Q3 2020 Pitney Bowes Inc Earnings Call
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Good morning, and welcome to the Pitney Bowes third quarter earnings 2020 results Conference call. Your lines have been placed in a listen only mode. During the conference call until the question and answer segment todays call is also being recorded if you have any objections. Please just.
Connect your lines at this time I would now like to introduce your speakers for today's conference call Mr., Marc Lautenbach, President and Chief Executive Officer, Mr., Stansted, Tula Executive Vice President and Chief Financial Officer, and Mr., Adam David Vice President Investor Relations Mr., David will now begin the call with the Safe Harbor overview.
Good morning.
Included in this presentation are forward looking statements about our expected future business and financial performance.
Forward looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections.
More information about these risks and uncertainties can be found in our earnings press release, our 2019 form 10-K annual report and other reports filed with the FCC that are located on our website at www Dot PB dot com and by clicking on Investor Relations.
Please keep in mind that we do not undertake any obligation to update any forward looking statements as a result of new information or development.
Also for non-GAAP measures used in the press release or discussed in this presentation you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website.
Additionally, we have provided slides that summarize many of the points, we will discuss during the call.
Slides can also be found on our Investor Relations website.
Now, our president and Chief Executive Officer, Marc Lautenbach will start with a few opening remarks mark. Thank.
Thank you Adam and thank you everyone for joining our call.
We turned in a good quarter and put up some solid numbers.
Im extremely proud of what the team continues to accomplish especially while facing these challenging times.
Overall revenue grew 13%.
This is an organic growth rate that we have not achieved in well over a decade and double the growth rate we saw in the second quarter.
Although the current environment, that's contributing to our accelerated growth rate, we recognize the opportunity in shipping well in advance of the current conditions, which is why we spent the last several years, making the right investments and taking necessary actions to shift our portfolio to this large growth area that complements our.
Folio.
And those investments are paying off with our shipping related revenues comprising half of our overall revenue.
However, the question still remains for all of US what will ecommerce look like post co that world.
Our marketing and communications team has been conducting weekly surveys with U.S. consumers to gauge several areas, including how shopping habits of change and whether it'd habits may post cobot environment.
Based on what we are seeing in the market. It is not surprising that will serve our results show that 45% of consumers. So they now do more than half of their shopping online, which is nearly three times pre pandemic adoption.
While the duration of this terrible pandemic remains in no.
We do know for certain that the market has shifted dramatically and consumers have adopted and adapted to the online buying.
Showing up on your doorstep experience.
And we are fortunate to have invested in the products and services that help our clients be successful with the post purchase consumer experience. Because this is an area that retailers can only afford to get right.
Stan will discuss the details on the quarter, but given how the environment has changed over the last nine months as important to look at our results from a sequential perspective as each of our business segments turned on a strong quarter over quarter revenue performance.
Our ecommerce business grew 47% over prior year exceed $400 million of revenue in the quarter, which is a first for this business.
I know I've said this on prior calls, but it bears repeating this.
This is a business that barely existed for us eight years ago and is now on track to generate over $1.5 billion and annual revenue and year to date has grown over 30%.
We continue to process a record number of parcels and sign a significant number of new clients.
An indication that we are taking share as our services and value proposition resonate with the market.
With more opportunity still in front of us.
As we discussed last quarter, the acceleration in demand and volume is bringing us to a level of scale that we originally anticipated achieving in two years, but.
But we have more work in front of us to become more efficient, which the team is focused on.
We have taken the necessary steps to prepare for a successful peak holiday season.
Over the course of the last few months, we signed leases on three new facilities and upgraded another.
All of which will be running for peak and we announced holiday peak pricing.
Unlike some others in the market, we used a simple easy to understand flat rate increase that helps our clients know how to budget for their holiday shipping costs.
Given the performance of the ecommerce it would be easy to overlook the quarter to quarter improvement in our semtech and pre start businesses.
We are equally focused and well positioned to leverage the investments we have made in these businesses over the last several years.
Within Semtech, we've invested in new product offerings and channels.
These investments have allowed us to find new ways to interact and conduct business with our clients, while adding value in saving the money as.
As a result in the third quarter, we acquired over 8600 Sendpro clients through our digital channel, which is an increase of nearly 80% year over year.
We are delivering new capabilities around shipping and financing and building out new revenue and profit streams that are more subscription based.
We continue to see improved take rates and activation for our shipping capabilities, which grew revenue at a double digit rate.
And our paid subscriptions for our shipping offerings grew over 60%.
We also saw a nice improvement in the level of equipment placements with sales revenue improving versus prior quarter.
We are now, placing new mail, finishing devices, which is a very important market for us.
Shipment of these devices grew nicely in the quarter and we entered the fourth quarter with a healthy backlog.
And this business continues to turn in a strong EBIT margin that is within our long term model range given.
Given semtechs contribution to our cash.
Improving the topline decline and delivering strong margins is essential to our overall capital allocation strategy.
And pretty start we also improved our revenues from second quarter and improved the bottom line.
And similar to what we are doing and Semtech, we've expanded our pre sort services.
Into the shipping space.
Create new revenue and profit stream for this business around bound printed matter and marketing mail flat.
Overall, we are making continued improvement and progress across the portfolio and expect this momentum to continue in the fourth quarter.
I would be remiss, if I didnt again, thank our employees clients and partners alike.
Our highest priority remains around their health and safety and we continued to take all necessary actions.
Now as we head into a busy holiday season.
This will be about most important as we remain diligent and very mindful of everyone's safety.
As I mentioned before one of the hallmarks of our culture as resilience and that has enabled our company to endure.
