Pitney Bowes Inc. (PBI) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Pitney Bowes Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Alex Brown, Director of Investor Relations. Please go ahead.

Good morning, 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 items can be found in our earnings press release, our Form 10-K and other reports filed with the SEC that are located on our website at www.pb.com and clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to update forward-looking statements as a result of new information or developments. Also included in today's presentation are non-GAAP measures, specifically EBIT, EBITDA, EPS and free cash flow are all on an adjusted basis. You can find a reconciliation for these items to the appropriate GAAP measures in the tables attached to our press release. We've also provided a slide presentation and spreadsheet with historical segment information on our website. With that, I'd like to turn the call over to Kurt.

Good morning, and thank you for joining us today. Second quarter results built on first quarter momentum and give us confidence to raise our adjusted EBIT, EPS and free cash flow guidance. I will now cover a few key highlights from the quarter. Presort continues to win new business and maintains a robust sales pipeline. That said, higher transportation costs materially impacted Presort's second quarter profitability. Moving to SendTech, continued operational improvements led to higher margins despite increased spending on future growth. At Pitney Bowes Bank, Steve and his team have made significant progress on building out our infrastructure, which will support future growth. Also, the bank is now originating loans through 3 pilot programs, which leverage and enhance existing client relationships. Moving to capital allocation, we reduced debt by more than $200 million over the past 4 months and pushed out our nearest maturity to March of 2029. Having reduced debt by approximately $55 million year-to-date, we are once again in a solid position to allocate capital opportunistically. Additionally, last month, we initiated the second phase of our strategic review. Given the nature of the review, we will not be commenting on potential outcomes or time line on this call. The highlights I just covered reflect the momentum we continue to build toward achieving profitable organic growth in the coming years. Finally, I would like to thank my leadership team and our more than 6,000 team members for their hard work and dedication, which drove our strong second quarter results. And with that, we will open the call for questions.

[Operator Instructions] Our first question will come from the line of Aaron Kimson with Citizens.

Can you provide some color on the 3 new products Steve and the team are piloting at the bank as well as the decision to start breaking the bank out separately in next year's financials?

Yes. Aaron, thanks for the question. Yes. So -- as we've talked about, it's really important to us that we take advantage of the opportunities that we have at the bank to leverage existing strengths in the company. And there are now 3 pilots that we are -- that Steve and his team are focused on. The first is extending credit, asset-based lending to certain Presort customers. These are large customers with strong financial health. So we believe there's a low level of risk associated with that. So that's one thing that's up and running that we're evaluating. A second pertains to our shipping software business. With the post office, they -- unlike the private companies, they don't offer terms of credit to shipping software customers. The one advantage we have vis-a-vis our competitors is that we can offer credit through our bank. So it gives us a real advantage, not just in terms of getting access to attractive loans, but it also is a competitive advantage in trying to go out and win shipping software customers. And then the third one, which is the most recent that we've initiated, ties to the logistics space. And here, we have relationships with a lot of 3PLs. So what we're looking at is, as you know, throughout the logistics supply chain, you have merchants getting products to 3PLs that are using shipping services, transportation companies, and there's a lag effect in terms of payment on all of that. So one of the things that we're exploring is the opportunity not just to work with 3PLs to extend short-term credit to deal with that, but we're also working to try to work back from the 3PLs into the merchant space to extend credit to those merchants. And one of the really attractive parts of that is with the 3PLs, we can get information on the actual assets sitting in their facilities so we have some level of understanding of the credit or the underlying assets that would be essentially held against those loans. So again, all 3 of these are in the pilot stage. We expect to pilot more initiatives, all focused on leveraging our existing relationships. We don't expect all of these to work, but we're taking a very slow approach to each of them. We want to make sure that we don't mis -- repeat the mistakes of the past and move too quickly. And as I'm sure everybody listening to this call appreciates, lending in the banking industry, there's a lot of problems the company can get into due to the levels of leverage. So we're being very cautious as we explore these, which is why we continue to expect the bank to shrink despite the fact that we're running 3 pilots that we hope we can extend more broadly within the company.

