Q3 2022 Pitney Bowes Inc Earnings Call

November 1, 2022

Good morning, and welcome to the Pitney Bowes third quarter earnings 2022 results Conference call. Your lines have been placed in a listen only mode. During the conference call until the question and answer segment.

Today's call is also being recorded if you have any objections. Please disconnect your lines at this time.

I would now like to introduce your participants for today's conference call.

Mr. Marc Lautenbach, President and Chief Executive Officer, Ms. Anna Chadwick Executive Vice President and Chief Financial Officer, and Mr. Ned Zenker, Vice President Investor Relations, Mr. Zach or will now begin the call with a safe Harbor overview.

Yeah.

Good morning, everybody. This is Ned Jack and I manage the Investor Relations program for Pitney Bowes.

And I'd like to welcome everyone to the call. This morning, we very much appreciate your interest and participation.

Part of my duties includes covering the usual and customary safe Harbor information for these calls so please bear with me for just a few minutes.

Included in today's presentation are forward looking statements about our future business and financial performance.

Forward looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections.

For more information about these risks and uncertainties. Please see our earnings press release, our 2021 Form 10-K annual report and.

And other reports filed with the SEC that are located on our website at www Dot PVC 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 developments.

Also for non-GAAP measures that are used in the press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures.

In the tables attached to our press release and also on our website. Additionally.

Additionally, we have provided a slide presentation on our Investor relations website that summarizes many of the points, we will discuss during today's call.

Our format today is going to be familiar mark logging back our president and Chief Executive Officer will begin with opening remarks, which will be followed by auto Chadwick, our chief Financial Officer, who will provide an in depth discussion of our financial results.

Now I'd like to turn the presentation over to Mark Mark the floor is yours.

Thanks Ned.

Good morning, and thank you for joining today's call.

There continues to be many different currents running through the economy and our business.

While we are focused on navigating the moment our focus is on how we come out of these cross currents.

And many.

Probably most ways the third quarter resembled the second quarter.

Santana in Presort, both grew at constant currency and global ecommerce declined driven by the unprecedented strength of the dollar.

The strength and the resilience of our center in Presort businesses will serve us very well in this turbulent market.

But even more importantly, these businesses are very well positioned going forward.

As you all know these businesses are strong and reliable cash producers today and into the future.

The fact that these businesses are both growing with margins close to the long term plan bodes very well for the future.

As I mentioned, our global ecommerce business is fighting through $8, which is at unprecedented highs.

A very choppy retail sector.

And evolving consumer behaviors.

We continue to believe that the currency markets will stay on settled for the foreseeable future.

I would characterize our domestic delivery business and our digital expedite business is holding serve in a quarter as we continued to add new customers, which is being offset from some weakness in our existing customers' volumes.

To be clear, we see the decline in volume from our existing clients is a market phenomenon.

Our ability to win new customers and regain volume from existing customers as a direct result of our increased service levels, which position us very well vis vis our competitors.

That said the most important dynamics since our last earnings call.

Found on our third quarter income statement.

The most important dynamic as new customers, we have one.

Existing customers, where we affirmed our going forward a relationship and a resolution with the U S. P. S.

I'm going economics that position us very well going forward.

In the third quarter, we signed the Shin.

If you're not familiar wishing him as one of the largest online fashion retailers in the world.

We started processing parcels for XI in the third quarter and we expect.

She ns volumes to substantially increase in the fourth quarter.

This is a tremendously exciting win we.

We also came to terms with ebay North America and E Bay, Okay. In the third quarter as you probably know ebay has been an important customer to pitney bowes for over a decade.

We cannot be more delighted with our going forward relationship with ebay.

Next we came to a new agreement with a U S. P S related to our digitally based shipping offerings.

And how we enable shippers to pay for and labeled packages to send directly through U S. P. S.

As we discussed during the last earnings call them U S. P. S ended the agreements they had with posted resellers effective October one.

Well P. But he was not a U S. P S reseller.

U S P S and structure of the market in a way that it made economic sense for us to work through resellers.

In the quarter, we successfully concluded a going forward agreement with the U S. P. S that enables us to essentially retain economics, we earned through the resellers, reflecting the value we provide to the U S. P S and shippers in the market.

As this market is evolving we're continuing to see opportunities to expand our digital shipping offerings based on the value and innovation and we bring.

The most concrete example of this is there an agreement we have entered into with one of the largest platform companies in the world to enable shipping from their platform.

Quick final point on all of these third quarter dynamics.

We're able to win these new customers and craft, a new going forward agreement with U S. P. S. Because we have consistently invested in our future.

We've invested in our network.

Our service levels, our capabilities and perhaps most importantly, our team.

We have sustained these investments during COVID-19 supply chain issues and the potential looming recession.

Others might have gone a week need in the face of all these dynamics, but we have remained resolute.

This sustained investment positions P b very well going forward.

Finally, we continue to build on our third quarter momentum.

In the third quarter, we began the quarter at $2 8 million parcels per week and finished the quarter at $2 9 million parcels per week, so a slight improvement, but basically holding steady.

Through the first three weeks of the fourth quarter, we were running at approximately $3 6 million parcels per week. So you can clearly see the impact of our improved service levels driving volume to our network.

Let me Dimensionalize. This further.

Annualized in this weekly volume increase equals $40 million to $45 million incremental parcels a year.

We're looking forward to adding peak volumes to this new baseline.

A few comments about capital expenditures and expense going forward now that we largely have what we need to compete and win in our markets.

As I mentioned at the outset of my remarks, our focus is navigating the moment and ensuring we come out of this economic tumult a stronger company.

Consequently, our bias on capital expenditures and expense is towards being conservative.

And I'll have more to say, but we expect material savings in 2023 gross expense and Capex.

To conclude.

As Arnaud foreshadowed at the last earnings call. The third quarter was similar to the second quarter financially, but again looking back in the third quarter I'm quite confident that the headlines wont be any particular financial metric for the quarter, but the substantial wins that position our business for success going forward.

Now, let me turn it over to Anna.

Thank you Mark and good morning, everyone.

Unless otherwise noted I will speak to revenue comparisons on a constant currency basis, and other items, such as EBIT EBITDA and EPS on an adjusted basis.

Let's start with a high level review of the year over year comparison of our financial statement and segment results.

Total revenue for the quarter was 831 million, which is down 4% versus third quarter 2021.

Excluding the border free divestiture revenue is down 2%.

Gross margin for the company was $264 million compared to 286 million for the same period last year, a 7% decrease.

As a percent of total revenues gross margin decreased 80 basis points to 31, 8%.

Total EBITDA was $77 million down from $92 million.

EBIT was 38 million similar to the second quarter and down from $50 million one year ago.

Interest expense was 37 million a slight uptick from last year's 36 million level.

The provision for income taxes. This quarter was one 4 million.

Adjusted EPS was zero compared to eight cents in prior year.

At the end of the quarter weighted average diluted shares outstanding were approximately $177 million.

Turning to cash flow.

Cash from operating activities was a use of 36 million for the quarter compared to a source of 71 million in third quarter 2021.

Free cash flow was a use of $16 million in the quarter compared to a source of $30 million in the prior year.

The differences in cash flow were primarily driven by changes in working capital and lower net income.

Those changes were partially offset by lower capex.

And an increase in customer deposits.

Capex for the quarter was $33 million down from $57 million in prior year.

We continue to expect capex to be substantially lower for full year 2022 compared to 2021 now that we have essentially completed the build out of our domestic footprint and have shifted focus to fully leveraging our investment too.

Maximize utilization.

During the quarter, we paid $9 million in dividends and made $4 million in restructuring payments.

Looking at the balance sheet cash and short term investments were approximately $607 million at quarter end.

Total debt was $2 2 billion compared to $2 3 billion at year end 2021.

Adjusted for our operating leases and cash operating company debt was 570 million compared to 533 million at year end.

The following segment information is summarized in our press release and slide presentation.

Both of which are posted on our investor relation website.

I'll start with precinct.

<unk> revenues were $145 million in the quarter, which is a 4% improvement from last year.

