Pitney Bowes Inc.

11/08/2024 | Press release | Distributed by Public on 11/08/2024 10:23

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

pbi-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 1-03579
PITNEY BOWES INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Delaware I.R.S. Employer Identification No. 06-0495050
Address of Principal Executive Offices: 3001 Summer Street, Stamford, Connecticut 06926
Telephone Number: (203) 356-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, $1 par value per share PBI New York Stock Exchange
6.7% Notes due 2043 PBI.PRB New York Stock Exchange
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.
Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer o
Smaller reporting company ☐ Emerging growth company ☐
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 October 24, 2024, 181,700,821 shares of common stock, par value $1 per share, of the registrant were outstanding.
PITNEY BOWES INC.
INDEX
Page Number
Part I - Financial Information:
Item 1:
Financial Statements
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
3
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023
4
Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023
5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023
6
Notes to Condensed Consolidated Financial Statements
7
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3:
Quantitative and Qualitative Disclosures about Market Risk
39
Item 4:
Controls and Procedures
39
Part II - Other Information:
Item 1:
Legal Proceedings
40
Item 1A:
Risk Factors
40
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
41
Item 3:
Defaults Upon Senior Securities
41
Item 4:
Mine Safety Disclosures
41
Item 5:
Other Information
41
Item 6:
Exhibits
42
Signatures
43
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 September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Revenue:
Business services $ 221,791 $ 203,269 $ 651,389 $ 638,714
Support services 90,956 101,855 281,301 310,454
Financing 68,614 68,572 203,816 202,323
Equipment sales 66,418 76,705 216,574 238,766
Supplies 35,428 35,695 107,658 111,035
Rentals 16,256 16,937 49,739 51,217
Total revenue 499,463 503,033 1,510,477 1,552,509
Costs and expenses:
Cost of business services 128,573 130,141 386,531 424,661
Cost of support services 30,117 33,332 94,836 105,190
Financing interest expense 16,095 16,813 48,663 46,112
Cost of equipment sales 49,075 52,952 151,948 166,303
Cost of supplies 10,051 10,498 30,604 32,607
Cost of rentals 4,079 4,289 13,196 14,859
Selling, general and administrative 189,989 182,744 569,625 583,174
Research and development 7,580 7,715 22,465 21,380
Restructuring charges 30,694 13,942 64,859 34,768
Goodwill impairment - - - 43,209
Interest expense, net 27,764 26,363 83,323 70,822
Other components of net pension and postretirement income
(961) (2,683) (1,730) (6,144)
Other expense (income)
50,287 - 50,287 (3,064)
Total costs and expenses 543,343 476,106 1,514,607 1,533,877
(Loss) income from continuing operations before taxes
(43,880) 26,927 (4,130) 18,632
(Benefit) provision for income taxes
(166,466) 9,115 (148,695) 18,331
Income from continuing operations
122,586 17,812 144,565 301
Loss from discontinued operations, net of tax
(261,058) (30,331) (310,789) (162,092)
Net loss $ (138,472) $ (12,519) $ (166,224) $ (161,791)
Basic earnings (loss) per share:
Continuing operations $ 0.68 $ 0.10 $ 0.81 $ -
Discontinued operations (1.45) (0.17) (1.74) (0.92)
Net loss
$ (0.77) $ (0.07) $ (0.93) $ (0.92)
Diluted earnings (loss) per share:
Continuing operations $ 0.67 $ 0.10 $ 0.79 $ -
Discontinued operations (1.42) (0.17) (1.70) (0.90)
Net loss
$ (0.75) $ (0.07) $ (0.91) $ (0.90)
`
See Notes to Condensed Consolidated Financial Statements
3
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net loss $ (138,472) $ (12,519) $ (166,224) $ (161,791)
Other comprehensive income (loss), net of tax:
Foreign currency translation, net of tax of $985, $(262), $330 and $314, respectively
34,738 (25,640) 14,321 (5,560)
Net unrealized loss on cash flow hedges, net of tax of $(721), $(439), $(1,693) and $(1,001), respectively
(2,136) (1,316) (5,053) (3,003)
Net unrealized gain (loss) on investment securities, net of tax of $2,299, $(1,972), $1,987 and $(1,360), respectively
7,320 (6,280) 6,328 (4,330)
Amortization of pension and postretirement costs, net of tax of $1,560, $1,032, $4,842 and $3,397, respectively
4,731 3,158 14,779 10,386
Other comprehensive income (loss), net of tax
44,653 (30,078) 30,375 (2,507)
Comprehensive loss $ (93,819) $ (42,597) $ (135,849) $ (164,298)
See Notes to Condensed Consolidated Financial Statements
4
PITNEY BOWES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except per share amount)
September 30, 2024 December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents $ 561,538 $ 600,054
Short-term investments (includes $1,823 and $2,382, respectively, reported at fair value)
13,972 22,166
Accounts and other receivables (net of allowance of $7,480 and $5,292, respectively)
188,794 200,242
Short-term finance receivables (net of allowance of $13,612 and $14,347, respectively)
530,698 563,536
Inventories 71,642 63,048
Current income taxes 19,730 564
Other current assets and prepayments (net of allowance of $29,311 as of September 30, 2024)
99,778 76,039
Assets of discontinued operations
- 532,441
Total current assets 1,486,152 2,058,090
Property, plant and equipment, net 228,826 254,078
Rental property and equipment, net 23,664 23,583
Long-term finance receivables (net of allowance of $8,088 and $8,880 respectively)
622,378 653,085
Goodwill 737,281 734,409
Intangible assets, net 17,014 20,400
Operating lease assets 121,533 126,492
Noncurrent income taxes 90,832 60,995
Other assets (includes $212,647 and $227,131, respectively, reported at fair value)
320,036 341,053
Total assets $ 3,647,716 $ 4,272,185
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 852,566 $ 829,419
Customer deposits at Pitney Bowes Bank 670,678 640,323
Current operating lease liabilities 29,218 29,882
Current portion of long-term debt 56,466 58,931
Advance billings 74,153 76,258
Current income taxes 1,471 6,523
Liabilities of discontinued operations
- 257,106
Total current liabilities 1,684,552 1,898,442
Long-term debt 2,052,298 2,087,101
Deferred taxes on income 56,563 211,477
Tax uncertainties and other income tax liabilities 12,898 19,091
Noncurrent operating lease liabilities 117,812 126,568
Noncurrent customer deposits at Pitney Bowes Bank
58,977 73,972
Other noncurrent liabilities 183,495 224,110
Total liabilities 4,166,595 4,640,761
Commitments and contingencies (See Note 14)
Stockholders' deficit:
Common stock, $1 par value (480,000 shares authorized; 270,338 shares issued)
270,338 270,338
Retained earnings 2,748,407 3,077,988
Accumulated other comprehensive loss (820,870) (851,245)
Treasury stock, at cost (88,994 and 93,972 shares, respectively)
(2,716,754) (2,865,657)
Total stockholders' deficit (518,879) (368,576)
Total liabilities and stockholders' deficit $ 3,647,716 $ 4,272,185
See Notes to Condensed Consolidated Financial Statements
5
PITNEY BOWES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Nine Months Ended September 30,
2024 2023
Cash flows from operating activities:
Net loss $ (166,224) $ (161,791)
Loss from discontinued operations, net of tax 310,789 162,092
Adjustments to reconcile net income or loss to net cash from operating activities:
Depreciation and amortization 85,897 84,500
Allowance for credit losses 9,388 9,338
Allowance for DIP Facility
29,311 -
Stock-based compensation 10,321 6,725
Amortization of debt fees 9,462 7,604
Loss (gain) on debt refinancing
2,142 (3,064)
Restructuring charges 64,859 34,768
Restructuring payments (53,919) (25,152)
Pension contributions and retiree medical payments (21,273) (30,739)
Loss on sale of assets
8,068 8,294
Loss on revaluation of intercompany loans
13,481 -
Impairment charges
10,000 43,209
Other, net (4,685) 3,328
Changes in operating assets and liabilities, net of acquisitions/divestitures:
Accounts and other receivables 6,964 27,822
Finance receivables 57,238 8,427
Inventories (8,609) 3,847
Other current assets and prepayments (25,411) (4,333)
Accounts payable and accrued liabilities 1,522 (98,444)
Current and noncurrent income taxes (192,179) 377
Advance billings (2,526) (4,926)
Net cash from operating activities - continuing operations 144,616 71,882
Net cash from operating activities - discontinued operations (49,925) (85,792)
Net cash from operating activities 94,691 (13,910)
Cash flows from investing activities:
Capital expenditures (50,221) (50,226)
Purchases of investment securities (28,360) (11,248)
Proceeds from sales/maturities of investment securities 48,719 16,100
Net investment in loan receivables 875 (17,039)
DIP Facility disbursement
(27,789) -
Settlement of derivative contracts - (6,988)
Other investing activities, net 1,565 1,337
Net cash from investing activities - continuing operations (55,211) (68,064)
Net cash from investing activities - discontinued operations (11,137) (27,372)
Net cash from investing activities (66,348) (95,436)
Cash flows from financing activities:
Proceeds from the issuance of debt, net of discount - 266,750
Principal payments of debt (42,401) (308,755)
Premiums and fees paid to redeem debt (4,938) (10,531)
Dividends paid to stockholders (26,846) (26,330)
Customer deposits at Pitney Bowes Bank 15,359 88,456
Other financing activities, net (2,340) (6,032)
Net cash from financing activities - continuing operations
(61,166) 3,558
Net cash from financing activities - discontinued operations
(6,855) (5,617)
Net cash from financing activities
(68,021) (2,059)
Effect of exchange rate changes on cash and cash equivalents 1,162 (311)
Change in cash and cash equivalents (38,516) (111,716)
Cash and cash equivalents at beginning of period 600,054 668,331
Cash and cash equivalents at end of period $ 561,538 $ 556,615
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 technology-driven company that provides SaaS shipping solutions, mailing innovation, and financial services to clients around the world - including more than 90 percent of the Fortune 500. Small businesses to large enterprises, and government entities rely on Pitney Bowes to reduce the complexity of sending mail and parcels.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the December 31, 2023 Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In management's opinion, all adjustments, consisting only of normal recurring adjustments, considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2024. These statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report to Stockholders on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).
