Pitney Bowes Inc. Stock

Good day, and welcome to the Pitney Bowes Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. Alex Brown, Director of 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 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 are all on an adjusted basis. You can find a reconciliation for these items to the appropriate GAAP measures in the tables attached to our press release. We've also provided a slide presentation and 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 today. Second quarter results built on first quarter momentum and give us confidence to raise our adjusted EBIT, EPS and free cash flow guidance.

I will now cover a few key highlights from the quarter. Presort continues to win new business and maintains a robust sales pipeline. That said, higher transportation costs materially impacted Presort's second quarter profitability.

Moving to SendTech, continued operational improvements led to higher margins despite increased spending on future growth. At Pitney Bowes Bank, Steve and his team have made significant progress on building out our infrastructure, which will support future growth. Also, the bank is now originating loans through 3 pilot programs, which leverage and enhance existing client relationships.

Moving to capital allocation, we reduced debt by more than $200 million over the past 4 months and pushed out our nearest maturity to March of 2029. Having reduced debt by approximately $55 million year-to-date, we are once again in a solid position to allocate capital opportunistically.

Additionally, last month, we initiated the second phase of our strategic review. Given the nature of the review, we will not be commenting on potential outcomes or time line on this call. The highlights I just covered reflect the momentum we continue to build toward achieving profitable organic growth in the coming years.

Finally, I would like to thank my leadership team and our more than 6,000 team members for their hard work and dedication, which drove our strong second quarter results.

And with that, we will open the call for questions.

[Operator Instructions] Our first question will come from the line of Aaron Kimson with Citizens.

Can you provide some color on the 3 new products Steve and the team are piloting at the bank as well as the decision to start breaking the bank out separately in next year's financials?

Yes. Aaron, thanks for the question. Yes. So -- as we've talked about, it's really important to us that we take advantage of the opportunities that we have at the bank to leverage existing strengths in the company. And there are now 3 pilots that we are -- that Steve and his team are focused on.

The first is extending credit, asset-based lending to certain Presort customers. These are large customers with strong financial health. So we believe there's a low level of risk associated with that. So that's one thing that's up and running that we're evaluating.

A second pertains to our shipping software business. With the post office, they -- unlike the private companies, they don't offer terms of credit to shipping software customers. The one advantage we have vis-a-vis our competitors is that we can offer credit through our bank. So it gives us a real advantage, not just in terms of getting access to attractive loans, but it also is a competitive advantage in trying to go out and win shipping software customers. And then the third one, which is the most recent that we've initiated, ties to the logistics space. And here, we have relationships with a lot of 3PLs. So what we're looking at is, as you know, throughout the logistics supply chain, you have merchants getting products to 3PLs that are using shipping services, transportation companies, and there's a lag effect in terms of payment on all of that.

So one of the things that we're exploring is the opportunity not just to work with 3PLs to extend short-term credit to deal with that, but we're also working to try to work back from the 3PLs into the merchant space to extend credit to those merchants.

And one of the really attractive parts of that is with the 3PLs, we can get information on the actual assets sitting in their facilities so we have some level of understanding of the credit or the underlying assets that would be essentially held against those loans.

So again, all 3 of these are in the pilot stage. We expect to pilot more initiatives, all focused on leveraging our existing relationships. We don't expect all of these to work, but we're taking a very slow approach to each of them. We want to make sure that we don't mis -- repeat the mistakes of the past and move too quickly.

And as I'm sure everybody listening to this call appreciates, lending in the banking industry, there's a lot of problems the company can get into due to the levels of leverage. So we're being very cautious as we explore these, which is why we continue to expect the bank to shrink despite the fact that we're running 3 pilots that we hope we can extend more broadly within the company.

Super detailed. And then secondly, can you help us think about the price and quantity function for the mail exchange program in Presort? Does it make sense to potentially ship volume out of that program given the higher transit costs you're seeing? My understanding is that space is more and more about price than anything else, including delivery time.

Yes. So this is Paul. So on that question, Mail exchange is actually an advantage we have. We have a national network. And so as we look at when we want to sort of maximize the 5-digit discount, what we can do is move it to another location. We can overcome the fuel cost even at these elevated levels and still drive a benefit for our shareholders. So we're not at a point where it doesn't work.

Yes. And Aaron, I would just add to that, we're very long-term focused across all businesses. But within Presort, we see a tremendous opportunity to continue to win customers. And Mail Exchange creates value for our customers.

As Paul mentioned, by moving mail amongst our facilities, we can get to a 5-digit sort faster than competitors. Oftentimes, what you'll see competitors do is sit on mail in order to get it to that 5-digit sort. So it almost seems counterintuitive. But by moving and transporting mail across our facilities, we can get that 5-digit sort, which we pass that discount along to our customers, we're able to get mail to the end user -- the end recipient of that mail faster than our competitors.

So unfortunately, it does create an additional cost for us, but it creates value for our customers. We have a lower overall cost structure. It is hitting us right now, but we're investing in the future of the business. We want to get to growth. And at some point, transportation costs will decline, but we don't want to be shortsighted and overreact to short-term movement in transportation costs.

One moment for our next question and that will come from the line of Jasper Bibb with Truist Securities.

It was a really nice quarter for SendTech margins. I guess could you just talk a little bit more about the drivers there? It seems like still pretty healthy margin expansion on a year-over-year basis, even if you back out the tariff refund and some of the cost cutting.

Yes. I mean, long term, the margins in the mid-30s. Obviously, last year, it was depressed because we were a taker of the tariff. This year, we got a refund of the tariff, so that elevated our margins. So sorry about that. So for what you're doing, I'd say mid-30s is where we see the long run for that.

That makes sense. And then the SendTech revenue declines narrowed again. You also had bookings up year-over-year. I know you don't guide at the segment level, but what does this, I guess, tell us about what SendTech might look like in the second half? And I'm also curious, do you think SendTech revenue would maybe degrowing in the second half, if not for the impact of some of those noncore customer exits you've talked about in the past couple of quarters?

Yes. So I'll take that. Just to start with the end of the question with respect to the noncore customers, we want to be very clear and transparent about that. So there are certain customer contracts that we're losing. These contracts used to be a part of the GEC business. So they're essentially not -- that's why we refer to them as noncore SendTech. And those will have a material impact on revenue as we've expressed.

In terms of the second half, I wish I could say that we're going to get to growth excluding those, but there's a couple of factors working against us. The reality is that we do continue to lose mailing meters. We're making efforts to stem that and reduce the rate at which we lose those, and I'm confident we can make that happen.

And then a second piece as well is with the bank, I touched a bit on this in our letter, for the good -- for the long-term health of the business, we're actually actively shrinking the size of the bank balance sheet by getting out of low-value assets. And this gets again to the risk of banks with leverage. We could go out and buy hundreds of millions or billions of loans and borrow CDs, generate net interest margin, which should -- also comes through the revenue line and getting growth, but that's a really unattractive way to grow.

So we're actively shrinking our least attractive assets to create a healthier balance sheet that as we get to a point where we have these pilot programs, we're originating loans, which are incredibly important in the financial services space, originated loans are way more attractive, better risk-adjusted returns. So we're -- so that's going to create a headwind as well going forward. It's been a headwind all year, but it's, again, the right thing to do for the business long term.

We do think shipping software, we see opportunity for growth there or continued growth. But right now, that's not enough to offset the 2 of them. I think we'll get to revenue growth in SendTech as we get to growth at the bank, assuming we don't break that out, which we've discussed doing and then also as we get shipping software growing.

