Q2 2021 Pitney Bowes Inc Earnings Call
[music].
Good morning, and welcome to the Pitney Bowes second quarter 2021 earnings Conference call.
Your lines have been placed and listen only mode. During the conference call until the question and answer segment today.
Today's call is also being recorded.
Do you of any objections. Please disconnect your lines at this time.
I would now like to introduce participants on today's conference call Mr.
Mr. Marc.
A lot and back.
President and Chief Executive Officer.
MS Anna Maria Chadwick Executive Vice President and Chief Financial Officer.
And Mr. Adam David Vice President Investor Relations and financial planning.
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.
And we're looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections more.
More information about these risks and uncertainties can be found in our earnings press release, our 2020 form 10-K annual report and other reports filed with the SEC that are located on our website at www Dot P. B 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 of our developments.
Also for non-GAAP measures used in the press release or discussed in the presentation. You can find reconciliations to the appropriate GAAP measures and 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. The slides can also be found on our Investor Relations website.
And our President and Chief Executive Officer, and Marc Lautenbach will start with the few opening remarks Marc.
Thank you Adam and thank you everyone for joining today's call.
We delivered a solid quarter and first half of the year and continue to make progress against our overall objectives and.
The business grew revenue and improved EBITDA from prior year.
The overall.
Revenue at constant currency grew 6% and EBIT grew 16%.
Some type of and Presort both grew revenue.
As expected given the easier compare and both businesses grew EBIT.
<unk> continues to see a nice recovery in volumes from pandemic levels, and EBIT margins remain and the double digit range moving back towards the long term model.
Centex revenue growth was led by a strong performance and our Sem probe product family and addition to continued double digit growth and our SaaS based shipping portfolio.
The business recorded its third consecutive quarter of year over year EBIT growth and continues to maintain its EBIT margin above 30%.
Global E Commerce grew revenue this quarter, despite a tough prior year comparison, and importantly, also improved quarter to quarter.
EBITDA turned positive in the quarter.
And both EBIT and EBITDA improved meaningfully over the prior year.
And prior quarter.
The path to profitability for e-commerce, as an integrated approach around talent training automation and execution.
We've made several important additions to our team and the new management talent, along with the maturation of our existing workforce.
Yielding the results.
We continue to work to optimize our shipping lanes and continued to focus our investments towards more automation.
The continuing to make good progress with substantial opportunity still in front of us.
And I and the second half of 2020, 1 I like where we sit.
The revenue comparisons will get more difficult and the second half of the year compared to the first half, but this quarter was a glimpse into what the business kind of looked like when we hit on all cylinders and that improved profitable revenue growth is within our grasp.
Over the course of the last year or so I have said that pitney Bowes will come out of this pandemic, a bigger and better company.
And while we are not out of the woods with the pandemic. We're certainly on the trajectory of of being a bigger company and we're working every day of becoming a better company.
With that let me turn it over to on them.
Thank you Marc our second quarter results reflect solid momentum across all of our businesses. We continued to make good progress and are set up well for the second half of the year and.
Unless otherwise noted I will talk to revenue comparison on a constant currency basis and other items such as EBITDA EBITDA EPS.
And cash flow on an adjusted basis.
Revenue was 899 million and grew 6% over prior year.
Adjusted EPS was 11.
And included a <unk> <unk> tax benefit and the quarter.
Free cash flow was 87 million and cash from operations was $79 million.
Which was a solid performance in the quarter and in line with our expectations.
Although down from prior year. It is important to remember that last year included a 66 million contribution from the decline and our finance receivables, which was largely COVID-19 related.
This was an item that we identified as a headwind to our free cash flow comparison earlier this year.
During the quarter, we paid $9 million and dividends and made $5 million and restructuring payments.
We spent $40 million and Capex as we continue to invest and our network and productivity initiatives across the business.
We ended the quarter with $814 million and cash and short term investments.
Total debt was $2.4 billion, which is down $289 million from prior year.
And you take our finance receivable and cash into account our implied operating debt is $567 million.
Let me turn to the P&L, starting with revenue versus prior year.
Net sales grew 46%.
Supplies grew 14% and business services grew 6%.
