Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Pitney Bowes Inc  (NYSE:PBI)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Pitney Bowes Third Quarter Earnings Conference Call. (Operator Instructions) Today's call is also being recorded. If you have any objections, please disconnect your lines at this time.

I would now like to introduce participants on today's conference call Mr. Marc Lautenbach, President and Chief Executive Officer; Mr. Stan Sutula Executive Vice President, Chief Financial Officer; and Mr. Adam David Vice President, Investor Relations.

Mr. David will now begin the call with the Safe Harbor overview.

Adam David -- Vice President, Investor Relations

Good morning. Included in this presentation are forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release, our 2017 Form 10-K annual report 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 any forward-looking statements as a result of new information or developments.

Also fro non-GAAP measures used in the press release or discussed in this presentation you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally we have provided slides that summarize many of the points that we will discuss during the call. These slides can also be found on our Investor Relations website.

Now our President and Chief Executive Officer, Marc Lautenbach will start with a few opening remarks. Marc?

Marc B. Lautenbach -- President and Chief Executive Officer

Good morning and thank you for joining the call. We continue to make progress against our strategic initiatives and move forward in our transformation. In the third quarter, revenue continued to deliver double-digit growth and through the first three quarters of this year revenue has grown on both a reported and a pro forma basis. Let me provide you an update on the milestones we achieved since we last spoke 90 days ago. Stan will follow up with a more detailed discussion on the quarter and we'll then take your questions.

Our portfolio continues to shift to shipping which is made available (ph) through our e-commerce cloud. Shipping revenues comprised more than 30% of our overall revenue in the quarter and that number continues to grow. On a pro forma basis total shipping volumes in our Commerce Services business grew 14% over prior year and also increased from prior quarter. On a year-to-date basis this takes our label and parcel volumes to nearly 400 million (ph).

One of the main pillars of our strategy is to remove the complexity of shipping for our clients and we are doing it. The growth we are seeing in our volumes is the proof point. In support of our shipping strategy, we recently opened our new fulfillment delivery and return center in Greenwood, Indiana. This facility leverages cutting-edge technology so that we can service our domestic shipping clients more quickly and efficiently. This supercenter is unique in its ability to facilitate the entire e-commerce process by leveraging state-of-the-art technology, including solutions powered by robotics to efficiently fulfill orders, enable deliveries and process returns for consumers and e-commerce retailers. We're also reaping the benefits of Newgistics cross-sell opportunities while reducing the complexity of shipping for our clients. Earlier this year we launched a new offering within a (ph) client which leverages our cross-border expertise in combination with our Newgistics domestic delivery services to enable e-commerce sellers in China to ship products to buyers in the US faster and easier.

In SMB our SendPro C-Series is another proof point of how we are taking the complexity out of shipping for our clients. Since launching this product, we have placed nearly 57,000 units in the market. As a reminder this product addresses a large segment of our existing SMB install base in the U.S. in addition to new prospective clients. With the 57,000 placed in the first year we are making good progress in transitioning this existing base of clients to the new product as leases come due. The C-Series is a multi-application mailing and shipping device that is digitally connected on an open android platform. Because of this platform we are able to start to point new apps to our clients. In the third quarter we deployed five apps which include the SendPro Care, shipping alerts and reports and same-day delivery apps. It is early (ph) as we are launching these apps in a phased rollout but we're already starting to see a positive response as clients see the new value we're able to deliver to them especially around shipping.

Additionally with the recent USPS proposed $0.05 discount in First ClassMail from beta users our C-Series brings together reduced postage and competitive shipping pricing options for our clients which is a strong value proposition. Our achievements and operational excellence are evident in our spend reduction. To-date this year we have reduced gross spend by over $100 million. The savings are evident in our SMB margins which continued to perform above the long-term market range.

And as we announced last quarter in August we redeemed $300 million in notes that were maturing in 2019. This brings our total debt reduction to over $560 million this year with no major tranches of debt coming due until 2020. When we think about leveraging economies of scale and experience as a company we have spent the last five years developing the necessary assets around our software, systems and platforms within each of our businesses in order for them to operate more efficiently. These assets are now embedded in each of our businesses. We're able to use these assets to help drive client value. With the Commerce Cloud we have been enabling the creation of competitive modern solutions across our lines of business. The Commerce Cloud is a catalyst for a transformation and modernization to (ph) leverage across the Company.

The progress that we have made building our strategic foundational technologies of SaaS, API management, mobile, Big Data and IoT have been enablers to our growth. In addition our APIs are a great example of how we are leveraging economies of scale and experience across the enterprise. Our shipping APIs which are used within SMB and Global Ecommerce continued to ramp up volumes. Another example of leveraging our economies of experience and scale is through the expansion of our Newgistics network. We are also able to take advantage of additional operational synergies with our Presort network.

Let me switch gears here for a moment. As spoken with you (ph) over the last few months regarding our capital allocation priorities specifically in regards to our dividend. Let me try to lay this out succinctly. First and foremost all of our capital allocation decisions are made with the objective of creating long-term shareholder value and we will continue to invest for that long-term value creation, be it organically or in organically. Our level of investments and any changes to the composition of the portfolio will drive our capital needs. Therefore our dividend will be a result of our decisions and actions not a driver.