Looking at where we are from a longer term perspective, I like how we're positioned but I am convinced that we will come out of this pandemic much stronger than we entered with.
With that let me turn it over to Stan.
Thank you Mark and good morning, comparing our third quarter results to the second quarter, we doubled our revenue growth and improved overall EBIT dollars.
We continue to generate strong cash flow growing 15 million over prior year, which puts us at about $186 million year to date.
And then the third quarter, we repaid the 100 million drawn against the revolving credit facility.
As a reminder, we had drawn down against our revolver in April purely EPS precautionary measure and cobot ramped up.
Given our cash flow generation and that we have no current need for the funds. It was prudent for us to repay it in the third quarter.
We continue to see the effects of Covance play out across our business, we remain focused on providing a healthy and safe environment for our employees as well as our clients partners and community.
Even with the cobot impact we are moving in the right direction, and we expect to gain momentum in the fourth quarter.
Let me take you through the details of the third quarter.
As in the past unless otherwise noted my statements going forward will be on a constant currency basis and talking about revenue comparisons and on an adjusted basis when talking about earnings related items, including cash flow.
Reconciliations of all non-GAAP to GAAP measures can be found in the financial schedules posted with our earnings press release and on our Investor Relations website.
For the third quarter revenue totaled 892 million, which was growth of 13% over prior year.
Adjusted EPS was eight cents for the quarter and GAAP EPS was seven cents.
EPS includes kobin related costs, which were partly offset by insurance proceeds related to last year's malware attack.
Free cash flow was $85 million and GAAP cash from operations was 104 million free.
Free cash flow improved from prior year due to changes in working capital largely around the timing of accounts receivable, which was partly offset by lower net income.
Looking at our capital position through the end of the third quarter.
We ended the quarter with 820 million in cash and short term investments. This is lower than the second quarter largely due to the repayment of the $100 million drawn against our revolving credit facility.
Additionally, during the quarter approximately a 150 million in cash and short term investments was invested into longer term securities, which was net neutral to the balance sheet.
During the quarter, we used free cash flow to return approximately $9 million to our shareholders in the form of dividends, we made 5 million in restructuring payments and invested $21 million in capital expenditures.
Looking at our Pitney Bowes bank customer deposits grew 6% over prior year to $611 million.
Within Wheeler financial we funded just over $5 million in new deals, bringing our total funded amount year to date to around 12 million.
From a debt perspective, we ended the quarter with $2.6 billion in total debt, which is about a $120 million lower from the second quarter and primarily driven by the repayment of the 100 million revolving credit facility. In addition to principal amortization of both of the term loans.
In terms of our net debt when you take our cash and short term investments and finance receivables into consideration our implied net debt position on an operating company basis was approximately $700 million at the end of the quarter.
Turning to the PML, starting with revenue performance by line item as compared to prior year.
Business services grew 31%, we had declined some financing of 5% support services, a 7% rentals of 9%.
And sales of 12% and supplies of 13%.
Gross profit was 295 million with a margin of 33%.
This is a decline of about nine points from prior year, which largely reflects a shifting mix of our portfolio.
SG M&A was $239 million, which is a decline of 15 million from prior year.
As a percent of revenue SG and it was 27%, which is an improvement of over five points from prior year.
R&D expense was $9 million or 1% of revenue, which was down $3 million from prior year.
EBIT was $54 million in EBIT margin was 6% compared to prior year EBIT declined $15 million and EBIT margin declined by just over 2.5 points driven primarily by the gross profit decline, which was partly offset largely by lower operating expense.
Interest expense, including financing interest expense was 39 million, which was down about $1 million from prior year.
The provision for taxes on adjusted earnings was about 2 million and our tax rate for the quarter was 11%.
Weighted average shares outstanding at the end of the quarter were 175 million, which is about 3.5 million shares higher than prior year.
Let me now discuss the performance of each of our business segments. This quarter.
And our Commerce services group revenue was $538 million, which was growth of 31% over prior year.
EBIT was a loss of 5 million in EBITDA was a positive 20 million.
Within global ecommerce revenue was 410 million, which is the first time, we achieved over $400 million in the quarter and represented growth of 47% over prior year.
Within domestic parcel services volumes more than doubled from prior year to 61 million driven by over 150% growth in our domestic deliveries.
Digital volumes grew nearly 70% over prior year, driven by strong growth in our digital shipping npis.
And then our cross border services, we saw progress through the quarter with volumes growing nearly 30% over prior year, driven by a larger cross border logistics client and improved demand.
This represents a material improvement from prior quarters as we continue to innovate around customer experience.
Looking at EBIT recorded a loss of $20 million in the quarter and EBITDA was a loss of 3 million both of which were an improvement of approximately $2 million from prior year.
The third quarter EBIT margin of minus 4.8% was a three point improvement over prior year and roughly flat quarter to quarter.
As we continue to gain scale, we saw postage labor and transportation cost per piece improve as we move through the quarter.
We continue to invest in this business to capture share of this window of opportunity is in front of us in the quarter, we invested in three new facilities and upgraded another we are making ongoing advancements in automation for operational efficiency in our systems to improve data quality and capture and cloud based reporting alerts to better.
Serve our clients.
We also continued to be impacted by direct coven related items, which we expect them to continue and others to reduce over time.
With the additional capacity and the investments we've been making we are prepared to handle peak holiday volumes.
And as we have previously announced we implemented peak pricing for the holiday season that is very competitive in the market.
Looking at pre sort services revenue was 128 million, which was a decline of 3% from prior year. This represents a $10 million increase over the second quarter.
First class mail volumes were down, 3% and marketing mail volumes declined 8% from prior year, both of which improved significantly from the second quarter.