We have decline and support services of 1% rentals of 2% and financing of 16%.
Gross profit of 301 million improved about $17 million over prior year on growth across all segments.
Gross margin was 33%.
Which was slightly down from the same period last year, but an improvement from the last 2 quarters.
SG&A was $236 million and approximately 3 million higher than prior year SG&A was 26% of revenue, which was nearly a 2 point improvement over prior year.
Within SG&A corporate expenses were $56 million, which was up about $7 million from prior year, largely due to higher employee variable related costs.
R&D was $11 million or 1% of revenue, which was up approximately $4 million from prior year.
During the quarter, we received the remainder of insurance proceeds of $3 million for the riot ransomware attack.
EBITDA was $96 million and increase of $6 million over prior year, and EBITDA margin was 11%, which was flat to prior year.
EBIT was 56 million and increase of $8 million over prior year, and EBIT margin was 6%, which was a slight increase over prior year.
Interest expense, including finance interest was $36 million.
Our tax provision was a benefit of about $300000 and includes a benefit related to a U K tax legislation change.
Which also contributed about <unk> <unk> to EPS and the quarter.
Shares outstanding were approximately $179 million.
Let me now turn to each segment's performance.
It is important to note that the year over year comparison includes the impact of Covid.
Prior year results saw a positive impact on e-commerce revenue and an adverse impact on centex and presort and as such I will also provide growth rates from 2019.2021 for the larger transactional parts of our business.
Within the E Commerce revenue grew 3% to $418 million.
And also grew from first quarter levels.
The revenue growth over prior year was driven by our cross border services, and partially offset by lower domestic parcel and digital services.
Domestic parcel volumes were $44 million in the quarter.
Compared to the second quarter of 2019 E. Commerce revenue grew 48 per cent.
The man for our services continues to be strong as new business signings accelerated from the first quarter as we're getting merchants on boarded for peak season, while balancing demand from current clients. We also continue to have success with bundling our services, which now represents close.
And 250 per cent of all new business.
EBITDA for the quarter was 8 million and.
It was a loss of $11 million, both EBIT and EBITDA were meaningful improvement from prior year.
We also made significant progress sequentially.
We're second quarters, EBITDA margins improved nearly 400 basis points as compared to first quarter as.
As we were able to improve our productivity and work through some of the residual impact from last year's peak that we saw earlier in the first quarter.
We continue to work to improve service levels and make progress against our productivity initiatives within our domestic parcel services, while still dealing with industry wide concerns around high transportation costs and a competitive labor market.
We made progress on several unit economics as compared to the first quarter.
With the greatest being around labor and transportation cost per piece.
We saw a reduction in our labor cost per piece and part due to the contribution of our new management talent, along with the maturation of our existing workforce.
Parcels processed per hour continued to improve from first quarter levels.
Transportation cost per piece also improved versus prior quarter as we continue to better optimize our shipping lanes.
Our improvements in execution, coupled with better network balancing are certainly yielding results.
We continue to invest and automation, including high and sorters, and our larger facilities and sort of light automation and our mid sized facilities.
We also announced our partnership with and be Robotics last month.
Which we will be rolling out across our network over the next few years.
The initiatives take time to integrate and train our employees and produce results and while we're seeing some early benefits, we expect to yield additional benefits during the upcoming peak season.
Also as mentioned last quarter, we are in the process of opening 2 new sites and upgrading and other we expect to have this completed prior to the peak season, and it will allow us to handle volumes more efficiently.
Ultimately, we expect transportation and labor productivity, along with optimizing our final mile cost to be critical drivers and attaining our long term e-commerce margins.
And as Marc mentioned, we have made some important additions to our E Commerce management team in order to execute this plan.
It is an exciting time and our e-commerce business is moving and the right direction with substantial opportunities still in front of us.
Our presort services and centric businesses, both turned in solid performances, which were in line with our expectations.
Within Presort revenue was $135 million and grew 14% compared to the second quarter of 2019 pre serve revenue grew 5%.
Average daily volumes grew 10% over prior year.
Largely driven by growth and first class volumes of 4 per cent and marketing mail volumes of 39%.