Just a few years ago Pitney Bowes was a Company that was largely tied to physical equipment and mail volumes, a business closely (technical difficulty) with an industry that is in secular decline. We could have stated the course. We are the number one player in postage meter space with a solid client base and very strong margins. But the mail market is in decline, so staying the course will not be the right long-term solution for our stakeholders or the Company overall. We have made tough decisions to divest certain businesses and product lines, reduce costs and get out of certain geographies while at the same time making strategic acquisitions.

We have changed the complexion of our business and our business model. This wouldn't have been possible without investments. We've invested in our platforms, our systems our products, our brand and our talent in order to move this Company well into the 21st century and well into the adjacent shipping space which is growing. We have utilized our strong cash flow to make these necessary investments and have been able to maintain a manageable debt level. Today our debt is actually lower than where we were two years ago and yet our portfolio has changed significantly and it's a portfolio that has shifted to growth. That being said, we must continue to move forward. While the toughest parts of our transformation are behind us, we still certainly have more work in front of us. The Pitney Bowes of tomorrow will continue to evolve.

I anticipate that our conversations a year from now will be different just as they are different today from five years ago. Let me reiterate our capital allocation priorities as I presented them at Analyst Day in March. First we have and will continue to invest in our portfolio particularly around shipping and shipping related capabilities. As I mentioned shipping is a large market that is growing quickly. We cannot move forward without making investments to differentiate ourselves through our unique offerings which will further reduce the complexity of shipping for our clients. Second as the Pitney Bowes portfolio evolves we will continue to look at inorganic investments and we'll also ensure that value within our existing portfolio is being realized.

Our third objective (technical difficulty) the balance sheet through the paydown of debt. And finally we will continue to deliver shareholder returns primarily through a competitive dividend. Our capital allocation strategy has always been oriented toward long-term value creation which is resulted in a balanced approach. So to summarize, we have moved the portfolio to growth. We have reduced our cost structure significantly while making necessary organic and inorganic investments. We have reduced debt by over $1 billion and we returned over $0.25 billion (ph) to our shareholders.

Let me now make a few points on the third quarter before handing it over to Stan. We reported revenue growth again this quarter and EBITDA grew over prior year. SMB turned in a good performance with the revenue decline and EBIT margin both performing within the long-term market ranges. In fact we grew EBIT dollars year-to-year in this business. In addition North America mailing revenue declined less than 2% and their EBIT margin expanded significantly. With software, we knew we were entering the quarter with a lower level of renewals and last year also included a large deal which skews (ph) a comparison. The team did a good job closing small deals but the lack of large opportunities coupled with a difficult compare made for a tough quarter. That said we're off to a good start this quarter having already closed several deals that moved out of the third quarter which gives us confidence for the fourth quarter.

In addition, we now have closed three platform deals with our global systems integrators. These deals are in managed service and have the opportunity to be a reliable future stream with partners that have significant reach. Commerce Services continues to turn in a solid top line performance. Newgistics once again had very strong top line growth which indicates the market attractiveness of the capabilities in this business. That said Commerce Services continues to be impacted by headwinds around the higher dollar and higher transportation and labor costs. And investments made through the quarter are also impacting the bottom line but they're necessary to support the Company's strategy and to continue to take advantage of the growing shipping market. Despite all of these headwinds and investments Commerce Services still grew EBITDA from the prior year.

Let me now turn it over to Stan and he can take you through the details of the quarter.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Thank you, Marc, and good morning. This quarter revenue grew over prior year and we continue to reduce spend and our debt. EBITDA also grew over prior year. We continue to make good progress against our strategic initiatives and the portfolio continued to shift more toward shipping. As our portfolio shifts with the growth of our global e-commerce business inclusive of Newgistics, our seasonality will also shift even more toward the fourth quarter. And while more work still lies ahead we are seeing the progress begin to manifest itself in our financial performance.

Let me turn to our results. As always unless otherwise noted my statements going forward will be on a constant currency basis when talking about the revenue comparisons and on an adjusted basis when talking about earnings related items including cash flow. Reconciliations of all non-GAAP to GAAP measures can be found in the financial statements posted with our earnings press release and on our Investor Relations website. For the third quarter revenue totaled $833 million or a growth of 14% over the prior year.

On a pro forma basis with Newgistics assumed in both periods, revenue rounds to flat compared to prior year. Looking at revenue by group, Commerce Services grew 59%, SMB declined 3%, and software declined 19%. Adjusted EPS was $0.27 for the quarter. GAAP EPS is $0.41. GAAP EPS included $0.03 in restructuring charges and a $0.03 charge related to the early redemption of our 2019 notes. GAAP EPS also included a net benefit of $0.04 related to the 2017 tax legislation and a net gain of $0.16 in discontinued operations largely related to our recent divestiture of our Production Mail business.

GAAP and adjusted EPS include a net benefit of $0.03 largely from the resolution of certain tax examinations. Free cash flow was $94 million and GAAP cash from operations was $116 million. Compared to the prior year free cash flow declined by $11 million largely due to the timing of accounts payable and improvement in finance receivables which was partly offset by the timing of accounts receivable. Free cash flow came in as we expected this quarter with the exception of a $30 million tax refund that we anticipated in third quarter but now expect to be a fourth-quarter occurrence. This $30 million refund is anticipated in our annual free cash flow guidance. Looking at capital allocation, for the quarter we used cash flow to pay $35 million in dividends to our shareholders and $12 million in restructuring payments.