And then finally, we did address Mailstream on Demand, which is a small product that's growing, and we're investing and trying to accelerate that growth. So that's something that could also start to push growth in the space. But again, that's -- to be quite honest, it's a small business. It's going to take time for that to get big enough to really impact revenue growth. So I don't -- as much as I hate to say it, I don't see growth in the second half in core SendTech.

One moment for our next question. And that will come from the line of Alex Lakritz with Goldman Sachs.

This is George Tong at Goldman. So a quick question following up on the SendTech piece. Can you talk about how quickly the shipping software is growing and how you see the industry level volume declines comparing to that? So in other words, where do you think that crossover happens? It sounds like it's not going to happen in the second half, but is this a 2027 story? Is it likely going to happen beyond next year?

Yes, George, I would say it's more of a 2027 story or even further out. I know everybody is looking for revenue growth at the company, but we have a long history of chasing revenue. It turns out not to be profitable, and we do a lot of ready fire aim. We're now working off the measure twice, cut once approach, which I think is going to be much more successful for the long term and investing for shareholders in the long term.

So with respect to shipping, the shipping space, part of what we're working on now is rationalizing and consolidating our offerings. We have a reasonably sized shipping software business, but we have it spread across, I believe, 5 different software offerings, multiple physical offerings.

And then in addition to that, we have analytics, which I guess would be another offering, tracking another offering. So we just have a lot of offerings. And at our size, trying to invest in all of those just leads to spreading your investments too thin, and we're not picking winners.

So one of the things we're really focused on now is figuring out where do we have our best competitive advantage, where will investment get the best return on assets and where will investment get the -- where will it create the greatest long-term revenue growth opportunity.

So again, right now, to answer your initial question, it's close to breakeven, I think maybe a little above. But again, part of that is due to the fact that we're starting to rationalize the shipping software space. And I think as we get through the process, we expect to get the growth as we're focusing more resources on our best product offerings and service offerings in the space.

That makes sense. And then turning to Presort. Revenue growth there turned positive in June, and you're continuing to target positive volume growth in the third quarter. To what extent would you say the improvement there is being driven by company-specific share gains compared to underlying market trends? And how sustainable would you say that these share gains are as you look into 2027?

I'll start. I think it's an effort from Debbie and her team. I mean we've invested in our sales force. We see a growth in their pipeline, which is always a positive step. We need to see that pipeline turn into backlog, that backlog turn into revenue and that revenue turn into cash. And so there's positive signs there, but I'd say that the efforts are really ours first. And if the industry itself, I don't think we're really benefiting from that.

Kurt, anything you want to add to that?

Yes. No, I would add that over the -- again, we lost a lot of business in the first half of last year. Since that time, we've had very few losses and we've had a lot of wins. So just based on that, we have every reason to believe that we're winning market share and have been over the last year.

It's a slowly declining industry, but fortunately, our aggregate share across marketing mail and first-class mail leaves us with a lot of room to continue to gain share. As we've said a million times, we have the low-cost structure in the industry. We have the highest service levels. I think our Net Promoter Scores are over 90, which is ridiculously high. So we're very well positioned to gain share. And everything we're seeing internally suggests that we are taking share right now.

And our next question will come from the line of Justin Dopierala with Domo Capital.

I was -- you guys were talking about mail exchange earlier and the higher freight costs you're experiencing there. But as investors think about how the majority of your business deals with freight costs, doesn't the USPS reimburse most of these?

They do, but it's on a lag effect. So any increase in transportation costs will show up in their next calculation of costs, which would ultimately flow through to any sort of rate increase, but that wouldn't happen until likely July of next year.

Got it. But it would be something that investors should look forward to going forward?

Correct. Yes.

Okay. And then I was wondering if you could reconcile the headwinds you're expecting in the second half of this year here with the increasing guidance that you gave.

Yes, absolutely. So let me just make a few points. First, I want to highlight that under my leadership, we've always been very transparent about the challenges we face. As an investor, I always was frustrated to hear the good news and never the bad. So we're trying to be incredibly clear about the challenges we face.

And then second of all, I think that the leadership team here as well as the 6,000 employees here have shown an incredible ability to mitigate and reduce the impact of any headwinds we face. And I think our 2025 -- 2025 results reflect that.

And finally, what I'd highlight is we're confident enough in our ability to continue to execute that we did raise a lot of our -- we've raised adjusted EBIT, adjusted EPS, adjusted free cash flow. And that really reflects the fact that some of these headwinds we did expect. And obviously, we didn't expect the transportation costs, but other components of it we knew were coming.

But we have an incredibly dedicated team that's working incredibly hard and execution is outpacing. So despite the headwinds we faced, execution has been even better than the unexpected headwinds.

Got it. And lastly, how should investors think about both the sales and distribution of shares by Hestia?

Yes, happy to answer that. And I'll start by saying I believe this to be true. I think I'm the largest individual shareholder of Pitney Bowes. And these are shares that I bought with my own money. This is my investment in capital. This doesn't come from salary or bonuses from the company. And I think I personally own tens of millions of dollars worth of our stock. And the reason I do that is I believe we can create a lot more value at the company.

With respect to Hestia itself and the shares and distributions, I'd just highlight that it's a deep value investment firm. And since taking our position, the stock has gone from $3 a share to above $18. We've been holding Pitney Bowes shares for years. But there's an agreement and a partnership agreement that addresses as I manage the fund, the manner in which I'll manage that.

So I can still look at something, think it's an incredible investment, but it may not meet the criteria to be an investment at Hestia Capital. So shares by Hestia Capital don't reflect my view. They're more reflective of the agreement between me and my LPs.

And then I would highlight as well, as far as the distributions go, that's one way that I think the last distribution was 1.5 million shares. I took personally over 1 million of those shares. And that's based on my conviction in the company. I'd say that investors can expect future distribution, at least one future distribution, which almost entirely will go to me.

And once again, this just reflects the fact that I personally have tremendous optimism as the CEO of the company and the future of the company, and I want to have exposure to it myself. And I think when it's all said and done, my personal exposure to Pitney Bowes conceivably could be higher at the end of that than it was 6 months ago.

So I understand there is some concern that the investment firm I manage is selling or distributing shares, but I just, again, highlight that as the CEO of the company as an individual, I'm increasing my exposure to the company. And hopefully, that's reassuring to shareholders.

And our next question will come from the line of Anthony Lebiedzinski with Sidoti.

Certainly nice to see the better-than-expected results, especially at SendTech. So Kurt, one of the things that you pointed out in your shareholder letter is that you're improving your sales execution. Maybe if you could share with us some examples of what you're doing differently now to improve that? And how do you see that going forward as far as your ability to improve SendTech?

Yes. So I can give quite a few. There are quite a few. I'll just limit to a couple. One is, historically, we had very poor sales support. So our salespeople were spending 50% plus of their time servicing customers as opposed to going out and hunting. So Todd has done a tremendous job of building out sales support so that the salespeople have more time to actively sell.

And just as an aside, this is something I think is really important to note that it hasn't come up in any of the Q&A. But as we continue to forecast, we are investing in growth. And when I say investing, I don't mean CapEx, I mean OpEx. So our improved results reflect an increased expense level on trying to grow and hopefully growing the business. So it just speaks even more to the efficiencies and performance of the team and delivering for shareholders. So that's one example.