Total sortation volume of $3 8 billion pieces was down 9% compared to prior year, However, new customer additions and increased revenue per piece again more than offset the volume declines.

EBIT for the quarter was $21 million essentially flat to last year.

EBIT margin was 14%, which is a 500 basis point improvement to prior quarter, and a 90 basis point decline versus the third quarter 2021.

The decline in year over year margins was driven largely by increased labor and transportation costs.

Including the change in our allocation methodology, which we have previously discussed.

Bottom line is we expect additional progress in the fourth quarter driven by higher revenue per piece improvements in transportation efficiency and productivity gains from the ongoing sort of refresh.

We also expect the usual uptick in seasonal volumes largely in marketing related services.

Moving to send thick.

<unk> reported revenues of $332 million in the quarter, a slight increase over prior year, which is a significant accomplishment for a business that has natural headwinds equipment sales and shipping related revenues.

Do you need to fuel the growth.

Shipping related revenues, which is now 12% of segment revenues increased 18% versus prior year and disinfecting continues to build the shipping pipeline.

[noise] centric EBIT was 95 million compared to $99 million in prior year and EBIT margin was 29% down 60 basis points from third quarter 2021.

Margins were impacted by inflationary pressures and a higher mix of lower margin equipment revenue.

In response to higher input costs, we introduced select price increases in the quarter, which will be an offset moving forward.

We also continued to see stability in our finance portfolio driven by growth in our lending business and ongoing strength in our equipment sales, which translate into lease receivables and bodes well for future finance revenues.

As of quarter end net finance assets were 1.15 billion flat quarter to quarter.

Also credit quality inside the financial services portfolio remains excellent.

30 day delinquencies are down 40% from prior year and remain under 2% for the third consecutive quarter.

Despite the macro headwinds.

We see healthy payment trends across our finance portfolio.

Let's talk about globally Congress.

Total segment revenue decreased 10% to $354 million.

That decline excluding border free which was divested on July 1st was 7%.

Organic decline was driven by weakness in cross border and to a lesser extent lower digital volumes.

Domestic parcel revenues were up 2% in the quarter.

Segment gross margin in the quarter was $20 million compared to $34 million a year ago.

Year over year improvement in domestic parcel gross margin was more than offset by lower contributions from cross border.

Segment EBITDA for the quarter was negative $17 million compared to breakeven in the third quarter of 2021.

EBIT for global ecommerce was a loss of 35 million compared to a loss of 21 million a year ago.

Let me break down the Crosscurrent inside the segment.

Additional progress in domestic parcel is more than offset by ongoing macro trends negatively impacting cross border.

Compared to prior year cross border volumes revenues and gross margins are down in excess of 25%.

As you May recall, our cross border business is largely focused on helping our clients move parcels originating in the U S to international destinations.

As we noted last quarter the strength in the U S dollar and macro weakness, especially in Europe continued to put pressure on international E Commerce activity.

As a result of the tougher environment, we are taking meaningful steps to mitigate the headwinds, including the launch of the U S. Inbound services from the U K and Canada as well as a new intra Canada service.

Let's move to the domestic parcel business next.

In the quarter.

Parcel volumes were 36 million down $4 million from prior year lower volumes were a result of softer overall e-commerce activity and a continued decline in inbound parcels from China.

On the other hand revenues were up 2% year over year on higher revenue per parcel. We continue to believe domestic parcel is our biggest opportunity with a large and growing addressable market.

It has been a significant investment priority over the last several years for motivation to management system does human capital, resulting in much improved service levels and more predictable costs.

Since late March.

On time performance has been consistently in the low to mid 90% range and did not incur.

Improved gross margin levels highlight our ability to better match resources against the volumes in our facilities.

Despite lower volumes year to date gross margin per parcel improved 29 cents compared to the same period in 2020 one.

Our domestic parcel network is well positioned to handle peak volumes this year as well as unexpected increase in the run rate parcel volumes driven by recent new client wins.

Since the beginning of the third quarter 32, new domestic parcel clients have gone live ahead of peak.

New clients are expected to account for roughly 20% of fourth quarter parcel volumes.

New notable clients include Sheen, Hudson Bay, and Japan create I'll say, a direct result of better service levels, we are seeing material pick up in volumes from existing clients such as bark box soup.

Super Group and Victoria's secret.

We are already seeing the volume uplift in October .

On a month over month basis weekly volumes have grown over 25% to $3 6 million.

We are encouraged by the healthy increase in volumes, which are critical in driving margin improvement.

As we stated in our materials from mid September we expect annual run rate volume levels in the domestic parcel network to exit the year at approximately $195 million to $200 million.

We are reaffirming our expectations that the global ecommerce segment will generate positive EBITDA in the fourth quarter.

Also for full year 2023, we are targeting segment EBITDA to exceed Capex. This assumes ongoing pressure in cross border and reflects our new agreement with U S. P S and ebay, which we will discuss next.

Last quarter, we also discussed the changes in the U S. P. S reseller program.

We now have finalized a new agreement with U S. P. S that enables us to maintain and possibly improve the economics, we had historically generated from the reseller ecosystem.

The technology oriented capabilities, we have built over the years, which supports substantial volumes in the U S. P. S network were integral to the new arrangements with USPS and reflect the benefits of our innovations to both U S. P S and shippers.

We have also finalized a new agreement with ebay and we are pleased to continue to be an integral part of their international shipping program.

Shifting gears given the current macroeconomic environment.

We're taking actions to control spend we expect to generate 50 million in gross annualized savings.

He headwind against these savings will be the restoration of variable compensation.

In addition, we expect to reduce 'twenty 'twenty, three capex by $20 million compared to 2022, which.

Which will be roughly 70 million lower than 2021 levels.

Last let.

Let me provide some perspective on the outlook for the full year.

We are reaffirming our previously communicated full year 2022 revenue and EBIT guidance ranges.

We also expect free cash flow to be positive for full year 2022.

To recap the quarter.

Send second presort continue to execute well demonstrating the durability of our business models.

For global ecommerce, we look forward to improved results driven by recent client wins, which has already begun to generate higher volumes.

While our free cash flow expectations are lower given the working capital considerations year to date EBITDA less capex interest expense and taxes represent a solid improvement versus the prior year.

We remain committed to being a consistent cash flow producer with appropriate amounts of liquidity as we tackle a more challenging macro environment.

We look forward to your questions operator, please open the queue.

We will now begin the question and answer session of today's conference. If you wish to ask a question. Please press. The one followed by the zero on your Touchtone phone, you'll hear a tone, indicating that you place yourself in Q and all questions will be pulled in the order. They are received you may remove yourself from the Q&A at any time by the depression of the one.

Again, followed by the zero and if using a speaker phone. Please pick up your handset before pressing the keys. Our first question will come from the line of innovative Broha. Please go ahead.

Hey, Yeah. Good morning, guys. Thank.

Thanks for taking the question and thanks for the incremental context.

And the incremental metric.

That's really helpful. It also opens opens up a whole new line of inquiry here. So.

I guess just to start at the high level with that.

It's a partial contribution from the new customers and in U S domestic for global ecommerce.

How are you guys and then given the trends that you provided the year over year trends you provided for the September quarter.

Well how are you guys thinking about year over year volume agile for a.

So domestic parcels for December Q now.

Great. Thanks, and I appreciate the question and I'm glad you found the incremental metrics are helpful and we'll continue to try to provide those.

We're tremendously excited about the volume increase that we saw in October as I said, if you annualize that that's $40 million to $45 million incremental parcels a year.

Think about it you know average margin contribution of $1.40.

Our parcel. So you can quickly see you know $60 million of incremental.

EBIT.

Contribution of if that maintains a in terms of.

The corridor I think Theres, a couple of different dynamics that are running through the quarter, but not the least of which is.

As you know better than anyone there, there's a two to change from quarter to quarter and year to year. So if you go back to last year, which was an unusual quarter in in any sense.

In October of 2021 there were 100, plus containership circle in the port of Los Angeles that were waiting to drop off goods. So that obviously added to a fair amount of angst from.

Summa perspective about supply chain worries and if they were to order something online where they actually get it.

If you fast forward.

Two this year.