Capital expenditures totaled $41 million which is about $2 million lower than prior year. At the end of the quarter our total debt was just under $3.3 billion which was about $910 million lower than the same period last year. The $3.3 billion in total debt is at a similar level to the first quarter of 2017. As we mentioned last quarter, we redeemed our 2019 notes of 300 million bringing our total debt paydown to over $560 million to date this year. At the end of the quarter we had $815 million in cash and short-term investments on the balance sheet. During the quarter we repatriated $53 million of non-U.S. cash bringing our total in repatriated cash to just over $520 million to date this year.

Looking at the P&L starting with revenue performance by line item as compared to prior year, business services grew 58% which is largely attributable to the incremental contribution for Newgistics. On a pro forma basis business services revenue grew 8% driven by the continued growth in Global Ecommerce and Presort. Equipment sales declined less than 2%. We had declines in support services of 2%, rentals of 4% and financing and supplies of 5% each. Software declined 18%. Gross profit was $398 million with a margin of 47.8%. This is a decline of 9 points from prior year primarily driven by the addition of Newgistics which was not in our results last year and accounts for 6 points of the drop.

The remaining portion of the decline reflects the organic shift to our growth businesses as well as continued headwinds around labor and transportation costs. SG&A was $269 million or 32.3% of revenue which was an improvement of 6 points from prior year. Compared to prior year SG&A was $14 million lower despite $16 million of incremental SG&A related to Newgistics which was not in the prior year. The lower SG&A reflects our execution of our operational excellence initiatives throughout the business. At a gross level we continued to reduce spend this quarter and to date have achieved a significant percentage of our commitment for 2018 putting us on track to deliver gross savings of over $120 million this year and at least $200 million through the end of 2019. R&D expense was $33 million or 3.9% of revenue.

Compared to prior year R&D expense increased $3 million and was essentially flat as a percentage of revenue. As our portfolio shifts to growth markets we also continue to shift our R&D spend to take advantage of these opportunities. EBIT was $98 million and EBIT margin was 11.7% which was a decline of $6 million and 2.5 points versus prior year. Excluding Newgistics, EBIT margin would have been essentially flat to the prior year. EBITDA was $148 million which was an improvement of about 1% over prior year. Interest expense, including financing interest expense, was $37 million which was $4 million lower than prior year as a result of our debt management. The provision for taxes on adjusted earnings was $10 million and our rate (ph) was 16.6% which was lower than prior year by about 4 points mostly due to the resolution of certain tax examinations in the quarter.

On a year-to-date basis our adjusted tax rate is 22.4%. We still expect to be within our annual guidance range of 23% to 27%. Diluted weighted shares outstanding at the end of the quarter were 188 million which is about 1 million shares higher than prior year. Let me now discuss the performance of each of our business segments this quarter. Within the Commerce Services group revenue was $358 million which was growth of 59% over prior year. On a pro forma basis revenue grew 8% over prior year. EBIT for the group was $3 million and EBIT margin was 1%. EBITDA was $25 million and the EBITDA margin was 7%.

In Global Ecommerce revenue was $233 million which was a growth of 120% over prior year and included a full quarter of incremental revenue from Newgistics. On a pro forma basis Newgistics delivered strong revenue growth of 19% driven by double-digit growth in fulfillment and parcel volumes. We are delighted with the market acceptance of our Newgistics offerings. On a pro forma basis Global Ecommerce grew revenue 10% over prior year. This was driven by the growth in Newgistics. Shipping solutions saw strong double-digit volume growth over prior year and also grew volumes from prior quarter. The growth was partially offset by a decline in cross-border revenue due to strength in U.S. dollar and new regulations in taxes in some of our larger inbound markets. Within our Global Ecommerce business we have diversified the portfolio and client base through new and expanded offerings like shipping APIs and the Newgistics business enabling us to perform better than before in different economic environments. EBIT was a loss of $14 million and EBIT margin was a negative 6.2%. The EBIT performance was driven primarily by investments in market growth opportunities as well as automation, network optimization simplification and technology upgrades. As Marc mentioned, these investments are necessary to remain competitive and move forward with our strategy as well as to drive long-term profitability.

EBIT was also impacted by higher transportation labor cost as well as incremental amortization of intangible assets related to the Newgistics acquisition. EBITDA was $1 million which was an improvement from prior year. Within Presort Services revenue was $125 million which was growth of 5% over prior year and driven by higher volumes of First ClassMail as well as bound and packet mail and flats but partly offset by lower Standard Class mail volumes. EBIT was $17 million and EBIT margin was 13.9%. EBITDA was $24 million and EBITDA margin was 19.4%. Presort EBIT dollars and margin improved this quarter as compared to last quarter. While our margins are still impacted by the macro environment around increased transportation labor costs, we have taken actions to reduce spend in this business. Additionally we continue to invest in automation and process improvement. These investments include new equipment like sorters and sleevers which will reduce cost and meet our clients expectations more efficiently over the longer term.

