Good morning, and welcome to the Pitney Bowes First 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. Marc Lautenbach, President and Chief Executive Officer; Ms. Ana 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 and I manage the Investor Relations program for Pitney Bowes. I'd like to welcome everyone to the call this morning. We very much appreciate your participation. Part of my duties this morning includes 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 2020 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. Additionally, 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. Marc 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 financial results. I'd like to now turn the presentation over to Marc. Marc the floor is yours.

Thanks, Ned, and good morning, everyone. I appreciate everyone joining the call. Our first quarter was very good, and the trends that we experienced most of last year continued, improvement in global e-commerce business, our GEC margins and strong performance in our SendTech Financial Services and Presort businesses. The headline for the quarter is revenue, EBIT and EPS growth. This is the dynamic that we've been working for and the trend we expect to continue for full year '22. I know there is this tremendous interest in our GEC business, and I get that, but I want to spend a few minutes upfront talking about the other businesses. In the aggregate, SendTech and Presort is a $2 billion business that has grown top line and carries a 25% EBIT margin. I want to make sure people do not overlook the incredibly strong base our traditional core businesses are built on. Case in point, Presort had another really strong quarter, very good top line growth, solid EBITDA and great customer satisfaction. Growth initiatives in SendTech are resonating with the clients and are having a positive impact on the numbers. The shipping business within SendTech grew 26% year-over-year. First Class Mail continues to decline, but Marketing Mail, Office Shipping and small business lending are terrific opportunities, and we are hitting the ball. Our new products and offerings are doing very well in the market. As the disruption of COVID and the related supply chain dynamics gradually weighing, our GEC business continues to stabilize and improve. It's hard to overestimate how turbulent the e-commerce logistics market has been over the last 26 months. In the first quarter, our service levels and unit economics improved. GEC gross margins improved 500 basis points year-over-year and the business was EBITDA profitable. Again, while this hasn't been and won't be a straight line improvement, we expect these dynamics to continue, and we expect GEC to be EBITDA profitable for the year. We continue to really like the market dynamics in e-commerce logistics, strong sector growth - coupled with an industry where capacity is unlikely to outpace long-run demand. Our brand plays really well in this market and our business model really works. Integral to the business model in GEC is our relationship with the USPS, our marketing and sortation capability, coupled with the USPS final mile delivery is a very strong combination. Of note, President Biden signed the post reform bill on April 6th. To the extent there are any questions about the long-term viability of the United States Postal Service, including its mandate to run a six day integrated mail and parcel network. The poster reform legislation that President signed puts those questions to rest. All in all, the first quarter was a good start. And while the macroeconomic environment is turning less positive, I continue to like how we are positioned. Let me now turn the call over to Ana to walk through our financial details.

Thank you, Marc. From a financial standpoint, the primary takeaway here is that we have started 2022 with a solid quarter, better revenues, improved margins, especially in global e-commerce and more balance sheet improvements. It's energizing to get 2022 started on a positive note. Unless otherwise noted, I will speak to revenue comparisons on a constant currency basis and other items such as EBIT, EBITDA, EPS and cash flow on an adjusted basis. First, I'll take you through the high-level financial statement data point, starting with the income statement. Total revenue for the quarter was $927 million, which is a 2% improvement year-over-year. Gross margin for the company was $306 million compared to $299 million for the same period last year, a 2% increase. As a percent of total revenues, gross margin increased 30 basis points to 33%. Total EBITDA was $95 million and EBIT was $53 million, both of which were 6% higher than first quarter 2021. Total EBITDA margin improved 40 basis points to 10.2%, and EBIT margin moved up 30 basis points to 5.7%. Interest expense was $34 million, down from $37 million in the prior year, driven by reductions in total debt outstanding. Our tax rate returned to more normal levels and was 25% in the quarter. Adjusted EPS was $0.08, $0.01 better than last year and GAAP EPS was $0.12, driven by a handful of non-recurring items, which are detailed in the press release. At the end of the quarter, diluted shares outstanding were approximately $178 million. Turning to cash flow. GAAP cash from operations was a use of $2 million, while adjusted free cash flow was a use of $30 million, driven largely by changes in working capital, which we expect to normalize as we move through 2022. I'll have more to say on…

[Operator Instructions] And our first question will come from Ananda Baruah with Loop Capital. Please go ahead.