Another is that we've had very little to no integration between enterprise sales. So the example I gave before of offering bank credit to SendTech customers would be one example of crossover sale.

But more important, another example would be between Presort and SendTech. There's a lot of opportunities there. We can have customers that could be tied to both. Our Mailstream on Demand is considered a part of SendTech, but it involves Presort quite a bit, and there was very little coordination. We're now coordinating more there.

And yet -- and again, I could go on for a while, but one last example is we have a new business group that's sort of going out to untouched land within SendTech or places that we don't have -- an example would be we have a government group because we have a lot of government business, but we have a group specifically targeting sort of areas that we historically have not competed.

And there, Todd has done a lot to bring to overhaul the sales team itself to get the right talent for that type of sales. And it's shown up in the results. It's part of the reason that our sales figures have improved is that group historically has significantly underperformed budget and targets, and now they're at and above budgets pretty regularly. So it's been a big change.

And again, it's -- what's great about that is that's areas that we typically did not necessarily have a presence. So it's sort of opening new addressable market for us. So that would just be 3 examples I'd point to.

That's very helpful color. And then just switching to Presort. Just wondering if you could share maybe more details about the impact of higher fuel costs that you had in the second quarter. And as far as your implied guidance for the second half, we obviously saw a big spike in fuel costs, and there was some easing and then here as of last week or 2, we've seen an uptick again in fuel costs as well. So maybe if you could comment on that? And what actions are you taking to help to mitigate these costs? And lastly -- yes.

[indiscernible].

Yes. So Q2, I think, is around $6 million, the impact to us of elevated fuel costs. We rely on rolling stock. So we're not unlike a lot of companies out there that are facing the challenges with the conflict with Iran.

But I think second half of the year, we're going to keep -- we expect elevated fuel costs. I mean we're doing things -- I don't want to go deep into our playbook on how to mitigate that, how to reduce the impact. Obviously, the other part of it is there has been a change in with the administration on CDL drivers. And so there's been a loss of those in the system. And so we were impacted by that, not unlike a lot of others who rely on rolling stock. So again, we expect elevated costs there.

The other side of it is we see a healthy growth in our pipeline. Our sales force is doing a great job. And so we continue to see -- we expect further increases in our volumes. And again, Debbie's team is doing a great job in running the business efficiently. So we have this headwind of fuel costs. We have this headwind of the loss of CDL drivers. But all that being said, as Kurt mentioned before, despite all that, we still raised our EPS, EBIT and free cash flow guidance on an adjusted basis.

[Operator Instructions] Our next question will come from the line of Kartik Mehta with Northcoast Research.

Good morning, Kartik.

If you're on mute, please unmute your line. Your line is open.

Kartik, are you there?

Yes. Can you hear me?

Now we can. Kartik, we can't hear you. Well if you can hear us, Kartik, we'll have a follow-up call. We can talk to you then. I don't want to make everybody wait here. So I hope you don't mind. We'll -- I think is that our last question, I believe so. Okay.

Yes. I do believe that is our last question. I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Kurt Wolf for any closing remarks.

Yes. Thank you, operator. Yes, I'd just like to close by acknowledging the recent passage of George Harvey for everybody's knowledge. He led the company from 1983 to 1997, which was a period of tremendous value creation for shareholders. And I think what really stood out about Mr. Harvey was he did this by really focusing on culture and sometimes people take it as cliche, but I think it's a very apt business saying, and that is that culture eats strategy for breakfast.

And as an ex-consultant, it's been inside numerous companies, I've seen it firsthand. And one thing that has really stood out to me at Pitney Bowes is the strength of the culture here. And I think that Mr. Harvey really built a lot of the culture that's leading to the success we have today. So I guess I'd just like to thank him for his contributions.

And again, just highlight for all shareholders listening right now that I can't emphasize enough the winning culture that we have here at Pitney Bowes, particularly as it pertains to the level of focus on team, the willingness to sacrifice on behalf of the company is something that's truly extraordinary. It's one of the reasons I'm so invested in the company is I do believe the culture plays a huge role.

And I think every shareholder listening right now should feel encouraged by the 6,000-plus employees at this company and their dedication and hard work on your behalf and the behalf of the company. So a tip of the hat to Mr. Harvey. And with that, I appreciate everybody for tuning in. Thank you all.

This concludes today's program. Thank you all for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 Pitney Bowes, Inc. Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Brown, Director of Investor Relations and Assistant Treasurer. 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 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 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 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 today. As reflected in our earnings release, first quarter results were strong and broad-based. Our results and outlook reflects momentum in the business and supported the upping of our guidance.

SendTech performed well in the quarter and is showing potential signs of turning the corner on sales. Presort continues to win business and build sales momentum. We continue to expect growth to return to the business in the third quarter.

Turning to Pitney Bowes Bank. Steve and his team are making rapid progress with respect to operational improvements and in identifying value-driving opportunities. Additionally, we've delivered significant shareholder value through our capital allocation policy, including dividend increases and significant share repurchases.

Finally, we have started interviewing advisers for the second stage of our strategic review. In summary, Pitney Bowes is extremely well positioned for the long term. In closing, I feel obliged to send out a special thank you to the over 6,000 Pitney Bowes team members. Our results are a direct reflection of their talent and dedication to the company.

With that, let's open the call for questions.

[Operator Instructions] Our first question comes from Jasper Bibb with Truist Securities.

Can you talk about the consolidation opportunity in Presort? The letter this quarter mentioned hiring Greenhill to evaluate opportunities there historically. I think a lot of your acquisitions in that business has been pretty much mom-and-pops, which I imagine you can handle internally without having to have an investment bank involved. So I guess does hiring Greenhill signal any change there that you would potentially consider larger acquisitions in that segment or you're approaching the consolidation opportunity any differently than you have in the past?

Yes. Jasper, thanks for joining us, and thanks for the question. With respect to the Presort acquisition, we've been talking about that for quite a bit in terms of being a real strategy for us. As we've mentioned, there's great opportunity to create value. So yes, we can go out and pursue these opportunities on our own. But just having an outside adviser really can help accelerate that. We have a team that's heavily dedicated on execution within the business, but having dedicated resources to really accelerate those discussions can only help.

And with respect to size of the acquisition, the sweet spot really is quite frequently the smaller mom-and-pop type Presort opportunities. But again, as we continue to progress, get better at running our business, we want to look at all opportunities to really create value for the business. And as we've said so many times before, these deals typically come at a pretty low multiple or immediately accretive to the business. So as our capital position gets better, as our balance sheet gets stronger, it starts to open up additional opportunities, but we're primarily focused on trying to find some of these smaller tuck-in acquisitions that we can pursue.

And then a really nice quarter for SendTech. Can you maybe just talk about what worked this quarter, how you see that business trending over the balance of the year? And in your guidance scenario, do you think SendTech could potentially flatten out on the year-over-year revenue growth or maybe even grow by the end of the year and what gets you there?

Yes. And Jasper, we don't want to get ahead of ourselves. But I'll just start by pointing out or answering the part of your question of what's working. And Todd and his team are doing a fantastic job as reflected in our results. And I'd highlight sort of 2 categories and then a few points under each. So with respect to our meters business, I think there's been a level of perhaps neglect in terms of focusing on slowing the rate of decline.

We're not delusional about the future of mail, but there's still a lot we can be doing. So there's 3 areas of focus that Todd and his team have been really digging into that are helping us slow that rate of decline.

