Q2 2024 Pitney Bowes Inc Earnings Call

August 8, 2024

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Operator: Good afternoon. Welcome to the Pitney Bowes Second Quarter 2024 Earnings Conference Call. Your lines have been placed in the listen-only mode during the conference call until the question and answer segment. This call is also being recorded. If you have any objections, please disconnect your lines at this time. I would like to introduce the parties to today's conference call. Mr. Lance Rosenzweig, Interim Chief Executive Officer and Board Member, Mr. John Witek, Interim Chief Officer, and Mr. Alex Brown, Director, Investor Relations. Mr. Brown will now begin the call with a Safe Harbor overview.

Speaker Change: Good afternoon, welcome to the Pitney Bowes second quarter 'twenty 'twenty four earnings conference call. Your lines have been placed in a listen only mode. During the conference call until the question and answer segment today.

Today's call is also being recorded.

If you have any objections. Please disconnect your lines at this time.

Yeah.

Speaker Change: I would like to introduce parties on today's conference call.

Speaker Change: Mr Lascar Rosen.

Lascar Rosen: Well just work interim Chief Executive Officer and Board member.

Speaker Change: Mr. John Wade interim Chief Officer.

Speaker Change: And Mr. Alex Brown director Investor Relations.

Speaker Change: Mr. Brown will now begin the call with a safe Harbor overview.

Alex Brown: Good afternoon, and thank you for joining us. 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. More information about these risks and uncertainties can be found in our earnings press release. Our 2023 Form 10-K Annual Report and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations.

Speaker Change: Good afternoon, and thank you for joining us.

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

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

Speaker Change: More information about these risks and uncertainties can be found in our earnings press release.

Speaker Change: 2023 Form 10-K annual report and.

Speaker Change: Other reports filed with the SEC that are located on our website at www Dot P. P dot com and by clicking on Investor Relations.

Alex Brown: Please keep in mind that we do not undertake any obligation to update forward-looking statements as a result of new information or developments for non-GAAP measures that are included in the press release or discussed in our presentation materials. You can find reconciliations to the appropriate gap measures in the tables attached to our press release. We have also provided a slide presentation and a spreadsheet with historical segment information on our website. Finally, in our prepared remarks, revenue comparisons will be on a constant currency basis with other items such as EBIT, EBITDA, EPS, and free cash flow on an adjusted basis. At this time, I would like to turn the call over to our Interim CEO, Lance.

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

Speaker Change: For non-GAAP measures that are included in the press release or discussed in our presentation materials.

Speaker Change: You can find reconciliations to the appropriate GAAP measures in the tables attached to our press release.

Speaker Change: We have also provided a slide presentation and a spreadsheet with historical segment information on our website.

Speaker Change: Finally in our prepared remarks revenue comparisons will be on a constant currency basis with other items, such as EBIT, EBITDA EPS and free cash flow on an adjusted basis.

Speaker Change: At this time I would like to turn the call over to our interim CEO Lance.

Lance Rosenzweig: Thank you, Alex, and good afternoon. I'm very excited to join you for my first quarterly earnings call with Pitney Bowes. Just a couple of months ago, at the end of May, I outlined our commitment to accelerating the transformation of this iconic shipping and mailing company by focusing on four strategic initiatives. Today, I am proud to share that we have made significant strides in delivering on that commitment.

Lance: Thank you Alex and good afternoon.

Lance: I'm very excited to join you for my first quarterly earnings call with Pitney Bowes.

Lance: Just a couple of months ago at the end of May I outlined our commitment to accelerating the transformation of this iconic shipping and mailing company.

Lance: Focusing on four strategic initiatives.

Lance: Today I am proud to share that we have made significant strides in delivering on that commitment we have taken decisive steps to position pitney bowes for enhanced profitability and sustained value creation, while also delivering strong results for the quarter.

Lance Rosenzweig: We have taken decisive steps to position Pitney Bowes for enhanced profitability and sustained value creation, while also delivering strong results for the quarter. I will begin by providing a high-level overview of our Q2 results, which reflect our commitment to quickly becoming a more efficient, profitable, and cash-generating enterprise. We maintained relatively steady revenues and executed on our priorities within Sentec and PreSort, resulting in $46 million in adjusted EBIT for the period, a 43% year-over-year increase compared to the second quarter of last year. Adjusted EPS was $0.03 a share, an improvement of $0.05 over the prior year, and perhaps most notably, free cash flow was $83 million, an improvement of $94 million year over year.

Lance: I will begin by providing a high level overview of our Q2 results, which reflect our commitment to quickly becoming a more efficient profitable and cash generating enterprise, we maintained relatively steady revenues and executed on air priorities within Suntech and presort, resulting in 46 million.

Lance: And adjusted EBIT for the period, a 43% year over year increase compared to the second quarter of last year.

Lance: Justin E. P. S was three cents a share an improvement of five cents over the prior year.

Lance: Perhaps most notably free cash flow was $83 million, an improvement of $94 million year over year.

Lance Rosenzweig: The performance of Pitney Bowes in Q2 reinforces that we have a significant opportunity for continued cash flow and earnings growth as enhancements continue to be implemented across the enterprise. John will provide more details on our strong quarter momentarily. Let me now turn to our momentum on our four strategic initiatives. A key highlight is the completion of our strategic review of our global e-commerce or GEC business, which resulted in us identifying an exit path for this business that will ultimately maximize value for Pitney Bowes shareholders.

Lance: The performance of Pitney Bowes in Q2 reinforces that we have a significant opportunity for continued cash flow and earnings growth as enhancements continue to be implemented across the enterprise John will provide more details on our strong quarter momentarily.

Speaker Change: Let me now turn to our momentum on our four strategic initiatives. A key highlight is the completion of our strategic review of our global E Commerce or GEC business, which resulted in us identifying an exit path for this business that will ultimately maximize value for <unk>.

Lance: The both shareholders.

Lance Rosenzweig: We completed our review of this segment after working with independent legal, restructuring, and financial advisors to thoroughly assess numerous strategic alternatives for the business. This path was determined to be in the best interest of the company and the GEC entities after an extensive review process. Notably, the GEC segment has been struggling to achieve profitability over the past several years in the face of macroeconomic and industry headwinds. We weighed all potential options against a stand-alone future and the need to stem the losses and bring the process to a timely and well-defined conclusion.

Lance: We completed our review of this segment after working with independent legal restructuring and financial advisors to thoroughly assess numerous strategic alternatives for the business.

Lance: This path was determined to be in the best interest of the company and the GEC entities. After an extensive review process, notably the GEC segment has been struggling to achieve profitability over the past several years in the face of macroeconomic and industry headwinds, we weighed all potential opt.

Lance: <unk> against a standalone future and the need to stem the losses and bring the process to a timely and well defined conclusion.

Lance Rosenzweig: Ultimately, the board determined that the optimal path to maximizing the value for Pitney Bowes and limit ongoing business losses and liabilities was to support the decision of GEC's independent fiduciaries to sell a majority interest in the GEC entities to an affiliate of Hilco Global, which intends to conduct an orderly liquidation of the GEC business through a Chapter 11 process. In connection with this exit, we completed that sale, and the transaction closed earlier today.

Speaker Change: Ultimately the board determined that the optimal path to maximizing the value for Pitney Bowes and limit ongoing business losses, and liabilities was to support the decision of G. E. Six independent fiduciary fees to sell a majority interest in the GEC entities to an affiliate of Hilco global.

Lance: <unk>, which intends to conduct an orderly liquidation of the GEC business through a chapter 11 process.

Lance: In connection with this exit we completed that sale and the transaction closed earlier today.

Lance Rosenzweig: Today, GEC and its subsidiary filed Chapter 11 bankruptcy cases to commence a liquidation of the business. GEC's fulfillment business, which we sold to Stored in July, will not be part of the liquidation. We expect this exit path to eliminate substantially all of the losses associated with the GEC business, which were approximately negative $136 million for 2023, while positioning Pitney Bowes to deliver stronger full-year results in 2025 as we become a more focused, streamlined company. To be clear, Pitney Bowes will not go through any in-court restructuring process as a corporate entity.

Speaker Change: Today, GEC and its subsidiary filed chapter 11 bankruptcy cases to commence a liquidation of the business.

Lance: G six fulfillment business, which we sold to stored in July will not be part of the liquidation.

Lance: We expect this exit path to eliminate substantially all of the losses associated with the GEC business, which were approximately negative $136 million for 2023, well positioning pitney bowes to deliver stronger full year results in 2025, as we become a more focused streamlined cut.

Lance: Hey.

Speaker Change: To be clear Pitney Bowes will not go through any in court restructuring process as a corporate entity.

Lance Rosenzweig: The company's Sentec and PreSort businesses will continue to operate normally, and customers should not expect any impact. Additionally, Pitney Bowes Bank will not be affected by the GEC exit and will also continue to conduct business in the ordinary course. Selling a controlling interest in GEC to Hilco positions GEC as an independent business from Pitney Bowes, undergoing a liquidation under the ownership of Hilco. In connection with this path, Pitney Bowes anticipates that it will incur one-time cash costs not to exceed approximately $150 million, including providing certain GEC entities subject to the approval of the Bankruptcy Court with approximately $45 million in a delayed term loan to support the efficient liquidation of GEC through the Chapter 11 process.

Lance: The company's Suntech and presort businesses will continue to operate in the normal course and should not expect any impact.

Speaker Change: Additionally, the Pitney Bowes bank will not be affected by the GEC exit and we'll also continue to conduct business in the ordinary course.

Speaker Change: Selling a controlling interest in GEC to hilco positions GEC as an independent business from Pitney Bowes undergoing a liquidation under the ownership of Hilco.

Speaker Change: In connection with this path Pitney Bowes anticipates that it will incur one time cash costs not to exceed approximately $150 million, including providing certain GEC entities subject to the approval of the bankruptcy court with approximately $45 million and a delayed draw term.

Lance: Loan to support the efficient liquidation of GEC through the chapter 11 process.

Lance Rosenzweig: We anticipate that the liquidation and wind-down process, which will require certain court approvals, will conclude in early 2025. Pitney Bowes will remain an industry leader in both mailing and shipping going forward. The solutions our Sentec business provides to clients are best in class in both mailing and multi-carrier shipping technology.

Speaker Change: We anticipate that the liquidation and wind down process, which will require a certain court approvals will conclude in early 2025.

Speaker Change: Pitney Bowes will remain an industry leader in both mailing and shipping going forward.

Speaker Change: The solutions are send tech business provides to clients are best in class in both mailing and multi carrier shipping technology.

Lance Rosenzweig: Our pre-sort business will continue to provide large enterprises and smaller businesses with industry-leading mail sortation services, and our global financial services business continues to help our clients reduce their financial complexities of mailing and shipping. Pitney Bowes has entered into amendments to the company's credit agreement and note purchase agreement to allow for the GEC exit without triggering any events of default for Pitney Bowes, and also release the guarantees and liens provided by the GEC entity.

Speaker Change: Presort business will continue to provide large enterprises and smaller businesses with industry, leading mail sortation services and our global financial services business continues to help our clients reduce their financial complexities of mailing and shipping.

Speaker Change: Pitney Bowes has entered into amendments to the company's credit agreement and note purchase agreement to allow for the GEC exit without triggering any events of default for Pitney Bowes.

Speaker Change: And also releases the guarantees and liens provided by the GEC entities.

Lance Rosenzweig: This was an important step towards solidifying Pitney Bowes' financial position and setting up the company for long-term success. The additional financial flexibility we have secured will allow us to make accretive investments in our core businesses, pursue high-margin growth initiatives, and take other steps to enhance shareholder value. We appreciate the support of all of our lenders who continue to recognize that it is a new day at Pitney Bowes. As a result of exiting GEC, we expect to recognize a pre-tax loss of approximately $200 million, which we expect will be partially offset by the benefit of tax losses.

Speaker Change: This was an important step towards solidifying pitney Bowes financial position and setting up the company for long term success.

Speaker Change: The additional financial flexibility, we have secured will allow us to make accretive investments in our core businesses pursue high margin growth initiatives and take other steps to enhance shareholder value. We appreciate the support of all of our lenders who continue to recognize that it is a new day at Pitney Bowes.

Speaker Change: As a result of exiting GEC, we expect to recognize a pre tax loss of approximately $200 million, which we expect will be partially offset by the benefit of tax losses.

Lance Rosenzweig: Before moving on, I want to express our appreciation for the customers, vendors, and other partners of GEC. A top priority of Pitney Bowes is to minimize disruption and maintain the highest level of service during GEC's transition. We have reached out to other providers and will assist clients to the fullest extent possible in transitioning to the best alternatives in the market. I also want to pause for a moment to express our sincere gratitude to GEC employees. Their hard work is deeply appreciated, and this decision to wind down the business is in no way reflective of their performance.

Speaker Change: Before moving on I want to express our appreciation for the customers vendors and other partners of G E C. A T.

Speaker Change: Top priority of Pitney Bowes is to minimize disruption and maintain the highest level of service during gec's transition. We have reached out to other providers and will assist clients to the fullest extent possible and transitioning to the best alternatives in the market.