That comparable number of ships that circling in Los Angeles Port is less than five so you know what I would say as you know last year was unusually depressed.

Because of some.

Very unusual issues in supply change.

You put on top of that you know the concern that you know all of the participants in the industry had about labor.

We not only are you now got labor early but we'd probably overstocked to make sure that we can handle all of the service level. So there's a lot of different dynamics.

And the year to year.

What I would say about the fourth quarter is there's two dynamics that I'm looking at that are they're really important one is what happens during peak and that's a function of consumer behavior.

Retail broadly so think of those you know six weeks that started a little bit before Thanksgiving that run through our Christmas that's its own dynamic and you know we'll be.

Very important for the quarter.

The other dynamic is kind of what we alluded to in October and that is what is the run rate of that business. So as I think about the going forward.

Our global ecommerce economics Ah is predicated on volumes, but it was kind of ongoing volume. So I tend to or would have to peak out of that dynamic. So that's why that $3 6 million parcels is so important because it begins to foreshadow what your what your run rate is for that business.

Going into 2020 three so.

All that being said I mean, the short answer to your question as you know right now we expect a.

Volumes in the quarter to be up ear to ear and corner to corner pretty materially but.

But it is predicated on a peak, which as you know the.

People think it's gonna be a back to a more normal peak, but you know it's a there's still some unknowns there so hopefully that helps.

Yeah, no that's great contacts and.

It sounds like the pricing sort of price increases or are there some structural and they do it.

So it sounds like prices would be up again.

Probably Q over Q and year over year can you unpack that.

But it's been a little bit there could you unpack the price increases for us it's about how structural that is if I did that.

What is it.

Underpinning.

There are structural in the sense that there are industry best for the corner.

So you know think of 50 cents, a parcel or kind of in that Zip.

ZIP code.

For the quarter that extends.

Through peak.

And then as we get into next year.

And then there'll be you know the industry has increased prices next year with your P. S and Fedex are we're still working through that I think Fedex and UBS.

As had been 6% to 7%. So we tend to kind of follow the industry. So hopefully that helps.

Answer your question.

Got it okay.

That's very straightforward Linda let me just actually sneak one more in here.

Before.

On the new customer wins.

So sounds sounds like you guys well at least the way that it would.

The way that you guys went about describing it had a bit of a new ring to it than in past quarters, you've talked about wins and so I guess.

I'm just wondering is there something you know have you read some sort of critical mass tipping point that you're getting more and more fast they're bigger and more fast there and is this something that that you expect and we could expect to continue into the future.

So.

Great Great question. So throughout the course of the year and you're all probably got tired of saying that are tired of hearing it I I got to the guitar Center I kept on talking about all of these wins, but the revenue is in front of US we kept on talking about customer wins and we're integrating them.

And you know our network well, what you began to see a little bit in the third quarter, I mean, a little bit.

But you saw material in October it was those wins that we've had throughout the year began to hit our our network the volume started to.

Be realized so you know to a degree it's just a continuation of what we've been talking about and it's the realization of those wins in our network the revenue and the and the incremental.

Economics.

As you know honest sudden her remarks, when I said before that's all due to the hard work that the team has done to improve service levels to improve customer experience with the networks. So we think it's you know we think the fundamentals of that business.

Our very strong going forward, whether it be that the overall economic improvement.

Service level improvement at the customer satisfaction improvement and I would be remiss, if I didn't add our employee experience and the business is terrific. So you know there's clearly some.

Choppiness, that's going on right now in the market, but you look at the underlying fundamentals that really drive that business going forward, we're very optimistic so.

The the revenue in the parcels that we saw in October were realized wins right.

Likewise, we have a very strong pipeline in.

In the fourth quarter. So we've got probably you know over $100 million of.

Revenue, that's signed that were working on integration.

And we've got a very strong late stage pipeline.

So while it's hard to predict what's going to happen in the domestic market or even harder what's going to happen in the international market. We do think that the new wins that we've been able to achieve.

Achieve are going to allow us to outrun those.

Those dynamics going forward.

Great job, Okay awesome. Thank you so much.

Our next question comes from the line of Anthony.

Ski Sidoti and company. Please go ahead.

Good morning, and thank you for taking the questions and thank.

Thank you for also providing additional perspective on Europe courage.

Current trends so that's within.

With N G C.

You guys talked about the.

Headwinds from a cross border no as you go into the fourth quarter.

I guess I would imagine that the the the the mix obviously changes the business between domestic parcel that cross border. So.

Do you see cross border being less of a headwind.

For Q versus three Q I know it still will be a headwind, but just wanted to get a better sense given the changes in the seasonality of the business.

So to be clear and I said it in my comments no what's causing the headwinds in cross border is that it was the currency disruptions, particularly the dollar strength vis vis the pound or the euro as I said in my remarks, we expect that to continue at least for planning purposes, we expect that to continue.

What what you will see over time, and you know how to kind of set. It is we think the domestic parcel opportunity is so large that the mix of the business will continue to shift so I don't see the headwinds.

Subsiding in the near future I think you know in this country and continue to see interest rate increases I think Europe and U.

K is likely to lag.

So those dynamics aren't going to change, but what you'll see over time as the domestic parcel market over you know overwhelms them kind of outruns are those declines.

Okay got it okay. Thanks for that and then.

Just just in terms of again to just staying within a GC.

So obviously new clients came on board.

<unk> wasn't too much of a benefit but just curious to get a better perspective of your business as far as Europe or.

Organic or same client basis.

What you saw in the third quarter.

Yep.

So I would say it was mixed.

I mean in some ways it very much mirrors, what you're reading the newspapers you see some retailers you know certainly now working their way through the moment quite well others are you know more and more difficult.

I would say you know our experience is somewhere we've got you know a handful of customers.

That are experiencing.

Experiencing some pretty substantial headwinds we've got a you know a few that are kind of holding serve and then we've got others that are doing reasonably.

Reasonably well, so it's hard to generalize across the entire.

Our customer base.

But.

Regardless, we do you know the new customers and she is the perfect example.

There are so significant in terms of what they can provide to the network about it you know a little bit of Choppiness kind of on the tail. Oh, you know I think at this point, we're in a reasonable position to out run.

Got it yeah and sheets, so there should be a very.

Very valuable clients for you so congrats on finding them.

A couple more questions. If I can just sneak those and so you know last month.

It looks like a relatively small acquisition for pre sorted in Salt Lake City can you just comment on that and whether you're open to doing additional acquisitions there.

Sure. So let me take it up a level because I think it speaks to capital allocation, which I know is on.

Many of our investors minds, so as we contemplate capital allocation I continue to come back to the phrase strategic flexibility and less strategic flexibility means in practice is that you're able to make.

Opportunistic acquisitions that perhaps would not have been available to you in a different economic Ah moment. So actually made a couple of acquisitions in presort, we'd like to make more because those are instantaneously accretive or generally you know quickly accretive to the business.

So.

The.

The economic pressures of the moment, coupled with volume decreases of first class mail puts pressure on boes are.

To a degree of our competitors as well as our clients to achieve a five digit densities that they need in order to have proper economics of that business. So when I talk about strategic flexibility. So that we can take advantage of those moments and continue to invest in our business in a way that is durable going forward.

<unk>.

Got it okay. Thanks for that and then lastly, as far as you know labor and transportation cost impact in the third quarter end.

And he said his expectations for fourth quarter.

Yeah. So let me talk a little bit about labor, because I think it's interesting and it speaks to the efficiency that the businesses are realized so if you go back to 12 months ago.

And our labor, particularly in G C.

We already had the labor onboard for peak.

For G C O for 2021.

Fast forward this year, we've been able because of the labor market is more predictable.

To defer adding the incremental temp labor that you need in order to accommodate peak. So the first thing I would say about labor in the fourth quarter is we're going to increase but it's going to be later than last year.

Second thing I would say and this speaks to the efficiency that the team has been able to drive and I mean, just a terrific job Oh, we have about the same amount of.

Permanent employees within our G. C network as we move into the fourth quarter and peaks, so think of that as kind of about the same.

We will execute peak however, with half the number of temporary workers that we had last year and that just speaks to the ever more confident but also how much efficiency. The network has been able to drive out.