Marketing mail flats, and bound printed matter volumes grew 37% and while still a relatively small part of our portfolio. This area represents a new revenue and profit stream for this business that barely existed a year ago.
EBIT was $14 million in EBIT margin was 11% EBITDA was 23 million and EBITDA margin was 18%.
EBIT and EBITDA margins improved slightly quarter to quarter, but declined from prior year, primarily as a result of the lower volumes processed.
We remain focused on our productivity initiatives and compared to prior year, we have improved the pieces fed through our equipment per hour, resulting in 115000 fewer labor hours to sort nearly 4.1 billion pieces. We expect these productivity gains to continue going forward.
Turning to our Centex segment revenue was 354 million, which was a decline of 7% from prior year.
This is an improvement of 33 million over the second quarter.
Equipment sales declined 12% versus prior year, which is a significant improvement from the second quarter. We also saw a nice monthly improvement through the quarter with September declining only 2% from prior year as the business environment started to recover.
We continue to see good demand for our Sendpro males station, a first of its kind device with metering the cloud capability.
This product as a replacement for our lower volume mailers, which is ideal for remote set ups and per branch offices of large organizations since launching in April we have shipped nearly 12000 units exceeding our expectations.
Shipments of our mail, finishing devices in the U.S. through at a high single digit rate over prior year, and we entered the fourth quarter with a healthy backlog.
This is a leading indicator for equipment sales revenue and points to continued sequential improvement in the fourth quarter.
It also shows that our new product line, which we believe is well ahead of what the competition is offering continues to yield a positive response in the market.
Supplies declined 13%, which is a significant improvement from the second quarter as usage and demand started to improve with.
With investments in our digital capabilities, we are making it easier for clients to order and reorder supplies in the U.S. two thirds of our supplies transactions are conducted online.
Financing revenues declined 5% this quarter includes gains related to the sale and reinvestment of proceeds into long term securities.
Combined rentals and support services declined 8% from prior year largely on the lower portfolio.
We continue to see growth in our centex shipping revenues, reaching $32 million in the third quarter and growing at a double digit rate specifically, our SaaS based sendpro online offering grew its paid subscriber base by over 60% from prior year.
The impact of shipping growth in set tech goes beyond our hardware and SaaS based offerings, the third quarter, our clients, who finance are shipping activity with us doubled their shipping label volumes from prior year.
Despite the decline in Centex revenue the EBIT margin remained solid and within our long term model range EBIT was 113 million EBIT margin was 32% EPS.
EBITDA was 121 million in EBITDA margin was 34%.
Importantly, the quality of our financing portfolio remains healthy and delinquency rates are trending down from the initial small uptick that we saw in the second quarter related to Cove. It.
We are also seeing improvements in payment behavior trends from the second quarter, we continue to monitor and take a disciplined approach to credit risk management daily.
Before we take your questions, let me recap.
This pandemic has caused disruptions across industries. We are fortunate to have made the investments in our products services channels and network to be able to continue to work with our clients and grow our business.
We remain focused on our balance sheet and liquidity position, having paid down the 100 million of our revolving credit facility using cash on our balance sheet and still maintaining a strong cash position of approximately 800 million at the end of the third quarter.
We grew revenue 13% in organic rate, we have not achieved in well over a decade.
We have achieved other noteworthy accomplishments around ecommerce revenue pre store productivity measures and centex shipping capabilities, all strong proof points and our strategy to create a simplified business model focused around shipping and mailing with financing options underpinning the business is getting traction.
Due to continued uncertainty around co bid, we will continue to suspend our 2020 guidance overall, we expect continued progress with sequential improvement largely in global ecommerce in both revenue and earnings in the fourth quarter.
We are operating in a very dynamic environment, but remain focused on the long term and that has served us well, we are well positioned to capitalize on the market opportunities ahead of us and believe that we will exit this pandemic as a stronger company.
Now before we take your questions Mark would like to make a brief statement.
Thanks, Dan.
15 years ago, I was running the Americas for IBCM, which.
It was.
At the time and I am one of the most difficult jobs there was.
By then CFO, Jim Kevin I'll I had been in the role for.
Several years and Jim.
It was a terrific executive who subsequently.
On to become.
FFO of IB.
But I got Coppermark Lockridge, who was the CFO of IP and so we're going to make a change in order to put the fellow stance Tula and behind Jim.
Obviously I was concerned given I was new to the role as well and the difficulty and candidly Jim was a terrific executive and.
Hard to backfill.
But that began a relationship.
As I have enjoyed for the last.
15 years both.
Both professionally and candidly personally as well.
Stan I over the 15 years have had an opportunity to talk about his career aspirations and since I first met standard IBCM is aspiration as always.
To be a CFO of a ship.
Super large.
Company and.
Today, we're announcing that Stan.
We'll be living Pitney Bowes.
And joining Colgate Palmolive.
In the in the coming weeks.
I was able to couple of years ago to commence stand to take a detour from his.
Ambitions and to join.
That pitney Bowes and what I thought was still think of going to be one of the most successful transformation.
In industry.
Stan put his ashford.
Aspirations ambitions on the sideline to help me out over the last three or four years and has accomplished a lot.
Health plan one of the most ambitious.
Systems are in place.
Assess reengineering programs I've ever seen.
More recently has helped along with the.
Great support leadership of Debbie Sellassie.
An important refinancing that sets the basis.
For our future.
And.
As you'll see in today's results. The company is now on sustained revenue growth and what I would say is soon to be sustained revenue and profit growth.
The standard I talked about his next steps and we've been talking about next steps over the last 12 months. It was important to stand obviously important to me.
That we make this transition when the company is that a position of strength.
Over the last several quarters it's become.
Eminently clear to myself to the board to Stan.
