|
|
||||||||||||||
| Notes due March 2029 |
|
|
|
||||||||||||||
| Notes due January 2037 |
|
|
|
||||||||||||||
| Notes due March 2043 |
|
|
|
||||||||||||||
| Other debt |
|
|
|||||||||||||||
| Principal amount |
|
|
|||||||||||||||
| Less: unamortized costs, net |
|
|
|||||||||||||||
| Total debt |
|
|
|||||||||||||||
| Less: current portion long-term debt |
|
|
|||||||||||||||
| Long-term debt | $ |
|
$ |
|
|||||||||||||
At March 31, 2024, the interest rate on the 2026 Term Loan was
7.7
%, the interest rate on the 2028 Term Loan was
9.4
% and the interest rate on the March 2028 notes was
12.2
%.
23
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, | |||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Interest cost |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|
|
|||||||||||||||||||||||||||||
| Amortization of prior service (credit) cost |
(
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
| Amortization of net actuarial loss (gain) |
|
|
|
|
(
|
(
|
|||||||||||||||||||||||||||||
| Net periodic benefit (income) cost | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Contributions to benefit plans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
12.
Income Taxes
The effective tax rate for the three months ended March 31, 2024 was
129.8
% compared to
29.6
% for the prior year period. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. The forecasted annual income earned in foreign jurisdictions offset by U.S. losses will result in minimal consolidated pre-tax income. Accordingly, unfavorable tax adjustments related to the U.S. taxation of our foreign operations and state valuation allowance adjustments has resulted in a high quarterly and annual effective tax rate.
On a regular basis, we conclude tax return examinations, statutes of limitation expire, and court decisions interpret tax law. We regularly assess tax uncertainties in light of these developments; and 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
10
% of our unrecognized tax benefits.
13.
Commitments and Contingencies
24
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
14.
Stockholders’ Deficit
Changes in stockholders’ deficit were as follows:
| Common stock | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total deficit | |||||||||||||||||||||||||
| Balance at January 1, 2024 | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Net loss | — |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Other comprehensive loss | — | — |
(
|
— |
(
|
||||||||||||||||||||||||
|
Dividends paid ($
|
— |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Issuance of common stock | — |
(
|
— |
|
(
|
||||||||||||||||||||||||
|
Stock-based compensation expense
|
— |
|
— | — |
|
||||||||||||||||||||||||
| Balance at March 31, 2024 | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Common stock | Retained earnings | Accumulated other comprehensive loss | Treasury stock | Total deficit | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
| Net loss | — |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Other comprehensive income | — | — |
|
— |
|
||||||||||||||||||||||||
|
Dividends paid ($
|
— |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Issuance of common stock | — |
(
|
— |
|
(
|
||||||||||||||||||||||||
|
Stock-based compensation expense
|
— |
|
— | — |
|
||||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
25
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, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flow hedges | |||||||||||
| Cost of sales | $ |
|
$ |
|
|||||||
| Interest expense, net |
|
|
|||||||||
| Total before tax |
|
|
|||||||||
| Income tax provision |
|
|
|||||||||
| Net of tax | $ |
|
$ |
|
|||||||
| Available-for-sale securities | |||||||||||
| Financing revenue | $ |
(
|
$ |
|
|||||||
| Income tax (benefit) provision |
(
|
|
|||||||||
| Net of tax | $ |
(
|
$ |
|
|||||||
|
Pension and postretirement benefit plans
|
|||||||||||
| Prior service costs | $ |
(
|
$ |
(
|
|||||||
| Actuarial losses |
(
|
(
|
|||||||||
| Total before tax |
(
|
(
|
|||||||||
| Income tax benefit |
(
|
(
|
|||||||||
| Net of tax | $ |
(
|
$ |
(
|
|||||||
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, 2024 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Other comprehensive income (loss) before reclassifications |
|
(
|
|
(
|
(
|
||||||||||||||||||||||||
| Reclassifications into earnings |
(
|
|
|
|
|
||||||||||||||||||||||||
| Net other comprehensive (loss) income |
(
|
(
|
|
(
|
(
|
||||||||||||||||||||||||
| Balance at March 31, 2024 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Cash flow hedges | Available for sale securities | Pension and postretirement benefit plans | Foreign currency adjustments | Total | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
| Other comprehensive (loss) income before reclassifications |
(
|
|
|
|
|
||||||||||||||||||||||||
| Reclassifications into earnings |
(
|
(
|
|
|
|
||||||||||||||||||||||||
| Net other comprehensive (loss) income |
(
|
|
|
|
|
||||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||
26
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 is presented below. See Note 6 for information regarding the allowance for credit losses on finance receivables.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Balance at beginning of year | $ |
|
$ |
|
|||||||
| Amounts charged to expense |
|
|
|||||||||
| Write-offs, recoveries and other |
(
|
(
|
|||||||||
| Balance at end of period | $ |
|
$ |
|
|||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash interest paid | $ |
|
$ |
|
|||||||
|
Cash income tax (refunds) payments, net
|
$ |
(
|
$ |
|
|||||||
| Noncash activity | |||||||||||
| Capital assets obtained under capital lease obligations | $ |
|
$ |
|
|||||||
Other, net within cash flows from operating activities includes $
3
million of losses from the disposal of fixed assets for both the three months ended March 31, 2024 and 2023.
