Good morning and welcome to Pitney Bowes' third quarter 2026 earnings conference call. Today's call will include remarks by Pitney Bowes Management followed by a question and answer session. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time. I will now turn the call over to Alex Brown, Assistant Treasurer and 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 can 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 a spreadsheet with historical segment information on our website. With that, I'd now like to turn the call over to Kurt. Good morning and thank you for joining us today.

We continue to deliver strong results in the third quarter with year-over-year improvements in EPS, adjusted EBIT, and adjusted free cash flow despite our increase in investment and growth. Our results in Q3 and the start of Q4 have given us confidence to up the midpoints of our revenue and adjusted free cash flow guidance range. Now I'd like to quickly address our five key strategic priorities. Presort picked up significant volume late in the quarter as a result of PCI's exit from the market. These volumes will create a year-over-year tailwind over the next four quarters, but I also believe this exit is further evidence that the industry margins are near a cyclical low and that more rational industry pricing is likely in the near future. Regarding our CENTEC segment, we were able to achieve higher margins despite increased growth in focused investment thanks to continued cost discipline. That said, the previously mentioned termination of a non-core contract during Q4 will create a headwind for this business during 2027. Moving to Pitney Bowes Bank, we continue to invest in technology and infrastructure to support future lending platforms, and all three pilot programs continue to make progress, particularly our logistics lending platform. With respect to capital allocation, We completed a tender offer for $46 million worth of our long-dated debt at a discount to par and also reduced our Term Loan B interest rate by 75 basis points through a repricing. Finally, our strategic process has entered the external review phase. As mentioned at the start of our last call, we will not answer questions related to the process, but will provide updates as appropriate. In summary, we executed well across all of our strategic priorities and momentum continues to build as we focus on achieving profitable revenue growth by the end of 2028. As always, I will end the call by thanking the exceptional team of more than 6,000 Pitney Bowes employees that I have the pleasure of working with. The results we are delivering and the momentum that we are building is entirely thanks to their hard work and dedication. With that, let's open the call to questions.

Thank you. We will now conduct the question and answer portion of the call. Again, in order to ask a question, please press the star key followed by the number one on your touchtone phone. Our first question will come from the line of Aaron Kimson with Citizens. Please go ahead.

Great. Thank you guys for the questions. I'll start with Parisa. Good morning. I'm modeling mail volumes of about 130 million pieces sequentially in the quarter. It's going to be 520 annualized. that obviously ignores any seasonality. You commented you won 2 billion pieces annualized from PCI since it shut down in August and a lot of that volume came late in the quarter you just mentioned. So can you help us think about how much of the net new volume in the quarter was driven by PCI versus the net new logos and boomerang customers you've previously spoken about and to the cadence of how the PCI volume may come into the network over the next few quarters?

Yeah, thank you for the question, Aaron. We don't have specific numbers on that to offer. We don't go to that level of granularity. I'd just say the majority of the volume gain was tied to gains from PCI.

Okay, that's helpful. And then on the decision to invest in the pre-sort network organically with the sortation equipment refresh, how should we think about any initial capital outlay for that equipment and what the payback period on those investments might look like?

Yeah, hi, Aaron. This is Paul. It's great opportunities for us. Generally, we see the paybacks two to three years. Sometimes it can be a little bit longer, but on average, it's about two to three years. So, you know, we are putting out capital this year. We'll put out capital next year for that. But I mean, we're doing this because, you know, we believe in the pre-sort business and this is the right thing for us to do.

Got it. Congrats on strong results. Thank you, Aaron.

Our next question will come from the line of Kurtis Nagel with Bank of America. Please go ahead.

Great. Thanks so much. Yeah, so obviously really interesting news on PCI, and I think you mentioned a second competitor. I guess in terms of just maybe, A, sizing the opportunity set, you know, and perhaps how much business you can win. And Kurt, I think you alluded to this, you know, potentially some, you know, near-term pricing investments, you know, maybe scaling the scope of that and Ultimately, longer term, how should we think about the degree of how underpriced the industry is now and how that affects longer term margins?

