Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2025 Pitney Bowes Earnings Conference Call. Joining us today are Chief Executive Officer, Kurt Wolf; Chief Financial Officer, Paul Evans; and Director, Investor Relations, Alex Brown. [Operator Instructions] Please be advised that today's conference is being recorded. It is my pleasure to turn the call over to Alex Brown, Director, Investor Relations. Please go ahead.

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

Good morning, and thank you for joining us. I trust that everyone has had a chance to read our earnings release and my quarterly letter. As such, I will keep my comments brief. First, I'd like to welcome our recently announced executive hires. It's exciting to see the level of talent we are now able to attract to Pitney Bowes. I'm particularly pleased to have Steve Fischer join the company. Steve is an accomplished bank leader, something that stood out during the recruiting process. I look forward to working closely with him to maximize the value of Pitney Bowes Bank. Moving to the fourth quarter. Our results demonstrate the progress we're making in transforming Pitney Bowes. While we did have some tailwinds, our financials were strong absent those benefits and reflect the growing strength of our business. In closing, we are rapidly progressing through our transformation. In 2025, we significantly strengthened the foundation of our business, taking meaningful steps in upgrading leadership, simplifying our structure, streamlining processes and eliminating costs. All of this is putting us on strong footing as we pivot to a focus on profitable growth and beginning our external review with qualified advisers during the second quarter. With that, let's open the call for questions.

[Operator Instructions] And our first question will come from Aaron Kimson with Citizens.

Kurt, can you expand on the additional market uncertainty and geopolitical challenges you mentioned in your letter as reasons for the wider guidance range?

Yes. Aaron, thanks for the question, and thanks for joining the call. Yes, some of the things that we -- I guess, I would point to, one is, as we've seen in the past, there's been issues with government shutdowns. I think there's no guarantee that doesn't happen again. As we talked about during our Q3 call, that certainly affects some of our performance in the SendTech space. More broadly, obviously, there's questions about a change at the Fed, other -- there's some uncertainty about where the direction of the economy is going. We're a pretty noncyclical business. However, I would really point to our marketing mail aspect of the Presort business. which is more economically sensitive. So while we don't expect anything major, we are cognizant that there could be potential headwinds related to both of them, but not necessarily expect them.

Okay. That makes sense. And then I wanted to ask on the Presort business as well. You mentioned new business wins and no churn since June of 2025. I think you had a nice win in the state of Pennsylvania that was well publicized in 4Q. Are boomerang customers and new wins generally reflected in Presort volumes immediately? Or is there a ramp time where Debbie and her team get agreements, but the volumes come at the end of a pre-existing contract with another vendor and you have some visibility into the ramp?

Usually, they come in pretty quickly. But what I would point to is there's definitely a sales cycle that can be pretty long. So we got more aggressive starting in June of last year, and it's taken time to fill that pipeline. And I think at this point, the pipeline is pretty full start to finish. And one thing I'd point to is the customer wins that we had in Q4, we've essentially met that level of wins this half the way into Q1 of this year. So you can see as that pipeline is filled that we're getting more and more wins on a more rapid basis. And then finally, in terms of flow-through to the financials, it does take a little bit of time. We have to add multiple customers. We have a lot of major losses from the first half of last year that we're trying to eclipse. So it's just going to be a process over the next few months and quarters.

And our next question is going to come from Anthony Lebiedzinski with Sidoti.

So just a quick follow-up. Kurt, you said that the government shutdown had some impact in the quarter. Any way you guys could quantify what that impact may have been?

Anthony, it's Paul Evans. Yes. Look, we were impacted on that. That was hardware purchases. It sort of pushed it into the subsequent quarters. So we saw most of it in Q3 last year. I'm not sure we go down to that level of granularity to give that. But I mean we are susceptible to government shutdowns.

