Pitney Bowes Inc: Form 10-Q for the period ended Mar 31, 2026

Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend," "will," "forecast," "strategy," "goal," "should," "would," "could," "may" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, our results of operations, financial condition and forward-looking statements are subject to change and to inherent risks and uncertainties disclosed or incorporated by reference in our filings with the Securities and Exchange Commission ("SEC"). Other factors which could cause future financial performance to differ materially from expectations, include, without limitation:

• changes in postal regulations or the operations and financial health of posts in the U.S. or other major markets, or changes to the broader postal or shipping markets
• accelerated or sudden decline in physical mail or shipping volumes
• the loss of some of our larger clients
• periods of difficult economic conditions impacting the company and our clients, including inflation and rising prices, changes in interest rates and a slow-down in economic activity, including a global recession, or a prolonged U.S. government shutdown
• our ability to compete successfully
• changes in banking regulations, major bank failures, the loss of our Industrial Bank charter or limitations on our banking activities
• changes in government contracting regulations and compliance challenges
• changes in labor and transportation availability and costs
• global supply chain issues adversely impacting our third party suppliers' ability to provide us with products and services
• changes in trade policies, tariffs and regulations
• changes in senior management and Board of Directors, loss of key employees and ability to attract and retain employees
• expenses and potential impacts resulting from cyber-attacks or other cybersecurity incidents affecting us or our suppliers
• inability to comply with data privacy and protection laws and regulations
• interruptions or difficulties in the operation of our cloud-based applications and systems or those of our suppliers
• changes in credit ratings, capital market disruptions, decline in cash flows, noncompliance with debt covenants or future interest rate increases that may adversely impact our ability to access capital markets at reasonable costs
• our indebtedness, including Convertible Notes, and the impact of any conversion, repurchase or redemption of the Convertible Notes
• our success at managing customer credit risk
• changes in foreign currency exchange rates
• the risks and uncertainties associated with the Ecommerce Restructuring
• changes in tax rates, laws or regulations
• inability to protect our intellectual property rights and intellectual property infringement claims
• our success in developing and marketing new products and services and obtaining regulatory approvals, if required
• acts of nature and the impact of a pandemic on the Company and the services and solutions we offer
• shareholder activism

Further information about factors that could materially affect us, including our results of operations and financial condition, is contained in Item 1A. "Risk Factors" in our 2025 Annual Report, as supplemented by Part II, Item 1A in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

In the Condensed Consolidated Statements of Operations, we allocate a portion of total interest expense to finance interest expense which is included in Cost of financing and other. The amount of total interest expense allocated to finance interest expense is based on the average outstanding finance receivables and our overall effective interest rate for the period. For segment reporting purposes, finance interest expense is excluded from segment results.

SEGMENT RESULTS

Our segments include SendTech Solutions and Presort Services. Management measures segment profitability and performance using adjusted segment earnings before interest and taxes (EBIT). Adjusted segment EBIT is calculated as segment revenues less the related costs and expenses attributable to the segment. Segment results exclude interest, including finance interest expense, taxes, corporate expenses, restructuring charges and other items not allocated to the segments.

Effective April 1, 2025, segment reporting was revised to report the revenue and related expenses of a cross-border services contract in our SendTech Solutions reporting segment, which was previously reported in Other. Accordingly, segment results for the three months ended March 31, 2025 have been revised to conform to the current period presentation.

Effective January 1, 2026, we are excluding expense related to the U.S. and Canada pension plans from Adjusted segment EBIT as we have taken steps to terminate these plans. Prior periods were not recast.

SendTech Solutions

Within SendTech Solutions, we provide clients with physical and digital shipping and mailing technology solutions and other applications to help simplify and save on the sending, tracking and receiving of letters, parcels and flats, as well as supplies and maintenance services for these offerings. We also offer financing alternatives that enable clients to finance equipment and product purchases, to finance or lease other manufacturers’ equipment and to provide working capital, a revolving credit solution that enables clients to make meter rental payments and purchase postage, services and supplies, and an interest-bearing deposit solution to clients who prefer to prepay postage.

Financial results for the SendTech Solutions segment was as follows:

SendTech Solutions revenue decreased $2 million in the first quarter of 2026 compared to the prior year period. Revenue in the first quarter of 2025 includes an unfavorable adjustment of $4 million related to prior periods. Products revenue declined $5 million primarily due to customers opting to extend leases of their existing advanced-technology equipment rather than purchase new equipment as well as a declining meter population. Services revenue increased $2 million while Financing and other revenue was flat compared to the prior year period.

