Good morning, and welcome to the Pitney Bowes' Third Quarter Earnings 2020 Results Conference Call. Your lines have been placed in a listen-only mode during the conference call until the question-and-answer segment. Today's call is also being recorded. If you have any objections, please disconnect your lines at this time. I would now like to introduce your speakers for today's conference call. Mr. Marc Lautenbach, President and Chief Executive Officer; Mr. Stan Sutula, Executive Vice President and Chief Financial Officer; and Mr. Adam David, Vice President, Investor Relations. Mr. David will now begin the call with the Safe Harbor overview.

Good morning. Included in this presentation are forward-looking statements about our expected 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 2019 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 that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. Also, for non-GAAP measures used in the press release or discussed in this presentation, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally, we have provided slides that summarize many of the points we will discuss during the call. Now, our President and Chief Executive Officer, Marc Lautenbach, will start with a few operating remarks. Marc?

Thank you, Adam. And thank you everyone for joining our call. We turned in a good quarter and put up some solid numbers. I'm extremely proud of what the team continues to accomplish, especially while facing these challenging times. Overall, revenue grew 13%. This is an organic growth rate that we have not achieved in well over a decade, and double the growth rate we saw in the second quarter. Although the current environment is contributing to our accelerated growth rate, we recognize the opportunity in shipping well in advance of the current conditions, which is why we spent the last several years making the right investments and taking necessary actions to shift our portfolio to this large growth area that complements our portfolio. And those investments are paying off with our shipping-related revenues comprising half of our overall revenue. However, the question still remains for all of us. What will ecommerce look like in a post-COVID world? Our marketing and communications team has been conducting weekly surveys with U.S. consumers to gauge several areas, including how shopping habits have changed, and where they see these habits in a post-COVID environment. Based on what we are seeing in the market, it is not surprising that the survey results show that 45% of consumers say they now do more than half of their shopping online, which is nearly three times pre-pandemic adoption. While the duration of this terrible pandemic remains unknown, we do know for certain that the market has shifted dramatically, and consumers have adopted and adapted to the online buying experience. We are fortunate to have invested in the products and services that help our clients be successful with the post-purchase consumer experience. Because this is an area that retailers can only afford to get right. Stan will discuss the details of the quarter. But given how the environment has changed over the last five months, it’s important to look at our results from a sequential perspective, as each of our business segments turned in a strong quarter-over-quarter revenue performance. Our ecommerce business grew 47% over the prior year, exceeding $400 million of revenue in the quarter, which is a first for this business. I know I've said this on prior calls, but it bears repeating. This is a business that barely existed for us eight years ago, and is now on track to generate over $1.5 billion in annual revenue, and year-to-date has grown over 30%. We continue to process a record number of parcels and sign a significant number of new clients. This is an indication that we're taking share as our services and value proposition resonate with the market with more opportunity still in front of us. As we discussed last quarter, the acceleration in demand and volume is bringing us to a level of scale that we originally anticipated achieving in two years. But we have more work in front of us to become more efficient, which the team is focused on. We're taking the necessary steps to prepare for a successful peak holiday season. Over the course of the last few months, we signed leases on three new facilities and upgraded another, all of which will be running for peak, and we announced holiday peak pricing. Unlike some others in the market, we use a simple, easy to understand flat rate increase that helps our clients know how to budget for their holiday shipping costs. Given the performance of ecommerce, it would be easy to overlook the quarter-to-quarter improvement in our SendTech and Presort businesses. We’re equally focused and well-positioned to leverage investments we made in these businesses over the last several years. Within SendTech, we've invested in new product offerings and channels. These investments have allowed us to find new ways to interact and conduct business with our clients by adding value and saving them money. As a result, in the third quarter, we acquired over 8,600 SendPro clients through our digital channel, which is an increase of nearly 80% year-over-year. We are delivering new capabilities around shipping and financing and building out new revenue and profit streams that are more subscription-based. We continue to see improved take rates in activation for our shipping capabilities, which grew revenue at a double-digit rate and our paid subscriptions for our shipping offerings grew over 60%. We also saw a nice improvement in the level of equipment placements, with sales revenue improving versus the prior quarter. We are now placing new mail finishing devices, which have been very important for us. Shipment of these devices grew nicely in the quarter, and we entered the fourth quarter with a healthy backlog. This business continues to turn in a strong EBIT margin that is within our long-term model range. Given SendTech's contribution to our cash, improving the top-line decline and delivering strong margins is essential to our overall capital allocation strategy. In Presort, we also improved our revenues from the second quarter and improved the bottom line. And similar to what we are doing in SendTech, we’ve expanded our Presort Services into the shipping space, creating a new revenue and profit stream for this business around Bound Printed Matter and Marketing Mail Flats. Overall, we're making continued improvement and progress across the portfolio and expect this momentum to continue in the fourth quarter. I would be remiss if I didn't again, thank our employees, clients, and partners alike. Our highest priority remains around their health and safety, and we continue to take all necessary actions. Now, as we head into a busy holiday season, this will be of utmost importance as we remain diligent and very mindful of everyone's safety. As I mentioned before, one of the hallmarks of our culture is resilience. This has enabled our company to endure. Looking at where we are from a longer-term perspective, I like how we are positioned and I'm convinced that we will come out of this pandemic much stronger than we entered. With that, let me turn it over to Stan.

