Good morning. And welcome to the Pitney Bowes Second Quarter Earnings 2022 Results Conference Call. Your lines have been placed in a listen-only mode during the conference until the question-and-answer session. Today’s call is also being recorded. [Operator Instructions] I would now like to introduce your participants for today’s call, Mr. Marc Lautenbach, President and Chief Executive Officer; Ms. Ana Chadwick, Executive Vice President and Chief Financial Officer; and Mr. Ned Zachar, Vice President, Investor Relations. Mr. Zachar, will now begin the call with the Safe Harbor overview.

Good morning, everybody. This is Ned Zachar. I manage the Investor Relations program for Pitney Bowes. I’d like to welcome everyone to the call this morning. We very much appreciate your participation. Part of my duties this morning include covering the usual and customary Safe Harbor information, so please bear with me for just a moment. Today’s presentation will include forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. For more information on these topics, please see our earnings press release, our 2021 Form 10-K annual report and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to provide updates to forward-looking statements as a result of new information or developments. Also, for non-GAAP measures, the reconciliations to GAAP accounting can be found in the tables attached to our press release and also on our Investor Relations website. Additionally, we provided a slide presentation on our website that summarizes many of the points we will discuss during today’s call. Our format this morning is going to be familiar. Marc Lautenbach, our President and Chief Executive Officer, will begin with opening remarks. He will be followed by Ana Chadwick, our Chief Financial Officer, who will provide a deeper discussion of our operational and financial results. I’d like to turn the presentation over to Marc. Marc, the floor is yours.

Thanks, Ned. Good morning and thank you for joining today’s call. While there are many positive aspects to the quarter, second quarter results were disappointing and below our expectations. The quarter played out against the most complicated market environment I have ever experienced. We were not able to overcome the effects of the growing strength of the dollar and the COVID lockdowns in China. SendTech and Presort turned in solid results in a very challenging environment and those businesses in the aggregate grew revenue for the quarter. Equipment sales in SendTech were strong and our loan originations in Global Financial Services showed solid improvement. And importantly, finance receivables stabilized in the quarter. The overall performance of these businesses bode well for the future. While trends are rarely a straight line, Presort and SendTech are well positioned going forward. Growth in SendTech and Presort was unthinkable a few short years ago and is the result of smart investments, focus and solid execution. Often, there are concerns when companies broaden the focus away from their historic core business that they lose focus on the core. The trajectory of SendTech and Presort is solid evidence to the contrary for our company. There are a few examples of companies overcoming secular decline, but there are precious few companies that have been able to reinvent their core, and we have done it, and we continue to do it. Results in Global Ecommerce were mixed. But the big picture view of activity in the quarter continues to support our long-term thesis for this business. In particular, our long-term model is centered around growth in the domestic parcel market and continuous operational improvement to expand profitability. In the second quarter, our service levels were strong. This enabled us to attract and win new customers. Importantly, our pipeline…

Thank you, Marc, and good morning, everyone. Unless otherwise noted, I will speak to revenue comparisons on a constant currency basis and other items such as EBIT, EBITDA, EPS and cash flow on an adjusted basis. Let’s start with a high level review of the year-over-year comparison of our financial statement data points, followed by a discussion of our segment results, the balance sheet, cash flow and our outlook. Total revenue for the quarter was $871 million, which is down 2%. Gross margin for the company was $274 million, compared to $301 million for the same period last year, a 9% decrease. As a percentage of total revenues, gross margin decreased 200 basis points to 31.4%. Total EBITDA was $82 million, down from $96 million. EBIT was $39 million, down from $56 million. Interest expense was $34 million, down from $36 million in the prior year, driven primarily by reductions in total debt outstanding. Our tax rate returned to more normal levels and was 26% in the quarter. Adjusted EPS was $0.02, compared to $0.11. Last year’s $0.11 figure included tax benefits and insurance proceeds that totaled $0.04. At the end of the quarter, weighted average diluted shares outstanding were approximately 177 million. Turning to cash flow, GAAP cash from operations was $35 million for the quarter, compared to $79 million in the second quarter 2021. Free cash flow was $6 million in the quarter, compared to $87 million in prior year. Approximately 75% of the $81 million delta was driven by reductions in client deposits, a result of timing difference in postage spend versus account replenishment. Free cash flow was also affected by lower net income, the timing of insurance premium payments and partially offset by a decrease in capital spending. Capital expenditures for the quarter were $32 million,…

[Operator Instructions] Our first question comes from the line of Kartik Mehta, Northcoast Research. Please go ahead.

