Pitney Bowes Inc. (NYSE: PBI) today reported financial results
for the first quarter 2013.
Highlights
- First quarter revenue of $1.2 billion
- Year-over-year revenue growth in
Production Mail and Mail Services
- Continued moderation in decline of
recurring revenue streams in the SMB group
- Adjusted EPS from continuing operations
of $0.42
- GAAP EPS from continuing operations of
$0.34, which includes costs of $0.08 associated with the recent
debt tender
- First quarter free cash flow of $107
million; GAAP cash from operations of $132 million
- Issued $425 million of 30 year bonds
and retired approximately $405 million of debt originally scheduled
to mature between 2014 and 2016.
- Sale of the U.S. International Mail
Services (IMS) business completed
- On April 29, 2013, the Board of
Directors approved a second quarter dividend of 18.75 cents per
share for the Company’s common stock.
President and Chief Executive Officer, Marc Lautenbach,
commented, “We are taking a number of actions in support of the
long-term health and growth of our business. While the results for
the quarter were mixed, we are seeing progress in key elements of
the business. We continued to experience a moderation in the
decline of recurring revenue streams in our SMB group, as well as
growth in both our Production Mail and Mail Services segments. Mail
Services revenue grew because of increased cross-border shipments,
related to the early stages of implementation of our partnership
with ebay. We had weaker revenue and EBIT results than expected in
our Software segment due in part to continued global economic
uncertainty. We believe we have substantial opportunities in these
software markets and have taken actions to capture these
opportunities.
“Since joining the Company, I have actively sought input on
strengths and opportunities from our clients, our shareholders and
our management team. As a result, we have identified actions and
developed plans focused on improving revenues, managing costs, and
improving working capital. We have taken some very important first
steps, including the announcement of a number of new management
appointments, actions to enhance our balance sheet and capital
allocation flexibility and exiting some non-strategic
businesses.
“In connection with our ongoing management of the Company’s
capital structure, our Board of Directors approved a reduced second
quarter dividend of 18.75 cents per share for the Company’s common
stock. This action will provide us the added financial flexibility
to invest in the business and enhance our capital structure, while
continuing to provide a very competitive return to
shareholders.
“I am excited at our prospects and look forward to providing the
details of these plans and our path to enhance shareholder value at
our Investor Update meeting on May 3rd.”
First Quarter 2013 Results
Revenue for the quarter was $1.2 billion, a decline of 4 percent
when compared to the prior year. Revenue for the quarter benefited
from growth in the Production Mail and Mail Services segments.
International Mailing revenue was flat with the prior year. Revenue
was adversely impacted by lower recurring revenue streams in the
Small and Medium Business (SMB) group, lower licensing revenue in
the Software segment, and some pricing pressures in the Management
Services segment.
Earnings per diluted share for the quarter, on a Generally
Accepted Accounting Principles (GAAP) basis, were $0.33 compared to
$0.79 per diluted share for the prior year.
First quarter 2012 GAAP earnings per diluted share included a
$0.11 per share tax benefit in continuing operations, plus a $0.10
per share tax benefit in discontinued operations, resulting from
the resolution of additional tax matters with the IRS. First
quarter 2012 GAAP earnings per diluted share also included a net
$0.06 per share benefit from the sale of leveraged lease assets in
Canada.
First quarter 2013 GAAP earnings per diluted share were reduced
by $0.08 due to costs associated with the retirement of
approximately $405 million of debt originally scheduled to mature
between 2014 and 2016.
Excluding the factors noted above, adjusted earnings per diluted
share from continuing operations for the first quarter 2013 were
$0.42 compared to $0.52 in the prior year, as detailed in the table
below:
Earnings Per
Share Reconciliation* Q1 2013
Q1 2012 GAAP EPS
$0.33 $0.79
Discontinued operations – (income)
loss
$0.01 ($0.09)
GAAP EPS from
continuing operations $0.34
$0.70 Sale of Leveraged Lease Assets -
($0.06) Costs associated with retirement of debt
$0.08 -
Adjusted EPS from continuing
operations including net tax benefit
$0.42 $0.64 Net tax benefit
- ($0.11)
Adjusted EPS from continuing operations
excluding net tax benefit $0.42
$0.52
* The sum of the earnings per share
may not equal the totals above due to rounding.
Free Cash Flow Results
Free cash flow for the quarter was $107 million, while on a GAAP
basis, the Company generated $132 million in cash from operations.