Thank you, Marc, and good morning. Comparing our third quarter results to the second quarter, we doubled our revenue growth and improved overall EBIT dollars. We continue to generate strong cash flow growing $15 million over the prior year, which puts us at about $186 million year-to-date. In the third quarter, we repaid the $100 million drawn against the revolving credit facility. As a reminder, we had drawn down against our revolver in April purely as a precautionary measure when COVID ramped up. Given our cash flow generation, and that we have no current need for the funds, it was prudent for us to repay it in the third quarter. We continue to see the effects of COVID play out across our business. We remain focused on providing a healthy and safe environment for employees as well as our clients, partners, and communities. Even with the COVID impact, we are moving in the right direction, and we expect to gain momentum in the fourth quarter. Let me take you through the details of the third quarter. As in the past, unless otherwise noted, my statements going forward will be on a constant currency basis when talking about revenue comparisons and on an adjusted basis when talking about earnings-related items, including cash flow. Reconciliations of all non-GAAP to GAAP measures can be found in the financial schedules posted with our earnings press release and on our Investor Relations website. For the third quarter, revenue totaled $892 million, which was a growth of 13% over the prior year. Adjusted EPS was $0.08 for the quarter, and GAAP EPS was $0.07. EPS includes COVID-related costs, which were partly offset by insurance proceeds related to last year's malware attack. Free cash flow was $85 million, and GAAP cash from operations was $104 million. Free cash flow improved from the prior year due to changes in working capital, largely around the timing of accounts receivable, which was partly offset by lower net income. Looking at our capital position through the end of the third quarter, we ended the quarter with $820 million in cash and short-term investments. This is lower than the second quarter, largely due to the repayment of the $100 million drawn against our revolving credit facility. Additionally, during the quarter, approximately $150 million in cash and short-term investments was invested into longer-term securities, which was net neutral to the balance sheet. During the quarter, we used free cash flow to return approximately $9 million to our shareholders in the form of dividends. We made $5 million in restructuring payments, and invested $21 million in capital expenditures. Looking at our Pitney Bowes Bank, customer deposits grew 6% over the prior year to $611 million. Within Wheeler Financial, we funded just over $5 million of new deals, bringing our total funded amount year-to-date to around $12 million. From a debt perspective, we ended the quarter with $2.6 billion in total debt, which is about $120 million lower from the second quarter, primarily driven by the repayment of the $100 million revolving credit facility, in addition to principal amortization on both of the term loans. In terms of our net debt, when you take our cash and short-term investments and finance receivables into consideration, our implied net debt position on an operating company basis was approximately $700 million at the end of the quarter. Turning to the P&L, starting with revenue performance by line item as compared to the prior year. Business services grew 31%. We had declines in financing of 5%, support services of 7%, rentals of 9%, equipment sales of 12%, and supplies of 13%. Gross profit was $295 million with a margin of 33%. This is a decline of about 9 points from the prior year, which largely reflects the shifting mix of our portfolio. SG&A was $239 million, which is a decline of $15 million from the prior year. As a percentage of revenue, SG&A was 27%, which is an improvement of over 5 points from the prior year. R&D expense was $9 million or 1% of revenue, which was down $3 million from the prior year. EBIT was $54 million and EBIT margin was 6%. Compared to the prior year, EBIT declined $15 million and EBIT margin declined by just over 2.5 points, driven primarily by the gross profit decline, which was partly offset largely by lower operating expenses. Interest expense, including financing interest expense, was $39 million, which was down about $1 million from the prior year. The provision for taxes on adjusted earnings was about $2 million and our tax rate for the quarter was 11%. Weighted average shares outstanding at the end of the quarter were 175 million, which is about 3.5 million shares higher than the prior year. Let me now discuss the performance of each of our business segments this quarter. In our Commerce Services Group, revenue was $538 million, which was growth of 31% over the prior year. EBIT was a loss of $5 million, and EBITDA was a positive $20 million. Within Global Ecommerce, revenue was $410 million, which is the first time we achieved over $400 million in the quarter and represented growth of 47% over the prior year. Within Domestic Parcel services, volumes more than doubled from the prior year to 61 million, driven by over 150% growth in our domestic deliveries. Digital volumes grew nearly 70% over the prior year driven by strong growth in our digital shipping APIs. In our Cross Border Services, we saw progress through the quarter with volumes growing nearly 30% over the prior year, driven by a larger cross border logistics client and improved demand. This represents a material improvement from prior quarters as we continue to innovate around customer experience. Looking at EBIT, we recorded a loss of $20 million in the quarter and EBITDA was a loss of $3 million, both of which were an improvement of approximately $2 million from the prior year. The third quarter EBIT margin of minus 4.8% was a 3-point improvement over the prior year and roughly flat quarter-to-quarter. As we continue to gain scale, we saw postage, labor and transportation cost per piece improve as we moved through the quarter. We continue to invest in this business to capture share of this window of opportunities in front of us. In the quarter, we invested in three new facilities and upgraded another. We are making ongoing advancements in automation for operational efficiency and our systems to improve data quality and capture, and in cloud-based reporting alerts to better serve our clients. We also continue to be impacted by direct COVID-related items, which we expect some to continue and others to reduce over time. With the additional capacity and the investments we've been making, we are prepared to handle peak holiday volumes. As we have previously announced, we implemented peak pricing for the holiday season that is very competitive in the market. Looking at Presort Services, revenue was $128 million, which was a decline of 3% from the prior year. This represents a $10 million increase over the second quarter. First Class Mail volumes were down 3% and Marketing Mail volumes declined 8% from the prior year, both of which improved significantly from the second quarter. Marketing Mail Flats and Bound Printed Matter volumes grew 37%. While still a relatively small part of our portfolio, this area represents a new revenue and profit stream for this business that barely existed a year ago. EBIT was $14 million and EBIT margin was 11%. EBITDA was $23 million, and EBITDA margin was 18%. EBIT and EBITDA margins improved slightly quarter-to-quarter, but declined from the prior year, primarily as a result of the lower volumes processed. We remain focused on our productivity initiatives. Compared to the prior year, we improved the pieces fed to our equipment per hour, resulting in 115,000 fewer labor hours to sort nearly 4.1 billion pieces. We expect these productivity gains to continue going forward. Turning to our SendTech segment, revenue was $354 million, which was a decline of 7% from the prior year. This is an improvement of $33 million over the second quarter. Equipment sales declined 12% versus the prior year, which is a significant improvement from the second quarter. We also saw a nice monthly improvement throughout the quarter with September declining only 2% from the prior year as the business environment started to recover. We continue to see good demand for our SendPro Mailstation, a first-of-its-kind device with meter-in-the-cloud capability. This product is a replacement for our volume mailers, which is ideal for remote setups and for branch offices of large organizations. Since launching in April, we have shipped nearly 12,000 units, exceeding our expectations. Shipments of our mail finishing devices in the U.S. grew at a high single-digit rate over the prior year, and we entered the fourth quarter with a healthy backlog. This is a leading indicator for equipment sales revenue and points to continued sequential improvement in the fourth quarter. It also shows that our new product line, which we believe is well ahead of what the competition is offering, continues to yield a positive response in the market. Supplies declined 13%, which is a significant improvement from the second quarter as usage and demand started to improve. With investments in our digital capabilities, we are making it easier for clients to order and reorder supplies. In the U.S., two-thirds of our supplies transactions are conducted online. Financing revenues declined 5%. This quarter includes gains related to the sale and reinvestment of proceeds into long-term securities. Combined, rentals and support services declined 8% from the prior year, largely on the lower portfolio. We continue to see growth in our SendTech shipping revenues, reaching $32 million in the third quarter and growing at a double-digit rate. Specifically, our SaaS-based SendPro online offering grew its paid subscriber base by over 60% from the prior year. The impact of shipping growth in SendTech goes beyond our hardware and SaaS-based offerings. In the third quarter, our clients who finance their shipping activity with us doubled their shipping label volumes from the prior year. Despite the decline in SendTech's revenue, the EBIT margin remains solid and within our long-term model range. EBIT was $113 million, and the EBIT margin was 32%. EBITDA was $121 million, and the EBITDA margin was 34%. Importantly, the quality of our financing portfolio remains healthy, and delinquency rates are trending down from the initial small uptick that we saw in the second quarter related to COVID. We are also seeing improvements in payment behavior trends from the second quarter. We continue to monitor and take a disciplined approach to credit risk management daily. Before we take your questions, let me recap. While this pandemic has caused disruptions across industries, we are fortunate to have made the investments in our products, services, channels, and network to be able to continue to work with our clients and grow our business. We remain focused on our balance sheet and liquidity position, having paid down the $100 million of our revolving credit facility using cash on our balance sheet and still maintaining a strong cash position of approximately $800 million at the end of the third quarter. We grew revenue 13%, an organic rate we have not achieved in well over a decade. We have achieved other noteworthy accomplishments around ecommerce revenue, Presort productivity measures, and SendTech shipping capabilities. All strong proof points in our strategy to create a simplified business model focused around shipping and mailing, with financing options underpinning the business is getting traction. Due to continued uncertainty around COVID, we will continue to suspend our 2020 guidance. Overall, we expect continued progress with sequential improvement, largely in global ecommerce in both revenue and earnings in the fourth quarter. We are operating in a very dynamic environment but remain focused on the long-term, and that has served us well. We are well-positioned to capitalize on the market opportunities ahead of us and believe that we will exit this pandemic as a stronger company. Now before we take your questions, Marc would like to make a brief statement.

