Hello, and welcome to the Third Quarter 2025 Pitney Bowes, Inc. Earnings Conference Call. Joining us today are Chief Executive Officer Kurt Wolf, Chief Financial Officer Paul Evans, and Director of Investor Relations Alex Brown.

Good afternoon, and thank you for joining us. Included in today's presentation are forward-looking statements about future business and financial performance. Forward-looking statements involve risks, along with uncertainties that could cause actual results to be materially different from our projections. More information about these items can be found in our earnings press release, our 2024 Form 10-K, 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 forward-looking statements as a result of new information or developments. Also included in today's presentation are non-GAAP measures, specifically EBIT, EBITDA, EPS, and free cash flow, all on an adjusted basis. You can find reconciliations for these items to the appropriate GAAP measures in the tables attached to our press release. We have also provided a slide presentation and a spreadsheet with historical segment information on our Investor Relations website. With that, I'd like to turn the call over to our CEO, Kurt Wolf.

Thank you, Alex, and thanks to everybody who is joining today's call. I trust that everybody has had a chance to review our press release and my letter. That said, I'd like to touch on a few key points before going to Q&A. We reported continued profitability improvements for the quarter. However, we expect the year to come in around the low end of our range for revenue, EBIT, and free cash flow. To be clear, this is primarily due to issues with forecasting and has nothing to do with operational factors, which have, in fact, been more positive than negative during the quarter. With respect to the forecasting issues, these are problems that have long plagued the company, and I'm working closely with Paul and his team to fix our forecasting process. Moving to our strategic review, we are making significant progress. We continue to enhance our talent, structure, and processes to support the future growth of the business. Additionally, we are compiling and evaluating a set of profitable growth opportunities. What we are learning in the strategic review is giving increased optimism about the outlook for the business, which supports our decision to spend an additional $161 million on share repurchases during the quarter. In summary, we are still tripping up on past mistakes, but are aggressively attacking and fixing issues as they arise, making us a stronger company. For this reason, my optimism about the future of Pitney Bowes continues to grow stronger. With that, let's open the call for questions.

Our first question comes from Kartik Mehta with Northcoast Research.

Kurt, just wanted to get a little bit more insight into SendTech. Obviously, the revenue declines are decelerating, which is a positive. And you've talked about, obviously, the IMI migration as you move past that. As you look at that business, what do you anticipate the trajectory over the next 12, 18 months for that business?

With respect to SendTech, as you did mention, the IMI migration, we're largely getting past that. You can see that in the results this quarter. We do expect that should continue to be a benefit in Q4. By Q1, it should be fully lapped. So I think by and large, the impact of the difficult comps from the IMI migration are largely behind us. So the revenue decline we saw in Q3 probably is a realistic look at where things stand for now. And the question becomes, I'm incredibly excited to have Todd Everett join the company from the Board. He has a strong background in the shipping space. He's an incredible operator. He's excellent at operating Newgistics before it was sold to Pitney Bowes. I think he's done a lot of great work already. Happy to answer more about the work he's doing, but he's evaluating opportunities to accelerate growth, but also, one of the big focuses is profitable growth going forward. So the outlook for various parts of the business may be a little different than previously discussed. One of the big areas I would highlight is we've been so focused on our shipping solutions that so much attention has gone there that we've probably underinvested and opportunities exist within the mailing business. So I don't want to speak on Todd's behalf, but I think there are some things that we could be doing given our position in the market to help decelerate the decline of the postal business. Again, we're in no illusions about the fact that the space is declining, but I think there are things we can do to slow that decline.

And then, Kurt, in your letter, you talked about the Presort business. It seems like some of the smaller competitors might be having some issues. I'm wondering your ability to continue to consolidate that particular business. Are there opportunities? Or is it just better to go get the business on your own and just win the market share?