27
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. 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 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 higher interest rates and the potential for future interest rate increases on our cost of debt
•
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
•
changes in international trade policies, including the imposition or expansion of trade tariffs, and other geopolitical risks, including those related to China
•
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 affecting us, our clients, or our suppliers
•
the impacts of inflation and rising prices, higher interest rates and a slow-down in economic activity, including a global recession, or a U.S. government shutdown, to the company, our clients and retail consumers
•
competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
•
capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
•
changes in labor and transportation availability and costs
•
changes in foreign currency exchange rates, especially the impact a strengthening U.S. dollar could have on our global operations
•
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
•
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
•
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
•
acts of nature and the impact of a pandemic on the Company and 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 2023 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q.
28
RESULTS OF OPERATIONS
OUTLOOK
We expect consolidated revenue to be flat to a low single-digit decline and EBIT margins to be relatively flat in 2024 compared to 2023. Within SendTech Solutions, we expect revenue and profit declines due in part to lower equipment sales as initial lease terms of prior equipment sales expire and customers are expected to renew these leases for a fixed term rather than purchase new equipment. We also expect revenue to decline from lower meter populations due to the migration to cloud-based solutions. These declines will be partially offset by higher shipping revenues.
Within Presort Services, we anticipate total volumes to be relatively flat in 2024 compared to 2023, but revenue, margin and profit to improve due to higher revenue-per-piece and lower costs driven by the investments made to improve productivity.
Within Global Ecommerce, we expect revenue growth in domestic parcel services driven by increased volumes, partially offset by lower revenue from cross-border services and lower domestic parcel revenue per piece. We anticipate margin and profit improvements compared to 2023.
We continue to make progress on our worldwide restructuring program and expect annualized cost savings in excess of the $75-$85 million target by the end of 2024, a portion of which was realized in 2023. However, we also expect higher interest and tax costs and the restoration of variable compensation costs in 2024 to significantly offset these savings.
OVERVIEW OF CONSOLIDATED RESULTS
Constant Currency
In the tables below, we report the change in revenue on a reported basis and 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.
Financial Results Summary - Three Months Ended March 31:
| Three Months Ended March 31, | |||||||||||||||||||||||
| Favorable/(Unfavorable) | |||||||||||||||||||||||
| 2024 | 2023 | Actual % Change | Constant Currency % change | ||||||||||||||||||||
| Total revenue | $ | 830,509 | $ | 834,538 | — | % | (1) | % | |||||||||||||||
| Total costs and expenses | 820,835 | 845,525 | 3 | % | |||||||||||||||||||
| Income (loss) before taxes | 9,674 | (10,987) | >100% | ||||||||||||||||||||
| Provision (benefit) for income taxes | 12,559 | (3,250) | >(100%) | ||||||||||||||||||||
| Net loss | $ | (2,885) | $ | (7,737) | 63 | % | |||||||||||||||||
Revenue decreased $4 million in the first quarter of 2024 compared to the prior year period primarily due to lower support services revenue of $9 million, lower equipment sales of $5 million and lower supplies revenue of $2 million, partially offset by an increase in business services revenue of $12 million.
Total costs and expenses decreased $25 million compared to the prior year period primarily due to:
•
Costs of revenue (excluding financing interest expense) decreased $10 million primarily due to lower cost of equipment sales of $5 million and lower cost of support services of $4 million.
•
Selling, general and administrative (SG&A) expense decreased $26 million compared to the prior year period primarily driven by lower salary expense of $8 million due to savings as a result of the 2023 Plan, non-cash foreign currency revaluation gains on intercompany loans of $5 million, lower professional and outsourcing fees of $4 million and cost savings initiatives.