Good morning, Kurtis, and thanks for the question. With respect to pricing, I guess what I could say is What really happened, and I apologize for a long explanation, but hopefully this will make it perfectly clear. In July of 2024, there was a rate case that increased the work share discount substantially. So margins expanded across the entire industry, which set off a gold rush for customers. So what you saw is... Competitors being increasingly aggressive trying to win new customers because the margins just had expanded significantly. PCI in particular, this is just our opinion, got extremely aggressive on pricing to the point that they left themselves no margin, presumably due to transportation costs, diesel, et cetera. My view is they more or less drove themselves out of business being too aggressive on pricing. I think this is driven by that rate case that created these high margins. What you're seeing now is much lower margins. You're seeing it for us. you're seeing it you know capital pre-sort you know exited service I think December of last year PCI exited September of this year you know you can never make too much of rumors but you know Debbie's heard scuttle of other competitors having some serious problems so the reality is I think there's a that you would expect there to be a recognition from the industry that pricing as it stands today it's not sustainable for the long term so you know our expectation and again you know we can't we can't drive we have to we're still we're dominant player but we can't set price we can only you know react to the price that's out there our expectation is that based on where competitors and us stand in terms of margin that pricing should start to go up just to you know get get players to a sufficient ROI to justify continuing to operate in the space and as we said in the letter again you know we expect that to happen but we're not We're not resting on our laurels. We're doing a lot to integrate the PCI volumes. There's a lot of work to be done there. So we expect to get a lot of margin pickup from that. We can talk more about it if you'd like. But also, as Paul spoke to, we're making a lot of investments to continue to bring down our cost of operation so we can get higher margins and better ROI on the business.

Okay. I mean, since you mentioned it, yeah, if you could, I guess, elaborate more on that. The margin rate you expect to get from PCI, that'd be awesome.

Appreciate it. Yeah, absolutely. So whenever with PCI ceasing operations, one thing that is, this just demonstrates some of the value that we offer in the space. We're the one national player. So when people looked and said, hey, we have a lot of volume, we need to move. We were the natural choice. So we picked up a disproportionate share of the volume out there. Some of it is we want to secure clients. We want to have good partnerships. These tended to be larger customers that we picked up. So the pricing there was lower, just the economics of the industry. And as far as margins going forward, we've absorbed... and many more. and then adjust on the back end to correct, you know, to start to hire permanent employees, you know, set our network such that we can handle the volumes without having to go to extraordinary lengths. So over time, as, you know, as we adjust to the new volumes, we expect margins to improve.

Chris, thank you.

Thank you, Curtis.

Our next question will come from the line of George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. With respect to CENTEC, can you size the revenue associated with the nine core contract that's winding down? And if you exclude that, what the underlying revenue trajectory should look like in 2027?

Yeah, George, good morning and thanks for the question. So it's a decent chunk of revenue. Think of it in the 60 to 80 million range in terms of revenue. So it's a pretty big hit for us. And the thing that we really want to accentuate is This truly is non-core. This was a part of the old GEC. This was a fulfillment business. We don't do fulfillment. It's not even close to any other business that we do. It was just a profitable business that was left over from GEC. So we always knew this business was going to go away. So that's going to be roughly a $60 to $80 million hit for 2027. And I would say absent that, there's no doubt in my mind that we would be at growth in 2027 were it not for the loss of this one contract.

Got it, that's helpful. And then with respect to pre-sort, in the quarter, revenue per piece fell a bit. Can you talk a little bit more about that, what drove that, and whether that specific pressure should persist?

Yeah, George, this is Paul. I think Kurt touched on it in his previous answer, but obviously we brought in some of PCI in that in September. I don't think we go down to the granularity of the volume, but that had an impact on our RPP, as we call it. and you know at some point we will mean revert it will take it you know we ingested what Kurt said around 15 percent of our overall volume and so that just as we optimize so there will be some mean reversion over time as as we get back to what we think are more normal sustainable pricing.