Good morning, Marc and Ana. Marc, just on the Global Ecommerce business, obviously, you laid out some headwinds out of your control, but that might persist for a little time, I guess, difficult to say for how long. But are you making any changes to the business as a result or is there enough other growth in the business that you will continue investing?

Great question. And you are right, it is hard to predict how long these headwinds will occur, but our working assumptions are going to last for a while. So I don’t think this is a short-term phenomenon that’s going to ride itself in the third quarter. To your question, we are making changes. First of all, every aspect of cost in our cross-border business is under review. We are making investments, but we are making the investments principally in U.S. to Canada lanes, where we think we are a little bit more insulated from the currency disruptions, and candidly, we have got enough density in our volumes that we have got critical mass and we have got comparative advantage versus others. So we are paring back the investments overall in places where we think are going to be facing some headwinds and we are doubling down in some places where we think we have got some natural advantages that are less susceptible. And I would say, in some ways, while -- I wouldn’t say that Borderfree was a response to the currency dynamics. It certainly speaks to that overall thesis.

And then just a follow-up, Marc, you talked a little bit about it at the beginning of the call that you had asked the consulting firm to kind of look at the business, what makes sense. And I am wondering the conclusion that they came to kind of keeping the company together, was it because of dissynergies, was it because of other issues? Just -- I know it’s -- I am sure a long report, but anything you could summarize as to why…

Sure.

What conclusions were?

Sure. Listen, I think, there was a couple of findings. First of all, it affirmed the overall thesis in the strategy. The second thing, I’d say is, while there are strategies, while there were synergies rather, that are meaningful across the two or three businesses. That wasn’t to this positive factor. Most important factor was, for GEC, in particular, that business needed to be further along in terms of volume and profitability and ability to kind of stand on its own two feet. So that was kind of the principal findings.

Thanks, Marc. I really appreciate it.

You bet.

Our next question comes from the line of Ananda Baruah, Loop Capital.

Yeah. Good morning, guys. Thanks for taking the questions and tricky environment out there for everybody to be doubt about it. I guess just kind of two, if I could. SendTech, Presort has held up well. Are you hearing sort of anything for your customers in terms of with regards to macro increasing trepidation, any context there or is it like -- is it just sort of very cleanly steady as she goes right now, even in your contextual conversations with them?

I would say across the board we are hearing consistently from clients that this is a very tricky environment and some are seeing near-term signs of recession than others. But across our entire portfolio, every customer we are talking to, and candidly, every CEO I am talking to, sees a challenging environment. I would just say, SendTech and Presort, and candidly, even our Domestic Parcels business and GEC operated pretty well in pretty difficult market conditions.

As -- yes. So the second question is actually on the Domestic Global Ecommerce. So do you -- Marc, do you guys have the sense that there has been any impact or any discernible impact relative to your expectations for macro there yet? The metrics were solid. But did you expect them or could they have been stronger or is there no discernible real impact yet from macro on, call it, kind of domestic North America GEC?

No. There absolutely is impact. So, I mean, what’s happening is, we are pretty successful in the market right now signing up new customers. So, Ana talked about the 100 wins on top of the 40 or 50 wins that we had in the first quarter. So we take that as affirmation that we have got a value prop that hunts. On the other side of it, we have got customers -- existing customers whose business is under real stress. So we are kind of in this -- we are adding a lot out the front door and for some of our existing customers, their business and their volumes, therefore, are being hurt. And then between, what I would say, sales cycles and integration cycles, and I said this in my comments lengthy. So if you look at the 102 customers and Ana talked about a large one in particular that we hope come online in the fourth quarter, that’s been a slow integration. So it’s -- I would say, it’s a little bit like running in quick sand. We are moving forward, which I think is distinctive versus others in the industry. But it’s certainly a more challenging environment, and candidly, the bankruptcy that Ana talked about as well is kind of another sign of distress…

Yeah.