•
Interest expense, net, including financing interest expense, increased $7 million compared to the prior year period primarily due to higher interest rates.
The effective tax rate for the three months ended March 31, 2024 was 129.8%. See Note 12 for more information.
Net loss for the first quarter of 2024 was $3 million compared to a net loss of $8 million in the prior year period.
29
SEGMENT RESULTS
Effective January 1, 2024, we moved the digital delivery services offering from the Global Ecommerce segment to the SendTech Solutions segment in order to leverage our technology and innovation capabilities to better serve our clients. Prior periods have been recast to conform to our current segment presentation.
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 business to consumer logistics services for domestic and cross-border delivery, returns and fulfillment. 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.
Financial performance for the Global Ecommerce segment was as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| Favorable/(Unfavorable) | |||||||||||||||||||||||
| 2024 | 2023 | Actual % Change | Constant Currency % change | ||||||||||||||||||||
| Business Services Revenue | $ | 333,265 | $ | 340,641 | (2) | % | (2) | % | |||||||||||||||
| Cost of Business Services | 330,064 | 326,001 | (1) | % | |||||||||||||||||||
| Gross Margin | 3,201 | 14,640 | (78) | % | |||||||||||||||||||
| Gross Margin % | 1.0 | % | 4.3 | % | |||||||||||||||||||
| Selling, general and administrative | 37,604 | 45,407 | 17 | % | |||||||||||||||||||
| Research and development | 1,024 | 2,405 | 57 | % | |||||||||||||||||||
| Adjusted segment EBIT | $ | (35,427) | $ | (33,172) | (7) | % | |||||||||||||||||
Global Ecommerce revenue decreased $7 million in the first quarter of 2024 compared to the prior year period. Cross-border revenue declined $30 million due to lower volumes primarily driven by changes in how two of our largest clients access our services. This was partially offset by domestic parcel delivery revenue growth of $23 million, driven by an increase in domestic parcel volumes.
Gross margin decreased $11 million and gross margin percentage decreased to 1.0% from 4.3% compared to the prior year period. Domestic parcel delivery services gross margin decreased $9 million compared to the prior year period primarily due to client/product mix and pricing pressures, which more than offset the increase in volumes and lower cost per piece, driven in part by lower transportation costs. Cross-border services gross margin declined $2 million, primarily due to the decline in volumes.
SG&A expense declined $8 million compared to the prior year period, primarily due to lower employee-related expenses of $6 million due to savings from the 2023 Plan and lower credit loss provision of $1 million.
Adjusted segment EBIT was a loss of $35 million in the first quarter of 2024 compared to a loss of $33 million in the prior year period.
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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) | |||||||||||||||||||||||
| 2024 | 2023 | Actual % Change | Constant Currency % change | ||||||||||||||||||||
| Business Services Revenue | $ | 169,807 | $ | 158,902 | 7 | % | 7 | % | |||||||||||||||
| Cost of Business Services | 107,327 | 112,496 | 5 | % | |||||||||||||||||||
| Gross Margin | 62,480 | 46,406 | 35 | % | |||||||||||||||||||
| Gross Margin % | 36.8 | % | 29.2 | % | |||||||||||||||||||
| Selling, general and administrative | 22,101 | 19,446 | (14) | % | |||||||||||||||||||
| Other components of net pension and postretirement costs | 50 | 55 | 9 | % | |||||||||||||||||||
| Adjusted segment EBIT | $ | 40,329 | $ | 26,905 | 50 | % | |||||||||||||||||
Despite a 2% decrease in total mail volumes, revenue increased $11 million in the first quarter of 2024 compared to the prior year period primarily due to pricing actions to mitigate inflationary pressures. The processing of Marketing Mail Flats and Bound Printed Matter and First Class Mail contributed revenue increases of $6 million and $5 million, respectively.
Gross margin increased $16 million and gross margin percentage increased from 29.2% in the prior period to 36.8% primarily due to the increase in revenue and the benefits from investments made in automation and higher-throughput sortation equipment. Gross margin also benefited from lower transportation costs of $2 million driven by improvements in network management.
SG&A expenses increased $3 million primarily due to higher credit loss provision of $2 million.
Adjusted segment EBIT was $40 million in the first quarter of 2024 compared to $27 million in the prior year period.
Revenue and adjusted segment EBIT were favorably impacted by a $5 million adjustment related to prior periods. Refer to Note 1 Basis of Presentation for further information.