Got it that's helpful thank you. Yeah thank you George.

Our next question will come from the line of Jasper Bibb with Truist Securities. Please go ahead.

Hey, good morning, guys. Maybe I wanted to follow up on a prior answer. I guess I'm wondering what the incremental margin might look like on those TTI volumes, or maybe if you don't want to comment on TTI specifically, like typically what those incremental margins look like for pre-sort when you see volumes rising like this.

Yeah, Jasper, good morning. generally what I'd say and this is true of just about any business you know the larger a customer is the typically the lower the pricing the lower the margin so this was disproportionately large customers so overall the pricing you could assume was below our you know our typical pricing um just because of the size and same with the margin it's going to be a lower margin customer um and you know just to be clear that that's something that will persist this is um because they're larger customers, we do see pricing in the industry or expect pricing in the industry to start to adjust and become more rational. But to be clear, it's not like these customers we're going to increase price on specifically. It's just that we expect margin to come across the entire portfolio of customers if that comes through. So I would just say lower margin due to larger size. And it's not a one-time hit. It'll be a persistent hit because they just are larger customers and going to naturally be at a lower margin for the long term.

Thanks. That makes a lot of sense. I think you mentioned in the letter this quarter you're increasingly confident the business returns to growth by the end of 28 or sooner. I guess my question is, you know, what are you kind of seeing that gives you increased confidence? And maybe I'll point my question a little bit more specifically at the SunTech segment, given we have already talked about a lot of the good things going on in free source on the call.

Yeah. Yeah. So with respect to that, you know, I'll get to SunTech. One thing I'd say is, you know, Historically as a company, I would say we've made two mistakes typically. One is we identified one idea that we jumped onto wholeheartedly like GEC and pursued, and it may not have always been the right idea. Or we've made a lot of peppered investments across a whole variety of opportunities. and I will get to Centech but when we think about growth, we're trying to think very holistically using a very broad aperture and not to get too wonky here but I previously was co-founder or founder of three successful startups and the discipline that a startup has is that you have to go in front of a VC and convince them of an amazing idea The problem that happens with corporate startups, for lack of a better idea, is you have a parent that says, we need growth. What do you have? And then it's much easier to get an idea through. So what we're doing is being deliberately thoughtful and not just saying, hey, shipping is an opportunity for growth. We think it is, but we're going to wait for the great idea or make sure that we have the right idea. But beyond that, when I talk about broadening the aperture, are there other things we can do? Beyond just what the obvious is, is there opportunities to use the bank to help grow pre-sort? And that's something that the bank is now doing. So we're thinking more holistically, what are all the good ideas out there? So we have more ideas to choose from. So when we talk about growth, it's not a guarantee it's going to come from one place or the other. There's ways we're looking at use of our data within the organization. We think we can... help generate growth. Just the information that we have, we can... We can use that to make better decisions with our customers, etc. So there's a lot of initiatives we're talking about. I do think with Centech we'll get there. Obviously, shipping software is an amazing opportunity. So I don't want to say by 2028 necessarily that Centech itself will be at a pace of growth. There's just confidence with all of the initiatives we have across the three business, you know, Centech Bank, which is currently a part of Centech and Presort. as well as other ideas we have that are more holistic and use the advantages we have with our existing business. We're very confident that we have enough good ideas that if you think of it from a VC standpoint, we have enough good ideas in the hopper that some of those are ultimately going to pan out as we pilot and test them and we'll get to growth overall for the company. I know it's a non-answer answer. I'd like to think that CENTEC is going to get to growth in 2028, but the increased confidence really comes from the fact that we have a lot of really good ideas internally that we're exploring.

No, that's really helpful. Maybe one last quick numbers question. I think the kind of 4Q adjusted EBITs implied by your guide is seasonally a little below where things kind of normally are as you go from the third quarter into the fourth quarter. But you just bring that for us when you say that's like more conservatism. I know you have some expense time and things this quarter versus the third quarter. Just any kind of contact there would be great.