In comparison, prior year free cash flow benefited from tax refunds
associated with resolution of tax matters with the IRS. During the
quarter, the Company used $75 million of cash for dividends and $16
million for restructuring payments.
During the quarter, the Company also issued $425 million of 30
year bonds that are callable at par after five years. The Company
used the proceeds of the bond issuance to retire approximately $405
million of debt originally scheduled to mature between 2014 and
2016.
Business Segment Results
SMB Solutions Group
1Q 2013 Y-O-Y
Change Change ex Currency Revenue
$598 million (5%) (5%)
EBIT $172 million
(13%)
Within the SMB Solutions Group:
North America Mailing
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $430 million (7%) (7%) EBIT
$155 million (13%)
During the quarter, North America Mailing was adversely impacted
by lower recurring revenue streams. However, the trend of recurring
revenues has continued to moderate versus the prior year. The
Company expects this trend to continue. Revenue during the quarter
was also adversely impacted by lower equipment sales.
EBIT for the segment declined versus the prior year as a result
of a higher proportion of new equipment placements in lieu of lease
extensions and the decline in higher-margin recurring revenue
streams. In addition, EBIT comparisons were adversely impacted by a
favorable credit loss adjustment in the prior year.
International Mailing
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $167 million 0% 0% EBIT
$18 million (11%)
International Mailing revenue benefited from increased sales
from the second half 2012 launch of Connect+™ mailing systems in
France and Germany and postal rate change related revenue in
France. This was offset by lower equipment sales in the UK due to
the weak economic environment, as well as lower sales in the
Nordics. EBIT was adversely impacted by higher product costs
associated with foreign currency movements and costs related to
facilities consolidation.
Enterprise Business Solutions Group
1Q 2013 Y-O-Y
Change Change ex Currency Revenue
$569 million (4%) (3%)
EBIT $42 million
(36%)
Within the Enterprise Business Solutions
Group:
Worldwide Production Mail
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $119 million 3% 4% EBIT $3
million 10%
Production Mail revenue benefited from the
installation of some large production print orders and there
continues to be a higher quarter-end backlog than in the prior
year. The Company also recognized its initial license revenue
associated with the delivery of Volly™ software to Australia Post.
EBIT benefited from the growth in revenue, offset by the higher mix
of production printers that have lower margins than inserter
products. The continued investment in Volly also impacted EBIT
margin. Excluding the net investments associated with Volly, the
EBIT margin would have been approximately 400 basis points
higher.
Software
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $81 million (20%) (19%) EBIT
$5 million (54%)
Software revenue and EBIT declined compared to
the prior year due primarily to fewer large dollar licensing deals
and the delay in some deal signings, particularly in the Americas.
Prior year results benefitted from a large multi-year licensing
agreement with Facebook for global location intelligence
applications. During the quarter, weakness continued in the
European and Asian operations due to on-going austerity measures in
the public sector. EBIT was unfavorably impacted by the decline in
licensing revenue. Despite the revenue decline, the Company
continued to invest in product development to drive future
growth.
Management Services
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $225 million (2%) (2%) EBIT
$13 million (6%)
Management Services revenue was adversely impacted by pricing
pressures on contract renewals. EBIT margin was nearly flat
year-over-year as productivity improvements substantially offset
the revenue impacts. The Company recently signed large, multi-year
contracts for document processing services with two state agencies.
These contracts should enhance revenue growth as they are
implemented in coming quarters.
Mail Services
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $119 million 4% 4% EBIT
$19 million (43%)
Mail Services revenue benefited from volumes
associated with the early-stage roll out of the Company’s ecommerce
solutions for cross-border package delivery. EBIT margin was
affected this quarter by investments and costs for the start-up
phase of the Company’s new ecommerce offering. Prior year EBIT
included a $7 million insurance reimbursement related to the fire
at its Dallas presort facility that adversely impacted
year-over-year comparisons.
Marketing Services
1Q 2013 Y-O-Y Change
Change ex Currency Revenue $25 million (16%) (16%) EBIT
$2 million (59%)
Marketing Services revenue and EBIT declined due to lower
marketing fees related to certain marketing category contract
renewals and fewer household moves when compared to the prior
year.
2013 Guidance Update
This guidance discusses future results which are inherently
subject to unforeseen risks and developments. As such, discussions
about the business outlook should be read in the context of an
uncertain future, as well as the risk factors identified in the
safe harbor language at the end of this release and as more fully
outlined in the Company's 2012 Form 10-K Annual Report and other
reports filed with the Securities and Exchange Commission.