That that.
Moments, where the company is strong.
Now and as much as.
I hate to.
To announce it and hate to lose such a wonderful colleagues.
Now is the time for stand.
To move on and fulfill what.
A lifelong ambition.
So.
Well I hate for Pitney Bowes and candidate for myself too to lose such a strong executive and wonderful colleagues.
At the same time as well.
Wonderful to see such.
Such a great person in such a quality person.
Have such an incredible opportunity I kept on trying to commence stand that we'd be a $20 billion company soon enough, but I couldn't get the account too.
To to agree with Mike.
My assessment, so that will be with us in there.
Through the end of next week we.
We've begun a search I would tell you we've got a great list of internal and external candidates.
And that slate continues to get better and better. So it's my hope within the coming weeks that we're able to.
To backfill us and I'm quite confident we'll have a great executive so with that we'll take your questions for this morning.
Ladies and gentlemen, if youd like to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command.
We are using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.
Your first question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead.
Hey, good morning first of all congrats Dan.
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Wish you the best of luck.
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Mark I wanted to ask you about the global ecommerce business, obviously, you're driving revenue really benefiting from the trends that are happening and I'm wondering if you could talk a little bit about kind of the EBIT losses, I thought maybe the incremental revenue might help out a little bit more.
From an incremental profits I was just wondering if you could give a little bit more detail about.
What's happening there and what your outlook would be for that segment in terms of getting to profitability.
Sure.
If you look at the.
The performance in the quarter and Stan alluded.
You said it.
The increased revenue improved the unit cost at a postage perspective on a transportation perspective out of labor perspective.
In precisely the way.
That candidly, we expected and consistent with the long term.
What didnt.
Improve on a quarter to quarter basis was the warehouse costs now.
Now there's a couple of different dynamics underneath that one is Stan.
I mentioned, we added three new warehouses.
To the.
To the network and this quarter. So you had the incremental expense and I would say.
Partially utilized or not at all utilized warehouses.
Warehouses. So that was number one the second thing is I'd say and I said this in the in the second quarter, we're not as efficient inside the warehouses or as we will ultimately be.
So if you look at the revenue performance. It drove the kind of scale benefits at a unit cost level that we were expecting a warehouse is still in front of us.
As it relates to going forward I'm going to resist the notion of.
Calling an inflection point or.
A particular.
Timeframe for profit.
And the principal reason as there's just so much uncertainty around covered it's hard to be hard to have a ton of confidence what I will tell you about the fourth quarter is mathematically I could lay out for you a very large.
Logical rationale for why this business will be profitable.
In the fourth quarter, but it is predicated on two important.
Factors. The first is coated and that you know.
If it doesnt get substantially worse, we don't lose a facility within the network end.
End user demand Doesnt go to.
It doesn't go to Hell et cetera, et cetera, and the second is that our own efficiency inside the warehouse.
Yeah continues to improve at the level, we expect so.
So I'm not going to you know I'm.
I'm not going to call a particular quarter for profit.
I will say the third quarter.
Kind of yield the unit cost benefits that we see and we're no we're knocking on the door of profit overall.
And then Steve can you I saw that other income was a benefit this quarter I'm wondering if you could just talk a little bit above maybe what that at is.
Can you give some context around that thank you.
Yes, so kartik first of all thanks for the question. When you go look at the other income we had the malware attack last year and as Weve disclosed previously we have got proceeds from insurance. The primary driver in the other income is the right proceeds and from the insurance companies, we continue to work.
Work through that overall, but I would emphasize though as we talked we just talked about the impact of Cove. It on the business I would tell you that the cobot impact on the business outpaces. The right you've proceeds received in the quarter and look we run this for long term, they're going to be puts and takes here as we go through the quarter.
The Cove it definitely outpaced the gain we had from the right proceeds well make one other point about the fourth quarter. So your question.
Correct.
One of the meaningful things that happened in the industry over the last 90 days as the industry.
Put forward pretty meaningful price increases our competitors.
Price increases.
Out for peak.
We followed suit, albeit to a slightly lesser.
Extent than competitors and hopefully in a much more customer friendly way. So if you look at the expected volume in the fourth quarter.
And you look at though.
Price increase at a per parcel level, it's a meaningful benefit on a quarter to quarter basis. So that as you think about the overall business that price increase for the fourth quarter and how prices work out into next year is a really important dynamic, but it it's why I'm more confident than I've been about the business and that there's.
Some pricing.
Oh leverage in the marketplace.
And then Dan just last question for Evolut, just kind of frame up that caused your the additional costs, you're seeing because it kind of as a team.
Even if it's a rate just to get an idea of the type of both pressure is putting on the piano.
Yeah look if you look across the business and look at it as you would expect Theres some easy one to put your finger on like PB.
Activity, we're buying and into our broader impact so what I'm talking about is the more direct impact right now, but you should assume you know we're in a neighborhood of very high single digit millions.
And that does not include the impact to I'd say the sales side of the business. So when we have 10 Tech can you can't get into a client site to do the install hence you can't recognize revenue not including that impact. We're talking about is the impact for staggered shifts the impact for paid time off if you've tested positive.
We've been exposed I'm talking about the pp I remember, we're setting up three new facilities. So you have to go said Paul that up so it is still an impact on the business. We I think are getting significantly better at managing it but our primary focus we're going to put that expense for site you have to keep thousands of workers healthy.
And safe into our facilities and we're not going to spare expense and taking that on.
Thank you very much I really appreciate it.
Thank you.
Your next question comes from the line of Anthony Lebiedzinski from Sidoti and company. Please go ahead.
Good morning, and thank you for taking the question. So first congratulations stand on the your next new opportunities So certainly sounds pretty good.