I mean, you've seen what we've done through the year where we have more clarity. We've adjusted our guidance and I don't mind if you call me conservative in the way I approach things. That's OK. And look, there's some things that we look back on Q4 of last year. It was exceptional in some respects. So, you know, we think of that. But right now, what we've given for our annual guidance is where we're comfortable. But I understand the exercise that you've done. You've backed out the full year to isolate Q4 EBIT and and I respect the question and we thought about that too, but we're comfortable with our guidance for the year. And we've shown that how we've tightened the range.

And Jasper, a few things that Paul's mentioned, we talk internally as well. Last Q4, we had, I believe it was a $5 million benefit to EBIT as a result of, I think it was equipment revaluation. So we did have some things that helped us last year. The other thing, and again, thankfully, I have Paul and Alex and the whole finance team to help me on the accounting questions I don't fully understand. But there's a lot of, I think, when you get into Q4, there's a lot of questions in terms of bonus accruals and things like that that create a lot of variability for your Q4. So we wanted to keep a large range, not because we're not comfortable with where the business is going, and we're not trying to be overly conservative. It's just a recognition that there's a lot of things that can come up in a Q4 from an accounting standpoint that could ultimately lead to results that are a little harder to predict, so. That makes sense.

Thanks for taking the questions, guys. Thanks, Jasper.

Our next question will come from the line of Anthony Lebiadzinski with Sidoti. Please go ahead.

Thank you, and good morning, everyone, and thanks for taking the questions. So with the exit of PCI and 3Q and you guys strengthening your position as the dominant player in the pre-sortation market, do you think there's an opportunity for you guys to be more of a price leader as you talk about improving pricing and margins? And I guess as we look back historically, late 24, the pre-sort margins were high 20% range. even got to a little over 30% in the early part of 25. So I know there are some headwinds with higher fuel and transportation costs, but maybe if you could just talk to us as far as the timing of the pricing and margin improvements that you expect, how do you guys think about that?

Yeah, Anthony, good chatting and good morning. So what I would say is we're not a leader. I would argue we're not a leader in terms of pricing. but we are going to do what's right for our business so right now our belief is across the entire industry margins are particularly low we look at our business assume that we're one of these smaller players I can only imagine the margins they're seeing not as attractive as we are it's right now it doesn't make a whole lot of sense to be investing in a space just based on the low returns people are getting so our expectation is you know We're focused on getting price in part because as you highlighted, our costs have gone up dramatically. Diesel prices, lack of drivers. There's a whole host of issues that are really facing the industry, us and our competitors. And there is a flow through effect to ultimate customers. So our expectation is is that as we do that, that a competitor is not necessarily going to come in and have a significantly better pricing offer simply because they're facing the same costs that we are. Likewise, as we're trying to compete to get other people's business, we have to be very cognizant, particularly given that we've taken this volume on, that, you know, our costs are higher. So I think in general, everybody is pricing, you know, everybody's doing what's right for their business. As people price, the margins just aren't sustainable at these low levels in our view. So our expectation is pricing is going to be higher on a go forward basis. And added to that, you know, we are looking at things like fuel surcharges, et cetera. You know, we may have signed a contract when and many more.

Sure, absolutely. So in terms of looking back at the pre-sort margins, I know this goes back to your comment, Kirk, earlier about how margins got expanded back in 24. But as we look at historical EBIT margins for pre-sort, they were in the high 20% range, even got to a little over 30% in the early part of 25%. I guess the question is, you know, at some point, do you think you can get back to those types of margins or, you know, or not perhaps, you know, given some of the headwinds that are out there?

