Pitney Bowes Announces Second Quarter 2014 Results

Pitney Bowes Inc. (NYSE:PBI) today reported financial results for the second quarter 2014.

Highlights

• Revenue of $958 million, up 1 percent as reported and flat on a constant currency basis
• Adjusted EPS from continuing operations of $0.46
• GAAP EPS from continuing operations of $0.43; GAAP EPS of $0.46
• Free cash flow of $162 million; cash from operations of $175 million
• The Company increases 2014 guidance for revenue growth and adjusted EPS from continuing operations; narrows the range for GAAP EPS from continuing operations; and reaffirms free cash flow guidance for the year

“We are pleased with our second quarter financial results, which are consistent with our long-term strategic direction,” said Marc B. Lautenbach, President and CEO, Pitney Bowes. “Our Digital Commerce business performed very well, delivering 27 percent revenue growth, while profitability in our core mailing businesses continued to improve.

“Our performance through the first six months continues to substantiate the strategy we detailed 15 months ago, and further validates our long-term economic model. We remain ahead of schedule in our multi-year journey to transform Pitney Bowes and are confident in our ability to deliver against our objectives. As a result, we are increasing our 2014 guidance for both revenue and adjusted earnings per share.”

SECOND QUARTER 2014 RESULTS

Revenue in the second quarter totaled $958 million, which was growth of 1 percent on a reported basis and flat on a constant currency basis. On a reported basis, revenue for the quarter benefited from 27 percent growth in the Digital Commerce Solutions segment. Revenue in the Small and Medium Business (SMB) Solutions group declined 3 percent, primarily resulting from an acceleration in the implementation of the channel shift strategy. The Enterprise Business Solutions revenue declined 8 percent when compared to the prior year, which included revenue from large deals in the Production Mail segment.

Adjusted earnings per diluted share from continuing operations for the second quarter 2014 were $0.46 compared with $0.46 for the second quarter 2013, which included $0.05 per share of non-recurring tax benefits. Excluding the tax benefits in the prior year, adjusted earnings per share this year increased 11 percent versus the prior year.

Second quarter earnings per diluted share from continuing operations, on a Generally Accepted Accounting Principles (GAAP) basis were $0.43. GAAP earnings per diluted share from continuing operations included a restructuring charge of $0.03 per share associated with the previously announced cost reduction plans.

GAAP earnings per diluted share of $0.46 included income from discontinued operations of $0.03 per share.

Earnings Per Share Reconciliation*		Q2 2014			Q2 2013
Adjusted EPS from continuing operations		$0.46			$0.46
Restructuring charges		($0.03	)		($0.06	)
GAAP EPS from continuing operations		$0.43			$0.39
Discontinued operations – income (loss)		$0.03			($0.44	)
GAAP EPS		$0.46			($0.05	)

* The sum of the earnings per share may not equal the totals above due to rounding.

FREE CASH FLOW RESULTS

Free cash flow for the quarter was $162 million, while on a GAAP basis the Company generated $175 million in cash from operations. In comparison to the prior year, free cash flow benefited from the timing of tax payments and growth in bank reserve deposits. During the quarter, the Company used $47 million of cash for dividends and $15 million for restructuring payments.

BUSINESS SEGMENT REPORTING

The Company’s business segment reporting reflects the clients served in each market and the way it manages these segments. The reporting segment groups are: Small & Medium Business (SMB) Solutions group; Enterprise Business Solutions group; and the Digital Commerce Solutions segment.

The Small and Medium Business (SMB) Solutions group offers mailing equipment, financing, services and supplies for small and medium businesses to efficiently create mail and evidence postage. This group includes the North America Mailing and International Mailing segments. North America Mailing includes the operations of U.S. and Canada Mailing. International Mailing includes all other SMB operations around the world.

The Enterprise Business Solutions group provides mailing equipment and services for large enterprise clients to process mail, including sortation services to qualify large mail volumes for postal worksharing discounts. This group includes the global Production Mail and Presort Services segments.

The Digital Commerce Solutions segment leverages digital and mobile channels that make the Company’s clients’ customer-facing functions more effective. This segment includes software, marketing services, a digital document exchange, shipping and ecommerce solutions.

