Pitney Bowes Inc.

Good morning and welcome to the Pitney Bowes Fourth Quarter Earnings 2022 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 participants for today's conference 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 the Safe Harbor overview.

Good morning, everybody. This is Ned Zachar. I manage the Investor Relations program for Pitney Bowes, and I'd like to welcome everyone to the call this morning. We very much appreciate your interest and participation. Part of my duties includes covering the Safe Harbor information for these calls. Included in today's presentation are forward-looking statements about our future business and financial performance. For more information about these risks and uncertainties, 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.pbe.com and by clicking on Industrial 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 that are used in a press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our website. Additionally, we have provided a slide presentation and a spreadsheet with historical segment information on our investor relations website that summarizes many of the points we will discuss during today's call. You may have seen that one of our shareholders recently announced director nominations for the 2023 Annual Meeting. We issued a press release on January 23rd with our response, and we will not be answering any questions relating to the nominations on this call. Our format today is as follows. Mark Laudenbach, our President and Chief Executive Officer, will begin with opening remarks, which will be followed by Ana Chadwick, our Chief Financial Officer, who will provide an in-depth discussion of our financial results. I'd like to now turn the presentation over to Mark. Mark, the floor is yours.

Thanks, Ned, and good morning, everyone. I appreciate everyone joining our call this morning. For the quarter, revenue is flat on a comparable basis after adjusting for currency, a divestiture, and a revenue presentation change that Ana will detail shortly. Uber grew slightly, and cash flow for the quarter was up strongly. Centec and Presort continued their solid and predictable performance. In aggregate, the two businesses were essentially flat from a comparable revenue and profit perspective, and both businesses made good progress shifting their portfolios to growth. In Presort, this means marketing mail and bound to printed matter, and for Centec, shipping revenue. In North America, Centec, over 40% of our revenue is now coming from new products. They include our most recent award-winning IoT device, theCUBE, MailStation, and ParcelPoint. These products sit along our SaaS offerings, including PitneySHIP and Pitney Analytics. This is a direct result of investments we have made in this business. Margins and presort continue to improve and are again within the long-term model. Again, these improvements in margin are a direct result of investments we have made in automation and the pre-sort business. In aggregate, these two businesses continued to perform well in a choppy market. I would also be remiss if I didn't add our financial services business performed very well. Finance receivables, an important harbinger of future growth, grew for the quarter and credit losses were minimal. Deposits, collections and funding activities were all very well managed. In GEC, the headline is this. We made substantial progress across many important line items, but we're expecting to make even more progress. Specifically, our customer satisfaction increased 23 points over the course of the year. In the quarter, our network performance improved over 10 points on a year-to-year basis. These items helped us grow domestic parcel volumes by 16% in a difficult market. On the cost side, labor productivity improved 35%, and transportation productivity improved close to 20%. All in, gross margin per piece improved 50 cents on a year-to-year basis. Lots of good improvement, but we're expecting even better. When you boil it down, there were two issues. First, we did not get enough heavyweight parcels within our volume. This depressed revenue per piece and ultimately gross margin too lower at positive levels. Second, while transportation improved close to 20%, we're counting on a 25% improvement. In order to continue to improve our transportation execution, we're enhancing our processes and implementing a new transportation management system in the first half of the year. Specific to MIPS, we're increasing our focus and our resources on markets that have higher weight parcels. Our parcel pipeline and backlog has plenty of higher weight parcels, so we have the opportunity We just need to get that volume into our network. It will take a bit of time, but there's no shortage of opportunity. Our cross-border business continues to face headwinds due to the unprecedented strength of the dollar and potential changes to the way one of our largest clients will access our services in the middle of the year. As a result, I expect this business to continue to be under pressure for some time. So in conclusion, relative to GEC, we moved the ball forward. but we had the opportunity and the expectation to do even better. That said, our domestic volume exit rate was toward the high end of what we guided to and our implementation and backlog pipeline is very strong. This is a good harbinger for the future as volume is still the principal factor in reaching our long-term profitability. A few words on capital allocation in our balance sheet. Thematically, our emphasis for capital allocation in our balance sheet continues to be around strategic flexibility. As I indicated at the outset, our cash performance was very strong for the quarter. Part of the performance was around timing of working capital, but there was also very good execution on collections, deposits, and funding. Also of importance, we renegotiated our revolver agreement, which will afford us more flexibility going forward. Finally, on an opportunistic basis, we began to purchase back tranches of our debt. will continue to pursue debt repurchases opportunistically. A final comment on the portfolio. Our board and I continue to believe our portfolio is coherent in markets where we have a brand permission to win. That being said, we continue to look for opportunities to unlock shareholder value. Sometimes this means proactively looking for opportunities, and other times it means reacting to inbound inquiries. The sale of border-free in 2022 is an excellent and recent example of how there may be opportunities to simplify our portfolio further, even within larger business segments. So in short, like our portfolio, we will continue to look for opportunities to unlock value for our shareholders, and that process is ongoing. Let me now turn the conversation over to Anna.

