Q4 2024 Pitney Bowes Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Pitney Bowes fourth quarter and full year 2024 earnings release call. Your lines have been placed in listen only mode during the conference call until the question and answer segment.
Speaker Change: Today's call is also being recorded. If you have any objections, please disconnect your lines at this time.
Speaker Change: I would now like to introduce the participants on today's conference call. Mr. Lance Rosenzweig, Chief Executive Officer and Board Member, Mr. John Witek, Interim Chief Financial Officer, and Mr. Alex Brown, Director of Investor Relations. Mr. Brown will now begin the call with a safe harbor overview.
Good afternoon and thank you for joining us.
Speaker Change: Concluded in today's presentation are forward-looking statements about our future business and financial performance.
Speaker Change: Forward-looking statements involve risks along with uncertainties that can cause actual results to be materially different from our projections.
Speaker Change: More information about these items 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: 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: Also included in today's presentation are non-GAP measures. You can find reconciliations for these non-GAP measures to the appropriate GAP measure 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'd like to turn the call over to our CEO, Lance.
Lance Rosenzweig: Thank you, Alex, and good afternoon, everyone. 2024 was a transformative year for Pitney Bowes. We made swift and meaningful progress on all four of our strategic initiatives.
Lance Rosenzweig: exiting GEC, dramatically reducing costs and excess overhead, freeing up trapped cash, and deleveraging our balance sheet.
Lance Rosenzweig: Pitney Bowes is now a more efficient and focused company on a path to sustained value creation.
Our full year results bear this out.
Lance Rosenzweig: Revenue was $2.027 billion, in line with our expectations for a softer point in Sentec's product cycle and down 3% year-over-year.
Lance Rosenzweig: Adjusted EPS was $0.82, up $0.21 or 34% over the prior year. Adjusted EBIT was $385 million, up $77 million or 25% over the prior year.
Lance Rosenzweig: And free cash flow was $290 million, which excludes $86 million of restructuring payments.
Speaker Change: Before I dive in further, I want to say how excited I am to have Bob Gold joining us next month as our new CFO.
Speaker Change: Bob's background and experience make him an excellent fit for Pitney Bowes.
Speaker Change: In his prior roles, he has helped successfully transform companies into more efficient, cash-generating, and profitable organizations, and has significant capital allocation, cost containment, debt management, and transaction experience.
Speaker Change: He's an excellent addition to our management team as we work to enhance value for our shareholders, and I look forward to introducing many of you to Bob in the coming weeks.
Speaker Change: I also want to extend my sincere appreciation to John for his exceptional service to Pitney Bowes over the past six years, most recently as interim CFO.
Speaker Change: John has been a wonderful partner since I joined the company, and he and his team have been instrumental in achieving each of our strategic objectives. John is retiring at the end of the quarter, and we wish him continued success going forward.
Speaker Change: With that, let's shift to an update on our strategic initiatives and then discuss why we are so excited about the opportunities for Pitney Bowes in 2025 and beyond.
Speaker Change: Exiting the global e-commerce segment was a critical step in simplifying our business structure. As we near the completion of the wind-down, we have been able to firm up details around one-time costs.
which are now expected to be approximately $165 million.
Speaker Change: $120 million of these costs were paid out by year-end, with the remainder expected to be paid out in the first half of 2025.
Speaker Change: The $165 million in exit costs are offset by a tax asset of approximately $164 million, recorded in 2024 GAAP earnings. We expect to realize this asset predominantly over the next three years by reducing cash taxes.
Speaker Change: Moving on to cost takeout, we removed approximately $30 million in annualized costs during the fourth quarter, which brings our run rate exiting 2024 to approximately $120 million in annualized savings.
Speaker Change: We now expect to achieve a total of $170 million to $190 million in net annualized savings, up from the previously announced target of $150 million to $170 million.
Speaker Change: The remaining savings will be realized over the course of 2025 and into 2026.
Speaker Change: These cost reductions will be primarily driven by further overhead reductions, IT system simplification, reduced vendor spend, and facility consolidation. Going forward, Pitney Bowes will operate with a mindset of continual improvement and cost savings.
Speaker Change: Lastly, we have focused on simplifying and strengthening our balance sheet through cash optimization and deleveraging.
Speaker Change: On cash optimization, with the GEC wind-down largely complete, we now anticipate needing to hold approximately $100 million less in cash on our balance sheet.