One, we're starting to look -- historically, we've handled virtually all cancellations as a processing issue, not as a retention issue. So we're putting a lot more -- so historically, if somebody asked to cancel their meter, we processed it and that was the end of it. We're now switching to when those requests come in, doing outreach to try to figure out can we save that customer, what can we do to make sure they're getting the most value out of the meter and make them hopefully reconsider the decision. Second of all, one of the things we're looking at is predictive analytics. So what we're doing now is trying to -- it's one thing to try to save somebody when they decided to leave. We're putting a lot of work into understanding what are the metrics, what are the signs that a customer is at risk and trying to proactively get to those customers, figure out can we offer them a better solution in advance, figure out how they can get more value out of their meter, which we expect to reduce the rate of cancellations.

And then finally, we're refocusing on customer acquisition. Historically, we've been so focused on GEC and other parts of the business that I don't know that we put enough effort into our actual sales effort. We believe we have the best products, best services in the space. We're proud of it, and we should be out talking to the market more about it. So Todd and his team are really focusing on go-to-market strategies there.

The real opportunity for growth comes from the shipping software side. And there, again, there's 3 things we're really doing. One is we're narrowing and simplifying our offerings. Right now, we offer a high number of shipping software solutions, which I think can create some confusion in the market. It also limits our ability to optimize those offerings. So we're putting a lot of effort into narrowing our product base and improving those products for our customers to help accelerate growth.

Second of all, Pitney Bowes has a proud tradition of product innovation and technology development, and that's somewhat driven our product development within shipping software. So often, we would look at what's a really cool technology we could implement in the shipping software space. And we've turned and then figure out what customers want that. We're flipping that on its head and figuring out what do our customers want and how do we meet that need.

And then finally, and this will become more apparent in coming quarters, we're using the bank as a differentiator in the shipping software space. So financing is -- can be pretty important in the shipping software space. There's a lot of cash that flows through that business and being the only player out there with a bank gives us real opportunities to offer products and services to customers that our competitors simply can't. So I guess put that all together, those -- that's the progress we're making in terms of when we get to growth. I think we've made a lot of promises in the past and not be able to deliver. And we and our team, I keep emphasizing, let's focus on getting things right day-to-day and the future will take care of itself. So I believe that day is coming, but we'll update as we get closer to that date.

That all makes a lot of sense. Maybe last one for me. It sounded like a good quarter for net new business in Presort. I think the letter mentioned you think volumes might get back to growth in the back half of the year. I guess just on that comment, can you piece out maybe how much of that is net new business wins and incremental volume that you won versus, I guess, lapping the customer losses in the prior year.

Yes. So Paul, I know you've done a lot of work on that. Do you want to take that one?

On Presort, yes, look, we are -- we've stopped the losses, and we're picking up wins, and we're obviously filling our pipeline, which is the right thing. And I think as we get into the latter half of the year, we should start to see some positive momentum again in Presort.

Our next question comes from Aaron Kimson with Citizens.

Can you help us think about the drivers of the strong 1Q free cash flow of $43.5 million? I think the consensus before you preannounced on April 21 was a $14 million outflow, so call it a $57.5 million delta to the upside. And then is there a signal investors should be taking away about the durability of free cash flow between years given that cash flow can vary quarter-to-quarter, but you followed up a strong 4Q '25 number with a strong 1Q 2.6 number?

Aaron, this is Paul. Thanks for the question. Yes, look, we had good working capital management in Q1, better than I would have originally thought. And so that was a good thing. And you are right to point out it was strong in Q4. But at the end of the day, we don't totally control all aspects of when our Presort customers prepay. So obviously, we benefit from that, and we used it to improve our operating performance. But yes, overall, solid operating performance, Q4, Q1 and just good working capital management are the reasons.

And yes, absolutely, I think there's durability in our free cash flow. I mean we've -- Kurt and I have both said for many times that we're undervalued stock if you believe in the free cash flow. And obviously, the durability is sort of proving itself out.

And Aaron, just to add to that, the way that we're really looking at it in your question about durability, Q4 was obviously an incredibly strong quarter for cash flow. And there was a little bit of concern on our part that, as you mentioned, with working capital, there could have been a pull-forward effect of cash flow that maybe would have normally come in Q1 got pushed into Q4. But with the strength we saw in Q1, there's 2 real takeaways. One, it makes us more confident that our Q4 cash flow was a real number, not an artificially impacted number by the pull forward of cash. And then secondarily, the strength of Q1 also gives us a lot of optimism for the current year.

This is the first positive free cash flow quarter we've had in quite a few years. But we're trying to be a little conservative on the guidance side. This is a whole new world for us in terms of the strength we're seeing in our cash flow. We like to think it's durable and it will lead to a strong '26, but we're trying to be a little bit conservative on the cash flow side just in case there was a pull-forward effect into Q4 and Q1.

Okay. That's helpful. And then bigger picture, Kurt, this has been a great story since you formally stepped into the CEO seat from the Board almost a year ago now. stock close to $15.54 yesterday versus $910 before you came down from the Board and officially took over. What's the one thing you're most proud of over the last year and then maybe something that's proven harder than you thought it would have been initially that you're hoping to get right in the remaining 2/3 of '26?

Yes. So in terms of thing I'm most proud of, I'd really say the employees have

Pitney Bowes. We have over 6,000 team members. I'm an ex-consultant. I've been in start-ups work inside of more than a dozen companies. And one thing that impressed me even before joining the Board and before the proxy campaign, it's just evident how dedicated the employees are to the company. I think maybe they needed better guidance and leadership, but the commitment is there. And I think it's a Peter Drucker saying that culture eats strategy for lunch. and the culture of Pitney Bowes is incredibly strong. So just seeing the ability of employees to stay focused on execution, remain committed to the transformation despite not having maybe the clarity they might want in terms of strategy. I think the way to run a business is to fix what you have and then figure out how to grow from there for a company in our situation. That can be incredibly hard on employees, and they've performed admirably. So that's certainly been the thing I've been most proud of.

As far as the biggest challenge, I would just point to our forecasting that it's always difficult as a CEO to come out, reiterate guidance and then miss. I think that highlighted some of the problems we had in terms of forecasting within the business. Paul and his team have done an incredible job over the past few months to really improve our ability to forecast, and there's been a silver lining to it. to get better at forecasting. It's really forced the team to dig into the nuts and bolts of the business to get down into the weeds. And as we do that, we're learning a lot about the business and helping us make better decisions on a go-forward basis. So...

Our next question comes from George Tong with Goldman Sachs.

On Presort, you're now competitively priced versus peers and are starting to win back market share. Can you elaborate on the near-term and then longer-term strategies you have to drive a further revenue recovery from both a product and sales perspective?

Yes. And Paul, do you want to take this one as well? I know you put a lot of work on the Presort side of things.

Yes. Look, I mean, obviously, it's important for us to know our cost in Presort. And so we have an advantage given we're the low-cost provider. And so we can sort of flex that muscle if we so choose to do that. But what we're seeing is Debbie and her team are doing a great job in the new sales team of building up our pipeline. And so that in part is one of the reasons that led us to take actions on our guidance where we increased the lower end and in some places, raised the upper end. But so we know our costs. We know where our position is. We've done a good job of stemming the losses, picking up some wins, and I see momentum picking up. Kurt, anything you want to add to that?