I think, you know, that period was a very, and you saw what happened when our margins got to that level as the pricing just came down. So I would love to say we can get back into the 30s. I'm not so sure that's the case. And a few more things to note, by the way, something to keep in mind is we have corporate expense. that we can't efficiently allocate or effectively allocate down to pre-sort. So pre-sort margins for us are actually lower than what we report because of that. So again, apply that to our competitors, their margins are lower. But when we look at our pre-sort business, as we think about where our margins are now, The stress in the industry, the fact that we've seen pre-sorters going out of business at this level of margin, it's almost tautological or it just follows logically that margins need to go up industry-wide. So I've only been in this chair for 16 months, something like that. So I continue to learn now that I'm inside the company and it's giving a much better sense of what's probably reasonable. And I think mid-year, Mid-20s on margin is probably mid, I think maybe even a little above mid-20s, but I don't see us getting back in the 30s for a sustainable period because I think at that point, pricing will kick in. And one last thing to add, I know it's a long answer, but again, we continue to invest. So the investments we're making, we believe are continuing to give us a better cost structure than our competitors, which will support longer higher margins in the long term simply because it's a higher level of investment. We'll be at a higher investment level than competitors conceivably, but also that should translate to higher margins as well. That's another thing that gives me confidence in getting to the mid to upper 20s for margins in the pre-sort business.

That's very helpful. And just one other question that I have as far as the corporate expenses. So this year it's kind of bounced around roughly $22 million first quarter, $27 million almost in the second quarter. Here it was $33 million roughly in the third quarter. So how do we think about the corporate expenses going forward? And if you could just also explain as to why we saw a pickup here on a sequential basis, that would be very helpful. Thank you. Yeah, sure.

Hey, Anthony. What happened in Q3 is we reclassed some of our costs. So we gave the benefit down to our business units. But the long-term trend is we see corporate SG&A continuing to decline as we further sort of find efficiencies in how to run this overall business. And we still are looking for ways to sort of allocate more of our corporate costs to the business to appropriately sort of value those businesses. But I mean, the big number in Q3 is approximately a 10 million reclass from... Okay.

All right. Well, thank you very much. Thank you, Anthony.

Our next question will come from the line of Kartik Mehta with North Coast Research. Please go ahead.

Hey, good morning. Maybe just to understand a little bit about the Syntec margins, you guys have done a great job expanding those margins. And you talked a little bit about this non-core customer or this revenue going away. And as you look at that segment of the business, is there an opportunity to reduce costs or do other things to be able to sustain the margins that you have in this business? Or do you think as we go into 2027 with the loss of that customer, The margins will be pressured in 2027 compared to 2026.

Thank you for the question, Cardick. Let me make a few comments on that. First of all, losing this non-core piece of business will be negative for margin just because you lose some of the leverage. The margin on that business on a on an internal accounting basis is about equal to other businesses. But the reality are we're going to end up with effectively stranded costs that we can't eliminate because it was shared services across the overall business. So again, a non-core piece of business, but it was an attractive piece of business. So unfortunately, that will be a hit to margins. And then another hit to margin in the short term, and then I'll address sort of the counteracting piece of it. is we're really focused now on getting the growth. So we're already investing and that's one of the things I'm really proud of the team for delivering. We're hiring people, we're purchasing software, buying, we're investing in growth in the business and we're still able to improve our margins or improve profitability. But we're gonna continue to invest in growth as we come up with more and more of these opportunities and we start to grow into those opportunities. Kevin Collins, Lauren Freeman, Lauren Thomas DeFina, Ruchi Bhalla, It's a part of running a business these days. I think Microsoft recently announced a cut. There's been some large companies that are very successful out that are reducing costs. We're constantly looking at opportunities where we can reduce costs. Todd and his team, Debbie and her team, Steve and his team are all doing a good job of balancing investment and growth. while also figuring out ways to save and create efficiencies within their business so that we can offset some of the costs that we're putting into growth initiatives. So it's a longer answer, but I guess what I'd say is in the short term, I would say that Centec margins probably roughly in the right ballpark. One thing to note is assuming we break out the bank, The bank is currently reported as a part of Centec. So you're going to see you naturally see a change in the margin reported for Centec if the bank is no longer reported as a part of it. But if you combined Centec in the bank, you'd get back to the same level of margins, more or less.

Fair enough. And then just a follow up question on the free cash flow. Obviously, you raise your free cash flow guidance, I think. There were some net working capital benefits as a result. As you look at your free cash flow over the next 12 months or maybe going into 2027, how much of the free cash flow is sustainable because of just improvements in the business versus improvement in working capital?