In the third quarter of 2024, we entered into a series of transactions designed to facilitate an orderly wind-down of a majority of the Global Ecommerce reporting segment. As a result, certain revenues, expenses, assets and liabilities are now reported as discontinued operations in our Condensed Consolidated Financial Statements. Amounts of the former Global Ecommerce segment that did not qualify for discontinued operations treatment primarily relate to operations that were dissolved or sold, shared services functions that are expected to wind-down by the end of 2024 and a cross-border services contract. Prior periods have been recast to conform to the current period presentation. For segment reporting purposes, the remaining portion of Global Ecommerce in continuing operations is now reported as "Other." See Note 4 for further information
Effective January 1, 2024, we moved the digital delivery services offering from the former 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 the current segment presentation.
During the first quarter of 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 interim or annual periods prior to 2024 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 adoption of this standard did not have an impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires more detailed information about specified categories of expenses included in certain expense captions presented on the face of the income statement. This standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact this standard will have on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional income tax disclosures, including the rate reconciliation and 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 will adopt this standard effective for the year ended December 31, 2024.
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 September 30, 2024
SendTech Solutions Presort Services Other Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 35,091 $ 166,367 $ 20,333 $ 221,791 $ - $ 221,791
Support services 90,956 - - 90,956 - 90,956
Financing - - - - 68,614 68,614
Equipment sales 19,852 - - 19,852 46,566 66,418
Supplies 35,428 - - 35,428 - 35,428
Rentals - - - - 16,256 16,256
Subtotal 181,327 166,367 20,333 368,027 $ 131,436 $ 499,463
Revenue from leasing transactions and financing 131,436 - - 131,436
Total revenue $ 312,763 $ 166,367 $ 20,333 $ 499,463
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ 69,631 $ - $ - $ 69,631
Products/services transferred over time 111,696 166,367 20,333 298,396
Total $ 181,327 $ 166,367 $ 20,333 $ 368,027
Three Months Ended September 30, 2023
SendTech Solutions Presort Services Other Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 27,277 $ 152,451 $ 23,541 $ 203,269 $ - $ 203,269
Support services 101,855 - - 101,855 - 101,855
Financing - - - - 68,572 68,572
Equipment sales 18,353 - - 18,353 58,352 76,705
Supplies 35,695 - - 35,695 - 35,695
Rentals - - - - 16,937 16,937
Subtotal 183,180 152,451 23,541 359,172 $ 143,861 $ 503,033
Revenue from leasing transactions and financing 143,861 - - 143,861
Total revenue $ 327,041 $ 152,451 $ 23,541 $ 503,033
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ 71,634 $ - $ - $ 71,634
Products/services transferred over time 111,546 152,451 23,541 287,538
Total $ 183,180 $ 152,451 $ 23,541 $ 359,172
8
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Nine Months Ended September 30, 2024
SendTech Solutions Presort Services Other Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 101,267 $ 483,032 $ 67,090 $ 651,389 $ - $ 651,389
Support services 281,301 - - 281,301 - 281,301
Financing - - - - 203,816 203,816
Equipment sales 65,517 - - 65,517 151,057 216,574
Supplies 107,658 - - 107,658 - 107,658
Rentals - - - - 49,739 49,739
Subtotal 555,743 483,032 67,090 1,105,865 $ 404,612 $ 1,510,477
Revenue from leasing transactions and financing 404,612 - - 404,612
Total revenue $ 960,355 $ 483,032 $ 67,090 $ 1,510,477
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ 217,790 $ - $ - $ 217,790
Products/services transferred over time 337,953 483,032 67,090 888,075
Total $ 555,743 $ 483,032 $ 67,090 $ 1,105,865
Nine Months Ended September 30, 2023
SendTech Solutions Presort Services Other Revenue from products and services Revenue from leasing transactions and financing Total consolidated revenue
Major products/service lines
Business services $ 76,566 $ 454,460 $ 107,688 $ 638,714 $ - $ 638,714
Support services 310,454 - - 310,454 - 310,454
Financing - - - - 202,323 202,323
Equipment sales 57,408 - - 57,408 181,358 238,766
Supplies 111,035 - - 111,035 - 111,035
Rentals - - - - 51,217 51,217
Subtotal 555,463 454,460 107,688 1,117,611 $ 434,898 $ 1,552,509
Revenue from leasing transactions and financing 434,898 - - 434,898
Total revenue $ 990,361 $ 454,460 $ 107,688 $ 1,552,509
Timing of revenue recognition from products and services
Products/services transferred at a point in time $ 222,193 $ - $ - $ 222,193
Products/services transferred over time 333,270 454,460 107,688 895,418
Total $ 555,463 $ 454,460 $ 107,688 $ 1,117,611
9
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 mail processing services, shipping subscription solutions and cross-border solutions. Revenues for mail processing services and cross-border solutions 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 oneto 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 oneto 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 September 30, 2024 December 31, 2023 Increase/ (decrease)
Advance billings, current Advance billings $ 67,398 $ 69,295 $ (1,897)
Advance billings, noncurrent Other noncurrent liabilities $ 384 $ 507 $ (123)
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 $49 million of advance billings at the beginning of the period. Current advance billings shown above at both September 30, 2024 and December 31, 2023 does not include $7 million, 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 $ 65,826 $ 235,546 $ 404,978 $ 706,350
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.
10
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
3. Segment Information
Our reportable segments are SendTech Solutions and Presort Services. SendTech Solutions includes the revenue and related expenses from physical and digital shipping and mailing technology solutions, financing, services, supplies and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats. Presort Services includes the revenue and related expenses from sortation services that qualify large volumes of First Class Mail, Marketing Mail and Marketing Mail Flats/Bound Printed Matter for postal worksharing discounts.
Other operations includes the revenue and related expenses of our former Global Ecommerce reportable segment that did not qualify for discontinued operations treatment. These operations represent previous operations that were dissolved or sold, shared services functions that are expected to wind-down by the end of 2024 and a cross-border services contract.
Management reports adjusted segment earnings before interest and taxes (EBIT) as its measure of segment profitability. Adjusted segment EBIT is calculated as segment revenue less the related costs and expenses attributable to the segment. Segment expenses exclude general corporate expenses, restructuring charges, goodwill impairment charges, interest, taxes 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 income or loss from continuing operations before income taxes.
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
SendTech Solutions $ 312,763 $ 327,041 $ 960,355 $ 990,361
Presort Services 166,367 152,451 483,032 454,460
Total segment revenue 479,130 479,492 1,443,387 1,444,821
Other
20,333 23,541 67,090 107,688
Total revenue $ 499,463 $ 503,033 $ 1,510,477 $ 1,552,509
Adjusted Segment EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
SendTech Solutions $ 104,228 $ 99,220 $ 306,473 $ 291,705
Presort Services 46,179 29,124 113,556 76,458
Total adjusted segment EBIT 150,407 128,344 420,029 368,163
Reconciliation of adjusted segment EBIT to net income or loss from continuing operations before income taxes:
Other operations
(4,236) (2,595) (4,824) (1,017)
Interest expense, net (43,859) (43,176) (131,986) (116,934)
Corporate expenses
(43,386) (41,704) (144,431) (145,762)
Restructuring charges
(30,694) (13,942) (64,859) (34,768)
Goodwill impairment - - - (43,209)
Proxy solicitation fees - - - (10,905)
(Loss) gain on debt refinancing
(2,142) - (2,142) 3,064
Foreign currency loss on intercompany loans
(18,831) - (13,481) -
Charges in connection with Ecommerce Restructuring
(38,145) - (38,145) -
Asset impairment
(10,000) - (10,000) -
Strategic review costs (2,994) - (14,291) -
(Loss) income from continuing operations before income taxes
$ (43,880) $ 26,927 $ (4,130) $ 18,632
11
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
4. Discontinued Operations
On August 8, 2024, we entered into a series of transactions designed to facilitate an orderly wind-down of a majority of the Company's Global Ecommerce reporting segment. In connection with the wind-down, an affiliate of Hilco Commercial Industrial, LLC ("Hilco") subscribed for 81% of the voting interests in the subsidiary, DRF Logistics, LLC owning a majority of the Global Ecommerce segment's net assets and operations (DRF Logistics, LLC and its subsidiary, DRF LLC, the "Ecommerce Debtors") for de minimis consideration (the "GEC Sale"), with a subsidiary of Pitney Bowes retaining 19% of the voting interests and 100% of the economic interests. Subsequent to the GEC Sale, the Ecommerce Debtors, at the direction of their own governing bodies, filed petitions to commence Chapter 11 bankruptcy cases and conduct an orderly wind-down of the Ecommerce Debtors (the "GEC Chapter 11 Cases"). We refer to the GEC Sale, the GEC Chapter 11 Cases and any associated transactions as the "Ecommerce Restructuring".