In the last 12 months so substantially.

Less labor in order to accommodate what we're thinking is approximately the same volumes that we were planning for last year, although they werent realized so labor much more efficient.

At.

The unit level I would also say that the labor market.

Increases have subsided, so I've been to several of our sites in the last couple of weeks and yet we're still paying a good healthy wages, but no I don't.

I'd say the.

The premium has abated a touch so I was in our Chicago site. A couple of weeks ago I was in Columbus, Oh last week I'm going to all tomorrow. This afternoon and what your sales were still paying good wages, but it's not don't have the same kind of a lag.

Labor.

Sure from a unit cost perspective, as we did in there because there's less labor from transportation you know clearly transportation.

<unk> markets and you can see it in the spot markets.

You know I would say some type of transportation is in a recession I'm not quite sure I would say transportation is in a recession, but it's it's the costs are clearly are abating. So you've got a much more reliable set of underlying.

Economics are two to manage the network I would say in presort, you know similar dynamics.

Then N G C.

Got it thank you and best of luck.

Thank you.

Our next question will come from the line of Kartik Mehta of Northcoast Research. Please go ahead.

Hey, good morning, Mark I wanted to get a little bit.

Your thoughts on global ecommerce I know you provided a lot of good commentary, but it seems like there's lots going on there you have price increases the macro headwinds. The U S. Dollar you have new customers coming in you've talked about maybe cost cuts and managing capex better at it.

If you roll all that up what do you think that means for profitability as we move forward, maybe what it was six months ago to where it could be now considering all the dynamics that are happening in that business.

Yeah, I would say you know Greg made some comments a couple of weeks ago and Phoenix are forever.

We're in that we're in.

In essence, he made a couple of comments.

I think are important so.

You know the first thing I think you said was that the exit.

Volume for the quarter was 195 to 200 million parcels going into 'twenty three.

Hum.

On a reaffirm that.

There's probably some bias upward on that number, but we will talk more about that.

Going forward after we see a couple more weeks.

You know as we think about the breakeven of that business. You know I think it was between 203rd year and 240 million parcels or starting to sniff at that from an EBIT perspective, but what I would say you know it was kind of most important honest out at this morning, as you know EBITDA minus Capex and I would.

<unk> Tec slight issue with how you phrased. The question I think Capex has always been managed very well. It's just we've finished the building out of our network. So we're kind of done now so we don't have to use.

For Capex going forward that we have had in the past, but EBITDA minus capex was positive. So when we think of that as kind of a cash flow positive position for that business. So so in essence, if you're an equity holder right. Now you have a option for G. C, which you can argue how it's valued in the stock are not valid in the stock.

But its valued you know fairly well way, but that option is now starting to.

Move forward at a zero incremental cost.

So that's a very important dynamic I believe I'm a shareholder so as I think about it and think about that value that can be realized on option, though without the incremental cost or expense going forward.

And then maybe just on the presort business.

Very good margin quarter for us good sequential job.

And so as you look at that business going forward. What do you think is a reasonable expectations for margins in our presort business.

Yes, so thanks.

Thanks for the question so as we've said before pre story.

Should have EBIT margins in that mid teens range and we are attaining that asked me speak we will continue as Mark mentioned with tuck in acquisitions those tend to be EBITDA accretive pretty quickly and we.

We have been investing in our upgrades of sorters and with that we should we will see and we are already seeing.

On the labor productivity improvements coming out of that so we feel pretty good with EBIT margins in the mid teens.

Perfect that's a window of opportunity that we haven't.

Fully dimensionalize yet is what is it that robotics and automation can produce for that business. So if you think about it.

The investments that we're making in global ecommerce.

And automation, it's likely to be different automation, but robotics can take out substantial.

Labor costs in our presort business. So there's all kinds of opportunities for innovation and further cost reductions, particularly as we drive automation more deeply both from a conveyor and shorter perspective is on our side, but also some robotics.

Perfect. Thank you both I really appreciate it.

Our next question will come from the line of Matt Swope of Baird. Please go ahead.

Yes, good morning, guys, maybe if I could switch over to the capital structure for a second on.

Could you talk about your thoughts on this 2024 bond maturity that you have and how you guys are going to deal with that.

Sure.

So first of all as we all know there's oh.

Oh settlement meant in the capital markets and we're closely monitoring and watching on the other side.

We have several options.

That we are exploring everything from of course, you know cash on hand to cash that we'll generate a revolver and other secured capacity that we have in the event.

That the unsecured markets, where it'll be unsettled. So we feel pretty comfortable and we have several alternatives that we continue to evaluate as time progresses.

Our additional asset sales like what you did with border free a possibility that could help there.

Listen you know what I've said about asset sales as you know for the assets.

And the long term going to be worth more to somebody else than it is to us we will.

No we will certainly consider those types of.

Divestitures, what I would say right now.

My portfolio.

And to that point, you feel good enough about your liquidity and other options that you don't feel pressure to do that.

I'll answer that in one word absolutely.

Okay. That's helpful. And then maybe just a little bit more of a nitty gritty, one probably back for on them and the reconciliation to free cash flow in the press release today.

There's one of the larger add backs is it change in customer deposits at the Pitney Bowes Bank can you remind us.

What what happens and how that works there with the bank and maybe if you could give us even a little broader overview is the current interest rate environment a benefit.

To the PB bank.

Sure So let's take a step back on why we have these deposits at the bank.

The primary reason why we have the deposits or to fund our meters and meter usage.

And what we have seen historically is that there is somewhat of a seasonality at around the third quarter close where we see a bit of a spike most of these deposits carry little to no interest because it is a reduction of complexity.

Our business model to facilitate that meters.

So interest rates have not historically played any significant role in our in the deposit it's mainly due to facilitating up our business model.

All around Oh around the meters.

I hope that.

Some perspective, not that that is definitely helpful and and how 'bout to the to the finance receivables part is there any you know back to the financing question is there any ability to securitize, those receivables or or otherwise monetize those yet.

Given as you said, we're in such a different capital markets market Margaret.

Yes, I mean, it's a great question and you know one that we continuously assess them and we will continue to assess going forward.

Okay, great. Thanks, guys.

Okay.

And our next question will come from the line of Tim call of the Capital Management Corporation. Please go ahead.

Hi, I was wondering with the Oh.

Fixed maturities and interest rates, you have with your debt and the market interest rate increases.

Whether that alone will make it so that you're a net interest expense will fall or rising interest.

Income in.

And locked in interest expense.

So let me take a step back you know in our.

Debt instruments that we have to finance our business.

We are roughly a 70% fixed.

Which gives us a good position.

There's fluctuations and we've seen that upward pressure on interest rates, So and then of course.

And did that maturities come we will be looking to to adjust our interest expense going forward.

And with.

Over a half billion dollar cash.

And the 24 bonds trading at a significant.

Discount to par.

Could you go out to the market and.

Buy back our short term debt right now at a discount.

Would that be accretive to earnings.

Yeah, It's a very good question and we constantly evaluate our capital allocation and we will be doing that in ongoing Lee. So we are very well aware of where the debt is trading and we're looking to make sure we have the right tradeoffs between.

That the different uses of cash.

Well congratulations on setting the company up for success, especially in this.

Critical fourth quarter, winning clients in this fourth quarter appears to be up.

But that it might be very different than the last fourth quarter and you'll take advantage of it. So thank you for all that hard work.

Yeah.

Thank you.

I would now like.

For the conference back over to our President and CEO , Mr. Mark locked back for any closing remarks. Please go ahead Sir.

Thanks, I'd like to conclude by thanking our employees there.

They have just done tremendous work not just in the last quarter, but over the last several years, you think about what they've had to contend with whether it be covered or supply chain issues or repositioning the network or for that matter or reposition the entire business and sunshine.

Terrific way going forward and that doesn't happen without a lot of hard work from lots of different folks and we didn't talk about fantastic today at all which to a degree I'll take him say a good sign but it shouldn't be lost on anyone that certainly not lost on us that that business has transformed itself and as we you know as the last couple of questions have kind of been.