Speaker Change: I also want to pause for a moment to express our sincere gratitude to G E C employees there.

Speaker Change: Their hard work is deeply appreciated and this decision to wind down the business is in no way reflective of their performance.

Lance Rosenzweig: We understand the impact of this decision on all involved, but after years of unsustainable losses, these changes are essential to preserving the company as a whole and positioning the remaining business segments for future growth. We are providing severance payments and outplacement services to the GEC team to ease their transition. Our second initiative is focused on driving operational excellence and cost efficiency. We have been making the tough yet necessary decisions to support our efficiency and cost rationalization efforts.

Speaker Change: We understand the impact of this decision on all involved but after years of unsustainable losses. These changes are essential to preserving the company as a whole and positioning the remaining business segments for future growth, we are providing severance payments and outplacement services to the GEC team.

Speaker Change: To ease their transition.

Speaker Change: Our second initiative is focused on driving operational excellence and cost efficiency, we have been making the tough yet necessary decisions to support our efficiency and cost rationalization efforts.

Lance Rosenzweig: Pitney Bowes announced last month that it successfully implemented approximately $70 million in annual cost savings at the corporate level, as well as within our core businesses. These cost savings were in addition to all savings directly related to exiting GEC.

Pitney Bowes: Pitney Bowes announced last month that we successfully implemented approximately $70 million in annual cost savings at the corporate level as well as within our core businesses.

Speaker Change: These cost savings were in addition to all savings directly related to exiting GEC, we reiterate our anticipated target range of total savings of between 120 million and $160 million.

Lance Rosenzweig: We reiterate our anticipated target range of total savings of between $120 million and $160 million, much of which we anticipate will be addressed over the remainder of 2024. We are confident in our ability to deliver on the full range of cost savings we've outlined, and we will continue to look for additional opportunities in the quarters to come. Third, we have made significant progress in our cache optimization efforts, primarily in three areas.

Speaker Change: Much of which we anticipate will be addressed over the remainder of 2024.

Speaker Change: We are confident in our ability to deliver on the full range of cost savings, we've outlined and we will continue to look for additional opportunities in the quarters to come.

Speaker Change: Third we have made significant progress in our cash optimization efforts primarily in three areas.

Lance Rosenzweig: The Repatriation of International Cash, The upstreaming of cash from Pitney Bowes Bank, and the reduction of cash needs in the U.S. post-GEC. We announced in May that we were working to free up $200 million of cash through Better Cash Management. I am pleased to share that we have already repatriated $100 million of international cash and have freed up approximately $40 million of cash from Pitney Bowes Bank year to date. Accordingly, we now estimate that we will be able to reduce our go-forward cash needs by $240 million, an increase from our initial goal of $200 million.

Speaker Change: The repatriation of international cash.

Speaker Change: The upstream ing of cash from Pitney Bowes Bank.

Speaker Change: And the reduction of cash needs in the U S post GEC.

Speaker Change: We announced in May that we were working to free up $200 million of cash through better cash management.

Speaker Change: I am pleased to share that we have already repatriated $100 million of international cash and have freed up approximately $40 million of cash from Pitney Bowes bank year to date.

Speaker Change: Accordingly, we now estimate that we will be able to reduce our go forward cash needs by $240 million increase from our initial goal of $200 million.

Lance Rosenzweig: We expect to repatriate an additional $25 million of overseas cash during the second half of the year and have implemented a global cash pooling structure that will enable us to maintain lower levels of cash in international jurisdictions moving forward.

Speaker Change: We expect to repatriate an additional $25 million of overseas cash during the second half of the year and have implemented a global cash pooling structure, which will enable us to maintain lower levels of cash in international jurisdictions moving forward.

Lance Rosenzweig: Our final strategic initiative is around deleveraging the balance sheet. We believe that exiting GEC, reducing non-essential expenses, and optimizing cash positions will allow us to materially accelerate our deleveraging objectives. These efforts will be supported by the previously mentioned reduction in cash taxes.

Speaker Change: Our final strategic initiative is around deleveraging the balance sheet, we believe that exiting GEC, reducing nonessential expenses and optimizing cash positions will allow us to materially accelerate our deleveraging objectives.

Speaker Change: These efforts will be supported by the previously mentioned reduction in cash taxes.

Lance Rosenzweig: As we execute on our strategic initiatives, we plan to prioritize the reduction of high-cost debt and near-term maturing debt. We will also focus on enhancing our credit rating. Looking forward, I am confident that the future is bright for our core businesses. Sentex Solutions is at the forefront of evolving mailing and digital shipping needs, providing innovative and efficient options for our clients.

Speaker Change: As we execute on our strategic initiatives, we plan to prioritize the reduction of high cost debt and near term maturing debt. We will also focus on enhancing our credit ratings.

Speaker Change: Looking forward I am confident that the future is bright for our core businesses.

Speaker Change: <unk> solutions are at the forefront of evolving mailing and digital shipping needs, providing innovative and efficient options for our clients.

Lance Rosenzweig: PreSort continues to deliver significant value as a result of distinct expertise and technology, excellent execution, and favorable market dynamics. And we have plans for our global financial services offerings, including Pitney Bowes Bank, to further grow its already meaningful cash and net income contribution. These businesses represent the core foundation for our company's future growth and success. Given these significant changes at the company, we recognize it may be difficult to model the company's economy.

Speaker Change: Presort continues to deliver significant value as a result of distinct expertise and technology excellent execution and favorable market dynamics.

Speaker Change: And we have plans for a global financial services offerings, including Pitney Bowes bank to further grow its already meaningful cash and net income contributions. These businesses represent the core foundation for our company's future growth and success.

Speaker Change: Given the significant changes at the company, we recognize it may be difficult to model. The company's economics as such we have included an illustrative EBIT bridge on slide 19 of the Q2 investor presentation on our IR website, which is based on trailing 12 month EBIT.

Lance Rosenzweig: As such, we have included an illustrative eBit bridge on slide 19 of the Q2 investor presentation on our IR website, which is based on trailing 12-month EBIT, adjusted for the estimated impact of the GEC exit and the midpoint of our estimated $120 million to $160 million in cost reductions resulting from our ongoing strategic initiative. This is not a forecast but an effort to illustrate what we deem to be the very strong underlying earnings potential inherent in Pitney Bowes.

Speaker Change: Adjusted for the estimated impact of the GEC exit and the midpoint of our estimated 120 million $260 million in cost reductions, resulting from our ongoing strategic initiatives.

Speaker Change: This is not a forecast but in effort to illustrate what we deem to be the very strong underlying earnings potential inherent in pitney Bowes without the e-commerce debtors and the costs we are in the process of removing.

Lance Rosenzweig: Without the e-commerce debtors and the costs we are in the process of removing. But while we are encouraged by the progress we've made, I want to be clear that today is not a victory lap. Pitney Bowes is still in the early innings of its transformation, and we firmly believe that there is a lot of opportunity and upside ahead. As we look forward, we will continue to leave no stone unturned when it comes to improving our profitability, effective capital and cash management, and overall financial strength. I will now turn the call over to John Witek to discuss our financial results for the second quarter in more detail.

Speaker Change: While we are encouraged by the progress we've made I wanted to be clear that today is not a victory lap.

Speaker Change: Pitney Bowes is still in the early innings of its transformation and we firmly believe that there is a lot of opportunity and upside ahead.

Speaker Change: As we look forward, we will continue to leave no stone unturned when it comes to improving our profitability effective capital and cash management and overall financial strength.

Speaker Change: I will now turn the call over to John Wick to discuss our financial results for the second quarter in more detail.

John Witek: Thank you, Lance. I will now go over our second quarter results and our updated outlook for the rest of the year, which incorporates our solid first half performance and the strategic actions Lance just described. Starting with results, consolidated revenue, including GEC, was $793 million, up 2% over the prior year. Centech and PreSort both had great quarters and continue to make strong progress against their key initiatives.

John Wick: Thank you Lance I'll now go over our second quarter results and our updated outlook for the rest of the year, which incorporates our solid first half performance and the strategic actions Lance just described.

John Wick: Starting with results consolidated revenue, including GEC was $793 million up 2% over the prior year.

Speaker Change: Suntech and presort, both had great quarters and continue to make strong progress against our key initiatives.

John Witek: Productivity and cost reduction efforts across the entire enterprise drove meaningful bottom-line improvement with consolidated EBIT increasing 43% year over year to $46 million in the quarter. EPS improved $0.05 to $0.03 per share, driven by improved operating results and a timing-related tax benefit in the quarter, and was partially offset by higher interest rates. Cash flow was a terrific story in the quarter. Second quarter free cash flow was $83 million, which was $94 million higher than second quarter last year.

John Wick: Productivity and cost reduction efforts across the entire enterprise drove meaningful bottom line improvement with consolidated EBIT, increasing 43% year over year to $46 million in the quarter.

John Wick: EPS improved <unk> <unk> per share driven by improved operating results and the timing related tax benefit in the quarter and was partially offset by higher interest expense.

John Wick: Cash flow was a terrific story in the quarter.

John Wick: Second quarter free cash flow was 83 million, which was $94 million higher than second quarter last year.

John Witek: This improvement is better on a year-to-date basis, with free cash flow $137 million higher through the first half of 2024. Operational performance, mainly from cost takeout and strong Sentec and PreSort results, is driving the improved cash flow. Working capital and finance receivables also materially contributed to the improvement. Sentec had a great quarter as the business continues to progress on its initiatives of product migration, shipping growth, cost reduction, and better leveraging its financial services capabilities.

John Wick: This improvement is better on a year to date basis with free cash flow of $137 million higher through the first half of 2024.

John Wick: Operational performance, mainly from cost takeout and strong Suntech and presort results is driving the improved cash flow.

John Wick: Working capital and finance receivables also materially contributed to the improvement.

Speaker Change: <unk> had a great quarter as the business continues to progress on its initiatives the product migration shipping growth cost reduction and better leveraging its financial services capabilities.

John Witek: In the quarter, Centac generated revenue of $320 million, a decline of 2% year-over-year, driven by lower mailing-related revenue and partially offset by growth in our shipping offerings. EBIT was $101 million, up 4% due to a better revenue mix and cost reduction initiatives. Mailing-related revenue declined 4% year-over-year in the quarter, primarily driven by near-term headwinds related to our product cycle, which includes a higher mix of lease extensions versus new leases.

Speaker Change: In the quarter Suntech generated revenue of $320 million, a decline of 2% year over year, driven by lower mailing related revenue and partially offset by growth in our shipping offerings.

Unknown Executive: Please continue to hold Please continue to hold Good afternoon.

Speaker Change: EBIT was $101 million up 4% due to better revenue mix and cost reduction initiatives.

Speaker Change: Mailing related revenue declined 4% year over year in the quarter.

Speaker Change: Merrily driven by near term headwinds related to a product cycle, which includes a higher mix of lease expansions versus new leases.

John Witek: I'll expand on the impact of this dynamic a little later in my remarks, but the net of it is lower equipment revenue up front, which impacted second quarter results. However, in this environment, we are seeing positive demand for our mailing products, with our total written contract value up year over year. We also made solid progress on our product migration. 83% of our total installed base and 88% of our low to mid-volume meters are now on the new IMI technology. As a reminder, USPS requires all low to mid-volume meters to be converted by the end of this year.

John Wick: I'll expand on the impact of this dynamic a little later in my remarks, but the net of it is lower equipment revenue upfront, which impacted second quarter results.

John Wick: In this environment, we are seeing positive demand for our mailing products with our total written contract value up year over year.

John Wick: We also made solid progress on our product migration.

John Wick: 83% of our total installed base and 88% of our low to mid volume meters are now on the new IMI technology.

John Wick: As a reminder, U S. P. S requires all low to mid volume meters to be converted by the end of this year.

John Witek: Shipping-related revenues grew 10% in the quarter and now comprise 16% of segment revenue. We remain encouraged about the performance of our digital shipping offerings, which drove most of the 33% year-over-year improvement in this quarter's business services revenue. Similar to last quarter, lower in-period equipment and professional services moderated overall shipping growth.

John Wick: Shipping related revenues grew 10% in the quarter and now comprised 16% of segment revenue.

John Wick: We remain encouraged about the performance of our digital shipping offerings, which drove most of the 33% year over year improvement in this quarter's business services revenue.

John Wick: Similar to last quarter lower in period equipment and professional services moderated overall shipping road.

John Witek: Segment gross margin expanded 160 basis points, and gross profit dollars were flat year over year. Sentek's digital shipping offering, which includes SAS subscription revenue, drove margin expansion in the quarter. Our product mix, modestly higher financing revenue, and cost actions also contributed to the improvement. Operating expenses declined $4 million or 4% year-over-year from headcount actions, which were partially offset by $2 million in higher non-cash pension expenses. Higher pension expense was a headwind in the first quarter of this year as well, and we expect it to remain a headwind in the second half of the year. Net finance receivables were $1.2 billion, down 3% year over year, from a decrease in lease receivables, which was primarily a result of a higher level of lease extension.