So it’s not that -- we are not seeing it. It’s just that Domestic Parcel business, in particular. I think we are operating in a difficult environment pretty well and best we can see versus competition at least holding our own, if not more. But the reason I like this dynamic is eventually the customers that are having distress right now, their business is going to come back. So you get the benefit of their business coming back and then, ultimately, all of these new wins coming online. So it is, for sure, in the short-term, a little bit frustrating, particularly given all the good work the team has done on service levels and efficiency of the network and all that kind of stuff. But that’s why we are talking about the internal fundamentals as you kind of look under cover, we think are pretty solid.

Naturally you have a context. I appreciate it. Thanks a lot. Thanks, guys.

Sure. It’s a complicated quarter. I mean I -- it’s complicated quarter for us to sort through and explain, I know it’s a complicated quarter for you also.

A lot of it is. No doubt.

Yeah. It’s the densest communication we have had since I have been here.

Yeah. Yeah. Thanks, Marc. Appreciate it.

Our next question comes from the line of Matt Swope, Baird.

Good morning, Marc, and Ana, and Ned. You guys gave some pretty good volume data on Presort and Global Ecommerce. Is there a similar kind of KPI for SendTech, like, Ana told us that the Presort pieces were down 8% year-over-year. Is there any kind of volume measure or way to think about SendTech in terms of those headwinds the same way?

The short answer is it’s a slightly different business model. So if you look at how Presort makes money and to a degree how GEC makes money, it’s on throughput. As you look at the SendTech business model, it’s kind of around the equipment sales, the financing revenues, the services. So we do have throughput measures for shipping, which then can kind of get you through, but it is fundamentally a different model and subscription is also important and becoming more important. So we will unpack that a little bit for you. But I would say, as I look at that business, and by the way, the subscriptions point is an important one because that, to a degree, is changing -- trading out short-term equipment revenue for longer term subscriptions. So it’s a good thing and it’s kind of where we want the business to go, and we have been going there slowly over the last several years, but it certainly has a different profile in terms of how you recognize the revenue. So we will get you a little more there.

No. That’s very helpful, Marc. Could you just elaborate a little bit on that last piece you said, as the sort of lumpier equipment revenue was replaced by subscriptions? Are people just effectively renting that from you, so that smooth things and you get a longer commitment from them or how does that change that dynamic?

It’s, in essence, no different than any other software-as-a-service type company. So if you think about that transition that software-as-a-service companies go through, they are training in-period short-term revenue for a longer revenue stream, that longer revenue stream is different contractual agreements with it. But as more of our offerings go online, that becomes a more prominent aspect of our financials.

I see. That’s great. And then if I just change gears sort of to the cash and liquidity commentary, could you comment on whether you guys have sort of a minimum cash number, I know you have been asked this before. But especially given that you have this undrawn $500 million revolver, now you have these asset sale proceeds that have come in. You are still paying the dividend, which is small, I know. But you have your bonds that have traded down a lot and you might have some opportunity to buy back bonds in the open market, too, at very attractive levels. Could you just sort of put all that together into how you think about cash and liquidity and opportunity?

Sure. This is Ana. So in terms of cash and liquidity, as I mentioned in my remarks here, we think of it in three big pieces, right? So when you take our total cash, we have about 40% of that at the bank. We have about 25% in international. And that residual that we have in the U.S., and I will just speak to the U.S. cash, the way we think about it is we like to have about a week of outflows, not net of the inflows, just to have that in cash on hand for the U.S. needs. And that translates, when you do that math, to around that $200 million level. Of course, as our organization moves and needs change, that could change. But I hope that gives you a little bit of a perspective of how we think of the cash.

No. That’s definitely helpful. And so then to the other pieces, so now you get these proceeds in from Borderfree and you were talking about sort of just supplementing your liquidity. Would you consider using those to more actively reduce debt or even to get more aggressive, would you ever draw on the revolver to buyback bonds at the significant discount that’s available right now?