EBITDA was $23 million and EBITDA margin was 17% EBIT was $16 million and EBIT margin was 12% EBIT and EBITDA dollars and proof from prior year due to revenue growth and margin expansion.
We remain focused on our productivity initiatives, having improved pieces fed per labor hour by 3%, resulting in 60000 less processing hours versus prior year.
We the incentive revenue was 346 million and grew 6% we.
We continue to differentiate ourselves and the market with a wide range of end to end mailing and shipping offerings that are attractive to businesses ranging from large enterprises to small offices.
Centex SaaS based shipping products grew at a low double digit rate over prior year to $31 million this quarter.
The number of labels printed through our shipping offering grew over 30% and paid subscriptions grew about 70% over prior year.
Additionally, shipping volumes that are U S clients finance grew nearly 70% over prior year.
Our end to end value proposition continues to resonate with clients as they adopt and use this new offerings, which bring value to their businesses.
Equipment sales grew 46% over prior year.
Compared to the second quarter 2019 equipment sales grew 1%, which is an important metric as this is a key indicator for future streams in the traditional side of the centex business.
This also points to how our new sending products are resonating with clients and helping to strengthen our portfolio.
We continued to see strong placement of our sand proceed and mill station multipurpose devices.
Our international operations also saw strong equipment sales growth and we continued to rollout new products in these markets.
Through the quarter, we like many others experienced some transportation challenges related to our supply chain.
We are proactively managing our inventory and are able to place a significant level of new equipment. Despite those challenges.
Looking ahead at the second half of the year, we continued to closely monitor the semi conductor industry and potential supply shortage concerns.
While it is still a bit too early to tell and we would expect the impact if any to be more pronounced in the fourth quarter. We will look to meet the gate any potential supply shortages by working closely with our suppliers and repositioning our solutions with our clients as necessary.
EBITDA was $115 million and EBITDA margin was 33%.
It was $107 million and EBIT margin was 31%.
EBIT and EBITDA dollars improved from prior year and was the third consecutive quarter of improvement for both metrics.
Let me now turn to our full year outlook, which is in line with what we have previously communicated.
As we all know there's still a level of uncertainty and the macro environment, particularly as new Covid variance continued to ramp up and concerns around supply chain remain and.
And we will continue to monitor any potential impacts of closing.
We still expect annual revenue at constant currency to grow over prior year and the low to mid single digit range.
We still expect adjusted EPS to grow over prior year and more specifically to be in the 35 to 42 cent range.
We still expect free cash flow to be lower than prior year due to items that benefited 2020 and are not expected to continue at the same level. This year.
Fire year included and lower level of Capex, and finance receivables and higher customer deposits.
We also expect our tax rate in the second half to be higher and return to more normal levels.
Looking at the timing, we expect third quarter revenue to be in line with second quarter and the fourth quarter to be larger than the third given our strong holiday peak season.
Taking the midpoint of our adjusted EPS guidance into consideration. We currently expect our third quarter to represent nearly 20% of our full year attainment.
Let me conclude on this.
In the beginning of the year, we said that we expected revenue and adjusted EPS to grow.
And we remain committed to this outlook.
Each segment has delivered a solid performance through the first half of the year.
Improving revenue EBITDA and EBIT from prior year.
We continued to generate good free cash flow and remain focused on maintaining a strong balance sheet.
We also continued to make measurable progress and are confident and our ability to achieve our financial objectives.
Thank you operator, please open the line for questions.
And ladies and gentlemen, if you wish to ask a question. Please press 1 and zero on your telephone keypad you may withdraw your question at any time by repeating the 1 that zero commands.
Using a speakerphone.
And you pick up the handset before pressing the numbers and once again if you are of a question. Please press 1 to zero at this time.
And our first question today and that's from the line of Shannon Cross with Cross Research. Please go ahead.
Thank you very much I was just wondering how we should think about run rate for volume and during the quarter and if you were able to meet domestic fulfillment. So you know when you think about it as about 40 million parcels a good run rate and then how should we think of the that's sort of a non non peak price.
Post pandemic and then how should we think about you know specifically what youre doing the ramp up for the fourth quarter. Thank you.
Sure Thanks, and so.
And I think it's and it's easy to get lost and a sea of numbers are there's so many different dynamics and currently running through them the.