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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, 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) | |||||||||||||||||||||||
| 2024 | 2023 | Actual % change | Constant Currency % change | ||||||||||||||||||||
| Business services | $ | 32,525 | $ | 23,948 | 36 | % | 36 | % | |||||||||||||||
| Support services | 96,333 | 105,284 | (9) | % | (8) | % | |||||||||||||||||
| Financing | 67,663 | 67,049 | 1 | % | 1 | % | |||||||||||||||||
| Equipment sales | 77,403 | 82,610 | (6) | % | (6) | % | |||||||||||||||||
| Supplies | 36,721 | 38,835 | (5) | % | (6) | % | |||||||||||||||||
| Rentals | 16,792 | 17,269 | (3) | % | (3) | % | |||||||||||||||||
| Total revenue | 327,437 | 334,995 | (2) | % | (2) | % | |||||||||||||||||
| Cost of business services | 8,977 | 7,412 | (21) | % | |||||||||||||||||||
| Cost of support services | 33,055 | 36,532 | 10 | % | |||||||||||||||||||
| Cost of equipment sales | 52,559 | 56,716 | 7 | % | |||||||||||||||||||
| Cost of supplies | 10,195 | 11,156 | 9 | % | |||||||||||||||||||
| Cost of rentals | 4,684 | 5,360 | 13 | % | |||||||||||||||||||
| Total costs of revenue | 109,470 | 117,176 | 7 | % | |||||||||||||||||||
| Gross margin | 217,967 | 217,819 | — | % | |||||||||||||||||||
| Gross margin % | 66.6 | % | 65.0 | % | |||||||||||||||||||
| Selling, general and administrative | 111,397 | 117,501 | 5 | % | |||||||||||||||||||
| Research and development | 5,829 | 5,279 | (10) | % | |||||||||||||||||||
| Other components of pension and post retirement costs | (537) | (598) | (10) | % | |||||||||||||||||||
| Adjusted Segment EBIT | $ | 101,278 | $ | 95,637 | 6 | % | |||||||||||||||||
SendTech Solutions revenue decreased $8 million in the first quarter of 2024 compared to the prior year period. Support services revenue declined $9 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $5 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. Supplies revenue declined $2 million primarily driven by a declining meter population. These revenue declines were partially offset by an increase in business services revenue of $9 million primarily driven by growth in enterprise shipping subscriptions of $3 million and digital delivery services of $3 million due to growth in shipping labels printed.
Gross margin was flat compared to the prior year period; however, gross margin percentage increased to 66.6% from 65.0% compared to the prior year period. The increase in gross margin percentage was primarily driven by improvements in business services gross margin due to growth in enterprise shipping subscriptions and growth in digital delivery services. Despite revenue declines, gross margin percentage for support services, equipment sales and supplies also improved.
SG&A expense declined $6 million, primarily driven by lower employee-related expenses of $2 million, lower marketing expenses of $1 million, lower credit loss provision of $1 million and cost savings initiatives.
Adjusted segment EBIT was $101 million in the first quarter of 2024 compared to $96 million for the prior year period.
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The majority of 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) | |||||||||||||||||
| 2024 | 2023 | Actual % change | |||||||||||||||
| Unallocated corporate expenses | $ | 49,770 | $ | 56,349 | 12 | % | |||||||||||
Unallocated corporate expenses for the first quarter of 2024 decreased $7 million compared to the prior year period primarily due to lower professional and outsourcing fees of $3 million and lower salary expense of $2 million.
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LIQUIDITY AND CAPITAL RESOURCES
Our ability to maintain adequate liquidity for our operations is dependent upon a number of factors, including our revenue and earnings, our ability to manage costs and improve productivity, our clients' ability to pay their balances on a timely basis and the impacts of changing macroeconomic and geopolitical conditions. At March 31, 2024, we had cash, cash equivalents and short-term investments of $538 million, which includes $116 million held at our foreign subsidiaries used to support their liquidity needs.
The credit agreement that governs our $500 million secured revolving credit facility and the term loan due March 2026 contains certain financial covenants. These covenants require us to maintain, on a quarterly basis, a maximum leverage ratio and a minimum interest coverage ratio, both of which are defined and calculated in accordance with the credit agreement. The maximum leverage ratio decreases from 4.25x to 4.0x as of June 30, 2024 and the minimum interest coverage ratio increases from 1.75x to 2.0x as of March 31, 2025. At March 31, 2024, we were in compliance with these financial covenants. Additionally, management expects that we will remain in compliance with these financial covenants over the next twelve months. However, events and circumstances could occur, some beyond our control, that could adversely impact our compliance with these covenants and require us to obtain a waiver from our lenders, modify our existing covenants or refinance certain debt to cure the noncompliance. If we are unable to cure the noncompliance, amounts due under our revolving credit facility and term loan due March 2026 could be called by our lenders. At March 31, 2024, there were no outstanding borrowings under the revolving credit facility. Borrowings under our secured debt are secured by assets of the company.