So if we could if we could just step back and then Mick can you guys talk about the revenue trends that you saw throughout the quarter I should extend you also touched on.
We just said type business seeing some meaningful in September, but if you could just go over the.
Arent segments says to the progression of the revenue trends throughout the quarter because.
Sure Anthony Thank you for the question.
It's interesting because it varies by business. So if you take a look August tends to be a low for most businesses given the international nature heavy vacation time et cetera.
If you take a look at the total we certainly saw that in total, but let me go kind of segment by segment. So globally Commerce started off with a stronger July and that's really catching up through some of the volume that was coming in through the end of June August.
August came down but still grew 40% and then in September started to gain momentum here essentially growing at the same rate as the full quarter. So globally commerce one of the things we talked about is.
When you have that lull in August we had a decision to make and that decision was do we pull back on all the staffing that we set up in Q2 to handle the surge in volume and we elected not to do that we elected to try to manage that because we knew we had a peak holiday season coming up and it is getting tougher to get.
Labor out there. So we maintained that activity for the staffing if you go to a pretty short pretty sort of has a seasonality as well both by week by month high and I would tell you that we gained momentum heading into September and actually had a small amount of growth and that really is coming from the volumes.
I would tell you this bounce up and down a little bit depending on what's happening, but down 3% for the quarter and we got a little bit of growth and the month of September I.
I think Sen Tech is the interesting one so we were down double digits in July and then August and September got better and we ended up down 7%. That's a material improvement from where we were last quarter I think one of the important aspects there those equipment sales last quarter down 32% this quarter down 20.
Well and as we exited the quarter, we were down to now that could be impacted by covert the ability to get in and install machines within clients, but we've also changed our go to market with the new.
Mail station gives us other avenues to try to grow that revenue. So I would tell you I think we exited the quarter with some good momentum here on that and as we look towards fourth quarter expect to see continued growth.
Got it. Thank you for that so your free cash flow has improved year to date in the store quarter, how should we think about free cash flow for the balance of the year end.
As far as 2021, we expect the free cash flow to continue to improve.
So free cash flow again, Anthony Thanks for the question on that free cash flow for the quarter was was quite good at 85 million of free cash flow and that's up year to year.
I think the more important one or more interesting one is the 186 million on a year to date basis now certainly some of that call comes from finance receivable runoff, which has never how we want to generate free cash flow, but I would tell you that that's becoming less there and that's a good news story, if you're adding earning assets back to the balance sheet.
If you take a look at where we are year to date were actually higher than where we landed last year now in the third quarter one of the drivers in the third quarter with some timing around accounts receivable. So accounts receivable, while it was a big contributor we improved our DS. So some of that's going to be timing and I think we'll revert back in the fourth.
Order.
I think it's important to step back and take a macro view when this over to first broke out you know there was a lot of question around how much free cash of could we generate and I've been really proud of the team.
The leadership team here knows I am a hawk on cash we bring it up and talk about it every week and every day they have done a terrific job on collections managing delinquencies being proactive.
Managing inventory levels, and Capex investment and that balance has allowed us to deliver a strong free cash flow. So as we close out the year and looking into next quarter I'm confident we're going to be in a good position for the full year I do think we'll see accounts receivable level out a bit and thats going to come back.
And I think you'll see a flip flop on the timing.
That also depends on.
What happens in the fourth quarter and the level of billings, particularly in December as you know from that but I will step back look at the fundamentals were ahead of last year on a year to date basis by a material amount and the dsos improving and I think when you look at those that combination that portrayed as well for the future.
Got it okay. Thanks for that I guess my last question you know looking at the global ecommerce.
The revenue growth accelerated from Twoq to Threeq you.
Just the.
If you could perhaps parse out maybe give us some color as far as COO of organic growth versus.
Growth from new clients that you signed up for the for this year.
Well, they're all organic theres been no acquisition activity.
Globally Commerce, we added over 100 clients and Q2 and I would tell you those are still onboarding. So we have not felt the full benefit from that adding three new facilities and expanding a fourth and those three new facilities as of the beginning next week, we'll all be up and running so we have to up and running the next summer.
To be up and running at the beginning of the week to satisfy peak, but.
But when we look at the cohort for it this quarter. We also added a significant number of new clients, whose volume is not yet in and I think that portrayed as well I think what it really says, though Anthony is that the value that we're bringing in a marketplace is resonating with clients. We've made the investments to.
Got it better serve those clients and were built on E. Commerce, we're not trying to come for a b to b to b to C. So that that a focus and weaving in technology I think has resonated with clients I would expect that we're going to see continued contributions and again the third quarter clients are all going to be incremental largely incremental.
Front of US I would just on that I mean.
So I think the short answer your question as it's all organic.
And there's very little impact from the new customers and without.
Without being specific new customers in the third quarter were roughly the same as.
The new customers in the second quarter. So that's in front of US if you step back at an industry level.
Sandra made a really important point, we have a fit for purpose network that is.
Business to consumer E commerce oriented.
Which is different than anyone else.
No.
In the industry. The other thing I'd say is the industry is out of capacity.
So you know we're picking up share.
Because there's just nowhere else to go.
And you know we we believe these relationships are quite sticky.
Because of the capabilities that we have.
Or entered and candidly the way that we're we're talking to this customer so it.
It's a unique opportunity is one that you know to a degree we saw coming but it's clearly been compounded by what's going on with Covidien, how buying habits have changed.
Okay. Thank you very much and best of luck.
Thanks Anthony.
Your next question comes from the line of Nandan Brouhaha from loop capital. Please go ahead.