Gross margin increased $2 million and gross margin percentage increased slightly to 67.5% from 66.4% compared to the prior year period primarily driven by the unfavorable revenue adjustment of $4 million in the first quarter of 2025 and product mix.

Selling, general and administrative ("SG&A") expense declined $15 million primarily driven by lower employee-related expenses of $5 million, lower professional and outsourcing fees of $4 million and lower marketing expenses of $2 million.

Adjusted segment EBIT was $114 million in the first quarter of 2026 compared to $97 million for the prior year period, which includes the $4 million charge from the unfavorable revenue adjustment related to prior periods.

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Presort Services

Presort Services is the largest workshare partner of the USPS and national outsource provider of mail sortation services that allow clients to qualify large volumes of First Class Mail, First Class Flats, Marketing Mail, and Marketing Mail Flats/Bound Printed Matter for postal worksharing discounts.

Financial results for the Presort Services segment was as follows:

Revenue decreased $14 million in the first quarter of 2026 compared to the prior year period primarily due to a 6% decline in total mail volumes driven by a broader market decline. The processing of First Class Mail and First Class Flats contributed revenue decreases of $10 million and $4 million, respectively.

Gross margin decreased $16 million and gross margin percentage decreased to 35.1% from 41.2% in the prior period primarily due to lower revenue and increased transportation costs of $3 million.

SG&A expense was relatively flat compared to the prior year period.

Adjusted segment EBIT was $39 million in the first quarter of 2026 compared to $55 million in the prior year period.

CORPORATE EXPENSES

The majority of operating expenses are recorded directly or allocated to our reportable segments. Operating expenses not recorded directly or allocated to our reportable segments are reported as corporate expenses, and primarily represent corporate administrative functions such as finance, human resources, legal and information technology.

Corporate expenses were as follows:

Corporate expenses for the first quarter of 2026 decreased $10 million compared to the prior year period primarily due to lower employee-related expenses driven by actions taken under our restructuring plans.

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CONSOLIDATED EXPENSES

SG&A Expense

SG&A expense decreased $33 million in the first quarter of 2026 compared to the prior year period. In addition to the changes in segment SG&A expense previously discussed, SG&A declined $12 million due to lower non-cash foreign currency revaluation gains/losses on intercompany loans partially offset by higher corporate strategic review costs of $5 million.

Restructuring charges

Restructuring charges increased $4 million in the first quarter of 2026 compared to the prior year period primarily due to the number of actions taken during the current quarter compared to the prior year.

Interest expense, net

Total interest expense represents interest expense on our debt, a portion of which is allocated to Cost of financing and other. Total interest expense is as follows:

Total interest expense declined $2 million in the first quarter of 2026 compared to the prior year period primarily due to lower effective interest rates partially offset by higher outstanding debt. The decline in interest expense allocated to finance interest was driven primarily by a decline in finance receivables.

Other components of net pension and postretirement cost

Other components of net pension and postretirement cost increased $9 million in the first quarter of 2026 compared to the prior year period primarily due to the lower expected return on pension plan assets year over year driven by the U.S. and Canada buy-in contracts. The amount of other components of net pension and postretirement cost recognized each year will vary based on actuarial assumptions and actual results of our pension plans. See Note 11 to the Condensed Consolidated Financial Statements for further information.

Other expense

Other expense in the first quarter of 2025 represents a loss on the redemption/refinancing of debt.

Income taxes

See Note 12 to the Condensed Consolidated Financial Statements for further information.

OUTLOOK

For 2026, we expect low to mid-single digit decline in revenue driven by the continued secular decline in mailing. We expect low to mid-single digit decline in EBIT and EBIT margin, primarily driven by expected competitive pricing pressures in Presort Services, partially offset by lower worldwide operating costs from previous and continued cost-cutting actions, including savings under the 2025 Plan.

Within SendTech Solutions, we intend to pursue strategies that will leverage the segment's strong position, customer base and current product and technology offerings to mitigate the secular downward pressures in the mailing industry.

Within Presort Services, we are focused on increasing volume growth by maintaining competitive pricing and pursuing strategic growth opportunities.

We will also continue to implement capital allocation strategies to opportunistically reduce debt and lower interest costs, return capital to our shareholders through share repurchases and dividends and pursue other long-term investment opportunities.

Global energy markets have experienced significant volatility, including increases in oil and fuel prices associated with geopolitical developments involving Iran and disruptions to shipping through the Strait of Hormuz. Prolonged disruptions in global energy supply or transportation routes may lead to sustained increases in fuel prices and could negatively impact our operations.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash generated from operations and access to credit markets, including our revolving credit facility. At March 31, 2026, we had cash and cash equivalents of $303 million, which includes $42 million held at our foreign subsidiaries used to support their liquidity needs. At this time, we believe that existing cash and cash equivalents, cash generated from operations and borrowing capacity under our revolving credit facility will be sufficient to fund our cash needs and meet our debt obligations for the next 12 months.