Thank you, Mark, and good morning, everyone. Before I begin my financial review, I'll note that the year-over-year revenue information I'm going to discuss is on a comparable basis. Adjustments include the impact of currency, the border-free disposition effective as of July 1st, and a change started in the fourth quarter due to a contract modification with USPS in the presentation of certain revenues from gross to net of pass-through shipping costs for our digital solutions. This revenue presentation change primarily affects global e-commerce, and to a lesser extent, Centec. The change does not affect the profitability of those revenues. Also, unless otherwise noted, I will speak to other items such as EBITDA and EPS on an adjusted basis. The following is a high-level review of the year-over-year comparison of our fourth quarter results. Total revenue for the quarter was $909 million, which is flat on a comparable basis. Gross profit for the company was $288 million compared to $283 million for the same period last year, a 2% increase. Gross margin was 32%, up from 29% last year. EBITDA was $88 million, down slightly from $89 million a year ago. EBIT was $49 million, up from $47 million a year ago, which is a 5% increase. Interest expense was $37 million, up from last year's $35 million level. Corporate expenses for the quarter were $63 million, up $19 million from prior year, driven by the timing of variable compensation accrual. For the year, corporate expenses were 2% lower. Adjusted EPS was $0.06 in the quarter, the same as prior year. Turning to cash flows. Gap cash from operating activities was $167 million in the quarter compared to $85 million in 2021. Free cash flow was $108 million compared to $39 million last year. The improvement in free cash flow was driven in part by lower capex and favorable working capital items that were a drag earlier in the year. CapEx for the quarter was $27 million, down from $43 million in prior year. During the quarter, we paid $9 million in dividends and made $4 million in restructuring payments. I will now touch on the key annual data points for 2022. For the year, company-wide revenues were $3.5 billion, similar to 2021 on a comparable basis. EBIT was $179 million, 12% lower than prior year. Adjusted EPS for the year was $0.15 versus $0.32 last year. GAAP EPS was $0.21 versus a $0.01 loss last year. Full year cash from operations was $176 million compared $302 million in 2021. Free cash flow was $68 million compared to $154 million. Capital spending was $125 million versus $184 million in 2021. At the end of the quarter, weighted average diluted shares outstanding were approximately $178 million. Looking at the balance sheet, Cash and short-term investment were approximately $681 million at quarter end, higher by approximately $75 million as compared to the third quarter of 2022. Total debt at year end was $2.2 billion compared to $2.3 billion at year end 2021. The following segment information is summarized in our press release and Slide Presentation, both of which are posted on our investor relations website. I'll start with pre-sort. Pre-sort revenues were $158 million in the quarter, which is a 1% improvement from last year. New customer additions and higher revenue per piece contributed to the revenue gain. Total sortation volume of 4 billion pieces was down 8% compared to prior year. EBIT for the quarter was $29 million, up 25% versus last year. EBIT margin was nearly 19%, which is a 360 basis point improvement versus fourth quarter 2021. Our ongoing investments in automation and sort of refresh is resulting in better productivity, which is driving the margin improvement. The important headline is, pre-sort annual revenues top $600 million for the first time, with profitability levels in line with our long-term model. Moving to CENTEC. CENTEC reported revenues of $341 million in the quarter which was down fractionally compared to prior year on a comparable basis. Growth in shipping-related revenues offset declines in financing, rentals, and supplies. Equipment sales continued their growth progression. Centec EBIT was $106 million compared to $109 million in prior year. EBIT margin for the quarter was stable at 31%. Shipping-related revenue, which now comprises 14% of segment revenues, increased 30% versus prior year. And the CENTEC team continues to build the shipping pipeline. I'll spend a moment on the performance of our financial services business inside of CENTEC. Finance receivables are up 4% year over year. and we continue to see healthy payment trends across our financing portfolio. 