SMB Solutions Group

		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$524 million		(3	%)		(4	%)
EBIT		$183 million		3	%

Within the SMB Solutions Group:

North America Mailing
		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$371 million		(5	%)		(5	%)
EBIT		$157 million		0	%

The North America Mailing business accelerated the implementation of the SMB go-to-market strategy, resulting in lower equipment sales revenue in the first two months of the quarter. Results in the month of June, however, were back on trend. Recurring revenue streams declined at a lesser rate than prior year, supporting the Company’s long-term stabilization objective, and benefited from continued growth in supplies revenue.

As a result of the accelerated go-to-market implementation and lower marketing spend than the previous year, EBIT margin improved during the quarter.

International Mailing
		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$153 million		2	%		(2	%)
EBIT		$ 26 million		32	%

The modest revenue decline, on a constant currency basis, in International Mailing resulted from lower equipment sales in Europe. However, as a result of the stabilizing installed equipment base in prior periods, the segment continues to experience an improvement in year-over-year trend for recurring revenue streams. EBIT margin improved versus the prior year due to cost reduction initiatives, including the go-to-market implementation.

Enterprise Business Solutions Group

		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$223 million		(8	%)		(8	%)
EBIT		$ 33 million		(11	%)

Within the Enterprise Business Solutions Group:

Worldwide Production Mail
		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$112 million		(17	%)		(18	%)
EBIT		$ 11 million		(33	%)

The Production Mail revenue comparison this quarter reflected the impact of several large inserting and production print equipment installations in the second quarter of the prior year. However, recurring revenue continued to benefit from an increase in supplies revenue related to growth in the production printer installed base. EBIT margin was impacted by the lower revenue and the related margin contribution.

Presort Services
		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$111 million		4	%		4	%
EBIT		$ 22 million		5	%

Presort Services revenue benefited from ongoing improved qualification of mail for presort discounts. EBIT margin improved versus the prior year due to lower facility costs and improved operational productivity.

Digital Commerce Solutions

		2Q 2014		Y-O-Y Change			Change ex Currency
Revenue		$211 million		27	%		26	%
EBIT		$ 18 million		17	%

Digital Commerce Solutions revenue benefited primarily from continued strong growth in the Company’s ecommerce solutions for cross-border package delivery. The Company also experienced improved revenue growth in the other major elements of the Digital Commerce Solutions segment, including software, shipping solutions and marketing services. Software revenue benefited from license sales in the business applications vertical market. EBIT and EBIT margin reflect the benefit of revenue growth, partially offset by continued investments in ecommerce technology and infrastructure. EBIT margin was also impacted by investment in software channel specialization and increased research and development spend.

2014 GUIDANCE

This guidance discusses future results which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release and as more fully outlined in the Company's 2013 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.

Based on results year-to-date and the outlook for the remainder of the year, the Company is increasing annual guidance for revenue growth and adjusted earnings per share from continuing operations and narrowing the range for GAAP earnings per share from continuing operations. The Company is reaffirming annual guidance for free cash flow.

The Company now expects:

• Revenue to be in the range of one to three percent growth when compared to the prior year versus the one percent decline to two percent growth range previously expected. Guidance excludes the impacts of currency and reflects the expected ongoing stabilization of the mail-related businesses, as well as continued growth in Digital Commerce Solutions;
• Adjusted earnings per share from continuing operations to be in the range of $1.80 to $1.90 versus the range of $1.75 to $1.90 previously expected. Guidance reflects the operational performance year-to-date; the increased revenue outlook; and the timing of investment in solutions and infrastructure, such as ERP;
• GAAP earnings per share from continuing operations to be in the range of $1.55 to $1.65 versus the range of $1.53 to $1.68 previously expected. Guidance reflects the incremental $0.03 per share charge for restructuring costs this quarter, which now total $0.06 per share year-to date and $0.19 per share of debt extinguishment costs in the first quarter.

The Company still expects:

• Free cash flow to be in the range of $475 million to $575 million.

This guidance excludes any further actions that are under consideration by the Company to streamline its operations and further reduce its cost structure.

Conference Call and Webcast

Management of Pitney Bowes will discuss the Company’s results in a broadcast over the Internet today at 8:00 a.m. EDT. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the Company’s web site at www.pb.com.

About Pitney Bowes

Pitney Bowes provides technology solutions for small, mid-size and large firms that help them connect with customers to build loyalty and grow revenue. Many of the company’s solutions are delivered on open platforms to best organize, analyze and apply both public and proprietary data to two-way customer communications. Pitney Bowes includes direct mail, transactional mail and call center communications in its solution mix along with digital channel messaging for the Web, email and mobile applications.