So, listen, as I said in my remarks, from a Board perspective, as we think about capital allocation, all options are continually evaluated and all options are continually on the table. So it’s -- we would like to see a little bit more data and we have got a little bit more analysis to before we kind of conclude what’s going forward. But I think what you should assume is that, while all options are on the table, we are going to want to remain some degree of flexibility both strategically and financially. For the moment, we like to have a stronger liquidity profile. And as I said in my comments these moments in time often present opportunities. So for example, there’s a couple of smaller acquisitions in Presort that probably weren’t available to us a couple of quarters ago that all of a sudden now are available at pretty good prices and those things are accretive. So it’s hard to make blanket statements beyond, I can assure all of our investors and everyone on the call that the Board works at this all the time and all the different options, whether or not we would draw on the revolver to buyback debt, I don’t know, probably not, but, again, we are very open minded about how we think about this.

That’s great. Thanks, Marc and Ana, for candid responses.

Next question is from Anthony Lebiedzinski, Sidoti & Company.

Yes. Good morning and thank you for taking the question. So, just looking at equipment sales, so two quarters in a row that that increased here and the second quarter revenue from that segment was roughly in line with the first quarter. So was there anything specific that drove that as far as the equipment sales increase and just wondering how we should think about sustainability for equipment sales?

If I said brilliant execution, could I leave it at that? Yeah. Listen, I think, it’s a great question.

Okay.

We think of that all the time. So, first of all, I do think the team executed quite well. So I think I wouldn’t drive through that. We are in a very good product cycle and we expect that product cycle to last, not just for the next couple of quarters, but candidly for the next couple of years. And then underneath that, as Ana said in her remarks, the USPS has put out new security requirements for the devices, which customers need to comply with. So that creates kind of a natural tailwind. I think, honestly, we are 40% or 50% of the way through refreshing that technology base. So we got some good tailwinds and some good momentum for the next extended period of time in that business. So we like how the team is executing. I really like the product cycles. And then we have got some tailwinds with some USPS changes and what they are requiring for security.

Got it. Thanks. That’s very helpful color. And then in terms of the Global Ecommerce segment, so as you enter the back half of the year and more specifically the fourth quarter were -- just curious to get your thoughts as far as how does the -- I know it’s still a tricky environment, obviously. But as far as seasonality, I mean, is there any notable difference in terms of the cross-border volumes versus domestic volumes in the back half of the year versus the quarter that you just reported?

So, listen, I am answering this question with a high degree of humility based on the current environment and candidly. We don’t have great visibility, nor do our customers have great visibility in the business. I do think that the cross-border headwinds will last through the balance of the year. So the fed increased interest rates by 75 basis points yesterday, Europe increased their interest rates by 50 basis points, but there’s still a pretty big disparity between where the respective geographies are on interest rates, which drives the disparity in exchange rates. So I think that’s going to continue. I was in Europe a couple of weeks ago and they are very concerned as they get into the fall about food shortages and fuel shortages. So I suspect that the monetary officials in Europe will be -- continue to be pretty cautious about raising interest rates. Same with the cross-border dynamics are in for a couple of tough quarters until things begin to even out a little bit. On the domestic side, it’s a little bit harder to tell. I mean, our current plans are that there will be a peak this year in terms of volumes. That’s kind of a natural phenomenon. We assume that buying behaviors will be kind of as we expect and customers as the supply chain become more predictable, we believe that online is a viable way to get packages delivered on time. And then kind of wildcard is pricing. So, historically, there’s peak pricing that happens in the fourth quarter. That’s kind of an industry phenomenon. We are planning on a little bit of that. But there’s a lot more variables in the domestic business that are a little bit harder to predict. But we are planning for some seasonality that we have seen historically in some pricing power as well.

Got it. Okay. And lastly, Ana, you mentioned that there was a write-off from a banker client in the GEC. Just wondering about the magnitude of that, how should we think about that?

Yeah. Yeah. It was around $2.5 million.

Got it. Okay.

So it’s a really good question and it’s one of the things we are looking at carefully and I know the banks are as well is, what is the overall payment profile that were even. So in the second quarter, I mean, DSO improved a lot. We looked at collections, they were pretty good. So there’s nothing in our dashboard or that what we are seeing that would tell you that our customers are under unique stress. This one situation that Ana referenced was unfortunate. And can we let them get a little bit more out in front of us than we should have. But underneath that, the fundamentals are still pretty good in terms of how customers are paying us, but we are paying close attention.