The Company still expects 2013 revenue, excluding the impacts of
currency, to be in the range of flat to 3 percent growth when
compared to 2012, and continues to expect adjusted earnings per
diluted share to be in the range of $1.85 to $2.00. The Company
also continues to expect free cash flow to be in the range of $600
million to $700 million.
The Company is updating its 2013 annual guidance for GAAP
earnings per diluted share from continuing operations to reflect
the first quarter charge of $0.08 per diluted share related to
costs associated with the recent debt tender. The Company now
expects GAAP earnings per diluted share from continuing operations
to be in the range of $1.77 to $1.92. This guidance excludes any
further actions that are planned or under consideration by the
Company to streamline its operations and further reduce its cost
structure.
The Company expects that it will make continued investments in
its growth initiatives that will result in higher expenses in the
first half of the year, but are anticipated to lead to greater
revenue and margin contribution beginning in the second half of the
year. Additionally, it is expected that the decline in recurring
revenue streams will continue to moderate and will have less of an
impact on revenue and earnings in the second half of the year. The
Company expects interest expense to increase approximately $10
million, or $0.03 per diluted share, related to the interest rate
differential between the Company’s recent $425 million debt
issuance and the debt tendered.
The Company will provide more information regarding its plans
and the expected financial impacts at their May 3rd Investor update
meeting.
Conference Call and Webcast
Management of Pitney Bowes will discuss the Company’s results in
a broadcast over the Internet today at 8:00 a.m. EDT. Instructions
for listening to the earnings results via the Web are available on
the Investor Relations page of the Company’s web site at
www.pb.com.
About Pitney Bowes
Delivering more than 90 years of innovation, Pitney Bowes
provides business communications software, mailing systems and
services that integrate physical and digital communications
channels. Long known for making its customers more productive,
Pitney Bowes is increasingly helping other companies grow their
business through advanced customer communications management.
Pitney Bowes is a $5 billion company with 29,000 employees
worldwide. Pitney Bowes: Every connection is a new opportunity™.
www.pb.com
The Company's financial results are reported in accordance with
generally accepted accounting principles (GAAP). The Company uses
measures such as adjusted earnings per share, adjusted income from
continuing operations and free cash flow to exclude the impact of
special items like restructuring charges, tax adjustments, and
asset write-downs, because, while these are actual Company
expenses, they can mask underlying trends associated with our
business. Such items are often inconsistent in amount and frequency
and as such, the adjustments allow an investor greater insight into
the current underlying operating trends of the business.
The use of free cash flow provides investors insight into the
amount of cash that management could have available for other
discretionary uses. It adjusts GAAP cash from operations for
capital expenditures, as well as special items like cash used for
restructuring charges, unusual tax payments and contributions to
its pension funds. Management uses segment EBIT to measure
profitability and performance at the segment level. EBIT is
determined by deducting the related costs and expenses attributable
to the segment. Segment EBIT excludes interest, taxes, general
corporate expenses not allocated to a particular business segment,
restructuring charges, asset impairments, and goodwill charges
which are recognized on a consolidated basis. In addition,
financial results are presented on a constant currency basis to
exclude the impact of changes in foreign currency exchange rates
since the prior period under comparison. Constant currency measures
are intended to help investors better understand the underlying
operational performance of the business excluding the impacts of
shifts in currency exchange rates over the intervening period.
Pitney Bowes has provided a quantitative reconciliation to GAAP
in supplemental schedules. This information may also be found at
the Company's web site www.pb.com/investorrelations.
This document contains “forward-looking statements” about our
expected or potential future business and financial performance.
For us forward-looking statements include, but are not limited to,
statements about our future revenue and earnings guidance and other
statements about future events or conditions. Forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties
include, but are not limited to: mail volumes; the uncertain
economic environment; timely development, market acceptance and
regulatory approvals, if needed, of new products; fluctuations in
customer demand; changes in postal regulations; interrupted use of
key information systems; management of outsourcing arrangements;
foreign currency exchange rates; changes in our credit ratings;
management of credit risk; changes in interest rates; the financial
health of national posts; and other factors beyond our control as
more fully outlined in the Company's 2012 Form 10-K Annual Report
and other reports filed with the Securities and Exchange
Commission. Pitney Bowes assumes no obligation to update any
forward-looking statements contained in this document as a result
of new information, events or developments.
Note: Consolidated statements of income; revenue and EBIT by
business segment; and reconciliation of GAAP to non-GAAP measures
for the three months ended March 31, 2013 and 2012, and
consolidated balance sheets at March 31, 2013 and December 31, 2012
are attached.