I'd say we're pursuing an all-the-above strategy. And for some context, July of 2024, there was a significant increase in the work share discount. So profitability across the industry took a significant improvement starting in Q3 of last year. So as we continue to talk to potential acquisition targets, given the trajectory of their business, those conversations largely died out. And one of the reasons we do talk about some of the issues we're seeing, we won't get into too many details, but there are signs of financial issues with some of these companies. But we are all of a sudden getting callbacks from companies that six months ago, a year ago, we were saying had no interest in selling. So there's definitely more interest given the way that pricing competition heated up and has depressed margins for a lot of these players as well as for us.

And then just one last question. Maybe just on a free cash flow standpoint, I think you maintained your guidance. So I think that would imply a pretty big fourth quarter free cash flow quarter. Just if you could just walk through how you're getting to that or maybe what some of the puts and takes are for that?

Yes. This is Paul. Look, I mean, where we're sort of coalescing around is around the $330 million as we sort of stress tested our forecast for Q4, it will come in plus or minus 1% of that. The quarter ended midweek. And obviously, there were payments that came in shortly thereafter the quarter happened. We had a very strong pickup in the first part of this quarter and so that gives us confidence. I mean we still got work to do, but we have confidence that will sort of around the cash flow forecast.

And our next question is from Anthony Lebiedzinski with Sidoti.

Could you comment on the revenue trends from July to September? I'm curious if there were any significant variations month-to-month in either of your segments, especially considering the forecasting issues Kurt mentioned.

Yes, I appreciate the question. There hasn't been anything significant in terms of month-to-month variance. Internally, the business is operating well. For instance, in our Presort segment, we haven’t lost any customers since June, and we’ve actually been gaining business. As we moved through the quarter, we began to question why our strong performance wasn't translating into the financial results we anticipated. Paul and I got involved to examine the forecasting processes and identified some issues. As an analyst yourself, you know that forecasting can be complex, especially at a company like ours where we have access to vast amounts of data. We needed to reassess how we were processing that data and the assumptions we were making. This wasn’t just about monthly variations; it was about the contrast between our operational performance and our financial expectations. It became clear we have an issue with our forecasting. Paul and I are committed to addressing this seriously. This has been a long-standing problem for the company in 2022 and 2023, and I've openly discussed it before. I now better understand the issues and we are taking serious steps to resolve them, including bringing in external assistance. We are also making significant internal efforts to improve our forecasting accuracy. This isn’t merely about providing guidance; it impacts critical investment and business decisions. If our data isn't accurate, we risk making poor decisions. While it's disappointing that we still face challenges with forecasting, it's part of our focus on continuous improvement within the organization. We are committed to identifying and addressing these issues, which ultimately makes us a stronger company. Although it's frustrating to not have better news regarding our forecasting, I believe we are becoming a better business as we work through these challenges.

That makes a lot of sense. And then turning to Presort. It sounds like you have been able to win back some previously lost clients. So with that in mind, when would it be reasonable to assume that Presort gets back to sales growth on a year-over-year basis?

So Anthony, I'll address that question. I believe that assumption is accurate, and Kurt and I thoroughly analyzed the numbers and the budget that formed the basis of our forecast. It wasn’t anticipated how our competitors would leverage the premium from the rate case to gain market share from us, and they successfully did. The question now is how long it will take to regain that lost share. While we expect to recover it eventually, we haven't seen that happen yet, but we are actively pursuing it. There is a delay; once clients leave, they may stay with others for a while. When we re-engage, we explore how we can improve and what bidding opportunities exist. We're making progress on some accounts to win back that business. Therefore, I feel optimistic about the volumes for Presort in the upcoming year.

Okay. That's good to hear. Regarding the new cost cuts of $50 million to $60 million, will they primarily come from corporate unallocated, or will they impact the different segments? Can you help us understand how to model those cost cuts?

Sure. It's a company-wide initiative, with some aspects occurring at the general and administrative level and others at higher levels. We engaged with all of Kurt's leadership to assess our costs, leading to a management-driven effort to optimize our expenses. This process uncovered several valuable opportunities. We aim to continuously find ways to reduce costs, as it's essential for any robust company. As I am new to my position and Kurt is also relatively new, we have a refreshed leadership team. We encouraged everyone in operations to evaluate their resources and consider what is truly necessary moving forward. This is reflected in our current actions, and we expect to achieve these benefits by the end of 2026.