Super detailed. And then secondly, can you help us think about the price and quantity function for the mail exchange program in Presort? Does it make sense to potentially ship volume out of that program given the higher transit costs you're seeing? My understanding is that space is more and more about price than anything else, including delivery time.

Yes. So this is Paul. So on that question, Mail exchange is actually an advantage we have. We have a national network. And so as we look at when we want to sort of maximize the 5-digit discount, what we can do is move it to another location. We can overcome the fuel cost even at these elevated levels and still drive a benefit for our shareholders. So we're not at a point where it doesn't work.

Yes. And Aaron, I would just add to that, we're very long-term focused across all businesses. But within Presort, we see a tremendous opportunity to continue to win customers. And Mail Exchange creates value for our customers. As Paul mentioned, by moving mail amongst our facilities, we can get to a 5-digit sort faster than competitors. Oftentimes, what you'll see competitors do is sit on mail in order to get it to that 5-digit sort. So it almost seems counterintuitive. But by moving and transporting mail across our facilities, we can get that 5-digit sort, which we pass that discount along to our customers, we're able to get mail to the end user -- the end recipient of that mail faster than our competitors. So unfortunately, it does create an additional cost for us, but it creates value for our customers. We have a lower overall cost structure. It is hitting us right now, but we're investing in the future of the business. We want to get to growth. And at some point, transportation costs will decline, but we don't want to be shortsighted and overreact to short-term movement in transportation costs.

One moment for our next question and that will come from the line of Jasper Bibb with Truist Securities.

It was a really nice quarter for SendTech margins. I guess could you just talk a little bit more about the drivers there? It seems like still pretty healthy margin expansion on a year-over-year basis, even if you back out the tariff refund and some of the cost cutting.

Yes. I mean, long term, the margins in the mid-30s. Obviously, last year, it was depressed because we were a taker of the tariff. This year, we got a refund of the tariff, so that elevated our margins. So sorry about that. So for what you're doing, I'd say mid-30s is where we see the long run for that.

That makes sense. And then the SendTech revenue declines narrowed again. You also had bookings up year-over-year. I know you don't guide at the segment level, but what does this, I guess, tell us about what SendTech might look like in the second half? And I'm also curious, do you think SendTech revenue would maybe degrowing in the second half, if not for the impact of some of those noncore customer exits you've talked about in the past couple of quarters?

Yes. So I'll take that. Just to start with the end of the question with respect to the noncore customers, we want to be very clear and transparent about that. So there are certain customer contracts that we're losing. These contracts used to be a part of the GEC business. So they're essentially not -- that's why we refer to them as noncore SendTech. And those will have a material impact on revenue as we've expressed. In terms of the second half, I wish I could say that we're going to get to growth excluding those, but there's a couple of factors working against us. The reality is that we do continue to lose mailing meters. We're making efforts to stem that and reduce the rate at which we lose those, and I'm confident we can make that happen. And then a second piece as well is with the bank, I touched a bit on this in our letter, for the good -- for the long-term health of the business, we're actually actively shrinking the size of the bank balance sheet by getting out of low-value assets. And this gets again to the risk of banks with leverage. We could go out and buy hundreds of millions or billions of loans and borrow CDs, generate net interest margin, which should -- also comes through the revenue line and getting growth, but that's a really unattractive way to grow. So we're actively shrinking our least attractive assets to create a healthier balance sheet that as we get to a point where we have these pilot programs, we're originating loans, which are incredibly important in the financial services space, originated loans are way more attractive, better risk-adjusted returns. So we're -- so that's going to create a headwind as well going forward. It's been a headwind all year, but it's, again, the right thing to do for the business long term. We do think shipping software, we see opportunity for growth there or continued growth. But right now, that's not enough to offset the 2 of them. I think we'll get to revenue growth in SendTech as we get to growth at the bank, assuming we don't break that out, which we've discussed doing and then also as we get shipping software growing. And then finally, we did address Mailstream on Demand, which is a small product that's growing, and we're investing and trying to accelerate that growth. So that's something that could also start to push growth in the space. But again, that's -- to be quite honest, it's a small business. It's going to take time for that to get big enough to really impact revenue growth. So I don't -- as much as I hate to say it, I don't see growth in the second half in core SendTech.