Speaker Change: We have also reduced the amount of cash we hold offshore by approximately $90 million and now plan to hold around $50 million overseas.
Speaker Change: Further, the Pitney Bowes Bank Receivables Purchase Program has accelerated the net realization of $41 million of cash from leases in 2024, freeing up approximately that amount of cash flow to the parent company level.
Speaker Change: Overall, these initiatives have unlocked more than $200 million that we can deploy more efficiently.
Speaker Change: On the deleveraging front, our goal was to prioritize our high-cost debt and our near-term maturities. We have made excellent progress in both areas.
Speaker Change: Over the past three months, we paid off our most expensive debt in its entirety, the $275 million in oak tree notes. And we paid it off with internally generated cash.
Speaker Change: In addition, this month we successfully refinanced our near-term maturities through the issuance of a new revolving credit facility, a $160 million term loan A, and a $615 million term loan B.
Speaker Change: our nearest maturity is now our notes due in March 2027. I'd like to thank our internal teams and our outside advisors for working so effectively together to deliver these successes in each of our four key initiatives.
Speaker Change: Let's now talk about why we are so excited about the future of Pitney Bowes.
Speaker Change: We started 2025 with strong momentum and a solid foundation from which to grow cash flow and earnings.
Speaker Change: The core tenets that will guide us this year are what I call the three S's. Simplicity, speed, and sales.
Speaker Change: Leadership will be measuring the organization's rate of continued evolution and improvement based on these priorities, and you'll hear me refer back to them periodically.
Speaker Change: Pitney Bowes has historically been a complicated business, so we will continue to drive simplification by breaking down silos and focusing on a narrower set of high margin opportunities.
Speaker Change: Our exit from GEC was an important step in simplifying our company. In 2025, we are taking additional steps to simplify our operations, systems, and processes throughout the company.
Speaker Change: Speed goes hand-in-hand with simplifying the company and I believe we have demonstrated our ability to operate with urgency. Prioritizing both of these tenants has already enabled us to have greater flexibility with capital allocation.
Speaker Change: In terms of sales, we are evolving Pitney Bowes from a business in slowly declining markets to a growing company with exciting long-term prospects.
Speaker Change: and we intend to do this without the need for transformative M&A or excessive growth-related spend.
Speaker Change: In particular, we see meaningful opportunities to grow our cash-generating and profitable business segments, Sentec and PreSort, as well as global financial services, and have already been doing so in earnest.
Speaker Change: In Sentech, our growth engine is our shipping technology business, which includes product offerings in office shipping, enterprise fulfillment software, and e-commerce.
Speaker Change: Each of these offerings include SAS subscriptions with additional revenue streams including hardware, professional services, and carrier rebates.
Speaker Change: Our Shipping 360 platform integrates our offerings, is carrier-agnostic, and brings our clients significant cost savings and advanced analytics.
In the fourth quarter, shipping technology-related revenue grew 18 percent.
Speaker Change: To accelerate our growth in Centech, we have reorganized much of our sales force from a geographically based organization to a vertical market organization to benefit from our differentiated product offerings in mailing and shipping technology.
Speaker Change: Our key vertical markets include health care, banking and financial services, and government.
Speaker Change: The Pitney Bowes pre-sort business has grown in 11 of the last 12 years, declining only during COVID. Pre-sorts adjusted EBIT grew nearly 50% in 2024, driven largely by a combination of higher revenue per piece and cost reductions.
Speaker Change: In 2025, we will look to continue to profitably grow pre-sort, both organically and through tuck-in acquisitions, that provide the opportunity to gain greater economies of scale.
We recently closed the acquisition of Royal Alliances PreSort Business.
Speaker Change: which has added 100 million pieces of first-class mail to our pre-sort business annually. We are continually looking at similar tuck-in acquisitions that would be rapidly accretive and expand our capabilities and markets.
Speaker Change: At Global Financial Services, we are looking to expand the depth and breadth of our offerings to our base of over half a million customers, while continuing to generate significant cash for Pitney Bowes.
Speaker Change: Due to our growth initiatives and based on our current forecasts, we believe that we are on track to reach an inflection point where Pitney Bowes will become a growing company and we will provide more context around that in future quarterly updates.
Speaker Change: In light of our improved financial position, our leadership team and board have given a great deal of thought to capital allocation. There are four elements that comprise our Go Forward Capital Allocation Framework.