In connection with the GEC Chapter 11 Cases, we entered into a Restructuring Support Agreement (the "RSA") with the Ecommerce Debtors. The RSA provides for, among other things, an orderly wind-down of the Ecommerce Debtors, shared services between the Company and the Ecommerce Debtors for a period of time, a global settlement between the Company and the Ecommerce Debtors, and a senior secured, super-priority debtor-in-possession term loan (the "DIP Facility") in an aggregate principal amount of up to $47 million. Through September 30, 2024, we provided funding under the DIP Facility of $28 million, which was fully reserved. It appears unlikely that the DIP Facility will be repaid in full.
The Company and the Ecommerce Debtors have entered into a master settlement agreement (the "Settlement Agreement"), which attaches the RSA and the DIP Facility and which contemplates the separation of the relationship and transactions among the Company and its subsidiaries and the Ecommerce Debtors, including the settlement and release of claims the Ecommerce Debtors may have against the Company. The Settlement Agreement is subject to the approval of the Bankruptcy Court and there is no assurance that such approval will be granted.
Immediately prior to the GEC Sale, we had various intercompany receivables with the Ecommerce Debtors with an aggregate value of $116 million. After the GEC Sale, those intercompany receivables were converted to third-party receivables, for which we have ascribed a fair value of zero. Subsequent collections, if any, will be recorded when received or collection is assured.
We account for the investment in the Ecommerce Debtors using the equity method which requires the initial fair value of the investment to be recorded as an asset. We determined that the fair value of our economic interest in the Ecommerce Debtors was zero and is therefore not reflected in our consolidated balance sheet. While we no longer control the management of the Ecommerce Debtors, we retain an economic equity interest therein; however, such interest is not anticipated to receive any recovery or distribution as part of the Ecommerce Restructuring. We nevertheless remain exposed to the economic risks and continued costs applicable to the Ecommerce Debtors through our investment in the DIP Facility. Hilco anticipates the Ecommerce Restructuring will be substantially completed by the end of 2024.
Financial information of discontinued operations is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Revenue $ 115,797 $ 280,718 $ 728,462 $ 842,261
Cost of revenue
120,167 291,974 737,856 854,408
Selling, general and administrative
39,536 26,673 99,806 90,911
Goodwill impairment
- - - 75,390
Other
7,017 5,702 10,463 18,825
Total costs and expenses
166,720 324,349 848,125 1,039,534
Loss from discontinued operations
(50,923) (43,631) (119,663) (197,272)
Loss on sale
(218,847) - (218,847) -
Loss from discontinued operations before taxes
(269,770) (43,631) (338,510) (197,272)
Tax benefit (8,712) (13,300) (27,721) (35,180)
Loss from discontinued operations, net of tax
$ (261,058) $ (30,331) $ (310,789) $ (162,092)
12
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The major categories of assets and liabilities included in assets of discontinued operations and liabilities of discontinued operations are as follows:
December 31, 2023
Cash and cash equivalents $ 999
Accounts and other receivables, net 141,993
Inventories 7,005
Other current assets and prepayments 16,269
Property, plant and equipment, net 129,550
Intangible assets 41,850
Operating lease assets
183,467
Other assets 11,308
Assets of discontinued operations $ 532,441
Accounts payable and accrued liabilities $ 46,057
Current operating lease liabilities 30,187
Advance billings 12,829
Noncurrent operating lease liabilities
151,413
Other noncurrent liabilities 16,620
Liabilities of discontinued operations $ 257,106
5. Earnings per Share (EPS)
The calculation of basic and diluted EPS is presented below. The sum of the EPS amounts may not equal the totals due to rounding.
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Numerator:
Income from continuing operations
$ 122,586 $ 17,812 $ 144,565 $ 301
Loss from discontinued operations, net of tax
(261,058) (30,331) (310,789) (162,092)
Net loss
$ (138,472) $ (12,519) $ (166,224) $ (161,791)
Denominator:
Weighted-average shares used in basic EPS
180,242 176,099 178,695 175,428
Dilutive effect of common stock equivalents
3,596 4,270 3,750 4,155
Weighted-average shares used in diluted EPS 183,838 180,369 182,445 179,583
Basic earnings (loss) per share:
Continuing operations $ 0.68 $ 0.10 $ 0.81 $ -
Discontinued operations (1.45) (0.17) (1.74) (0.92)
Net loss
$ (0.77) $ (0.07) $ (0.93) $ (0.92)
Diluted earnings (loss) per share:
Continuing operations $ 0.67 $ 0.10 $ 0.79 $ -
Discontinued operations (1.42) (0.17) (1.70) (0.90)
Net loss
$ (0.75) $ (0.07) $ (0.91) $ (0.90)
Common stock equivalents excluded from calculation of diluted earnings per share because their impact would be anti-dilutive: 4,833 10,574 6,839 9,665
We utilize the control number concept in the computation of diluted earnings per share to determine whether potential common stock equivalents are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.
13
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
6. 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:
September 30,
2024 		December 31,
2023
Raw materials $ 23,388 $ 21,201
Supplies and service parts 18,595 18,517
Finished products 29,659 23,330
Total inventories $ 71,642 $ 63,048
7. 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 threeto 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:
September 30, 2024 December 31, 2023
North America International Total North America International Total
Sales-type lease receivables
Gross finance receivables $ 959,751 $ 129,659 $ 1,089,410 $ 987,743 $ 143,466 $ 1,131,209
Unguaranteed residual values 36,838 6,628 43,466 38,059 7,211 45,270
Unearned income (258,680) (38,641) (297,321) (253,711) (42,847) (296,558)
Allowance for credit losses (12,939) (2,277) (15,216) (13,942) (2,786) (16,728)
Net investment in sales-type lease receivables 724,970 95,369 820,339 758,149 105,044 863,193
Loan receivables
Loan receivables 319,259 19,962 339,221 342,062 17,865 359,927
Allowance for credit losses (6,304) (180) (6,484) (6,346) (153) (6,499)
Net investment in loan receivables 312,955 19,782 332,737 335,716 17,712 353,428
Net investment in finance receivables $ 1,037,925 $ 115,151 $ 1,153,076 $ 1,093,865 $ 122,756 $ 1,216,621
Maturities of gross finance receivables at September 30, 2024 were as follows:
Sales-type Lease Receivables Loan Receivables
North America International Total North America International Total
Remainder 2024 $ 95,959 $ 35,308 $ 131,267 $ 179,270 $ 19,962 $ 199,232
2025 332,861 42,106 374,967 48,009 - 48,009
2026 257,170 26,797 283,967 35,324 - 35,324
2027 167,598 15,649 183,247 29,205 - 29,205
2028 83,877 7,168 91,045 20,468 - 20,468
Thereafter 22,286 2,631 24,917 6,983 - 6,983
Total $ 959,751 $ 129,659 $ 1,089,410 $ 319,259 $ 19,962 $ 339,221
14
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:
September 30, 2024
Sales-type Lease Receivables Loan Receivables
North America International North America International Total
Past due amounts 0 - 90 days $ 951,747 $ 127,374 $ 316,976 $ 19,859 $ 1,415,956
Past due amounts > 90 days 8,004 2,285 2,283 103 12,675
Total $ 959,751 $ 129,659 $ 319,259 $ 19,962 $ 1,428,631
December 31, 2023
Sales-type Lease Receivables Loan Receivables
North America International North America International Total
Past due amounts 0 - 90 days $ 977,744 $ 140,857 $ 339,789 $ 17,664 $ 1,476,054
Past due amounts > 90 days 9,999 2,609 2,273 201 15,082
Total $ 987,743 $ 143,466 $ 342,062 $ 17,865 $ 1,491,136
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.
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 $ 13,942 $ 2,786 $ 6,346 $ 153 $ 23,227
Amounts charged to expense 998 (7) 3,550 354 4,895
Write-offs (3,232) (636) (5,116) (349) (9,333)
Recoveries 1,221 145 1,546 - 2,912
Other 10 (11) (22) 22 (1)
Balance at September 30, 2024 $ 12,939 $ 2,277 $ 6,304 $ 180 $ 21,700
Sales-type Lease Receivables Loan Receivables
North America International North America International Total
Balance at January 1, 2023 $ 14,131 $ 2,893 $ 4,787 $ 139 $ 21,950
Amounts charged to expense 1,339 800 3,246 305 5,690
Write-offs (3,227) (1,209) (3,722) (292) (8,450)
Recoveries 2,058 151 1,488 - 3,697
Other 51 (181) (52) (6) (188)
Balance at September 30, 2023 $ 14,352 $ 2,454 $ 5,747 $ 146 $ 22,699
15
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
The table below shows write-offs of gross finance receivables by year of origination.
September 30, 2024
Sales Type Lease Receivables Loan Receivables Total
2024 2023 2022 2021 2020 Prior
Write-offs $ 67 $ 829 $ 1,382 $ 763 $ 543 $ 284 $ 5,465 $ 9,333
September 30, 2023
Sales Type Lease Receivables Loan Receivables Total
2023 2022 2021 2020 2019 Prior
Write-offs $ 833 $ 912 $ 1,141 $ 748 $ 447 $ 355 $ 4,014 $ 8,450
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.
16
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
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.