Cash Flow Summary

Changes in cash and cash equivalents were as follows:

Operating Activities

Cash flows from operating activities for the first quarter of 2026 improved $61 million compared to the prior year period primarily due to changes in working capital, driven in part by lower variable compensation payments and collections of accounts and finance receivables.

Investing Activities

Cash flows from investing activities for the first quarter of 2026 improved $36 million compared to the prior year period primarily due to lower investments in loan receivables of $39 million partially offset by lower cash from investment activities of $5 million.

Financing Activities

Cash flows from financing activities for the first quarter of 2026 improved $69 million compared to the prior year period primarily due to the issuance of an additional $150 million of the March 2029 Notes, prior year fees paid to redeem/refinance debt of $21 million and favorable changes in customer account deposits at PB Bank of $18 million, partially offset by higher common stock repurchases of $121 million and higher dividend payments of $2 million.

We paid dividends of $13 million in the first quarter of 2026. Each quarter, our Board of Directors considers whether to approve the payment of a dividend. We currently expect to continue paying a quarterly dividend; however, no assurances can be given.

Debt and Financing Activities

In the first quarter of 2026, we issued an additional aggregate $150 million of the Notes due March 2029. The additional notes have identical terms to the previously outstanding Notes due March 2029.

We maintain a revolving credit facility which was increased from $400 million to $450 million in the first quarter of 2026. Under this credit facility, we are required to maintain (with maintenance tested quarterly) (i) a Consolidated Interest Coverage Ratio (as defined in the credit facility agreement) of not less than 2.00 to 1.00 and (ii) a Consolidated Secured Net Leverage Ratio (as defined in the credit facility agreement) of no greater than 3.00 to 1.00 and (iii) a Consolidated Total Net Leverage Ratio (as defined in the credit facility agreement) of no greater than 4.75 to 1.00. At March 31, 2026, we were in compliance with these financial covenants and there were no outstanding borrowings under the revolving credit facility. Borrowings under this credit facility agreement are secured by assets of the Company. The credit facility also contains provisions whereby if, on any day between the period commencing on September 14, 2026 and ending on March 15, 2027, the Notes due March 2027 have not been redeemed in full and liquidity is less than an amount equal to the amount to redeem the Notes due March 2027 plus $100 million, the Term loan due March 2028 and any borrowings under the revolving credit facility would also become due on such date (the "Pro Rata Springing Maturity Date"), and if on any date during the period beginning on December 14, 2026 and ending on March 15, 2027, the Notes due March 2027 remain outstanding and the Pro Rata Springing Maturity Date has occurred, the Term loan due March 2032 would be also become due on such date. The March 2027 Notes have been classified as current in the Condensed Consolidated Balance Sheet and we are considering various strategies and fully intend to redeem these notes before September 2026 either with available liquidity or refinance through the capital markets.

We have outstanding an aggregate $230 million convertible senior notes (the "Convertible Notes"). The Convertible Notes are senior unsecured obligations of the Company and are guaranteed jointly and severally, on a senior unsecured basis, by each of the Company’s existing and future wholly owned U.S. subsidiaries that guarantee the Company’s existing credit agreement, existing senior notes or any other series of capital market debt with an aggregate principal amount outstanding in excess of $150 million.

The conversion rate and conversion price were updated in the period as a result of an increase in our dividend, and is now 70.2937 shares of common stock per $1,000 principal amount and $14.23 per share of common stock, respectively, subject to adjustment. Conversions of the Convertible Notes will be settled by paying cash up to the aggregate principal amount of the Convertible Notes being converted and by delivering shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

While we are focused on reducing our leverage and interest costs, we may incur additional debt or issue additional equity securities in the future.

Off-Balance Sheet Arrangements

At March 31, 2026, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.

Regulatory Matters

There have been no significant changes to the regulatory matters disclosed in our 2025 Annual Report.

Critical Accounting Estimates

There have been no significant changes to the Critical Accounting Estimates disclosed in our 2025 Annual Report.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably ensure that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding disclosures.

With the participation of our CEO and CFO, management evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) and internal controls over financial reporting as of the end of the period covered by this report. Our CEO and CFO concluded that, as of the end of the period covered by this report, such disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods. In addition, no changes in internal control over financial reporting occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals. Notwithstanding this caution, the CEO and CFO have reasonable assurance that the disclosure controls and procedures were effective as of March 31, 2026.