Pitney Bowes Inc.Consolidated
Statements of Income(Unaudited)
(Dollars in thousands, except per share data) Three months
ended March 31, 2013 2012 Revenue: Equipment sales $ 214,999 $
220,179 Supplies 74,287 76,365 Software 87,012 104,350 Rentals
136,379 140,389 Financing 116,762 126,748 Support services 165,486
173,518 Business services 372,031 378,587
Total revenue 1,166,956
1,220,136 Costs and expenses: Cost of equipment sales
109,337 96,916 Cost of supplies 23,262 23,871 Cost of software
20,706 21,093 Cost of rentals 27,755 30,225 Financing interest
expense 19,875 21,139 Cost of support services 108,009 115,087 Cost
of business services 291,648 286,817 Selling, general and
administrative 377,206 405,486 Research and development 33,335
34,073 Other interest expense 30,739 29,367 Interest income (1,748
) (1,733 ) Other expense (income), net 25,121
(3,234 ) Total costs and expenses 1,065,245
1,059,107 Income from continuing operations
before income taxes 101,711 161,029 Provision for income
taxes 27,549 15,493 Income from
continuing operations 74,162 145,536 (Loss) income from
discontinued operations, net of tax (2,062 ) 17,728
Net income before attribution of noncontrolling
interests 72,100 163,264
Less: Preferred stock dividends of
subsidiaries attributable to noncontrolling
interests
4,594 4,594 Net income - Pitney
Bowes Inc. $ 67,506 $ 158,670 Amounts
attributable to common stockholders:
Net income from continuing operations
$ 69,568 $ 140,942
(Loss) income from discontinued
operations, net of tax
(2,062 ) 17,728 Net income - Pitney
Bowes Inc. $ 67,506 $ 158,670 Basic earnings
per share attributable to common stockholders (1): Continuing
operations 0.35 0.70 Discontinued operations (0.01 )
0.09 Net income - Pitney Bowes Inc. $ 0.34 $
0.79 Diluted earnings per share attributable to
common stockholders (1): Continuing operations 0.34 0.70
Discontinued operations (0.01 ) 0.09
Net income - Pitney Bowes Inc. $ 0.33 $ 0.79
(1) The sum of the earnings per share amounts may not equal
the totals above due to rounding.
Pitney Bowes Inc.Consolidated
Balance Sheets(Unaudited in thousands,
except per share data)
Assets
March 31,
2013
December 31,
2012
Current assets: Cash and cash equivalents $ 909,664 $ 913,276
Short-term investments 37,712 36,611 Accounts receivable,
gross 663,357 748,469 Allowance for doubtful accounts receivable
(15,739 ) (20,219 ) Accounts receivable, net 647,618
728,250 Finance receivables 1,160,865 1,213,776 Allowance
for credit losses (23,774 ) (25,484 ) Finance
receivables, net 1,137,091 1,188,292 Inventories 167,469
179,678 Current income taxes 49,082 51,836 Other current assets and
prepayments 113,142 114,184
Total current assets 3,061,778 3,212,127 Property, plant and
equipment, net 377,246 385,377 Rental property and equipment, net
236,026 241,192 Finance receivables 993,242 1,041,099
Allowance for credit losses (13,206 ) (14,610 )
Finance receivables, net 980,036 1,026,489 Investment in
leveraged leases 34,236 34,546 Goodwill 2,115,450 2,136,138
Intangible assets, net 153,440 166,214 Non-current income taxes
93,391 94,434 Other assets 564,503 563,374
Total assets $ 7,616,106 $ 7,859,891
Liabilities,
noncontrolling interests and stockholders' equity
Current liabilities: Accounts payable and accrued liabilities $
1,586,957 $ 1,809,226 Current income taxes 207,081 240,681 Notes
payable and current portion of long-term obligations 375,000
375,000 Advance billings 466,677 452,130
Total current liabilities 2,635,715 2,877,037
Deferred taxes on income 94,883 69,222 Tax uncertainties and other
income tax liabilities 144,739 145,881 Long-term debt 3,657,634
3,642,375 Other non-current liabilities 713,578
718,375 Total liabilities 7,246,549
7,452,890 Noncontrolling interests
(Preferred stockholders' equity in subsidiaries) 296,370 296,370
Stockholders' equity: Cumulative preferred stock, $50 par
value, 4% convertible 4 4 Cumulative preference stock, no par
value, $2.12 convertible 648 648 Common stock, $1 par value 323,338
