Q1 2023 Pitney Bowes Inc Earnings Call

Speaker 1: Your conference will begin momentarily. Please continue to hold.

Speaker 2: 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 participants on today's conference call. Mr. Mark Lautenbach, President and Chief Executive Officer. Ms. Anna Maria Chadwick, Executive Vice President and Chief Financial Officer.

Speaker 2: and Mr. Ned Zakkar, Vice President Investor Relations. Mr. Zakkar will now begin the call with a safe harbour overview.

Speaker 3: Good morning everybody. This is Ned Zachar and I manage the investor relations program for Pitney Bowes.

Speaker 3: 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 safe harbor information for these calls. So please bear with me for just a few minutes.

Speaker 3: Included in today's presentation are forward-looking statements about our future business and financial performance.

Speaker 3: 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 2022 Form 10-K Annual Report, and other reports filed with the SEC.

Speaker 3: that are located on our website at www.pb.com by clicking on investor relations.

Speaker 3: Please keep in mind that we do not undertake any obligation to update forward-looking statements as a result of new information or developments.

Speaker 3: 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, we have provided a slide presentation and a spreadsheet with historical segment information on our IR website.

Speaker 3: that summarizes many of the points we will discuss during today's call. Also, you're likely aware that Hasty Capro has nominated several director candidates in advance of our upcoming annual meeting.

Speaker 3: Please note that today's call is about our first quarter earnings, and we will not be answering questions related to those nominations on this call.

Speaker 3: Our format today is this follows. Mark Loddenback, our President and Chief Executive Officer, will begin with opening remarks, which will be followed by Anna Chadwick, our Chief Financial Officer, who will provide an in-depth discussion of our financial results.

Speaker 3: I'd now like to turn the presentation over to Mark. Mark the floor is yours.

Speaker 4: Thanks, Ned, and good morning, everyone.

Speaker 4: I appreciate everyone joining our call this morning.

Speaker 4: Trans from the fourth quarter continued into the new year.

Speaker 4: Specifically, domestic parcel continued to grow, significantly outpacing a soft market, while cross-border continued to face meaningful headwinds.

Speaker 4: and our pre-sort and send tech segments provided overall ballast to the enterprise with steady profits on a year-to-year basis.

Speaker 4: Let me unpack each of these dynamics. Our pre-sore excitement performed well in a fairly difficult market.

Speaker 4: While first class male and marketing no volumes to client in the market, pre-sort drove solid productivity. The net, revenue that was down slightly and profit that was up significantly. So, job material production development puts putart creative effect. We set the

Speaker 4: Centec performed consistent with our expectations and delivered strong margins and adjusted segment EBIT performance.

Speaker 4: Our shipping offerings and sent-hack continue to be very well accepted in the market, and you can see on the horizon the absolute gains in shipping revenue outpacing the declines of melon revenues driven by secure trends.

Speaker 4: Both Presort and Centech are well positioned for the year and in aggregate we expect these businesses to grow, adjusted segment EVIT for the calendar year. In global e-commerce, where we provide three distinct services including domestic parcels, cross border and digital.

Speaker 4: There were three very different dynamics in each business.

Speaker 4: In domestic parcel, where opportunity to create long-term value is centered, we made good progress.

Speaker 4: Our domestic parcel volume grew 22% in a market which was flat and as well had a water industry players who are seen softness.

Speaker 4: This increase was enabled by substantive EOTO progress on our client service levels, which are now hovering around industry, bass and class. The profile of the volume in our domestic network continues to be right-of-wait standard delivery. In addition, we have seen software return volumes as retailers reduce incentives.

Speaker 4: that drive returns was carried high to revenue for parcel.

Speaker 4: However, we are seeing substantial unit cost improvements as our volume builds which helped our domestic personal growth margin performance.

Speaker 4: I should also point out that 80% of the current pipeline across GEC is comprised of higher margin services.

Speaker 4: including cross-border delivery, returns, digital, and attractive standard delivery parcels.

Speaker 4: In digital, we essentially traded with the market, but have some substantive potential opportunities which we're excited about. Finally, for GC, cross-border continued to be under pressure as we battled macroeconomic headwinds and the change in two client relationships, with one choosing to insource much of that business.