Yeah. Good morning, guys. Thanks for taking the question. Yes, just Marc, Ana. Just love your thoughts with the start to global e-commerce that - well, sort of the incremental slowing that you saw in global e-commerce, can you sort of that to the maintaining of the guidance for the year? How are you seeing the progression of that? And then, I guess, also in that context, for SendTech as well, if you sort of I guess how much in that – like, what's the macro perspective based into SendTech that has you maintain the guidance as well? And then I have a quick follow-up.

Great. So let me start and see if I can unlayer the GEC performance a little bit. So as always, there's different currents running through the business. To your point about macroeconomic circumstance, our cross-border business, as one of our competitors reported earlier in the week, phased headwinds in the quarter. That was principally although not exclusively due to currency rates. So that was a hurt. What helped was our domestic parcel business. And if you look at that from a unit economic perspective, the first thing that you would see is pricing caught [ph] up to cost, so on a year-on-year basis, pricing was a help. I would say that was a remedial dynamic to help cover costs that we had incurred. Labor similarly was a touch of a help in terms of unit economics. So that's what - those were the principal dynamics that ran through the quarter. As we look through the balance of the year, we now have a set of capabilities that we've been working on for, candidly, the last several years in terms of our warehouse, our team in the warehouse, our leadership team, our transportation, that has both the capability and important the capacity to drive improved economics going forward. So if you look at the warehouse capacity or if you look at the transportation capacity, we've got significant incremental capacity. So we can add volume without adding incremental costs. So if you look at the marginal economics of the domestic parcel business for incremental volume, they're very favorable in terms of the marginal economics. So the key, therefore, is incremental volume. So we've completed some work, which built off of other stuff that we had done in terms of how we run the network that will improve our servicing across certain lanes,…

Marc. Thanks for that context. Is that to say - you mentioned something about line of sight when you're going through your GEC remarks, something about allowing to sight from customers to that regard to volume. Is that to say that there's some sort of some degree of volume commitments? Or how would you characterize that?

They're not commitments in the contractual sense. The way it works in that marketplace, not just for us is you have a book of clients and they have, I would say, volume agreements without the contracts underneath them. Typically, in aggregate those contract agreements, those agreements in terms of volume have been pretty reliable, you know, putting the fourth quarter aside where they weren't. But what we saw up until the fourth quarter of last year, and we're seeing again this year, certain 98%, 99% accurate. So it's not a contractual commitment per se, but their volume direction has been pretty positive you know, correlated to what we actually realized.

That's helpful. And then just last one for me. What would you - so how would you characterize the various priorities for - as you move through the year here?

Priorities for Pitney Bowes or priorities for GEC?

For Pitney Bowes, as you make through the year here...

Yeah. So let me kind of run through at a business level. For global e-commerce, it is increased volumes and continued operating efficiency. For SendTech, it has continued to hit the ball on the growth incentive. So as Ana mentioned or I mentioned in our prepared remarks, I mean, shipping and SendTech grew 26%. So 26% off of business that's $140 million, $150 million is starting to be real growth in the absolute terms. So SendTech needs to continue to hit the ball on the growth in turn [ph] Similarly in GFS. So Ana talked about the assets growing. That's been the combination of three or four years' worth of work. They've got some really terrific growth opportunities, both in terms of working capital, as well as equipment lending and leasing. Those are starting to similarly hit the ball. Inside of Presort, it's really around continued operational excellence. So their margins in the first - the growth was terrific. We expect that growth to continue for another quarter or two based on some of the dynamics last year. Their margins have an opportunity to go up. So they're slightly more balanced view.

Excellent. That's really helpful. Okay. Thanks so much, guys. Appreciate it.

Your next question comes from the line of Kartik Mehta with Northcoast Research. Please go ahead.