Speaker Change: First, we will continue to invest in organic growth initiatives that generate a risk-adjusted return that is well above our cost of capital.
Speaker Change: Second, we will target opportunistic tuck-in acquisitions that are quickly accretive and can generate a very attractive risk-adjusted ROI. We do not currently anticipate any large transformative acquisitions.
Speaker Change: Third, we will continue to retire debt on a reasonable time frame as we seek to maintain an optimal leverage profile, which we believe is 3.0 over the next two years.
Speaker Change: And fourth, we will return capital to shareholders through our dividend and through share buybacks, utilizing our newly authorized share repurchase facility of $150 million.
Speaker Change: I want to emphasize that we are fully committed to prudently increasing the amount of capital that we return to shareholders.
Speaker Change: and we intend to do this on a consistent basis beginning with today's one penny per share increase in dividends and moving forward by utilizing our new share repurchase facility.
Speaker Change: In future quarterly calls, we intend to provide relevant updates on each of these buckets in a clear and coherent fashion.
Speaker Change: In closing, I want to emphasize that we are committed to continuing our strong execution and identifying additional ways to maximizing value for shareholders.
Speaker Change: Now, I'll turn the call over to John to discuss our fourth quarter and full year results in greater detail. Thanks, Lance. As Lance alluded to, this has truly been a great year for Pitney Bowes, and we are now on a much improved trajectory.
John Witek: Let me start by providing an overview of our full year results, followed by the fourth quarter.
John Witek: For the full year, revenue was $2 billion, down 3% year-over-year. Adjusted EPS was $0.82, an improvement of $0.21 over the prior year.
John Witek: Adjusted EBIT was $385 million, up $77 million over the prior year.
John Witek: Pre-cash flow was $290 million and excludes $86 million of restructuring payments.
Now turning to the quarter.
John Witek: Q4 revenue is $516 million, down 2% versus the prior year.
John Witek: Adjusted EBIT was $114 million, a 33% increase versus the prior year, showcasing our strength in profitability as we continue to simplify our business.
John Witek: Fourth quarter year-over-year comparison benefited from higher pre-sort profit contribution and lower costs across the company from our cost reduction initiatives.
John Witek: Fourth quarter adjusted EPS was $0.32, up $0.12 year-over-year, driven by higher EBIT.
John Witek: Fourth quarter free cash flow was $145 million and excludes $32 million of restructuring payments.
John Witek: An important note, the variable compensation we recorded across our reporting segments was a headwind to our 2024 segment results and a tailwind in 2023.
John Witek: From a year-over-year perspective, variable compensation in the fourth quarter was a $2 million headwind to PreSort, an $11 million headwind to Sentec, and a $5 million help to corporate expenses.
John Witek: For modeling purposes, assume that the year-over-year headwinds for the segments are roughly split 50-50 between 2023 benefit and the 2024 headwind.
Now turning to business segments.
Beginning with SENTEC.
John Witek: We completed the IMI migration in the fourth quarter. As we previously guided, the last tranche of transactions produced higher cancellation rates than we typically see.
John Witek: Going forward, we expect our cancellation rates to revert to normalized levels, which are mid-single digits.
John Witek: Equipment revenue in the quarter declined 16% year-over-year, in line with our expectations.
John Witek: Shipping related revenues in the quarter grew 18% and comprised 17% of full-year Suntec segment revenue.
John Witek: For the fourth quarter, we drove significant growth in our subscription base and ended the year with almost 200,000 paid subscribers.
John Witek: This resulted in a 33% year-over-year improvement in SAS subscription revenue in the quarter.
John Witek: Sentec gross profit declined $10 million in the quarter versus prior year primarily due to the decline in revenue. However, gross margin percentage increased to 67.1% from 66.4% compared to the prior year.
John Witek: Operating expenses for the quarter increased 11 million dollars year over year, primarily as a result of non-recurring items. However, operating expenses for the full year declined by about 12 million dollars.
Moving to our global financial services within Sentec.
John Witek: In the quarter, we sold $19 million of securities at PB Bank. This resulted in a $3 million realized loss in our P&L.
John Witek: We are reinvesting the proceeds from the sale into higher yielding finance receivables in line with our growth strategy in financial services.
John Witek: Finance receivables were $1.15 billion at the end of the year, down 6% year-over-year.
