Pitney Bowes Inc.

Good morning and welcome to the Pitney Bowes Second Quarter Earnings 2022 Results Conference Call. Your lines have been placed in a listen only mode during the conference 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 participants for today's call. Mr. Mark Lautenbach, President and Chief Executive Officer. Ms. Anna Chadwick, Executive Vice President and Chief Financial Officer, and Mr. Ned Zachar, Vice President, Investor Relations. Mr. Zachar will now begin the call with a safe harbor overview.

Good morning, everybody. This is Ned Zachar, and I manage the Investor Relations program for Biddy Bowes. I'd like to welcome everyone to the call this morning. We very much appreciate your participation. Part of my duties this morning include covering the usual and customary safe harbor information, so please bear with me for just a moment. Today's presentation will include 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. For more information on these topics, please see our earnings press release, our 2021 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 provide updates to forward-looking statements as a result of new information or developments. Also, for non-GAAP measures, the reconciliations to GAAP accounting can be found in the tables attached to our press release and also on our investor relations website. We provided a slide presentation on our website that summarizes many of the points we will discuss during today's call. Our format this morning is going to be familiar. Mark Lautenbach, our President and Chief Executive Officer, will begin with opening remarks. He will be followed by Ana Chadwick, our Chief Financial Officer, who will provide a deeper discussion of our operational and financial results. I'd like to turn the presentation over to Mark. Mark, the floor is yours. Thanks, Ned.

Good morning and thank you for joining today's call. While there were many positive aspects to the quarter, second quarter results were disappointing and below our expectations. The quarter played out against the most complicated market environment I have ever experienced. We were not able to overcome the effects of the growing strength of the dollar and the COVID lockdowns in China. Centac and Presort turned in solid results and a very challenging environment. And those businesses in the aggregate grew revenue for the quarter. Equipment sales in Centec were strong and loan originations and global financial services showed solid improvement. And importantly, finance receivables stabilized in the quarter. The overall performance of these businesses bode well for the future. While trends are rarely a straight line, PreSort and Centec are well positioned going forward. Growth in Centec and PreSort was unthinkable a few short years ago and is the result of smart investments, focus, and solid execution. Often there are concerns when companies broaden the focus away from their historic core business that they lose focus on the core. The trajectory of Centec and PreSort is solid evidence to the contrary for our company. There are a few examples of companies overcoming secular decline. but there are precious few companies that have been able to reinvent their core and we have done it and we continue to do it. Results in global e-commerce were mixed but the big picture view of activity in quarter continues to support our long-term thesis for this business. In particular, our long-term model is centered around growth in the domestic parcel market and continuous operational improvement to expand profitability. In the second quarter, our service levels were strong. This enabled us to attract and win new customers. Importantly, our pipeline is excellent for the second half of the year. Our gross margin per parcel and the overall margin of the domestic delivery business showed substantial improvement year over year. Our significant operational improvements bode well for future profitability when we were able to achieve higher volumes. which we should achieve based on our improved operational capabilities and as macroeconomic conditions improve. That being said, current economic conditions present some short-term pressure on the business with a moderation of volume growth, longer sales and customer integration cycles. Also, the COVID lockdown in China coupled with pricing pressures created headwinds in our domestic parcel business. China inbound volume is part of our domestic parcel business because we don't manage any cross-border logistics for it. Despite the dramatic drop in China inbound business, our domestic parcel business grew 6% for the quarter. While it's hard to make predictions regarding COVID in China, for the moment the country seems to be moving in the right direction. In our cross-border business, we saw a negative impact in outbound United States demand due to the rapidly strengthening United States dollar. We expect that the dollar will remain strong versus the Euro for a while, creating a headwind for our cross-border business. To sum up, the team is making good progress finding new opportunities and operational improvements to manage costs, but we are very aware of the short-term challenges in the cross-border businesses. This is probably a good segue to address our decision to sell border-free to globally. The transaction allows us to focus on what we do best, the logistics aspect of our cross-border business. Second, the deal also opens up a set of cross-border logistics opportunities with Global E that we see as meaningful. Third, and more broadly, the transaction shows how even as we are confident in our long-term thesis and our e-commerce business, we make adjustments to specific aspects of the strategy as conditions dictate. And finally, It is also a clear affirmation that we will take every opportunity available to the company to unlock value for our shareholders across our portfolio, just as we have consistently done for the last decade. Our first priority for capital allocation continues to be invest in our business and opportunities for profitable growth, as we believe that smart investments in the business will create the most enduring value. The next priority has been debt reduction. to maintain appropriate levels of financial leverage, which we have. We reduced debt by $1 billion over the past four years. As we enter a more uncertain economic environment, we intend to use the border-free proceeds, at least initially, to operate with a stronger liquidity profile. Knowing that approach offers incremental strategic and financial flexibility as well. Challenging macroeconomic environments often provide companies unique business opportunities. That being said, we look at all investments on a risk-adjusted basis, and as the macro environment is more uncertain, the threshold for those investments goes up. We will be prudent in how and when we commit capital. Let me conclude this very important topic by emphasizing that capital allocation, including return of cash to shareholders, is a continual topic with the Board, and all options are on the table. The sale of border free is also relevant to a topic that I get asked about from some of our investors. The sum of the parts of Pitney Bowes and whether it would be better to separate the company into independent entities. Just like capital allocation, this is a regular topic with the board and something they evaluate on an ongoing basis. We believe that the portfolio changes we have made have created a strategically coherent portfolio with meaningful synergies across the business. There is also a logical consistency in the way we help clients simplify and manage their mailing and shipping needs. The board is always open to different ways to create value for our shareholders. Importantly, out of view, that the current construction and strategic intent of the company is the right one for now is not just our internal belief. We have tested the market in meaningful ways. The consistent conclusion from those dialogues is that the best way to maximize shareholder value is to execute against the existing plan. In addition to these assessments, with active market participants, The Board recently commissioned a leading consulting firm to evaluate our approach. They too concluded that maximizing shareholder value will be driven by further development of GEC within the broader Pitney-Bowes enterprise. From my vantage point, I think the most important takeaway from those conversations is an affirmation of the current overall strategy and it was crucial for us to develop positive and consistent profit margins in our GEC business to achieve higher valuations. Of course, the Board will continue to revisit this topic on a regular basis and will explore any opportunity that maximizes long-term value. To conclude, the second quarter was not what we had hoped for, and the macroeconomic environment going forward is uncertain at best. That being said, as I look underneath the hood of the business, my confidence in our future continues to be very high. I will now let Ana take you through the details of the quarter.