Circling around the that same type of stabilization in Centex cash was are so important as we think about the capital structure of the company and the fact that that business has transformed itself you know positioning itself for topline revenue growth realizing top line revenue growth and stabilized profits.

It's just so important to our business model is so important to our capital structure.

So listen, it's an uncertain environment and it's hard to be.

Overly confident and predictions I will tell you I like the fundamentals of our business I like what is happening with.

Our products with our offerings with our service levels.

What's happening with our customer satisfaction.

I like what's happening with our employee engagement.

What all of those speak to is we have a durable business model and you know whether or not the fourth quarter works out precisely the way that we see right now who knows there's there's lots of different variables, but that being said our focus has been and continues to be not just the moment and negotiating the moment a.

But coming out of this moment in this economic period and a much stronger place than I think what you saw in the fourth quarter and the third quarter, rather it was all of the.

Signs that are indicative of the kind of strength that we've been working so hard to achieve so oh well have more to say here you know as we go through the quarter I know you've got a couple of conferences that are in that and the team are doing and we will update you as we see more as I said you know the fourth quarter, there's really two different clients its peak.

As a function of consumer behaviors, which are somewhat.

Indicative of a moment in time, but the more important part than peak for the going forward. The economy is what is our going rate volumes a N G C and we like how we're positioned there we love the customer wins and Theres. Some some really exciting ones that are in the pipeline. So thank you for your time and attention.

This morning, we will talk soon.

Yeah.

Ladies and gentlemen that does conclude our conference call for today on behalf of today's panel, we'd like to thank you for your participation in today's third quarter earnings teleconference call and thank you for using our service have a wonderful day you may now disconnect.

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We're sorry your conferences ending now please hang up.

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Today's call is also being recorded if you have any objections. Please disconnect your lines at this time.

I would now like to introduce your participants for today's conference call Mr.

Mr. Marc Lautenbach, President and Chief Executive Officer, Ms. Anna Chadwick Executive Vice President and Chief Financial Officer, and Mr. Nick Zacher, Vice President Investor Relations. Mr. Zacher will now begin the call with a safe Harbor overview.

Yeah.

Good morning, everybody. This is <unk> and I manage the Investor Relations program for Pitney Bowes.

And I'd like to welcome everyone to the call. This morning, we very much appreciate your interest and participation.

Part of my duties includes covering the usual and customary safe Harbor information for these calls so please bear with me for just a few minutes.

Included in today's presentation are forward looking statements about our future business and financial performance.

Forward looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections.

For more information about these risks and uncertainties. Please see our earnings press release, our 2021 Form 10-K annual report and.

And other reports filed with the SEC that are located on our website.

Www Dot <unk> 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 developments.

So for non-GAAP measures that are used in the press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures in.

In the tables attached to our press release and also on our website.

Additionally, we have provided a slide presentation on our Investor relations website that summarizes many of the points, we will discuss during today's call.

Now I'd like to turn the presentation over to Mark Mark the floor is yours.

Thanks Ned.

Good morning, and thank you for joining today's call.

There continues to be many different currents running through the economy and our business.

While we are focused on navigating the moment our focus is on how we come out of these cross currents.

And many.

Probably most ways the third quarter resembled the second quarter.

Suntech and presort, both grew at constant currency and global ecommerce declined driven by the unprecedented strength of the dollar.

The strength and the resilience of our center in Presort businesses will serve us very well in this turbulent market.

But even more importantly, these businesses are very well positioned going forward.

As you all know these businesses are strong and reliable cash producers today.

Into the future.

The fact that these businesses are both growing with margins close to the long term plan bodes very well for the future.

As I mentioned, our global ecommerce business is fighting through a dollar which is at unprecedented highs and.

A very choppy retail sector.

And evolving consumer behaviors.

We continue to believe that the currency markets will stay unsettled for the foreseeable future.

I would characterize our domestic delivery business and our digital expedited business is holding serve in a quarter as we continue to add new customers, which is being offset from some weakness in our existing customers' volumes.

To be clear, we see the decline in volume from our existing clients is a market phenomenon.

Our ability to win new customers and regain volume from existing customers as a direct result of our increased service levels, which position us very well vis vis our competitors.

That said the most important dynamics since our last earnings call.

It found on our third quarter income statement.

The most important dynamic as new customers, we have one.

Existing customers, where we affirmed our going forward relationship.

And a resolution with the U S. P. S on ongoing economics that position us very well going forward.

In the third quarter, we signed Shan.

If you're not familiar I wish him as one of the largest online fashion retailers in the world.

We started processing parcels for XI in the third quarter, and we expect <unk> volumes to substantially increase in the fourth quarter.

This is a tremendously exciting win.

We also came to terms with ebay in North America and E Bay, Okay. In the third quarter as you probably know ebay has been an important customer to pitney bowes for over a decade.

We cannot be more delighted with our going forward relationship with ebay.

Next we came to a new agreement with a U S. P S related to our digitally based shipping offerings.

And how we enable shippers to pay for and labeled packages to send directly through U S. P. S.

As we discussed during the last earnings call U S. P. S ended the agreements they had with posted resellers effective October one.

Well he was not a USPS reseller.

U S P S and structure of the market in a way that it made economic sense for us to work through resellers.

As this market is evolving we're continuing to see opportunities to expand our digital shipping offerings based on the value and innovation we bring the.

The most concrete example of this is an agreement we have entered into with one of the largest platform companies in the world to enable shipping from their platform.

Quick final point on all of this third quarter dynamics.

We're able to win these new customers and craft, a new going forward agreement with U S. P. S. Because we have consistently invested in our future.

We've invested in our network.

Our service levels, our capabilities and perhaps most importantly, our team.

We have sustained these investments during COVID-19 supply chain issues and potential women recession.

Others might have gone to weakness in the face of all these dynamics, but we have remained resolute.

This sustained investment positions P b very well going forward.

Finally, we continue to build on our third quarter momentum.

In the third quarter, we began the quarter at $2 8 million parcels per week and finished the quarter at $2 9 million parcels per week, so a slight improvement, but basically holding steady.

Let me Dimensionalize. This further.

Annualized in this weekly volume increase equals $40 million to $45 million incremental parcels a year.

We're looking forward to adding peak volumes to this new baseline.

A few comments about capital expenditures and expense going forward now that we largely have what we need to compete and win in our markets.

As I mentioned at the outset of my remarks, our focus is navigating the moment and ensuring we come out of this economic tumult a stronger company.

Consequently, our bias on capital expenditures and expense is towards being conservative.

And I'll have more to say, but we expect material savings in 2023 gross expense.

Capex.

To conclude.

As Ana foreshadowed at the last earnings call. The third quarter was similar to the second quarter financially, but again looking back in the third quarter I'm quite confident that the headlines wont be any particular financial metric for the quarter, but the substantial wins that position our business for success going forward.

Now, let me turn it over to Anna.

Thank you Mark and good morning, everyone.

Unless otherwise noted I will speak to revenue comparisons on a constant currency basis, and other items, such as EBIT EBITDA and EPS on an adjusted basis.

Let's start with a high level review of the year over year comparison of our financial statements and segment results.

Total revenue for the quarter was 831 million, which is down 4% versus third quarter 2021.

Excluding the border free divestiture revenue is down 2%.

Gross margin for the company was $264 million compared to 286 million for the same period last year.

7% decrease.

As a percent of total revenues gross margin decreased 80 basis points to 31, 8%.

Total EBITDA was $77 million down from $92 million.

EBIT was 38 million similar to the second quarter and down from 50 million one year ago.

Interest expense was $37 million.

<unk> uptick from last year's 36 million level.

The provision for income taxes, this quarter was $1 4 million.

Adjusted EPS was zero compared to eight in prior year.

At the end of the quarter weighted average diluted shares outstanding were approximately $177 million.

Turning to cash flow gap.

GAAP cash from operating activities was a use of 36 million for the quarter compared to a source of 71 million in third quarter 2021.

Free cash flow was a use of $16 million in the quarter compared to a source of $30 million in the prior year.

The differences in cash flow were primarily driven by changes in working capital and lower net income.

Those changes were partially offset by lower capex.