September 30, 2024
Sales Type Lease Receivables Loan Receivables Total
2024 2023 2022 2021 2020 Prior
Low $ 150,519 $ 224,418 $ 180,767 $ 115,960 $ 71,999 $ 53,317 $ 254,787 $ 1,051,767
Medium 25,841 33,812 26,277 19,868 11,307 9,951 39,044 166,100
High 3,550 4,350 3,350 2,723 2,030 655 12,286 28,944
Not Scored 48,205 45,817 29,475 16,849 6,243 2,127 33,104 181,820
Total $ 228,115 $ 308,397 $ 239,869 $ 155,400 $ 91,579 $ 66,050 $ 339,221 $ 1,428,631
December 31, 2023
Sales Type Lease Receivables Loan Receivables Total
2023 2022 2021 2020 2019 Prior
Low $ 261,583 $ 222,947 $ 155,193 $ 96,986 $ 46,635 $ 27,164 $ 264,232 $ 1,074,740
Medium 46,208 35,891 24,483 16,027 10,503 8,041 62,910 204,063
High 4,455 4,217 2,554 1,853 740 862 7,487 22,168
Not Scored 59,335 49,839 33,494 15,944 5,089 1,166 25,298 190,165
Total $ 371,581 $ 312,894 $ 215,724 $ 130,810 $ 62,967 $ 37,233 $ 359,927 $ 1,491,136
Lease Income
Lease income from sales-type leases, excluding variable lease payments, was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Profit recognized at commencement $ 24,071 $ 29,476 $ 78,277 $ 92,138
Interest income 38,264 38,588 114,277 116,700
Total lease income from sales-type leases $ 62,335 $ 68,064 $ 192,554 $ 208,838
Lessor Operating Leases
We also lease mailing equipment under operating leases with terms of oneto five years. Maturities of these operating leases are as follows:
Remainder 2024 $ 5,056
2025 16,927
2026 17,196
2027 10,616
2028 1,459
Thereafter 3,829
Total $ 55,083
17
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
8. Intangible Assets and Goodwill
Intangible Assets
Intangible assets consisted of the following:
September 30, 2024 December 31, 2023
Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Carrying
Amount 		Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Carrying
Amount
Customer relationships $ 43,569 $ (28,163) $ 15,406 $ 44,112 $ (25,659) $ 18,453
Software & technology 3,129 (1,521) 1,608 3,047 (1,100) 1,947
Total intangible assets $ 46,698 $ (29,684) $ 17,014 $ 47,159 $ (26,759) $ 20,400
Amortization expense for both the three months ended September 30, 2024 and 2023 was $1 million and amortization expense for both the nine months ended September 30, 2024 and 2023 was $3 million.
Future amortization expense as of September 30, 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 $ 1,146
2025 4,381
2026 3,392
2027 3,123
2028 2,438
Thereafter 2,534
Total $ 17,014
Goodwill
Changes in the carrying value of goodwill by reporting segment are shown in the table below.
December 31, 2023 Currency impact September 30,
2024
SendTech Solutions
$ 510,646 $ 2,872 $ 513,518
Presort Services
223,763 - 223,763
Total goodwill $ 734,409 $ 2,872 $ 737,281
18
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
9. 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.
September 30, 2024
Level 1 Level 2 Level 3 Total
Assets:
Investment securities
Money market funds $ 3,538 $ 176,704 $ - $ 180,242
Equity securities - 17,525 - 17,525
Commingled fixed income securities 1,649 4,396 - 6,045
Government and related securities
8,706 13,925 - 22,631
Corporate debt securities - 49,398 - 49,398
Mortgage-backed / asset-backed securities - 115,335 - 115,335
Derivatives
Interest rate swap - 2,099 - 2,099
Total assets $ 13,893 $ 379,382 $ - $ 393,275
December 31, 2023
Level 1 Level 2 Level 3 Total
Assets:
Investment securities
Money market funds $ 13,366 $ 188,484 $ - $ 201,850
Equity securities - 15,341 - 15,341
Commingled fixed income securities 1,581 5,741 - 7,322
Government and related securities
11,489 18,999 - 30,488
Corporate debt securities - 54,330 - 54,330
Mortgage-backed / asset-backed securities - 119,901 - 119,901
Derivatives
Interest rate swap - 8,425 - 8,425
Total assets $ 26,436 $ 411,221 $ - $ 437,657
19
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 nine months ended September 30, 2024 and 2023.
Available-for-sale securities consisted of the following:
September 30, 2024
Amortized cost Gross unrealized losses Estimated fair value
Government and related securities $ 24,909 $ (5,677) $ 19,232
Corporate debt securities 57,174 (7,776) 49,398
Commingled fixed income securities 1,823 (174) 1,649
Mortgage-backed / asset-backed securities 137,417 (22,082) 115,335
Total $ 221,323 $ (35,709) $ 185,614
December 31, 2023
Amortized cost Gross unrealized losses Estimated fair value
Government and related securities $ 35,048 $ (7,018) $ 28,030
Corporate debt securities 65,008 (10,678) 54,330
Commingled fixed income securities 1,788 (207) 1,581
Mortgage-backed / asset-backed securities 146,022 (26,121) 119,901
Total $ 247,866 $ (44,024) $ 203,842
20
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
Investment securities in a loss position were as follows:
September 30, 2024 December 31, 2023
Fair Value Gross unrealized losses Fair Value Gross unrealized losses
Greater than 12 continuous months
Government and related securities $ 19,232 $ 5,677 $ 28,030 $ 7,018
Corporate debt securities 49,224 7,775 51,948 10,466
Mortgage-backed / asset-backed securities 115,335 22,082 119,901 26,121
Total $ 183,791 $ 35,534 $ 199,879 $ 43,605
Less than 12 continuous months
Corporate debt securities $ 174 $ 1 $ 2,382 $ 212
Commingled fixed income securities 1,649 174 1,581 207
Total $ 1,823 $ 175 $ 3,963 $ 419
At September 30, 2024, substantially 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 September 30, 2024 were as follows:
Amortized cost Estimated fair value
Within 1 year $ 1,998 $ 1,823
After 1 year through 5 years 7,689 7,213
After 5 years through 10 years 60,475 53,284
After 10 years 151,161 123,294
Total $ 221,323 $ 185,614
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 September 30, 2024 and December 31, 2023 totaled $284 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.
Simple Agreement for Future Equity (SAFE) Investment
In October 2022, we invested $10 million in Ambi Robotics Inc., a robotics solutions company, via a SAFE arrangement. The SAFE investment provides us the right to participate in future equity offerings by Ambi Robotics Inc. The investment was carried at cost and recorded in Other assets. Due to the loss by Ambi Robotics Inc. of a significant customer, in the third quarter of 2024 we determined the investment was impaired and recorded a $10 million impairment charge.
21
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
We have outstanding interest rate swap agreements maturing December 31, 2024, 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 September 30,
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 $ (2,711) $ (1,600) Interest expense $ 2,658 $ 137
Nine Months Ended September 30,
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 $ (6,326) $ (3,600) Interest expense $ 7,833 $ 412
Foreign Exchange Contracts
In the first nine months of 2023, we 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 and nine months ended September 30, 2023 was a loss of $12 million and a loss of $4 million, respectively, and significantly offset the corresponding gain 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:
September 30, 2024 December 31, 2023
Carrying value $ 2,108,764 $ 2,146,032
Fair value $ 1,990,241 $ 1,893,620
22
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
10. Restructuring Charges
2024 Plan
During the second quarter of 2024, we approved a worldwide cost reduction initiative (the "2024 Plan") to realize cost reductions and improve efficiencies. During the third quarter, under this plan, we eliminated approximately 2,300 positions and incurred charges of $36 million. We anticipate incurring additional charges in future periods related to further workforce reductions and expect to substantially complete these actions by the end of the first half of 2025.
2023 Plan
We completed our 2023 Plan in the second quarter of 2024. Under this plan, we eliminated 1,049 positions and recognized cumulative charges of $69 million.
Activity in our restructuring reserves was as follows:
2024 Plan 2023 Plan Total
Balance at January 1, 2024 $ - $ 26,128 $ 26,128
Amounts charged to expense - continuing operations
54,238 10,621 64,859
Amounts charged to expense - discontinued operations
7,265 - 7,265
Cash payments (18,045) (35,874) (53,919)
Noncash activity (245) (875) (1,120)
Balance at September 30, 2024 $ 43,213 $ - $ 43,213
2023 Plan Prior Plan Total
Balance at January 1, 2023 $ - $ 7,647 $ 7,647
Amounts charged to expense - continuing operations
31,169 3,599 34,768
Amounts charged to expense - discontinued operations
7,852 - 7,852
Cash payments (13,906) (11,246) (25,152)
Noncash activity (8,049) - (8,049)
Balance at September 30, 2023 $ 17,066 $ - $ 17,066
Components of restructuring expense in discontinued operations primarily include severance charges. Components of restructuring expense in continuing operations were as follows:
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
2024 Plan 2023 Plan Total 2023 Plan Prior Plan Total
Severance $ 30,403 $ - $ 30,403 $ 8,190 $ - $ 8,190
Facilities and other 291 - 291 5,752 - 5,752
Total $ 30,694 $ - $ 30,694 $ 13,942 $ - $ 13,942
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
2024 Plan 2023 Plan Total 2023 Plan Prior Plan Total
Severance $ 53,947 $ 9,398 $ 63,345 $ 24,712 $ 3,057 $ 27,769
Facilities and other 291 1,223 1,514 6,457 542 6,999
Total $ 54,238 $ 10,621 $ 64,859 $ 31,169 $ 3,599 $ 34,768
23
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
11. Debt
Total debt consisted of the following:
Interest rate September 30, 2024 December 31, 2023
Term loan due March 2026
SOFR + 2.25%
$ 249,500 $ 285,500
Notes due March 2027 6.875% 380,000 380,000
Notes due March 2028
SOFR + 6.9%
272,250 274,313
Term loan due March 2028
SOFR + 4.0%
434,250 437,625
Notes due March 2029 7.25% 350,000 350,000
Notes due January 2037 5.25% 35,841 35,841
Notes due March 2043 6.70% 425,000 425,000
Other debt 216 1,181
Principal amount 2,147,057 2,189,460
Less: unamortized costs, net 38,293 43,428
Total debt 2,108,764 2,146,032
Less: current portion long-term debt 56,466 58,931
Long-term debt $ 2,052,298 $ 2,087,101
In August 2024, we amended the credit agreement that governs our secured revolving credit facility and the term loan due March 2026 (the "Credit Agreement") and the note purchase agreement that governs our $275 million notes due March 2028. The amendments, among other things, permit the Ecommerce Restructuring, funding under the DIP Facility, amend certain covenants, including relief for expenses incurred pursuant to the Ecommerce Restructuring, release the guarantees provided by the Ecommerce Debtors and the liens on the assets of the Ecommerce Debtors and reduce the total aggregate amount of permitted borrowings under the revolving credit facility from $500 million to $400 million.