Yes. I would just say, George, I think you've known our company for quite some time. looking back with GEC, there was such a focus on generating cash flow from the core businesses to fuel the growth of GEC that I would say that SendTech and Presort were really starved of resources. And Debbie and her team have done a fantastic job. We've opened up the purse strings to allow Debbie to invest in new capital, get more aggressive on pricing. So rather than focusing on how do we maximize free cash flow tomorrow, how do we maximize long-term free cash flow.

And if you think about it, it's not just on the revenue side, it's also on the cost side. Sometimes you have to spend money to save money. So a lot of things we could do to improve efficiency require resources to evaluate to look into, and those weren't there for Debbie in the past. So I think we'll continue to get more efficient. Our cost advantage should grow over time. And as Paul said, just gives us more ability to price aggressively win more business. And it's -- there's a bit of a flywheel effect the bigger we get, the more profitable we get on a per piece basis.

And George, the only other part to that is, obviously, we're in a great liquidity position these days. So we can now sort of look at acquisition opportunities. And Kurt mentioned that in his letter about that. So inorganic growth and also organic growth.

Our next question comes from Anthony Lebiedzinski with Sidoti.

Certainly, it was nice to see the SendTech business down only less than 1%, so quite an achievement there. Can you comment on the number of paid software subscribers that you talked about in the press release and how that contributed to Q1 and your increased guidance? And also, you talked about booking sales also up in Q1 and Q2. If you could comment on that as well. And then I have one other question about the SendTech as well.

Yes. Do you want to take that, Paul?

Yes. So your first -- let's talk about bookings. As we see -- we're seeing growth in our pipeline and the sales teams where they are, their quotas, they're achieving targets that we set out for them. So again, reason why we did what we did on guidance. We're seeing positive momentum there.

As far as the subscriptions, I mean, we are seeing we are seeing better enterprise subscriptions. I don't know if we actually give the exact number if we've ever given that out, but the reason we have better sales subscription, paid subscription is our sales team is performing. That's what it is. So one is really linked to the other. But I don't -- again, I don't want to be evasive on you, Anthony, but I don't think we've ever given out exact paid subscription numbers. that we should -- it's something maybe we'll consider putting on our investor website at some point. But let us think about that. Kurt, do you want to add to that?

Yes. Yes, Anthony, a couple of things I'd add as well. I think we put in our release, this is the first year that bookings were up year-over-year. In terms of impact on the quarter, one thing important to understand about our shipping software business and our meter business as well, we have equipment sales upfront onetime revenue. We also have what we call stream revenue, think of it as SaaS or recurring revenue. That's discounts on shipping labels, et cetera.

So whenever you see strong sales and bookings like we saw in Q1, it certainly helps revenue. But one of the encouraging part is we do get that stream revenue that's going to help us in future quarters. So that's been really encouraging. And going back to the previous question about what you're proud of, what's really driving it is Todd has reignited the sales organization, the go-to-market strategy. And just one anecdote that I personally love is we had our Winners Circle conference down in Florida -- Fort Lauderdale recently, and it was all the top salespeople across the organization. And it was in a big hotel that hosts all sorts of conferences. And coming out of that conference, there's multiple companies there. We had one of our salespeople go over the conference right next to us, start talking to people, find out what it is they did, got in touch with some of the leadership there, started pitching our solution, and we have a sales lead coming out of that.

So that type of initiative hasn't always been there with us, but we've gotten incredibly aggressive in our go-to-market. And just -- and again, just the energy and the enthusiasm is great to see. So it's very encouraging. We're getting better at our developing products, and we're getting a lot better in go-to-market strategies, and we're also getting a lot more aggressive. So more to come, but it's an encouraging sign. And again, it's showing up in our results.

That's great to hear. And then, Kurt, in your shareholder letter, you did say that you could experience some onetime headwinds later in the year for SendTech. What did you mean by that? Maybe if you can elaborate on that?

Yes. So without going into too much detail, it does pertain to customers that we work with. What I'd say is when you really think about the core of our business within SendTech, it's the meters and shipping software. We do have some related businesses that are, I would call noncore. Some of them get into things like fulfillment, and they're not really central to what our business is. And just the reality is it's not a core business to us. And over time, we expect those to go away. So there's certainly the potential in the second half. We have one customer in particular that the volumes decline almost quarterly, and that could pick up in the second half of the year.

So unfortunately, it will create a headwind, but it doesn't reflect on the overall health of the core business. So we just want to be cognizant. And that may not come to pass, but we just want to be very transparent with investors about some things that might be coming down the pipe.

Got you. Okay. And then last question for me. So a few weeks ago, you guys announced a partnership or collaboration with Temu. Can you just comment maybe on that? And what have you seen thus far? Could we see additional partnerships like this being announced by the company?

Yes. And we don't want to get too much into the weeds on our customer relationships with any particular customer. But again, this is something that we're really focused on, and it's figuring out how do we make the most of the assets we have. So we've looked into ways to offer banking services to customers. We've looked at all sorts of ways trying to think creatively about with our unique set of assets, how we can do that. So what you're discussing is more of what I'd call sort of a beta test where we're trying to figure out, is this something that will work -- we don't want to lean too heavily into it. We'll see how that particular deal works out. And if we have success there, we'll certainly try to spread it throughout the organization.

So I would just say it's just a little bit too early to talk more about that. But maybe in a future call, assuming we have success, we can have a forward discussion on that.

Our next question comes from Kartik Mehta with Northcoast Research.

Kurt, you talked about potentially adding -- I don't want to use this word, but adding maybe another business line to SendTech to help the growth profile of that business and being a complementary business. I'm wondering if you have any more thoughts on that? And if that would be something that's small or something that you're thinking that would be bigger that could actually change the trajectory of that business?

Yes. And Kartik, I apologize. So is this from the letter or this previous calls that we've talked about adding.

Yes. Just -- I think we've had previous conversations where I think SendTech has an opportunity to maybe use some of the strength of that business and if it's possible to maybe add another business line or maybe that's too big of a word, but add another business to help that.

Got it. Yes. I guess the easiest thing that I can point to that we've discussed publicly really relies on the bank. So a lot of -- as you can imagine, if you're an e-commerce company producing a tremendous amount of shipping labels, there's a lot of outflow of cash. And so obviously, we don't want to expose ourselves to undesirable credit risk, but we can really -- by extending credit to those customers, if they're creditworthy, it can be -- we have a strong balance sheet, a lot of access to capital with the bank. We have access to brokered CDs and low cost of capital. So it's a way to essentially take advantage of our low cost of capital in the bank. to profit by improving opportunities for our customers that have a significantly higher cost of capital.

So that would just be one example of a real opportunity for us. And again, just -- I can't emphasize it enough because I don't feel like we get appropriate value for the bank that we have. Our borrowing rate at the bank is on deposits is incredibly low. And again, we have access to brokered CDs, which is well below the cost of capital for any of our competitors.

So it's a really unique asset we have. And you'll see over time with Steve and his team ramping up some of the value we can create out of the bank, not just through the bank, but also for our customers and other businesses.

Yes. No, I think the bank is a pretty big asset and probably an area you can leverage a lot more. And then, Kurt, just on cost cutting, you've done a great job reducing the cost of the business. And it seems like from your commentary in sales, sales hasn't suffered. One of the biggest issues or questions comes up is, is the company cutting too much cost? And is it going to hurt the eventual long-term prospects of the company? I'm wondering how you're managing the cost cutting to make sure that the true meat of the company doesn't get hurt.

Yes. Why don't I let Paul take that. Obviously, he's integral to what we're doing on the cost side, but I think he can answer that question.