Speaker 4: and the other changing how it manages it, which is resulting in lower volumes.

Speaker 4: I know we'll further unpack and isolate these very different dynamics.

Speaker 4: While the net of these items was disappointed, we believed the improvement in domestic personal boats well for the realization of our long-term aspirations.

Speaker 4: Again, the proponents of our value creation opportunity resides in domestic parcel, which has a large addressable market with what we believe to be very good growth opportunities.

Speaker 4: Finally, as we've said in the past, we continue to be open to different alternatives as we go forward with GEC. We are continually evaluating different paths to unlock value.

Speaker 4: We are augmenting our cost reduction efforts.

Speaker 4: which we originally announced in late 2022 to take out spend.

Speaker 4: There are three very different motivations behind these actions.

Speaker 4: The first is our ongoing efforts to become more efficient. As I've said before, the work of becoming more efficient is never done.

Speaker 4: Next, we are resetting our cost structure and global commerce to reflect the realities of the cross-border market, where the headwinds are not likely to come any time soon. In addition, the overall performance of our domestic personal network has revealed the opportunity to do more with less.

Speaker 4: Said another way, we believe the network we have built can deliver the volumes contemplated in our long-term strategic plan with fewer sites and at reduced operating expense levels. This is due to the terrific work the team has done designing and running the Domestic Parcel Network.

Speaker 4: To be very clear, we did not anticipate that our domestic network require meaningful incremental investment, and none of these adjusted the effect our ability to achieve our long-term aspirations. I'll now turn the floor over to Hana to walk through the operating financial details of the quarter.

Speaker 5: Thank you, Mark, and good morning, everyone. Before I begin my financial review, I'll note that the year-over-year revenue information will be discussed on a comparable basis, which adjusts for the impact of currency, the disposition of border-free.

Speaker 5: and a revenue presentation change for our digital services, which we discussed in detail last quarter. This revenue presentation change primarily affects global e-commerce revenues.

and to a lesser extent, centic. The change does not affect the dollar profitability of our activities.

Also, please note that we are updating the name of our segment profit measure to adjusted segment EBIT. There is no change in how we have historically calculated these figures.

Also, unless otherwise noted, I will speak to other items such as EBIT, EBITDA and EPS on an adjusted basis.

The following is a high-level review of our year-over-year comparison for our first quarter results. Total revenue for the quarter was $835 million, which is a decrease of 4% compared to the prior year first quarter.

Gross profit for the company was 278 million compared to 306 million for the same period last year, a 9% decrease.

In percentage term, gross margin was stable at 33 percent compared to last year.

EBITDA was 73 million compared to 95 million a year ago. EBITDA was 33 million compared to 53 million in prior year.

Interest expense was 37 million up from last year's 34 million level.

Corporate expenses for the quarter were 56 million down 1 million from a year ago.

Adjusted Earnings Per Share was a 1 cent loss compared to 8 cents in the prior year. Turning to cash flow, Gap Cash from Operating Activities was a use of $40 million in the quarter compared to a source of $11 million in 2021.

Working capital timing differences, which we expect to normalize during the balance of 2023, was the primary reason for the variance versus last year. Free cashflow was negative 61 million compared to negative 17 million last year.

Beginning with this quarter, we have updated our free cash load definition to exclude changes in deposits at the PIDNIBO's bank.

Many of our clients regularly deposit money at the bank, which is a convenient payment mechanism for ongoing postage spent.

Fluctuations in this deposits are based on the cash needs of our clients and not within our control, which is why we're removing it from how we define free cash flow. Our new definition, gap cash from operations, less gapix.

Less restructuring and one-time items is in line with many of our industry peers. Copics for the quarter was 29 million, down from 33 million in prior year.

During the quarter, we paid 9 million dividends and made 5 million in restructuring payments. Let's start to a discussion of our three business segments.

Segment information is summarized in our press release, slight presentation and quarterly spreadsheet.

All of which were posted on our Investor Relations website. I'll start with SEMTIC.