Look, I mean, obviously, we realize a lot of the benefits and improvements in working capital. And Kurt talked about we're continually improving our cost structure. So we realize benefits from that. You know, one way to look at it, I'll tell you how I look at it. I look back at the LTM free cash loan. It's just astounding what this business provided, you know, with the right focus. and obviously we were confident to up it for the year. Again, it's just a strong sign of how much free cash flow opportunity is available here. I don't believe 27 will be as high as 26, but it's certainly still commendable where our cash flow will be going forward. But to break it down into the components, I would say we're always looking for opportunities for working capital benefits. And we naturally have some built into our business by its design. And so I think we've used those in a very appropriate manner, as you can see, how we've allocated capital and the shares that we've repurchased and how we've kept our debt flat and we've cut our interest expense and a number of other things.

And Cardick, to add to that, a couple of quick things. You know, I think that 20, you know, there's a lot of variabilities you've seen within our business from a working capital standpoint. 2026 appears to be, you know, we're having tailwinds as a result of it. And you don't always have tailwinds. So at some point, unfortunately, we will face headwinds. And, you know, all analysts, I'm sure you'll sit there and look at our business and normalize, you know, one year is going to be too high, one year is going to be too low, and reality is somewhere in the middle. Another thing just to call out is twofold. One is, as I mentioned, we're increasing investment just because we've identified attractive areas for investment. So we do expect with this order refresh, we're leaning heavily into that. We've underinvested in prior years. So we're going to be accelerating investment. So CapEx, we do expect to, we have a catch up. We may get to a point where we're over and many more. and many more. but we're also gonna continue to have lease payments when we couldn't just outright buy the equipment. So there's gonna be a small transition period where we're paying old leases and new CapEx that won't carry those future lease payments with them. So there's gonna be, and we'll talk more about it as we, discuss guidance for 2027. But those are some things just to keep in the back of your mind as you try to model for 2027. We're always going to do what's right for the business. And sometimes that means taking a short-term hit to cash flow just to get the business where it should be in terms of how we operate on a go-forward basis.

Yeah, that makes sense. And thanks for the explanation. That is helpful. Thank you both. Appreciate it. Absolutely. Thank you, Carter. Thanks.

And at this time, I see no further questions in the queue. I'd now like to turn the call back over to Kurt Wolf for any closing remarks.

Thank you, everybody, today for joining. I'd just like to make a few final comments. First of all, I can't express enough gratitude to all the employees here at Pitney Bowes. I opened by saying that, and I close by saying it. I would say what we're accomplishing right now is nothing short of amazing and it's due to, like I said, the 6,000 employees here. Hopefully investors and analysts are starting to realize the discipline and excellence that we're showing in execution and that we're starting to get some appreciation and credit for our ability to execute on plan. And then the second point I would go from there is what's really exciting for me as the CEO of this company is for so long we've been focused on trying to fix what we have. and now we're really pivoting to a focus on how do we grow and how do we have success going forward. So this will be a new chapter and as analysts, what you're gonna see is increased investment. You're gonna see increased investment, not just from a CapEx standpoint, but also from a cost standpoint. We hope that we've earned people's respect and appreciation that we can execute on plans. We do expect a period of transition where we are investing in growth before we get the revenue from that growth, but it's important for the success of this business that we get to revenue growth. That's ultimately what all investors want, and it's going to be a period of transition. A lot of companies typically will, you acquire something, which we did when we bought the Nugistics business. We're in a period of transition. But again, I think our ability to execute gives me a lot of confidence that as we're making these investments, these investments will pay off. So I'm looking forward to the day where we start talking about all the growth initiatives and the actual positive revenue that we're starting to put on the board that is also tied to increased profitability. So thank you everybody for listening and thank you for your continued trust in us and the management team and the employee base. Thank you all.

This concludes today's Pitney Bowes Third Quarter 2026 Earnings Conference.