Good afternoon. Welcome to the Pitney Bowes Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's call is also being recorded. I would like to introduce parties on today's conference call. Mr. Lance Rosenzweig, Interim Chief Executive Officer and Board Member; Mr. John Witek, Interim Chief Officer; and Mr. Alex Brown, Director, Investor Relations. Mr. Brown will now begin the call with the Safe Harbor overview.

Good afternoon, and thank you for joining us. Included in today's presentation are forward-looking statements about our future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release, our 2023 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 we do not undertake any obligation to update forward-looking statements as a result of new information or developments. For non-GAAP measures that are included in the press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release. We have also provided a slide presentation and a spreadsheet with historical segment information on our website. Finally, in our prepared remarks, revenue comparisons will be on a constant currency basis with other items such as EBIT, EBITDA, EPS and free cash flow on an adjusted basis. At this time, I would like to turn the call over to our Interim CEO, Lance.

Thank you, Alex, and good afternoon. I'm very excited to join you for my first quarterly earnings call with Pitney Bowes. Just a couple of months ago, at the end of May, I outlined our commitment to accelerating the transformation of this iconic shipping and mailing company by focusing on 4 strategic initiatives. Today, I am proud to share that we have made significant strides in delivering on that commitment. We have taken decisive steps to position Pitney Bowes for enhanced profitability and sustained value creation, while also delivering strong results for the quarter. I will begin by providing a high-level overview of our Q2 results, which reflect our commitment to quickly becoming a more efficient, profitable and cash-generating enterprise. We maintained relatively steady revenues and executed on our priorities within SendTech and Presort, resulting in $46 million in adjusted EBIT for the period, a 43% year-over-year increase compared to the second quarter of last year. Adjusted EPS was $0.03 a share, an improvement of $0.05 over the prior year, and perhaps most notably, free cash flow was $83 million, an improvement of $94 million year-over-year. The performance of Pitney Bowes in Q2 reinforces that we have a significant opportunity for continued cash flow and earnings growth as enhancements continue to be implemented across the enterprise. John will provide more details on our strong quarter momentarily. Let me now turn to our momentum on our 4 strategic initiatives. A key highlight is the completion of our strategic review of our Global Ecommerce or GEC business, which resulted in us identifying an exit path for this business that will ultimately maximize value for Pitney Bowes shareholders. We completed our review of this segment after working with independent legal, restructuring and financial advisers to thoroughly assess numerous strategic alternatives for the business.…

Thank you, Lance. I will now go over our second quarter results and our updated outlook for the rest of the year, which incorporates our solid first half performance and the strategic actions Lance just described. Starting with results. Consolidated revenue, including GEC, was $793 million, up 2% over the prior year. SendTech and Presort both had great quarters and continue to make strong progress against our key initiatives. Productivity and cost reduction efforts across the entire enterprise drove meaningful bottom-line improvement with consolidated EBIT increasing 43% year-over-year to $46 million in the quarter. EPS improved $0.05 to $0.03 per share, driven by improved operating results and a timing-related tax benefit in the quarter and was partially offset by higher interest expense. Cash flow was a terrific story in the quarter. Second quarter free cash flow was $83 million, which was $94 million higher than second quarter last year. This improvement is better on a year-to-date basis with free cash flow, $137 million higher through the first half of 2024. Operational performance, mainly from cost takeout and strong SendTech and Presort results is driving the improved cash flow. Working capital and finance receivables also materially contributed to the improvement. SendTech had a great quarter as the business continues to progress on its initiatives of product migration, shipping growth, cost reduction and better leveraging its financial services capabilities. In the quarter, SendTech generated revenue of $320 million, a decline of 2% year-over-year, driven by lower mailing-related revenue and partially offset by growth in our shipping offerings. EBIT was $101 million, up 4% due to better revenue mix and cost reduction initiatives. Mailing related revenue declined 4% year-over-year in the quarter, primarily driven by near-term headwinds related to our product cycle, which includes a higher mix of lease extensions versus new leases.…

Thank you, John. Pitney Bowes is better positioned than at any time in recent memory to capitalize on opportunities in the company's core cash-generating businesses. New leadership from the boardroom to the management team is aligned with shareholders when it comes to driving the acceleration of value creation. We look forward to continuing to report on our progress as we execute on our previously announced strategic initiatives and accelerate the Pitney Bowes turnaround. This now concludes the presentation portion of today's call. We'd now like to open the call for

[Operator Instructions] And first we're going the line for Anthony Lebiedzinski.