The Credit Agreement 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. At September 30, 2024, we were in compliance with these financial covenants.
Management expects that we will remain in compliance with these amended 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 September 30, 2024, there were no outstanding borrowings under the revolving credit facility. Borrowings under our secured debt are secured by assets of the company.
24
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
12. 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
September 30, September 30, September 30,
2024 2023 2024 2023 2024 2023
Service cost $ 12 $ 11 $ 189 $ 190 $ 92 $ 98
Interest cost 14,468 15,440 5,298 5,379 1,090 1,163
Expected return on plan assets (21,551) (21,280) (6,557) (7,575) - -
Amortization of prior service (credit) cost (5) (5) 76 72 - -
Amortization of net actuarial loss (gain) 4,758 4,209 1,968 525 (506) (977)
Settlement - 366 - - - -
Net periodic benefit (income) cost $ (2,318) $ (1,259) $ 974 $ (1,409) $ 676 $ 284
Contributions to benefit plans $ 1,221 $ 2,722 $ 329 $ 491 $ 2,423 $ 2,330
Defined Benefit Pension Plans Nonpension Postretirement Benefit Plans
United States Foreign
Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
2024 2023 2024 2023 2024 2023
Service cost $ 36 $ 31 $ 561 $ 578 $ 277 $ 275
Interest cost 44,400 47,618 15,666 15,935 3,361 3,774
Expected return on plan assets (65,369) (64,506) (19,409) (22,434) - -
Amortization of prior service (credit) cost (15) (15) 223 214 - -
Amortization of net actuarial loss (gain) 14,702 13,042 5,804 1,552 (1,093) (1,690)
Settlement - 680 - - - -
Net periodic benefit (income) cost $ (6,246) $ (3,150) $ 2,845 $ (4,155) $ 2,545 $ 2,359
Contributions to benefit plans $ 3,542 $ 5,756 $ 7,707 $ 16,036 $ 10,024 $ 8,947
25
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
13. Income Taxes
The benefit for income taxes for the three and nine months ended September 30, 2024 includes a tax benefit of $164 million primarily due to an affiliate reorganization. The provision for income taxes for the three and nine months ended September 30, 2023 includes a benefit of $1 million on the $43 million goodwill impairment charge as the majority of this charge was nondeductible.
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 40% of our unrecognized tax benefits.
The Internal Revenue Service examination of our consolidated U.S. Federal income tax returns for tax years prior to 2020 are closed to audit, except for review of the Tax Cuts and Jobs Act Sec. 965 transition tax. On a state and local level, returns for most jurisdictions are closed through 2018. For our significant non-U.S. jurisdictions, the U.K., France and Germany are closed through 2021, 2019 and 2016, respectively. Canada is closed to examination through 2018 except for a specific issue under current exam and in Appeals. We also have other less significant tax filings currently subject to examination.
14. Commitments and Contingencies
From time to time, in the ordinary course of business, we are involved in litigation pertaining to, among other things, contractual rights under vendor, insurance or other contracts; intellectual property or patent rights; equipment, service, payment or other disputes with clients; or disputes with employees. Some of these actions may be brought as a purported class action on behalf of a purported class of customers, employees, or others. Due to uncertainties inherent in litigation, any actions could have an adverse effect on our financial position, results of operations or cash flows; however, in management's opinion, the final outcome of outstanding matters will not have a material adverse effect on our business.
On October 1, 2024, one of the Ecommerce Debtors filed a complaint against Trilogy Leasing Co., LLC ("Trilogy") in the United States Bankruptcy Court for the Southern District of Texas seeking to recharacterize certain Equipment Supplements to which they are parties as disguised financings. On October 8, 2024, we filed a motion to intervene in that proceeding in support of the Ecommerce Debtors' position. Given the uncertainty of litigation and the legal standards that must be met, we cannot estimate the reasonably possible loss or range of loss that may result from these actions.
26
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
15. Stockholders' Deficit
Changes in stockholders' deficit were as follows:
Common stock Retained earnings Accumulated other comprehensive loss Treasury stock Total deficit
Balance at July 1, 2024 $ 270,338 $ 2,948,959 $ (865,523) $ (2,781,663) $ (427,889)
Net loss - (138,472) - - (138,472)
Other comprehensive income
- - 44,653 - 44,653
Dividends paid ($0.05 per common share)
- (9,061) - - (9,061)
Issuance of common stock - (57,326) - 64,909 7,583
Stock-based compensation expense
- 4,307 - - 4,307
Balance at September 30, 2024 $ 270,338 $ 2,748,407 $ (820,870) $ (2,716,754) $ (518,879)
Common stock Retained earnings Accumulated other comprehensive loss Treasury stock Total deficit
Balance at July 1, 2023 $ 323,338 $ 4,908,641 $ (807,993) $ (4,499,473) $ (75,487)
Net loss - (12,519) - - (12,519)
Other comprehensive loss
- - (30,078) - (30,078)
Dividends paid ($0.05 per common share)
- (8,805) - - (8,805)
Issuance of common stock - (16,084) - 16,658 574
Stock-based compensation expense
- 1,206 - - 1,206
Balance at September 30, 2023 $ 323,338 $ 4,872,439 $ (838,071) $ (4,482,815) $ (125,109)
Common stock Retained earnings Accumulated other comprehensive loss Treasury stock Total deficit
Balance at January 1, 2024 $ 270,338 $ 3,077,988 $ (851,245) $ (2,865,657) $ (368,576)
Net loss - (166,224) - - (166,224)
Other comprehensive income
- - 30,375 - 30,375
Dividends paid ($0.15 per common share)
- (26,846) - - (26,846)
Issuance of common stock - (147,385) - 148,903 1,518
Stock-based compensation expense
- 10,874 - - 10,874
Balance at September 30, 2024 $ 270,338 $ 2,748,407 $ (820,870) $ (2,716,754) $ (518,879)
Common stock Retained earnings Accumulated other comprehensive loss Treasury stock Total deficit
Balance at January 1, 2023 $ 323,338 $ 5,125,677 $ (835,564) $ (4,552,798) $ 60,653
Net loss - (161,791) - - (161,791)
Other comprehensive loss
- - (2,507) - (2,507)
Dividends paid ($0.15 per common share)
- (26,330) - - (26,330)
Issuance of common stock - (72,398) - 69,983 (2,415)
Stock-based compensation expense
- 7,281 - - 7,281
Balance at September 30, 2023 $ 323,338 $ 4,872,439 $ (838,071) $ (4,482,815) $ (125,109)
27
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
16. Accumulated Other Comprehensive Loss
Reclassifications out of AOCL were as follows:
Gain (Loss) Reclassified from AOCL
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Cash flow hedges
Cost of sales $ - $ - $ - $ (33)
Interest expense, net 2,658 137 7,833 412
Total before tax 2,658 137 7,833 379
Income tax provision 665 34 1,958 95
Net of tax $ 1,993 $ 103 $ 5,875 $ 284
Available-for-sale securities
Financing revenue $ (638) $ (20) $ (1,773) $ (11)
Income tax benefit
(160) (5) (443) (3)
Net of tax $ (478) $ (15) $ (1,330) $ (8)
Pension and postretirement benefit plans
Prior service costs $ (71) $ (67) $ (208) $ (199)
Actuarial losses (6,220) (3,757) (19,413) (12,904)
Settlement - (366) - (680)
Total before tax (6,291) (4,190) (19,621) (13,783)
Income tax benefit (1,560) (1,032) (4,842) (3,397)
Net of tax $ (4,731) $ (3,158) $ (14,779) $ (10,386)
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 $ 6,962 $ (33,463) $ (757,452) $ (67,292) $ (851,245)
Other comprehensive income before reclassifications
822 4,998 - 14,321 20,141
Reclassifications into earnings (5,875) 1,330 14,779 - 10,234
Net other comprehensive (loss) income (5,053) 6,328 14,779 14,321 30,375
Balance at September 30, 2024 $ 1,909 $ (27,135) $ (742,673) $ (52,971) $ (820,870)
Cash flow hedges Available for sale securities Pension and postretirement benefit plans Foreign currency adjustments Total
Balance at January 1, 2023 $ 12,503 $ (39,440) $ (716,056) $ (92,571) $ (835,564)
Other comprehensive loss before reclassifications
(2,719) (4,338) - (5,560) (12,617)
Reclassifications into earnings (284) 8 10,386 - 10,110
Net other comprehensive (loss) income (3,003) (4,330) 10,386 (5,560) (2,507)
Balance at September 30, 2023 $ 9,500 $ (43,770) $ (705,670) $ (98,131) $ (838,071)
28
PITNEY BOWES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; table amounts in thousands unless otherwise noted, except per share amounts)
17. Supplemental Financial Statement Information
Activity in the allowance for credit losses, other than finance receivables (see Note 7 for further information) is presented below.