Turning to our SMB group revenue was $399 million which was a decline of 3% from prior year. EBIT for the group was $131 million and EBIT margin was 32.8% which is an improvement from prior year and within the long-term market range. This improvement aligns with our long-term model for this business to generate strong free cash flow. EBITDA was $152 million and EBITDA margin was 38%.

In North America Mailing revenue was $314 million which was a decline of 2% from prior year. Equipment sales grew 2% over the prior year. We continue to experience good growth and placements of our C-series product. Since launching a year ago, we have placed nearly 57,000 units and are on track to transition our client base into the new product over the next several years. For me though the headline of the quarter for North America Mailing is around our recurring revenue streams. In total our streams continue to decline at a lesser rate than prior periods.

Additionally we saw a growth in services largely as a result of our shipping related products. As a result of the improved equipment sales and streams gross margins grew over prior year and continued to perform within a 1-point range over the last several quarters. EBIT was $118 million which was an increase over prior year and is the first time EBIT dollars have grown year-over-year since the fourth quarter of 2015. EBIT margin was 37.6% which is about 4 points higher than prior year. EBITDA was $135 million and EBITDA margin was 43.1%.

In International Mailing revenue was $85 million which was a decline of 7% from prior year. Equipment sales declined largely driven by weakness in the U.K. and France but partly offset by growth in Japan and Australia. Recurring revenue streams also contributed to the overall decline. EBIT was $13 million and EBIT margin was 15.1% which improved 6 points over prior year due to lower expenses and higher gross margins. EBITDA was $16 million and EBITDA margin was 19.1%.

In Software Solutions revenue was $76 million which was a decline of 19% from the prior year. Coming off a strong second quarter we knew we had a lower level of renewals this quarter. While we closed a similar number of large deals this quarter last year they generated lower overall revenue. This quarter's comparison was also partially impacted by a large location intelligence deal we closed last year.

We continue to achieve strong execution in small deals growing (ph) double-digit over prior year and our SaaS revenues grew as well. EBIT was $4 million and EBIT margin was 4.7% which was a decline from prior year attributable to lower revenue. EBITDA was $6 million and EBITDA margin was 8%.

Let me wrap up with our annual guidance. We are reaffirming our annual guidance of revenue on a constant currency basis in the range of 11% to 15% growth, adjusted EPS to be in a range of $1.15 to $1.30 and free cash flow to be in a range of $300 million to $350 million.

From a timing perspective historically the fourth quarter has always been our biggest quarter on revenue earnings and cash flow. Given our portfolio continued to shift to growth around shipping the seasonality of our business has shifted even more to the fourth quarter, especially with the holiday season in our Global Ecommerce and Newgistics businesses. We continue to invest in items around automation and network optimization particularly within our Commerce Services businesses. We expect to recognize some of these benefits as well as more synergies related to our Newgistics business in the fourth quarter. We are on track to achieve our gross spend reductions of at least $200 million through the end of 2019.

Let me wrap up. On a year-to-date basis we have grown reported and pro forma revenue over prior year. We have reduced spend significantly while still being in (ph) the business for the long term. We have reduced our debt and managed the balance sheet. We continue to make progress in this transformation but as always there is still work in front of us.

With that Marc and I will now take your questions. Operator, please open the line.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Ananda Baruah from Loop Capital. Please go ahead.

Ananda Baruah -- Loop Capital Markets -- Analyst

Hi. Good morning, guys. Thanks for taking the question. Really appreciate it. I think just three if could to be really quick. The first is just with regards to the December quarter revenue guidance and the comments around seasonality. If I just do the quick math I think it implies at least 50% sequential revenue growth Q-over-Q. Is that accurate? I just want to make sure I'm not doing any of my numbers wrong. And then if it is, can you sort of just lay out the signpost for us with regards to the forecast (inaudible) sort of that skew because of the shift because of the e-commerce and the shipping. But maybe if there's any additional detail you can give us with regard to that to get the context around what could be the drivers as you go into year-end, some of the specific stuff? Thanks. And then I have a couple of follow-ups.

Marc B. Lautenbach -- President and Chief Executive Officer

Good morning Ananda. Thanks for the question. So as we look at the full year guidance this portfolio has quickly shifted to growth. Revenue year-to-date were at 16% constant currency growth over the prior year. Now in Q4 that level will drop just given Newgistics will annualize here over it. But if you look at Q4 heading in, SMB we had arguably the best quarter we've had in a very long time in SMB. And the streams and EBIT margin are expected to perform kind of similar to Q3 or improve slightly. But then when you look at holiday volumes and driving scale this is the driver for e-commerce and Newgistics. I mean, this is a big lift for both of those businesses.

Presort we continue to invest in improvement managing transport and labor costs and as they pickup going through. And then software, software is going to be one of the bigger drivers quarter-to-quarter when you look at it in that regard. We had a difficult quarter in software. But as you go to fourth quarter there are more renewals, there is a larger pool of big deals and certainly an easier compare. So if you look at Q3 to Q4, we remain confident of being within our annual guidance range of revenue of 11% to 15%.