Thanks, Stan. Fifteen years ago, I was running the Americas for IBM, which was at the time one of the most difficult jobs there was. My then CFO, Jim Kavanaugh, had been in the role for several years. Jim was a terrific executive. He has subsequently gone on to become the CFO of IBM. I got a call from Mark Loughridge, who was the then CFO of IBM, and said, we're going to make a change. We're going to put this fellow Stan Sutula in behind Jim. I was concerned, given that I was new to the role as well and the difficulty, and candidly, Jim was a terrific executive and hard to backfill. But that began a relationship that I have enjoyed for the last 15 years, both professionally and candidly, personally as well. Stan and I, over 15 years, have had an opportunity to talk about his career aspirations. Since I first met Stan at IBM, his aspiration was always to be the CFO of a super large company. Today, we're announcing that Stan will be leaving Pitney Bowes and joining Colgate-Palmolive in the coming weeks. I was able, a couple of years ago, to convince Stan to take a detour from his ambitions and to join us at Pitney Bowes in what I thought was and still think is going to be one of the most successful transformations in the industry. Stan put his aspirations and ambitions on the sideline to help me out over the last 3 or 4 years and has accomplished a lot. He helped land what was one of the most ambitious systems and process reengineering programs I've ever seen. More recently, he has helped, along with the great support and leadership of Debbie Salce, in an important refinancing that sets the basis for our future. As you see in today's results, the company is now on sustained revenue growth and what I would say is soon to be sustained revenue and profit growth. Stan and I talked about his next steps, and we've been talking about his next steps over the last 12 months. It was important to Stan and obviously important to me that we make this transition when the company is at a position of strength. Over the last several quarters, it's become imminently clear to myself, to the Board, to Stan, that, that moment where the company is strong is now. As much as I hate to announce it and hate to lose such a wonderful colleague, now is the time for Stan to move on and fulfill what has been a lifelong ambition. While I hate for Pitney Bowes and candidly hate for myself to lose such a strong executive and wonderful colleague, at the same time, it's wonderful to see such a great person and such a quality person have such an incredible opportunity. I kept on trying to convince Stan that we'd be a $20 billion company soon enough, but I couldn't get the account to agree with my assessment. Stan will be with us through the end of next week. We've begun a search. I would tell you, we've got a great list of internal and external candidates, and that slate continues to get better and better. It's my hope that within the coming weeks, we're able to backfill Stan. I’m quite confident we'll have a great executive. So with that, we'll take your questions for this morning.