Hey, Thanks, guys. Good morning, and thanks for taking the question and yes, Dan Congrats we'll miss working with you and who knows maybe maybe this enormous bassi yukiko. So.
Maybe.
We got again a couple here.
If I could.
So launching.
I think you'll hear anecdotally in the prepared remarks.
Something about it.
Well this is definitely good strong momentum into the December quarter, I guess, we're in the December versus strong strong momentum for this quarter.
And so from a higher level.
Could you could you just clarify that and then I'd like would love to get a little bit of contacts.
I know, you're not giving guidance, but how to think about.
That momentum and then maybe any.
Any leverage across the businesses and the meaty part. So we can think about how that sort of set margins.
[music].
At least so we can think about how we can you kind of do that ourselves.
Since you're not going to guide more of a couple of follow up.
Okay, Latin that question I know, but let me see what we can do so.
So first of all on the momentum point.
We have always stayed focus on investing for the long term and I think what you're seeing over the last couple of quarters. In particular is a manifestation of that coming through in our results. If we had not invested in our network and globally Commerce way ahead of the curve, we would not have been able to handle that capacity.
City, that's coming in so we have seen momentum in that business with dramatic surge in volumes or volumes more than doubled on the domestic delivery. This year in the quarter and a dramatic surge in revenue, we feel well prepared to handle peak and heading into the peak season. I think you will see that momentum continues so we feel pretty good about that.
Remember, we grew 13% in the quarter, we've grown 7% year to date I think it's a really good sign for the time. The team has put into this but it's not just you see and when we look at momentum we've seen sent tech gifts better quarter by quarter and while we were down 7%. That's a that's a much better for.
Four months than it was in Q2, we are starting to see clients fully reopened and we've adapted our ability to do that and I'm encouraged by what you see in shipping shipping is over $30 million, it's growing double digit and the paid subscribers grew over 60%, that's a new revenue and profit stream.
That business that I think portrays well for heading into the future and that was pretty short you definitely feel the effective marketing mill in first class mail, but that got better is well and I'm encouraged by what W. Pfeiffer and her team have done to build out productivity and they have a very good foundation to grow for the future we.
Made investments in that business. When you think about the bound printed matter marketing mail flats that business essentially didn't exist a little over a year ago and its growing over 30%. So that it represents another new revenue and profit stream.
So again it is it going to be a straight line no, but I like the momentum heading out of the quarter and heading into fourth quarter and next year and with that incremental scale and base I think gives us the opportunity to also improve margins and GE Si I think we will see that.
Benefits that scale, we've seen in Q2, we see the signs of it in Q3, but there are some headwinds we have some right proceeds this year. They are not going to be there next year, we've got a headwind as we go through we like every other company, we haven't traveled and all that kind of stuff that will become a headwind heading into next year, but I like the.
Foundation of where we are it's solid which allows you to build a good business off of it which I think we've done for go forward.
In the margin in the sand tech in pre store businesses, they're well run I mean, the centex business with Jason dies and his team. They are still under long term model range. Despite the declines and I think have positioned themselves to come out stronger out of this pandemic and then as we entered and then frissora.
As the volume picks up and we expand our offerings I think there is a great opportunity for pre salt as well heading in to demonstrate margin improvement.
Yeah, the exit rate.
For both pre assort, and some talk of a quarter.
Was higher than the overall core so so one way to answer your question or to think about it I guess as you phrased it as the look at the exit rate for the quarter and the two mailing business.
Exit rate was stronger than the overall quarter and globally Commerce, what I would point you to is first of all the macroeconomic Ah circumstance, where no gold.
Global ecommerce has just taken off so we recently did a study now 47% of the consumers to 50%.
Of their shopping the.
Via the Internet E Commerce, so theres strong macroeconomic.
Momentum in that marketplace, the price increase helps with revenue.
And candidly, though the new customers.
Haven't we haven't felt the impact yet so it's yeah.
That.
That's one way to look at the other way to look at it is what the excellent outcome and that's how the wildcard and that's why we continue to be you know.
Cautious about make.
Making predictions because it's just too hard to understand what the overall impact is going to be.
From Covance, both at the macroeconomic level as well as the microeconomic I reflect back on March and I shut down the offices.
Around the world I thought about shutting down for a few weeks.
We're now almost to November and most of the offices. So on open in the United States and its scattered around the world. There's no way I ever would have productive that.
We have a high degree of humility about predicting the future here.
And Mark Thats helpful. I guess, let me ask Calvin add one question one more question and a quick and then a quick housekeeping item.
Given all the T. card.
And the investments I know, there's always a bunch in leathers.
So what's going on E commerce.
Are you guys thinking any differently.
Given given what's going on with volume and share gain.
In the near to intermediate term.
About.
The investment strategy, and how and how should we think differently.
Now so that they get to profitability exercise.
We were thinking about pre coded and the reason I'm asking that logic. He comes with a lot of the classic look through our selves and I'm modeling.
If we should be thinking differently about it given the volume opportunity to scale opportunity you guys have in front of you I want to at least be aware that we should be thinking about it really.
In General I would say the answer is no we're not thinking about different light with with the caveat.
If you project out a couple of years it might be that the overall level of EBIT.
The same as what we had talked about.
In the original model, but as you know slightly less margin and that would speak to mix as well as kind of where are you on the specialty curve. So you know.
The overall EBIT opportunity an EBITDA opportunity.
Thats pretty consistent with what we see it might be over.
Slightly more revenue and therefore less margin than that.
But that's not a long term.
Uh huh.
A long term issue, but as you know next couple of years.
Got it and then quick housekeeping stand the dynamics of the other income that you spoke to for the September quarter is that now complete or will any of that you know sort of bleed into the December quarter as well.