SENTEC reported revenues of 327 million in the quarter, which was down 4% compared to prior year. Financing, equipment, rentals and supplies revenues declined low to mid-single digit, which were partially offset by continued growth.

in our shipping-related revenues. SENTHECS adjusted segment Ibit was 97 million compared to 105 million in the prior year.

Margin for the quarter was stable at 30%. We are optimistic on the top and bottom line progress for Centec for several reasons.

Shipping related revenue grew 8% versus prior year, and now comprises 11% of segment revenues. Recurring staff subscription revenues were 24% higher.

We refreshed our top-of-the-line mailing product, Sempro Mail Center, which is getting a terrific reception from our clients. Our mid-range Sempro C-Series has seen the highest demand in over two years.

In addition, our innovation efforts in SEMPEC remain robust. We recently launched PITNICIPCube and continue to add more features to our Shipping 360 platform.

Specifically, we added more data importing and analytic capabilities.

more international origin shipping and more multi factor authentication.

I'll spend a moment on the performance of our financial services inside of SENTIC.

Like last quarter, finance receivables were up 3% versus prior year, and we continue to see healthy payment trends across our financing portfolio.

30-day delinquencies were 1.5 percent down 30 basis points year over year.

As of the end of the quarter, the finance portfolio totaled $1.2 billion.

In summary, Santa continued its solid performance and made strides in shipping, new products, and financial services.

which are positive indicators for the overall health of the business.

Let's turn to Precord, which had a very solid quarter. Precord revenues were $159 million in the quarter, which is a 1% decline from last year.

Lower volumes from existing customers were essentially offset by better revenue per piece and new customer additions. Total certification volume of 4 billion was down 9 percent compared to prior year. Adjusted segment EBIT for the quarter was 27 million.

up 37% versus last year.

Adjusted segment Ibit margin was 17%, which is nearly 500 basis points better than prior year.

Margin improvement was driven by three factors. First, better revenue per piece. Second, investments in new sorters, which is creating substantial improvements in labor productivity. And third, lower unit transportation costs.

Let's shift to global e-commerce, where considerable headwinds continue to affect our financial performance.

Global e-commerce revenue in the quarter was 348 million, which is a 5% decline versus prior year.

Adjusted segment IBT was negative 34 million compared to negative 14 million last year.

The primary driver for the decline in globally commerce revenues and profitability were headwinds in our cross-border services. Cross-border revenue, which represented 17% of segment revenues in the quarter, were down 35% versus prior year.

resulting in lower volumes into the cross-border network. These changes have largely been incorporated into our guidance, and so have key actions we are taking to diversify and expand our cross-border offering, including the expansion of the Canada to U.S. and intra-Canada lanes. Although cross-border performance continues to be challenging, we are encouraged by the ongoing progress in domestic parcels.

Network optimization moves, which took place over a year ago, have resulted in consistently stronger service levels with on-time delivery now in the mid-90s.

Our much improved service levels and client satisfaction have been key factors in increased volumes and revenues. Domestic parcel volumes were $50 million in the first quarter compared to $41 million a year ago, a 22% increase, while domestic parcel revenues increased 16%.

On a per parcel basis, Bruce Margin was flat versus first quarter 22.

and nearly 10 cents higher versus full year 22. We are encouraged by the team's ability to drive productivity gains as we scale volumes.

In the quarter, per parcel transportation and labor costs improved 12% compared to 1st quarter 2022.

Unit 6 costs were flat as a result of investments in the second half of 2022.

The improvements in transportation and labor unit costs were absorbed by lower revenue per piece.

Specifically, more of our volume is less than one pound and coming out of peak we saw softness in returns as retailers reduced incentives in order to cut costs.

The net was less attractive partial mix in a more competitive pricing environment, which resulted in lower revenue per parcel.

The path to profitability is largely driven by scaling the terrific network we have built. In addition, we are responding to current macro and industry conditions by focusing on the following four priorities.

First, regarding clients.