30-day delinquencies are now just 150 basis points, down 70 basis points year over year. At year end, the finance portfolio totaled $1.2 billion. In summary, Centec continued its solid performance and made strides in shipping and financial services, both of which are positive indicators for the future of the business. Moving to global e-commerce. The global e-commerce segment made substantial progress in the quarter, especially in the domestic parcel operations where gross profit improved significantly compared to fourth quarter 2021. As Mark stated, the strong improvements fell short of our expectations. Global e-commerce reported $410 million in revenues and grew slightly over prior year on a comparable basis. Total segment gross margin in the quarter was $27 million compared to $17 million a year ago. Strong gross margin in domestic parcel growth total segment improvement. Segment EBITDA was negative 5.5 million compared to negative 20 million in fourth quarter 2021. EBIT for global e-commerce improved 18 million from a loss of 41 million a year ago to a loss of 23 million. First, let's talk about where we saw improvement. Domestic partial volumes were up 16% year over year to $54 million. And as we expected, we exited the year with run rate volumes of roughly $200 million. In the context of an industry that is projecting to be down, the 16% gain highlights that our services resonate with our clients. For the quarter, domestic parcel gross profit improved $24 million year over year. for the full year, gross profit per parcel improved 35 cents, which translates to $58 million. Let's note, in the quarter, we reduced production labor spend by 25% versus prior year, despite processing 16% more parcels. This improvement is a direct result of our investments in automation, Robotics, and Technology. Service levels continue to excel and met or were near the 90% mark throughout the quarter. As a result, our net promoter scores improved 23 points to 27 for full year 2022. Finally, Our client pipeline is strong heading into 2023, with first quarter planned implementations running near double the rate it was in the first quarter 2022. On the other hand, in spite of these improvements, we fell short of our EBITDA positive goal by 5.5 million. Especially in December, the mix of volumes and many others. In the past, we have seen a significant increase in transportation costs per parcel, but the difference in mix from what we expected caused the majority of the miss from our goal. Also, as Mark noted, transportation costs per parcel decreased materially compared to prior year driving approximately 20% productivity improvement, but fell short of our 25% expectation. We're taking specific actions to address these two areas. Let me now share some perspective on the full year for global e-commerce. For the year, global e-commerce lost 22 million in EBITDA, similar to 2021. But in many respects, the years were quite different. At the gross profit line, the improvement, excluding border free, was $34 million year over year. Let's unpack the gross profit, which more precisely illustrates the improvement in domestic parcels. In 2022, domestic parcel gross profit increased by $58 million, the remainder Cross Border Digital and Fulfillment declined by 24 million, primarily due to lower volumes in a difficult macro environment. Overall, we are very pleased with a substantial increase in domestic parcel volumes and profitability this quarter. We continue to expect that domestic parcels will improve gross profit by 400 basis points in 2023 building on the 650 basis point increase in 2022. Domestic parcel now represents approximately 75% of segment revenue, which bodes well for the future success of the segment, though our financial results will be more seasonally driven than they have been in the past. Now I'll shift the conversation to our capital structure. As you may have seen, we filed an 8K on December 8th that details the adjustments we made in our credit agreement. We are pleased to have received the support of our lenders, which augments our financial flexibility during a period of substantial volatility in the capital market. We have begun to buy back our debt at a discount. To date, we have purchased approximately $10 million across the 24 and 27 maturities and plan to continue to do so opportunistically. Anticipating a question regarding our 24 maturity, we expect that cash, cash flow, and revolver access will be ample to meet that obligation should a cost-effective capital market solution not be available. I'll conclude my remarks with perspective on 2023. We expect flat to mid single digit revenue growth on a comparable basis. We expect percentage EBIT growth to outpace revenue growth as global e-commerce profitability continues to improve. Finally, we expect global e-commerce to be EBITDA positive in 2023. driven largely by continued gross margin expansion in domestic parcel and partially offset by increasing macro uncertainties and softness in cross-border. We are providing the following additional perspective on 2023. We are reaffirming our capex expectations of approximately $115 million. Also, higher interest rates will result in roughly $30 million of incremental interest expense compared to prior year. And finally, we expect our effective tax rate to be approximately 25%. In closing, Centec and Freezer continue to deliver solid and predictable performance. In global e-commerce, We made significant progress, especially in domestic parcels, and look forward to continuing this momentum into 2023. I will turn the call back to the operator for Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press 1 then 0 at this time. And one moment, please, for your first question. Your first question comes from the line of Matt Swope from Baird. Please go ahead.