Ananda Baruah -- Loop Capital Markets -- Analyst

Okay, great. And then just a follow-on to that one. Is this the kind of -- is this kind of seasonality? I mean, it's early days of bringing this portfolio together in this way. But it seems like I didn't catch (ph) the high end of the guide but it's probably like implying something like 80% Q-over-Q rev growth. So it is just kind of like 50% to say 80% or 80% or so, do you think this is going to be normal for the December quarter going forward, if you guys are (inaudible)?

Marc B. Lautenbach -- President and Chief Executive Officer

As we move toward shipping because of where the peak is in those industries, our business, and we have talked about this over the last several quarters, is going to continue to shift toward Q4. If you just kind of think of globally in a rate of growth we have in that business both for Newgistics, Cross-Border and looking at e-commerce in total, I do believe that we'll continue to see a shift in our portfolio to be more back-end weighted into Q4 just as natural occurrence of the volumes in that business.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Can I just add I mean just in a very simplistic level. If you think about the two drivers quarter-to-quarter at software, so if you look at the range of software unfortunately kind of (inaudible) quarter-to-quarter which adds variability quarter-to-quarter. We believe the fourth quarter looks more like the higher end of the ranges we experienced over the last couple of years. And then if you think about the shipping business we talk about shipping but underneath that is (ph) business to consumer or retail to consumer.

So if we think about all the stuff that goes on in the holiday season Black Friday, Singles' Day all those kind of things, those are the kind of things that are in the fourth quarter. So I think there's a natural skew of these businesses around seasonality and software has its own unique characteristics on top of that.

Marc B. Lautenbach -- President and Chief Executive Officer

We have seen Newgistics as just to add on to that accelerate in Q3 over the first half growth rates. So we'd like where that business is going.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

The other aspect of it is as we exploit the cross-sell opportunities so there's a natural seasonality to all these businesses partly because of the holidays partially because of how businesses operate. But we're also picking up incremental demand from cross-selling and Newgistics and how we reconfigure our capabilities. So there's a bunch of things that kind of adds momentum as we're going to the fourth quarter.

Ananda Baruah -- Loop Capital Markets -- Analyst

Okay, got it. That's super helpful. And I'll just keep it to one quick follow-up. Just the 5% discount, can you just walk through the dynamics how we should think about that, the mechanics behind that, how it impacts you guys (multiple speakers)?

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Yeah, if I can just go up a level, so as you look at what's going on with the USPS in particular, if you think about Pitney Bowes reason for being for almost 100 years it was to help the USPS become more efficient and drive value into their business. So as we look at what's on the horizon with the USPS and as they strive (inaudible) institution does become more economically sound, in general we see that as an opportunity for Pitney Bowes and USPS to do even more together. As it relates to the $0.05 discount let me quote the USPS here because I think it's worth noting.

Meter based payment is more efficient than stamp-based payment. It eliminates the need for stamp production, distribution and cancellation and fosters more consistent use of the postal system. Slowing the migration of mail volume to electronic journals small business volume in particular should be protected by this decision. So I think that -- I think the postal service has quite (ph) well. In general this makes meter mail more attractive vis-a-vis alternatives. That can help -- be a stimulus for Pitney Bowes in 2019.

Marc B. Lautenbach -- President and Chief Executive Officer

And I think our new C-Series that we launched last year actually positions clients to take full advantage of this and add shipping to that capability as well. So it enhances the value proposition for our offering.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

The other aspect of the C-Series is that it does multi-carrier shipping. So as prices evolve in that marketplace and the competitive marketplaces, the ability for clients to do price compare versus the different carriers is even more important going forward. So we like what we're seeing from what's going on so far.

Ananda Baruah -- Loop Capital Markets -- Analyst

Okay, great. That's great. Thanks so much.

Marc B. Lautenbach -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Please go ahead.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Hi. Good morning. Just want a one point of clarification against the last question. I think Ananda had said that the rev guide pointed to 50% sequential growth. But perhaps that's not taking into account some of the adjustments that were made in the portfolio because of the way I do my math it's at the low end it's like 13% sequential growth and at the high-end it's like 28% sequential growth.

Marc B. Lautenbach -- President and Chief Executive Officer

I thought I said 15% but --

Glenn Mattson -- Ladenburg Thalmann -- Analyst

You said 15% maybe OK. But so just to be clear on that, OK. Otherwise I wanted to ask questions about a number of things. There were some initial things in the quarter. The out performance in SMB, I mean, can we talk about that a little further, and just talk about how it's sustainable to what level it is? I mean --

Marc B. Lautenbach -- President and Chief Executive Officer

I can do it all day long.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Yeah, yeah. I mean the -- I think it's the second quarter in a row where the recurring streams kind of performed a little better. So perhaps Marc you want to expand on what your thoughts there?

