Pitney Bowes announces Q1 2018 results, revenue grows by 18%

Pitney Bowes announces Q1 2018 results, revenue grows by 18%

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Pitney Bowes, a global technology company that provides commerce solutions in the areas of ecommerce, shipping, mailing, and data, today announced its financial results for the first quarter 2018.

Quarterly Financial Results:

  • Revenue of $983 million, an increase of 18% as reported and 15% at constant currency versus prior year
  • GAAP EPS of $0.28; Adjusted EPS of $0.30
  • GAAP cash from operations of $83 million; free cash flow of $65 million
  • The Company is reaffirming its annual guidance and updating solely to reflect the impact of the definitive agreement for the sale of Production Mail and its supporting software.

Transaction Signed and Debt Management:

  • On April 30, 2018, the Company announced it signed a definitive agreement to sell Production Mail and its supporting software to Platinum Equity for $361 million, subject to certain adjustments. The Company expects proceeds from the sale of approximately $270 million, net of estimated closing costs, transaction fees and taxes. The Company expects to use the majority of the net proceeds from the sale to pay down debt.
  • The Company repaid its March 2018 notes for $250 million using repatriated non-U.S. cash.

“Our performance continues to show that Pitney Bowes is moving to growth and our strategy is delivering results,” said Marc B. Lautenbach, President and CEO, Pitney Bowes. “Revenue was strong in the quarter as our business continues to shift to the higher-growth markets. Our first quarter results demonstrate that we are making progress which sets us up to deliver our financial commitments for the year.”

On April 30, 2018, Pitney Bowes announced that it signed a definitive agreement for the sale of its Document Management Technologies (DMT) production mail business to Platinum Equity for $361 million, subject to certain adjustments. The company expects proceeds from the sale of approximately $270 million, net of estimated closing costs, transaction fees and taxes. Also, included in the transaction is the enterprise mail, print and data management software that integrates data with print streams to optimize document output for high-volume production mailers. The transaction is likely to be completed late in the second or early in the third quarter subject to customary closing conditions. Pitney Bowes expects to use the majority of the net proceeds from the sale to pay down debt.

“Our decision to sell our DMT production mail business is the result of a thorough evaluation of the best opportunity for long-term growth for both DMT and Pitney Bowes,” said Lautenbach. “As a stand-alone business, DMT will have greater flexibility and opportunity to build on its industry-leading portfolio, create greater market opportunity and deliver new client value. For Pitney Bowes, this transaction supports our move to higher growth markets and aligns with our strategic intent to do in the shipping market what we’ve done in mailing for almost 100 years – enabling global commerce by taking out the complexity and enhancing the value for clients.”

First Quarter 2018 Results

Revenue totaled $983 million, which was an increase of 18 percent as reported and 15 percent at constant currency versus prior year.

Commerce Services revenue grew 73 percent as reported and 71 percent at constant currency. Small and Medium Business (SMB) Solutions revenue declined 6 percent as reported and 8 percent at constant currency. Software Solutions revenue increased 4 percent as reported and 1 percent at constant currency. Production Mail revenue increased 9 percent as reported and 6 percent at constant currency.

GAAP earnings per diluted share (GAAP EPS) were $0.28, which included $0.01 for transaction costs largely related to the sale of Production Mail and its supporting software. Adjusted earnings per diluted share (Adjusted EPS) were $0.30.

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

First Quarter*
2018 2017
GAAP EPS $0.28 $0.35
Transaction costs $0.01
Restructuring charges, net $0.01
Adjusted EPS $0.30 $0.36

* The sum of the earnings per share may not equal the totals above due to rounding.

GAAP Cash from Operations and Free Cash Flow Results

GAAP cash from operations during the quarter was $83 million and free cash flow was $65 million. Compared to the prior year, free cash flow decreased by $46 million primarily due to the timing of working capital, largely within accounts receivable.

During the quarter, the Company paid down $255 million of debt using repatriated non-U.S. cash. The Company also used cash to return $35 million in dividends to shareholders and pay $16 million for restructuring payments.

First Quarter 2018 Business Segment Reporting

Effective January 1, 2018, the Company revised its business reporting groups to reflect how it manages these groups and the clients served in each market.

The Commerce Services group includes the Global Ecommerce and Presort Services segments. Global Ecommerce facilitates global cross-border ecommerce transactions and domestic retail and ecommerce shipping solutions, including fulfillment and returns. Presort Services provides sortation services to qualify large mail volumes for postal worksharing discounts.

The SMB Solutions group offers mailing and office shipping solutions, financing, services, and supplies for small and medium businesses to help simplify and save on the sending, tracking and receiving of letters, parcels and flats. This group includes the North America Mailing and International Mailing segments.

Software Solutions provide customer engagement, customer information, location intelligence software and data.

Production Mail provides mailing and printing equipment and services for large enterprise clients to process mail.

The results for each segment within the group may not equal the subtotals for the group due to rounding.

