Pitney Bowes Inc. (PBI) Earnings Call Transcript & Summary

Good morning, and welcome to the Pitney Bowes Investor Conference Call. [Operator Instructions] Today's call is also being recorded. [Operator Instructions] I would now like to introduce the participants in today's conference call from Pitney Bowes: Jill Sutton, Board Chair; Lance Rosenzweig, Interim CEO and Board member; John Witek, Interim CFO; Alex Brown, a member of the Investor Relations team. Mr. Brown will now begin the call with the safe harbor review.

Thank you, and good morning. 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 items can be found in 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. Please keep in mind we do not undertake any obligation to update forward-looking statements as a result of new information or developments. And now I'd like to turn the call over to Jill.

Good morning. On behalf of Pitney Bowes and its Board of Directors, thank you for joining today. Purpose of this call is to introduce our new interim CEO, Lance Rosenzweig, and discuss our recently announced strategic initiatives. With that in mind, I want to take a few moments at the outset to cover 3 points. First, please note that the reconstituted Board is fully committed to accelerating the turnaround of this tremendous brand and business. We have embraced necessary and pragmatic change, much like Pitney Bowes has at numerous points throughout its more than 100-year history. The speed and urgency we are now operating under has been informed not only by the scope of the company's value creation opportunity, but also our investor's feedback and views. That's why we wanted to host this call with you today. Second, we chose to move from interim CEO to interim CEO to help us speed up the implementation of important initiatives. Lance's experience serving as a public company CEO, streamlining complex organizations and overseeing cost-out programs will allow us to realize faster and we believe greater progress in the coming months. While this change may be viewed as atypical, the Board placed a premium on shortening the time line to value creation that this change represents. We will not shy away from difficult choices when we believe they are in the best interest for the overall company and its future. Lastly, as previously disclosed, we have commenced a fresh search for a new permanent CEO. The reconstituted Board's agility and its alignment on the ideal candidate profile will make this an expedited and productive process. We have begun steps to appoint a new nationally recognized search firm to source candidates. With respect to candidates we are looking for in a CEO, we are looking for those who can run an efficient, lean enterprise that drives consistent value as well as those that will also look at disciplined adjacent growth opportunities from Pitney Bowes' core assets and segments. In addition to supporting Lance, this search will be among the Board's top priorities. With that, let me turn the call over to Lance to introduce himself and talk about our near-term priorities. I'll remain on for the Q&A portion to the extent there are any questions for the Board or related governance matters. Lance?

Thank you, Jill, and thank you, everyone, for your interest in Pitney Bowes. I'd also like to thank Jason Dies. Jason spent several years at Pitney Bowes in executive roles, most recently as Interim CEO. I appreciate Jason's work paving the way for our next chapter as we accelerate and amplify the progress that Jason had begun. I'm excited to serve as the leader of this storied company. When this opportunity first presented itself, I spent a lot of time digging into the situation before accepting my new role. The more I looked at the company, the more I realized the tremendous opportunity that exists to unlock shareholder value. The size of the opportunity is why I requested a comp package that is more than 97% equity-based. My goal is being aligned with shareholders on the value we are able to deliver during my term as interim CEO. We laid out 4 key initiatives in our May 22 press release, all of which we will cover in today's brief presentation. In our view, these 4 initiatives represent the low-hanging fruit. After we successfully execute on them, we believe there is a long list of additional opportunities: to streamline the organization's processes and further reduce costs, accelerate the company's growth, invest in high ROI opportunities with adjacencies to our successful core businesses and evaluate selective value-added acquisitions. Since stepping into my new role, I have been met by a talented leadership team that is eager to see Pitney Bowes succeed in the market. Interim CFO, John Witek; Head of SendTech, Shemin Nurmohamed; and Head of Presort, Debbie Pfeiffer, are among the many executives who are already helping me drive change. They are bought in to the hard work and difficult choices that need to be made to achieve a value-enhancing turnaround. John, who is with me on this call, has been a particularly close partner as I've gotten started. Given the nature of our initiatives, this partnership with finance will be a tailwind for our organization as we look to make every day count during this period of transformation. With all that in mind, we ask that you refer to Slide 5 of the deck accompanying this call. A little bit about me. My entire career has been focused on corporate transformation and shareholder value creation. I've been CEO of 4 public companies and several PE-owned companies. I've also been a Board member of 6 public companies. Like Pitney Bowes, most of these companies have been in and around tech-enabled services, software and products. I've also been an entrepreneur, founding people support, growing it to over 9,000 employees, taking it public in an IPO and then selling it to a strategic buyer, which then brought me on as its CEO. I'm excited to lead Pitney Bowes during this stage of transformation. Pitney Bowes represents a compelling opportunity. The company has 2 exceptional businesses, SendTech and Presort, both with strong market positions, high margins, high cash generation and predictable and recurring earnings. We also have a third business, global e-commerce, built with the best hopes and aspirations, but unfortunately, never able to overcome its tough industry headwinds, leaving it with declining revenues, accelerating losses and negative cash flows. To accelerate Pitney Bowes' transformation and build the company into a growing, profitable and highly cash positive business, the Board has tasked me with implementing 4 key strategic initiatives: first, concluding the strategic review for GEC. This review had been ongoing for several months and we now plan to accelerate and conclude this review in the next 60 days. Second is cost rationalization. We've identified a range of $60 million to $100 million in actionable cost takeouts. I am highly confident that we will deliver on this target. I note that these are incremental savings on top of GEC and in addition to those that the company has achieved in the past. Third is cash optimization. The company has historically operated with high levels of excess cash. We believe we can reduce our cash needs by $200 million. And fourth, resulting balance sheet deleveraging. Through improvements in cash flow and accelerating cash generation, we plan to begin to deleverage our balance sheet, prioritizing our higher cost and shorter-term debt. We have an exceptional opportunity to transform Pitney Bowes, focusing on our highly profitable and cash positive business segments with greatly streamlined corporate overheads and a much stronger balance sheet. First, SendTech. I am super excited about this business under the leadership of Shemin Nurmohamed. SendTech is the global leader in mailing with highly profitable and predictable earnings and cash flows. And despite its eroding market, the company has a terrific growth engine in its SaaS shipping business with very high growth and margins in a large and growing market. Second is Presort. This is another excellent business under the leadership of Debbie Pfeiffer. The company is the largest work share partner of the USPS, is highly profitable and has been a steady grower despite a declining market. We see good opportunities here to accelerate growth through tuck-in acquisitions. Underscoring SendTech and Presort is the Pitney Bowes Bank and Global Financial Services with a large base of captive customers and opportunities to accelerate cash contribution. Our cost rationalization efforts are accelerating and expanding. As I mentioned, we are confident that we will achieve $60 million to $100 million in new savings. We are working with both internal teams and a recognized consulting firm with John Witek as my partner to deliver on our promise. A lot of these savings will come out of what the company has historically referred to as corporate unallocated, but there is also an opportunity to simplify our organization, consolidate duplicative structures and reduce discretionary spend. We intend to generate $200 million in additional cash through better cash management. We've identified 3 sources of this cash. First, international cash repatriation. We are implementing a global cash pooling structure that will enable us to maintain lower levels of cash in our international jurisdictions while still maintaining adequate levels of cash globally. Second, optimizing the balance sheet of the Pitney Bowes Bank, enabling us to free up cash for use by the parent company. And third, generally operating the business with a lower level of cash on an ongoing basis. The additional cash generation and ongoing cash flows will be used to reduce debt levels and generally deleverage our balance sheet. That concludes our presentation portion, and we would now like to open it up to Q&A.