Got it. Okay. Thanks and best of luck.

Thanks.

[Operator Instructions] Our next question comes from the line of Ananda Baruah, Loop Capital. Please go ahead.

Yeah. Thanks guys for taking follow-up. Just -- I wanted to just ask a quick -- ask some quick context on the USPS reseller framework. I guess reflection that they are doing. What’s the time line, Marc, that you guys are looking at for any sort of, I guess, determination or visibility it is generated today [ph]?

Hard to know precisely. The reseller agreements timeout at the end of the third quarter. I want to just back up, because I -- it’s -- I think it’s important here to have a little bit of perspective of what the postal service, at least in my judgment, is trying to do, is trying to align their incentive systems with where value is being created in the ecosystem. I wholeheartedly and fully applaud that. And over time and it’s hard to be precise, that’s going to advantage Pitney Bowes I believe, because we are all about creating value to the postal service and we have been doing it for 102 years. So as it relates to the reseller agreement, particularly, as Ana said, we know we are not a reseller. We do participate in some of the downstream economics of those resellers. We have mitigated all that in SendTech. GEC, it’s a little bit harder to know, but we are working pretty hard to land that plane sooner versus later and there’s multiple different kinds of options. One is a short-term accommodation of the postal service. Second is a longer term type of agreement or some other way to place the economics of the marketplace. So we are pursuing all of those alternatives. But while it’s, I would say, short-term and settling, even though it’s not that much money, I do like the philosophy, because I think it plays well to our strengths.

Is it possible that you come out and could you -- could the amount of money you make from these situations could increase? I mean if they take a fresh look at what is value being created and they say, hey, take more share of that, sort of the…

Yeah. Yeah.

… to hear?

The answer is absolutely yes.

Got it. That’s helpful context. I appreciate it.

And at this time, there are no more questions. So I would like to turn the call back to Mr. Lautenbach for closing remarks.

Thanks. Listen, as we talked about and you all know, I mean, this is kind of a complicated environment. I asked that in my remarks. I said it again, I think, every CEO is saying it and there’s a lot of different currents that are running through the market, lots of different currents that are running through the business, but you can simplify our business at the moment. SendTech and Presort are operating pretty darn well in a pretty complicated environment. And I think that’s -- they are well situated to continue to do that in the future. They have got good opportunities in terms of cost and they have got good opportunities in terms of price. Global Ecommerce, again, our thesis -- if you look at our long-term thesis, it’s all about improvement in domestic parcels. And while I would say that the cross-border business and the expedite business are important legs of the stool, the whole value appreciation story for Global Ecommerce and by extension, Pitney Bowes is around Domestic Parcels. And the fundamentals of Domestic Parcels is good, we are winning in the marketplace, revenue grew, parcels grew ex-China delivery. And one of the things that Ana said, and I will just kind of highlighted is, $0.35 per parcel improvement in gross margin, $0.35 across 200 million parcels or 300 million parcels is $70 million to $100 million of profit improvement going forward. So it’s like, when you operate in cents, says $0.35, that’s not that big of a deal, when you really step back and say it’s across 200 million parcels of 300 million parcels, it’s a really big deal. And it is just symptomatic of the fundamentals of that business continuing to increase, whether it be bidding in the marketplace, service levels, customer satisfaction, how well the network is operating, how efficient the network is operating. So the cross-border stuff is momentarily inconvenient, but I have been in this cross-border business long enough now for 10 years, but I know that comes and goes, it will, at some point, normalize again and probably flip the other way. So, I don’t mean to be overly polyenic. I think it’s a difficult environment, I think we are pretty sober about what we are dealing with in the next couple of quarters. But the underlying fundamentals of the entire business in the portfolio are pretty well positioned. So we will talk more. I am sure you are going to have more questions as you unpack our comments this morning. We are all around to answer investor’s questions and questions from the analysts and we will look forward to seeing you soon. Thanks for your time this morning.

Ladies and gentlemen, that concludes our conference today. Thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.