The marketplace. So if I might let me kind of start with a macro view and then go into of microbial.
And if you think about this from a macro perspective.
e-commerce purchases and as a percent of total retail.
Last year went from roughly 6 team.
The 26% so over 50%.
The increase no subsequently.
That number has regressed a little bit, but it's still you know 24 of 25% so slightly below last year, but substantially above our pre.
Pre COVID-19.
Within.
That overall dynamic there's also quarter to quarter dynamics. So if you think about last year and now in the world and of Covid.
First quarter, we got 2 months and before the virus hit.
The second quarter.
What's kind of the.
And the tsunami and you know not only did you have a.
Many customers moving to e-commerce and.
And the Internet for purchasing but you had retail outlets that were essentially closed. So you know within the quarter to quarter dynamics last year and you had a.
And particularly strong.
And a set of dynamics and the second quarter and to a degree.
And that moderated and the touch book now lapsed and throughout the year. So second quarter was kind of you know for all kinds of different reasons.
Uh huh.
And unusual corner from of micro perspective.
And I asked you make 1 other comment from a macro perspective all of this was against a.
And the industry capacity.
That was really the oriented towards pre COVID-19 level, so and I think of an industry that was a capacity to accommodate the 16 or 17.
Per cent with this and.
Influx of the ramp from a micro perspective, no pitney Bowes as a challenger we tried to say, yes to as many customers.
And as much volume as we could partially because we saw it as an opportunity to.
To get the scale, partially because you know we are a customer driven company and we wanted to help out as many clients and candidly and know many classes didn't have.
Choice of this next year and see how some of the other participants in the industry shut down.
So you know I would say in retrospect, we probably took a.
A little bit more volume than we can handle well and within that we have.
It took some parcels and you know some particular away and.
That in retrospect.
Just couldn't accommodate as much as we wanted to.
So as we go forward you know we are very focused on handle and the volume that we think we can do exceptionally well. So that's the that limit shoots of certain lanes.
And we've got capacity as the industry continues to be kept capacity constrained and.
Catalyst certain size a certain size of parcels. So you know and our sweet spot within the marketplaces, you know parcels there.
The 1 pound.
No.
And slightly above slightly below.
So within that as you Saturday and I wish all of volume.
Around 40.
For the 40 to 45 million parcels.
And the second.
The second quarter, we suspect that that would be.
Probably slightly higher.
And the third quarter as clients.
Clients began to prepare for peak and then the fourth quarter of that will be you know.
And on top of that perhaps slightly up.
The below last year, but our focus is on what we can do well and what we can do with the highest service level to the client and importantly, what we can do profitably and you know 1 of the 1 of the things that happened last year and and so we only got so much volume all at once so we had to throw a lot more cost out of a bunch of from a labor and transportation perspective.
And you know we're currently go and try to accommodate as many clients as we can again this year, but we're going to do it and the way that we can.
Has the highest commitment the service levels and the same time, you don't do it and the way that's economical and profitable to us.
And I I know ive sort of long winded answer, but the thing that's important to kind of understand the overall dynamics.
No I think that was that was really helpful. I guess, 1 question and my follow up question is just.
How do we think about your opportunity to grow and this is over a longer term period of time is it incremental customers that are around that 1 pound level or will you develop your facilities such that you can handle a wider variety of parcels and I'm just trying to think about.
How do you think about your Capex investment and what you do make sense now that that's the only question. So if you think about kind of going forward and so you had this kind of a onetime step up and with a slight digression.
And I suspect as you get into 2020, 2 and all of the out years kind of the you.
And what you're thinking about for sustained growth and it goes back to the you know the 10% to 15% growth that the market was clipping along at.
In terms of how we're thinking about it the.
And the the gating factor on the size of parcel isn't as much of your <unk>.
Network footprint as it is the tool and inside of the of the warehouses and so there's different tool and the comments are different size of parcels. So yeah, we will continue to build out our footprint.
And we've got a couple of more science that we're and we'll bring online here and the second half of the year, but we're gonna tool them kind of for what we think our sweet spot.
And the marketplace and so I'd say, you know thinking about the 10% to 15 per cent long term.