Okay. Got it. Okay. And then lastly, just actually just returning quickly to Presort. Given the competitive dynamics there, it sounds like there are some struggling operators. Would those be opportunities perhaps for acquisitions for you? Or do you just want to focus on getting back to sales growth at Presort before you start looking at potential acquisitions?

No, Anthony, these acquisitions are so beneficial that we're always considering them. By the way, it's a sign that pricing is really impacting players in the market; nine months ago, none of these players were interested in selling, and now we are starting to receive calls from those looking to potentially sell their business. We are consistently in the market for these acquisitions, which contribute positively to our bottom line. It's frustrating that we lost volume, as this is a high fixed cost business in the short term. The profitability lost from not retaining those customers was quite significant. If we do acquire, the revenues we gain would have a substantial impact on our bottom line, especially since we currently have some excess capacity in our facilities. We are definitely looking to make acquisitions.

And our next question comes from the line of Aaron Kimson with Citizens.

Kurt, you mentioned in the letter that you recently completed your review of the leadership team. Obviously, there have been a lot of changes at the executive and Board level since you took the reins in May. Are you comfortable with the leaders you have in place now? And then if we think a level down about your direct, direct, do you have any thoughts on when the business may have the continuity you desire and be operating more of a BAU state?

Absolutely, Aaron, welcome to the call, and thank you for being here. I am very pleased with our leadership team. We have the right people who are committed to the accountability and drive for excellence that we require from everyone in this organization. Anyone not aligned with this has left the company, at least from the executive team, and everyone here is fully committed. As you know, everything starts from the top, so we have the right leadership in place. This leadership team has also contributed to the decision to implement $50 million to $60 million in cost reductions. While I was working through this process, Paul and the rest of the leadership team were making similar adjustments within their own areas. It's important to note that previous cost reductions were driven mainly by outside consultants identifying opportunities to cut costs. This current effort is not just about reducing expenses; it is about improving our business. Our leaders are restructuring their organizations, and almost every corporate function and business unit has adapted their structure to better serve the business needs. They are evaluating processes that we do not need and figuring out how we can improve in the future. This is what has led to the $50 million to $60 million in cost cuts—not a simple aim to cut costs, but a commitment to improving how we operate. I feel incredibly fortunate to have such a dedicated leadership team doing an excellent job. I believe we have stability within this team, and as they work with their groups, that stability will continue to grow. In a broader sense about Pitney Bowes, I might emphasize this too often, but as a shareholder, I want to highlight how pleased everyone should be with our employees. We have made many changes in the last 18 months—cuts and challenges for our staff—but everyone comes to work each day with a positive attitude and a willingness to do more for the company. While there has been significant change, I believe no further changes are needed regarding our employees. We have a fantastic workforce that excels at their jobs, and they will provide stability even as we make changes in leadership.

That's really helpful. And then as a follow-up, can you dig a bit further into the misalignment of incentives in GFS and how you're approaching the realignment and future of that?

Yes, certainly. GFS is not a standalone business unit; it was a loosely structured part of our organization. Financial matters went through GFS, which meant there were situations where GFS had to approve credit when SendTech attempted to sell a meter. Since we lease these meters, if we were offering purchasing power for revolving credit, that approval was managed by GFS. This created a scenario where GFS, with a mindset of avoiding credit loss, faced conflicts with SendTech, which recognized the profitability of certain deals. Essentially, two divisions were in a standoff, leading to issues. Now that Todd owns SendTech, he has authority over all credit decisions impacting the SendTech balance sheet. He can weigh the sales opportunity against credit risk, which wasn’t distinguished before. This change has historically reduced credit losses, but it also resulted in missed profitable sales and made the sales process challenging. What should be a seamless customer experience became difficult due to the two organizations focusing on different deal aspects. It was ineffective and unworkable. This illustrates one of the issues we faced.