Your first question comes from the line of Kartik Mehta from Northcoast Research.

First of all, congratulations, Stan. I wish you the best of luck. Marc, I wanted to ask you about the Global Ecommerce business. You are clearly driving revenue and benefiting from current trends. I would like to know more about the EBIT losses, as it seemed that the additional revenue might lead to increased profits. Could you provide more detail about what is happening in that area? Also, what is your outlook for that segment in terms of achieving profitability?

If you examine the quarterly performance, as Stan mentioned, the increased revenue has positively impacted unit costs related to postage, transportation, and labor, in line with our expectations and long-term goals. However, warehouse costs did not improve on a quarter-to-quarter basis due to several factors. First, we added three new warehouses this quarter, which increased expenses and led to some underutilization. Second, as I mentioned in the second quarter, our warehouse efficiency isn't at the level we aim for. The revenue performance did generate the scale benefits we anticipated regarding unit costs, but we still have work to do on warehouse efficiency. Looking ahead, I'm hesitant to define a specific inflection point or timeline for profitability because of the uncertainties surrounding COVID. There are many unknowns, which makes it difficult to have high confidence. In the fourth quarter, I can present a logical case for profitability, but it relies on two key conditions: COVID not worsening significantly, and maintaining our expected improvement in warehouse efficiency. Therefore, I won't pinpoint a specific quarter for profit, but I will note that the third quarter did provide the unit cost advantages we were looking for, and we are close to achieving overall profitability.

And then Stan, I noticed that other income was a benefit this quarter. Could you provide some details about what that entails? Can you give some context around that?

Yes, thank you for the question, Kartik. In terms of other income, we had a malware attack last year and previously disclosed that we've received some proceeds from that. The main source of the other income is the insurance proceeds from these claims. We are still working through this situation. However, I want to highlight that the impact of COVID on the business has been greater than the value of the proceeds we received this quarter. We are focused on long-term results, and while there will be fluctuations throughout the quarter, the impact of COVID has definitely exceeded the gain from the insurance proceeds.