Hey, good afternoon – good morning, Marc, I apologize Ana. I'm wondering just from inflationary pressures. I know you talked a little bit about some of the impact that Pitney is having. If you look from an inflation perspective, overall, what are some of the positive negatives for Pitney?

It's hard to say, inflations are positive in any way. What I will say is you know, we've been able to manage price relatively well in this environment. So if you look at the - the respective businesses, you know, transportation, labor inflation has been a net headwind to both Presort, as well as global e-commerce. I would say in both businesses, we've been able to price for that. So that's a positive thing. SendTech, it's a little bit more subtle, but transportation affects them as well. I would say they've got - they've had some luck with pricing. They've got more opportunities in front of them. So I don't see inflation as a positive or negative per se. It's kind of a fact of life of the question is, can you price for it in your businesses? And our answer is, yes, we've absolutely been able to price for it and we can do real life real - life examples. I mean if you look at UPS' results on Tuesday, whenever they announced net, I think, was on Tuesday. I mean their volume was - domestic volumes were down a couple percent, but their revenue is up close to double-digit, I think eight or nine, you have to check the numbers, but they pointed to price. So it's - I make that point not to talk about another party, but it is an industry that historically now continues to be pretty disciplined from a pricing perspective. And a marketplace from a client side that's pretty mature, I mean I have been in business for a long time now. Some markets, some customers, you have more constructive conversations around price than others. This is a market where we have pretty constructive conversations around price. I mean customers get it, similar things in our business.

And just as a follow-up, just on global e-commerce. I know in the past, you've talked about kind of parcels as a way to look at when global e-commerce can maybe breakeven and then start producing positive EBIT [ph] is that changed at all? Or how would you look at global e-commerce and maybe revenue or parcels as to when you think you could break even on the business?

Yeah. So it has changed. So not surprisingly, the pandemic has changed lots of different things in that world. So I would say the first thing, we're finishing off the long-term plan. But I would say the long-term plan ultimate profitability, we can get that 8% to 12% was predicated on 250 million parcels. I think a more likely figures, today is probably $300 million parcels. So up but not up you know, a crazy amount. Ana referenced, the 41 million parcels that we're at this year. We think our 41 million parcels we were at in the first quarter, we did 175 last year. I think we'll be - I think the first handle will be two this year. I mean 200 some thing other, might be just over that threshold. As it relates to profitability, what I said, and I'll say again, and this will be EBITDA profitable this year. From an EBIT perspective, I would say a couple of things. We have a - what I would characterize as a higher risk in some ways, low probability, internal plan that gets them to EBIT profitable this year. I'd say that plans logical. I mean - but it's - you'd have to acknowledge, given the environment and candidly, given where we are in our maturity curve that it's high risk. So we've got an internal plan. We're not betting our external guidance on them getting EBIT profitable. But there has been internal plan. And I'd say while it's high risk, it's not logical, but they've got a lot of money – there is a lot of money on the table for them to do that. So they're running hard for that. They're enthused about the opportunity. They're enthused about building this business, and they can make real money as that business gets profitable. In terms of ultimate profitability, it's still kind of in the 24% or might be 25 time frame, but it's not - if things have changed a little bit, which is not terribly surprising on the minimum wage is - our wages have gone from $14 an hour or close to 20 unit transportation has gone from $0.65 a unit over double that. So it's not surprising that the underlying plan has changed. But I'd say it's kind of changed on the edges. If that helps you.

No, that does help. Thank you. Appreciate the answers, Marc.

Thank you. Our next question comes from the line of Jeff Harlib with Barclays. Please go ahead.

Hi. Good morning. So with e-commerce, I just want to kind of understand where we're headed near term. On the last call, you talked about a very challenging conditions in e-commerce in the first half. It seems like you managed that very well in 1Q and your $8 million positive EBITDA. And on this call, you talked about some of the weakness in e-commerce more recently, I think there was more industry wise. But what are you seeing volume-wise? And what are some of the cost pressures versus pricing that you see in the near term? And should adjusted EBITDA in e-commerce turn back negative in 2Q? Just some more details on that would be helpful.