323,338 Additional paid-in-capital 203,454 223,847 Retained
Earnings 4,736,961 4,744,802 Accumulated other comprehensive loss
(711,974 ) (681,213 ) Treasury Stock, at cost (4,479,244 )
(4,500,795 ) Total Pitney Bowes Inc. stockholders'
equity 73,187 110,631 Total
liabilities, noncontrolling interests and stockholders' equity $
7,616,106 $ 7,859,891
Pitney Bowes Inc.Revenue and
EBITBusiness SegmentsMarch 31, 2013
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31, 2013 2012
%Change
Revenue
North America Mailing $ 430,375 $ 461,305 (7 %)
International Mailing 167,455 168,014
(0 %) Small & Medium Business Solutions 597,830
629,319 (5 %) Production Mail 118,802 115,016
3 % Software 80,721 100,327 (20 %) Management Services 225,256
230,630 (2 %) Mail Services 118,855 114,636 4 % Marketing Services
25,492 30,208 (16 %) Enterprise
Business Solutions 569,126 590,817 (4
%)
Total Revenue $ 1,166,956
$ 1,220,136 (4 %)
EBIT
(1)
North America Mailing $ 154,505 $ 178,171 (13 %)
International Mailing 17,749 19,997 (11
%) Small & Medium Business Solutions 172,254
198,168 (13 %) Production Mail 3,055 2,779 10
% Software 4,890 10,692 (54 %) Management Services 12,545 13,315 (6
%) Mail Services 19,349 34,245 (43 %) Marketing Services
1,986 4,817 (59 %) Enterprise Business
Solutions 41,825 65,848 (36 %)
Total EBIT $ 214,079 $ 264,016
(19 %) Unallocated amounts: Interest, net (48,866 ) (48,773
) Corporate and other expenses (63,502 ) (54,214 )
Income from continuing operations before income taxes
$ 101,711 $ 161,029
(1) Earnings before interest and taxes (EBIT)
excludes general corporate expenses. (2) Interest, net includes
financing interest expense, other interest expense and interest
income.
Pitney Bowes Inc.Reconciliation of
Reported Consolidated Results to Adjusted Results(Unaudited)
(Dollars in thousands, except per share data) Three
Months Ended March 31, 2013 2012
GAAP income from continuing
operations after income taxes, as reported
$ 69,568 $ 140,942 Extinguishment of debt 15,325 - Sale of
leveraged lease assets - (12,886 )
Income from continuing
operations after income taxes, as adjusted
$ 84,893 $ 128,056
GAAP diluted earnings per share
from continuing operations, as reported
$ 0.34 $ 0.70 Extinguishment of debt 0.08 - Sale of leveraged lease
- (0.06 )
Diluted earnings per share from
continuing operations, as adjusted
$ 0.42 $ 0.64
GAAP net cash provided by operating
activities, as reported
$ 132,160 $ 71,380 Capital expenditures (38,839 ) (50,029 )
Restructuring payments 16,275 26,245 Extinguishment of debt 25,121
- Pension contribution - 95,000 Tax payments on sale of leveraged
lease assets - 69,233 Reserve account deposits (27,327 )
(25,674 ) Free cash flow, as adjusted $ 107,390
$ 186,155 NOTE: The sum of the earnings
per share amounts may not equal the totals above due to rounding.
The above table includes an adjustment to
GAAP net cash provided by operating activities due to a
reclassification between net cash provided
by operating activities and net cash used in investing
activities.
As a result, GAAP net cash provided by
operating activities decreased by $24.6 million for the three
months
ended March 31, 2012.
Pitney Bowes Inc.Reconciliation of Reported
Consolidated Results to Adjusted Results(Unaudited)
(Dollars in thousands, except per share data) Three Months
Ended March 31, 2013 2012
GAAP income from continuing
operations after income taxes, as reported
$ 69,568 $ 140,942
Extinguishment of debt
15,325 - Sale of leveraged lease assets - (12,886 )
Income from continuing
operations after income taxes, as adjusted
84,893 128,056 Provision for income taxes, as adjusted 37,345
32,194
Preferred stock dividends of
subsidiaries attributable to noncontrolling
interests
4,594 4,594 Income from continuing operations,
as adjusted 126,832 164,844 Interest expense, net 48,866
48,773
Adjusted EBIT 175,698
213,617 Depreciation and amortization 57,227
64,370
Adjusted EBITDA $ 232,925
$ 277,987
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