I'll make one other point about the fourth quarter, just to your question, Kartik. One of the meaningful things that happened in the industry over the last 90 days is the industry put forward pretty meaningful price increases. Our competitors put price increases out for peak. We followed suit albeit to a slightly lesser extent than competitors, and hopefully in a much more customer-friendly way. So if you look at the expected volume in the fourth quarter and the price increase at a per parcel level, it's a meaningful benefit on a quarter-to-quarter basis. So as you think about the overall business, that price increase for the fourth quarter and how prices work out into next year is a really important dynamic. It's why I'm more confident than I've been about the business and that there's some pricing leverage in the marketplace.

Stan, for my last question, could you provide some insight into the additional costs arising from COVID-19? Even if you can only give a range, it would help us understand the impact on the profit and loss statement.

Yes. Look, if you look across the business, and as you would expect, it's an easy one to put your finger on, PPE activity we're buying, then there are broader impacts. I'm talking about a more direct impact right now. But you should assume we're in a neighborhood of very high single-digit millions, and that does not include the impact to, I'd say, the sales side of the business. So when we have SendTech and you can't get into a client site to do the install, hence, you can't recognize revenue, I'm not including that impact. What we're talking about is the impact for staggered shifts, the impact for paid time off, if you've tested positive or have been exposed. And talking about the PPE, remember, we're setting up the new facilities. So you have to go set all that up. It is still an impact on the business. We are getting significantly better at managing it. Our primary focus is to keep thousands of workers healthy and safe in our facilities, and we're not going to spare expense in taking that on.

Your next question comes from the line of Anthony Lebiedzinski from Sidoti & Company.

First congratulations, Stan, on the new opportunities. So it certainly sounds pretty good. So if we could just step back and mimic, can you guys talk about the revenue trends that you saw throughout the quarter? I think, Stan, you also touched on your SendTech business seeing some meaningful improvement in September. But if you could just go over the different segments as to the progression of the revenue trends throughout the quarter, that would be good?

Sure. Anthony, thank you for the question. It's interesting because it varies by business. If you take a look, August tends to be a lull for most businesses, given the international nature, heavy vacation time, etc. If you take a look at the total, we certainly saw that in total. Let me go kind of segment-by-segment. Global Ecommerce started off with a stronger July, and that's really catching up through some of the volume that was coming in through the end of June. August came down but still grew 40%. In September, it started to gain momentum, essentially growing at the same rate as the full quarter. One of the things we talked about is, when you have that lull in August, we had a decision to make. Should we pull back on all the staffing that we set up in Q2 to handle the surge in volume? We elected not to do that. We elected to try to manage that because we knew we had a peak holiday season coming up, and it is getting tougher to get labor out there. So we maintained that activity for the staffing. If you go to Presort, it has a seasonality both by week and by month. We gained momentum heading into September and actually had a small amount of growth, and that really is coming from the volumes. Those bounce up and down a little bit depending on what's happening, but were down 3% for the quarter. We got a little bit of growth in the month of September. I think SendTech is the interesting one. We were down double-digits in July. August and September got better, and we ended up down 7%. That's a material improvement from where we were last quarter. One of the important aspects there, those equipment sales last quarter, we're down 32%. This quarter, we were down 12%. As we exited the quarter, we were down 2%. That could be impacted by COVID, the ability to get in and install machines within clients. We've also changed our go-to-market with the new Mailstation that gives us other avenues to grow that revenue. I would tell you, I think we exited the quarter with some good momentum. As we look towards the fourth quarter, expect to see continued growth.

Got it. So your free cash flow has improved year-to-date in the third quarter. How should we think about free cash flow for the balance of the year? And as far as 2021, could we expect the free cash flow to continue to improve?

Free cash flow for the quarter was quite strong at $85 million, showing year-over-year growth. More notably, it stands at $186 million on a year-to-date basis. Some of this has resulted from the runoff of finance receivables, which is not our ideal method for generating free cash flow, but this is decreasing, and that's encouraging as we're adding earning assets back to the balance sheet. Year-to-date figures indicate we’re performing better than last year. In the third quarter, factors like timing around accounts receivable helped us improve our Days Sales Outstanding (DSO). While some of this might be temporary, I believe we will see a normalization in the fourth quarter. It's crucial to consider the bigger picture. When COVID first hit, there were concerns about our free cash flow generation. I'm proud of my team; we consistently focus on cash management. They’ve excelled in collections, managing delinquencies, and overseeing inventory and capital expenditures. This careful balance has led to our robust free cash flow. As we approach the year's end and look into next quarter, I am optimistic about our overall position for the year. I do expect accounts receivable to stabilize, and a shift in timing might occur. This also hinges on what happens in the fourth quarter, particularly in December's billing levels. However, fundamentally speaking, we're significantly ahead of last year on a year-to-date basis, and improvement in DSO bodes well for the future.

Got it. And I guess my last question, looking at the Global Ecommerce, the revenue growth accelerated from 2Q to 3Q. If you could perhaps parse out or give us some color as far as organic growth versus growth from new clients that you signed up for this year?