So let me kind of start with the market. What UPS announced in the first quarter, and we saw similar dynamics, as volume was flat to down a little bit. So that's kind of a general market statement. I don't have any reason to believe that's going to change dramatically. What I've always said and the team reminded me of the other day is when you've got 1.5% market share, I'm not sure that the most relevant factor is whether the market is going up 1% or 2% or down 1% or 2%. We've got tremendous opportunity in front of us in tremendous addressable market in front of us, assuming we've got the right offering. And so I think the market will continue to be a little bit choppy from a volume perspective. As I said to the earlier question and others have said as well, pricing is a net positive, so you can still get good revenue performance even with fairly flat volumes. In terms of how the year unfolds, I'm not going to get into quarter-by-quarter. I did say EBITDA profitable for the year. I'm probably going to stick with that. It's hard to kind of call what's going on in a 90-day period. But I do like how we're starting the quarter in terms of the kinds of conversations we're having with customers in terms of incremental volumes. So assuming the unit economics hold and these conversations with customers come to fruition in terms of first getting more volume from existing customers, and second, onboarding new customers, I think that bodes well for the year.

Okay. And then you said free cash flow you expect to be comparable with '21. I know CapEx will be lower, but you had some pretty good working capital performance last year. Can you just give some of the puts and takes on that with some of the key cash flow items?

Sure. This is Ana. I'll take you through that a little bit. We have had the two key drivers from a cash flow perspective that are most significant for the quarter, where working capital as we mentioned. And in that, we also had a slower reduction of our finance receivables, which we actually ended up growing some of our finance receivables. So we're seeing that stabilization, which votes for something very good, which means more profits into the future, it's a hurt initially on free cash flow. So as we look through the year, there's seasonality in our free cash flow. First quarter is always lower, and we expect that to normalize. One of the dynamics in working capital to point out specifically around receivables is we have had historically an improvement of day sales outstanding that has been significant, and we will continue to push for that, but that rate of improvement is going to levelize as well. Those are the broad key dynamics you mentioned a slowdown in CapEx. We're going to be very focused on optimizing the network that we have and not as focused on building additional capacity. We do have a commitment that we feel very good about in the Chicago building. But beyond that, we'll be very focused on optimization. And those are probably the key highlights to mention.

Just build on that, Ana, said very well, not surprisingly. So I was asked about the dynamics within GEC. One of the dynamics that's also changed post-COVID is the team now thinks they're going to require less nodes in the overall network, which will diminish the incremental capital that we need to put behind that business, which is important. One of the metrics that we do look at is EBITDA minus CapEx with respective businesses, which has been a key inflection point for global e-commerce. When does that number turn positive? I think it's got a good chance to be positive this year.

Okay. Thanks so much.

Thank you. [Operator Instructions] And there are no additional questions in the queue. I will now turn it back to Marc Lautenbach for closing remarks.

Thanks, operator, and I'd like to thank everyone for joining the call. Let me just close by making a couple of points. I often ask my team, I say, okay, what are the highlights? And what are the headlines for the quarter. And they pointed I think, appropriately three. First is revenue, EBIT and EPS growth. That's really important for all kinds of reasons because that just speaks to the trajectory of the overall business. And candidly, the work we've been doing for the last 10 years to recreate this business and to turn it into a going forward successful business. So growth in revenue, EBIT and EPS in the quarter with continued prospects for that for the full year. Secondly, I think it kind of gets overlooked too often that if you look at the combination of Presort, Global Financial Services, as well as SendTech, that is a $2 billion business that is growing for the moment, and we expect it to continue to grow. And it's got 25% or so EBIT margins. That is a tremendously strong franchise to build off of. And we are, and it will continue. The third point is all around global e-commerce. I would say that the fog of COVID is starting to lift. So while, you know, COVID not totally behind us, and it does affect supply chain of our customers and it affects our own supply chain with SendTech. You can begin to see the fog of COVID lifting and the path forward for global e-commerce has become much clearer. We have a clear view of where the economic fly. We have a clear view of the market opportunity. We've had significant and meaningful conversations with clients about bringing that volume on. And as we do that, you'll continue to grow…

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