One moment for our next question. And that will come from the line of Alex Lakritz with Goldman Sachs.

This is George Tong at Goldman. So a quick question following up on the SendTech piece. Can you talk about how quickly the shipping software is growing and how you see the industry level volume declines comparing to that? So in other words, where do you think that crossover happens? It sounds like it's not going to happen in the second half, but is this a 2027 story? Is it likely going to happen beyond next year?

Yes, George, I would say it's more of a 2027 story or even further out. I know everybody is looking for revenue growth at the company, but we have a long history of chasing revenue. It turns out not to be profitable, and we do a lot of ready fire aim. We're now working off the measure twice, cut once approach, which I think is going to be much more successful for the long term and investing for shareholders in the long term. So with respect to shipping, the shipping space, part of what we're working on now is rationalizing and consolidating our offerings. We have a reasonably sized shipping software business, but we have it spread across, I believe, 5 different software offerings, multiple physical offerings. And then in addition to that, we have analytics, which I guess would be another offering, tracking another offering. So we just have a lot of offerings. And at our size, trying to invest in all of those just leads to spreading your investments too thin, and we're not picking winners. So one of the things we're really focused on now is figuring out where do we have our best competitive advantage, where will investment get the best return on assets and where will investment get the -- where will it create the greatest long-term revenue growth opportunity. So again, right now, to answer your initial question, it's close to breakeven, I think maybe a little above. But again, part of that is due to the fact that we're starting to rationalize the shipping software space. And I think as we get through the process, we expect to get the growth as we're focusing more resources on our best product offerings and service offerings in the space.

That makes sense. And then turning to Presort. Revenue growth there turned positive in June, and you're continuing to target positive volume growth in the third quarter. To what extent would you say the improvement there is being driven by company-specific share gains compared to underlying market trends? And how sustainable would you say that these share gains are as you look into 2027?

I'll start. I think it's an effort from Debbie and her team. I mean we've invested in our sales force. We see a growth in their pipeline, which is always a positive step. We need to see that pipeline turn into backlog, that backlog turn into revenue and that revenue turn into cash. And so there's positive signs there, but I'd say that the efforts are really ours first. And if the industry itself, I don't think we're really benefiting from that. Kurt, anything you want to add to that?

Yes. No, I would add that over the -- again, we lost a lot of business in the first half of last year. Since that time, we've had very few losses and we've had a lot of wins. So just based on that, we have every reason to believe that we're winning market share and have been over the last year. It's a slowly declining industry, but fortunately, our aggregate share across marketing mail and first-class mail leaves us with a lot of room to continue to gain share. As we've said a million times, we have the low-cost structure in the industry. We have the highest service levels. I think our Net Promoter Scores are over 90, which is ridiculously high. So we're very well positioned to gain share. And everything we're seeing internally suggests that we are taking share right now.

And our next question will come from the line of Justin Dopierala with Domo Capital.

I was -- you guys were talking about mail exchange earlier and the higher freight costs you're experiencing there. But as investors think about how the majority of your business deals with freight costs, doesn't the USPS reimburse most of these?

They do, but it's on a lag effect. So any increase in transportation costs will show up in their next calculation of costs, which would ultimately flow through to any sort of rate increase, but that wouldn't happen until likely July of next year.

Got it. But it would be something that investors should look forward to going forward?

Correct. Yes.

Okay. And then I was wondering if you could reconcile the headwinds you're expecting in the second half of this year here with the increasing guidance that you gave.