Nine Months Ended September 30,
2024 2023
Balance at beginning of year $ 5,292 $ 4,852
Amounts charged to expense 33,804 3,648
Write-offs, recoveries and other (2,305) (4,611)
Balance at end of period $ 36,791 $ 3,889
Accounts and other receivables $ 7,480 $ 3,889
Other current assets and prepayments
29,311 -
Total $ 36,791 $ 3,889
Other expense (income) consisted of the following:
Three Months Ended September 30, Nine Months Ended September 30,
2024 2024 2023
Loss (gain) on debt refinancing
$ 2,142 $ 2,142 $ (3,064)
Charges in connection with the Ecommerce Restructuring
38,145 38,145 -
Asset impairment
10,000 10,000 -
Other expense (income)
$ 50,287 $ 50,287 $ (3,064)
Supplemental cash flow information is as follows:
Nine Months Ended September 30,
2024 2023
Cash interest paid $ 142,088 $ 134,157
Cash income tax payments, net
$ 43,324 $ 18,200
Noncash activity
Capital assets obtained under capital lease obligations $ 9,559 $ 4,804
29
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 neither historical facts nor assurances of future performance. Instead, they 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," "will," "forecast," "strategy," "goal," "should," "would," "could," "may" 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.
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
•the risks and uncertainties and potential adverse effects of the Ecommerce Restructuring on our operations, including ability to achieve anticipated benefits, management and employees and the risks associated with operating our business during the restructuring process and exit from the Global Ecommerce segment
•our ability to successfully implement the 2024 Plan and achieve expected cost reductions and improved efficiencies in connection therewith
•the loss of some of our larger clients in our Presort Services segment
•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
•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
30
•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.
Recent Developments
On August 8, 2024, we entered into a series of transactions designed to facilitate an orderly wind-down of a majority the Company's Global Ecommerce reporting segment. In connection with the wind-down, an affiliate of Hilco Commercial Industrial, LLC ("Hilco") subscribed for 81% of the voting interests in the subsidiary, DRF Logistics, LLC owning a majority of the Global Ecommerce segment's net assets and operations (DRF Logistics, LLC and its subsidiary, DRF LLC, the "Ecommerce Debtors") for de minimis consideration (the "GEC Sale"), with a subsidiary of Pitney Bowes retaining 19% of the voting interests and 100% of the economic interests. Subsequent to the GEC Sale, the Ecommerce Debtors, at the direction of their own governing bodies, filed petitions to commence Chapter 11 bankruptcy cases and conduct an orderly wind down of the Ecommerce Debtors (the "GEC Chapter 11 Cases"). We refer to the GEC Sale, the GEC Chapter 11 Cases and any associated transactions as the "Ecommerce Restructuring".
In connection with the GEC Chapter 11 Cases, we entered into a Restructuring Support Agreement (the "RSA") with the Ecommerce Debtors to provide for, among other things, an orderly wind-down of the Ecommerce Debtors, shared services between the Company and the Ecommerce Debtors for a period of time, a global settlement between the Company and the Ecommerce Debtors, and a senior secured, super-priority debtor-in-possession term loan (the "DIP Facility") in an aggregate principal amount of up to $47 million.
The Company and the Ecommerce Debtors have entered into a master settlement agreement (the "Settlement Agreement"), which attaches the RSA and the DIP Facility and which contemplates the separation of the relationship and transactions among the Company and its subsidiaries and the Ecommerce Debtors, including the settlement and release of claims the Ecommerce Debtors may have against the Company. The Settlement Agreement is subject to the approval of the Bankruptcy Court and there is no assurance that such approval will be granted.
As a result of the Ecommerce Restructuring, certain revenues, expenses, assets and liabilities are now reported as discontinued operations in our Condensed Consolidated Financial Statements. Amounts of the former Global Ecommerce segment that did not qualify for discontinued operations treatment primarily relate to operations that were dissolved or sold, shared services functions that are expected to wind-down by the end of 2024 and a cross-border services contract. Prior periods have been recast to conform to the current period presentation. For segment reporting purposes, the remaining portion of Global Ecommerce in continuing operations is now reported as "Other." See Note 4 for further information
Outlook
Within SendTech Solutions, mailing-related revenues are expected to decline driven by lower meter populations due to the migration to cloud-based solutions and a higher mix of lease extensions versus new lease sales. We expect this decline to be partially offset by growth in our shipping offerings. The shift to lease extensions versus new lease sales will result in declining equipment sales in the near term; however, the long term impact will be more stable and continued cash flows over the lease term.
Within Presort Services, we expect revenue and margin improvements due to higher revenue-per-piece and lower costs driven by the investments made in automation and technology to drive efficiencies and improve productivity.
During the second quarter of 2024, we approved a worldwide cost reduction initiative (the "2024 Plan") to realize cost reductions and improve efficiencies. Through the third quarter of 2024, total charges under this plan were $61 million, of which $7 million is included in discontinued operations. Exclusive of savings anticipated as a result of the Ecommerce Restructuring, we expect these headcount actions to generate significant annualized savings. We anticipate incurring additional charges in future periods related to further workforce reductions contemplated by the 2024 Plan. Actions under the 2024 Plan are expected to be substantially complete by the end of the first half of 2025.
31
RESULTS OF OPERATIONS
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 and Nine Months Ended September 30:
Three Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % Change Constant Currency % change
Total revenue $ 499,463 $ 503,033 (1) % (1) %
Total costs and expenses 543,343 476,106 (14) %
(Loss) income from continuing operations before taxes
(43,880) 26,927 (>100%)
(Benefit) provision for income taxes
(166,466) 9,115 >100%
Net income from continuing operations
$ 122,586 $ 17,812 >100%
Revenue decreased $4 million in the third quarter of 2024 compared to the prior year period primarily due to lower support services revenue of $11 million and lower equipment sales of $10 million, partially offset by higher business services revenue of $19 million.
Total costs and expenses increased $67 million compared to the prior year period primarily due to:
•Other expense (income) increased $50 million due to $38 million of charges in connection with the Ecommerce Restructuring, a $10 million asset impairment charge and a $2 million loss on debt refinancing.
•Restructuring charges increased $17 million compared to the prior year period primarily driven by actions taken under the 2024 Plans.
•Selling, general and administrative (SG&A) expense increased $7 million compared to the prior year period primarily driven by non-cash foreign currency revaluation losses on intercompany loans of $19 million and higher variable compensation expense of $14 million, which was partially offset by lower salary expense of $12 million due to savings from the 2023 and 2024 Plans and lower expenses from various cost savings initiatives.
•Costs of revenue (excluding financing interest expense) decreased $9 million primarily due to lower cost of equipment sales of $4 million, lower cost of support services of $3 million and lower cost of business services of $2 million.
The benefit for income taxes for the three months ended September 30, 2024 includes a tax benefit of $164 million primarily due to an affiliate reorganization. See Note 13 for more information.
Net income from continuing operations for the third quarter of 2024 was $123 million compared to $18 million in the prior year period.
32
Nine Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % Change Constant Currency % change
Total revenue $ 1,510,477 $ 1,552,509 (3) % (3) %
Total costs and expenses 1,514,607 1,533,877 1 %
(Loss) income from continuing operations before taxes
(4,130) 18,632 (>100%)
(Benefit) provision for income taxes
(148,695) 18,331 >100%
Net income from continuing operations
$ 144,565 $ 301 >100%
Revenue decreased $42 million in the first nine months of 2024 compared to the prior year period primarily due to lower support services revenue of $29 million, lower equipment sales of $22 million and lower supplies revenue of $3 million, partially offset by higher business services revenue of $13 million.
Total costs and expenses decreased $19 million compared to the prior year period primarily due to:
•Costs of revenue (excluding financing interest expense) decreased $67 million primarily due to lower cost of business services of $38 million, lower cost of equipment sales of $14 million and lower cost of support services of $10 million.
•A $43 million goodwill impairment charge in the prior year related to our former Global Ecommerce reportable segment.
•SG&A expense decreased $14 million compared to the prior year period primarily driven by lower salary expense of $26 million due to savings from the 2023 and 2024 Plans, lower professional and outsourcing fees of $16 million, lower marketing expenses of $2 million and various other expense savings totaling approximately $25 million from cost savings initiatives, partially offset by higher variable compensation expense of $28 million, incremental CEO and Board transition costs and strategic review costs of $14 million and non-cash foreign currency revaluation losses on intercompany loans of $13 million.
•Other expense (income) increased $53 million primarily due to $38 million of charges in connection with the Ecommerce Restructuring and a $10 million asset impairment charge.
•Restructuring charges increased $30 million compared to the prior year period primarily driven by actions taken under the 2023 and 2024 Plans.
•Interest expense, net, including financing interest expense, increased $15 million compared to the prior year period primarily due to higher interest rates.