We will now continue.
Continue to build out the network I think the the build out of the network and we're looking at different scenarios and candidly right now of 2 do you accelerate.
The the build out and finish it and or do you do it over kind of a and more staged process and kind of neither of that out, but I think if you're out of the overall capital spending for the quarter was $40 million that was kind of a reversion back to what it was that's kind of how we're thinking about it you know for the for the moment and if we change that.
And we decided that we're going to accelerate.
And we will but the the total build out of the network and as you know.
And the context of our balance sheet and certainly very manageable.
Okay, great. Thank you so much.
And we do of a question from the line of Allen Klee with Maxim Group. Please go ahead.
Hi, Good morning, 2 questions 1 is.
So the the.
And the adding of of the 2 new.
Facilities for E Commerce, plus optimizing another 1 what percentage of that increase your capacity.
And domestic parcel and then second.
Do.
You highlighted cross border as.
And the area that attributed to your global E. Commerce results could you just go and show a little bit of what's behind that thank you so much.
Yeah, I I wanted for the on the first question on that and I'll get back to you in terms of of how much capacity of that.
And of course that I don't.
Oh, I don't think of it.
Materially increased the capacity it was more of a modernization of the existing facilities and you know as we as you think about the economics of that business.
The deeper you can ingest into the postal network and the closer you are to be able to.
And just deeper into the postal network the.
The better economics are that you have so it was more of kind of and fine tuning of the footprint to improve our efficiency and our costs are.
As opposed to something the dramatically improved our increased capacity.
And I'm sorry, what was your second question all of them.
The cross border Cross border. So cross border is the combination of a couple of things first of all of you know.
Extreme.
The exchange rates matter a lot.
And cross border so when you've got a relatively strong dollar to other.
The currencies you know that helps our we continue to invest and our cross border.
Platforms, and we've got a couple of.
You know large clients that are continuing to give us more and more demand, particularly from the United States into Canada.
And you know and sure enough, where we're able to.
Protect price in that marketplace as well so it's you've got some macro things that are going.
And for you with currencies and you know we've got a very good capability of particular U S to Canada, which is attractive to some of the larger clients.
And with with meaningful scale.
Thank you.
And we do all the question from the line of Kartik Mehta with Northcoast Research. Please go ahead.
Hi, This is Alex.
Alex on for Kartik, the good morning.
Our first question had to do with just the profitability of global E Commerce.
And.
Within this you know elevated.
Elevated demand environment could you just talk about some.
Some of the factors that increase profitability for the quarter.
The and source of new lanes.
And so the spot market and.
And just coming to the some of those factors that are <unk>.
Improved this quarter.
I'll take a crack of that and I'll I'll add some color.
Sure.
And so we we saw improvement and into in 2 key variables. I mean, we saw with the changes in management and labor strategies that we have been implementing them and combination with the automation we saw improvement in parcels per hours of our labor productivity is.
And is improving.
And the the second factor that that we also saw improvement was around their transportation. So we're continuing the strategy that we have mentioned about in sourcing lanes and.
And.
And making sure we optimize the capacity and all of the trucks better.
And so those those 2 factors I would say we're at the top and of course, we continue to work our postage.
And ensure we deliver at the best penetration levels that we can and the U S. P. S. So I would put them in and kind of that order.
And then on a set of quite well I would also add so if you think about pricing so pricing quarter to quarter importantly stayed pretty steady. So you know as the industry continues to be a capacity constrained pricing is holding and we expect pricing no.
Well actually go up and the second half.
Of the year as Theres more of.
Volume and more demand as Arnaud said, you know labor was an improvement quarter to quarter pretty substantial improvement, but the but that's not really <unk>.
Much of the product of the automation and that's just the labor model are maturing and so if you think about what our labor strategy had been or what it was when we bought and adjusted a bit of call. It was all of the temporary labor force and it remained a temporary labor for US you know well until last year. That's problematic because you just don't get enough.
You know.
Continuity and the specific role so and as we've moved to a more permanent work force.
You know you can see the productivity improves so we're now at I think 40 per cent.
Of the work force is permanent and we wanted to get that a little bit higher.