Yes, Aaron, I want to point out that it's similar to us selling a car and the gas that goes with it. We were fine selling the car, but when it came to selling the gas, the other side questioned whether they were creditworthy to buy it. This really resonated with me. That inefficiency is now something Todd will have to address. However, this doesn’t mean we will relax our standards or take on excessive counterparty credit risk. We will maintain our rigorous approach, but we won’t allow this misalignment of interests to prevent us from serving our customers.

I don't want to dwell too much on this, but there was a moment after we were already working on a solution when I received an email from a customer who had purchased multiple meters from us. They were frustrated because they couldn’t utilize their meter due to not getting approved for the purchase power. It’s just unacceptable. We have the best product and services; we're unmatched in every way, yet we're causing significant issues for our customers. What I'm getting at is that much of the restructuring we're doing aims to improve our business, and the potential savings of $50 million to $60 million are a secondary benefit.

And our next question comes from the line of Matthew Swope with Baird.

Could I go back to Presort? And Kurt, I think you alluded to it, but I think we all may have underestimated the decline this quarter there. And to see a $17 million decline in revenue drive a $13 million decline in EBITDA and EBIT. I know you talked about fixed cost absorption. But can you talk about sort of how that incremental margin or decremental margin maybe in this case works?

Once you cover your fixed costs in this high-volume business, and realize that your labor has a certain capacity, you can maximize their output. Any extra throughput you achieve primarily contributes to profit, directly impacting your EBIT. Therefore, a drop in that particular segment will have a significant effect on your earnings. This part of the business has a very high contribution margin; once your costs are covered, you enter a phase of extremely high-margin work.

Yes. Matthew, I want to highlight a couple more points. When we compare our Q3 of 2024 to Q2 of 2024, you can see the impact clearly in sequential terms. The price increase took effect on July 17, 2024, so nearly all of Q3 reflected this higher price. Our revenue increased by $19.5 million, and EBIT rose by $19.2 million, primarily due to the price adjustment. On the flip side, we have observed an effect from volumes. For instance, Debbie's system is set up to accommodate a certain level of operations, meaning that our rent and equipment expenses are mostly fixed. As we optimize our system for higher volumes, running at 100% capacity versus 90% doesn't require increasing our labor force, so while there may be slight rises in electrical costs or potential for more equipment breakdowns, the significant lost volume greatly impacts our contribution margin, which remains high. Although increasing volumes does lead to certain fixed costs being added, currently, since we are not fully utilizing our system, it greatly benefits our bottom line.

The comment about price from last July makes a lot of sense. It seems that the changes were driven more by volume than by price. Could you explain the 11% revenue decline by breaking it down into price and volume?

We certainly know what it is. Yes. I mean, look, we had a big loss in volume relative to our budget. And so that, for me, explains most of the story, what's going on. And obviously, we'll see some reversion of that volume in our next year numbers. But it's really more about the volume and how that incremental volume impacts the bottom line. I mean what's in our mind on this as we looked is how did our competitors use that rate case, the new funds associated with that rate case. They used it to go out and bid share, and we didn't use it to bid share. And because of that, we lost volume. We are the low-cost provider. So now what we're doing is, okay fine. We'll use our position as the low-cost provider to go back and win back that lost volume.

So when you talk about the key drivers, obviously, you guys have talked extensively about the prior rigid pricing strategy. What about the comment about broader market decline? What is that piece of the key driver?

I mean there is a decline in the space. But from decline, you can grow through decline. You do it two ways. You can bid share and you can buy share. But through that, you need to make sure that you're the low-cost provider, which we believe we are.

I see. So the market decline is just sort of the standard secular pressure that you face in the business.

Yes, that is. But you know we believe we can grow through that.

Right. And you guys clearly have done so for many years.