The benefit for income taxes for the nine months ended September 30, 2024 includes a tax benefit of $164 million primarily due to an affiliate reorganization. See Note 13 for more information.
Net income from continuing operations for the nine months ended September 30, 2024 was $145 million compared to less than $1 million in the prior year period.
33
SEGMENT RESULTS
Effective January 1, 2024, we moved the digital delivery services offering from the former 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 the 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, corporate expenses, restructuring charges, goodwill impairment and other items not allocated to a business segment.
SendTech Solutions
SendTech Solutions provides clients with physical and digital shipping and mailing 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 September 30,
Favorable/(Unfavorable)
2024 2023 Actual % change Constant Currency % change
Business services $ 35,091 $ 27,277 29 % 29 %
Support services 90,956 101,855 (11) % (11) %
Financing 68,614 68,572 - % - %
Equipment sales 66,418 76,705 (13) % (13) %
Supplies 35,428 35,695 (1) % (1) %
Rentals 16,256 16,937 (4) % (4) %
Total revenue 312,763 327,041 (4) % (4) %
Cost of business services 10,408 8,758 (19) %
Cost of support services 30,122 33,136 9 %
Cost of equipment sales 49,077 52,745 7 %
Cost of supplies 10,051 10,469 4 %
Cost of rentals 4,079 4,259 4 %
Total costs of revenue 103,737 109,367 5 %
Gross margin 209,026 217,674 (4) %
Gross margin % 66.8 % 66.6 %
Selling, general and administrative 100,598 113,374 11 %
Research and development 4,730 5,645 16 %
Other components of pension and post retirement costs (530) (565) (6) %
Adjusted Segment EBIT $ 104,228 $ 99,220 5 %
SendTech Solutions revenue decreased $14 million in the third quarter of 2024 compared to the prior year period. Support services revenue declined $11 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $10 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. These revenue declines were partially offset by an increase in business services revenue of $8 million primarily driven by growth in our shipping subscriptions, including enterprise subscriptions and growth in
34
digital delivery services of $3 million due to client mix.
Gross margin declined $9 million and gross margin percentage increased slightly to 66.8% from 66.6% compared to the prior year period. Equipment sales gross margin and gross margin percentage decreased compared to the prior year period, primarily due to the decline in revenue. Support services gross margin declined primarily due to the decrease in revenue. Business services gross margin improved due to growth in enterprise shipping subscriptions and growth in digital delivery services.
SG&A expense declined $13 million, primarily driven by lower employee-related expenses of $6 million due to savings from the 2023 and 2024 Plans, lower credit loss provision of $2 million and overall cost savings initiatives.
Adjusted segment EBIT was $104 million in the third quarter of 2024 compared to $99 million for the prior year period.
Nine Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % change Constant Currency % change
Business services $ 101,267 $ 76,566 32 % 32 %
Support services 281,301 310,454 (9) % (9) %
Financing 203,816 202,323 1 % 1 %
Equipment sales 216,574 238,766 (9) % (9) %
Supplies 107,658 111,035 (3) % (3) %
Rentals 49,739 51,217 (3) % (3) %
Total revenue 960,355 990,361 (3) % (3) %
Cost of business services 28,815 24,046 (20) %
Cost of support services 94,851 104,466 9 %
Cost of equipment sales 151,950 165,211 8 %
Cost of supplies 30,604 32,451 6 %
Cost of rentals 13,196 14,703 10 %
Total costs of revenue 319,416 340,877 6 %
Gross margin 640,939 649,484 (1) %
Gross margin % 66.7 % 65.6 %
Selling, general and administrative 319,871 343,629 7 %
Research and development 16,189 15,838 (2) %
Other components of pension and post retirement costs (1,594) (1,688) (6) %
Adjusted Segment EBIT $ 306,473 $ 291,705 5 %
SendTech Solutions revenue decreased $30 million in the first nine months of 2024 compared to the prior year period. Support services revenue declined $29 million primarily due to the declining meter population and continuing shift to cloud-enabled products. Equipment sales declined $22 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment. Supplies revenue declined $3 million primarily driven by a declining meter population. These revenue declines were partially offset by an increase in business services revenue of $25 million primarily driven by growth in our shipping subscriptions, including enterprise subscriptions and growth in digital delivery services of $9 million due to client mix.
Gross margin declined $9 million; however, gross margin percentage increased to 66.7% from 65.6% 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. Gross profit margin for support services, equipment sales and supplies was comparable to the prior year period as we reduced costs in response to lower revenues in the current period.
35
SG&A expense declined $24 million, primarily driven by lower employee-related expenses of $14 million due to savings from the 2023 Plan, lower credit loss provision of $2 million and lower expenses driven by overall cost savings initiatives.
Adjusted segment EBIT was $306 million in the first nine months of 2024 compared to $292 million for the prior year period.
Presort Services
Presort Services is 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/Bound Printed Matter for postal worksharing discounts.
Financial performance for the Presort Services segment was as follows:
Three Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % Change Constant Currency % change
Business Services Revenue $ 166,367 $ 152,451 9 % 9 %
Cost of Business Services 102,670 104,685 2 %
Gross Margin 63,697 47,766 33 %
Gross Margin % 38.3 % 31.3 %
Selling, general and administrative 17,467 18,582 6 %
Other components of net pension and postretirement costs 51 60 15 %
Adjusted segment EBIT $ 46,179 $ 29,124 59 %
Revenue increased $14 million in the third quarter of 2024 compared to the prior year period primarily due to a 3% increase in total mail volumes and pricing actions. The processing of First Class Mail contributed the revenue increase of $14 million.
Gross margin increased $16 million and gross margin percentage increased from 31.3% in the prior period to 38.3% primarily due to the increase in revenue.
SG&A expense declined $1 million compared to the prior year period.
Adjusted segment EBIT was $46 million in the third quarter of 2024 compared to $29 million in the prior year period.
Nine Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % Change Constant Currency % change
Business Services Revenue $ 483,032 $ 454,460 6 % 6 %
Cost of Business Services 310,797 321,249 3 %
Gross Margin 172,235 133,211 29 %
Gross Margin % 35.7 % 29.3 %
Selling, general and administrative 58,528 56,582 (3) %
Other components of net pension and postretirement costs 151 171 12 %
Adjusted segment EBIT $ 113,556 $ 76,458 49 %
Revenue increased $29 million in the first nine months of 2024 compared to the prior year period primarily due to pricing actions. The processing of First Class Mail and Marketing Mail Flats/Bound Printed Matter contributed revenue increases of $22 million and $8 million, respectively, which was partially offset by a revenue decrease from Marketing Mail of $1 million. Revenue was also favorably impacted by a $5 million adjustment related to prior periods. Refer to Note 1 Basis of Presentation for further information.
36
Gross margin increased $39 million and gross margin percentage increased from 29.3% in the prior period to 35.7% primarily due to the increase in revenue, lower transportation costs of $4 million driven by improvements in network management and the continuing benefits from investments in automation and higher-throughput sortation equipment.
SG&A expense increased $2 million primarily due to higher credit loss provision.
Adjusted segment EBIT was $114 million in the first nine months of 2024, including the $5 million benefit from the revenue adjustment related to prior periods, compared to $76 million in the prior year period.
CORPORATE EXPENSES
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 corporate expenses. Corporate expenses primarily represents corporate administrative functions such as finance, marketing, human resources, legal, information technology, and research and development.
Corporate expenses were as follows:
Three Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % change
Corporate expenses
$ 43,386 $ 41,704 (4) %
Corporate expenses for the third quarter of 2024 increased $2 million compared to the prior year period primarily due to higher variable compensation expense of $16 million, partially offset by lower salary expense of $8 million due to savings as a result of the 2023 and 2024 Plans, lower marketing expenses of $3 million and lower expenses from various cost savings initiatives.
Nine Months Ended September 30,
Favorable/(Unfavorable)
2024 2023 Actual % change
Corporate expenses
$ 144,431 $ 145,762 1 %
Corporate expenses for the first nine months of 2024 decreased $1 million compared to the prior year period primarily due to lower salary expense of $13 million due to savings as a result of the 2023 and 2024 Plans, lower professional and outsourcing fees of $9 million, lower marketing expenses of $3 million and lower expenses from various cost savings initiatives, which was partially offset by higher variable compensation expense of $32 million.
37
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 September 30, 2024, we had cash, cash equivalents and short-term investments of $576 million, which includes $46 million held at our foreign subsidiaries used to support their liquidity needs. At this time, we believe that existing cash and investments, cash generated from operations and borrowing capacity under our revolving credit facility will be sufficient to fund our cash needs for the next 12 months.
In August 2024, we amended the Credit Agreement and the note purchase agreement that governs our $275 million notes due March 2028. These amendments, among other things, permit the Ecommerce Restructuring, funding under the DIP Facility, amend certain covenants, including relief for expenses incurred pursuant to the Ecommerce Restructuring, release the guarantees provided by the Ecommerce Debtors and the liens on the assets of the Ecommerce Debtors, and reduce the total aggregate amount of permitted borrowings under the revolving credit facility from $500 million to $400 million.
The Credit Agreement contains certain financial covenants that 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. As of September 30, 2024, we were in compliance with these financial covenants.
Management expects that we will remain in compliance with these amended 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 accelerated by our lenders. As of September 30, 2024, there were no outstanding borrowings under the revolving credit facility. Borrowings under our secured debt are secured by substantially all of the assets of the Company.