John Witek: Shifting to pre-sort, revenue for the full year was $663 million, up from $618 million the prior year.
John Witek: Revenue in the quarter was $180 million, up 10% over the prior year from pricing, mix, and a higher 5-digit qualification.
Volumes were flat year over year.
John Witek: Adjusted EBIT for the full year was $166 million, up 49% versus the prior year.
John Witek: Adjusted EBIT for the quarter was $52 million, an increase of 52% year-over-year.
John Witek: Outside of the business units, corporate expenses were $34 million in the quarter, $31 million lower than last year. Our cost reduction initiatives drove most of this improvement.
Now let's turn to guidance.
John Witek: In 2025, we expect to generate between $1.95 and $2 billion in revenue, representing a modest decline year over year.
John Witek: This decline is mainly driven by revenue headwinds in Centech as we turn the page on the product migration.
John Witek: Other operations include revenue from certain GEC operations we exited in 2023.
John Witek: We expect these to be partially offset by growth in pre-sort and shipping-related revenues in Suntech.
John Witek: Moving to profitability, we expect to generate between $450 and $480 million in adjusted EBIT in 2025, mainly driven by additional savings from our cost reduction initiatives and growth in pre-sort and Sentex shipping.
John Witek: We also expect 2025 adjusted EPS to be between $1.10 to $1.30 per share.
John Witek: We expect our effective tax rate for adjusted earnings to be between 27 and 31 percent.
John Witek: The $164 million tax assets associated with the GEC wind-down were already recorded in 2024 and will benefit cash taxes on the cash flow statement.
John Witek: We expect interest expense to decline year over year as a result of our recent pay down of the oak tree notes and refinancing.
John Witek: From a cash flow perspective, we expect 2025 free cash flow to range between $330 and $370 million.
Free cash flow excludes restructuring payments and CapEx.
We expect Cath-X to be comparable to 2024.
John Witek: We've made great progress in starting our cost reduction initiatives in 2024. As of the end of 2024, we had removed approximately $120 million of annualized cost, contributing a $52 million benefit to our full year bottom line.
John Witek: As Lance mentioned, we are increasing our target to a total of $170 to $190 million in net annualized savings.
Now let me add more color on our 2025 guidance.
John Witek: First, Sentec. As previously guided, we expect 2025 to be a transition year due to the end of its migration cycle. Our upfront equipment revenue will decline from lower transaction opportunities. Our revenue profile will shift to more recurring revenue from a higher mix of lease extensions.
John Witek: From a modeling perspective, we expect Centech Revenue and Gross Profit to experience a similar rate of decline in the first half of 2025 as we saw in the second half of 2024. We expect this to moderate in the second half of 25.
John Witek: We expect shipping to continue to grow at double-digit rates and partially offset the product migration headwinds.
John Witek: Turning to PreSort. PreSort had a great 2024 and we expect to continue strong financial performance in 2025.
John Witek: In addition, we have a robust pipeline of tuck-in M&A opportunities. These are not factored into our expectations and would be incremental to guidance.
Speaker Change: Since this will be my last earnings call with you, I want to conclude by saying that it's been an honor to serve as the interim CFO at Pitney Bowes, and that I'm proud of everything the team has accomplished in recent months.
Lance Rosenzweig: I look forward to helping Bob with his transition and welcome him to the company. And with that, I'll pass it back over to Lance. Thank you.
Thank you, John.
Speaker Change: To sum up our message today, we have come a long way and have a solid foundation for the future.
I see 2025 as a year of continued progress.
following the transformative changes we made in 2024.
Speaker Change: We have a lot of work to do, but as I shared earlier about our growth strategy, we see many exciting opportunities before us and are forging ahead with simplicity, speed, and sales as our guide to becoming an even more profitable and efficient organization.
And now we'll open it up for questions.
Speaker Change: Thank you. If you'd like to ask a question, please press star 1 1 on your telephone keypad. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, please press star 1 1 for questions at this time.
Our first question comes from Anthony Libesinski with Sidoti.
Good afternoon, everyone.
Speaker Change: And thank you for taking the questions. Certainly nice to see the outperformance in the quarter and the guidance looks pretty good as well. And John, best of luck in your pending retirement.
Speaker Change: So, first question here for me, I guess, you know, going back to the preannouncement that you guys had a couple weeks ago, and also that's when you announced the final pay down of the Oak Tree.