John Wick: Segment gross margin expanded 160 basis points and gross profit dollars were flat year over year.

John Wick: Centex digital shipping offering which includes SaaS subscription revenue drove margin expansion in the quarter.

John Wick: Our product mix modestly higher financing revenue and cost actions also contributed to the improvement.

John Wick: Operating expenses declined $4 million or 4% year over year from head count actions and were partially offset by $2 million and higher noncash pension expense.

Unknown Executive: Welcome to the Pitney Bowes second quarter, 2024 Ernie's Conference Call. Your lines have been placed in the listen only mode during the conference call until the question and answer segment. Today's call is also being recorded.

John Wick: Higher pension expense was a headwind in the first quarter of this year as well and we expect it to remain a headwind in the second half of the year.

Unknown Executive: If you have any objections, please disconnect your lines at this time. I would like to introduce parties on today's conference call. Mr. Lance Rosenzweig, interim chief executive officer and board member, Mr. John Witek, interim chief officer, and Mr. Alex Brown, director investor relations.

John Wick: Net finance receivables were $1 $2 billion down 3% year over year from a decrease in lease receivables, which was primarily a result of higher level of lease extensions.

John Witek: As Lance mentioned, we see a significant opportunity to improve cash conversion and better leverage the value of the bank. In the quarter, the bank generated $26 million of cash contribution to PBI, up over 100% year-over-year, a benefit partly fueled by the bank's participation in the financing of $13 million of captive lease receivables, which is a quality addition to the bank. Pre-sort also had an excellent quarter, and it continues to drive significant profit growth with productivity improvements. Pre-sourced' string of impressive quarters reflects the quality of our team and the value we provide to our clients. In the quarter, we sorted 3.6 billion pieces of mail.

John Wick: As Lance mentioned, we see a significant opportunity to improve cash conversion and better leverage the value of the bank.

Lance: In the quarter, the bank generated $26 million of cash contribution to P. B I up over 100% year over year.

Alex Brown: Mr. Brown would now begin the call with the safe harbor overview. Good afternoon, and thank you for joining us. Included in today's presentation are forblooking statements about our future business and financial performance. Forblooking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release at 2023 form 10K annual report and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on investor relations.

Lance: Benefit partly fueled by the banks participation in the financing of $13 million of captive lease receivables, which is a quality addition to the bank.

Speaker Change: Presort also had an excellent quarter and continues to drive significant profit growth with productivity improvements.

Speaker Change: Presort string of impressive quarters reflects the quality of our team and the value we provide to our clients.

Speaker Change: In the quarter, we sorted $3 6 billion pieces of mail.

John Witek: Revenue grew 3% to $147 million, and EBIT was $27 million, up 32% year-over-year. Our team continues to raise the bar on labor productivity. Process improvements, along with prior investments in automation and analytics, drove pieces fed per labor hour up 10% year over year. Across our network, this equates to a reduction of over 150,000 labor hours versus the prior year. We also continue to drive better transportation efficiency. Unit transportation costs declined 5% year over year due to lane optimization through consolidation and insourcing, as well as improved third-party contract terms. Let me briefly talk about GEC's performance in the quarter. Domestic parcel volume was $60 million, up 21% versus the prior year.

Lance: Revenue grew 3% to $147 million and EBIT was $27 million up 32% year over year.

Lance: Our team continues to raise the bar on labor productivity.

Lance: Process improvements along with prior investments in automation and analytics drove pieces fed per labor hour up 10% year over year.

Alex Brown: Please keep in mind we do not undertake any obligation to update forblooking statements as a result of new information or developments. For non-gap measures that are included in the press release or discussed in our presentation materials, you can find recommendations to the appropriate gap measures in the tables attached to our press release. We have also provided a fly presentation and a spreadsheet with historical segment information on our website. Finally, in our prepared remarks, revenue comparisons will be on a constant currency basis with other items such as EBIT, EBITDA, EPS, and free cash oil on an adjusted basis.

Lance: Across our network this equates to a reduction of over 150000 labor hours versus prior year.

Lance: We also continue to drive better transportation efficiency.

John Wick: Unit transportation costs declined 5% year over year due to lane optimization through consolidation and in sourcing as well as improved third party contract terms.

Speaker Change: Let me briefly talk about Gec's performance in the quarter.

Lance: Domestic parcel volume was $60 million up 21% versus prior year.

John Witek: Higher volumes drove a 7% increase in revenue to $326 million in the quarter. However, revenue per piece remained under pressure due to client mix and continued market overcapacity. The decline in RPP offset productivity gains and fixed cost leverage from the higher volume. EBIT was a loss of $31 million and benefited from a $7 million, or 15%, improvement in operating expenses year over year. Outside of the business units, our unallocated corporate expenses were $51 million in the quarter.

John Wick: Higher volumes drove a 7% increase in revenue to $326 million in the quarter.

Lance Rosenzweig: At this time, I would like to turn the call over to our interim CEO, Lance. Thank you, Alex and good afternoon. I'm very excited to join you for my first quarterly earnings call with Pitney Bose. Just a couple of months ago, at the end of May, I outlined our commitment to accelerating the transformation of this iconic shipping and mailing company by focusing on four strategic initiatives. Today, I am proud to share that we have made significant strides in delivering on that commitment.

John Wick: Revenue per piece remained under pressure due to client mix and continued market overcapacity that.

Lance: The decline in our P P offset productivity gains and fixed cost leverage from the higher volumes.

John Wick: EBIT was a loss of $31 million and benefited from a $7 million or 15% improvement in operating expenses year over year.

Lance: Outside of the business units, our unallocated corporate expenses were $51 million in the quarter.

John Witek: The $4 million year-over-year increase was driven primarily by variable compensation, where last year we were well below targets, and this year we are outperforming our targets. Our variable compensation is determined by our stock price and performance against metrics laid out in our proxy. Excluding variable compensation, unallocated corporate expenses decreased $12 million year-over-year.

Lance: The $4 million a year over year increase was driven primarily by variable compensation, where last year, we were well below targets and this year, we are outperforming our targets.

Lance Rosenzweig: We have taken decisive steps to position Pitney Bose for enhanced profitability and sustained value creation will also deliver strong results for the quarter. I will begin by providing a high-level overview of our Q2 results, which reflect our commitment to quickly becoming a more efficient, profitable, and cash-generating enterprise. We maintained relatively steady revenues and executed on our priorities within Sentec and PreSort, resulting in $46 million in adjusted EBITDA for the period, a 43% year-over-year increase compared to the second quarter of last year.

Lance: Our variable compensation is determined by our stock price and performance against metrics laid out in our proxy.

John Wick: Excluding variable compensation unallocated corporate expenses decreased $12 million year over year.

John Witek: Now let me turn to the outlook. We are updating our guidance to reflect the exit of GEC, incremental cost reduction actions, and a strong first half performance. Our updated guidance is on a continuing operations basis and excludes financial results from the GEC entities, which we expect will be reflected in discontinued operations in the third quarter. We are holding revenue guidance to the prior target of a flat to low single-digit decline.

John Wick: Now, let me turn to the outlook.

Lance: We are updating our guidance to reflect the exit of G C Inc.

Lance: Incremental cost reduction actions and a strong first half performance.

Lance: Our updated guidance is on a continuing operations basis and excludes financial results from the GEC entities, which we expect will be reflected in discontinued operations in the third quarter.

Lance Rosenzweig: Adjusted EPS with three cents a share and improvement of five cents over the prior year. And perhaps most notably, free cash flow was $83 million, an improvement of $94 million year over year. The performance of Pitney Bowes in Q2 reinforces that we have a significant opportunity for continued cash flow and earnings growth, as enhancements continue to be implemented across the enterprise. John will provide more details on our strong quarter momentarily.

Lance: We are holding revenue guidance to the prior target of flat to low single digit decline.

John Witek: Our prior guidance assumed revenue growth from GEC, and therefore holding guidance implies improved revenue performance from SENTEC and PreSort compared to previous expectations. Moving to profitability, we expect the continuing operations of the company to generate between $340 and $355 million in full year 2024 EBIT. This is more than double our 2023 reported EBIT of $172 million, inclusive of GEC.

Lance: Our prior guidance assumed revenue growth from GEC, and therefore, holding guidance implies improved revenue performance from Suntech and presort compared to previous expectations.

Lance: Moving to profitability, we expect the continuing operations of the company to generate between 340 and $355 million and full year 2020 for EBIT. This is more than double our 2023 reported EBIT of $172 million inclusive of G E C.

Lance Rosenzweig: Let me now turn to our momentum on our four strategic initiatives. A key highlight is the completion of our strategic review of our global e-commerce or GEC business, which resulted in us identifying an exit path for this business that will ultimately maximize value for Pitney Bowes shareholders. We completed our review of this segment after working with independent legal, restructuring, and financial advisors to thoroughly assess numerous strategic alternatives for the business. This path was determined to be in the best interest of the company and the GEC entities after an extensive review process.

John Witek: Let me walk through several key drivers in our outlook as we head into the second half of the year. Both Femtech and PreSort remain well positioned in their markets, and we expect both to continue to perform well in the second half of the year. For SENTEC, I'm going to take a minute to expand on the near-term headwinds that result from the current phase of our product lifecycle. At a high level, we expect two related dynamics to impact our revenue and gross profit in the second half of the year.

Lance: Let me walk through several key drivers and our outlook as we head into the second half of the year.

Lance: Both suntech and presort remain well positioned in their markets and we expect both to continue to execute well in the second half of the year.

Speaker Change: <unk> I'm going to take a minute to expand on the near term headwinds that result from the current phase of our product lifecycle.

Speaker Change: At a high level, we expect two related dynamics to impact our revenue and gross profit in the second half of the year.

John Witek: First, the business has done a great job navigating its product migration cycle year-to-date. To this point, we outperformed our expectations in the first half, as our client team successfully migrated clients to new products, which benefited first quarter and second quarter results. In the second half of the year, we expect the remaining portion of our install base to be more difficult to transact, resulting in a higher cancellation rate.

Speaker Change: The business has done a great job navigating its product migration cycle year to date to this point, we outperformed our expectations in the first half as our client team successfully migrated clients to new products.

Lance Rosenzweig: Notably, the GEC segment has been struggling to achieve profitability over the past several years in the face of macroeconomic and industry headwinds. We rate all potential options against a standalone future and the need to stem the losses and bring the process to a timely and well-defined conclusion. Ultimately, the board determined that the optimal path to maximizing the value for Pitney Bowes and limit ongoing business losses and liabilities was to support the decision of GEC's independent fiduciaries to sell a majority interest in the GEC entities to an affiliate of Hilco Global, which intends to conduct an orderly liquidation of the GEC business through a chapter 11 process.

Lance: This benefited first quarter and second quarter results.

Lance: In the second half of the year, we expect the remaining portion of our installed base to be more difficult to transact, resulting in a higher cancellation rate.

John Witek: This aligns with our experience with previous product migrations. Additionally, we expect our mix of transactions to shift more towards lease extensions and away from new leases in the second half of the year. This is expected as the first wave of IMI products released 5 plus years ago are coming up for renewal. Over the full term of the lease, lease extensions are more profitable transactions for us since we lock in continued monthly cash flows without incurring the cost to produce new equipment. However, revenue from a lease extension is recognized over the term of the lease as financing revenue versus upfront as equipment sales with a new lease.

Lance: This aligns with our experience from previous product migrations.

Lance: Second we expect our mix of transactions to shift more towards lease extensions and away from new leases in the second half of the year.

Lance: This is expected as the first wave of IMI products released five plus years ago are coming up for renewal.

Lance: Over the full term of the lease lease extensions are more profitable transactions for us since we lock in continued monthly cash flows without incurring the cost to produce new equipment.

Lance Rosenzweig: In connection with this exit, we completed that sale and the transaction closed earlier today. Today, GEC and its subsidiary filed chapter 11 bankruptcy cases to commence a liquidation of the business. GEC's fulfillment business, which we sold to stored in July, will not be part of the liquidation. We expect this exit path to eliminate substantially all of the losses associated with the GEC business, which were approximately negative $136 million for 2023, while positioning Pitney Bowes to deliver stronger full-year results in 2025 as we become a more focused, streamlined company.

Lance: However revenue from our lease extension is recognized over the terminal east as financing revenue versus upfront as equipment sales with the new lease.

John Witek: This dynamic creates near-term pressure on the P&L in a similar way as a software company transitioning from a license and maintenance model to a SaaS model. However, over the long term, revenue will stabilize as a high-margin annuity flowing through our financing revenues. These transactions are better for cash flow due to better profitability and less investment in inventory and net finance receivable. So to summarize, lease extensions are lower equipment sales in the near term, but they produce higher financing revenue over the long term, and cash flow positive.

Lance: This dynamic creates near term pressure on the P&L in a similar way as a software company transitioning from a license and maintenance model to a SaaS model.

Lance: Over the long term revenue will stabilize as a high margin annuity flowing through our financing revenue.

Lance: These transactions are better free cash flow due to better profitability and less investment in inventory and net finance receivables.