Good morning, guys. Could you talk a little bit further on the global e-commerce side and how you're looking at strategic alternatives for that business? I think I can hear the disappointment in another negative EBITDA year. Would you be open or consider selling part of the business, shutting part of the business? And I know you talked about being EBITDA positive this year, but what are other options you might explore?

Yeah, so I appreciate the question. The first thing I'll say is we did have the expectation to do slightly more. It would not be accurate, however, to say we were disappointed. There's a lot of progress there, so I'd start with that. In terms of alternatives that we look for, not just Goldby Commerce, but for any business, what I've said for 10 years is if a business is worth more to somebody else than it is to us, and it's a serious offer, we would certainly contemplate that. If you look at the last 10 years, whether it be that divestiture of the software business or Magitas or other assets, we hold true to that. Most recently, the divestiture of border-free, I think, speaks to your question. That was a portion of global e-commerce. It was something that we liked, the business would continue to be in cross-border, but it was worth more to globally than it was to us. So we would look at any alternative that we think unlocks value for our shareholder, whether it be Shutting something down, selling something, or indeed selling the whole business. But we do think, as I said, that business continues to be a coherent part of our portfolio, and we're optimistic about how we go forward.

I appreciate that, Mark. Thank you. Would you mind commenting further on Centec? You talked a couple of interesting comments, I thought. One, about 40% of your sales coming from new products now, but also... Seeing declines last year in finance, rentals, and supplies that were partially offset by shipping, can you talk about some of the dynamics in Centec and how you see that on a unit basis for 2023? Sure.

So, I mean, there's two different currents running through the Centec business. The first is the mail business, which continues to experience secular decline. That hasn't changed. The other Current is shipping revenue, which continues to be a good market. And aggregate those two markets together are about a $6 billion business that's growing. So our expectation, you know, as shipping revenue becomes a higher and higher percent of the total business and continues to grow, you know, Ana said 20%, that, you know, those two dynamics begin to cancel each other out. And as you look at Centec overall, It was essentially flat last year. From a unit perspective, equipment revenue is probably the easiest way to think about that. Equipment revenue was up low single digits for the quarter and for the year. That's kind of the confluence of those two dynamics coming together. So I like that business. I would say Centec and PreStore together provide ballast for the business and our balance sheet as we continue to improve global commerce.