Commerce Services

($ millions) First Quarter
Revenue

2018

2017

Y/Y

Reported

Y/Y

Ex Currency

Global Ecommerce $247 $88 180% 177%
Presort Services

134

133

1%

1%

Commerce Services $381 $221 73% 71%
EBIT
Global Ecommerce $(8) $(4) (81%)
Presort Services

27

31

(12%)

Commerce Services $19 $26 (27%)
EBITDA *
Global Ecommerce $7 $3 120%
Presort Services

33

38

(12%)

Commerce Services $40 $41 (3%)

* The Company uses segment EBIT as the primary measure of profit and operational performance for each segment. The Company is adding EBITDA as a useful non-GAAP measure in looking at the economics of the segments, especially in light of the Company’s more recent, larger acquisitions. EBITDA is provided in this table and subsequent tables in this document. A reconciliation of segment EBIT to segment EBITDA can be found in the financial schedules appended to this presentation.

Global Ecommerce

Results included a full quarter of revenue from Newgistics. On a proforma basis, Newgistics delivered 10 percent revenue growth, which was driven by strong performance in both parcel and fulfillment volumes.

Excluding Newgistics, the segment continued to generate double-digit revenue growth, which was driven by strong performance in both domestic shipping and cross border volumes. The EBIT loss was driven primarily by investments in market growth opportunities and operational excellence initiatives as well as the amortization of acquisition-related intangible assets. EBITDA improved from prior year driven by the higher revenue.

Presort Services

Revenue growth was driven by improved revenue per piece along with higher volumes of First Class mail and flats processed but partly offset by lower Standard Class mail volumes processed. EBIT and EBITDA margin declined from prior year primarily due to higher labor and transportation costs.

SMB Solutions

($ millions) First Quarter
Revenue

2018

2017

Y/Y

Reported

Y/Y

Ex Currency

North America Mailing $325 $356 (8%) (9%)
International Mailing

98

93

5%

(6%)

SMB Solutions $423 $449 (6%) (8%)
EBIT
North America Mailing $119 $141 (15%)
International Mailing

16

13

20%

SMB Solutions $135 $154 (12%)
EBITDA
North America Mailing $136 $157 (13%)
International Mailing

20

18

14%

SMB Solutions $157 $175 (10%)

North America Mailing

Equipment sales declined largely due to lower sales in the top of the line products and a lower level of client lease extensions. Recurring revenue streams declined, largely around financing, rentals and service revenues. EBIT and EBITDA margins were lower than prior year largely due to the decline in recurring streams and equipment sales mix, but partially offset by lower expenses.

International Mailing

Revenue increased as reported but declined at constant currency. Equipment sales benefited from growth in Germany and France, but was offset by a decline largely in the UK. EBIT and EBITDA margins improved versus prior year primarily driven by lower expenses.

Software Solutions

($ millions) First Quarter

2018

2017

Y/Y

Reported

Y/Y

Ex Currency

Revenue $82 $78 4% 1%
EBIT $5 $3 76%
EBITDA $7 $5 50%

Software Solutions

Revenue grew over prior year. Results reflect the implementation of the new revenue recognition standard (ASC 606). Revenue and EBIT were favorably impacted in the quarter by $11 million and $9 million, respectively, as a result of the timing of the revenue recognition. Excluding this impact, revenue declined from prior year driven by a lower level of large deals in the quarter. This quarter’s performance was also impacted by a higher mix of SaaS deals relative to up-front license deals. EBIT and EBITDA margins increased from prior year largely driven by the higher revenue.

While the Company benefited from the timing of recognized revenue this quarter, the Company does not expect the full year impact of ASC 606 to be material.

Production Mail

($ millions) First Quarter

2018

2017

Y/Y

Reported

Y/Y

Ex Currency

Revenue $97 $89 9% 6%
EBIT $10 $9 7%
EBITDA $10 $10 5%

Production Mail

Equipment sales grew double-digits versus prior year largely due to higher inserter and printer placements. EBIT and EBITDA margins were relatively flat compared to prior year as a result of the higher revenue offset by the mix of products within equipment sales.

2018 Guidance

The Company is reaffirming its annual guidance and updating solely to reflect the impact of the definitive agreement to sell Production Mail and its supporting software. Beginning in the second quarter, Production Mail and its supporting software will be reported as discontinued operations.

  • Revenue, on a constant currency basis, is now expected to be in the range of 11 percent to 15 percent growth, when compared to 2017.
  • Adjusted EPS is now expected to be in the range of $1.15 to $1.30.
  • Free cash flow is now expected to be in the range of $300 million to $350 million.

This guidance discusses future results, which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release and as more fully outlined in the Company’s 2017 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. This guidance excludes any unusual items that may occur or additional portfolio or restructuring actions, not specifically identified, as the Company implements plans to further streamline its operations and reduce costs. Revenue guidance is provided on a constant currency basis. The Company cannot reasonably predict the impact that future changes in currency exchange rates will have on revenue and net income. Additionally, the Company cannot provide GAAP EPS and GAAP cash from operations guidance due to the uncertainty of future potential restructurings, goodwill and asset write-downs, unusual tax settlements or payments and special contributions to its pension funds, acquisitions, divestitures and other potential adjustments, which could (individually or in the aggregate) have a material impact on the Company’s performance. The Company’s guidance is based on an assumption that the global economy and foreign exchange markets in 2018 will not change significantly. The Company’s guidance also includes changes in accounting standards implemented at the beginning of the year.

Conference Call and Webcast

Management of Pitney Bowes will discuss the Company’s results in a broadcast over the Internet today at 8:00 a.m. ET. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the Company’s web site at www.pitneybowes.com.