Marc B. Lautenbach -- President and Chief Executive Officer

Sure. I'll add then Stan will enhance. So I would still point you toward our long-term guidance as it relates to how our businesses perform. So it's tempting with the quarter-to-quarter swings to over interpret a particular quarter. That being said, if you look at the SMB performance in the third quarter it was within our overall long-term range. So to the extent those things match then, yeah, we think it's sustainable. I would point out in particular you mentioned the streams, our services business had just a great performance in the quarter. They're really doing a good job with their existing legacy business but they're also doing a good job picking up new business and importantly our financial services business is steadying as well. So lots of good things. And you made a really insightful point, so it's easy to kind of get overly enamored with equipment sales and all those kinds of things. That stream same revenue stabilizing at $300 million-ish or so is an important factor because it protects the overall cash generation of the Company. And now Stan will elaborate on that.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

So Glenn as we look at North America Mailing we're pleased with the performance this quarter. Overall revenue is down 2%, equipment sales were up 2%. The stream revenue though I think is actually the one to focus on as you've highlighted. It's down 3.6%, that's the best performance recently. And the gross profit margin has been consistent over the last several quarters, expense continues to improve year-to-year and EBIT dollars grew year-to-year and EBIT margin was up 4 points. So the revenue certainly wasn't an easier compare in the current quarter given last year we were announcing the new product that came out late in the quarter but we're really pleased with the margin expense performance.

I think more importantly one quarter doesn't make a overall trend but we really like the progress and it gives us confidence that we will perform in the long-term model over time at this minus 2% to minus 4% and 30% to 35% EBIT. So good quarter overall in North America mailing. We also see it manifest itself in finance receivables which reduced on a year-to-year basis at a slower rate than it has in prior quarters.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Yeah, can you provide me -- you said -- you gave a number for a number of units that were converted to the new meter. Is it -- are we -- how far along the process are we in that conversion? And maybe are we toward the bottom of the pendulum swing as it relates to that?

Marc B. Lautenbach -- President and Chief Executive Officer

We have shipped about 57,000 units over the past year. We have said originally that this will address about half of our rural (ph) population so we still have our ways to go, I'd say we are early in. And keep in mind we're just starting. In 2019 we'll be rolling out this capability to the non-U.S. So I'd say we're still early innings on this and again that offering combined with the meter mail benefit of $0.05 now and multicarrier shipping and the ability we have launched five new apps this quarter as well, I think the value proposition only strengthens for the C-Series.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Yeah, I'll build up (ph) that last point. So as we think about the C-Series, it's for sure a meter replacement but candidly it's much more than that. So we don't look at the opportunity for C-Series, it's just a meter replacement for ours or our competitors. We look at that as a utility device that carries contemporary applications for shipping into the market. So in that sense it's a whole different ballgame.

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Okay. Great. Thanks. I will pass it on to someone else. Thanks, guys.

Operator

Your next question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead.

Kartik Mehta -- Northcoast Research -- Analyst

Hey, good morning. Marc, I wanted to ask you a little about global e-commerce business and when you think it can achieve sustained profitability. I realize you've been investing in it and trying to achieve as much growth as possible and take market share and at what point do you think we'll see sustained profitability?

Marc B. Lautenbach -- President and Chief Executive Officer

Yeah. Look, let me step back and provide a little bit of context because I think it's important. So the way that business gives a profitability is three-year old. But the most important one is scale. So if you think about the things that we're doing to drive profitability in that business, scale is number one, the Newgistics integration and the synergies around Newgistics are number two, and number three is operational excellence stuff of what they're doing. So if you go back to that first one and you double click on scale, we think it's important to make those investments in the network and customer acquisition and if we can find acquisitions that make sense because that gets us to sustained profitability sooner versus later.

In terms of any particular period, we're EBITDA positive in the third. We think that will continue to be true in the fourth and then we'll get into 2019 soon enough. So I think it's sooner versus later. I'm not going to put a particular time frame on it because of the nature of opportunities. The more that we can make investment that get us to scale the better off that is in the long term. The reason is (ph) if you think about our businesses if you look at the shipping business in terms of an external marketplace the multiples to go in shipping logistics market are higher than office supplies. So sooner we can get profitability tilted toward shipping the sooner we can have a different conversation about multiples.

Kartik Mehta -- Northcoast Research -- Analyst

Maybe Marc if you just look at -- I know you talked about -- a little bit about the USPS and the $0.05 discount, but it seems like there's a lot more going on in USPS and maybe Congress and others are pushing for changes. Just overall what's happened, where do you see that -- what are the positives that could come out of that for Pitney and what are some of the maybe negatives that might happen because of all the changes that are being proposed?

Marc B. Lautenbach -- President and Chief Executive Officer

Well, again, I'll go back to the very top level. So if you look at all the changes that are being discussed or contemplated for USPS, it's about how you make that entity more financially viable going forward. As you think about why Pitney Bowes has existed for almost 100 years now it's been to that particular cost to help the USPS be more economically viable. So in general we see what's going on as an opportunity. The meter mail is a good example if you look at some of the workshare programs. That the second example. And we'll see what happens on the negotiated discounts, that's still in front of them. But I would say about the negotiated discounts in the competitive market rates is as we look at the value that we provide to the Postal Service in those competitive markets we're really confident of the value that we provide and that's something that you'd want to build off of.

Kartik Mehta -- Northcoast Research -- Analyst

Thank you very much. I appreciate it.

Operator

Your next question comes from the line of Allen Klee from Maxim Group. Please go ahead.