Understood. Okay. So Kurt, in your shareholder letter, you mentioned being more aggressive with pricing on Presort. So just wondering if you could further expand on that as far as how perhaps aggressive you would be with pricing to win back clients? And what type of EBIT margins should we think about as we look at the Presort business going forward?

Yes. I'll let Paul speak to the EBIT margins. But just broadly speaking, what I'd highlight on that, I know there's been questions about what's going on in Presort. To be quite honest, I think we got caught flat footed early last year. Industry margins went up, and pretty much everybody in the space did what you would expect, which is to go out and be aggressive to try to win new customers with the higher margin levels. We unfortunately were not in the same boat. So we did face a lot of headwinds in terms of customer losses and having to give concessions to our customers, but we weren't necessarily aggressive going after customers in the space. And that's really what's happening now. So -- when I -- when we talk about being aggressive on pricing, a lot of it is trying to pull in new business. We've already made the required concessions to our existing customer base. So it's really about winning new customers.

And Anthony, to add to that, I think if you sort of target low to mid-20% range for EBIT margins and -- but it's also important to note that we are the low-cost provider. So we can sustain that. So when we come out and say we're going to get more aggressive on our pricing strategy, and we can certainly afford to do that.

Got you. Okay. And then my last question before I pass it on to others. So as we look at the free cash flow guidance, you guys add back restructuring payments to your definition of free cash flow. So how much restructuring payments are you guys assuming in 2026?

It is true, yes, we do add it back. And the reason we add it back is it's not really representative of our business going forward. I'm just trying to think if we've offered that level of detail in the past on that. Maybe I'll circle back to that payment. I'm not sure we've offered that level of detail.

Our next question is going to come from George Tong with Goldman Sachs.

Going back to the Presort business, in terms of winning back customers and being more competitive on pricing, given the comps ease pretty materially in the second half of this year, would you expect that by then you would return to positive growth in Presort?

I think we'll see -- it will be an easier comp year-over-year on growth, but we've got to get past Q1, Q2, which are going to be tougher comps for us. But again, as we said before, we stopped the decline mid last year. We've Kurt sort of empower Debbie Pfeiffer to be more aggressive on pricing. And as Kurt also mentioned, there is a sales cycle to this. So we're certainly getting some traction. But I think second half of the year will be a better comp for us.

Okay. Makes sense. And then in the SendTech business, how do you envision the revenue performance over the course of the year? If there's any bifurcation of performance in the first half of the year, for example, versus the second half, would you expect the second half to be stronger within the SendTech business?

Let's start, first for the year, we expect a top line decline in the business. But if you -- to split apart the year, we believe second half of the year will be stronger than the front part of the year.

Yes. And George, just look at sequential year-over-year throughout 2025, you can see there's a trend that is essentially getting more positive every quarter, and that ties back to what we've spoken about in the past with the IMI migration. And again, we expect that to continue. So we can't guarantee that each year-over-year comparison is going to get better quarter by quarter, but that should -- we expect to be somewhat the trend on a go-forward basis, at least through 2026.

And the next question will come from Jasper Bibb with Truist.

I was just curious how you're thinking about the underlying mix in SendTech in '26. I think the letter mentioned you didn't get the growth rate you wanted in the shipping technology piece. Could you maybe frame for us how you're thinking about the growth rates in the shipping technology business in '26 versus, I guess, maybe the core hardware business and everything that's associated with the mailing meters, et cetera.