Which allow you to kind of flex up and down with the volume. So you know I say that because it demonstrates and reveals the power of just having a more mature.
The model.
And also importantly, the the benefits of automation are still in front of us. So all of the added some automation and no and the quarter and kind of like what we're seeing I would consider those as kind of test and learn and sandbox type initiatives. So the.
Thanks, you very excited about that transportation improved a good quarter to quarter, it's still well above last year. So if you look at the transportation and unit costs from the share at elastic is still a way high. So you know we still have an opportunity in front of US I know you saw some benefit from the redesign of the network you saw some benefit from the.
And that would in source more of our own trucks, but you know again, there's lots of opportunity.
And both labor and transportation and you know, there's there is opportunity and and our postal cost which is the biggest single line item.
But that's the that's a function of being able to and just deeper into the postal network.
And I would say you know the other thing and we kind of Ah I mentioned in my remarks, and honor mentioned in her remarks, I mean, if you look at the.
The 16 sites that we have now.
Oh, we have 16, new leaders over the last 12 months.
So we have and very experienced team right now and I would say not just experienced and the world of warehousing and logistics, but experienced and the world of postal ingestion, and which is kind of at some little that's the 1 little world and then on top of those.
The 16 leaders are we first of all I'd had mentioned, Nick Smith, who was really the architect of our much of our strategy around global ecommerce has moved to a product and.
And the strategy of World, which is terrific and give some more time to kind of think about how we go forward but to.
To the Tim We've also added a new person running and our 16 centers from Amazon.
As well as and individual from C. H Robinson, 1 of our transportation So what you're looking at now and now starting with net debt team led by.
Greg and Zebra is a very experienced team that's been and.
There and done that and it's fascinating to see as you put these new leaders in place how quickly they're able to.
Do the basic blocking and tackling and you see improvement.
Okay, great. Thank you and then also and <unk>.
2 of the growth that you saw within the equipment sales and no part of that growth was just the from the comparison of last year, but was there anything major debt was also contributing to debt that growth of this quarter or was that the higher <unk>.
Product sales of and then.
Pro product family.
Yes, Youre absolutely right.
And part of that was of course, the easy comparison that that was mentioned by that but we're seeing great.
Attraction and the market from the send pro family both of the male station on the sand proceeds and and the shipping capabilities set that tax along.
And so we're seeing that and and we started and also some international.
The rollouts of of the product and it is.
And again, it's easier to kind of get lost in the the year year and IMAX and there's so much noise and the numbers, but you know honest comment about growing 1% versus 2019 do you think about that that's a meaningful accomplishment and the context of the market and mail market, that's still declining and.
And you know if you go back to the 2019 and that kind of takes out of all of the comparison.
Issues and you're at it lead you back to precisely the point that on them and it does it.
New product innovation.
If you look at the the new products you know that the.
Sam talked him and his introduced they're just doing great and they're doing great domestically and we're starting to roll them out internationally and if.
If you look at the overall revenue that's driven by new products, it's meaningful and so the innovation pipeline is really starting to hit the ball and hit the ball hard.
Okay, great. Thank you and thanks for the insight.
And we do of a question from the line of Anthony Love of dense and Pinsky with Sidoti and company. Please go ahead.
Good morning, and thanks for taking the question and so.
First the on the global E Commerce sites, so nice to see that you're and you will be able to get that to be EBITDA positive for the full year in order to get out of business to be positive is that more of a function of gaining more productivity or more scale and can you just comment on your high level.
Thoughts there so.
So first of all I'm going to take care of a small victory lap that were actually EBITDA positive and the first half by a couple of hundred thousand dollars.
So we expect that to continue and the second half as we get more efficient and more productive and more volume.
In terms of the of your broader question of the path.
The for profit to profitability of sustained profitability towards our long term models for globally of commerce I'm going to caveat. This.
The upfront and.
And that if you would've asked me of that question 18 months ago I would've given you an answer.
Of how we get to the long term model.
The world's changed a lot and the last 18 months and not the least of which is pricing has gone up by 2025 per cent unit cost on transportation has gone up substantially.
Substantially so we're redoing the long term model, but with that caveat.
Of how we think about the long term and if you.
Look at the the path to you know the long term margins.