Yes, we've done that for many years. We've done it through a lot of acquisitions. And as Kurt mentioned, while our competitors, our smaller competitors were enjoying the benefits of the rate case, and so they weren't reaching out to us. Now that sort of worked itself through the system, and now they're sort of calling back again. So one of the reasons why we've upsized our revolver. So as those opportunities present themselves, we can move quickly.

I would like to add that as we discuss acquisitions, we are becoming more comfortable with them. The reason I mention this is that we have focused a lot on our own prospects and capabilities. The low-cost provider position that Paul talked about is something we've consistently pursued, but I believe we are now ready to make a more impactful move in the market.

And our next question comes from the line of Justin Dopierala with Domo Capital Management.

Most of my questions have been answered. I just have a couple. I haven't had a chance to work through all those huge share repurchase numbers you guys have. I'm just wondering, do you have an idea or can you give an approximation of where we stand today as of shares outstanding?

About approximately $160 million.

Perfect. And then, I mean, lastly, to me, this is a cash flow story. There kind of seems to be an impression in the market that this year's cash flow is sort of a one-time event fueled by the over $100 million you freed up with the Pitney Bowes Bank receivables purchase program, even though that really shouldn't have any impact on free cash flow. Can you confirm this and also confirm there haven't been any material one-time impacts to free cash flow in 2025 that wouldn't be repeatable for 2026?

Yes, Justin. Regarding the receivable purchase program, it does not affect cash flow; it merely converts restricted cash to unrestricted cash. Therefore, our free cash flow forecast remains unchanged. As for one-time items like tax assets, we have discussed our ability to leverage deferred tax assets, which we expect to continue benefiting from for another two to three years. Eventually, this benefit will diminish, but we anticipate recognizing similar cash benefits during this timeframe. Regarding other one-time items, I believe working capital will significantly consume cash this year, more than usual. If we normalize our working capital this year, our free cash flow would be noticeably higher. Year-to-date, working capital has accounted for a cash outflow of $205 million, which should partially reverse in Q4. Last year, Q4 saw approximately $145 million in free cash flow. While I can't guarantee we'll hit that exact amount, based on our guidance, we expect a higher level of free cash flow this Q4, reflecting the reversal of cash outflow. Ultimately, one-time items are currently limiting our free cash flow this year due to working capital, rather than enhancing it.

Got it. So then I mean, based on that and the other things you've announced, the cost savings, etc., I mean, it sounds like free cash flow for 2026 should really be greater than 2025 then?

We're not giving guidance for 2026. I would just say, everybody on this call is pretty proficient with Excel. If you look at where we are, you have some sense of where revenue should be, some sense of how that flows through the income statement. Look at the $50 million to $60 million of cost out, and Paul can correct me on this. It should all be done by the end of 2026. The vast majority is being implemented currently and should be done by the end of 2025. So I think the run rate in 2025 is going to be awfully high. So there'll be a significant improvement. I will say just full transparency, there's obviously offsets to that. So I think when you look at merit increases, you look at benefits, some other factors, there's maybe $15 million to $20 million that we're anticipating in additional costs, just cost of living adjustments, etc. But still, that's a significant cost reduction. And as you say, we haven't modeled it out yet, but this is an unusually high use of working capital this year. So I'll let you draw your conclusion. But based on all that, I would say that where you're coming out makes a lot of sense to me.

I'll now hand the call back over to Chief Executive Officer, Kurt Wolfe, for any closing remarks.

Thank you everyone for joining this call. I want to take a moment to emphasize something important. As an investor in this company, I hope you all recognize the value of our employees. We've experienced numerous changes, and the recent decision to cut another $50 million to $60 million in costs affects many people and their lives. Our workforce is remarkable; they come in every day eager to contribute and ask how they can assist. As an investor, I trust in the leadership team, but I also hope you see how exceptional our employees are at Pitney Bowes. The strength of our market position, our products, and our services is notable, but so is the dedication of our workforce. I hope everyone acknowledges this, and I extend a special thank you to our employees for all they do. Thank you all.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.