Allen Klee -- Maxim Group -- Analyst

Good morning. In the Presort segment, you spoke of taking actions to reduce spend and investing in automation. Do you believe that this can get you back to where margins had been there over time say around 20% EBITDA -- EBIT margin range? Thank you.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

If you take a look at Presort, 2Q is a difficult quarter for them. But if you look at what happened in Q3, we grew revenue in that business, we took a number of actions and EBIT margin bounced back to 14%, so just below where we are now. The year-to-date margin is 15%. So we said that the margin, our long-term plan for that business should be north of 15%. We're still confident we'll operate in that level. Let me give a little color on what we've done in this business. Debbie Pfeiffer runs this business for us. It is 37 centers across the U.S. and we have invested heavily in capital.

We will -- we have doubled the capital spent on a year-to-year basis. That is doing things like sorter refreshes which we get a big productivity boost out of that. We've invested in sleevers which automates a very difficult part of the process for us and we've enhanced the facilities that our workers operate in. When we look at that that long performance of combining these we are seeing synergies now of combining trucking routes with our Newgistics facilities and those routes that go both to clients and to the post. And as we look at that combined with the labor efficiencies we're confident that we'll continue to improve this margin.

There's another aspect of Presort that we're getting into in a deep way and that's bound and packet mail. Think of kind of heavy flats (ph) if you will calendars and things like that that get mailed. We launched this in a more material way here in the second half and we think that will contribute to both growth and it leverages our investments in the network, our investments in people, our investments in the management team. So I like this business. I think it will continue to improve and operate within the long-term model range.

Allen Klee -- Maxim Group -- Analyst

Thank you. And my last question is for Cross-Border e-commerce. What's your view? Do you think that the current run rate is where it's going to stay at? Or do you think there could be any positive changes there?

Marc B. Lautenbach -- President and Chief Executive Officer

So for Cross-Border there's a certain sensitivity here obviously to changes in the US dollars. And if the weekends are strengthened it does impact demand. So we expect an improved performance in Q4 versus the previous quarter as a result of the holiday season. I think it's important to note while it didn't have a great revenue quarter here this quarter it is being recognized in the industry. For the second year in a row we are the number one ranking for international commerce and fulfillment technology by the Internet Retailer 1000 Vendor Report and that is a survey of 1,000 top online retailers. So I think our offering is strong in the Cross-Border and it's not entirely dependent on currency but currency has a big effect and that's why we have a multifaceted portfolio within Global Ecommerce. So we're confident that that will improve here in Q4.

Allen Klee -- Maxim Group -- Analyst

Thank you.

Operator

Your next question comes from the line of Shannon Cross from Cross Research.

Shannon Cross -- Cross Research -- Analyst

Thank you very much for taking my question. The first one is I'm curious and maybe there's nothing really to think about (inaudible). But the talk about renegotiating the postal treaty, how should we think about that in terms of volumes? I mean, it appears that it would make a cheaper express to maybe ship, I don't know, or more expensive to ship. Just your thoughts there?

Marc B. Lautenbach -- President and Chief Executive Officer

Yeah, if you're referring to the UPU, Shannon, we don't really have any volume that goes through that particular program. So it's -- I think it's important for the Postal Service, it's not so important for Pitney Bowes.

Shannon Cross -- Cross Research -- Analyst

Okay, so it won't make you more competitive, I guess. And then from a divestiture standpoint you've made several divestitures and improved your balance sheet which has been definitely the correct decision. Now that you're appearing to stabilize some of the mail meter business or the mail meter business in general, does it make sense to maybe look even further strategically between the two businesses? I don't know maybe you could just talk a little bit about why better together versus separate at this point? Because again with the growth you're seeing in e-commerce clearly that's not been reflected in your multiples. So what are your thoughts?

Marc B. Lautenbach -- President and Chief Executive Officer

Yes. So it's a good question and one that we think about a lot. So, the first thing that I would say is as we contemplate divestitures in particular we use the same criteria that we have started out with plus the one that we added with Imagitas. So that is strategically coherent, acceptable returns and leaders within the marketplace and then the one we had with Imagitas was that it's not worth more to somebody else than it would be to us. So as you think about global e-commerce or Commerce Services and SMB in particular, the strategic coherence is around shipping and the assets that they share, particularly the API technology but also Commerce Cloud and others.

So we think in the context of the first three criteria the portfolio makes sense together. As it relates to the last point about more to us than to somebody else that's one that we continually look at. We will -- we'll do what we've done in the past and if we conclude an asset worth more on the market to the market than it is to us, then we'll make the correct shareholder decision. So it's one that we continually -- the decision that we continually look at and revisit.

Shannon Cross -- Cross Research -- Analyst

Right. Thank you.

Operator

Your next question comes from the line of Anthony Lebiedzinksi from Sidoti & Company. Please go ahead.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Yes, good morning and thank you for taking the question. So I wanted to follow up on a previous question in regards to Global Ecommerce. And Marc are you prepared to say how much -- in terms of your answer about scale is there a particular revenue run rate that you need to get to to get to the scale that you think you need to get to to better leverage that business?