So you know as again, we said that the right Youve insurance proceeds for there we saw some ongoing discussions with the insurance companies, but as you all know theres no guarantee on how that would play out and we did have one other small settlement going the other way and and other income.
Working with a client so will that continue I will work through the rest of it with the insurance companies and we'll see how that plays out <unk>.
Cove. It we think it's going to continue heading into the quarter, we ever eyes wide open that whether thats one of the reasons were not providing guidance because it's so dynamic and not not knowing where that is going to go again, we stay focused on health and safety of keeping thousands of employees coming to our production facilities and we're not going to spread.
In that area. So if that has a bigger impact that will flow through.
But we're not going to scrimp in that area.
Okay, great. Thanks, guys. Thanks.
Thanks Linda.
Your next question comes from the line of Alan Cleave from National Securities Corporation. Please go ahead.
Good morning, you guys mentioned that delinquencies have been improving sequentially.
How should we think about.
When you might reconsider your strategy with Wheeler financial that you'd be comfortable enough to maybe.
Maybe kind of ramped that up to what you had thought in the past.
Yeah. Thanks, Alan So when we look at delinquencies, we well certainly bumped up our portfolio I think has performed very well going through that now part of that is.
As for Johnson and his team they're proactive we're reaching out to clients that we think are going to be affected and working out some of those arrangements and I think thats been a positive effect overall now in terms of portfolio. We wrote about 5 million of business originated 5 million of business or fundings this quarter that.
It's about 12 million year to date, we said that we believe this would be less than 25 million for the year. I think you can see is probably in that ballpark look we're going to see how the market evolves and develops and it's not just third party leasing we do a lot of third party lending, which has a very different profile less cash consumption.
Good turns and and good profitability, what I would leave you with is we're not going to give guidance on that part of the business.
If the market opportunity is there and the returns are there we will be prudent and as we look at this part of the business. We still think that has a great long term opportunity.
But we are not going to do deals that don't make sense financially and we're not going to do that just to fill up a portfolio and I think we've demonstrated that discipline I would say nothing I mean, you know stands right. I mean, we started out with a view that we were principally focused on equipment lending.
That market prices, obviously become.
Pretty hard to price risk.
<unk>.
Well, what we're focusing more on now as well and so not as working capital that's a little bit shorter duration, it's higher velocity, it's easier to price the risk. So you know the.
The principal answered your question as well deploy more capital when I can price within can price the risk.
Better but right now.
Hi, Lee.
Cautious about our ability to price risk.
Thank you and.
My last thing is on a globally commerce.
First you you talked about [noise].
Getting your unit economics, improving.
With the one area that you're still more of a work in progress being a warehouse.
What what are you actually doing to try to get better productivity out of warehouse.
And then the other question is you've mentioned cross border volumes were up nearly 30% you got a new customer could you just dig into that a little more to help us understand them.
What's going on there. Thank you sure I mean the the.
Answer on what are you doing in order to get better in the world. The first is utilization right I mean, so we.
We brought on three new large facilities in the quarter.
They were obviously not utilize are not very well utilized in the quarter. So number one is utilization number two.
As the labor inside of those Oh.
Four walls is still pretty new and there's a learning curve.
You know over the labor in order.
Around prosecution of there are jobs.
The the third thing I would point to.
It is.
If you look at.
Where the network is coming from.
Each one of the facilities this kind of its own.
Oh World, So standardization of processes standardization of technology.
Across the network is really important when you look at the summation of all the different warehouse initiatives around efficiency, it's easily measured in the tens of millions of dollars that we have on our site.
Over the you.
Next year or so.
Yes, the only thing I'd add to that Alan is that productivity. We don't view that from just a single Len said, we've talked previously about we've done time and motion studies process studies, when Nick Smith and his team sits there we attack. This from every angle, we use robotics for using automation for streamlining the process.
He is across our facilities and were looking and and about how we do things and I think they're they're making some good progress and the other question is around cross border and cross border is really a function of a few items. One there's just recovering demand in a market place. If you think back to the beginning of the pandemic many.
Areas simply shut down and did only domestic type of activity. We've seen that reopened and then we've seen a nice uptick in that business and a client that we referenced it is not a new client, but it is an existing client with a growing volumes and that certainly has been helpful. So that.
Business is something that we spend time on and and think where we're happy.
Good client experience as we do that so I'm encouraged to see that part of it pick up again I think it contributes to the total but I would step back and look at.
We're growing here. This is multi components that we have so we certainly have domestic delivery. It's got returns we've got the film and we have the digital experience, which we manage with the physical side, we have cross border and that's what makes up.
Globally E Commerce, so born for E Commerce, not again born to do B to B and I think that we're seeing that manifest and a good client experience and good growth in the business and I think we are gaining share.
Thank you so much and best wishes and success. Thanks Alan.
Okay.
Your next question comes from the line of Shannon Cross from Cross Research. Please go ahead.
Hi, Thank you very much and I joined everyone in saying, Congrats Dan and we'll Miss you I think it's interesting the recruiters out there are probably looking at imaging companies Daisy great trainers. It sounds if you think about legal like the Apple you're going to Colgate and see filer is that at HP is going to.
Hey piece I think it.
Our kids is I'm, sorry, so it seems like a great training ground and we wish you well I.
I guess my first question is.
You had some price increases are you even out the price increase from E Commerce perspective in fourth quarter, because the volumes and I think some of the incremental costs.
How are you thinking about the ability to hold them as you go into first quarter and overall can you talk a bit about pricing power that you are seeing in the marketplace and then I've a follow up thank you.
The short answer is we're.
We're not certain how pricing works out.
Next year.
That being said if you look at the other participants in the industry, they're all talking about continued.