Our go-to-market team continues to succeed in spite of the softer logistics market trends. In the first quarter 2023, we signed 82 new contracts and completed 57 service launches compared to 45 and 44.

respectively in the prior year. Anticipated revenue from the new arrangements is approximately 50% higher than prior year and late stage sales pipeline includes a more favorable mix of higher weight and margin prospects. Second, the new

We expect our continued growth combined with our investments in automation.

to drive approximately 15% in per-parcel transportation and labor productivity throughout 2023.

Third, on the cost side, we have identified several older manual facilities where we see consolidation opportunities. As part of a company-wide restructuring program, which I'll address in more detail shortly, global e-commerce will be consolidating some smaller facilities and shifting those clients'

to neighboring more automated sites.

In addition, global e-commerce will be right-sizing the management oversight required for the new footprint.

We anticipate these actions, combined with productivity improvements, to deliver annualized savings of over $40 million.

Fourth, in terms of global e-commerce, CAPEX.

We anticipate spending approximately $20 million less compared to the $51 million level we spent in 2022. The network build is nearly complete and operating efficiently.

We expect to process the volumes contemplated in our long-term plan with fewer sites.

To conclude, Cross-border weighed heavily on global e-commerce first quarter results.

while domestic parcels continue to stride towards sustainable, profitable growth, the combination of higher volumes, better mix, and better production.

More transportation efficiency and cost reductions are key to reaching profitability.

Let me shift gears and discuss our overall company cost actions in more detail.

On the third quarter 2022 earnings call, I discussed expected cost savings. Given the continued macro uncertainties, we are announcing a restructuring program to further improve profit and cash flow.

We expect this program, combined with other productivity actions, to yield annual gross savings of approximately $75 million.

25 million higher than previously communicated. For this new program, we expect restructuring charges of 40 to 50 million with the majority of these to be recognized in 2023.

This program, combined with the actions taken in the first quarter of 2023, will result in work-first reductions and facility rationalization. We expect to achieve roughly two-thirds of the total gross annualized savings.

or approximately $50 million by the end of 2024. In addition, we expect capital expenditures for the company to be closer to $100 million, which is roughly $25 million lower than 2022.

Regarding our capital structure, during the quarter we bought 26 million of bonds in the open market and the 2024 maturity has been reduced to $227 million. We are actively exploring options to refinance our 2024 debt maturity.

To be clear, the combination of cash and revolver capacity are sufficient to handle the maturity if needed. For full year 2023, we continue to expect flat to mid-single digit percentage revenue growth on a comparable basis.

We also continue to expect adjusted EBIT performance to outpace the percentage change in revenue.

In addition, we anticipate current business trends to continue into the second quarter.

We expect improving results in the second half of the year.

driven by incremental domestic parcel volumes and the previously discussed cost actions. In closing, Centec and PreCERT continue to deliver solid and predictable performance.

In globally commerce, we made progress in the domestic parcel and look forward to continuing this momentum as we move through 2023.

Operator, please open the call to questions. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press 1-0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers.

Once again, if you have a question, please press one and zero at this time. And one moment please for your first question. Your first question comes from the line of Matt Sooke from Baird. Please go ahead. Good morning, guys. Could you talk a little more on the global e-commerce profitability? We've talked at times about getting to EBITDA positive here.

over the last couple years with this tough first quarter there. Is it possible to be EBITDA positive in global e-commerce this year?

Good morning, yes, thanks for the question. Listen, it's a much more challenging environment than we were anticipating. The key is that the team continues to strive for that. We talked a lot about the dynamics here.

It is more challenging, but the team is super focused and the cost actions that we're implementing will help attain as best an opportunity to achieve that. Here's what I said. The team's focusing that, that's what they have a plan to do, that's what they're paid to do. You know, clearly after the first quarter, it's become a higher risk plan. So...

It is still the focus. There is still a credible plan in order to get there, but it's a tougher hill to climb than we expected in this environment.

Mark, you guys sold border free last year. You know, it sounds like cross-border is by far the most difficult part of this right now. Is there a way to sort of get out of the cross-border business while maintaining the domestic business?

sold border free last year. You know, it sounds like cross borders by far the most difficult part of this right now. Is there a way to sort of get out of the cross border business while maintaining the domestic business? Yes.