And an increase in customer deposits.

Capex for the quarter was $33 million.

<unk> from $57 million in prior year.

Maximize utilization.

During the quarter, we paid $9 million in dividends and made $4 million in restructuring payments.

Looking at the balance sheet cash and short term investments were approximately $607 million at quarter end.

Total debt was $2 2 billion compared to $2 3 billion at year end 2021.

Adjusted for our operating leases and cash operating company debt was 570 million compared to 533 million at year end.

The following segment information is summarized in our press release and slide presentation.

Both of which are posted on our investor relation website.

I'll start with precinct.

<unk> revenues were $145 million in the quarter, which is a 4% improvement from last year.

Total sortation volume of $3 8 billion pieces.

Down 9% compared to prior year, however, new customer additions and increased revenue per piece again more than offset the volume declines.

EBIT for the quarter was $21 million essentially flat to last year.

EBIT margin was 14%, which is a 500 basis point improvement to prior quarter, and a 90 basis point decline versus the third quarter 2021.

The decline in year over year margins was driven largely by increased labor and transportation costs.

Including the change in our allocation methodology, which we have previously discussed.

We also expect the usual uptick in seasonal volumes largely in marketing related services.

Moving to synthetic.

Do you need to fuel the growth.

Shipping related revenues, which is now 12% of segment revenues increased 18% versus prior year and disinfecting continues to build the shipping pipeline.

<unk> EBIT was 95 million compared to 19 9 million in prior year and EBIT margin was 29% down 60 basis points from third quarter 2021.

Margins were impacted by inflationary pressures and a higher mix of lower margin equipment revenue.

In response to higher input costs, we introduced select price increases in the quarter, which will be an offset moving forward.

As of quarter end net finance asset were 1.15 billion flat quarter to quarter.

Also credit quality inside the financial services portfolio remains excellent.

30 day delinquencies are down 40% from prior year and remain under 2% for the third consecutive quarter.

Despite the macro headwinds.

We see healthy payment trends across our finance portfolio.

Let's talk about globally Congress.

Total segment revenue decreased 10% to $354 million.

The decline excluding border free which was divested on July 1st was 7%.

Organic decline was driven by weakness in cross border and to a lesser extent lower digital volumes.

Domestic parcel revenues were up 2% in the quarter.

Segment gross margin in the quarter was $20 million compared to $34 million a year ago.

Year over year improvement in domestic parcel gross margin was more than offset by lower contributions from cross border.

Segment EBITDA for the quarter was negative $17 million compared to breakeven in the third quarter of 2021.

EBIT for global ecommerce was a loss of 35 million compared to a loss of 21 million a year ago.

Let me break down the Crosscurrent inside that segment.

Additional progress in domestic parcel is more than offset by ongoing macro trends negatively impacting cross border.

Compared to prior year cross border volumes revenues and gross margins are down in excess of 25%.

As you May recall, our cross border business is largely focused on helping our clients move parcels originating in the U S to international destinations.

As we noted last quarter the strength in the U S dollar and macro weakness, especially in Europe continued to put pressure on international E Commerce activity.

Let's move to the domestic parcel business next.

In the quarter.

Parcel volumes were 36 million down $4 million from prior year lower volumes were a result of softer overall e-commerce activity and a continued decline in inbound parcels from China.

On the other hand revenues were up 2% year over year on higher revenue per parcel, we continue to believe domestic parcel.

Our biggest opportunity with a large and growing addressable market.

It has been a significant investment priority over the last several years from automation to management system does human capital, resulting in much improved service levels and more predictable costs.

Since late March.

On time performance has been consistently in the low to mid 90% range and did not incur.

Improved gross margin levels highlight our ability to better match resources against the volumes in our facilities.

Despite lower volumes year to date gross margin per parcel improved 29 cents compared to the same period in 2021.

Our domestic parcel network is well positioned to handle peak volumes this year as well as an expected increase in the run rate parcel volumes driven by recent new client wins.

Since the beginning of the third quarter 32, new domestic parcel clients have gone live ahead of peak.

New clients are expected to account for roughly 20% of fourth quarter parcel volumes.

New notable clients include Sheen Hudson Bay in Japan create I'll say direct result of better service levels, we are seeing material pick up in volumes from existing clients such as park box Super.

Super Group and Victoria's secret.

We are already seeing the volume uplift in October on a month over month basis weekly volumes have grown over 25% to $3 6 million.

We are encouraged by the healthy increase in volumes, which are critical in driving margin improvement.

As we stated in our materials from mid September we expect annual run rate volume levels in the domestic parcel network to exit the year at approximately $195 million to $200 million.

We are reaffirming our expectations that the global ecommerce segment will generate positive EBITDA in the fourth quarter.

Also for full year 'twenty 'twenty three we are targeting segment EBITDA to exceed capex.

This assumes ongoing pressure in cross border and reflects our new agreement with USPS and ebay, which we will discuss next.

Last quarter, we also discussed the changes in the USPS reseller program.

We now have finalized a new agreement with U S. P. S that enables us to maintain and possibly improve the economics, we had historically generated from the reseller ecosystem.

We have also finalized a new agreement with ebay and we are pleased to continue to be an integral part of their international shipping program.

Shifting gears given the current macroeconomic environment.

We're taking actions to control spend we expect to generate 50 million in gross annualized savings.

He headwind against these savings will be the restoration of variable compensation.

In addition, we expect to reduce 'twenty 'twenty, three capex by $20 million compared to 2022.

Which will be roughly $70 million lower Jan 2021 levels.

Last let.

Let me provide some perspective on the outlook for the full year.

We are reaffirming our previously communicated full year 2022 revenue and EBITDA guidance ranges.

We also expect free cash flow to be positive for full year 2022.

To recap the quarter.

<unk> continue to execute well demonstrating the durability of our business models.

For global ecommerce, we look forward to improved results driven by recent client wins, which has already begun to generate higher volumes.

While our free cash flow expectations are lower given the working capital considerations year to date EBITDA less capex interest expense and taxes represent a solid improvement versus the prior year.

We remain committed to being a consistent cash flow producer with appropriate amounts of liquidity as we tackle a more challenging macro environment.

We look forward to your questions operator, please open the queue.

From the Q&A at any time by depressing. The one once again, followed by the zero and if using a speaker phone. Please pick up your handset before pressing the keys.

Our first question will come from the line of innovative <unk>. Please go ahead.

Hey, Yeah, good morning, guys.

Thank you for taking the question and thanks for the incremental context.

The incremental metric.

That's really helpful. It also opens up a whole new line of inquiry here. So.

I guess just to start at the high level with.

The partial contribution from the new customers and in U S domestic or global economy.

What how are you guys and then given the trends that you provided the year over year trend you provided for the September quarter.

Well how are you guys thinking about year over year volume agile for a.

For domestic parcels for December Q now.

Great. Thanks, and I appreciate the question and I'm glad you found the incremental metrics are helpful. And we will continue to try to provide those.

We're tremendously excited about the volume increase that we saw in October as I said, if you annualize that that's $40 million to $45 million incremental parcels a year.

Think about it you know average margin contribution of $1.40.

Our parcel I'll say quickly no see you know $60 million of incremental.

EBIT.

Contribution of if that maintains a in terms of.

The corridor I think Theres, a couple of different dynamics that are running through the quarter and not the least of which is as.

As you know and I know better than anyone there theres, a two two qs and quarter to quarter and year to year. So if you go back to last year, which was an unusual quarter in in any sense.

In October of 2021 there were 100 plus container ships circling the port of Los Angeles.

That we're awaiting that to drop off goods.

So that obviously added to a fair amount of angst from a consumer perspective.

Supply chain worries and if they were to order something online where they actually get it.

If you fast forward.

Two this year.

That comparable number of ships that circling the Los Angeles Port is less than five so you know what I would say as you know last year was unusually depressed.

Because of some.

Very unusual issues in supply change.

You put on top of that you know that.

CERN that you know all of the participants in the industry had about labor.

We not only are you now got labor early but we'd probably overstock to make sure that we can handle all of the service level. So there's a lot of different dynamics in.