Yes, absolutely. So let me just make a few points. First, I want to highlight that under my leadership, we've always been very transparent about the challenges we face. As an investor, I always was frustrated to hear the good news and never the bad. So we're trying to be incredibly clear about the challenges we face. And then second of all, I think that the leadership team here as well as the 6,000 employees here have shown an incredible ability to mitigate and reduce the impact of any headwinds we face. And I think our 2025 -- 2025 results reflect that. And finally, what I'd highlight is we're confident enough in our ability to continue to execute that we did raise a lot of our -- we've raised adjusted EBIT, adjusted EPS, adjusted free cash flow. And that really reflects the fact that some of these headwinds we did expect. And obviously, we didn't expect the transportation costs, but other components of it we knew were coming. But we have an incredibly dedicated team that's working incredibly hard and execution is outpacing. So despite the headwinds we faced, execution has been even better than the unexpected headwinds.

Got it. And lastly, how should investors think about both the sales and distribution of shares by Hestia?

Yes, happy to answer that. And I'll start by saying I believe this to be true. I think I'm the largest individual shareholder of Pitney Bowes. And these are shares that I bought with my own money. This is my investment in capital. This doesn't come from salary or bonuses from the company. And I think I personally own tens of millions of dollars worth of our stock. And the reason I do that is I believe we can create a lot more value at the company. With respect to Hestia itself and the shares and distributions, I'd just highlight that it's a deep value investment firm. And since taking our position, the stock has gone from $3 a share to above $18. We've been holding Pitney Bowes shares for years. But there's an agreement and a partnership agreement that addresses as I manage the fund, the manner in which I'll manage that. So I can still look at something, think it's an incredible investment, but it may not meet the criteria to be an investment at Hestia Capital. So shares by Hestia Capital don't reflect my view. They're more reflective of the agreement between me and my LPs. And then I would highlight as well, as far as the distributions go, that's one way that I think the last distribution was 1.5 million shares. I took personally over 1 million of those shares. And that's based on my conviction in the company. I'd say that investors can expect future distribution, at least one future distribution, which almost entirely will go to me. And once again, this just reflects the fact that I personally have tremendous optimism as the CEO of the company and the future of the company, and I want to have exposure to it myself. And I think when it's all said and done, my personal exposure to Pitney Bowes conceivably could be higher at the end of that than it was 6 months ago. So I understand there is some concern that the investment firm I manage is selling or distributing shares, but I just, again, highlight that as the CEO of the company as an individual, I'm increasing my exposure to the company. And hopefully, that's reassuring to shareholders.

And our next question will come from the line of Anthony Lebiedzinski with Sidoti.

Certainly nice to see the better-than-expected results, especially at SendTech. So Kurt, one of the things that you pointed out in your shareholder letter is that you're improving your sales execution. Maybe if you could share with us some examples of what you're doing differently now to improve that? And how do you see that going forward as far as your ability to improve SendTech?

Yes. So I can give quite a few. There are quite a few. I'll just limit to a couple. One is, historically, we had very poor sales support. So our salespeople were spending 50% plus of their time servicing customers as opposed to going out and hunting. So Todd has done a tremendous job of building out sales support so that the salespeople have more time to actively sell. And just as an aside, this is something I think is really important to note that it hasn't come up in any of the Q&A. But as we continue to forecast, we are investing in growth. And when I say investing, I don't mean CapEx, I mean OpEx. So our improved results reflect an increased expense level on trying to grow and hopefully growing the business. So it just speaks even more to the efficiencies and performance of the team and delivering for shareholders. So that's one example. Another is that we've had very little to no integration between enterprise sales. So the example I gave before of offering bank credit to SendTech customers would be one example of crossover sale. But more important, another example would be between Presort and SendTech. There's a lot of opportunities there. We can have customers that could be tied to both. Our Mailstream on Demand is considered a part of SendTech, but it involves Presort quite a bit, and there was very little coordination. We're now coordinating more there. And yet -- and again, I could go on for a while, but one last example is we have a new business group that's sort of going out to untouched land within SendTech or places that we don't have -- an example would be we have a government group because we have a lot of government business, but we have a group specifically targeting sort of areas that we historically have not competed. And there, Todd has done a lot to bring to overhaul the sales team itself to get the right talent for that type of sales. And it's shown up in the results. It's part of the reason that our sales figures have improved is that group historically has significantly underperformed budget and targets, and now they're at and above budgets pretty regularly. So it's been a big change. And again, it's -- what's great about that is that's areas that we typically did not necessarily have a presence. So it's sort of opening new addressable market for us. So that would just be 3 examples I'd point to.