And Mark, when you say male continues to experience secular decline, could you quantify that secular decline number at all about where you guys continue to see that?

I mean, so first class males, I would say down high single digits, you know, 5% to 10% depending on the quarter. You know, marking males down a little bit less. So it's, you know, I would say single digit declines depending on which segment of male.

That's great. And then just the last one for me. Anna, could you comment on just expectations for free cash flow for 2023? I think you gave us the pieces, but just curious from your model how that looks on a total free cash flow basis for 2023.

Yes, so as you commented, I gave you the pieces there in EBIT, CapEx, interest, and tax. The hard one to call here is a little bit around working capital, and that's why we gave you the pieces. As the business moves forward, to seasonal adjustments greater in the fourth quarter and calling out the movements in working capital is a little harder. That's why we moved the path here to give you the components.

Got it. Thank you, Bowes, for your help.

Your next question comes from the line of Anthony Liebenszynski from Sadoian Company. Please go ahead.

Yes, good morning, and thank you for taking the questions. So first on the GEC question, So you talked about that the mix overall had a higher than expected volume of light weight parcels, hurting profitability, or maybe less than expected. I guess that's a better choice of words. But was this really, you think, more of a result of new client wins, these new clients that you signed on? Did that have... is the most significant impact from this, or was it just a mix of old clients just shipping more light volume? Just wanted to get a better sense of that.

That's a great question. So there's a couple things that are true. We had a very successful quarter in bringing on new clients. I would say those new clients did have a slightly lower weight than average. However, we planned for that. What was... What was different than what we expected is from our existing customers, think of that as same store sales for lack of a better term, in weeks 49, 50, and 51, I'll read that as the last couple weeks of the quarter, we didn't get as much volume from them as we expected. We still got more volume than we had the previous quarters and good performance, but we were expecting slightly more. So if you look at same store sales, They were, you know, we got good increases from many of our clients. It was just slightly less than we expected those last two or three weeks.

Understood. Okay. So now looking forward when you're going out and targeting new clients, are you going to be more kind of diligent as far as who you assess as to who you're going to bring on to make sure that you have a better mix of heavier weight parcels? Is that how you're thinking about managing that? Or maybe you could just talk a little bit more. How are you thinking about trying to be more profitable in GEC?

Sure. So, you know, one thing that Ana said that's really important and I don't want people to lose sight of is even the lighter weight parcels were positive from a gross margin perspective. So as long as our network is under capacity, we'll take that volume. It adds to profitability. It's a creative, you know, to absolute margins, etc., We will, within the total pipeline, be more diligent, if you will, in terms of realizing the higher weight stuff, and we will skew our marketing and sales resources to get more higher weight stuff too. So it's not that I don't like the lower weight stuff. I like it, you know, as long as our network's under capacity, we'll take more of it. But it's also true that our sales and marketing and our management system will be more skewed to ensure that we get higher weight stuff. My comment on the backlog is important. We've got a big backlog right now and we've got plenty of higher weight stuff in there. We just need to get that stuff into the network. Hold on for a second, if you will. If you look at our revenue per piece for last year, in our domestic business, it was up double-digit. So I know there's always a fear that you chase lower-margin stuff, but if you look at our revenue per piece last year, it was up 12% to 15%. So that should give me a fair amount of assurance that the team is focused on bringing in the right mix at the right price.

Okay, thanks for that explanation. And then as far as the unallocated corporate expenses, those came in higher than expected. I know, Ana, you talked about the incentive comp or timing of that impacting. Going forward, how should we expect unallocated corporate expenses to flow through for the year?

Yes, so what we're expecting is, you know, as a company paid for performance. We expect to replenish or re-levelize some of our incentive compensation as we move into 2023. And we are continuing, as I mentioned last quarter, to have a very strict cost program. So the net of those two you should see fall through.