I mean, they're separable and I'm not going to comment on any particular portfolio actions. I will say, as I've always said, everything's on the table. That particular dynamic is clearly on our site. So if we can find something that makes sense for our shareholders, makes sense for our bondholders, makes sense for our customers.

we would take that path. So for obvious reasons, I'm not gonna go a lot deeper than that. I will say that our guidance doesn't rest on that business becoming EBITDA positive. So we've de-risked the plan other ways.

We can't make that business helpful to what we're trying to do in terms of making that overall segment profitable. Then, you know, there's got to be a better owner for it. Right, certainly fair enough. On the send-out front, you guys talk about the secular decline in mail. How do you think about that going forward? As you think about in terms of volume or whatever the right way is to...

model that, what kind of percentage secular decline do you think about for male as a whole?

Yeah, it's a super good question. When we talk about all the time we have power games on the secular decline of mail. So the first thing I'd say is we don't see that changing. The secular decline of mail is kind of baked into the wood of the market and baked into the wood of how we think about the business.

I tend to think about it around mid-single-digit decline. This is kind of where it's been gravitating if you look at it. And I think people go to side of this. When I started, there was 70 billion pieces of mail in the US Postal Service Network. There's 48 billion pieces of mail last year.

So, you know, it kind of ebbs and flows to Stunless Gwenon the economy. So I would think of it in the way we think about it from a corporate modeling perspective as mid-sigualn digit decline. So, you know, as you think about that relative to SEMTAC, then you think about the shipping revenue.

at an absolute level gaining more than the mailing revenue declining. And that's kind of what we're teetering on right now. So when we talk about that business getting its nose above water, it's not that we see the sector decline of mail abating, it's just that the shipping revenue, which is a much bigger market and a market that's growing and we're doing fine, and that that absolute growth outpaces the mail inclining.

You know, last year, the centipede was minus one, I think, so you can kind of see those dynamics starting to cross.

Right, that's helpful. And then as we think about pre-sort and you talk there to about lower first class and marking male volumes.

Do you think about that the same way or are there any differences there when you think about the secular decline that presort faces in terms of volume? No, it is a little bit different in the following sense.

You know, Centec has a very high market share in the male markets that they trade in. So there's not a lot of headroom for them to grow.

You know that they essentially kind of are the market pre sort has a nice market share, but it has had room to grow So the way we think about pre sort Dynamics

First off, they've got headroom. Secondly, as male volumes decline, other sortation companies have harder time getting the densities that they need in order to have attractive economics. So that becomes target acquisition for us. And we're pretty...

We're pretty active there, so we have a very disciplined process around tuck-in acquisitions and presort. It also becomes, as mail volumes decline harder for our customers to qualify with enough densities, so you can pick up more there. And then I would say there's classes of...

So we have a very disciplined process around tuck-in acquisitions and pre-sort. It also becomes, as mail volumes decline harder for our customers, to qualify with enough densities so you can pick up more there. And then I would say there's classes of between faculty, staff, students, principals, and the fundingag lectures, so you don't have to give up the course.

product like bound and packet mail and marketing mail that we have a very low share in that there's lots of opportunities for growth. So it is different dynamics. I mean pre-sort if you look at the last you know several years has grown more often than not you know first quarter was a touch of anomaly. So we do think of those businesses.

You know the similar and they've got male dynamics. Just they've got different opportunities available to them

I don't say the other thing that's true in pre-start, is tremendous productivity, opportunities available for us if we can get a little bit of invention with some of our automation partners to do more in the certification facility. So as a set of requires invention, it's not something that's commercially available today, but with a little bit of invention we can do.

more with less. And when you're taking share here, is that typically from other sortation companies or is it from customers who have done it in-house and look to outsource? Where does that share come from? Yes.

And when you're taking share here, is that typically from other sortation companies or is it from customers who have done it in-house and look to outsource? Where does that share come from? Yes, all of the above.

And by the way, I'm sizing. We had a large customer that made an acquisition. They got larger and they insored some. So I mean, the dynamics went both ways. But by and large, it's through acquisitions, it's through organic types of opportunities, as densities become more difficult to qualify.