Speaker Change: In that release, you guys talked about the eBit being better because of some one-time in nature items. Maybe I missed it, but maybe if you could just clarify what those one-time items was and how much of that was.
because of some one-time items.
Speaker Change: Hey Anthony, it's John. Nice to hear from you. So, the outperform was really two-fold, Anthony. I'll get to the one time in a second. We actually had better performance in the business.
Speaker Change: that was beginning to layer in at the early part of the quarter. So that was a big part of the outperform. We also had some additional savings that, quite frankly, became more clear to us as we
Speaker Change: Became more aware of what the business looks like in a more simple fashion with just two business segments
So as we were, as we were organizing ourselves.
and going through the savings process.
Speaker Change: We recognized that there was more savings than we previously had thought.
It was primarily overheads, Anthony.
Speaker Change: things that were third-party related, and they started to actually fall into place. And quite frankly, they fell into place a lot quicker than we thought that they would.
Speaker Change: Okay, that sounds good. And then with respect to pre-sort, so...
Speaker Change: So, is this kind of a new normal, do you think these higher margins are sustainable as we look forward? I know there was a benefit from pricing here, how do we think about that?
Speaker Change: Yeah, I mean in the quarter we ended up, excuse me, from a full-year perspective, you know, our EBIT margins about 25%.
Speaker Change: versus about 18% last year. So I think what you saw in the second half of this year is
Speaker Change: where we'd like to think going into the first half of next year should be. I mean, and that's a combination of two things. One is pricing.
the mix of the volumes that we're seeing.
Speaker Change: And also, we keep mentioning the productivity, let's not forget about the efforts that the team's putting in around the CapEx that we've invested and the return that we're getting on that productivity return.
Speaker Change: Gotcha, got it, okay. And then, you know, as far as, you know, SEDTEC, so I know you guys talked about the product migration, so it looks like that's going to be a bit of a headwind here, more so in the first half versus the back half of the year.
Speaker Change: So, as we look forward to 2026, is that a period where you think that as you fully anniversary all of that and then you grow the shipping revenue, you'll start to see
improvements and margins in Sentec by that point?
Speaker Change: Yeah, I mean, by the time, you know, the way we see it on the longer lens, Anthony, and keep in mind it is a longer lens, we actually start to see the continuum of the shipping growth.
and we talk about shipping growth rates.
Speaker Change: continue to be double-digit going into 2025, and by the time we get to 26, we're really expecting, you know, the improvement in shipping year-over-year.
Speaker Change: to outweigh the decline on the mailing business. So that's kind of where the lines cross, and that's how we've been seeing it. And I think that's what our view is right now.
Speaker Change: Gotcha, and then just to follow up about shipping, so obviously it is a growing sub-segment of
Speaker Change: Centech, do you guys have a goal in mind as to how much of segment revenue that could be, whether it's next year or the year after that? I just wanted to get, you know, your take as to what you think the goal is or what you think that could be.
Speaker Change: Hey Anthony, it's Lance. We're super excited about the shipping technology business within Sentec and that's not something that sort of grows and then stops growing. You know, we have a very long-term optimistic view of that portion of that business.
and it's a very nice sort of high margin business.
largely SAS revenues and kind of related revenue lines.
Speaker Change: And, you know, I think that that's something that could continue to perform over the long run. It's also a much larger market, and the TAM, the total available market and shipping, is far larger than it is in mailing. And so we're, I think, increasingly going to take share of a larger and growing market.
Speaker Change: All right, well that's great to hear and then I guess the last question before I pass it on to others, so I guess now that the business is more predictable, how should we think about the
Speaker Change: We'll quarterly distribution or the seasonality of earnings throughout the year Just just wondering it. You know how if there's anything that we should be aware of it just
Speaker Change: as far as the quarterly cadence of the business throughout the year.
Speaker Change: Yeah, I think you'd see a similar sort of cadence and pace on the restated business as you've seen in the past.
Speaker Change: And Anthony, you're familiar with some of the seasonality with pre-sort, with peak in the first quarter and first class, and marketing mail in the fourth quarter.
Speaker Change: I'm sorry, did I say first class? I meant first quarter for first class and marketing and mail in the fourth quarter. And then in the fourth quarter, fourth quarter has typically been a, you know, a seasonally high quarter for us. So I think that's what we've seen and I don't really expect much deviation from that.