Lance: So to summarize lease extensions are lower equipment sales in the near term produce higher financing revenue over the long term and cash flow positive.

Lance Rosenzweig: To be clear, Pitney Bowes will not go through any in-court restructuring process as a corporate entity. The company's Sentec and pre-sort businesses will continue to operate in the normal course and should not expect any impact. Additionally, the Pitney Bowes bank will not be affected by the GEC exit and will also continue to conduct business in the ordinary course. Selling a controlling interest in GEC to Hilco, positions GEC as an independent business from Pitney Bowes, undergoing a liquidation under the ownership of Hilco.

John Witek: Turning to PreSort, the business performed well in the first half of the year and has great momentum. We remain encouraged by the value of our offering to our clients, which is evident in our strong performance in new logo sales and competitive takeaways. The recent investments we have made in automation and technology over the past several years are resulting in meaningful efficiencies across our network. To that end, we achieved our highest labor productivity in the second quarter, beating our previous record set in the first quarter of this year.

Speaker Change: Turning to presort business performed well in the first half of the year and has great momentum we remain encouraged by the value of our offering to our clients, which is evident in our strong performance in new logo sales and competitive takeaways.

Speaker Change: The recent investments we have made in automation and technology over the past several years are resulting in meaningful efficiencies across our network to that end, we achieved our highest labor productivity in the second quarter, beating our previous record set in first quarter of this year.

Lance Rosenzweig: In connection with this path, Pitney Bowes anticipates that it will incur one-time cash costs not to exceed approximately $150 million, including providing certain GEC entities subject to the approval of the bankruptcy court with approximately $45 million in a delayed draw-on term loan to support the efficient liquidation of GEC through the chapter 11 process. We anticipate that the liquidation and wind-down process, which will require certain court approvals, will conclude in early 2025.

John Witek: All of this gives us confidence that PreSort is set up to continue to perform well in the second half of the year. Finally, Cost Reduction As Lance mentioned, we are moving with urgency to streamline the organization. About a month ago, we announced that $70 million of annualized savings had already been initiated, with the majority of those savings coming from completed headcount reductions across our support function. We have also initiated savings from indirect spending and will continue to see benefits from these reductions.

Speaker Change: All of this gives us confidence that pre sort of set up to continue to perform well in the second half of the year.

Lance: Finally cost reduction as Lance mentioned, we are moving with urgency to streamline the organization.

Lance: A month ago, we announced that $70 million of annualized savings have already been initiated with the majority of those savings coming from completed the head count reductions across our support functions. We have also initiated savings from indirect spending and we will continue to see benefits from these reductions.

John Witek: Indirect savings will take longer to take effect, but we expect these actions to contribute to our $120 million to $160 million gross annualized savings target. With that, I thank you, and I'll pass this back over to Lance.

Lance: Indirect savings will take longer to take effect, but we expect these actions to contribute to our $120 million to $160 million gross annualized savings target with that I. Thank you and I'll pass it back over to Lance.

Lance Rosenzweig: Pitney Bowes will remain an industry leader in both mailing and shipping going forward. The solutions our Sentech business provides to clients are best in class in both mailing and multi-carrier shipping technology. Our pre-sort business will continue to provide large enterprises and smaller businesses with industry-leading mail-sortation services, and our global financial services business continues to help our clients reduce their financial complexities of mailing and shipping. Pitney Bowes has entered into amendments to the company's credit agreement and note purchase agreement to allow for the GEC exit without triggering any events of default for Pitney Bowes and also releases the guarantees and leans provided by the GEC entities.

Lance: Thank you John.

Lance: Pitney Bowes is better positioned than at any time in recent memory to capitalize on opportunities in the company's core cash generating businesses.

Lance: New leadership from the boardroom to the management team is aligned with shareholders. When it comes to driving the acceleration of value creation.

Speaker Change: We look forward to continuing to report on their progress as we execute on our previously announced strategic initiatives and accelerate the Pitney Bowes turnaround.

Lance Rosenzweig: Pitney Bowes is better positioned than at any time in recent memory to capitalize on opportunities in the company's core cash-generating businesses. New leadership from the boardroom to the management team is aligned with shareholders when it comes to driving the acceleration of value creation. We look forward to continuing to report on our progress as we execute on our previously announced strategic initiatives and accelerate the Pitney Bowes turnaround. This now concludes the presentation portion of today's call. We'd now like to open the call for Q&A. Ladies and gentlemen, if you wish to ask a question, please...

Speaker Change: This now concludes the presentation portion of today's call, we'd now like to open the call for Q&A.

Operator: Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 10 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 1 then 0 at this time. And first, we go on to the line for Anthony Lebiedzienski. Please go ahead. Anthony, please check your mute button.

Speaker Change: Ladies and gentlemen, if you wish to ask a question. Please press one to zero on your telephone keypad you may withdraw your question at any time by repeating the ones. They will 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 to zero at this time.

Lance Rosenzweig: This was an important step toward solidifying Pitney Bowes financial position and setting up the company for long-term success. The additional financial flexibility we have secured will allow us to make a creative investment in our core businesses pursue high margin growth initiatives and take other steps to enhance shareholder value. We appreciate the support of all of our lenders who continue to recognize that it is a new day at Pitney Bowes. As a result of exiting GEC, we expect to recognize a pre-tax loss of approximately $200 million, which we expect will be partially offset by the benefit of tax losses.

Speaker Change: Okay.

Speaker Change: And first we go on to the line for Anthony Limited Netsuke. Please.

Speaker Change: Please go ahead.

Speaker Change: Yeah.

Speaker Change: Anthony Please check your mute button.

Anthony Limited: Can you hear me now.

Speaker Change: Okay.

Lance: Yes.

Anthony Lebiedzinski: Okay, good afternoon. Sorry, I was on mute.

Speaker Change: Okay, sorry about that yeah.

Speaker Change: Okay. Good afternoon, sorry, I was on mute.

Lance: Alright, thanks for taking the questions and good to see the conclusion of the GEC reviewed come to an end here. So.

Anthony Lebiedzinski: All right. So thanks for taking the questions and good to see the conclusion of the GEC review come to an end here. So I guess just first, just a quick clarifying question. So in terms of the one-time cash costs of $150 million, is that mostly severance and lease termination costs? Or maybe you could just touch on that first, and then I have a few other questions as well.

Speaker Change: I guess just first just a quick clarifying question just so in terms of the onetime cash costs of $150 million.

Lance Rosenzweig: Their hard work is deeply appreciated, and this decision to wind down the business is in no way reflective of their performance. We understand the impact of this decision on all involved, but after years of unsustainable losses, these changes are essential to preserving the company as a whole and positioning the remaining business segments for future growth. We are providing severance payments and outplacement services to the GEC team to ease their transition.

Lance: That mostly severance and.

Lance: Lease termination costs or maybe if you could just touch on that first and then I have a few other questions as well.

John Witek: Hey, thanks for the question. This is John.

Lance: Hey, Thanks for the question. This is John it's it's it's actually a combination of a few items, they're going to be some expenses that the parent will bear there'll be some pre petition professional fees et cetera.

John Witek: It's actually a combination of a few items. There are going to be some expenses that the parent will bear. There will be some pre-petition professional fees, etc. That $150,000 is also going to be inclusive of the DIP funding that we're providing. And then we're also going to have, outside of the professional fees, certain other wide-ranging costs that I believe the parent will bear.

Speaker Change: That 150 is also going to be inclusive of the dip funding that are that we're providing.

Lance: And then we're also going to have outside of the professional fees and certain other wind down costs.

Lance Rosenzweig: Our second initiative is focused on driving operational excellence and cost efficiency. We have been making the tough yet necessary decisions to support our efficiency and cost rationalization. Pitney Bowes announced last month that we successfully implemented approximately $70 million in annual cost savings at the corporate level, as well as within our core businesses. These cost savings were in addition to all savings directly related to exiting GEC. We reiterate our anticipated target range of total savings of between $120 million and $160 million, much of which we anticipate will be addressed over the remainder of 2024. We are confident in our ability to deliver on the full range of cost savings we've outlined, and we will continue to look for additional opportunities in the quarters to come.

Lance: I believe the parent well there.

Anthony Lebiedzinski: Okay, thanks, John. Okay, so now that GEC is no longer part of Pitney Bowes and the business has been simplified, you know, how should we think about unallocated corporate expenses?

Speaker Change: Okay. Thanks, John Okay. So so now that the GEC is no longer part of Pitney Bowes and the business has been simplified how should we think about unallocated corporate expenses.

Speaker Change: And going forward.

John Witek: Unallocated corporate expenses are coming down significantly. Our cost-cutting program that we've put in place is largely in corporate charges, and I think you'll see in the coming quarters a significant reduction in those charges. Yes, absolutely, Lance. I mean, you mentioned in your script earlier that the first $70 million actually went across all areas, business units as well as corporate and allocated.

Speaker Change: Unallocated corporate expenses are coming down significantly.

Speaker Change: Our cost cutting program that we've put in place.

Lance: Is it largely in incorporate charges and I think youll see in the coming quarters, a significant reduction in those charges, yes, absolutely Lance I mean, you mentioned it in your in your script earlier.

Speaker Change: The first $70 million actually went across all all areas business units as well as corporate unallocated.

Anthony Lebiedzinski: Okay, gotcha. Okay.

Speaker Change: Okay got you Okay and then so now you have the suntech and pre stored left so I guess the L. A within suntech.

Lance Rosenzweig: Third, we have made significant progress in our cash optimization efforts, primarily in three areas. The repatriation of international cash, the upstreaming of cash from Pitney Bowes Bank, and the reduction of cash needs in the US post GEC. We announced in May that we were working to free up $200 million of cash through better cash management. I am pleased to share that we have already repatriated $100 million of international cash and have freed up approximately $40 million of cash from Pitney Bowes Bank year to date.

Anthony Lebiedzinski: And then, so now, you have Sentec and PreSort left. So I guess, you know, within Sentec, you talked about the shipping-related revenue now being 16% of your overall revenue. Do you guys have a goal in mind as to how high that can be? Because that seems like it's really certainly a growth driver for that segment.

Speaker Change: You talked about the shipping related revenue now being 16% of your.

Speaker Change: Overall.

Speaker Change: Revenue do you guys have a goal in mind us to like how high that can be.

Lance Rosenzweig: Accordingly, we now estimate that we will be able to reduce our go-forward cash needs by $240 million increased from our initial goal of $200 million. We expect to repatriate an additional $25 million of overseas cash during the second half of the year and have implemented a global cash pooling structure which will enable us to maintain lower levels of cash in international jurisdictions moving forward.

Speaker Change: That seems like it's really.

Speaker Change: Certainly a growth driver for that segment.

Lance Rosenzweig: Yeah, it is, Anthony, the key growth driver, and we anticipate that growth continuing. So, over time, it will become more and more material as an overall percentage of Centex revenue.

Speaker Change: Yeah, Yeah. It is Anthony the key growth driver and we anticipate that growth continuing so hum overtime, it will become more and more material as an overall percentage of centex revenue mix.

Anthony Lebiedzinski: Mm-hmm. Okay. All right. That's good to hear. And then...

Speaker Change: Mhm, Okay alright.

Speaker Change: That's good to hear and then.

Lance Rosenzweig: So now, as far as the pre-sort business is concerned, obviously, it's been an attractive segment for you guys for a while. I know that segment has grown through some acquisitions in the past. How are you guys thinking about that longer term? Do you think there are some additional opportunities to grow that business organically and perhaps inorganically? Yeah, we're excited.

Speaker Change: So now Oh as.

Speaker Change: As far as presort.

Speaker Change: Business savvy, obviously, that's it's been an attractive segment for you guys for a while so.

Speaker Change: I know that segment has grown through some acquisitions in the past how are you guys thinking about that longer term.

Speaker Change: Do you think there are some additional opportunities to grow that business organically and.

Speaker Change: And perhaps inorganically.

Lance Rosenzweig: We're excited about the PreSort business, and I give a lot of credit to the PreSort team. The company is executing extremely well and continues to improve its performance metrics and its utilization rates, etc. There are also ongoing opportunities for tuck-in M&As, and we are actively considering additional M&A targets.

Lance Rosenzweig: Our final strategic initiative is around deleverging the balance sheet. We believe that exiting GEC, reducing non-essential expenses and optimizing cash positions will allow us to materially accelerate our deleverging objectives. These efforts will be supported by the previously mentioned reduction in cash taxes. As we execute on our strategic initiatives, we plan to prioritize the reduction of high-cost debt and near-term maturing debt. We will also focus on enhancing our credit ratings.

Speaker Change: Yeah, we're excited about the presort business and I think a lot of credit to the presort team. The company is executing extremely well and continues to improve its performance metrics and its utilization rates et cetera, and there were also ongoing operations are ongoing opportunities for tuck in M&A.

Speaker Change: And we are actively considering additional M&A targets.

Speaker Change: They're very okay got it.