Okay. Okay, thanks. And then lastly, as far as the 23 guidance, can you give us a sense as to how should we think about the different segments and, you know, as far as quarterly progress, you know, given what's going on with the economy, do you expect the Thank you. As I mentioned, I think the biggest driver here will be the growth in global e-commerce, especially around our domestic parcel, and we anticipate that to be more back-end loaded in the year.

probably more fourth quarter than everything. So I would anticipate our profile as a company to follow that as well.

I also think, I want to make a really important point, which I know you guys get. The seasonality of global e-commerce is heavily skewed to the fourth quarter, and you can see it across the entire market. So as I think about it, you've got Centec and Presort that are pretty consistent throughout the year. You have GEC that is entering a more seasonal business. And it's also true, as we bring on more customers, that it will also be realized in the back half of the year. So it's a different kind of skew than we're used to seeing. I think the market's used to seeing. But it's consistent with the overall dynamics within the industry.

All right. Well, thank you, and best of luck.

As a reminder, if you have a question, please press 1 and 0. Next we'll go to the line of Peter Sakon from Credit Sites. Please go ahead.

Good morning. Following up on the weight of the parcels, you talked about targeting a higher weight package. Can you talk about what the average is now and the strategy to gain this additional higher weight volume?

Average is about two and a half pounds, I mean between 2.4 and 2.5 pounds. The last couple weeks of the quarter, it went closer to two pounds. I mean, so that was kind of the variance that we saw. We like that two and a half. I mean, you know, as I said, even at two pounds, it's got a positive contribution margin to the overall business. So it's not that we don't like those business. It's just we've got to ensure that we get the right absolute number of higher weight parcels. So we don't think about this as mixed. We think about this, you know, if we're targeting 200 plus million parcels, Within that, we need the right absolute number of heavyweight parcels.

Can you talk about how you'll achieve this? What are the strategies that are important to improve this?

As I said, within our backlog, there's plenty of heavier weight parcels there. will have a higher degree of focus on those parcels. I would also say if you look at the mid-market in general, which is kind of where our principal hunting ground is, the mid-market within retail and marketplaces tends to have more higher-weight parcels. So, I mean, our bias and kind of our go-to-market model is already skewed towards heavier-weight stuff, and I would say our compensation system is as well. So we pay, you know, are all sensitive to profit, which is largely, although not exclusively, driven by weight and price.

Okay, what would you say is the capacity utilization of your network currently, and what's the target here for 2023?

So, right now, our exit rate of the year, which we said in the fall of the year, was between 195 to 200 million parcels. I would say we're kind of on the north end of that, so a little bit above 200 million parcels. Think about a network that's got capacity for 300 million parcels. Our objective this year for that business is probably to be north of 220 to 230 million parcels, so that's kind of the the basic math that we're looking at. So, you know, think of a market that's, or, you know, run 70 to 75%.

Okay. And on capital applications, can we talk about CapEx and what the mix by, by segment for 2023 in the quarterly, I see in your disclosure, roughly 40% for global e-commerce in 2022 and So what's your expectation for each segment for 2023?

Yes. The expectation will be down, as I mentioned, on a year-over-year basis. And the expectation would be that we will have a little bit of a higher decline in global e-commerce. So global e-commerce will be around 40-ish percent still of the total. The interesting thing here to point out is that, as we mentioned in 2022, we will continue to spend on optimization of the network rather than that expansion of capacity. We feel good with the capacity, as Mark just noted. And the other segments will keep roughly similar proportions than what they've had in the past.

I want to make two additional points. To put that CapEx number in context, two years ago, I believe, we spent $190 million on CapEx or 185, somewhere in that range on CapEx. That was largely around the build-out of the network to accommodate those 300 million parcels. So the 110 is kind of in that context. The other point that I would say, if you look at the capital consumption of GEC, it is, as Ana said, down dramatically. We're still targeting for EBITDA minus CapEx and working to have a plan that that number is positive. I'd say I've become a little more cautious about that dynamic in 2023 given the macroeconomic environment, but that's still what the team's reaching for.