Speaker Change: All right, well, thank you very much and best of luck. Thanks, Anthony.
Our next question comes from David Steinhardt with Contrarian Capital.
Hey, great work so far. In terms of capital allocation,
Speaker Change: The board has authorized $150 million to be deployed into share repurchases. Can you give us any idea of the cadence for that deployment and what the company will be looking at and the board will be looking at to determine?
when to repurchase shares.
Speaker Change: Hey David, thanks for the question. You know, I'll put it into context, which is that the the 150 million dollar authorized program is over the course of the next three years.
Speaker Change: And, you know, we're guiding to $330 to $370 million in free cash flow for 2025 alone.
Speaker Change: So, you know, we don't have specific timing on executing it. You know, we've got a board and a leadership team that's got a lot of experience in the capital markets and is looking for opportunities to take advantage of kind of market situations that make sense for us.
Speaker Change: So, you know, we'll be opportunistic, we'll be prudent, and we'll regularly report back on our progress.
Great. And in terms of your debt?
Speaker Change: You'll have significant free cash flow, theoretically, over the next year.
Speaker Change: Can you give us a sense of which debt securities you might be tackling first in terms of paying them down?
Speaker Change: I would say similarly we'll be opportunistic, but we'll continue to prioritize nearer term maturities and also more expensive debt.
Speaker Change: There might be opportunities in some of our longer-standing debt if there are again kind of market...
Speaker Change: situations that enable us to purchase them at attractive prices, we'll be open to that. But as you mentioned, you know, deleveraging remains important for us, and we do have an expectation of significant cash generation that can continue to deleverage our balance sheet.
Speaker Change: So getting more color into the future of the Fentech business.
Speaker Change: As you've mentioned on this call, you expect to see growth opportunities. Perhaps it makes sense to have a wider investor day.
to perhaps increase the...
reach and voice the company.
Speaker Change: but other people might understand the value that's at play here.
Speaker Change: Yeah, no, I appreciate the thought and I think that makes a lot of sense, you know, it's something that we'll be looking at
Speaker Change: going forward. I think that the SENTEC business is super exciting and I think as you're kind of alluding to a little bit misappreciated
Speaker Change: And, you know, we're going to be attempting to do just a better and better job giving clarity to that business and continuing to be transparent about what exactly we do and what the opportunities are.
Great, thank you so much. Thanks, David.
Speaker Change: Our next question comes from Kartik Mehta with North Coast Research.
Kartik Mehta: Good afternoon. John, just on the pre-sort business, I know you talked a little bit about pricing, and I'm wondering what your volume expectations are for 2025.
Kartik Mehta: Yeah, we expect to see, hey Karthik, it's Sean, so we expect to see similar volumes in in pre-cert going forward and it's really about the mix of of you know the the the four buckets that we that we track between first class and marketing mail and flats.
Kartik Mehta: We're going to see that, and quite frankly, Kartik, I think we've mentioned this before, in certain quarters, and in particular this past quarter, we've seen a fair amount of project work.
Kartik Mehta: The work that comes up, sort of, I'll say a bonus.
Kartik Mehta: if you would, from a volumes perspective, sort of unplanned for our clients based off of events that they serve, and that could actually play into some of the mix that we might see going forward. It certainly played into some of the mix we saw in the past.
the past year.
Speaker Change: Hey Lance, it seems like you guys have done a great job on the capital side, paying down debt.
Speaker Change: I'm getting this authorization from the board and I'm wondering maybe what metrics you'll need to see or the board will need to see for them to feel comfortable in executing the authorization.
Lance Rosenzweig: Yeah, I mean we're tracking closely first of all around the constraints of our debt covenants
Speaker Change: So we successfully renegotiated several lines of our debt, our revolver, our TLA and our TLB.
And as part of doing that, that freed up...
Speaker Change: and provided the company with a lot more flexibility going forward. It really brings our covenants back to a more market-like package.
Speaker Change: But as I mentioned, we'll be operating within those constraints. So, you know, at least earlier on, there are certain limitations as to what we can do.
Speaker Change: But as we evaluate it, we'll be looking closely at what our leverage ratio is, what our cash flow generation is, what market opportunities there are, and hopefully making good and prudent decisions.
Thank you very much. I really appreciate it.
Thank you.