Anthony Lebiedzinski: Got it. Got it. Okay. And then last question for me before I pass it on to others. So, you know, now that you've done this strategic review and, you know, done a lot of work and in a relatively short period of time, do you guys have any updated thoughts on the dividend versus debt reduction? Just the overall capital allocation thinking?

Speaker Change: Got it got it Okay and then.

Speaker Change: Last question for me before I pass it onto other so we know now that you've done this.

Lance Rosenzweig: Looking forward, I am confident that the future is bright for our core businesses. Centech solutions are at the forefront of evolving mailing and digital shipping needs, providing innovative and efficient options for our clients. Pre-sort continues to deliver significant value as a result of distinct expertise and technology, excellent execution, and favorable market dynamics. We have plans for our global financial services offerings, including Pitnibo's Bank, to further grow its already meaningful cash and net income contributions. These businesses represent the core foundation for our company's future growth and success.

Speaker Change: The strategic review and I've done a lot of work in a relatively short period of time I mean do you guys have any updated thoughts on the dividend versus debt reduction.

Speaker Change: Just overall capital allocation thinking that'd be great.

Lance Rosenzweig: That'd be great.

Anthony Lebiedzinski: Sure, we did announce a dividend this quarter, consistent with recent quarters. The board takes capital allocation very seriously, and each quarter, we do an extensive review of our cash and availability in terms of evaluating dividends or other uses of cash.

Speaker Change: Sure we did announce a dividend this quarter.

Speaker Change: Consistent with recent quarters.

Speaker Change: The board takes capital allocation very seriously and each quarter. We do an extensive review of our of our cash and availability in terms of evaluating dividends or other uses of cash.

Lance Rosenzweig: Okay, I got it. Well, thank you and best of luck.

Speaker Change: Okay got it well, thank you and best of luck.

Speaker Change: Thank you.

Lance Rosenzweig: Given these significant changes at the company, we recognize it may be difficult to model the company's economic growth. As such, we have included an illustrative EBIT bridge on slide 19 of the Q2 investor presentation on our IR website, which is based on trailing 12-month EBIT, adjusted for the estimated impact of the GEC exit and the midpoint of our estimated $120,000,000 to $160,000,000 in cost reductions resulting from our ongoing strategic initiatives. This is not a forecast, but an effort to illustrate what we deem to be the very strong underlying earnings potential inherent in Pitney Bowes without the e-commerce debtors and the costs we are in the process of removing.

Speaker Change: Thank you.

Operator: Thank you. And next. We're going to the line for Matt Swope from Bayard. Please go ahead.

Speaker Change: And next we go on to the line for a Matt Swope buyers. Please go ahead.

Matthew Swope: Thank you very much, guys, and congratulations. Could you talk a little bit more about the GEC process on sort of how this is going to play out from here, what the timing is? I know the transaction was announced today, but when does the filing happen? When will be the timing on the cash out? I guess I wasn't quite clear when you talked about the max of $150 million. Does that include the dip, or is the dip separately from that?

Matt Swope: Thank you very much guys and congratulations.

Matt Swope: Could you talk a little bit more on the GEC process on sort of how this is going to play out from here what the timing is.

Speaker Change: Does this does this I know I know the transaction was announced today.

Speaker Change: When does the filing happen.

Speaker Change: When will be the timing on the cash out I guess I wasn't quite clear when you talked about the Max of 150 million does that include the dip or is the dip separately from that yes.

Lance Rosenzweig: Let me take a general stab at it, John, and then you can dive into more details. So the sale of the majority control to HILCO closed today, and the Chapter 11 filing happened today. So both of those are in process. It's moving forward on an accelerated timetable, a very highly organized plan that the HILCO team has put together with the GEC team. We expect that to happen expeditiously during the course of 2024. John, do you want to fill in some details on the $150 million, that is inclusive of the DIP financing? It's within the $150 million.

Speaker Change: Let me take a general stab at it John and then you can dive into more details. So the the sale of the majority control to Hilco closed today and.

John Witek: Yeah, and the $150,000 also, just to mention, I didn't mention earlier, not only does it include the pay, but it also includes severance payments for the team. And as far as timing is concerned, you asked, I'd like to think of it this way, as we're modeling it as it'll be front-end loaded in the second half of this year and then sort of taper off as we get to the first half of next year.

Lance Rosenzweig: While we are encouraged by the progress we've made, I want to be clear that today is not a victory lap. Pitney Bowes is still in the early innings of its transformation, and we firmly believe that there is a lot of opportunity and upside ahead. As we look forward, we will continue to leave no stone unturned when it comes to improving our profitability, effective capital and cash management, and overall financial strength.

Speaker Change: The chapter 11 filing happened today, so both of those are in process.

Speaker Change: Moving forward on an accelerated timetable I'm very highly organized plan that the Hilco team has put together together with the with the <unk> team.

Speaker Change: We expect that to happen expeditiously during the course of <unk>.

Speaker Change: 2024.

Speaker Change: John do you want to fill in some and your final question on the $150 million.

John Witek: I will now turn the call over to John Witek to discuss our financial results through the second quarter in more detail. Thank you, Lance. I will now go over our second quarter results and our updated outlook for the rest of the year, which incorporates our solid first half performance and the strategic actions Lance just described. Starting with results can solidate revenue, including GEC, with $793 million, up 2% over the prior year.

John: That is inclusive of the dip financing within the $150 million and the ones that they also just to mention I didn't mention earlier that not only does that include the debt, but it also includes the severance payments for.

Speaker Change: For the for the team and as far as.

Speaker Change: As far as timing you would asked I'd like to think of it. This way as we're modeling it is it'll be front end loaded in the second half of this year and then sort of taper off as we get into the first half of next year.

John Witek: Centech and PreSort both had great quarters and continue to make strong progress against their key initiatives. Productivity and cost reduction efforts across the entire enterprise drove meaningful bottom line improvement, with consolidated EBIT increasing 43% year over year, the $46 million in the quarter. EPS improved $5.00 to $3 per share, driven by improved operating results, and a timing related tax benefit in the quarter, and was partially offset by higher interest expense. Cashflow was a terrific story in the quarter.

Matthew Swope: Great, that's all helpful. And given that it is a dip, is there a chance, you typically would think about a dip as a loan that has a chance of producing some value back to you. Should we think of that 50 million as potentially coming back, or should we think of that as out the door?

Speaker Change: Great. That's all helpful and given that it is a dip is there a chance you.

Speaker Change: Typically I would think about dip is a loan that has a chance of.

Speaker Change: Producing some value back to you should we think of that $50 million is potentially coming back or should we think of that is out the door.

John Witek: You know, we're modeling it as part of our $150 million total cost. And, you know, bankruptcy always has some uncertainty to it. We're always hopeful for upside, but we'll sort of see how that plays out over the coming couple of quarters.

Speaker Change: We're modeling it is as part of our $150 million.

Speaker Change: Total cost and we'll see bankruptcy always has some uncertainty to it.

Speaker Change: We're always hopeful for upside, but we'll sort of see how that plays out over the coming couple of quarters.

John Witek: Second quarter free cashflow was $83 million, which was $94 million higher than second quarter last year. This improvement is better on a year-to-date basis, with free cashflow $137 million higher through the first half of 2024. Operational performance, mainly from cost takeout and strong centech and PreSort results, is driving the improved cashflow. Working capital and finance receivables also materially contributed to the improvement. Centech had a great quarter as the business continues to progress on its initiatives of product migration, shipping growth, cost reduction, and better leveraging its financial services capabilities.

Matthew Swope: Gotcha, that's great. And then, Lance, you talked about high-cost debt and near-term debt reduction. How soon do you think that can start? You've done a great job of freeing up cash, like you said you were going to do. You know, you have the SOFR plus 690 notes sitting there that I know the call protection expires soon. How do you see the debt reduction part of the plan progressing?

Speaker Change: Got you that's great and then and then Lance you talked about the high cost debt and near term debt reduction. How soon do you think that can start you've done a great job of freeing up cash like you said you were going to do.

Speaker Change: Uh huh.

Speaker Change: Do you have the sofa 690 notes sitting there and I know the call protection expires soon.

Speaker Change: How do you see the debt reduction part of the plan progressing.

Speaker Change: Yeah, our lenders I'll first say have been very supportive of us and we appreciate their support and our recent restructuring of our of our notes.

Lance Rosenzweig: Our lenders, I'll first say, have been very supportive of us, and we appreciate their support in our recent restructuring of our notes. We believe that our credit is going to get significantly improved as time goes by in the near term, and we intend to take advantage of our improved credit as we look at refinancing opportunities. We don't have a specific timetable, though.

Speaker Change: And we believe that our credit is going to get significantly improved as as time goes by over the near term and we intend to take advantage of our improved credit as we look at refinancing opportunities.

John Witek: In the quarter, Centech generated revenue of $320 million, a decline of 2% year over a year, driven by lower mailing-related revenue, and partially offset by growth in our shipping offerings. EBIT was $101 million, up 4% due to better revenue mix and cost reduction initiatives. Mailing-related revenue declined 4% year-over-year in the quarter, primarily driven by near-term headwinds related to our product cycle, which includes a higher mix of lease extensions versus new leases.

Speaker Change: We don't have a specific timetable though.

Matthew Swope: Now, that's fair. And to that end, you know, you talked about maybe some ratings improvement. Do you have a leverage target? I mean, back a few years ago, Pitney Bowes was an investment grade company. Is that a goal to get back to investment grade? How do you look at that going forward?

Speaker Change: That's fair and to that end you talked about maybe some ratings improvement do you have a leverage target.

Speaker Change: Back.

Speaker Change: A few years ago Pitney Bowes was an investment grade company is that a goal to get back to investment grade how do you look at that going forward.

Lance Rosenzweig: We would certainly love that. But, you know, we don't have a stated goal as to our kind of investment ratings going forward. We are just trying to prudently run the business to optimize cash, to use our cash to improve our balance sheet, and to become a significantly stronger company over time.

Speaker Change: We would certainly love that but we don't have a stated goal is to kind of investment ratings going forward.

John Witek: I'll expand on the impact of this dynamic a little later in my remarks, but the net of it is lower equipment revenue up front, which impacted second quarter results. In this environment, we are seeing positive demand for our mailing products with our total written contract value up year-over-year. We also made solid progress on our product migration. 83% of our total install base and 88% of our low-to-mid-volume meters are now on the new IMI technology.

Speaker Change: We are just trying to prudently run the business to optimize cash to use our cash to improve our balance sheet and to emerge a significantly stronger company over time.

Matthew Swope: That's great. Well, congratulations again, guys. Thanks for all the time.

Speaker Change: That's great well congratulations again guys. Thanks for all the time.

Matt Swope: Thank you Matt.

Operator: Thank you. And next, we go on to the line for Peter Sakon from Credit Sites. Please go ahead.

Matt Swope: Yeah.

Speaker Change: And next we go onto the line four Peter's shaking from credit Suisse. Please go ahead.

Peter Sakon: Hi, on Sunset, thank you for the detail on that. Can you comment on what your expected churn will be for the remaining part of the year?

Peter Shaking: On Sunset. Thank you for the detail on that can you comment on what you're expecting.

John Witek: As a reminder, USPS requires all low-to-mid-volume meters to be converted by the end of this year. Shipping-related revenues grew 10% in the quarter and now comprise 16% of segment revenue. We remain encouraged about the performance of our digital shipping offerings, which drove most of the 33% year-over-year improvement in this quarter's business services revenue. Similar to last quarter, lower in-period equipment and professional services moderated overall shipping growth. Segment gross margin expanded 160 basis points and gross profit dollars were flat year-over-year.

Speaker Change: Yes.

Speaker Change: Yeah.

Operator: I'm sorry, Peter, can you repeat the question, the expected what?

Speaker Change: I'm sorry, Peter can you repeat the question do you expected what.

Peter Sakon: How much do you expect churn to be at Suntec? My recollection was a mid single-digit decline in the number of units. Could you request a memory on that and your expectations going forward? Thanks, Peter.

Speaker Change: How much do you expect churn to be sunset.

Speaker Change: My recollection was mid.

Speaker Change: Mid single digit decline.

Speaker Change: On the number of.

Speaker Change: Could you just a question for me on that and your expectations going forward.

John Witek: Yeah, I mean, if you think about the second half of the year and where we've been with the migrations, with the IMI, we're in a spot right now where I think the more difficult transactions are coming in the second half of the year. And as such, I would expect that the cancellation rates would tick up, I'd say, fairly significantly from what we've seen up to this point. And that's all in our guidance. So what we're modeling through the second half of the year assumes that there will be a tick up in churn.

John Witek: Yeah, thanks, Peter. Now I have it.

Speaker Change: Yeah. Thanks, Peter Yeah, I mean, if you think about the second half of the year and where we've been with the with the with the migrations with the IMI.

John Witek: Centech's digital shipping offering, which includes SaaS subscription revenue, drove margin expansion in the quarter. Our product mix, honestly higher financing revenue and cost actions also contributed to the improvement. Operating expenses declined $4 million or 4% year-over-year from headcount actions, and were partially offset by $2 million in higher non-cash pension expense. Higher pension expense was a headwind in the first quarter of this year as well, and we expected to remain a headwind in the second half of the year.