They are all organic, and there has been no acquisition activity in Global Ecommerce. We added over 100 clients in Q2, though they are still in the on-boarding process, so we have not yet felt the full benefit of this growth. We are adding three new facilities and expanding a fourth, and all three new facilities will be operational at the beginning of next week. Currently, two are operational, and the next one will be ready at the beginning of the week to meet peak demand. This quarter, we also added a significant number of new clients whose volume has yet to be included. This indicates that the value we offer in the marketplace is resonating with clients. We have made investments to better serve these clients and focus on ecommerce rather than converting B2B to B2C. This focus, along with the integration of technology, has been well-received. I anticipate continued contributions moving forward, with the third quarter clients being largely incremental for us.

I would just build on that. The short answer to your question is, it's all organic, and there's very little impact from the new customers without being specific. New customers in the third quarter were roughly the same as the new customers in the second quarter. At an industry level, Stan made an important point, we have a fit-for-purpose network that is business-to-consumer, ecommerce-oriented, which is different than anyone else in the industry. The industry is out of capacity. We're picking up share because there's just nowhere else to go. We believe these relationships are quite sticky because of the capabilities that we have or entered in frankly the way that we're talking to this customer. It's a unique opportunity. It's one that, to a degree, we saw coming, but it's clearly been compounded by what’s going on with COVID and how buying habits have changed.

Our next question comes from the line of Ananda Baruah from Loop Capital.

I have a couple of questions. You mentioned the strong momentum heading into the December quarter. Could you clarify that? Additionally, while I know you're not providing guidance, how should we think about that momentum? Is there any leverage across the businesses and various factors that would help us set our margins and earnings? I have a couple of follow-ups as well.

A lot in that question on, but let me see what we can do. First of all, on the momentum point, we have always stayed focused on investing for the long term. What you're seeing over the last couple of quarters, in particular, is a manifestation of that coming through in our results. If we had not invested in our network in Global Ecommerce way ahead of the curve, we would not have been able to handle the capacity that's coming in. We've seen momentum in that business with a dramatic surge in volumes. Our volumes more than doubled on domestic deliveries here in the quarter, and a dramatic surge in revenue. We feel well-prepared to handle peak and heading into the peak season, I think you'll see that momentum continue. We grew 13% in the quarter, and we've grown 7% year-to-date. I think it's a really good sign for the time the team has put into this. It’s not just GEC. When we look at momentum, we've seen SendTech get better quarter by quarter. While we're down 7%, that's a much better performance than it was in Q2. We are starting to see clients slowly reopen, and we've adapted our ability to do that. I'm encouraged by what you see in shipping. Shipping is over $30 million. It’s growing double-digits, and the paid subscribers grew over 60%. That’s a new revenue and profit stream for that business that portrays well for the future. With Presort, you definitely feel the effect of Marketing Mail and First Class Mail, but that got better as well. I’m encouraged by what Debbie Pfeiffer and her team have done to build out productivity, and they have a very good foundation to grow for the future. We've made investments in that business, so when you think about the Bound Printed Matter and Marketing Mail Flats, that business essentially didn't exist a little over a year ago, and it's growing over 30%. This represents another new revenue and profit stream. While it's not going to be a straight line, I like the momentum heading out of the quarter and heading into the fourth quarter and next year. With that incremental scale and base, I think it gives us the opportunity to also improve margins. We will see benefits of that scale. We've seen in Q2. There are some headwinds. We have some insurance proceeds this year. They're not going to be there next year. We've got a headwind as we go through. Like every other company, we haven't traveled. And that will become a headwind. But I think we’ve demonstrated that discipline.

The aggregate rate for both Presort and SendTech over the quarter was higher than the overall quarter. One way to answer your question or to think about it is to look at the exit rates of the quarter. In the two mailing businesses, the exit rate was stronger than the overall quarter. In Global Ecommerce, what I would point you to is, first of all, the macroeconomic circumstance where Global Ecommerce has just taken off. We recently did a study, and now 47% of the consumers do 50% of their shopping via the Internet ecommerce. There is strong macroeconomic momentum in that marketplace, and the price increase helps with revenue. The new customers won't be felt until later. But yes, that’s one way to look at it. The other way to look at it is what there is now with COVID. That’s kind of the wild card, and that's why we continue to be cautious about making predictions because it's just too hard to understand what the overall impact is going to be from COVID, both at the macroeconomic level as well as a microeconomic level. I reflect back on March when I shut down the offices around the world, and I thought it was shutting down for a few weeks. We're now almost to November, and most of the offices still aren't open in the United States. It's scattered around the world. There's no way I ever would have predicted that. So we have a high degree of humility about predicting the future here.