Yes. And we can essentially cut it into 3 pieces. We have the mailing meter business. We have the shipping business -- shipping software business. And then we have the bank, which currently is reported as a part of SendTech. So with respect to the mailing meters, again, the IMI migration certainly created some serious headwinds in 2025. We expect that to slowly ease. In addition to that, we've had a bias in the past of always focusing on growing markets, which does not apply to the mailing meter business. So one of the things that Todd has really identified since joining the company is we probably aren't doing as much as we could to slow that rate of decline. So I think there's a lot of efforts going to be put into slowing the rate of decline. So that's what I'd say about the mail meter business. With respect to shipping software, Todd has done some great work there. We have a vast array of product offerings, and we're trying to get more focused on how we do that. And then also we're trying to figure out where do we have the best competitive advantage so we can better hone our go-to-market strategy. I think it's going to take some time to fully identify exactly what that looks like. But I will say that we're not cautious or slow in how we go about this. Todd is aggressively already testing some concepts in the market. So we'll have more in future quarters on that. And then with respect to the bank, as you saw with the hiring of Steve, that's really unlocking the opportunity for us to focus on growth in the bank. So too early to say just yet, but that's an area we're really excited about, but we will obviously show caution given the risks associated with the lending space. So hopefully, that gives you some good color.

No, that's very helpful. Maybe just one on capital return. So pretty aggressive pace of buybacks in the fourth quarter. It seems like that maybe slowed a little bit in the first, call it, 1.5 months of '26. Just wanted to get an update on how you're thinking about the balance of share repurchase and the dividend and other priorities in '26?

Yes. So Jasper, this is Paul. Look, I think the keyword on share buybacks and debt buybacks is opportunistic. I mean, we're very opportunistic in Q4. We're just -- we're very disciplined on how we look at this. I think I'll say it on here. I mean, we're committed to a net debt of EBITDA of around 3x. But we definitely see that our stock continues to be undervalued, and so we will continue to buy our stock. Again, relative to dividends, that's a quarter-by-quarter decision. This quarter, we decided the best use of our capital is to continue to look at debt buybacks and share buybacks.

And our next question will come from Curtis Nagle with Bank of America.

Just wanted to follow up quickly on the free cash flow guide. It came in nicely above where the Street was. In terms of the components, yes, maybe we can return to that restructuring point later. But are you including the net investments in the loan receivables from the cash from investing line? Because I think the sort of comparable or the component of that in cash from ops is in there. So just wondering kind of how all that rounds out and is that in the guide?

A little bit on free cash flow. A big component of free cash flow is Presort prepayments. We don't control the timing of that per se, but we had a very strong Q4 on that despite not fully controlling it. So that's definitely a larger component for us when we look at that. And as far as the detail on the amount of restructuring in there, I'm just not sure that that's a number that we've given out in the past.

And the next question comes from Dillon Bandi with Northcoast Research.

Looking at that target of 3x net debt, is that a 2026 target? Or are you guys kind of looking more into 2027 or longer term for that?

I think on how we define net debt, we actually came in end of the year slightly below 3x net debt to adjusted EBITDA. I think it's just a good overall target to be. There might be times we were slightly above it on the quarter or slightly below it. But I think for this business going forward, that's the right place to be.

Yes. And Dillon, just to add to that, Paul has highlighted we're going to be opportunistic in our capital allocation. And we've said on previous calls, we're cognizant of how the market views us and what levels of debt they think we can manage. So we believe we could have a higher ratio than that. But as long as the market doesn't believe it, we're going to follow the market's lead on that. So what I would say is by being opportunistic in the capital markets, we may go above, we may go below, but that's sort of our -- the mean or the point we want to keep returning to over time. So we may go above for a bit, return back or go below for a bit and then return back.

Got you. That's really helpful. And then, Kurt, in your letter, you talked about SendTech exiting its low point of the product cycle. Has there been any fundamental change in that business, whether that's renewal rates or price competition? Or do you guys just overall feel confident about that?

Yes. No, I would just say, overall, we feel confident we have -- we believe we have the best products in the market. I think the market agrees with that in terms of buying habits. We're doing increasingly well in the federal space and the government space. And again, it's just -- it really is -- there was a low point tied to the IMI migration recovering from it. We are recovering from it. And there's fundamentally nothing that's really changed as far as we can see in terms of the rate of decline that we've historically seen should change going forward.

[Operator Instructions] And our next question comes from Justin Dopierala with Domo Capital Management.

