Pitney Bowes Announces Full Year 2014 and Fourth Quarter Financial Results

Pitney Bowes Inc. (NYSE:PBI), a global technology company that provides products and solutions that power commerce, today reported financial results for the full year 2014 and the fourth quarter.

“We are very pleased with our full-year financial results and our fourth quarter performance”

Full-Year 2014:

• Revenue of $3.8 billion, growth of 1 percent on a constant currency and reported basis
• Adjusted EPS of $1.90
• GAAP EPS from continuing operations of $1.47; GAAP EPS of $1.64
• SG&A expenses of $1.4 billion, a reduction of $42 million
• Free cash flow of $571 million; GAAP cash from operations of $656 million
• Repurchased $50 million of stock and paid down $100 million of debt

Fourth Quarter 2014:

• Revenue of $984 million, a decline of 1 percent on a constant currency basis and a decline of 3 percent on a reported basis
• Adjusted EPS of $0.51
• GAAP EPS from continuing operations of $0.29; GAAP EPS of $0.31
• SG&A expenses of $347 million, a reduction of $15 million
• Free cash flow of $154 million; GAAP cash from operations of $258 million
• Board of Directors approved a share repurchase authorization of $100 million

“We are very pleased with our full-year financial results and our fourth quarter performance,” said Marc Lautenbach, President and CEO, Pitney Bowes. “For the first time in several years, we grew revenue for the full year while at the same time we met our objectives for adjusted earnings per share and free cash flow. While we are still early in our transformation, the strategy we began implementing two years ago is working and our vision to deliver innovative physical and digital products and solutions is resonating with our clients around the world. We will continue to focus on reducing costs, while at the same time invest in the areas that will optimize our business and grow revenue. Going forward, we expect to realize the benefits of these initiatives throughout 2015 and over the next several years.”

FULL YEAR 2014 RESULTS

For the full year, revenue totaled $3.8 billion, an increase of 1 percent on both a reported and constant currency basis when compared to the prior year. As part of its previously announced go-to-market strategy, earlier in the year the Company exited a non-core product line in Norway and transitioned from a direct sales model to a dealer sales network in six smaller European markets for the International Mailing and Production Mail segments. When revenue in the current and prior year is adjusted for the impact of these divested revenues, for comparative purposes revenue would have grown 1 percent on a reported basis and by 2 percent on a constant currency basis.

Adjusted earnings per diluted share from continuing operations for the full year were $1.90. Generally Accepted Accounting Principles (GAAP) earnings per diluted share from continuing operations were $1.47, which includes a restructuring charge of $0.29 per share associated with the previously announced cost reduction plans; extinguishment of debt costs of $0.19 per share; and income of $0.05 per share related to the Company’s divestiture of an investment. GAAP earnings per diluted share for the full year were $1.64, which includes income of $0.17 per share from discontinued operations.

FOURTH QUARTER 2014 RESULTS

Significant changes in currency in the fourth quarter, relative to the rest of the year, adversely affected revenue for many of the Company’s businesses. Revenue totaled $984 million, a decline of 3 percent on a reported basis and a decline of less than 1 percent on a constant currency basis versus the prior year. For comparative purposes, when revenue in the current and prior year is adjusted for the impacts of currency and the divested revenues in Europe earlier in the year, revenue would have grown 1 percent.

Revenue in the fourth quarter reflects strong results in Digital Commerce Solutions, which again had growth in all elements of the segment. Revenue benefited from 12 percent growth on a reported basis and 13 percent growth on a constant currency basis in the Digital Commerce Solutions segment.

Revenue in the Enterprise Business Solutions group declined 4 percent on a reported basis and 2 percent on a constant currency basis. This resulted from continued strong growth in Presort Services that was offset by a decline in revenue for the Production Mail business.

In the Small and Medium Business (SMB) Solutions group, revenue declined 7 percent on a reported basis and 5 percent on a constant currency basis. When revenue is adjusted for the impacts of currency and the divested revenues in Europe that are included in the prior year, for comparative purposes revenue would have declined 3 percent for SMB Solutions, reflecting renewed stabilization.

Adjusted earnings per diluted share from continuing operations for the fourth quarter were $0.51. Earnings per diluted share from continuing operations on a GAAP basis were $0.29, which includes a restructuring charge of $0.22 per share associated with an expansion of previously announced cost reduction plans. GAAP earnings per diluted share for the fourth quarter were $0.31, which includes income of $0.02 per share from discontinued operations.

The Company’s results for the quarter and the year are summarized in the table below:

FREE CASH FLOW RESULTS

Free cash flow during the quarter was $154 million and $571 million for the year. On a GAAP basis, the Company generated $258 million in cash from operations for the quarter and $656 million for the year.

The Company used cash to pay $38 million in dividends to its common shareholders in the quarter and paid $152 million in dividends for the year. The Company used its cash during the year primarily to invest in the business, pay dividends, reduce debt, make restructuring payments and repurchase its common stock.

BUSINESS SEGMENT REPORTING

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

The 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, ecommerce, shipping and marketing services.