In connection with the GEC Chapter 11 Cases, the Company, through one of its wholly owned subsidiaries, agreed to provide funding to the Ecommerce Debtors through the DIP Facility up to a maximum amount of $47 million. Through September 30, 2024, we provided cash funding of $28 million. It appears unlikely that the DIP Facility will be repaid in full. The DIP Facility bears interest at 10%, and matures on November 29, 2024, unless otherwise extended by the parties.
Immediately prior to the GEC Sale, we had various intercompany receivables with the Ecommerce Debtors with an aggregate value of $116 million. After the GEC Sale, those intercompany receivables were converted to third-party receivables, for which we have ascribed a fair value of zero. Subsequent collections, if any, will be recorded when received or collection is assured.
Cash Flow Summary
Changes in cash and cash equivalents were as follows:
2024 2023 Change
Net cash from operating activities $ 94,691 $ (13,910) $ 108,601
Net cash from investing activities (66,348) (95,436) 29,088
Net cash from financing activities (68,021) (2,059) (65,962)
Effect of exchange rate changes on cash and cash equivalents 1,162 (311) 1,473
Change in cash and cash equivalents $ (38,516) $ (111,716) $ 73,200
Operating Activities
Cash flows from operating activities in the first nine months of 2024 improved $109 million compared to the prior year period driven primarily by a decline in finance receivables and lower payments of accounts payable and accrued liabilities.
Investing Activities
Cash flows from investing activities for the first nine months of 2024 improved $29 million compared to the prior year period primarily due to lower cash outflows from discontinued operations of $16 million, lower investments in loans receivable of $18 million, higher cash from investment activity of $16 million and lower cash payments from settlements of derivative contracts of $7 million, partially offset by DIP Facility funding of $28 million.
38
Financing Activities
Cash flows from financing activities for the first nine months of 2024 declined $66 million compared to the prior year period primarily due to lower cash flows from changes in customer account deposits at the Bank of $73 million, partially offset by lower fees paid to refinance debt of $6 million.
We paid dividends of $9 million in the quarter and $27 million through September 30, 2024. 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.
Off-Balance Sheet Arrangements
At September 30, 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.
Critical Accounting Estimates
There have been no significant changes to the Critical Accounting Estimates 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 September 30, 2024.
39
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
See Note 14 to the Condensed Consolidated Financial Statements.
Item 1A: Risk Factors
There were no material changes to the risk factors identified in Item 1A of our 2023 Annual Report other than those shown below:
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 potential future changes, may create continuity risks and challenges to our ability to operate the businesses and execute our strategy. In addition, such changes may, among other things, create uncertainty among investors, customers, employees, and others concerning our future direction and performance, make it difficult to attract and retain qualified personnel and impact our credit ratings and our ability to access capital markets at reasonable costs.
We are subject to risks relating to the Ecommerce Restructuring and related transactions.
On August 8, 2024, we completed the GEC Sale. There are numerous risks and uncertainties that may be associated with the Ecommerce Restructuring, including, among others, the costs related to the Chapter 11 proceedings; the length of time necessary to implement the orderly wind-down of the Global Ecommerce business associated with the Ecommerce Debtors; the Ecommerce Debtors' ability to navigate the Chapter 11 proceedings and consummate a Chapter 11 plan; potential impacts to the Company's reputation and relationships with its customers, vendors, employees, and other counterparties; and impacts to the Company's liquidity, financial condition and results of operations.
There can be no assurances that the Ecommerce Restructuring will limit the Company's liability under certain contracts and obligations associated with the Ecommerce Debtors and claims may be asserted against the Company and/or its affiliates. As part of the Ecommerce Restructuring, the Company and the Ecommerce Debtors have entered into the Settlement Agreement, which attaches the RSA and the DIP Facility, and includes a release of all existing or potential causes of action among the Company and the Ecommerce Debtors. The Settlement Agreement is subject to the approval of the Bankruptcy Court and there is no assurance that such approval will be granted. If the Settlement Agreement is not approved or substantial modifications are made to the terms of the Settlement Agreement, the Company may be subject to significant claims by the Ecommerce Debtors. Any assertions of claims against the Company or any of its affiliates, may require significant effort, resources, and money to defend or could result in material losses to the Company, and such losses could have a material negative effect on the Company's business, financial condition, liquidity and results of operations. We can provide no assurance that any such claims, if asserted, will be resolved in manner that is satisfactory to the Company.
Furthermore, while we no longer control the management of the Ecommerce Debtors, we retained an economic equity interest therein; however, such economic equity interest is not anticipated to receive any recovery or distribution as part of the Ecommerce Restructuring. We nevertheless remain exposed to the business risks and continued costs applicable to the Ecommerce Debtors through our investment in the DIP Facility, which could be significant. Hilco anticipates the Ecommerce Restructuring will be substantially completed by the end of 2024. In addition, management of the Company may need to spend a significant amount of time and effort attending to matters related to the Ecommerce Restructuring, diverting their focus from the Company's remaining business operations. Due to the inherent uncertainty of the restructuring process, we are unable to predict with certainty the timing, outcome or financial impact of the Ecommerce Restructuring.
We anticipate achieving significant benefits and cost savings from the Ecommerce Restructuring. However, the anticipated benefits and cost savings may not be fully realized or may take longer to realize than expected. The restructuring may also result in additional and unforeseen expenses. The Company has estimated that it will incur substantial expenses in connection with the Ecommerce Restructuring; however, actual expenses may be greater than anticipated. If we are unable to achieve the anticipated benefits and cost savings, or the expenses associated with the Ecommerce Restructuring exceed our estimates, our business, financial condition, liquidity and results of operations could be adversely impacted.
40
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 September 30, 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
During the three months ended September 30, 2024, certain directors and officers of the Company adopted a "Rule 10b5-1 trading arrangement," as defined in Item 408(a) of Regulation S-K, as set forth in the table below:
Action
Date
Trading Arrangement
Total Shares to be Sold(3)
Expiration Date
Rule 10b5-1(1)
Non-Rule 10b5-1(2)
Deborah Pfeiffer (Executive Vice President and President, Presort Services)
Adopt
August 20, 2024
x
87,668
November 30, 2025
Kurt Wolf (Director)
Adopt
August 23, 2024
x
12,500,000(4)
May 25, 2025
Lauren Freeman-Bosworth (Executive Vice-President, General Counsel and Corporate Secretary)
Adopt
August 30, 2024
x
51,000(5)
November 30, 2025
(1)Intended to satisfy the affirmative defense of Rule 10b5-1(c).
(2)Not intended to satisfy the affirmative defense of Rule 10b5-1(c).
(3)Represents the maximum number of shares that may be sold pursuant to the 10b5-1 trading arrangement. The actual number of shares sold will be dependent on the terms of, and the satisfaction of the conditions as set forth in, the written plan.
(4)Shares are held directly by Hestia Capital Partners, LP ("Hestia Capital"), Helios I, LP ("Helios") and separately managed accounts. Mr. Wolf is the managing member of (a) Hestia Partners GP, the general partner of Hestia Capital and Helios, and (b) Hestia LLC, the investment manager of Hestia Capital, Helios, and the separately managed accounts. The 10b5-1 trading arrangement provides that the number of shares to be sold pursuant thereto is dependent on the satisfaction of certain conditions set forth in the written plan, including escalating price targets and Rule 144 volume limitations, among other parameters.
(5)The Rule 10b5-1 trading arrangement includes the sale of shares to be received upon future vesting of certain outstanding equity awards, net of any shares withheld by us to satisfy applicable taxes. The number of shares to be withheld, and thus the exact number of shares to be sold pursuant to Ms. Freeman-Bosworth's Rule 10b5-1 trading arrangement, can only be determined upon the occurrence of the future vesting events. For purposes of this disclosure, we have reported the gross number of shares to be received upon the future vesting of such equity awards, before subtracting any shares to be withheld by us to satisfy applicable taxes in connection with such future vesting events.
41
Item 6: Exhibits
Exhibit
Number 		Description Exhibit Number in this Form 10-Q
3.1 3.2
3.2 3.3
10.1 10.1
10.2 10.2
10.3 10.3
10.4 10.4
10.5 10.5
10.6 10.6
10.7*
Pitney Bowes Inc. 2024 Stock Plan as amended November 5, 2024
10.7
10.8*
Pitney Bowes Inc. Key Employees' Incentive Plan as amended November 5, 2024
10.8
10.9*
Pitney Bowes Executive Equity Deferral Plan as amended November 5, 2024
10.9
10.10*
Form of Restricted Stock Unit Award Agreement under 2024 Stock Plan
10.10
10.11*
Form of Performance Stock Unit Award Agreement under 2024 Stock Plan
10.11
10.12*
Form of Cash Incentive Unit Award Agreement under 2024 Stock Plan
10.12
10.13*
Form of Stock Cash Incentive Unit Award Agreement under 2024 Stock Plan
10.13
10.14*
Form of Non-qualified Stock Option Award Agreement under 2024 Stock Plan
10.14
10.15*
Form of Long Term Incentive Award Agreements under 2018 Stock Plan
10.15
10.16*
Letter Agreement, dated September 18, 2024, between the Company and John Witek
10.16
31.1
Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended
31.1
31.2
Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended
31.2
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.1
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
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 current quarter, formatted in Inline XBRL. (included as Exhibit 101).
* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.
42
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: November 8, 2024
/s/ John A. Witek
John A. Witek
Interim Chief Financial Officer and Interim Chief Accounting Officer
(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer)
43