Yes. So Kartik, I mean, obviously, we're -- the initial round of cuts that's more like blunt force, but we've been very surgical in how we do cuts going forward. Obviously, we don't want to cut into our muscles. We've got muscles to flex. But I don't think that our costs are such that it's going to impact our ability to grow this business in the future. I spend a lot of time here in the office. And so I live through this as does Kurt. And so we're very mindful of that, not to overcut this such that this company doesn't have a viable future going forward.

So -- and the bigger point is, initially, it was -- and as it always -- a lot of times it happens, you bring in a consulting firm to do this. This last round of cuts. This is all management led. So we were very refined on how we did that. And to this point, we're seeing positive results.

Kartik, just a couple of things to add as well. Contrary -- I would almost say our experience has been a little bit different than the concept of your question. And a great example I'd point to -- and first of all, just for some context, a lot of our focus has been employee focused. We've gone through some painful risks, which has been really hard on the team. But we're of the mindset that at this point, we have -- hopefully, that's not something that's a part of our future.

But associated with those risks, not only have we not cut into muscle, but we're a 105-year-old company. So we've had some processes in place that have been what they've been for 20, 30, 40 years. And as we've made some changes, people stepped up into new roles had to learn those roles. Just as one example, within HR, we elevated somebody who's looking at benefits and having to get up to speed on our benefits plans, that person is taking a whole new look at them. And they've identified north of $1 million of just low-hanging fruit that we can take out of the business from third-party spend, and that was a direct result of bringing somebody new into the chair as a result of the cuts we've had. So in a way, these cuts are leading to new thinking within the business and are leading to better outcomes rather than worse.

Our next question comes from Justin Dopierala with Domo Capital.

There's -- on your pre-release, there seemed to be some confusion regarding the pension expenses. And I'd say also some even skepticism about whether or not you actually raised guidance. And I was just wondering if you could provide some clarity on that.

Yes. No, I can address that. We absolutely did raise guidance. And then -- but we further refined our thoughts on how we treat -- how we sort of take pension out of our numbers. I mean it's true that we've annuitized our U.S. and Canadian pensions very successfully, and now we're turning our attention to a few other ones. And what we've decided on is we need a triggering event. And when we have that triggering event, then we'll back that out of our adjusted numbers.

And so if you didn't have that, then our guidance would have gone up even more. So what you're seeing is we're erring on the side of conservatism. There's many examples out there of companies backing out all legacy pensions. We decided we're going to tie it to a triggering event. So...

And just to be clear, I don't know if the genesis of your question, Justin, to put a very fine point on it, Value Investor Club, other places, we've seen comments that, hey, this pension issue actually was artificially made things look better, and it's quite the opposite. So our guidance would have been stronger were it not for this change. So I think some of those investors, presumably shorts have the story backwards.

Perfect. Makes a lot of sense. And then lastly, Kurt, reading your CEO letter at the very end, there seem to be to me a shift in tone perhaps or emphasis and at least regarding debt. And it seemed to be -- I don't know, the way I read it, it sounded like we should be expecting some more material payments on reducing leverage. And I guess if you could just maybe provide your thoughts on that.

Yes. And I'll give a quick answer, and Paul, obviously, is the guy to give the more detailed answer. But obviously, we have a fiduciary duty to do what's in the best interest of our shareholders. At the same time, part of doing that is we have partners in our lenders, whether it's banks or debt holders. So our obligation is to our shareholders, but a part of that obligation is to make sure we have a good relationship with our debt holders. So we've done a lot for our shareholder. We think it's appropriate to derisk for the lenders to make sure that they want to continue to work with us and be a lender to us.

And specific to delevering, we're in a really strong financial position. We have the '27s coming up. We have cash and liquidity to take that out. And our expectation would be within the next couple of months that we should be able to pay off the 27s without having to issue any additional debt. But I think Paul can give a better answer to the broader issue.

Yes. I mean, look, just to sort of add to what Kurt said, obviously, we have a duty to our shareholders. It was the best course of action to do the share buybacks in the manner of which we did. Now we shift to other aspects. Obviously, we desire to have improved credit ratings, and so we're working on that. With improved credit ratings is obviously a goal to delever the company. I've said to keep our net debt to EBITDA around 3 or slightly lower than that. And so that's just our next focus area. And obviously, the most prompt thing we have, which is current to us is our '27s. And as Kurt said, between cash and liquidity and other tools that our banking partners have out there, we're going to address that in the next few months. So we need to get this company back to the right appropriate leverage, and that's our focus.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Kurt for any further remarks.

Great. Thank you. Yes, everybody, thank you for joining us. Again, I can't be more excited about the performance of the business. It was a great quarter for us. We had a lot of progress that makes us optimistic about the coming quarters and years. And I would just like to say a thank you to, first of all, our shareholders for the trust you put in us. We work hard every day to try to deliver value for you. I think we're doing a pretty good job so far, and I think there's a lot of good things to come.

Second, a big thank you to the employees, as I've said before, this truly is an exceptional set of employees at this company. The dedication to the company is phenomenal, and I can't thank all of them enough for the hard work they put in.

And then finally, a thank you as well to our customers. They're incredibly important partners to us, and we strive every day to do a better, better job for them. And just appreciate the trust they put in us, and we continue to drive value for them and look forward to continued business with them in the future. So thank you, everybody, for joining and look forward to next quarter's call.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

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.

Thank you for participating. You may now disconnect.

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" Northcoast Research Partners, LLC

" Robert W. Baird & Co. Incorporated, Research Division

" Sidoti & Company, LLC

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" Domo Capital Management, Llc

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, Investor Relations, Alex Brown. [Operator Instructions].

Please be advised that today's conference is being recorded. It is now my pleasure to turn the call over to Director, 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 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 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 only continues to grow stronger. With that, let's open the call for questions.

[Operator Instructions]. Our first question comes from the line of 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 of 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 -- but again, one of the big focus 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 -- we have no illusions about the fact that the space is declining, but I think there's 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 -- became significantly improved 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 6 months ago, a year ago, we were saying they 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 [indiscernible]

And our next question is from Anthony Lebiedzinski with Sidoti.

First, just wondering if you guys could maybe just comment -- just curious about the cadence of revenue as you went from July through September, -- were there any variation? I know, Kurt, you talked about the -- some flaws in your forecasting. So just wondering if there was any big variations from month-to-month as you went through the quarter in both of your segments.

Yes. So Anthony, I appreciate the question. No, there's been nothing really that stood out from a month-to-month variance. What really -- the first indication we had is what we're seeing internally, the business is operating well. As an example, within Presort, I believe we've not lost a single customer since June, and we've been picking up businesses -- our business. So as we were progressing through the quarter, it did become a point of question of how are we operating well and not getting the financial results we were looking at. At that point, Paul and I got heavily involved, started to dig into the processes involved with forecasting, identified some process issues, some -- you're an analyst, you do forecasting yourself. There's just a lot that goes into it, particularly when you're at a company.

We have access to tremendous amounts of data. Just understanding how we were processing data, assumptions we are making, et cetera. So we've -- so that sort of is what brought it up. It wasn't any sort of monthly variation. It just was the fact that the business is performing well and the financials weren't going as expected relative to budget. So when the operations are doing as well as you expect and the financials aren't quite as strong as you expect, there's clearly an issue with our forecasting. And I can assure you, Paul and I are very serious about this. We both stepped in. This has been a problem that's plagued the company for far too long during '22 and '23. It was something that I talked quite publicly about the problems of forecasting, and it's something that I've now been able to come to understand what the issues are, and we are taking this very seriously. We brought in outside help on it, and we're doing a lot internally to fix this once and for all so that we can be much more accurate in our forecasting.