Can you hear me now? Okay, sorry about that. Good afternoon. Sorry I was on mute. So thanks for taking the questions. And good to see the conclusion of the GEC review come to an end here. So I guess, just first, just a quick clarifying question. So in terms of the onetime cash cost of $150 million, is that mostly severance and lease termination costs? Or maybe if you could just touch on that first, and then I have a few other questions as well.

This is John. It's actually a combination of a few items. There are going to be some expenses that the parent will bear. There will be some pre-petition professional fees, et cetera. That $150 million is also going to be inclusive of the DIP funding that we're providing. And then we're also going to have outside of the professional fees, certain other wind-down costs that I believe the parent will bear.

So now that GEC is no longer part of Pitney Bowes and the business has been simplified, how should we think about unallocated corporate expenses going forward?

Unallocated corporate expenses are coming down significantly. Our cost-cutting program that we've put in place is largely in corporate charges. And I think you'll see in the coming quarters a significant reduction in those charges.

Yes, absolutely, Lance. I mean you mentioned in your script earlier, the first $70 million actually went across all areas, business units as well as corporate unallocated.

And then -- so now you have SendTech and Presort left. So I guess within SendTech, you talked about the shipping-related revenue now being 16% of your overall revenue. Do you guys have a goal in mind as to like how high that could be because that seems like it's really certainly a growth driver for that segment?

Yes. It is, Anthony, the key growth driver, and we anticipate that growth continuing. So over time, it will become more and more material as an overall percentage of SendTech's revenue mix.

And then so now as far as Presort business, obviously, that -- it's been an attractive segment for you guys for a while. So I know that segment has grown through some acquisitions in the past. How are you guys thinking about that longer term? Do you think there are some additional opportunities to grow that business organically and perhaps inorganically?

Yes. We're excited about the Presort business, and I think a lot of credit to the Presort team. The company is executing extremely well and continues to improve its performance metrics and its utilization rates, et cetera. There are also ongoing operations -- ongoing opportunities for tuck-in M&A, and we are actively considering additional M&A targets.

And then last question for me before I pass it on to others. So now that you've done this strategic review and we've done a lot of work in a relatively short period of time, I mean, do you guys have any updated thoughts on the dividend versus debt reduction, just the overall capital allocation thinking? That would be great.

Sure. We did announce a dividend this quarter, consistent with recent quarters. The Board takes capital allocation very seriously. And each quarter, we do an extensive review of our cash and availability in terms of evaluating dividends or other uses of cash.

And next, we're going to the line for Matt Swope from Baird.

Thank you very much guys and congratulations. Could you talk a little bit more on the GEC process on sort of how this is going to play out from here? What the timing is? Does this -- I know the transaction was announced today, when does the filing happen? When will be the timing on the cash out? And I guess I wasn't quite clear, when you talked about the max of $150 million, does that include the DIP? Or is the DIP separately from that?

Yes. Let me take a general stab at it, John, and then you can dive into more details. So the sale of the majority control to Hilco closed today and the Chapter 11 filing happened today. So both of those are in process. It's moving forward on an accelerated timetable. Very highly organized plan that the Hilco team has put together with the GEC team. We expect that to happen expeditiously during the course of 2024. John, do you want to fill in some -- and your final question on the $150 million that is inclusive of the DIP financing. It's within the $150 million.

Yes. And the $150 million, also just to mention, I didn't mention it earlier, not only does it include the DIP, but it also includes the severance payments for the team. And as far as timing you had asked, I'd like to think of it this way as -- we're modeling it as -- it will be front-end loaded in the second half of this year and then sort of taper off as we get into the first half of next year.

And given that it is a DIP, is there a -- typically, we would think about DIP as a loan that has a chance of producing some value back to you. Should we think of that $50 million as potentially coming back? Or should we think of that as out the door?

We're modeling it as part of our $150 million total cost, and we'll see. Bankruptcy always has some uncertainty to it. We're always hopeful for upside, but we'll sort of see how that plays out over the coming couple of quarters.

And then, Lance, you talked about the high-cost debt and near-term debt reduction. How soon do you think that can start? You've done a great job of freeing up cash, like you said you were going to do. You have the SOFR + 6.90% notes sitting there, but I know the call protection expires soon. How do you see the debt reduction part of the plan progressing?