The year to year, what I would say about the fourth quarter is there's two dynamics that I'm looking at that are they're really important one is what happens during peak and that's a function of consumer behavior.

Retail broadly so think of those you know six weeks that started a little bit before Thanksgiving that run through our Christmas that's its own dynamic and you know we'll be.

Very important for the quarter.

But the other dynamic is kind of what we alluded to in October and that is what is the run rate of that business. So as I think about the going forward.

Global ecommerce economics, it's predicated on volumes, but it was kind of ongoing volume. So I tend to I would have to peak out of that dynamic. So that's why that you know $3 6 million parcels is so important because it begins to foreshadow what your what your run rate is for that business going into <unk>.

20th twenty-three so.

All that being said I mean, the short answer to your question as you know right now we expect our.

Volumes in the quarter to be up a ear to ear and corner to corner pretty materially but.

But it is predicated on a peak, which as you know.

People think that's gonna be a back to a more normal peak, but you know it's a there's still some unknowns there so hopefully that helps.

Yeah, no that's great contacts and.

It sounds like the price.

Price increases or are there some structural and they do it.

And so it sounds like prices would be up again.

Q over Q and year over year.

Can you unpack that.

But it's been a little bit there could you unpack the price increases for us it's about how structural that isn't weighted that way.

I think.

Are there structural in the sense that there are industry based for the corner.

So you know think of 50 cents, a parcel or kind of in that Zip code.

For the quarter that extends.

Through peak.

And then as we get into next year.

Then there'll be you know the industry has increased prices next year with U P. S and Fedex are we're still working through that I think.

Fedex and UBS increases had been 6% to 7%. So we tend to kind of follow the industry. So hopefully that helps.

Answer your question.

Got it okay.

That's very true for it and then let me just actually sneak one more in here.

So I see the floor.

On the new customer wins, you know SaaS sounds like you guys.

At least the way that it would.

The way that you guys are thinking about describing it had a bit of a new ring to it than in past quarters, you've talked about when you feel I guess.

I'm just wondering is there something you know have you reach some sort of critical mass tipping point that youre getting more and more faster CAGR and more fast there and is this something that that you expect and we expect to continue.

Into the future.

So.

Great Great question so.

Throughout the course of the year and you you all probably got tired of saying that are tired of hearing it I I got to get tired of saying I kept on talking about all of these wins, but the revenue is in front of US we kept on talking about customer wins and we're integrating them.

And you know our network well, what you began to see a little bit in the third quarter, I mean, a little bit.

But you saw material in October it was those wins that we've had throughout the year began to hit our our network the volume started to.

Be realized so to a degree it's just a continuation of what we've been talking about and it's the realization of those wins in our network the revenue and the incremental.

Economics.

As you know honest said in her remarks and lifestyle before that's all due to the hard work that the team has done to improve service levels to improve customer experience with the network. So we think it's you know we think the fundamentals of that business.

Our very strong going forward, whether it be that the overall economic improvement are the <unk>.

Service level improvement at the customer satisfaction improvement and I would be remiss, if I didn't add our employee experience and the business is terrific. So you know theres clearly some.

Choppiness, that's going on right now in the market, but you look at the underlying fundamentals that really drive that business going forward, we're very optimistic so.

The the revenue in the parcels that we saw in October were realized wins right.

Likewise, we have a very strong pipeline in the fourth quarter. So we've got probably over $100 million of.

Revenue that's.

And that we're working on integration and we've got a very strong late stage pipeline. So while it's hard to predict what's going to happen in the domestic market or even harder what's going to happen in the international market. We do think that the new wins that we've been able to achieve.

Achieve are going to allow us to outrun those.

Those dynamics going forward.

Great. Okay. Thank you so much.

Our next question comes from the line of Anthony.

Ski Sidoti and company. Please go ahead.

Good morning, and thank you for taking the questions and thank you for also providing additional perspective on Europe .

Current trends so.

N G. C. Obviously, you guys talked about the headwind.

Headwinds from a cross border.

Now as you go into the fourth quarter.

I guess I would imagine that the mix, obviously changes the business between domestic parcel.

Ross border so.

Do you see cross border being less of a headwind in <unk> versus <unk> I know, it's still will be a headwind, but just wanted to get a better sense given the changes the seasonality of the business.

So to be clear and I said it in my comments now what's causing the headwinds in cross border is that is the currency disruptions, particularly the dollar strength vis vis the pound and the euro.

As I said in my remarks, we expect that to continue at least for planning purposes, we expect that to continue but what you will see over time and you know how to kind of set. It is we think the domestic parcel opportunity is so large that the mix of the business will continue to shift so I don't see the headwinds.

Subsiding in the near future I think you know in this country and contingency interest rate increases I think Europe and U K is likely to lag.

So those dynamics aren't going to change, but what you'll see over time as the domestic parcel market over you know overwhelms and kind of outruns are those declines.

Okay got it okay. Thanks for that and then.

Just just in terms of again staying within a GC.

So obviously new clients came on board it sounds like three <unk> wasn't too much of a benefit but I want to just.

Curious to get a better perspective of your business as far as your organic or same client basis as to what you saw in the third quarter.

So I would say it was mixed.

I mean in some ways it very much mirrors, what you're reading the newspapers Youll see some retailers you know.

Certainly now working their way through the moment quite well others are you know more more difficult I would say you know our experience is somewhere we've got you know a handful of customers that are experiencing some pretty substantial headwinds Oh, we've got a you know a few that are kind of holding.

Serve and then we've got others that are doing reasonably.

Reasonably well, so it's hard to generalize across the entire.

Customer base.

But.

Regardless, we do you know the new customers and she is a perfect example.

Got it yeah, and she's certainly should be a right.

Very valuable clients for you so congrats on finding them.

No.

Couple of questions. If I may just sneak those and so you know last month.

It looks like a relatively small acquisition for pre sorted in Salt Lake City can you just comment on that and whether you are open to doing additional acquisitions there.

Sure. So let me take it up a level because I think it speaks to capital allocation, which I know is on many of our investors minds. So as we contemplate capital allocation I continue to come back to the phrase strategic flexibility and what strategic flexibility means in practice.

We're able to make opportunistic acquisitions that perhaps would not have been available to you in a different economic Ah moment. So actually made a couple of acquisitions in presort, we'd like to make more because those are instantaneously accretive or generally you know quickly accretive to the business.

So.

The the economic pressures of the moment, coupled with volume decreases of first class mail puts pressure on both.

To a degree at our competitors as well as our clients to achieve a five digit density is that they need in order to have proper economics of that business. So when I talk about strategic flexibility. It's so that we can take advantage of those moments and continue to invest in our business.

In a way that is durable going forward.

Got it okay. Thanks for that and then lastly, as far as you know labor and transportation cost impact in the third quarter end.

And he said his expectations for fourth quarter.

Yeah. So let me talk a little bit about labor, because I think it's interesting and it speaks to the efficiency that the businesses are realized so if you go back to 12 months ago.

And our labor, particularly N G C.

I already had the labor onboard for peak for G C.

For 2020 one.

Fast forward this year, we've been able because of the labor market is more predictable to defer adding the incremental temp labor that you need.

Order to accommodate peak so the first thing I would say about labor in the fourth quarter is we're going to increase but it's going to be later than last year. The second thing I would say and this speaks to the efficiency that the team has been able to drive and I mean, just a terrific job and we have about the same amount of.

Permanent employees within our G. C network as we move into the fourth quarter and peaks, so think of that as kind of about the same.

We'll execute peak however, with half the number of temporary workers that we had last year and that just speaks to the ever more confident but also how much efficiency. The network has been able to drive out.

In the last 12 months so substantially.

Less labor in order to accommodate what we're thinking is approximately the same volumes that we were planning for last year, although they werent realized so labor much more efficient are at.

The unit level I would also say that the labor market.

Increases of society, so I've been to several of our sites in the last couple of weeks.

We're still paying a good healthy wages, but you know I would say that.

The the premium has abated a touch so I wasn't our Chicago site, a couple of weeks ago I was in Columbus.

Last week I'm going to ultimate this afternoon, and what you see is we're still paying good wages, but it's not don't have the same kind of.