It's just a terrific business, right? No that's, that's helpful. And that just the last one for on maybe on that 24 bond maturity, on on a I? You know when you talk about cash, that's available. We've asked this question a couple of times in the past. But how much of your cash is is is available.

to be used for something like that? How much of your cash is tied up in the system versus how much could be freed to handle a maturity? Yes, very good question. So as you know, we finished with a little over 500 million of cash. I would say cash available from that perspective that's not tied up whether at the bank or international or...

available for many macroeconomic reasons out there. We feel comfortable that we can meet that maturity. Again, our preference would be to do the refinancing.

I actually want to add one, we're in the cash topic here for a second. As you know, we have the Pitnebo's Bank and our bank, given the macro things that are happening in the banking sector, I just want to touch on that for a minute. Our bank is there for a very specific purpose and the purpose is to facilitate.

So our clients deposit in our bank for that purpose and we have fluctuations in that as volume shift that clients come in and out so far everything we're seeing is exactly as we anticipated in the changes that we're seeing. We're not seeing anything out of the ordinary.

And I just thought it would be important to highlight that as we are in this macro environment. Now that's helpful, Ana. Do clients ever try to take money out of the bank? Or is the money all just go in to prepay postage? Well, the vast majority is for payments of postage and it's a facilitation to either feed meters.

or permit mail for our pre-cert clients? It's all payments, I mean, at a practical level. I mean, if they're gonna park money, they're not parking it in our bank. They're parking it in their commercial relationships. So the money is theirs for a very specific purpose. It moves in and out pretty fast. I mean, so it's... The velocity of that is, you know, I think less than 30 days. So it's a very fit-for-purpose bank.

that customers use in a very specific way. Great, that's very clear. And sorry, Anand, just to clarify, when you said on the 500 million in cash, did you say 1515 or 5050% is available? One five. Got it, great. Thanks for all the questions, guys.

Thank you. Super good questions. Your next question comes from the line of Ananda Bruja from Loop Capital. Please go ahead.

Hey good morning guys thanks for taking the questions as well I really appreciate it. Yeah a few for me also if I could. Mark can you remind us GEC right now what percentage of the volumes are domestic versus cross-border and or what's the best I guess what's the most useful way to think about it is it is it part of it.

think about five bucks per so it's a 50 billion dollar market opportunity. It's a super big opportunity, a market opportunity that you know traditionally and we think going forward although not at the moment will you know grow that 10 to 15 percent. If you look at our business mix right now

It's probably 75 to percent plus domestic parcels. So it's the biggest portion of the business.

by far, you know, cross-borders probably, you know, 20-ish, 15-20% of the numbers. And, you know, I would stress these businesses are sampleable. You know, they share some structure.

or a sales force, but we've broken the businesses. We have the businesses by EBIT and we know how to break them apart. So what's going on cross border right now is kind of a double whammy. I mean, exchange rates have continued to be a headwind.

That may abate at some point, although with yesterday's news, the Federal Reserve, it doesn't seem like it's going to abate quite as quickly as I would have hoped. So interest rates still relatively high here compared to other countries. And then as Ana said, we've had two large customers who are great customers, we enjoy great relationships with, that as you're inclined to do with some of these larger relationships, have in-sourced portions of their business. But it obscures some of the progress.

not some, it obscures the progress that's being made in domestic parcels where we think the market opportunity is. So it's, I think it clouds something that candidly we're trying to work to make very clear to our external investors, both on the equity and the bond side, because it's important in terms of how they think about the business. That's super helpful context.

And then just sort of more clarity around, I think there is a remark made in remarks, 80% of the pipeline has higher, 80% of the GEC pipeline has higher volumes. Is it higher volumes? High margin. High margin, yeah. Could you unpack that a little bit? And how does that stack up at 80%?

kind of relative to the last couple of years, just to get some context around it. So I'll answer them in reverse order. It's higher. It's, you know, part of what has happened is, and this is a touch of an industry phenomenon. So, you know, as you, as you guys follow the other industry participants, whether it be,

Amazon or FedEx or UPS. They all have a little bit more capacity than they need right now. So I would say pricing is getting a little bit more difficult. But in that context, we landed a very large client last year that was a creative, so marginal revenue above marginal costs. Amazon or UPS. They all have a little bit more capacity than they need right now. But in that context, we landed a very large client last year that was a creative, so marginal

But it was a big portion of the pipeline. It's a big chunk of the business. I love having it because you need a couple anchor clients, but it certainly skewed the pipeline and it skewed, to a degree, our current revenue mix. So I would characterize what we have now, the 80% higher than history and certainly higher than the second half of last year, but not appreciably. We're focused on the mid-market, again.