And it will principally be driven by of labor and transportation.
And so ever and transportation provide.
60 per cent.
Of the total.
If you think about it.
The.
Postal past and that's another a couple of points.
If you think about the benefit that the the mix between mix scale and pricing I'd say, a slight positive but transportation.
And labor are the principal cost then also warehousing and kind of gives you a couple of points as well.
The labor and transportation of the things to keep the island and I don't think that I mean, we're going to fine tune. The long term out of I don't think that'll change that much.
Okay. That's that's very helpful and then switching over to the U S centric business. The other so you posted you're the third consecutive quarter of.
The EBIT.
You know how sustainable is that 1 of your thoughts there.
Well if the only thing that says it's the right long term thought and it's something that you know and I wouldn't lead you to believe that that's something you would expect and now and 2022, but you know as we think about the long term out of we truly believe that that business is positioned to be able to grow revenue and gross profit. It's just kind of it's got to get the shipping business.
And to a lesser degree of the financial services business of a little bit more scale.
So long term yes.
You know short term, we might have a couple of quarters, saying all of those and we have kind of getting their nose above water a medium term, we expect continued progress.
Got it and just the follow up on that actually and the subtype of the piece. So I'll share of your revenue is now coming from the shipping.
Well it was and.
30.
The 31 million and out of the of the total.
Got it right.
Thank you and best of luck.
Yep.
Yeah.
And we do of a question from the line of Ananda Baruah from loop capital. Please go ahead.
Hey, good morning, guys. Thanks for taking the question.
Hey, Marc just on the I guess on.
Sort of the e-commerce marketplace and and.
Your thoughts about it and I.
Yes, or at least the company's position.
It. It does you know sort of go back and being a 10 and 15% revenue growth business.
With.
With the I guess what of your thoughts on percentage of retail of the menu of online and and and it sounds like a hell of a couple of things is.
Is it is it stronger is retail online stronger and now and maybe true you said of companies sort of gift purchasing online and being <unk>.
<unk> 24 of 25 per cent is that higher than you thought it would be when we entered the year and if it does stay elevated.
Meaningfully above the mid teens level would that would that alter your thought process around the 10 to 15.
50%, what would that alter your thought process around long term pitney.
And then I have a couple of follow ups.
Sure. So I would say theres been kind of and evolution of thinking.
On a.
Per cent of retail over the Internet and you know when.
And when Covid first hit.
And it's kind of the the mill.
The question is how much of this volume stocks I think shortly after.
You know shortly into the pandemic crisis as you know people became convinced the buying habits.
Changed substantially in and of.
A more permanent way.
So yeah I think Joe you can argue whether it's gonna be 24 of 25, 26, and where it settles out, but it's going to settle out and well above where it was and I think it's pretty clear and certainly you know.
And.
Working from home over the last 60 months and it's been striking and the number of deliveries that come to the door I don't think that's ebbing.
At all.
I do think once they kind of find that new level of that 24 of 25 of 26, then it's going to have a personality, that's driven much more by kind of retail.
And you know consumer trends.
10, or 15 per cent is gonna be well above what retail as the sector grows so you'll continue to see that percentage.
The increase.
But.
And I don't think it's it's not our expectation of anywhere that's going to you know.
Grow 2030, 40 per cent and of sustained.
In terms of of how that makes me think about the opportunity.
Of all of this opportunity and it's an opportunity that's got strong secular growth.
It's an opportunity that's got you now.
The.
The industry players that are responsible in terms of how to think about pricing and how they think about managing the man and it's an industry the.
The bridges our relationship with the post Ah, it's the industry, where we've got the right to win and if you think about it and now you've followed the company for awhile and presort and cause a postal ingestion model for mail and know what our global E Commerce businesses as the postal injection business for parcels. So we understand the space we got now.
We have the right the way and we've got you know all of the right intellectual capital.
And to be an important player here and again you know we write off the postal service of scale. So we're able to participate in this marketplace with out having the buy planes trains and automobiles. So I really like where we're situated and alike, but it couldn't be a better opportunity for us.
And going back and the conversation you and channel, we're having is there an opportunity here.
Do you know sort of change the tooling or add to the tooling.