Labor pressure.

Pressure from a unit cost perspective, as we did in there and there's less labor from transportation you know clearly transportation.

And you can see it in the spot markets are.

I went to see them Sunshine transportation is in a recession and I'm not quite sure I would say transportation is in a recession, but it's the costs are clearly.

Abating, so you've got a much more reliable set of underlying economics are two to manage the network I would say in presort, you know similar dynamics.

Then in GC.

Got it thank you and best of luck.

Joe.

Our next question will come from the line of Kartik Mehta of Northcoast Research. Please go ahead.

Hey, good morning, Mark I wanted to get a little bit.

Your thoughts on global ecommerce I know you provided a lot of good commentary, but it seems like there's lots going on there you have price increases the macro headwind the U S dollar or you have new customers coming in.

Talk about maybe cost cuts and managing Capex better.

Yeah, I would say that Greg made some comments a couple of weeks ago and Phoenix are forever.

We're in Edward Yeah in essence.

You made a couple of comments that I think are important so.

The first thing I think you said was that the exit volume for the quarter was 195 to 200 million parcels going into 'twenty three.

Hum.

On a reaffirm that.

There's probably some bias upward on that number, but we'll we'll talk more about that.

Going forward after we see a couple more weeks.

You know as we think about the breakeven of that business. You know I think it was between 203rd year and 240 million parcels or starting to sniff at that from an EBIT perspective.

But what I would say you know it was kind of most important honest out at this morning, as you know EBITDA minus Capex and I would perhaps next flight issue with how you phrased. The question I think Capex has always been managed very well. It's just we finished the building out of our network. So we're kind of done that so we don't have to use for.

For Capex going forward that we have had in the past, but EBITDA minus capex was positive. So when we think of that that's kind of a cash flow positive position for that business. So so in essence, if you're an equity holder right. Now you have a option for G. C, which you can argue how it's valued in the stock are not valid in the stock.

But its valued you know fairly well way, but that that option.

It is now starting to.

Move forward at a zero incremental cost. So that's a very important dynamic I believe I'm a shareholder so as I think about it I think about that value that can be realized on option without incremental cost or expense going forward.

And then maybe just on the presort business, a very good margin quarter for us good sequential job.

And so as you look at.

That business going forward, what do you think is a reasonable expectations for margins in our presort business.

Yes, so thanks.

Thanks for the question so as we've said before pre story.

Should have EBIT margins in that mid teens range.

And we are attaining that as we speak we.

We will continue as Mark mentioned with tuck in acquisitions, those tend to be EBITDA accretive pretty quickly and we have been investing in upgrades of sorters and with that we will see and we are already seeing on.

The labor productivity improvements coming out of that so we feel pretty good with EBIT margins in the mid teens.

Perfect that's a window of opportunity that we haven't.

Fully dimensionalize yet is what is it that robotics and automation can produce for that business. So if you think about.

So the investments that we're making in global ecommerce.

Automation, it's likely to be different automation, but robotics can take out substantial.

Perfect. Thank you both I really appreciate it.

Our next question will come from the line of Matt Swope of Baird. Please go ahead.

Yes, good morning, guys, maybe if I could switch over to the capital structure for a second on it.

Could you talk about your thoughts on this 2024 bond maturity that you have and how you guys are going to deal with that.

Sure.

So first of all as we all know there's.

Unsettled it meant in the capital markets and we're closely monitoring and watching on the other side.

We have several options.

That we are exploring everything from of course, you know cash on hand to cash that we'll generate a revolver and other secured capacity that we have in the event.

That the unsecured markets where to be unsettled. So we feel pretty comfortable and we have several alternatives that we continue to evaluate as time progresses.

Our additional asset sales like what you did with border free a possibility that could help there.

Listen you know what I've said about asset sales as you know for the assets.

And the long term going to be worth more to somebody else than it is to us we will.

We will certainly consider those types of divestitures.

Divestitures, what I would say right now is I like my portfolio.

And to that point, you feel good enough about your liquidity and other options that you don't feel pressure to do that.

I'll answer that in one word absolutely.

No. That's helpful. And then maybe just a little bit more of a nitty gritty, one probably back from them.

And the and the reconciliation to free cash flow in the press release today.

There's one of the larger add backs is it change in customer deposits at the Pitney Bowes Bank can you remind us.

What what happens and how that works there with the bank and maybe if you could give us even a little broader overview is the current interest rate environment a benefit.

To the PB bank.

Sure So let's take a step back on why we have these deposits at the bank.

The primary reason why we have the deposits are to.

To fund our meters and meter usage.

And what.

What we have seen historically is that there is somewhat of a seasonality out around the third quarter close where we see a bit of a spike.

Most of these deposit.

Little to no interest because it is a reduction.

Reduction of complexity of our business model to facilitate the meters.

So interest rates have not historically played any significant role in our in the deposit it's mainly due to facilitating up our business model all around oh around the meters.

I hope that.

Some perspective, knowing that that is definitely helpful and how 'bout to the to the finance receivables part is there any you know back to the financing question is there any ability to securitize, those receivables or or otherwise monetize those.

Given as you said, we're in such a different capital markets market Margaret.

Yes, I mean, it's a great question and you know one that we continuously assess them and we will continue to assess going forward.

Okay, great. Thanks, guys.

Okay.

And our next question will come from the line of Tim call of Capital Management Corporation. Please go ahead.

Hi, I was wondering with the Oh.

Fixed maturities and interest rates, you have with your debt and the market interest rate increases.

Whether that alone would make it so that your net interest expense will fall or rising interest income in.

And locked in interest expense.

So let me take a step back you know in our.

Debt instruments that we have to finance our business.

We are roughly a 70% fixed.

Which gives us a good position.

There's fluctuations and we've seen that upward pressure on interest rates. So and then of course that the debt maturities come up we will be looking to to adjust our interest expense going forward.

And with that.

Over a half billion dollar cash.

And the 24 bonds trading at a significant discount.

Discount to par.

Could you go out to the market and.

Buyback.

Short term debt right now at a discount.

Would that be accretive to earnings.

Yeah, It's a very good question and we constantly evaluate our capital allocation and we will be doing that in ongoing lease. So we are very well aware of where the debt is trading and we're looking to make sure we have the right tradeoffs between.

That the different uses of cash.

Well congratulations on setting the company up for success, especially in this.

Critical fourth quarter, winning clients in this fourth quarter appears to be up.

But it might be very different than the last fourth quarter and you'll take advantage of it. So thank you for all that hard work.

Yeah.

Thank you.

I would now like copper copper.

The conference back over to our President and CEO , Mr. Mark logging back for any closing remarks. Please go ahead Sir.

Thanks, I'd like to conclude by thanking our employees there.

It's done tremendous work not just in the last quarter, but over the last several years, you think about what they've had to contend with whether it be covered or supply chain issues or repositioning the network or for that matter are repositioning the entire business and such a terrific way going forward and that doesn't happen without a lot of hard work from lots of different.

Books.

We didn't talk about zantac today at all which to a degree I'll take those.

A good sign but it shouldn't be lost on anyone that certainly not lost on us that that business has transformed itself and as we you know as the last couple of questions have kind of been circling around that that same tact stabilization in centex cash was.

Are so important as we think about the capital structure of the company and the fact that that business has transformed itself you know positioning itself for topline revenue growth realizing top line revenue growth and stabilized profits.

It's just so important to our business model is so important to our capital structure.

So listen, it's an uncertain environment and it's hard to be.

Overly confident and predictions I will tell you I like the fundamentals of our business I like what is happening with our products with our offerings with our service levels.

Like what's happening with our customer satisfaction.

I like what's happening with our employee engagement.

But coming out of this moment in this economic period and a much stronger place than I think what you saw in the fourth quarter and the third quarter, rather it was all of the Ah.

As a function of consumer behaviors, which are somewhat.

Indicative of a moment in time, but the more important part.

Art than peak for the going forward economy is what is our going rate volumes a N G C.

We like our position there we love the customer wins and there are some some really exciting ones that are in the pipeline. So thank you for your time and attention. This morning, we will talk soon.

Yes.

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