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:
| 2024 | 2023 | Change | |||||||||||||||
| Net cash from operating activities | $ | (12,525) | $ | (39,714) | $ | 27,189 | |||||||||||
| Net cash from investing activities | (11,841) | (41,413) | 29,572 | ||||||||||||||
| Net cash from financing activities | (58,433) | (79,442) | 21,009 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2,162) | 2,349 | (4,511) | ||||||||||||||
| Change in cash and cash equivalents | $ | (84,961) | $ | (158,220) | $ | 73,259 | |||||||||||
Operating Activities
Cash flows from operating activities in the first quarter of 2024 improved $27 million compared to the prior year period driven primarily by changes in working capital items. The improvement was further driven by lower pension and retiree medical benefit payments of $8 million and lower tax payments of $7 million, partially offset by higher restructuring payments of $10 million.
Investing Activities
Cash flows from investing activities for the first quarter of 2024 improved $30 million compared to the prior year period primarily due to higher cash from investment activity of $9 million, lower investments in loans receivable of $11 million and lower capital expenditures of $9 million.
Financing Activities
Cash flows from financing activities for the first quarter of 2024 improved $21 million compared to the prior year period primarily due to lower repayments of debt of $17 million.
We paid dividends of $9 million in the quarter. Each quarter, our Board of Directors considers whether to approve the payment of a dividend. Under the terms of the March 2028 note purchase agreement, the annual amount of permitted dividend payments is capped at the lesser of $36 million or a maximum dividend yield of 6.25%. In addition, share repurchases would further limit this amount. We currently expect to continue paying a quarterly dividend; however, no assurances can be given.
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Off-Balance Sheet Arrangements
At March 31, 2024, 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.
Regulatory Matters
There have been no significant changes to the regulatory matters disclosed in our 2023 Annual Report.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the disclosures made in our 2023 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 Interim Chief Executive Officer (CEO) and Interim 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, 2024.
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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 2023 Annual Report. However, we are supplementing the risk factors described in Item 1A of our 2023 Annual Report with the following additional risk factor:
Changes within our senior management and our Board of Directors could create uncertainties and impact our business.
We
have undergone recent changes in our senior management and in the composition of our Board of Directors. These changes, and the potential for future changes, may create continuity risks and challenges to our ability to execute our business and strategy. In addition, such changes may, among other things, create uncertainty among certain investors, customers, employees, and others concerning our future direction and performance, make it more difficult to attract and retain qualified personnel, impact our credit rating, impact our ability to access capital markets at reasonable costs and adversely impact our business.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Repurchases of Equity Securities
There were no purchases of our common stock during the three months ended March 31,
2024. We have remaining authorization to purchase up to $3 million of our common stock.
Item 3: Defaults Upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
None.
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Item 6: Exhibits
|
Exhibit
Number |
Description | Exhibit Number in this Form 10-Q | |||||||||
| 3(i)(a) | 3(i)(a) | ||||||||||
| 3 | 3 | ||||||||||
| 10.1 | 10.1 | ||||||||||
|
10.2 *
|
10.2 | ||||||||||
|
10.3 *
|
10.3 | ||||||||||
| 31.1 | 31.1 | ||||||||||
| 31.2 | 31.2 | ||||||||||
| 32.1 | 32.1 | ||||||||||
| 32.2 | 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, 2024, formatted in Inline XBRL. (included as Exhibit 101). | ||||||||||
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
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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 2, 2024 | |||||||
|
/s/ John A. Witek
|
||||||||
|
John A. Witek
|
||||||||
| Interim 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) | ||||||||
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TABLE OF CONTENTS
Part I. Financial InformationprintItem 1: Financial StatementsprintItem 2: Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 2: Management S Discussion and Analysis OfprintItem 3: Quantitative and Qualitative Disclosures About Market RiskprintItem 4: Controls and ProceduresprintPart II. Other InformationprintItem 1: Legal ProceedingsprintItem 1A: Risk FactorsprintItem 2: Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3: Defaults Upon Senior SecuritiesprintItem 4: Mine Safety DisclosuresprintItem 5: Other InformationprintItem 6: Exhibitsprint