Speaker Change: Our next question comes from Justin Dobierala with Domo Capital Management.
Speaker Change: Thank you. First off, incredible quarter, execution, incredibly thoughtful, shared her older value and enhanced the initiative. Absolutely love it.
Speaker Change: Maybe I missed it, but did you comment on what you expect 2025 CapEx to be?
John Witek: Hey Justin, it's John. How are you? We're quoting a very similar 2025 and maybe a little better but we're just let's just let's just say it's very similar to 2020.
24
John Witek: Okay, and correct me if I'm wrong, but your EBIT of $385 million for the year, that was $25 million more than what you got it to in mid-November, right?
It was $20 million better than the high end, yes.
Okay.
Speaker Change: Okay, so I guess along those lines, my math was leading me to an adjusted EBIT of around $490,025,000, but that was before you blew away all of your previous guidance and added additional cost cuts.
John Witek: So, I mean, I usually have you over 500 million in EBIT now, I guess, therefore, you know, my question is, you know, do you think you're kind of consistently being overly conservative with the guidance?
So, Justin, I...
Speaker Change: Really appreciate your enthusiasm. I'm enthusiastic as well, but I'm going to stick to my range.
Speaker Change: of what we quoted earlier, 450 to 480. And look, there's a lot of logic behind what we're seeing. We talked about some of the headwinds that are probably backing off what you might see, but I'm gonna stick firm and appreciate your comments.
Speaker Change: Lastly, on the share repurchase, I know a lot of it has already been asked, but I guess maybe just two things. Is it fair to say that, you know, at $10 per share, you view the shares of the company as significantly undervalued?
Speaker Change: Yeah, we won't, you know, specifically answer that question, but I will say that, you know, we see a lot of great opportunity for our company going forward. You know, I think that there's continued strong cash generation. I think that we see continued strong earnings growth, and we're excited on the new business segments and opportunities on the revenue side.
Okay, and I know you talked about the Covenants.
Speaker Change: So based on what you renegotiated, is it fair to say that if you so chose, that you would be able to repurchase the entire $150 million worth of stock in 2025, at least from a covenant standpoint?
Speaker Change: Yeah, what I would say is that the the credit agreement and its details are going to be filed in an 8k shortly And so that will go you know kind of covenant by covenant and give you all the details that you need There's just a lot of put and takes and it's hard to kind of overly simplify that question
Speaker Change: Alright, thanks a lot. Keep up the great work. Appreciate it, Justin.
Speaker Change: Our next question comes from a line of Peter Sacklin with Credit Sites.
Peter Sacklin: Hi, good evening. I had a question regarding the corporate expense, you know, the significant decline in the fourth quarter. Was that just a cost savings that you announced or has there been any reallocation of corporate to the business units?
Hey Peter, it's John. That's straight from Cost Savings.
Peter Sacklin: We have, and don't forget, I mentioned earlier in my remarks in the fourth quarter, there was a little bit of a push down of how we accrued for comp. That was about $5 million in the quarter. But aside from that, the vast majority.
Peter Sacklin: The vast majority of that is, if not all, the remainder is all about our cost savings. Keep in mind that our cost savings primarily was wrapped around in overheads.
corporate overhead. So that's that's where you're seeing it.
Peter Sacklin: How many employees would you say you've got at corporate today versus maybe a year ago?
Peter Sacklin: I didn't catch the first part of that, Peter. How many employees do you have roughly at year-end versus a year ago?
Peter Sacklin: Oh gosh, I know that in we've we've announced a reduction of force over the year of of an excessive
Peter Sacklin: 2,000 people but a lot of that was wrapped around GEC so I mean I think we can probably follow up with you that on that one off offline I mean it's it's all that data is going to be in the K and the K is going to be out within about 10 days
Speaker Change: Okay, and then could you elaborate on the pension charge and help me to better understand it?
Speaker Change: Yeah, so so we actually had a lump-sum campaign in the US and in Canada
and what that did was it actually positioned us better.
Speaker Change: from a risk balance for our pension, keeping in mind that our pension in the U.S. is about 99 and change.
Speaker Change: funded and in Canada we're over 100% funded. This puts us in in much better position and the 91 million dollars was a non-cash item.
Speaker Change: We recorded that in GAP and you won't see that in the adjusted, but what that was is to really account to true up for the campaign reduction.