Yes. Our lenders, I'll first say, have been very supportive of us, and we appreciate their support in our recent restructuring of our notes. We believe that our credit is going to get significantly improved as time goes by over the near term, and we intend to take advantage of our improved credit as we look at refinancing opportunities. We don't have a specific timetable though.

And to that end, you talked about maybe some ratings improvement. Do you have a leverage target? I mean back -- a few years ago, Pitney Bowes was an investment-grade company. Is that a goal to get back to investment grade? How do you look at that going forward?

We would certainly love that. But we don't have a stated goal as to our kind of investment ratings going forward. We are just trying to prudently run the business to optimize cash, to use our cash to improve our balance sheet and to emerge a significantly stronger company over time.

And next, we go into the line for Peter Sakon from CreditSights.

Hi, on SendTech, thank you for the detail on, can you comment on what your expected churn will be for the remaining part of the year?

I'm sorry. Peter, can you repeat the question? You expected, what?

How much do you expect churn to be at SendTech? My recollection was a sort of mid-single digit decline on the number of units. Could you refresh our memory on that in your expectations going forward?

Yes. Thanks Peter, now I have it. Yes. I mean if you think about the second half of the year and where we've been with the migrations with the IMI, we're in a spot right now where I think the more difficult transactions are coming in the second half of the year. And as such, I expect -- I would expect that the cancellation rates would tick up. I'd say fairly significant from what we've seen up to this point. And that's all in our guidance. So what we're modeling through the second half of the year assumes that tick up in churn.

Yes. And I'm more interested in what the actual amount is? And how many units you're expecting to move this year?

Yes. We're not going to disclose that today, Peter.

And next, we go into the line for David Steinhardt, Contrarian Capital.

Hey, all. Congrats on all of the moves today, very exciting progress. I see that you've given a guide for EBIT. It looks like free cash flow is pacing well ahead of last year. I wonder if you're able to give a sense of where you think free cash flow might be for the year at this point.

David, this is John. We typically don't give the free cash flow guidance, but I'd like you to think about it this way. It should look a lot like what we've seen in the first half of the year. We've got some very positive news built into our guidance. So I would expect it to be pretty consistent with the first half.

And in terms of the expected payments related to the shutdown of Global Ecommerce. I think that the statement was up to $150 million. Obviously, that includes a DIP. I wonder, can you give us a range of outcomes at this point in terms of what the low end might be?

I wouldn't give you a range. As Lance mentioned earlier, there's a lot of twists and turns along the way of this journey. So we've best modeled it at that rate, and we'll provide updates as we go.

And in terms of the rest of the year for SendTech and Presort and beyond going into, I guess, 2025. I understand that the slide -- the EBIT bridge is for illustrative purposes. But in terms of the cost takeout goals for -- through 2025, should we think that you'll be able to get through most of the cost savings through 2025? Or is it still too early to judge when you'll be able to attack the rest $140 million at the midpoint?

Yes. So when we up the range to $120 million to $160 million, we had a pretty good feel for what's going to fill that range. I would tell you we're making progress. And to kind of give you a sense, I think right now, I would say that by the end of the first quarter, we would be running at an annualized gross savings well inside of that range. Just to kind of give you the idea of the pace that we're on. And when you think about the $120 million to $160 million, again, $70 million being behind us, the majority of what's coming is really around indirect spend. So that's going to take a little bit more time to transact. There are a number of transactions that we have to go through contracts, relationships, et cetera. So I expect that to take a little bit longer, but confident that it's going to be in that range.

And next, we go to the line for a Will Brunemann Northcoast Research.

Hey, how is it going guys? So I just want to make sure I understand the guidance for the second half of this year. How much of the $70 million in cost cuts are included in the second half? I'm just trying to get an understanding of what the growth is in core EBIT.

Will thanks for the question. Of the $70 million, our guidance includes about half of that for the second half of the year.

And then I was also going to ask with the divestiture of GEC, will that eliminate all the lease responsibilities associated with the business? And will you have to dispose of any real estate assets associated with them?

Those transactions are all considered within the $150 million. It will be a mix of a lot of those well.

And they will all be accomplished during the Chapter 11 proceedings.