And again, this isn't just about providing guidance. This is we need to make significant investment decisions, business decisions. And if we don't have incredibly accurate data, we're going to end up making worse decisions. So it's unfortunate that we had this issue with our forecasting, but it's emblematic of what we're doing within the organization. We continue to identify issues. We aggressively get after them, fix them, and it makes us a better company for it. So it's frustrating to once again not be able to give great news on the forecasting front like we might have hoped for, but I think we're a better business as we continue to uncover these issues.

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 take that question. So I think that assumption right there, and that's one thing that Kurt and I really dug into numbers and we looked at the budget that was the basis of our forecast. The one, it wasn't anticipated that how our competitors would use the sort of, if I can call it a premium on the rate case to sort of go take share from us, and they bought that share. And then obviously, how long does it take to get that back. And so that's -- well, it will come back to us. It hasn't come back to us yet, but we're aggressively going after it. So there's a lapse in time, you lose it, they get with somebody else for a while. We go back in, what can we do better and then there's a bidding opportunity. And so -- and we're close on some to take it back. So I think I'm optimistic about the volumes for Presort next year.

Okay. That's good to hear. And then thinking about the new cost cuts, the $50 million to $60 million that you talked about, will that -- will those be mostly through corporate unallocated? Or will that flow through the different segments? Just maybe help us understand how to model those cost cuts.

Sure. I mean it's across the company. So some of them are in the -- for your model in the G&A level, some sort of hit higher up. But we went across all Kurt's leaders looked at that. And so it was really a management-led effort to refine our costs. And through that, we identified some very good opportunities. Look, we'll get to the point where we're always going to look to drive cost out of our business that every healthy company should do that. And this one, I'm new to the role. Kurt is relatively new to the role. He's got a whole new -- relatively speaking, new leadership team. So we challenged everybody as operators to look at what you have and what do we really need really going forward. And so that's what you're seeing here. And these benefits should be all realized by the end of '26.

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 accretive that we're always looking at them. And by the way, as I said, that's sort of one of the signs that we're seeing that the pricing is really affecting players in the market is the fact that 9 months ago, none of these players -- none of the players had any interest in selling, and we're starting to get inbound calls from people that are looking to potentially sell their business. So it's -- and we're always in the market to make these acquisitions. They just drop to the bottom line. And again, it's one of the frustrations over the volume that we did lose. This is a high fixed cost business in the short term. So losing the volumes that we did, the amount of the profitability that we lost by not retaining those customers was pretty dramatic. So bringing in these new -- if we do make acquisitions, the degree to which revenue drops to the bottom line, particularly given that we now have a little of excess capacity in our facilities is just incredibly high. So we're absolutely in the market 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. Yes, Aaron, welcome to the call, and thank you for joining. Yes, as far as the leadership team goes, I'm incredibly happy with the -- as Paul mentioned, I have 7 direct reports. incredibly happy with the team we have. It's the right people. Those who are bought into the level of accountability and drive for excellence that we expect of everybody at this organization. Anybody who wasn't bought into that's no longer with the company, at least within the executive team and everybody who is here is 100% bought in. And as you can imagine, anything starts from the top down. So we have the right leadership team. That leadership team -- and by the way, that informed the $50 million to $60 million in cost cuts after I was -- as I work through this process myself, Paul and the rest of the leadership team did the same within their organization.

And I think it's really important to highlight that previous cost cuts were an effort by -- largely driven by outside consultants to say, here's an opportunity to reduce costs. This wasn't an effort to reduce cost. This was an effort to get better as a business. This is leaders that are restructuring their organizations I could go division by division, but almost every corporate function and almost -- and business unit has changed their organizational structure to better meet the needs of the business. Within that, they've addressed what processes -- they're addressing what processes don't we need to do and how can we be better on a go-forward basis. So that's really what has driven the $50 million to $60 million of cost cuts. It was not the pursuit of cost cuts per se, but just the -- this effort being pushed down the organization. And again, I feel incredibly fortunate to have the leadership team that I do that's doing such an excellent job of it. I think we have stability within the leadership team. And as they're working with their group, I think stability is developing the next years down.

And I would say just as a general comment about Pitney Bowes, I maybe say this too much, but I can't emphasize enough as a shareholder how happy everybody should be with the employees that represent the company that you're an investor in. We've made a lot of changes in the last 18 months, a lot of cost cuts, a lot of challenge to these employees. And everybody shows up with a good attitude every day. Everybody asks what more they can do to help this company. So I know there's been a lot of change. But what I would say is I don't think there's any change needed in terms of the bulk of the employees at the company. We have a great employee base, do a great job. So I think they provide stability even as we've been changing some of the 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 or?

Yes, absolutely. And yes, so GFS is not its own business unit. It was a loosely organ -- is like I don't even know what you want to call it. It was a part of our structure. And things financial would go through GFS. So you'd have situations and things like this would come up where we would -- so as SendTech would try to sell a meter, GFS would ultimately have approval over the actual credit, the -- because we're leasing these meters, if we were offering them purchase power for revolving credit to use that meter, that was all through GFS. And so what could end up happening is if GFS' attitude was we don't want any credit loss, and SendTech saying this is an incredibly lucrative deal. You had 2 peers essentially looking at each other in a standoff saying we're not willing to -- they created issues. So what we've done is SendTech, ultimately, GFS was reporting through SendTech financially. So Todd now owns SendTech. -- all the credit decision, if something is going on to the SendTech balance sheet, for lack of a better word, the approval of that, it's a business decision by Todd that he can evaluate what's the opportunity in the sale and what's the credit risk before those 2 decisions were differentiated. So it led to incredibly low credit losses in the past, but it also led to a lot of failed sales that would have been profitable. And it's led to a lot of a lot of difficulty in the sales process. So what should be a very seamless customer experience became incredibly difficult going through 2 different organizations that were focused on different aspects of a deal. So it was just -- it was unworkable. It just was really incredibly inefficient.

So hopefully, that gives you just one example of a problem that would arise.

Yes. Aaron, if I could say what it's really -- and somebody pointed this out to me, it's analogous to we were selling the car and also the gas. And so we were okay to sell the car. But then when it came to sell them the gas, the other side said, we don't think they're creditworthy to sell them gas. And that really hit home with me. And so obviously, that inefficiency, that decision now that rests in Todd's world. It doesn't mean that we're going to lower standards that we want to take on excess counterparty credit risk. We won't do that. We'll still be rigor, but we're not going to let this misalignment of interest stop us from servicing a customer.

And not to over harp on this point, but at one point, and this is after we were already trying to fix the problem. I received an e-mail from a customer that had bought multiple meters from us that was complaining that they could not use their meter because they weren't getting approved for the use of purchase power. So I mean it just doesn't make -- it just was really -- and that's what I mean in terms of this opportunity in mailing. We have the best product. We have the best services. We have -- we're peerless in every way, but we are creating a nightmare for our customers. And again, that's what I'm driving at is a lot of this restructuring we're doing is trying to get better as a business and the $50 million to $60 million of savings is a side 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 maybe 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?