Constraints within their networks are all talking about and to a degree complaining about lower margins than they used to so while it's not certain and we're you know we're a price fall or in some ways in this marketplace.
When I look at the others, you know that have recently announced earnings.
When I hear supply continued supply constraints.
Across the network I here.
Common.
Commentary on.
Margin pressures that are dilutive to the overall business.
Personal it leads me to the.
Conclusion that I think it's more likely than not that high.
Cases continue to drift up but it's it's an open question and as I said, we're a well a follower here not a leader but.
We pay close attention. So I think the preponderance of evidence out from Wassa suggests that prices go up not down and he got on top of that you know labor, which is increasing.
The increase in well issue.
And the only thing I'd add to that is that just tied to.
Peak holiday in a flow through as we've gotten bigger the scale that that brings gives us a wider you know weve talked about adding a large number of clients in Q2, a large number of clients in Q3, and when we grow that business. We also get some pricing leverage in that area and then candidly we.
We've a lot of technology into what we do and leveraging that technology I think we could continue to price smarter.
And better serve our clients and get more sophisticated as we go through that Gregg Ziegler says team, we talked last quarter that we brought in some help that looked at our pricing structure, we're seeing some benefits from that but I think the combination of scale limited capacity in a market I think leaves us a really good position as we go forward I mean, if you just do the our math I mean.
You know if you assume that 50 cents to one dollar.
Of price increase is realizable across no volume of 250 or 300 million.
Parcels, you kind of get the order of magnitude of.
What's potentially available to the pricing conditions.
No I won't say improve but at least stay where they are.
Yeah. It seems like there should be some pretty significant leverage you know assuming cost don't go up commensurately, where you know whatever comes like reasons or hopefully we'll be past that at some point here.
And I guess, how do we think about the time to ramp new customers within E commerce since you're you're signing so many I'm sure. They're you know various sizes that.
Have you been able to speed that process. Given you you know gain so much expertise in the last couple of quarters.
Yes, it's actually a good question Shannon and often times, it's not just a one sided a fair. That's why we are clients become our partners in this endeavor because sometimes is when are they ready to do the cut over and they want to ramp up not go Big Bang oftentimes, So we'll start off and with a ramp up process I would tell you.
I think we're getting better at that with our clients and the added capacity that we brought into the network absolutely helps and then just candidly you know as we've ramped up the volume significantly and opened up the management teams are getting far more experience and again Nick Smith.
Team as they go through this they've done a good job of improving that client experience and we have the technology and so we get better tracking better reporting for the clients and so this is often the partnership between the two on how fast do they want to go and what facilities are going in.
Two but I think we're seeing acceleration in that space.
Great. Thank you and again Dan.
Congrats congratulate you one last question Mark are you how are you running CFO. During your starts do you have an interim or are you just relying on the team.
[laughter] both.
We've announced a joke out upon who is our chief accounting officer will look.
Look after the function while were in.
In the middle of a search so Joe obviously has a broad understanding of the company and so we'll be able setup hands to to lead a while we conduct a search but as I said I I don't expect the search to go on.
Terribly long we've had a head start here.
Great well. Thank you so much take care.
Thanks Shannon.
And at this time there are no further questions.
Terrific, Let me, let me close and again.
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I'd be remiss, if I didnt, so for one last opportunity I think Stan.
For your your contribution and what you've.
Done for our company and from a personal perspective.
In an incredible partner and you'll you'll.
You'll be sorely missed or inside of these four wells that I fully expect that will continue to see you on a regular basis.
And I'm certain I speak for all of us that we're not I wish you well, but they'll all be.
Moving to Colgate Palmolive products.
Listen some of your new to the Pitney Bowes story, others have been a following and investing for a while so.
Some of you following investing for a long while.
For those who have been following the company for a bit.
This quarter's performance, 13% growth and 7%.
Growth for the year. The different performance then you saw a few short years ago.
It would be.
Easy.
To conclude.
Conclude that the company is now.
Succeeding in spite of a.
Our.
Issues the last couple of years.
I would.
Come to precisely the opposite conclusion and that is we're succeeding because of the conscious and purposeful decisions. We've made over the last.
Several years it is not easy.
And you see the reticence of other others in other industries to move to new channels. It it's expensive.
It takes time to build a tele channel.
That was a great thing to do in 2014, a more recently digital channels.
Next time.
To invest in new products and new capabilities. If you look at the Centex story, its new products with new channels that didn't exist a few short years ago, a global ecommerce as a business didn't even exist.
And it certainly disruptive and hard or.
To reengineer and automate every business process at the slog.
And you know more recently, it's painful to invest in front of the man, but that is the nature of your Congress, we had not invested in front of demand.
An E commerce, we wouldn't be able to grow 47% and you see what others can do.
That haven't made those investments, it's it's a much more modest level of growth.
Well, we've always pointed to the aspiration of creating long term value that continues to be.
Our north star, but what I would tell you now is you're starting to see what was the long term really looks like.
We're not done and.
And we got more to do.
But.
As I reflect back and as Weve pointed to.
Our objective of creating long term value long term capabilities.
Third quarter was a glimpse a fourth quarter will be another one and we'll continue to put.
Points on the board so as I said more to do for sure.
But I think it's worth a reflection because as you look at the overall industry. There's many different.
Theories of how it is you create value and how it is you well run businesses, we've taken a different approach.
Yes, some of the more painful approach.
But it is consistent with our thoughts on how it is you create long term value. So more to do we've got a lot of work in the fourth quarter.
Stan again, we will wish you well.
And I will talk to all of you soon thank you very much.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using 80 into teleconference. You may now disconnect.
We're sorry your conference is ending now please hang up.
Mm Hmm.
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