Speaker Change: We're in a spot right now where I think the more difficult transactions are coming in the second half of the year and as such I expect I would expect that the cancellation rates would tick up.

Speaker Change: I'd say fairly.

Speaker Change: Fairly significant from what we've seen up to this point and Thats all in our guidance. So what we're modeling through the second half of the year assumes that tick up in insurance.

John Witek: Yes, but I'm more interested in the actual amount and how many units you're expecting to leave this year. Yeah, but we're not

Speaker Change: Yes, what I'm more interested in what the actual amount.

Speaker Change: How long do you expect them to move in here.

Speaker Change: Sure.

John Witek: Yeah, but we're not going to reveal that today, Peter.

Speaker Change: Yes, we're not going to disclose that today Peter.

John Witek: Net finance receivables were $1.2 billion down 3% year-over-year from a decrease in lease receivables, which was primarily a result of higher level of lease extensions. As Lance mentioned, we see a significant opportunity to improve cash conversion and better leverage the value of the bank. In the quarter, the bank generated 26 million of cash contribution to PBI up over 100% year-over-year, a benefit partly fueled by the bank's participation in the financing of $13 million of captive lease receivables, which is a quality addition to the bank.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Operator: Thank you, and next we go into the line for Davis Steinhardt, Conchuria Capital. Please go ahead.

Speaker Change: Thank you and next we go into the line for David Steinhardt, considering your capital. Please go ahead.

Unknown Speaker: Hey all, congrats on all of the moves today, very exciting progress. I see that you've given a guide for EBIT. It looks like Cree Cash Flow is pacing well ahead of last year. I wonder if you're able to give a sense of where you think Cree Cash Flow might be for the year at this point.

David Steinhardt: Hey, al Congrats on all of the moves today very exciting progress.

David Steinhardt: I see that you've given a guide for EBIT.

David Steinhardt: It looks like free cash flow is pacing well ahead of last year I wonder if you're able to give a sense of.

Speaker Change: Where do you think free cash flow might be for the year at this point.

John Witek: Pre-sort also had an excellent quarter, and it continues to drive significant profit growth with productivity improvements. Pre-sort's strength of impressive quarters reflects the quality of our team and the value we provide to our clients. In the quarter, we sorted 3.6 billion pieces of mail. Revenue grew 3% to $247 million, and EBIT was $27 million, up 32% year-over-year. Our team continues to raise the bar on labor productivity. Process improvements, along with prior investments in automation and analytics, drove pieces fed per labor hour up 10% year-over-year. Across our network, this equates to reduction of over 150,000 labor hours versus prior year. We also continue to drive better transportation efficiency.

John Witek: Hey, David, it's John. You know, we don't give free cash flow guidance, but I'd like you to think about it this way. It should look a lot like what we've seen in the first half of the year. We've got some, you know, some very positive news built into our guidance. So I would expect it to be pretty consistent with the first half.

John: Hey, David It's John.

David: We typically don't give out the free cash flow guidance, but I'd like you to think about it this way.

Speaker Change: It should look a lot like what we've seen in the first half of the year. We've got some there was some very positive news built into our guidance.

David: So I would expect it to be pretty consistent with the first half.

Unknown Speaker: Great, thank you. And in terms of the expected payments related to the shutdown of global e-commerce, I think that the statement was up to $150 million. Obviously, that includes the dip. I wonder, can you give us a range of outcomes at this point in terms of what the low end might be?

Speaker Change: Great. Thank you and in terms of the expected payments related to the shutdown of global ecommerce.

Speaker Change: I think that the statement was up $250 million.

Speaker Change: Obviously that includes the debt I wonder can you give us a range of outcomes.

Speaker Change: At this point in terms of what the low end might be.

John Witek: I wouldn't give you a range, as Lance mentioned earlier. There are a lot of twists and turns along the way of this journey. So we've best modeled it at that rate, and we'll provide updates as we go.

David Steinhardt: I wouldn't give you a range as Lance mentioned earlier.

John Witek: Unit transportation costs decline 5% year-over-year due to lane optimization through consolidation and endorsing, as well as improve third-party contract terms. Let me briefly talk about GEC's performance in the quarter. Domestic parcel volume was 60 million up 21 percent versus prior year. Higher volumes drove a 7 percent increase in revenue, the 326 million in the quarter. Revenue per piece remained under pressure due to client mix and continued market over capacity, but the client and RPP offset productivity gains and fixed cost leverage from the higher volumes.

Lance: There is a lot of twists and turns along the way of this journey. So we've modeled it.

Lance: At that rate, then and that will provide updates as we go.

Unknown Speaker: Unknown Speaker And in terms of the rest of the year for Centech and PreSort and beyond going into, I guess, 2025, I understand that the slide, the EBIT bridge, is for illustrative purposes. But in terms of the cost takeout goal for through 2025, Should we think that you'll be able to get through most of the cost savings through 2025, or is it still too early to judge when you'll be able to attack the rest of the 140 to midpoint? Okay, okay.

Lance: Understood.

Lance: And in terms of.

Lance: The rest of the year.

Lance: <unk>, four <unk> and presort and beyond you know.

Lance: Beyond going into I.

Lance: I guess 2025.

Lance: I understand that.

Lance: Slide <unk>.

Lance: EBIT bridge is for illustrative purposes.

Lance: But in terms of the cost takeout goals.

John Witek: EBIT was a loss of $31 million and benefited from a $7 million or 15 percent improvement in operating expenses year-over-year. Outside of the business units our unallocated corporate expenses were $51 million in the quarter. The $4 million year-over-year increase was driven primarily by variable compensation where last year we were well below targets and this year we are outperforming our targets. Our variable compensation is determined by our stock price and performance against metrics laid out in our proxy. Excluding variable compensation, unallocated corporate expenses decreased $12 million year-over-year.

Lance: For 2025 should we think that.

Speaker Change: You'll be able to get through most of the cost savings through 2025 or is it still too early to judge when you'll be able to attack. The recipe 104 hundred 40 at the midpoint.

John Witek: So when we upped the range to 120 to 160, we had a pretty good feel for what's going to fill that range. I would tell you we're making progress.

Speaker Change: Yeah. So so when we add up the range to 120 to 160 <unk> had a pretty good feel for what's going to what's going to fill that that range I would I would tell you, we're making progress and kind of give you a sense I think right now I would say that by the end of the first quarter, we would be running at.

John Witek: And to kind of give you a sense, I think right now that by the end of the first quarter, we would be running at an annualized gross savings well inside of that range, just to kind of give you an idea of the pace that we're on. And when you think about the 120 to 160, again, 70 being behind us, the majority of what's coming is really around indirect spend.

Speaker Change: Annualized gross savings are well inside of that range.

Speaker Change: Just to kind of give you the idea of the pace that we're on.

John Witek: Now let me turn to the outlook. We are updating our guidance to reflect the exit of GEC, incremental cost reduction actions, and a strong first half performance. Our updated guidance is on a continuing operation basis and excludes financial results from the GEC entities which we expect will be reflected in discontinued operations in the third quarter.

Speaker Change: And when you when you think about the 120 to 160 again 70 being behind US. The majority of what's coming is really around indirect spend so that's going to take a little bit more time to transact.

John Witek: So that's going to take a little bit more time to transact. There are a number of transactions that we have to go through, contracts, relationships, et cetera. So I expect that to take a little longer, but I'm confident that it's going to be in that range.

Speaker Change: There are a number of transactions that we have to go through contracts relationships et cetera. So.

Speaker Change: <unk> got to take a little longer but confident that it's going to be in that range.

John Witek: We are holding revenue guidance to the prior target of flat to low single digit decline. Our prior guidance assume revenue growth from GEC and therefore holding guidance implies improved revenue performance from centech and pre-sort compared to previous expectations. Moving to profitability, we expect the continuing operations of the company to generate between $340 and $355 million in full year 2024 EBIT. This is more than double our 2023 reported EBIT of $172 million inclusive of GEC.

Speaker Change: Understood.

Unknown Speaker: Thank you very much. I appreciate it.

Speaker Change: Thank you very much I appreciate it.

Dave: Thanks, Dave.

Operator: Thank you. And next, we're going to the line for Will Brunman, North Coast Research. Please go ahead.

Speaker Change: Thank you and next we go on to the life of Northcoast Research. Please go ahead.

Will Brunman: Hey, how's it going guys? So I just want to make sure I understand the guidance for the second half of this year. How much of the, you know, $70 million in cost cuts are included in the second half? I'm just trying to get an understanding of what the growth is in core EBIT.

Speaker Change: Hey, How's it going guys. So I just wanted to make sure I understand the guidance for the second half of this year, how much of the $70 million and cost cuts are included in the second half I'm just trying to get an understanding of what the growth is in core EBIT.

John Witek: Hey Will, thanks for the question. Of those 70, our guidance includes about half of that for the second half of the year.

Speaker Change: Yeah, Hey, well thanks for the question.

John Witek: Let me walk through several key drivers in our outlook as we head into the second half of the year. Both centech and pre-sort remain well positioned in their markets and we expect both to continue to execute well in the second half of the year.

Speaker Change: Of the 70 or.

Speaker Change: Our guidance includes about half.

Speaker Change: Of that for the second half of the year.

Speaker Change: Okay.

Will Brunman: Okay, and then I was also going to ask, you know, with the divestiture of GEC, will that eliminate all the lease responsibilities associated with the business? And will you have to dispose of any real estate assets associated with it?

Speaker Change: Okay, and then I was also going to ask.

Speaker Change: With the divestiture of GE.

John Witek: For centech, I'm going to take a minute to expand on the near term headwinds that result from the current phase of our product life cycle. At a high level, we expect two related dynamics to impact our revenue and growth profit in the second half of the year. First, the business has done a great job navigating its product migration cycle a year to date. To this point, we outperformed our expectations in the first half as our client team successfully migrated clients to new products.

Speaker Change: Will that eliminate all the lease responsibilities associated with the business and what do you have any real estate asset associated with them.

John Witek: Those transactions are all considered within the 150. There will be a mix of a lot of those.

Speaker Change: Those those transactions are all considered within the 150.

Speaker Change: So it'll be a mix of a it'll be a mix of a lot of those well and they will all be accomplished during the chapter 11 proceedings.

John Witek: And they will all be accomplished during the Chapter 11 proceedings.

Speaker Change: Okay.

Will Brunman: And then just one more, if you don't mind. You know, the shipping revenue in Centech has been growing really nicely. And I'm just curious about how much Centech revenue is from shipping. And would you anticipate that business to continue to grow at double digits? Yeah.

Speaker Change: And then just one more if you don't mind.

John Witek: This benefited first quarter and second quarter results. In the second half of the year, we expect the remaining portion of our install base to be more difficult to transact, resulting in a higher cancellation rate. This aligns with our experience from previous product 2. We expect our mix of transactions to shift more towards lease extensions and away from new leases in the second half of the year. This is expected, as the first wave of IMI products released five plus years ago are coming up for renewal.

Speaker Change: You know the shipping revenue and <unk> has been growing really nicely.

Speaker Change: And I'm, just curious about how much fintech revenue as shipping and would you anticipate that business to continue to grow double digits.

John Witek: I mean, it was double digits in the second quarter, about 16% of the segment revenue. So it's, it's, it's been pretty consistent growing double digits. Looking forward, I would expect it to be pretty much at that same pace. And some really nice things underneath the covers of that, particularly with our digital offerings, growing, you know, well, well above 30% there.

Speaker Change: Yeah, I mean, it was double digit in the second quarter. It was about 16% of the segment revenue.

Speaker Change: So it's it's been pretty consistent growing double digit looking forward I would expect it to be pretty much on that same pace.

Speaker Change: And some really nice things underneath the covers of that particularly with our digital offerings growing well well above 30% there.

John Witek: Over the full term of the lease, lease extensions are more profitable transactions for us since we lock in continued monthly cash flows without incurring the cost to produce new equipment. However, revenue from a lease extension is recognized over the terminal lease as financing revenue versus upfront as equipment sales with a new lease. This dynamic creates near-term pressure on the P&L in a similar way as a software company transitioning from a license and maintenance model to a SaaS model.

Will Brunman: Okay, all right. Thank you guys. I really appreciate the help.

Speaker Change: Okay.

Speaker Change: Right. Thank you guys really appreciate your help.

Will: Thanks will.

Operator: Thank you. And next, we're going to the line for Justin Duprala of Dumbo Capital Management. Please go ahead.

Speaker Change: Thank you and next we go into the nine four Justin to Paolo for Domo Capital Management. Please go ahead.

Justin Duprala: Hey Lance, as an actual shareholder, I just want to say I appreciate the transparency and the very detailed earnings call.

Justin: Hey, Lance as an actual shareholder I just want to say I appreciate the transparency and the very detailed earnings call.

Lance: Thank you Justin and I appreciate that.

Lance Rosenzweig: I appreciate that. Yeah

Justin Duprala: Yeah, it's an incredible change from the previous management, going back to debt. I was wondering, do you guys have any idea of how much debt you may be able to proceed with during 2024?