Marc, that's helpful. Let me ask one more question and then address a quick housekeeping item. Considering everything that has happened and the investments made, are you all approaching the investment strategy differently in light of the changes in volume and market share gains in the near to intermediate term? How should we adjust our thinking about reaching profitability compared to our pre-COVID plans? I'm asking because this raises many questions. As we work on our modeling, if there's a reason to rethink our approach given the volume and scale opportunities ahead of you, I want to ensure that we are aware of that.

In general, I would say the answer is no, we're not thinking about it differently with this caveat. If you project out a couple of years, it might be that the overall level of EBIT is the same as what we had talked about in the original model, but at a slightly lower margin. That would speak to mix and to where you are in the efficiency curve. The overall EBIT opportunity and EBITDA opportunity, I think, is pretty consistent with what we see. It might be over slightly more revenue and therefore less margin effects. But that’s not a long-term issue, but it’s the next couple of years.

Got it. And then quick housekeeping. Stan, the dynamics of other income that you spoke to for the September quarter, is that now complete? Or will any of that sort of bleed into the December quarter as well?

As again, we said that the insurance proceeds were there. We still have ongoing discussions with insurance companies. But there’s no guarantee on how that would play out. We did have one other small settlement going the other way in other income working with a client. Will that continue? We'll work through the rest of it with the insurance companies, and we'll see how that plays out. COVID, we think is going to continue heading into the quarter. We have our eyes wide open. That's one of the reasons we're not providing guidance because it's so dynamic and we don't know where that's going to go. We stay focused on health and safety, keeping thousands of employees coming to our production facilities, and we're not going to scrimp in that area. If it has a bigger impact, that will flow through, but we're not going to skimp in that area.

Your next question comes from the line of Allen Klee from National Securities Corporation.

You guys mentioned that delinquencies have been improving sequentially. How should we think about when you might reconsider your strategy with Wheeler Financial that you'd be comfortable enough to ramp that up to what you had thought in the past?

Yes. Thanks, Allen. When we examine delinquencies, although there has been an increase, our portfolio has maintained strong performance throughout this period. This is partly due to Christopher Johnson and his team being proactive; we are reaching out to clients we believe may be impacted and working on arrangements with them, which has yielded positive results. In terms of the portfolio, we originated about $5 million in business through fundings this quarter, bringing our total to approximately $12 million year-to-date. We anticipate that our total for the year will be under $25 million, and we expect to stay within that range. We will monitor how the market evolves, and it’s important to note that this involves not just third-party leasing but also third-party lending, which has a different profile with less cash consumption and better profitability. I want to emphasize that we are not providing guidance on this segment. If the market opportunity arises and the returns are favorable, we will act prudently. We believe there is significant long-term potential in this area, but we will avoid deals that are not financially viable.

I would say one thing. Stan’s right. We started out with a view that we were principally focused on equipment lending. That market price has obviously become pretty hard to price risk. What we're focusing more on now is what Stan said and that is working capital. That's a little bit shorter duration. It's higher velocity. It's easier to price the risk. The principal answer to your question is, we'll deploy more capital when I can price or the team can price the risk better. Right now, I'm highly cautious about our ability to price risk.

And my last thing is on Global Ecommerce. First, you talked about getting your unit economics improving with the one area that there's still more work in progress being warehouse. What are you actually doing to try to get better productivity out of the warehouse? The other question is, you mentioned Cross Border volumes were up nearly 30%. You got a new customer. Could you just dig into that a little more to help us understand what's going on there?

The answer on what are you doing in order to get better in the warehouse is, the first is utilization. We brought on 3 new large facilities in the quarter. They were not very utilized in the quarter. So number one is utilization. Number two is the labor inside of those 4-walls is still pretty new, and there's a learning curve for the labor in order to prosecute their jobs. The third thing I would point to is, where the network is coming from. Each one of the facilities is kind of its own world. Standardization of processes and technology across the network is really important. The summation of all of the different warehouse initiatives around efficiency is easily measured in the tens of millions of dollars that we have on our sites over the next year or so.

The only thing I'd add to that, Allen, is the productivity. We don't view that from just a single lens. We've talked previously about time and motion studies, process studies. When Nick Smith and his team sit there, we attack this from every angle. We’re using robotics, automation, streamlining processes across our facilities. We're looking end-to-end about how we do things. They’re making good progress. The other question was around Cross Border. That's really a function of a few items. There’s a recovering demand in a marketplace. Many areas simply shut down and did only domestic type of activity. We've seen that reopen. We’ve seen a nice uptick in that business. The client that we referenced is not a new client, but it is an existing client with growing volumes, and that certainly has been helpful. This business is something we spend time on and think we have good client experience as we do that. I’m encouraged to see that part of it pick up again.

Your next question comes from the line of Shannon Cross from Cross Research.