And then just one more, if you don't mind. The shipping revenue in SendTech has been growing really nicely. And I'm just curious about how much SendTech revenue is shipping. And would you anticipate that business to continue to grow double-digit?

Yes. I mean it was double-digit in the second quarter. It was about 16% of the segment revenue. So it's been pretty consistent growing double digit. Looking forward, I would expect it to be pretty much on that same pace. And some really nice things underneath the covers of that, particularly with our digital offerings, growing well above 30% there.

And next, we go into the line for Justin Dopierala for DOMO Capital Management

Hi, Lance, as an actual shareholder, I just want to say I appreciate the transparency and the very detailed earnings call.

Thank you, Justin. I appreciate that.

Yes. It's an incredible change from the previous management team. Going back to debt, I was wondering, do you guys have any idea of how much debt paydown you may be able to proceed with during 2024?

It's John. So I think the first priority as we get through '24 and the first part of '25 is to make sure that we successfully get the wind-down done and all the expenses that go along with that. I think we're in a better shape as a business right now to produce strong cash flow, and that will be the first priority. And then along with the fourth initiative around deleveraging our balance sheet will be a quick second here.

And so I understand that EBIT of $481 million is not official guidance for 2025. But my quick calculations show that results in about an earnings per share of $1.50. Does that sound accurate?

We're not giving the guidance here. And keep in mind, Justin, it's really an illustrates exhibit. So we can maybe help guide you a little bit more on the modeling.

[Inaudible] should be about $1.50 per share, right?

Yes, we didn't provide any kind of EPS information, Justin. It's really kind of a retrospective sort of a look at the actual EBIT performance adjusting it for the anticipated savings from GEC and cost takeouts.

And then I guess the last comment. Well, I mean I know someone else mentioned the notes that are yielding over 12%. I think it's $275 million, the 2028 notes. It sounds like that might be something you're prioritizing early next year, eliminating that should be about $33 million a year, right, in interest savings?

That's right. But I think our first priority would likely be more likely the '26 TLA.

And the last comment I have is, I would imagine that your relationship with the post office is extremely important to your legacy businesses. And I would assume -- I would assume actually in GEC would improve that relationship. I think other people might have different opinions. I'm wondering if you guys have any conversations with the post office on this that you can talk about?

Sure. Yes. We have dialogue with the Postal Service pretty consistently all the time. Pitney Bowes has been a partner of the USPS for 105 years, and we have a strong relationship across our business segments, and we work hard to maintain that relationship.

Do you think exiting Global Ecommerce would improve that relationship?

I'm very happy with how the relationship has been. I don't know whether that would make it any different really. We really value the team at the USPS.

Next, we're going to the line for Jeff Harlib, Barclays.

Hi. So the $150 million of onetime costs, which I think you said will be mostly through early '25, maybe you can just confirm that? But will that be funded through cash flow and the repatriation of cash, et cetera? Or do you expect to raise new financing for that?

Jeff, it's John. Let me just clarify. I said earlier that's likely front-end loaded for the second half of this year. So -- and taper off in the first half of next year, and it will be funded through operational.

Through operational free cash flow and the cash and the balance sheet that you're repatriating?

That's right.

And just for modeling purposes, the D&A of the e-commerce business, is it in the $65 million range, so we can kind of come up with an EBITDA number, pro forma?

Jeff, can you clarify your question? I didn't catch it.

Yes. The depreciation and amortization of e-commerce, you gave the EBIT, and I was just wondering what the D&A is that you're -- to come up with a pro forma EBITDA number?

Yes. Is the D&A, was about $14 million in the second quarter.

And maybe last thing, can you just talk a little bit about, obviously, you've done a good job of executing on these cost savings. How do we get comfortable you didn't cut too deep in some of your core business areas?

Yes. So risk management is very important to us, Jeff, and it's important at the Board level as well. And prior to implementing our cost takeouts and prior to forecasting our new cost takeouts, we have a pretty extensive review process internally and with the Board on risk. And we're very confident as we implement these cost takeout plans that we've looked at the implications of our cost takeouts and really look to manage and mitigate any potential risk. And it's a very detailed process that we actually go through. We're pretty confident in it.

There are no more questions. Mr. Rosenzweig, would you like to make any additional remarks?

Yes. Thank you, everyone, for joining us for this earnings call. We appreciate your support and questions, and look forward to catching up again next quarter.

And that does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.