[Operator Instructions] The first question today comes from Anthony Lebiedzinski with Sidoti.

Welcome, Lance. Look forward to working with you. So I guess, first, in terms of the $60 million to $100 million of additional cost savings that you're looking to do, what's the timeline that we should expect for you guys to be able to accomplish these goals? And then I know you said it was going to be largely in the corporate unallocated portion. But just thinking about the different segments, maybe if you could provide some additional color. And will all of these savings ultimately drop down to the bottom line? Or do you think there will be a need to reinvest any of these savings back into other areas of the business? So just wanted to get more color on that.

Thanks, Anthony. Appreciate the question. Your first part of the question was on our timetable. We are moving very fast. We've already identified the categories of cost savings and the locations of cost savings. And we expect to, by the end of next month, have our plans pretty much finalized and ready for implementation. As you mentioned, most of these are in this corporate unallocated category and generally in corporate spend. So the majority of them are going to be in our overheads. And our goal is to simplify our corporate structure, take cost out of that corporate structure and empower our operating business to do what they're doing so well, which is generating great earnings and cash flow. Your question on the bottom line. Yes, we intend all of these savings to flow through to the bottom line. And we expect that you'll start seeing that happening in the next quarter through the income statement. There will be onetime costs to get out some of these costs. But going forward, these are all savings.

Got you. Okay. And then in terms of GEC, so obviously, that's been a drain on the company's profitability for sure. So if you -- if this business is ultimately divested or sold, as I think your presentation implies, how much of unallocated corporate costs could be taken out because you have a simplified structure? Or are you already including the $60 million to $100 million of cuts already in that plan?

Right. So great question. So we are concluding our strategic review of GEC. And we're in the final innings there. So that's almost at the point of resolving itself. The $60 million to $100 million of savings that we mentioned is on top of the GEC savings. So as we implement and execute on GEC, these are additional savings that will reduce that corporate and other expense categories.

Got you. Okay. All right. And then as far as the cash optimization, how quickly do you think you can achieve these goals?

Yes. We're also moving very fast on our cash optimization. And we intend to generate the vast majority, if not all of that, by the end of this year.

Got it. Okay. And then my last question before I pass it on to others. Just do you guys have any thoughts as far as the dividend and debt reduction? How are you guys thinking about capital allocation?

Yes. So we mentioned that as we improve our cash flow and also reduce our need for cash, we are prioritizing debt repaydown, particularly in our higher cost debt and also in our nearer-term debt. We've not made any comments on the -- on our dividend.

The next question comes from Peter Sakon with CreditSights.

In the past, when these annual cost savings have been announced, there was maybe a bit of confusion on cost cuts versus cost savings. And I believe that maybe some inflation was included in there, so money that wasn't going to be spent. Can you quantify like how much of these savings are actually cuts for this plan?

Absolutely. Thanks, Peter. So I've been on the job for 1 week, so I can't talk to what's happened in the past. But what I can say is 100% of these cost cuts are actual cost cuts. They're money that the company is spending that it will no longer spend.

Okay. And can you talk about how long it will take -- well, first of all, what the cost -- you said there was going to be some implementation. How much it will cost for these cuts to happen? And when they will be completed as we try to -- and then could you maybe quantify the impact of -- for 2024 EBITDA and 2025 EBITDA?

Yes. So we're not getting into that level of specificity on this call. But what I will say is that the onetime nonrecurring costs that are -- that typically accompany a cost reduction will be kind of adjusted out in any adjusted EBITDA calculation. And also, as mentioned, we're moving super fast. And we expect that the majority of these cost cuts are going to be out by the end of the year as well.

I'm sorry, how much do you say those costs are going to be?

The onetime cuts, we've not given a number on the onetime nonrecurring costs.