Pitney Bowes: Every connection is a new opportunity™ www.pb.com

The Company's financial results are reported in accordance with generally accepted accounting principles (GAAP). The Company uses measures such as adjusted earnings per share, adjusted income from continuing operations and free cash flow to exclude the impact of special items like restructuring charges, tax adjustments, and goodwill and asset write-downs, because, while these are actual Company expenses, they can mask underlying trends associated with its business. Such items are often inconsistent in amount and frequency and as such, the adjustments allow an investor greater insight into the current underlying operating trends of the business.

The use of free cash flow provides investors insight into the amount of cash that management could have available for other discretionary uses. It adjusts GAAP cash from operations for capital expenditures, as well as special items like cash used for restructuring charges, unusual tax settlements or payments and contributions to its pension funds. Management uses segment EBIT to measure profitability and performance at the segment level. EBIT is determined by deducting the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a particular business segment, restructuring charges and goodwill and asset impairments, which are recognized on a consolidated basis. In addition, financial results are presented on a constant currency basis to exclude the impact of changes in foreign currency exchange rates since the prior period under comparison. Constant currency measures are intended to help investors better understand the underlying operational performance of the business excluding the impacts of shifts in currency exchange rates over the intervening period.

Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also be found at the Company's web site www.pb.com/investorrelations.

This document contains “forward-looking statements” about its expected or potential future business and financial performance. For us forward-looking statements include, but are not limited to, statements about its future revenue and earnings guidance and other statements about future events or conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: mail volumes; the uncertain economic environment; timely development, market acceptance and regulatory approvals, if needed, of new products; fluctuations in customer demand; changes in postal regulations; interrupted use of key information systems; management of outsourcing arrangements; the implementation of a new enterprise resource planning system; changes in business portfolio; foreign currency exchange rates; changes in our credit ratings; management of credit risk; changes in interest rates; the financial health of national posts; and other factors beyond its control as more fully outlined in the Company's 2013 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information, events or developments.

Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and six months ended June 30, 2014 and 2013, and consolidated balance sheets at June 30, 2014 and December 31, 2013 are attached.

Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
		Three months ended June 30,								Six months ended June 30,
			2014				2013				2014				2013
Revenue:
Equipment sales		$	191,518			$	225,224			$	380,574			$	421,991
Supplies			76,284				71,275				155,801				144,493
Software			109,065				100,482				200,620				187,494
Rentals			122,443				129,404				246,022				258,518
Financing			107,644				112,820				217,694				226,707
Support services			158,190				160,303				316,442				322,892
Business services			193,306				151,154				378,794				297,930
Total revenue			958,450				950,662				1,895,947				1,860,025
Costs and expenses:
Cost of equipment sales			88,818				112,079				171,352				206,622
Cost of supplies			23,505				22,246				47,659				45,092
Cost of software			33,484				25,604				63,648				50,395
Cost of rentals			25,193				25,114				50,637				51,512
Financing interest expense			20,413				18,951				40,066				37,970
Cost of support services			96,722				99,337				195,703				201,866
Cost of business services			135,024				108,168				263,960				210,523
Selling, general and administrative			338,384				353,923				689,759				705,577
Research and development			28,649				27,331				54,841				56,582
Restructuring charges			8,299				19,031				18,140				19,031
Other interest expense			22,714				31,347				47,631				62,086
Interest income			(1,232	)			(1,302	)			(2,085	)			(3,050	)
Other expense, net			-				-				61,657				25,121
Total costs and expenses			819,973				841,829				1,702,968				1,669,327
Income from continuing operations before income taxes			138,477				108,833				192,979				190,698
Provision for income taxes			46,335				24,218				54,371				42,013
Income from continuing operations			92,142				84,615				138,608				148,685
Income (loss) from discontinued operations, net of tax			6,717				(89,254	)			9,518				(81,224	)
Net income (loss) before attribution of noncontrolling interests			98,859				(4,639	)			148,126				67,461
Less: Preferred stock dividends of subsidiaries attributable
to noncontrolling interests			4,594				4,594				9,188				9,188
Net income (loss) - Pitney Bowes Inc.		$	94,265			$	(9,233	)		$	138,938			$	58,273
Amounts attributable to common stockholders:
Income from continuing operations		$	87,548			$	80,021			$	129,420			$	139,497
Income (loss) from discontinued operations			6,717				(89,254	)			9,518				(81,224	)
Net income (loss) - Pitney Bowes Inc.		$	94,265			$	(9,233	)		$	138,938			$	58,273
Basic earnings per share attributable to common stockholders (1):
Continuing operations			0.43				0.40				0.64				0.69
Discontinued operations			0.03				(0.44	)			0.05				(0.40	)
Net income (loss) - Pitney Bowes Inc.		$	0.47			$	(0.05	)		$	0.69			$	0.29
Diluted earnings per share attributable to common stockholders (1):
Continuing operations			0.43				0.39				0.63				0.69
Discontinued operations			0.03				(0.44	)			0.05				(0.40	)
Net income (loss) - Pitney Bowes Inc.		$	0.46			$	(0.05	)		$	0.68			$	0.29