Speaker Change: And it really, it just puts us in a better position from our assets and liabilities.
So maybe to simplify it, the amount of...
Speaker Change: It is reduced, so as there's volatility in the market, the amount of volatility is going down because you have people that have been taken off the books, if you will. Is that the right way to think about it? That's exactly so. It represented about 10% of the planned assets.
Speaker Change: Okay, that's all I've got. Thank you. So as you reduce your exposure on the planets up, you reduce your exposure in the market.
Understood. Thank you.
Speaker Change: We have time for one more question. The final question comes from Matthew Swope with Baird.
Matthew Swope: Congratulations guys on a great year. I was wondering, John, how do you think about the the 2027 and 2029 notes now that you've chipped away at so much of the capital structure? Are those are those bonds we could see you refinance either one or both of this year?
Speaker Change: So I'm going to, hey Matt, how are you? I'm going to refer back to something Lance said earlier. So as we think about, you know, our capital allocation
Speaker Change: strategy. I mean, we're going to look at all of the notes, all of the debt. And of course, we'll probably have a closer eye on the nearer term debt. But I mean, we're going to be opportunistic when that comes available to us as we go through the year.
Speaker Change: Were you concerned about announcing the sort of move towards at least more distributions to shareholders?
Speaker Change: Before you have the whole cap structure taken care of, I know it's sort of a tenuous dance back and forth, but coming out of the last few years, everything that the debt has gone through and then the amazing recovery you've had in the last 18 months or so.
Speaker Change: I don't think, Matt, there was ever any hesitation in any announcements, but there was hesitation in doing anything while the company was not achieving the kind of cash flow that gave us confidence to put a program like that in place.
Speaker Change: You know, looking back the past couple of years, you know, GEC was just such an anchor.
Speaker Change: to the business in such a drain of cash and you know, there was a lot of excess spend in the company and we just really couldn't do it. You know, now that we've repositioned the company, we have an opportunity and you know, it's a great thing for us to take advantage of.
Speaker Change: No, that's very fair, and you guys really have done a great job. Could I ask a nuts and bolts one, John? You talked about free cash flow without CapEx, without cash restructuring. That free cash flow number does include cash taxes, right? Do you have an estimate, especially with the savings you have now on cash taxes for 2025 or maybe even the next couple of years?
Speaker Change: Yeah, I mean so look the bulk of the bulk of the that the tax asset is going to be recognized in in the cash flow primarily over the next
Speaker Change: I'd say 25, 26, and probably trickle a little bit into 27, so think about it, if you think about it that way. Not to disclose the absolute number right now, but I'd say it's probably evenly distributed going out in the next three years.
Speaker Change: Okay, and then as far as the cash restructuring, I know you said you paid $120 out of the $165. Is it right to use about a $45 million cash restructuring number for 2025? That reference was on the GEC exit costs, so if we're talking about the same thing.
Speaker Change: So, so yes, you know, against the 165, we paid out about 120 and that's, that's, that's what we, that would be the math on the, on the, on the go. Right. Okay. Right. That's, that, that makes sense. And then how about as far as other cash restructuring charges to achieve the cost savings you're getting?
Oh.
Speaker Change: I tell you that a lot of the cost savings that we've done that would accompany a restructuring payment, a lot of that is behind us in 2024. So I'm not going to predict or forecast the restructuring payment cash out today, but I tell you that most of that is behind us on the trend from 170 to 190. A lot of that is behind us already.
Speaker Change: Great. And then Lance, just one last one for me. You mentioned in your prepared comments about sort of moving towards an inflection point where
Full company revenue goes positive.
Speaker Change: Is that something that happens in 2025, you think, or 2026, how do you look at that?
Speaker Change: You know, we guided our revenues in 2025, so, you know, we're not anticipating that in 2025, but, you know, we're working hard to make it happen, and really very, very excited about heading toward that day.
That's great. Well, congratulations again, guys. Thanks. Thanks, Matt.
Speaker Change: At this time, we have no further questions. Mr. Rosenzweig, any additional remarks at this time?
Speaker Change: Thank you everyone for joining for our quarterly call. Thank you for the excellent questions and thank you particularly to John for your partnership and your phenomenal service to the company. Looking forward to updating everyone next quarter. Thanks Lance.
Speaker Change: Thank you, ladies and gentlemen. Your conference has concluded. Thank you for joining. You may now disconnect.