And the warehouses and expand the expand the Tam I guess at some point and the future.
That would make a difference and the business.
And I don't feel compelled to have to expand the parents plenty of big as is so I don't know if you think about.
And the addressable market and small parcels, we can grow substantially for a long long period of time.
Without having to.
The focus on retool and our.
The warehouses, so addressable opportunity is not the problem.
Okay I got 2 more quick ones given given what you've seen so far.
And the market place the here and do you feel.
Any different about.
As soon as the leverage points are in the and the E. Commerce model do you think you can get and some of them more quickly over time.
<unk>.
You know why and and the need and doesn't take longer I mean, I guess sort of what your thought process 6 months into this year and the leverage points on e-commerce overtime.
2020 force kind of in the right.
<unk> thought for us in terms of getting into the long term model as I look at what what needs to get done and as we kind of refine the volume a little bit.
Be more congruent with our capabilities and then you know what and the labor model and the than the transportation kind of mature.
So you know what we're as I said were updated and the long term plan now and we'll review that with you sooner versus later, but right now I think it's I still think the the overall margin aspiration and the timeframe is kind of.
Correct some of the elements underneath of it might be a little bit differently, and certainly pricing I mean, well. We know there are different and the pricing is way different than what we thought 18 months ago as our transportation costs.
So you know labor costs will kind of.
And I suspect.
And the hourly worker and they'll go up but we have such an important opportunity to automate that.
Our focus is.
And how we.
Bring it anymore.
No.
Reliable labor base that stays with us and.
And that automation to that.
That that's helpful. And then just quick housekeeping and then this 1 would be for and can you and can you quantify the benefit from some of the lower bad debt expense to the e-commerce eat it.
Yeah.
Yeah and.
So the benefit was around $7 million for.
For the quarter.
Got it and any any the cause.
Context around it and that.
Sort of going forward and that will continue or changed in anyway.
No I mean, we expect the levels that we have to be to be realistic of course, we have some seasonality as you know based on our billings and everything, but and we feel pretty good with our customer base and and the types of credit that we have and and our receivable. So based on what we see into the future we think.
The levels shouldn't and team and they've done so as a predictor of the switch. It is there so and that business is terrific. So the cash conversion of that business is crazy good.
And the Dsos and the.
The best levels.
That's helpful.
Thank you guys. Thanks a lot.
And we do of a question from the line of Geoff or lip with Barclays. Please go ahead.
Hi, Good morning could you go into a little more detail about the semiconductor and supply shortages that you cited potentially and <unk>, and which products and which businesses.
It's incentive and.
Of our sand.
Pro product line.
So we use chips from the.
Principally Asia. So it's kind of the same chips that everyone else's volume for the.
And 4 as well, we're pretty confident that we've seen our way through the third quarter.
And you follow the space. So you understand how the dynamic that is.
And you know at the.
Presents some risk temporary of rest of the fourth quarter, we see that risk.
That's less than we did probably 30 days ago, but they're still of risk.
Okay and then in the same tech can you just talk a little bit about the.
In terms of the same pro a refresh cycle and you you've seen very strong equipment sales.
You know how much of your base you see debt rolling through and when do you see that sort of maturing.
So we see it rolling through all of our base. If you think about that business at the lease business.
So the normal rhythm as you know as you have probably 20 to 25 per cent of your products come up for.
The renewal each year or trade up to a new technology.
So it's kind of rolling through and a fairly predictable basis I think there's a couple of more years left and search.
Most of the international opportunities still in front of us.
Got it thanks very much.
And with no further questions in queue and I'll turn the call back to Mr. Lautenbach for.
Any additional remarks terrific. Thank you and thank you for joining today's call them early and Youre always said where players.
The 4 improved profitable revenue growth, we characterize profitable revenue growth is the last chapter of the successful transformation.
And we also said of the global Commerce would be EBITDA profitable this year and while the shares and done I like where we stand on profitable revenue growth and I really like kind of where global commerce stands in terms of being EBITDA.
EBIT of positive so.
And another data point and the second quarter more work to do for sure, but and I certainly like commerce situated as we get into the second half of the year. Thank you for your time and we'll talk soon.
And ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference services you may now disconnect.
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