Speaker Change: It's a incredible changed from the previous management team.

John Witek: Over the long term, revenue will stabilize as a high margin annuity flowing through our financing revenue. These transactions are better for cash flow due to better profitability and less investment in inventory and net finance receivables. So to summarize, lease extensions are lower equipment sales in the near term, produce higher financing revenue over the long term and cash flow positive.

Speaker Change: Going going back to that I was wondering do you guys have any idea of how much debt Paydown you may be able to.

Speaker Change: Proceed with during 2024.

John Witek: Hey, Justin, it's John. So I think the first priority as we get through 24 and into the first part of 25 is to make sure that we successfully get the wind down done and all the expenses that go along with that. I think we're, you know, we're in better shape as a business right now to produce strong cash flow, and that will be the first priority. And then, along with the fourth initiative around deleveraging our balance sheet, it will be a quick second here.

Speaker Change: Hey, Justin it's John So I think the first priority as we get through 24 in the first part of 'twenty five is to make sure that we successfully get the wind down done.

John Witek: Turning to pre-sort, the business performed well in the first half of the year and has great momentum. We remain encouraged by the value of our offering to our clients, which is evident in our strong performance in new logo sales and competitive takeaways. The recent investments we have made in automation and technology over the past several years are resulting in meaningful efficiencies across our network. To that end, we achieved our highest labor productivity in the second quarter, beating our previous record set in first quarter of this year. All of this gives us confidence that pre-sort is set up to continue to perform well in the second half of the year.

Speaker Change: And all the expenses that go along with that I think where we're in a better shape.

Speaker Change: As a business right now too.

Speaker Change: Produce strong cash flow and that will be the first priority and then.

Speaker Change: Along with the fourth.

Speaker Change: Initiative around deleveraging our balance sheet will be a will be a quick second here.

Justin Duprala: Got it. And so I understand that EBIT of $481 million is not official guidance for 2025, but my quick calculations show that it results in about an earnings per share of $1.50. Does that sound accurate?

Speaker Change: Got it and so I understand the EBIT of $481 million is not official guidance for 2025.

Speaker Change: My quick calculation, so that results in about a earnings per share of $1.50 does that sound accurate.

John Witek: Finally, cost reduction. As Lance mentioned, we are moving with urgency to streamline the organization. About a month ago, we announced that $70 million of annualized savings had already been initiated with the majority of those savings coming from completed headcount reductions across our support functions. We have also initiated savings from indirect spending and will continue to see benefit from these reductions. Indirect savings will take longer to take effect, but we expect these actions to contribute to our 120 million to 160 million gross annualized savings target.

John Witek: We're not, you know, we're not giving you guidance here, and keep in mind, Justin, it's really an illustrative exhibit. So, you know, we can maybe help guide you a little bit more on the modeling.

Speaker Change: We're not we're not giving the guidance here and keep in mind, the adjusted its really illustrative exhibit so.

Speaker Change: We can maybe help guide you a little bit more on the modeling.

Justin Duprala: Jai Hind. Jai Hind.

Speaker Change: Sure.

John Witek: That should be about $1.50 earnings per share, right?

Speaker Change: That should be about $1 50 earnings per share right.

Justin Duprala: We, yeah, we didn't we didn't provide any kind of EPS information, Justin. It's really kind of a retrospective sort of a look at the actual EBIT performance, adjusting it for the anticipated savings from GEC and cost takeouts.

Speaker Change: Yeah, we didn't we didn't provide any kind of EPS information, Justin it's really kind of a retrospective sort of a look at the actual EBIT performance adjusting it for the anticipated savings from GEC and.

Lance Rosenzweig: With that, I thank you, and I'll pass it back over to Lance. Thank you, John. Pitney Bowes is better positioned than at any time and recent memory to capitalize on opportunities in the company's core cash-generating businesses. New leadership from the boardroom to the management team is aligned with shareholders when it comes to driving the acceleration of value creation. We look forward to continuing to report on our progress as we execute on our previously announced strategic initiatives and accelerate the Pitney Bowes turnaround.

Unknown Executive: This now concludes the presentation portion of today's call.

Speaker Change: And cost take outs.

John Witek: Got it. Okay.

Justin: Got it okay.

Justin Duprala: And then I guess the last comment, well, I mean, I know someone else mentioned the notes that are yielding over 12%. I think it's $275 million, the 2028 notes. Sounds like that might be something you're prioritizing early next year. Eliminating that should be about $33 million a year, right? Interested?

Justin: And then I guess.

Speaker Change: The last comment.

Speaker Change: Someone else mentioned the notes that are yielding them over 12% I think that's 275 million a 2028 notes.

Speaker Change: It sounds like that might be something youre prioritizing early next year, eliminating that should be about $33 million a year right.

Speaker Change: Interest savings.

John Witek: That's right, but I think our first priority would be more likely the 26 TLA.

Speaker Change: That's right, but I think our first priority would likely be more likely to 'twenty six.

Unknown Executive: We'd now like to open the call for Q&A. Ladies and gentlemen, if you wish 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.

Speaker Change: 26 T L a.

Speaker Change: Okay.

Justin Duprala: Got it. And the last comment I have is that your relationship with the post office is extremely important to your legacy businesses. And I would assume that exiting GC would improve that relationship. I think other people might have different opinions. I'm wondering if you guys have had any conversations with the post office on this that you can talk about.

Speaker Change: Got it.

Speaker Change: The last comment I have is I would imagine that your relationship with the post office is extremely important to your legacy businesses and our.

Unknown Executive: If you're using the speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1-0 at this point.

Speaker Change: I would assume I would assume accident <unk> would improve without relationship I think other people might have different opinions I'm wondering if you guys have any conversations with the post office on this that you can talk about.

Unknown Executive: And first we're going to the line for Anthony Lebiedzinski. Please go ahead. Anthony please check Can you hear me now. Yes. Okay, sorry about that. Yeah, good. Okay, good afternoon. Sorry, I was on mute. All right.

Lance Rosenzweig: We have dialogue with the Postal Service pretty consistently all the time. Pitney Bowes has been a partner of the USPS for 105 years, and we have a strong relationship across our big business segments, and we work hard to maintain that relationship.

Speaker Change: Sure Yeah, we have dialogue with the postal service pretty consistently all the time Pitney Bowes has been a partner of the USPS for 105 years and.

Speaker Change: We have a strong relationship across our big business segments, and we work hard to maintain that relationship.

Justin Duprala: Do you think exiting global e-commerce would improve that relationship? You know, I'm really happy with how the relationship has been. I don't know whether that would make it any different.

Speaker Change: Do you think accident global ecommerce would improve that relationship.

Lance Rosenzweig: You know, I'm really happy with how the relationship has been. I don't know whether that would make it any different, really. We really value the team at the USPS.

Speaker Change: I'm very happy with how the relationship has been I don't know whether that would make it any any different really we we really value the team at the USPS.

Speaker Change: Yes.

John Witek: So thanks for taking the questions and good to see the conclusion of the GEC review come to an end here. So, I guess just first just a quick clarifying question. So in terms of the one time cash costs of $150 million is that mostly severance and least termination costs or maybe if you could just touch on that first and then I have a few other questions as well. Thanks for the question.

Speaker Change: Yeah.

Operator: Thank you, you're next. Next we're going to the line for Jeff Harlib, Barclays. Please go ahead.

Nick: Thank you Nick.

Speaker Change: Next we go into the line four Jeff Harlem Barclays. Please go ahead.

Jeff Harlib: Hi, so the $150 million in one-time costs, which I think you said will be mostly through probably 2025, maybe you can just confirm that, but will that be funded through cash flow and the repatriation of cash, etc., or do you expect to raise new financing for that? E. E. E. E. E.

Jeff Harlem: Hi, so the $150 million of one time costs, which I think you said will be mostly through probably 25, maybe you can.

Jeff Harlem: Just confirm that but will that be funded through cash flow and the repatriation.

John Witek: This is John. It's actually a combination of a few items. They're going to be some expenses that the parent will bear. There'll be some pre-petition professional fees, etc. That 150 is also going to be inclusive of the dip funding that we're providing. And then we're also going to have outside of the professional fees certain other why don't cost that I believe the parent will bear. Okay, thanks, John.

Speaker Change: <unk> cash et cetera, or do you expect to raise a new financing for that.

John Witek: Hey Jeff, it's John. Let me just clarify. I said earlier that it's likely front-end loaded for the second half of this year and taper off in the first half of next year, and it will be funded through operational.

Jeff Harlem: Hey, Geoff it's John Let me just clarify I said earlier that.

John: That's likely front end loaded for the second half second half of this year, so and taper off in the first half of next year and it will be funds funded through operational.

Jeff Harlib: Through operational free cash flow and the cash on the balance sheet that you're repatriating. Okay, okay.

Speaker Change: Through operational free cash flow.

Speaker Change: And the cash on the balance sheet figure repatriate.

John Witek: Okay, so now that the GEC is no longer part of the Pitney Bowes and the business has been simplified. How should we think about an allocated corporate expenses going forward? An allocated corporate expenses are coming down significantly. Our cost-cutting program that we've put in place is largely in corporate charges. And I think you'll see in the coming quarters a significant reduction in those charges. Yeah, absolutely. Lance, I mean, you mentioned it in your script earlier. The first $70 million actually went across all all areas business units as well as corporate and allocated. Okay, got you. Okay.

Speaker Change: Alright.

Jeff Harlib: And just for modeling purposes, the... What is the DNA of the e-commerce business? Is it in the 65 million range? So we can kind of come up with an EBITDA number, pro forma.

Geoff: Okay, Okay, and just for modeling purposes the a.

Speaker Change: DNA of the E Commerce business is it in the $65 million range. So we can kind of come up with an EBITA number pro forma.

John Witek: Jeff, can you clarify your question? I didn't catch it.

Jeff Harlem: It's Jeff.

Speaker Change: Jeff can you clarify your question I didn't catch it.

Jeff Harlib: Oh, yeah, depreciation, and amortization of eCommerce, you gave the EBIT. And I'm just wondering what the DNA is that you're coming up with, you know, a pro forma EBITDA. Yeah, that it is.

Jeff: Depreciation and amortization of ecommerce you gave the EBIT and I was just wondering what the DNA is.

Speaker Change: That your you know to come up with and you know our pro forma EBITDA number.

John Witek: Yeah, it, uh, the DNA was about $14 million in the second quarter.

Speaker Change: Yeah.

Speaker Change: The DNA was about $14 million in the second quarter.

Speaker Change: Okay.

Lance Rosenzweig: And then so now you have a centech and pre-sort left. So I guess, you know, within centech, you talked about the shipping related revenue now being 16% of your overall. Do you guys have a goal in mind as to like how high that can be because that seems like it's really certainly a growth driver for that segment? Yeah, it is Anthony, the key growth driver and we anticipate that growth continuing. So over time, it will become more and more material as an overall percentage of centech's revenue mix. Okay, all right. That's good to hear.

Speaker Change: Okay.

Jeff Harlib: And maybe last thing, can you just talk a little bit about, obviously, you know, you've done a good job of... Unknown Executive, Kartik Mehta, Philip Landler, John Witek, Peter Sakon, Unknown Executive, Kartik Mehta, Philip Landler, John Witek, Peter Sakon, Yeah, so

Speaker Change: And then maybe last thing can you just talk a little bit about obviously.

Speaker Change: He's done a good job of.

Speaker Change: You know executing on these cost savings are.

Speaker Change: How do we get comfortable you didn't cut too deep and some of your core business areas.

Unknown Executive: So risk management is very important to us, Jeff, and it's important at the board level as well. And prior to implementing our cost takeouts and prior to forecasting our new cost takeouts, we have a pretty extensive review process internally and with the board on risk. And we're very confident as we implement these cost takeout plans that we've looked at the implications of our cost takeouts and really look to manage and mitigate any potential risk. And it's a very detailed process that we actually go through. We're pretty confident in it. Thanks very much.

Speaker Change: Yes, so risk management.

Speaker Change: It's very important to us Jeff and it's it's important at the board level as well and prior to implementing our cost takeouts and prior to forecasting our new cost takeout. So we have a pretty extensive review process internally and with the board on on risk and we're very confident as we as we implement these cost takeout.

Speaker Change: <unk> that we've looked at the implications of our cost takeouts and and really look to manage and mitigate any potential risk and it's a very detailed process that we actually go through we're pretty confident in it.

Lance Rosenzweig: And then so now as far as pre-sort business, obviously, that's been attractive segment for you guys for a while. So I know that segment has grown through some acquisitions in the past. How are you guys thinking about that longer term? Do you think there are some additional opportunities to grow that business organically? And perhaps in organically? Yeah, we're excited about the pre-sort business and I think a lot of credit to the pre-sort team.

Speaker Change: Okay. Thanks very much.

Jim: Thank you Jim.

Lance Rosenzweig: Thank you. There are no more questions. Mr. Rosenzweig, would you like to make any additional remarks? Yes. Thank you everyone for joining us.