Just following up on the e-commerce, how much is EBITDA on the domestic business versus the international business? I'm guessing international is struggling more or less. It seems to be. Could you separate that or exit international if it doesn't turn positive in 2023?

Yeah. So the easiest way to think about it is from a gross margin perspective. And I want to point out what we mentioned is the dynamics are changing. And as we move into 2023, domestic parcel will become even a greater proportion. of that gross margin, as I mentioned, 650 basis point improvement and an additional at least 400 basis points more as we go into 2023. So we anticipate that more and more of our profitability will come from that domestic parcel. And 75% of revenues are already in that domestic parcel, so it gives you a sense of the proportionality.

This is my last question, but just to I guess you could argue that just because something is a greater proportion doesn't necessarily mean perfect. Maybe if international is smaller, it doesn't necessarily mean it's good, if you will. Or maybe if I could say it differently, if it's still negative, is it worth keeping despite being a smaller proportion?

Chuck, was the question specific to GEC?

Yeah, the international portion of GDC.

Is it worth keeping? It depends a little bit on what you could fetch on the outside market. It's still positive from a gross margin perspective. I would say, as witnessed with the cross-border business and globally, if it's worth more to somebody else than it is to us, then we would certainly consider any serious offer. Our intent is all those businesses to contribute positively to the P&L going forward. I will say, as you think about the business going forward, and the reason we're so fixated on the domestic parcel margins is that's where most of the appreciation comes from in the next couple of years.

Thank you for your time.

Your next question comes from the line of Ayak Valero from Loop Capital.

Please go ahead. Hey, how's it going, guys? It's Alec. I'm on for another. So my question is regarding the December quarter. Maybe if you guys could provide a bit more color on to what extent MACRO impacted the December quarter relative to where street expectations were at. Was it a little bit more MACRO focused or was street just too high? Thank you.

I don't think the street was too high. I mean, as I said, we had higher expectations for the business The principal variance was in global e-commerce, and it was in those two line items I mentioned. One was revenue per piece in weeks 49, 50, and 51 was a little bit less than we thought. That cost us about $5 million, and transportation costs, well, they improved year to year, but that would also improve meaningfully quarter to quarter. So, you know, we said north of 20% improvement year-to-year was also about the same quarter-to-quarter. We were expecting another, you know, probably $5 million of benefit there. So those two together were $10 million of EBIT. That's, you know, kind of – that more than closes the two cents to the street.

Awesome. That was helpful. Thanks so much for that. And the second question, if I may, so given – Your guidance of having EBIT outpace revenue growth, and you mentioned that it's going to primarily be driven by global e-commerce. So do you guys expect global e-commerce to be profitable in 2023?

To be EBIT profitable in 2023? Yes. Think about it this way. I mean, so it was Minus 22 from an EBITDA perspective last year. So EBITDA positive right there is $20 to $25 million of improvement. We expect more than that, but that's just kind of the basic math. But you've got some headwinds of interest expense and other things that you're running against.

Got it. Got it. For sure. Thanks so much for that.

and at this time there are no further questions. I'll turn it back to you for any closing remarks.

Thanks. So listen, lots to unpack about the quarter. I'd be remiss if I didn't end by thanking the Pitney Bowes team. I am continuing to be pleased and impressed with people's commitment to this business. You saw it in our distribution centers where we have lots of volunteers to help in the middle of peak and not just first or second shifts and not just in the good cities. but all over in third shift and that's a true sign of folks' dedication to this business and to moving forward. So as I said, our headline for the quarter is we made lots of good progress across many different dimensions in global e-commerce. We're expecting to touch more. Centec and Presort continue to be steady performers and we expect that to continue. So as we Moving to 23, there's lots of different currents running through the economy. We're a little more cautious about how we call the year. We've got much more focus on providing flexibility to accommodate different things that may happen in the environment. That being said, our focus continues to be as we get out of this economic moment and get to more calm waters. Thank you for your time this morning and we'll talk soon.