Consolidated

SMB Solutions Group

North America Mailing

The Company has continued to focus on driving productivity improvements in its expanded inside sales organization. As a result, revenue declined less than 4 percent on a constant currency basis, representing a lesser rate than in the second and third quarters. The direct sales organization delivered higher productivity, which resulted in an increased average order value. Recurring revenue streams also continued to stabilize due to a further moderation in the decline of financing and rentals revenue. EBIT margin declined versus the prior year due to the mix of business and fewer lease extensions than the prior year.

International Mailing

Revenue declined 15 percent on a reported basis and 9 percent on a constant currency basis. Revenue declined just 2 percent when the impacts of the divested revenues in Europe earlier in the year are also excluded from the prior year. These results were in-line with recent trends and the Company’s efforts to stabilize overall mail-related revenue. The Company was able to achieve these results despite the uncertain macro-economic environment, particularly in Europe. Also, excluding the impact of the divested revenues in Europe and currency, supplies revenue continued to grow, which was offset by a moderate decline in equipment sales. EBIT margin improved versus the prior year due to the benefits from the changes in go-to-market, including the actions taken in the third quarter, as well as other cost reduction initiatives.

Enterprise Business Solutions Group

Production Mail

Revenue comparisons for the quarter were impacted by fewer large, multi-unit inserting and production print installations than in the prior year. EBIT margin improved versus the prior year due to a favorable mix of inserting equipment sales, improved margin on service revenue and on-going cost reduction initiatives.

Presort Services

Revenue benefited from the improved qualification of mail for presort discounts as a result of operational enhancements, the volume of First Class mail processed and the effective implementation of the postal rate and rule changes at the beginning of 2014. EBIT margin improved versus the prior year due to the revenue growth and on-going operational productivity.

Digital Commerce Solutions

The segment continued to experience revenue growth in each of its four product categories: ecommerce, software, shipping and marketing services.

Ecommerce growth was driven by strong increases in the number of packages shipped and benefited from the initial ramp-up of the Company’s UK outbound cross-border services. The strengthening U.S. dollar had a dampening effect on the rate of increase in the number of purchases from the U.S. over the course of the quarter.

Software revenue growth was led by a significant increase in licensing revenue, particularly enterprise location intelligence software, reflecting on-going investments in product and channel specialization. Revenue growth in the areas of shipping solutions and marketing services resulted from new client acquisitions for their respective product offerings.

EBIT margin improved 80 basis points versus the prior year, which reflects the benefit of earnings leverage from revenue growth, net of the impact of continued investments in technology and infrastructure.

2015 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.

This guidance excludes any unusual items that may occur or additional portfolio or restructuring actions, not specifically identified, as the Company implements plans to further streamline its operations and reduce costs. This guidance also assumes that the global economy and foreign exchange markets in 2015 will not change significantly from current levels. Should recent volatility in foreign exchange markets continue, however, it could have a material effect on our reported results as compared to the guidance we are providing.

The Company expects in 2015:

• Revenue growth, excluding the impacts of currency, to be driven by double-digit growth in Digital Commerce Solutions, flat to modest growth in Enterprise Business Solutions and a low single-digit decline in SMB Solutions.
• The actions taken in 2014 to exit a non-core product line in Norway and transition to a dealer sales network in six smaller European markets are expected to adversely impact total revenue comparisons for 2015 by about $30 million, or by about 1 percent.
• Incremental investment of $0.07 to $0.09 per share related to the implementation of a new ERP system and $0.08 to $0.09 per share related to expanded marketing programs, including the new brand. These expenses are expected to be higher in the first half of the year versus the second half of the year.
• On-going reductions in SG&A costs as a result of the expected benefits from the 2013 and 2014 restructuring and go-to-market programs. These benefits are expected to substantially offset the incremental expenses associated with the new ERP system and the expanded marketing programs.
• A tax rate in the range of 31 to 34 percent.
• Free cash flow in 2015 to be slightly lower than 2014 primarily due to the further stabilization of finance receivables and incremental capital investment related to the new ERP system.

Based on the above assumptions, the Company’s 2015 guidance is as follows:

• Revenue, on a constant currency basis, is expected to be in the range of flat to 3 percent growth when compared to 2014. However, if current currency exchange rates are in place all year, reported revenue would be lower than constant currency revenue by more than 3 percentage points.
• Earnings per diluted share from continuing operations to be in the range of $1.85 to $2.00, which includes the incremental investment of $0.15 to $0.18 per share related to the implementation of a new ERP system and expanded marketing programs, including the new brand. This guidance is on a GAAP basis and does not anticipate any potential adjustments to earnings.
• Free cash flow to be in the range of $475 million to $550 million.

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. EST. 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.pitneybowes.com

About Pitney Bowes

Pitney Bowes (NYSE: PBI) is a global technology company offering innovative products and solutions that enable commerce in the areas of customer information management, location intelligence, customer engagement, shipping and mailing, and global ecommerce. More than 1.5 million clients in approximately 100 countries around the world rely on products, solutions and services from Pitney Bowes. For additional information, visit Pitney Bowes at www.pitneybowes.com.