Mr process: Thank you there are no more questions. Mr process would you like to make any additional remarks.

Lance Rosenzweig: Yes, thank you everyone for joining us for this earnings call. We appreciate your support and questions and look forward to catching up again next quarter. And that does conclude our conference call for today. Thank you for your participation and for using AT&T Conference and Service. You may now disconnect.

Mr process: Yes. Thank you everyone for joining us for this earnings call. We appreciate your support and questions and look forward to catching up again next quarter.

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

Speaker Change: Okay.

Speaker Change: And that does conclude our conference for today. Thank you for your participation and for using AT&T accomplished in service you may now disconnect.

Lance Rosenzweig: The company is executing extremely well and continues to improve its performance metrics and its utilization rates, etc. There are also ongoing operations, ongoing opportunities for tuck-in M&A's and we are actively considering additional M&A targets. They're very important. Okay, got it, got it. Okay.

Lance Rosenzweig: And then last question from you before I pass it on to others. Now that you've done this strategic review and you've done a lot of work in a relatively short period of time, do you guys have any updated thoughts on the dividend versus that reduction, just the overall capital allocation thinking that would be great? Sure, we did announce a dividend this quarter, consistent with recent quarters. The board takes capital allocation very seriously and each quarter we do an extensive review of our cash and availability in terms of evaluating dividends or other uses of cash. Okay, got it.

Speaker Change: Yeah.

Unknown Executive: Well, thank you and best of luck. Thank you.

Matthew Swope: And next, we're going to the line for Matt Spope. I'm fired. Please go ahead.

Matthew Swope: Thank you very much guys and congratulations. Could you talk a little bit more on the GEC process on sort of how this is going to play out from here? What the timing is? I know the transaction was announced today. When does the filing happen? When will be the timing on the cash out? I guess I wasn't quite clear when you talked about the max of 150 million. Does that include the dip or is the dip separately from that?

Matthew Swope: Yeah, let me take a general stab at it, John, and then you can dive into more details. So the sale of the majority control to Hillco closed today and the chapter 11 filing happened today. So both of those are in process. It's moving forward on an accelerated timetable, very highly organized plan that the Hillco team has put together with the GEC team. We expect that to happen expeditiously during the course of 2024.

Matthew Swope: John, do you want to fill in some and your final question on the 150 million that is inclusive of the dip financing within the 150 million? Yeah, and the 150 also just to mention, I didn't mention earlier, not only is it included dip, but it also includes the severance payments for the team. And as far as timing you had asked, I'd like to think of it this way as we're modeling it as it'll be fronted loaded in the second half of this year and then sort of taper off as we get into the first half of next year.

John Witek: Great, that's all helpful. And given that it is a dip, typically we think about dip as a loan that has a chance of... Producing some value back to you. Should we think of that 50 million as potentially coming back or should we think of that as out the door? You know, we're modeling it as part of our $150 million total cost. And you know, we'll see bankruptcy always has some uncertainty to it.

John Witek: We're always hopeful for upside, but we'll sort of see how that plays out over the coming couple quarters. Gotcha. That's great. And then and then Lance, you talked about the high cost debt and and near-term debt reduction. How soon do you think that can start? You've done a great job of freeing up cash. Like you said, you're going to do, you know, you have these silver plus 690 notes sitting there that I know the call protection expires soon.

John Witek: How do you see the debt reduction part of the plan progressing? Yeah, our lenders, I'll first say, have been very supportive of us and we appreciate their support in our recently restructuring of our notes. We believe that our credit is going to get significantly improved as time goes by over the near term. And you know, we intend to take advantage of our improved credit as we look at refinancing opportunities. We don't have a specific timetable though.

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

John Witek: No, that's fair. And into that end, you know, you talked about maybe some ratings improvement. Do you have a leverage target? I mean, back a few years ago, Penny Bose was an investment grade company. Is that a goal to get back to investment grade? How do you look at that going forward? We would certainly love that. But you know, we don't have a stated goal as to our kind of investment ratings going forward.

Lance Rosenzweig: We are just trying to prudently run the business to optimize cash, to use our cash to improve our balance sheet and to emerge a significantly stronger company over time. That's great.

Unknown Executive: Well, congratulations again, guys. Thanks for all the time. Thank you, Matt.

Unknown Executive: Thank you.

Peter Sakon: And next, we go on to the line for Peter Saken from credit sites. Please go ahead. I'm sent at that. Thank you for the detail on that. Can you comment on what you're expecting sure will be for the remaining part of your. I'm sorry. Peter, can you repeat the questions? You expected what? How much do you expect sure to be a son tech? My recollection where there's a sort of mid-single digit decline on the number of units.

Peter Sakon: Could you request for a memory on that and your expectations going forward? Yeah, thanks, period. Now I have it. Yeah, I mean, if you think about the second half of the year and where we've been with the migrations, with the IMI, we're in a spot right now where I think the more difficult transactions are coming in the second half of the year. And as such, I would expect that the cancellation rates would kick up, I'd say fairly, fairly significant from what we've seen up to this point.

Peter Sakon: And that's all on our guidance. So what we're modeling through the second half of the year assumes that tick up in turn. Yes, but I'm more interested in what the actual amount is and how many units are expecting to leave this. Yeah, we're not going to disclose that to you, Peter. Okay, thank you.

Unknown Executive: Thank you.

David Steinhardt: And next, we go into the line for David Steinhardt, contrary to Capitol, please go ahead. Hey, all congrats on all of the moves today, very exciting progress. I see that you've given a guide for EBIT. It looks like free cash flow is pacing well ahead of last year. I wonder if you're able to give a sense of where you think free cash flow might be for the year at this point. Hey, David, it's John.

David Steinhardt: You know, we don't give the free cash flow guidance, but I'd like you to think about it this way. It should look a lot like what we've seen in the first half of the year. We've got some very positive news built into our guidance. So I would expect it to be pretty consistent with the first half.

John Witek: Great. Thank you. And in terms of the expected payments related to the shutdown of globally commerce, I think that the statement was up 250 million. Obviously, that includes the dip. I wonder, can you give us a range of outcomes at this point in terms of what the low end might be? I wouldn't give you a range as Lance mentioned earlier. There's a lot of twists and turns along the way of this journey. So we've best modeled at that rate. And that will provide updates as we go. Understood.

John Witek: And in terms of the rest of the year for, you know, send tech and presword and beyond, you know, beyond going into, I guess, 2025, I understand that the slide, the evit bridges for illustrated purposes. But in terms of the cost takeout goals for 2025, should we think that you'll be able to get through most of the cost savings through 2025 or is it still too early to judge when you'll be able to attack the rest of the, you know, 140, 148 midpoint.

John Witek: Yeah. So when we up the range to 120 to 160, I have a pretty good feel for what's going to fill that range. I would tell you we're making progress and kind of give you a sense. I think right now, I would say that by the end of the first quarter, we would be running at an annualized growth savings well inside of that range. That's just to kind of give you the idea of the pace that we're on.

John Witek: And when you think about the 120 to 160, again, 70 being behind us, the majority of what's coming is really around indirect spend. So that's going to take a little bit more time to transact. There are a number of, you know, transactions that we have to go through contracts, relationships, et cetera. So I expect that to take a little longer, but confident that it's going to be in that range. Understood. Thank you very much. Appreciate it.

Unknown Executive: Thank you.

Will Brunemann: And next, we go on to the line for Brunemann, North Coast Research. Please go ahead. Hey, how's it going guys? So, I just want to make sure I understand the guidance for the second half of this year. How much is the, you know, 70 million in cost cuts are included in the second half? I'm just trying to get an understanding of what the growth is and core you bit. Hey, well, thanks for the question.

Will Brunemann: Of the 70, our guidance includes about half of that for the second half of the year. Okay, and then I was also going to ask, you know, with the divestiture of the GEC, will that eliminate all the least responsibilities associated with the business and will you have to dispose of any real estate assets associated with them? Those transactions are all considered within the 150. There'll be a mix of a lot of those.

Will Brunemann: And they will all be accomplished during the chapter 11 proceedings. Okay. And then just one more, if you don't mind. You know, the shipping revenue in SEMTAC has been growing really nicely. And I'm just curious about how much SEMTAC revenue is shipping, and would you anticipate that business to continue to grow double digits? Yeah, I mean, it was double digit in the second quarter. It was about 60% of the segment revenue.

Will Brunemann: So it's been pretty consistent growing double digit. Looking forward, I would expect it to be pretty much on that same pace. And some really nice things underneath the covers of that, particularly with our digital offerings growing, you know, well, well about 30% there. Okay. All right. Thank you guys. Really appreciate your help. Thanks, Bill. Thank you.

Justin Dopierala: And next we're going to the line for Justin Dupralla for the Demo Capital Management. Please go ahead. Hey, Lance. As an actual shareholder, I just want to say I appreciate the transparency in the very detailed earnings call. Thank you, Justin. I appreciate that.

Justin Dopierala: Yeah, it's an incredible change from the previous management team. Going back to debt, I was wondering, do you guys have any idea of how much debt pay down you may be able to proceed with during 2024? Hey, Justin, it's John. So I think the first priority as we get through 24 and the first part of 25 is to make sure that we successfully get the wind down done in all the expenses that go along with that.

Justin Dopierala: I think we're, you know, we're in a better shape as a business right now to produce strong cashflow and that will be the first priority. And then along with the fourth initiative around the leveraging our balance sheet will be a quick second here. Got it. And so I understand that EBIT, a 481 million is not official guidance for 2025. But my quick calculations show that results in about an earnings per share of $1.50 to that sound accurate.

Justin Dopierala: We're not, you know, we're not giving the guidance here and keep in mind, Justin, it's really an illustrative exhibit. So, you know, we can maybe help guide you a little bit more on the modeling. That should be about $1.50 earnings per share, right? We didn't provide any kind of EPS information, Justin is really kind of a retrospective sort of a look at the actual EBIT performance, adjusting it for the anticipated savings from GEC and Kostika. Got it.

Lance Rosenzweig: Okay. And then I guess the last comment. Well, I mean, I know someone else mentioned the notes that are yielding of over 12%. I think it's 275 million, the 2028 notes. Sounds like that might be selling your prioritizing early next year. Eliminating that's right, but I think our first priority would likely be more likely to 26, 26 TLA. Got it. And the last comment I have is, I would imagine that your relationship with the post office is extremely important to your legacy businesses. And I would assume I would assume accident GEC would improve without relationship. I think other people might have different opinions.

Lance Rosenzweig: I'm wondering if you guys have any conversations with the post office on this that you can talk about? Sure. Yeah, we have dialogue with the Postal Service pretty consistently all the time. Pitney Bowes has been a partner of the USPS for 105 years. And we have a strong relationship across our big business segments and we work hard to maintain that relationship. Do you think exiting globally commerce would improve without relationship? You know, I'm really happy with how the relationship has been. I don't know whether that would make it any any different really. You know, we really value the team at the USPS. Yeah.

Jeffrey Harlib: Thank you. Next. Next we're going to the line for Jeff Harleb, please go ahead. Hi. So the 150 million of one-time costs, which I think you said will be mostly through probably 25. Maybe you can just confirm that. But will that be funded through cash flow and the repatriation of cash, etc. Or do you expect to raise new financing for that? Hey, Jeff, it's John. Let me just clarify. I said earlier that that's likely front and loaded for the second half of this year.

Jeffrey Harlib: So and tape it off in the first half of next year. And it will be funded through operational. Through operational free cash flow and the cash on the balance sheet that you're repatriating. Okay. And just for modeling purposes, the DNA of the e-commerce business is it in the 65 million range so we can kind of come up with an EBITDA number. Performa? It's that Jeff, can you clarify your question and catch it?

Jeffrey Harlib: Yeah, the appreciation of e-commerce. It gave the EBIT. And I'm just wondering what the DNA is that you're, you know, to come up with an, you know, a performing EBITDA. Yeah, it's the DNA worth about $14 million in the second quarter. Okay, okay.

John Witek: And maybe last thing. Can you just talk a little bit about obviously, you know, you've done a good job of, you know, executing on these cost savings. How do we get comfortable, you know, you didn't cut too deep in some of your core business areas? Yeah. So risk management is very important to us, Jeff, and it's important at the board level as well. And prior to implementing our cost takeouts, and prior to forecasting our new cost takeouts, we have a pretty extensive review process internally and with the board on risk.

John Witek: And we're very confident as we, as we implement these cost takeout plans that we've looked at the implications of our cost takeouts and really look to manage and mitigate any potential risk. And it's a very detailed process that we actually go through. We're pretty confident in it.

Lance Rosenzweig: Okay, thanks very much. Thank you. There are no more questions.

Unknown Executive: Mr. Brosnes, why would you like to make any additional remarks? Yes, thank you everyone for joining us for this earnings call. We appreciate your support and questions and look forward to catching up again next quarter. And that does conclude our conference for today. Thank you for your participation and for using AT&T Conference and Service. You may now disconnect. We're sorry. Your conference is ending now. Please hang up.

Q2 2024 Pitney Bowes Inc Earnings Call

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