Mid market is whether it's less price pressures, it's less served, it's a better market for us to hang out in. In terms of the type of offerings that we have that are higher margin, now I would start with digital. We know particularly since digital has net revenue treatment now as opposed to gross.

basically, you know, it's like a software business. It's got those kinds of margins. I would say after that, if you unpack, you know, the rest of the business, cross-border traditionally have been pretty good margins. That obviously has got some pressures at the moment. When you look at domestic parcels, I would say there's a couple of different lenses. One is...

You know, over one pound has better margins. And from a customer's perspective, the middle market has...

better margins. So that's kind of the, on the, the way we're aside and then obviously returns as good margins as well. It tends to trend heavier in terms of weight and because it's more complicated there's a little bit better margin opportunity.

And we really tilted the sales force, and we knew with this large anchor client that we were picking up, we had to really incent the sales force towards the high-emerging items and the team had done a good job and you can see it in a pipeline. I think it's...

It's not likely to evolve much in the second quarter, but I believe it will in the second half. That's a lot of helpful context. Let me ask one more here and then I'll see you in the floor. Centech EBIT growth in 23 is your expectation. I think you should shipping now 11% of revenue.

additional meter margins right now and how you're expecting the meter, how you're expecting, how we should expect the meter margins to manifest through the air on the way to that at EvaGross. Thanks.

So there's different shipping businesses inside of SONTECH.

There's a subscription software business that has subscription software types of margins.

There's a business that's adjacent and runs off of the same device.

as the mailing business. So you think about our new products, they've got shipping and mailing. So those margins are the famous mailing. And then I would say, you know, we have a systems integration services business around lockers that tends to have a little bit less margin in it. So on balance.

we do not expect the increase in services, I'm sorry, the increase in shipping revenue to be diluted. We expect it to be coming to comparable margins all in, but with some different currents underneath, if that makes sense. It makes your job from a modeling, a little bit easier. I wouldn't try to, you know, unlearn it, it's on average, it'll work out the right way.

That's super helpful. Really appreciate it. Thanks a lot. Your next question comes from the line of Anthony Liebenzinski from Sedoti. Please go ahead. Good morning. This is the fun view on for Anthony Lebedinsky. How are you guys doing? How are you? I'm happy you're with me. Thanks a lot.

On your last conference call, you talked about having a higher than expected volume of lightweight parcels, hurting your profitability in Q4. Can you give us an update on whether or not there was a notable change in makes of parcels in Q1 versus Q4 in Q1 last year? And how that may have impacted segment results for GEC? Q4 and Q1 was similar in terms of...

the types of weight of parcels that was down on a year-to-year basis. I think, you know, as I said, we picked up a large client in particular who's traded down in terms of volumes. Everything is baked into the wood as the new margin, higher margin stuff comes online from the pipeline, it will begin to normalize.

So are you expecting to bring in additional clients to GAC over the course of this year? Yeah, no, and we did in the first quarter. So Ana talked about, I think we had 80 some odd wins for a good chunk of revenue in the first quarter. Ana can give you the specifics. The pipeline is super good.

Pipeline is as good as it's ever been and it's, you know, as I said, it's trending towards higher margin stuff, not just higher weight but higher margin.

So I will say you know at the moment the industry's you know got more capacity and you know some of the larger players And it's a touch surgical in general they talk about raising their prices Which is kind of how history works in this market, but there's particular lanes, you know Of business or particular kinds of business where they become more aggressive. So I would say pricing

which has been only one way in this business, historically, at the moment, is a little bit more challenging. The industry gets right-sized in terms of capacity.