(1)		The sum of the earnings per share amounts may not equal the totals above due to rounding.

Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited in thousands, except per share data)
Assets		June 30, 2014				December 31, 2013 (1)
Current assets:
Cash and cash equivalents		$	1,005,901			$	907,806
Short-term investments			23,976				31,128
Accounts receivable, gross			423,103				482,949
Allowance for doubtful accounts receivable			(13,589	)			(13,149	)
Accounts receivable, net			409,514				469,800
Finance receivables			1,071,415				1,127,261
Allowance for credit losses			(22,852	)			(24,340	)
Finance receivables, net			1,048,563				1,102,921
Inventories			101,252				103,580
Current income taxes			31,580				28,934
Other current assets and prepayments			125,540				147,067
Assets held for sale			46,976				46,976
Total current assets			2,793,302				2,838,212
Property, plant and equipment, net			242,742				245,171
Rental property and equipment, net			215,793				226,146
Finance receivables			885,818				974,972
Allowance for credit losses			(10,819	)			(12,609	)
Finance receivables, net			874,999				962,363
Investment in leveraged leases			33,431				34,410
Goodwill			1,728,385				1,734,871
Intangible assets, net			102,760				120,387
Non-current income taxes			66,598				73,751
Other assets			538,073				537,397
Total assets		$	6,596,083			$	6,772,708
Liabilities, noncontrolling interests and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities		$	1,504,887			$	1,644,582
Current income taxes			191,687				157,340
Notes payable and current portion of long-term obligations			274,879				-
Advance billings			439,038				425,833
Total current liabilities			2,410,491				2,227,755
Deferred taxes on income			39,509				39,701
Tax uncertainties and other income tax liabilities			166,920				190,645
Long-term debt			2,964,843				3,346,295
Other non-current liabilities			436,194				466,766
Total liabilities			6,017,957				6,271,162
Noncontrolling interests (Preferred stockholders' equity in subsidiaries)			296,370				296,370
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible			1				4
Cumulative preference stock, no par value, $2.12 convertible			563				591
Common stock, $1 par value			323,338				323,338
Additional paid-in-capital			172,565				196,977
Retained Earnings			4,778,506				4,715,564
Accumulated other comprehensive loss			(559,351	)			(574,556	)
Treasury Stock, at cost			(4,433,866	)			(4,456,742	)
Total Pitney Bowes Inc. stockholders' equity			281,756				205,176
Total liabilities, noncontrolling interests and stockholders' equity		$	6,596,083			$	6,772,708

(1)		Certain prior year amounts have been revised.

Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2014
(Unaudited)
(Dollars in thousands)		Three Months Ended June 30,
										%
			2014				2013			Change
Revenue
North America Mailing		$	371,194				392,197			(5	%)
International Mailing			153,260				150,357			2	%
Small & Medium Business Solutions			524,454				542,554			(3	%)
Production Mail			111,756				134,422			(17	%)
Presort Services			111,281				106,961			4	%
Enterprise Business Solutions			223,037				241,383			(8	%)
Digital Commerce Solutions			210,959				166,725			27	%
Total revenue		$	958,450			$	950,662			1	%
EBIT (1)
North America Mailing		$	156,781			$	157,518			-
International Mailing			26,449				20,075			32	%
Small & Medium Business Solutions			183,230				177,593			3	%
Production Mail			10,558				15,787			(33	%)
Presort Services			22,412				21,246			5	%
Enterprise Business Solutions			32,970				37,033			(11	%)
Digital Commerce Solutions			17,929				15,363			17	%
Total EBIT		$	234,129			$	229,989			2	%
Unallocated amounts:
Interest, net (2)			(41,895	)			(48,996	)
Corporate and other expenses			(45,458	)			(53,129	)
Restructuring charges			(8,299	)			(19,031	)
Income from continuing operations before income taxes		$	138,477			$	108,833

(1)		Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges.
(2)		Interest, net includes financing interest expense, other interest expense and interest income.

Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2014
(Unaudited)
(Dollars in thousands)		Six Months Ended June 30,
										%
			2014				2013			Change
Revenue
North America Mailing		$	752,221				781,033			(4	%)
International Mailing			306,528				303,333			1	%
Small & Medium Business Solutions			1,058,749				1,084,366			(2	%)
Production Mail			216,972				243,875			(11	%)
Presort Services			227,772				217,861			5	%
Enterprise Business Solutions			444,744				461,736			(4	%)
Digital Commerce Solutions			392,454				313,923			25	%
Total Revenue		$	1,895,947			$	1,860,025			2	%
EBIT (1)
North America Mailing		$	317,119			$	305,976			4	%
International Mailing			51,268				37,465			37	%
Small & Medium Business Solutions			368,387				343,441			7	%
Production Mail			18,295				23,619			(23	%)
Presort Services			46,308				44,734			4	%
Enterprise Business Solutions			64,603				68,353			(5	%)
Digital Commerce Solutions			27,460				15,084			82	%
Total EBIT		$	460,450			$	426,878			8	%
Unallocated amounts:
Interest, net (2)			(85,612	)			(97,006	)
Corporate and other expenses			(102,062	)			(95,022	)
Restructuring charges			(18,140	)			(19,031	)
Other expense, net			(61,657	)			(25,121	)
Income from continuing operations before income taxes		$	192,979			$	190,698

(1)		Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges.
(2)		Interest, net includes financing interest expense, other interest expense and interest income.

Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share data)
		Three Months Ended June 30,								Six Months Ended June 30,
			2014				2013				2014				2013
GAAP income from continuing operations
after income taxes, as reported		$	87,548			$	80,021			$	129,420			$	139,497
Restructuring charges			5,577				13,126				12,258				13,126
Extinguishment of debt			-				-				37,833				15,325
Income from continuing operations
after income taxes, as adjusted		$	93,125			$	93,147			$	179,511			$	167,948
GAAP diluted earnings per share from
continuing operations, as reported		$	0.43			$	0.39			$	0.63			$	0.69
Restructuring charges			0.03				0.06				0.06				0.06
Extinguishment of debt			-				-				0.19				0.08
Diluted earnings per share from continuing
operations, as adjusted		$	0.46			$	0.46			$	0.88			$	0.83
GAAP net cash provided by operating activities,
as reported		$	174,831			$	146,875			$	280,447			$	279,035
Capital expenditures			(42,207	)			(34,602	)			(72,350	)			(73,441	)
Restructuring payments			14,593				10,980				33,530				27,255
Reserve account deposits			11,803				1,138				(3,356	)			(26,189	)
Extinguishment of debt			3,300				-				61,657				25,121
Free cash flow, as adjusted		$	162,320			$	124,391			$	299,928			$	231,781

Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.

Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share data)
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
GAAP income from continuing operations
after income taxes, as reported	$	87,548		$	80,021		$	129,420		$	139,497
Restructuring charges		5,577			13,126			12,258			13,126
Extinguishment of debt		-			-			37,833			15,325
Income from continuing operations
after income taxes, as adjusted		93,125			93,147			179,511			167,948
Provision for income taxes, as adjusted		49,057			30,123			84,077			57,715
Preferred stock dividends of subsidiaries
attributable to noncontrolling interests		4,594			4,594			9,188			9,188
Income from continuing operations before income taxes, as adjusted		146,776			127,864			272,776			234,851
Interest, net		41,895			48,996			85,612			97,006
Adjusted EBIT from continuing operations		188,671			176,860			358,388			331,857
Depreciation and amortization		49,122			52,667			92,863			103,199
Adjusted EBITDA from continuing operations	$	237,793		$	229,527		$	451,251		$	435,056