That's very helpful color. And then just switching to Presort. Just wondering if you could share maybe more details about the impact of higher fuel costs that you had in the second quarter. And as far as your implied guidance for the second half, we obviously saw a big spike in fuel costs, and there was some easing and then here as of last week or 2, we've seen an uptick again in fuel costs as well. So maybe if you could comment on that? And what actions are you taking to help to mitigate these costs? And lastly -- yes.

Yes. So Q2, I think, is around $6 million, the impact to us of elevated fuel costs. We rely on rolling stock. So we're not unlike a lot of companies out there that are facing the challenges with the conflict with Iran. But I think second half of the year, we're going to keep -- we expect elevated fuel costs. I mean we're doing things -- I don't want to go deep into our playbook on how to mitigate that, how to reduce the impact. Obviously, the other part of it is there has been a change in with the administration on CDL drivers. And so there's been a loss of those in the system. And so we were impacted by that, not unlike a lot of others who rely on rolling stock. So again, we expect elevated costs there. The other side of it is we see a healthy growth in our pipeline. Our sales force is doing a great job. And so we continue to see -- we expect further increases in our volumes. And again, Debbie's team is doing a great job in running the business efficiently. So we have this headwind of fuel costs. We have this headwind of the loss of CDL drivers. But all that being said, as Kurt mentioned before, despite all that, we still raised our EPS, EBIT and free cash flow guidance on an adjusted basis.

[Operator Instructions] Our next question will come from the line of Kartik Mehta with Northcoast Research.

Good morning, Kartik.

If you're on mute, please unmute your line. Your line is open.

Kartik, are you there?

Yes. Can you hear me?

Now we can. Kartik, we can't hear you. Well if you can hear us, Kartik, we'll have a follow-up call. We can talk to you then. I don't want to make everybody wait here. So I hope you don't mind. We'll -- I think is that our last question, I believe so. Okay.

Yes. I do believe that is our last question. I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Kurt Wolf for any closing remarks.

Yes. Thank you, operator. Yes, I'd just like to close by acknowledging the recent passage of George Harvey for everybody's knowledge. He led the company from 1983 to 1997, which was a period of tremendous value creation for shareholders. And I think what really stood out about Mr. Harvey was he did this by really focusing on culture and sometimes people take it as cliche, but I think it's a very apt business saying, and that is that culture eats strategy for breakfast. And as an ex-consultant, it's been inside numerous companies, I've seen it firsthand. And one thing that has really stood out to me at Pitney Bowes is the strength of the culture here. And I think that Mr. Harvey really built a lot of the culture that's leading to the success we have today. So I guess I'd just like to thank him for his contributions. And again, just highlight for all shareholders listening right now that I can't emphasize enough the winning culture that we have here at Pitney Bowes, particularly as it pertains to the level of focus on team, the willingness to sacrifice on behalf of the company is something that's truly extraordinary. It's one of the reasons I'm so invested in the company is I do believe the culture plays a huge role. And I think every shareholder listening right now should feel encouraged by the 6,000-plus employees at this company and their dedication and hard work on your behalf and the behalf of the company. So a tip of the hat to Mr. Harvey. And with that, I appreciate everybody for tuning in. Thank you all.

This concludes today's program. Thank you all for participating. You may now disconnect.