It's our expectation that the industry will kind of get back to historical pricing actions, which is fairly consistent. Pricing increases each year of 5 or 6%. But that's the moment that's a little bit more choppy.

Thank you, that was helpful. Can you share more details about the facility rationalization, how many locations do you expect to close and when?

I'm not going to get into the specific locations. I will say these are older sites. They weren't automated. They're all close to sites that we've built that are new. We originally thought maybe we needed them longer term to be kind of safety valves for the larger sites.

The larger sites are operating so incredibly well, we just don't need them. So, you know, it's, you know, I'm not going to give the specific sites, obviously, we're, you know, kind of sensitive on from a people perspective and other side, but it's smaller sites that have been older, they're not automated. And it's just a real-life, at-home pattern in the United States.

artifact of the fact that the newer sites are running so well. Couldn't be more pleased with how they're doing.

Thank you. Can you comment on labor and transportation costs? Are you seeing signs of stabilization?

Yeah, for sure. I mean, I would say two things. So I would say the transportation spot mark has actually come down.

pretty substantially over the last year or two, although it was two years ago, it was crazy high. So I would say transportation's not only stabilized, it's come down a bit.

Labor and wage rates have not come down. Don't expect them to come down. We are becoming more efficient on both dimensions, both labor and transportation. And you know what we're seeing is we get more volume into the network. You can just see the unit cost, both from labor and transportation, come down. So it's...

Those dynamics all kind of headed the right way. So as you look at this how we contemplate the long term plan and you look at the unit costs that are contemplated in the long term plan and you see the trajectory that we're on, labor, transportation, I would say warehouse as well. The trajectory is exactly the right way. We need the volume and we need price to destabilize the touch. Thank you.

Thank you so much guys.

Thank you so much guys. Thank you. Good questions.

Your next question comes from the line of Kartik Mehta from North Coast Research. Please go ahead. Good morning, Mark. I know you talked a little bit about if it makes sense, you'd be willing to separate that cross border from global e-commerce like you've done with other assets in the past. But I'm wondering, if you wanted to separate that business, is it not intertwined in terms of facilities and logistics and transportation with domestic...

But, you know, this is doable. And then, Mark, you talked a little bit about the changing environment for returns and maybe that's lowering return volume. So I'm wondering if you could just talk about maybe the level of decline you've seen in revenue from returns or maybe level of decline.

And then just on a, you talked about obviously gross savings you're anticipating. Can you talk at all about net savings you'd anticipate from the cost cutting initiatives? Yes, so the best way to think about this is, you know, we will have actions throughout. So out.

think about them on an annualized basis from the restructuring program itself with the savings of

And then in addition to that, we have specific productivity actions particularly in the global e-commerce segment that will drive an incremental 25 million. I would also say, and I said this before, we're never done. You're always in the 7th inning as it relates to efficiency actions. So we've swept up everything we can see to kind of give you the best visibility for what the next year looks like.

But we're not done. We will continue to work on this Yeah, and more one last question the pre-sourced business is a business that's done Well, you've done well in it and in the past you've talked about it's a fragmented business There's a always opportunity for consolidation And I'm wondering in this environment kind of you know as you look at your liquidity needs and where you are Is that a business that you could see? acquiring other businesses to continue consolidation

Or would that not be something you'd look to do in the next 12 to 18 months? No, it depends. I mean, I'd say most of the acquisitions that we've seen are, you know, I would say in kind of the $5 to $10 million range. So they're pretty digestible.

A couple of chunkier ones that are out there and it would just depend on the economics. I appreciate it. Thank you very much. And at this time, there are no more questions. I'd now like to turn the call back to Mr. Lottonbuck for any additional remarks. Thanks, operator. And thank you for everyone's attention to this point. I thought the questions were...

Terrific. Obviously lots going on in our business but I would be remiss if I didn't acknowledge the great work that I thought our team did in the first quarter really across the board. It is a wonderful team highly focused on serving customers and creating value. So I would just close by...

acknowledging that our hard work and we will similarly put our heads down and go back to work and we'll talk to you soon. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

We're sorry, your conference is ending now. Please hang up.

I have.

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