Congrats to Stan, and we'll miss you. I think it’s interesting, the recruiters out there are probably looking at imaging companies these days as great trainers as CFOs. If you think about, we go into Apple, you're going to Colgate, and Steve Fieler at HP is going to Google. I guess my first question is you had some price increases or you've announced some price increases from ecommerce perspective in fourth quarter because of volumes and some of the incremental costs. How are you thinking about the ability to hold those as you go into the first quarter? Overall, can you talk a bit about pricing power that you're seeing in the marketplace? And then I have a follow-up.

The short answer is we’re uncertain about how pricing will work out next year. However, if you observe other industry participants, they are discussing ongoing constraints in their networks and expressing concerns about lower margins than they typically experience. Although it’s not definitive and we tend to follow prices rather than lead them, looking at those who have recently reported earnings and hearing about persistent supply constraints and margin pressures affecting their businesses, I feel it's more likely that prices will continue to rise. But this remains an open question. We are followers in this market, not leaders, but we monitor the situation closely. The overall data indicates that prices are likely to increase, not decrease, especially with rising labor costs as well.

The only thing I'd add to that is, that's just tied to peak holiday and a flow-through. As we’ve gotten bigger, the scale that that brings gives us a wider. We've talked about adding a large number of clients in Q2, a large number of clients in Q3. When we grow that business, we also get some pricing leverage. Weaved in a lot of technology into what we do. Leveraging that technology, I think we could continue to price smarter, better serve our clients, and get more sophisticated as we go. Gregg Zegras and his team, we talked last quarter that we brought in some help that looked at our pricing structure. We're seeing some benefits from that. The combination of scale, limited capacity in the market leaves us in a very good position as we go forward.

If you just do your math, if you assume that $0.50 to $1 of price increase is realizable across volume of 250 million to 300 million parcels, you kind of get the order of magnitude of what's potentially available to you if pricing conditions, I won't say improve, but at least stay where they are.

It seems like there should be some pretty significant leverage, assuming costs don't go up commensurately for whatever COVID reasons are. Hopefully, we'll be past that at some point here. And I guess how do I think about the time to ramp new customers within ecommerce since you're signing so many? I'm sure there are various sizes, but have you been able to speed that process, given you've gained so much expertise in the last couple of quarters?

It's actually a good question, Shannon. It’s not just a one-sided affair. That's why our clients become our partners in this endeavor because sometimes, when they are ready to do the cutover, they want to ramp up, not go big bang. We often start with a ramp-up process. I would tell you, I think we're getting better at that with our clients. The added capacity that we brought into the network helps. Candidly, as we’ve ramped up the volume significantly and opened up, the management teams are getting far more experienced. Nick Smith's team has done a good job of improving that client experience. We weave in technology so we get better tracking, better reporting for the clients. This is often the partnership between the two on how fast they want to go and what facilities are going into, but I think we're seeing an acceleration in that space.

Great. And again, Stan, congrats. One last question. Marc, are you running CFO during your search? Do you have an interim? Or are you just relying on the team?

Both. We've announced Joe Catapano, our Chief Accounting Officer, will look after the function while we're in the middle of the search. Joe, obviously, has a broad understanding of the company and will be able to set of hands to lead while we conduct the search. I don’t expect the search to go on terribly long. We have had a head start here.

At this time, there are no further questions.

Terrific. Let me close. Again, I'd be remiss, if I've been for one last opportunity, thanks, Stan, for your contribution and what you've done for our company. From a personal perspective, you've been an incredible partner, and you'll be sorely missed inside these four walls. I fully expect that we’ll continue to see you on a regular basis. I’m certain I speak for all of us that we not only wish you well, but we'll all be moving to Colgate-Palmolive products. Some of you are new to the Pitney Bowes story, others have been following and investing for a while. Some of you have followed and invested for a long while. For those who've been following the company for a bit, this quarter's performance, 13% growth and 7% growth for the year, is different from the performance you saw a few short years ago. It would be easy to conclude that the company is now succeeding in spite of our issues over the last couple of years. I would come to the opposite conclusion: we are succeeding because of the conscious and purposeful decisions we've made over the last several years. It is not easy; you see the reticence of others in other industries to move to new channels. It's expensive. It takes time to build a channel that was great in 2014. It’s painful to invest in front of demand, but that is the nature of ecommerce. If we had not invested in front of demand in ecommerce, we wouldn't be able to grow 47%. You see what others can do that haven't made those investments. But we've always pointed to the aspiration of creating long-term value. That continues to be our North Star. You're starting to see what the long-term really looks like. We're not done, and we have more to do. As I reflect back and as we've pointed to our objective of creating long-term value and long-term capabilities, third quarter was a glimpse. Fourth quarter will be another one; we'll continue to put points on the board. More to do for sure. But I think it's worth a reflection because, as you look at the overall industry, there are many different theories of how it is you create value, and how it is you run businesses. We've taken a different approach. It was, in some ways, a more painful approach, but it is consistent with our thoughts on how to create long-term value. So, more to do. We've got a lot of work in the fourth quarter. Stan, again, we wish you well, and we'll talk to all of you soon. Thank you very much. Be safe.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.