So okay. So here's what happens. I mean, once you overcome your fixed cost in that business is high-volume business, and you recognize that your labor has a capacity, you can sort of sweat them. Any additional throughput you have from that really is just profit in large part, it just falls to the bottom line. So a decline in that sort of -- that part of the stack will sort of have a direct impact to your EBIT. So it's a very -- certain part of it is a very high contribution margin business. Once you've overcome your cost, then you're really into the land of super high-margin work.

Yes. And Matthew, just another couple of points on that. If you look at our Q3 of 2024 compared to our Q2 of 2024, so sequential, not year-over-year, you can see that impact. The price increase, I believe, hit July 17, maybe in 2024. So almost all Q3 of 2024 had this higher price. And you can look at it, our revenue was up $19.2 million I'm sorry, it was up $19.5 million and EBIT was up $19.2 million. It's essentially -- that was coming -- I guess that was coming through as price. But bottom line, I guess we've seen it on the opposite side with volumes where, again, as these volumes come through -- to use an example, Debbie's system is optimized for a certain level of -- so the rent we pay, the equipment we buy, all of those things are pretty much fixed. As we optimize our system, if we're running 100% volume versus 90%, you still have the same labor force on the work -- on the floor. So maybe there's a small incremental increase in electrical costs or what not or maybe the equipment is going to break down a little faster if you're running it more. But in the end of the day, that lost volume, our contribution margin is incredibly high on volumes. Obviously, as you get to certain volumes, you have to add fixed costs. But at this point, given that we're not fully utilizing our system, it heavily drops to the bottom line.

So that comment on price from last July, Kurt, makes a lot of sense. It feels like this was as much volume driven as price though. Could you talk -- maybe if I ask the question in a different way. If the 11% revenue decline, are you able to just roughly break that 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, what that meant to the bottom line. I mean what -- where our mind is 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 so 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 2 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.

Great. Can I switch to the capital allocation part of Kurt's letter. One question, Paul, maybe for you. You guys are pretty quickly after the Q2 earnings interaction, you guys did a convertible bond. Could you talk a little bit about the philosophy of doing that convert and sort of where that fits into your capital structure?

Yes. We wanted to -- it was another market that was open to us, very attractive effective yield on that. That will sort of yield some additional benefits to us. It's known in the market that it will come along with coverage. So we will pick up coverage from a number of firms, but that's not the reason we did it. I mean it's -- the stated coupon is 1.5%. Think back to the time where we had a stated coupon of over 10% on some of our debt. So an attractive opportunity for us in a market that wasn't previously open to us.

Do you see yourself doing more in the convert area?

Not sure yet. I mean, obviously, after this week, I'll be with Alex in New York, and we'll go and meet with all our lenders. And so we'll see. What we're blessed with is lots of options today. And so we'll see. We'll evaluate it, but we don't know for sure.

And then also on the debt front, you bought back another $12 million of your 2027, I know, and had an interesting comment about just being in a position to retire that 2027 issue in full at par in March of next year when they become -- when the call price drops. Is that the plan that you would just use effectively cash on hand to deal with the 2027 maturity?

That's one option to us. We might do it that way. We might do a smaller refinancing. We just -- again, we'll lock down what's our plan in the coming month or so. And then just... We have the liquidity. If we wanted to take it out, we could take it out.

Right. And as you continue to sort of weigh debt versus the shareholder cash out, whether it be dividend or share buybacks, how are you -- now that you've been here for a few months or in the seat for a few months, how do you think about giving to shareholders versus reducing your overall debt?

I look at it on an implied return on investment. Given where our stock is trading, it's a very attractive investment to do that. I mean that's in part why we continue to -- we increased the size of the facility from $400 million to $500 million that we still like that. Obviously, we're value buyers on our debt. And if it hits our bid, we'll buy. Obviously, we know it's going to go to par in a couple of months. So that will open up opportunities for us. So look, I'm looking at that. I'm looking at that. I'm also looking at what is our maintenance CapEx, which is very manageable for us. If there was an actionable acquisition in front of us, we would evaluate that relative to share buybacks. or debt buybacks. But that's not there right now. So with that, our best course of action is to continue to buy back our shares and also where it's economic, we'll buy back our debt.

And Matt, just to be clear, with respect to capital allocation, we're always going to be incredibly opportunistic. One of the things we're pushing as an organization is to be nimble in everything that we do. So we'll evaluate whether the debt market is available, what sort of pricing. We'll look at where our stock price is. Paul mentioned acquisitions. There -- any acquisition we do is almost certainly going to be pretty small in size. So that's not going to be a major use of capital, but we still want to consider that as part of capital allocation. So I would just keep that in mind as we move forward that we're always going to look at how best to maximize that. And currently, one thing that I will say is we believe we can carry a lot more debt based on our outlook for the business than the market does, but we are very cognizant that the market sets -- the market drives everything. So I think the market is comfortable with about a 3.0 leverage ratio that's written into our current covenants. And if that's where the market -- the debt market is for us, then we want to make sure that we're getting below that 3.0 from time to time to reset our covenants, but also just to keep the debt markets comfortable with our level of leverage. But again, we have very strong conviction longer term, we can carry heavier debt. But until the market agrees with us, we're going to make sure that we meet the market's expectations with respect to our debt.

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 onetime 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 onetime impacts to free cash flow in 2025 that wouldn't be unrepeatable for 2026?

Yes. Justin, so to tick those off, with respect to the receivable purchase program, that does not impact cash flow. It just frees up what used to be restricted cash, makes it unrestricted. So no, our free cash flow forecast is not impacted by that. With respect to any sort of onetime items, Tax assets has come up is something we've talked about. As we look at it, the degree to which we've been able to take advantage of our deferred tax assets, we expect to be able to do for another couple of years. So I don't think that's in the -- at some point, we will -- won't have the same benefit. But for years to come, perhaps 2, 3 years, we expect to be able to recognize the same cash benefit from our tax asset. And then with respect to other onetime items, I don't know if Paul has this number handy, I'm trying to look for it. Working capital is a significant use of cash this year based on our business, I think it's going to be a much larger use of cash this year than it normally would be. So if you were to normalize our working capital in the current year, our free cash flow would actually be a fair bit higher. And just looking at it, $205 working capital please? Okay. So I'm being told that year-to-date, working capital has been a use of $205 million. That will somewhat reverse in Q4. I believe Q4 of last year, we had free cash flow of about $145 million. I'm not saying we'll be exactly there. I guess, based on our guidance, I think it may actually be -- I think we're expecting a higher level of free cash flow in this Q4, but that will be some reversal of that use of cash. So bottom line, if anything, onetime items are actually restraining our free cash flow this year due to working capital as opposed to the opposite.

Got it. So then I mean, based on that and the other things you've announced, the cost savings, et cetera, 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, et cetera. 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 own 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.

Yes. Thank you, everybody, for being on this call. And I just want to make one last comment. I know I say it a lot, and I can't -- but I can't say it enough. As an investor in this company, I hope everybody appreciates the employee base that we have at this company. As I said already, we've gone through a lot of changes at this company. This last round of taking out another $50 million to $60 million of costs. It impacts a lot of people and a lot of lives. And the employee base, like I said, it's impressive. People show up every day ready to work, asking how they can be of help. And just as an investor, hopefully, you have some confidence in the leadership team. But as investors, I hope you appreciate just how special workforce we have here at Pitney Bowes. It's -- the position we have in our markets, the products we have, the services we have is something special, but the employees we have at this company is as well. So I hope everybody appreciates that. And just a special thank you to our employee base for everything they do for us. So thank you all.

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