So do the new hires you've announced signal that you're no longer looking to sell the business as part of the strategic review?

No, no, not at all. Again, what I'd highlight is with these additions, and I hope everybody recognizes the level of talent we brought in here. it's going to be important no matter what the future of the business is. These are great executives bring a lot to the table. No matter where this company goes, they're going to be a great asset going forward. So that is in no way a comment on the future path of the company.

Got it. I know you touched a little bit on restructuring. In Q4, it was a lot larger than I was expecting. I would assume in 2026 that these costs drop closer to 0. I don't know if you can say what was the largest restructuring cost in Q4?

Just headcount reductions.

Okay. So that was essentially onetime cost?

In '26. But most of it will -- it's already captured in the '25 number.

Perfect. Also, it appears that your dominance in the Presort space has contributed to a much lower price for Presort customers. I was just wondering how does the USPS view this with respect to workshare discounts? And wouldn't the post office also benefit considerably if they simply privatize the entire Presort function to companies like Pitney Bowes in the future?

Yes. I don't think we're going to comment on postal relations. All I'd say is we have an amazingly constructive relationship with the post office. With respect to workshare discounts, the whole rationale for those being introduced is -- and it's common throughout the government, whether you look at Medicare -- with Medicare Part C there's always an interest in figuring out private public partnerships, and that's exactly what these workshare discounts are. And then in terms of -- I think you were asking about pricing. Yes, I completely agree. In the end of the day, one of the big benefits of the workshare discounts is not only does it save money for the post office, but a lot of those discounts end up getting passed on to customers. So it creates a lower cost for the end user of postal services, which helps keep volume going through the postal system due to lower costs. So I think it's a win-win for the post office, but I can't speak on their behalf.

Absolutely. Got it. And I think you briefly touched on this. But looking ahead over that maybe the next few years, what do you think are the top growth opportunities that you're seeing?

I think I'd say in Presort, obviously, given that we're the low-cost provider in the market, our pricing strategy, we should see growth there, but that will take a little time. We're seeing more inbounds on acquisition opportunities. So we will definitely look at that. The renewed focus back on mail and investment where we have to, to slow the decline, that, in a sense, is a form of growth. And then shipping, I mean, the team that Kurt and Todd's assembled there, we like our chances on how to evolve. And then finally, with Steve coming on to run the bank, I think there will be definitely opportunities there for us.

Okay. And just, I guess, lastly, analyst coverage from yesterday seems to amplify that there's still a huge opportunity to educate people on the fundamentals of the Pitney Bowes business. Are you planning to have an Investor Day in 2026?

Yes. Yes, we are. And I certainly agree with you on the education level. But as Paul said, we're incredibly opportunistic in the -- in our allocation of capital. I think when we sit here and look at it, I think we're trading on a levered basis of 4x free cash flow. So -- and I think our -- we did have a decline in revenue that was larger than typical last year, which I think maybe creates some concern from shareholders. But again, a lot of that is tied to customer losses in Presort that was entirely preventable and shouldn't recur going forward. And then in SendTech, it was tied to the IMI migration. But to quote Warren Buffett, when the price -- if you buy hamburgers and the price of hamburgers goes down, you should be happy. So we're not worried about short-term price movements. We just are opportunistic about how we handle them. Our belief is in the long-term outcome for the company.

And at this time, I'm showing no further questions in the queue. I would now like to turn the call back to Kurt for closing remarks.

Yes. Thank you, everybody, for joining us. I appreciate your continued investment in our company. Hopefully, everybody has seen the results of Q4 show some of the progress we're making. I know everybody is eager to understand and see when we get to growth. But what we hope people appreciate and I think the right investors will appreciate. We're doing everything we can to build a strong foundation. And as that foundation is built, it's going to be -- we're going to be much more successful in our pursuit of growth going forward. So thank you for your continued investment, your continued faith in us. And we will do our best to continue to deliver strong results for you. So thank you all.

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