Marc B. Lautenbach -- President and Chief Executive Officer

Yeah, we think of it in terms of parcels. So -- and the reason parcels are important is if you think about the economics of that business it's driven by the type of scale that you provide to carriers. USPS, UPS, Federal Express, the more parcels you can adjust in their network the better economics you get. So I would say that we're -- as we contemplate our three to four-year plan we get to the desired economics, so we ask the question when you get to profitability, so we think profitability sooner than (inaudible) economics we believe within our long-term plans. I'm not going to pin us down to a particular point in time. But candidly it's why we're as interested in acquisitions as we are because if you can find an acquisition that gets you there sooner versus later, that's accretive. So whether it'd be a big acquisition or small acquisition that's kind of our interest.

I think as you look at our evolution in that business and I'm not sure how long you've been following the Company, how the Company evolved in Presort is kind of how we think about it. So you think about an anchor acquisition or a couple of anchor acquisitions and then a bunch of tuck-in acquisitions that become immediately accretive. But it's -- that's kind of the economic formula that we're contemplating. We'll talk more about that early next year as we get into Analyst Day.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Okay. And also as far as Newgistics, so earlier this year you co-located one of the Newgistics operations within an existing Presort site. Can you give us an update on that? And should we expect additional sites like that to be opened?

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Anthony, thanks for the question. Logistics here as we look, we've accelerated the growth in the second half of the year growing 19%. This year we opened four new facilities, remember they had nine, we've consolidated two. So when you talk about investments into this business the good example of launching these, including our supercenter in Greenwood, Indiana and we have to set up all the transport, all the labor, all the volume is not there yet and we think we're well-positioned for peak. But we're going to continue to invest and I mentioned before that when you look at part of the benefits to Presort is the transport cost of combining some of the lanes with Newgistics. We see that on both sides of the house.

And remember of the original nine, eight are within an hour of the Presort facility. So here is a couple of examples of where that can truly help us on transport and labor. And transport you can fill the tracks much cheaper and it reduces the demand for having to go out and use the spot market which has increased dramatically this year. On labor, the two businesses have very different labor profiles. And so the peak season for Newgistics on the shipments is obviously fourth quarter and returns is mid-December through early first quarter. But Presort busy time of the year is actually in January with all the year and shipments, so we are in a process now of taking the labor force and being able to leverage that labor force to help us assist during the peak. It leaves us much better positioned this year candidly than last year to do that. So we like this combination and I think you'll see us bring that closer and closer over time. Now why not go faster, obviously we have leases of these facilities in both businesses, we are not going to go break leases early just to bring these together, but we'll bring those together over time because we see a lot of benefits.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Okay, that make sense. Thanks for that explanation. And lastly as far as the software business you guys mentioned that there was a timing shift as some deals shifted from 3Q to 4Q, wanted to get a better sense of the magnitude of that. And also I would be curious to know what the software sales were excluding the impact or adjusting for the impact of 606.

Marc B. Lautenbach -- President and Chief Executive Officer

If you take a look at the software business, in Q3, let's talk about that first, there was a lower level of renewals in this quarter. Remember this business has changed under 606. Even if you've signed or renewed a deal early that revenue will not show up in the quarter where it used to in the past. So with the lower level of renewals in the quarter that impacted our performance.

And in Q2 we did have a strong overall performance where it grew 13% on a year-to-year basis. And keep in mind that we disclosed last year in Q3 of 2017 we had a large location intelligence deal which certainly impacted the year-to-year performance. Now there were some bright spots here within software. I think one of the best ones for us is small deals. Small deals grew a healthy 26% on a year-to-year basis. That's double-digit each of the first three quarters on a year-to-year basis. So as we look at fourth quarter this is going to be -- earlier we had the question of how much this revenue go up on quarter-to-quarter and let's say it sits in the low to mid-double digits that increases on a quarter-to-quarter basis and software will be a part of that. There's more renewals and Q4, there is a bigger large deal in Q4 and we expect to see that continued performance with small deals. In terms of 606 you'll see this upcoming in a Q, it had a smaller impact -- benefit here in Q3 than it did in the prior quarters and then obviously that will wrap around as we head into 2019.

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

I'd just make one additional point because I think it speaks to kind of how 606 affects market dynamics. If you go back to the third quarter last year we had the large deal, that was (inaudible). So typically when you're running a software business before 2018 you look at the inventory of deals in the quarter and you make a judgment about is that inventory sufficient to do what you need to do within the quarter and you act accordingly. So last year as we looked at the third quarter which is always a difficult quarter for any software vendor just because of the seasonality that business works. So we were able to pull ahead a large renewal. As you get into 2018 that option is no longer available to you. (multiple speakers) So the economics are a little bit different. So it's -- 606 is an interesting thing. It changes a little bit in terms of how you think about bringing the deals forward and I suspect over time it will even out but it makes the business a little bit lumpy right now.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Okay. Thank you very much.

Operator

And at this time there are no further questions. I'd now like to turn the conference back to Mr. Lautenbach for any closing remarks.

Marc B. Lautenbach -- President and Chief Executive Officer

Thanks operator. Listen let me just close with a couple of high-level remarks and some of these I have made before. If you think about Pitney Bowes over the last couple of years it's a company that's grown the top line, it has reduced our expense substantially, it has reduced debt and at the same time we have made significant investments in innovation and our capabilities. As we look forward to the fourth quarter and 2019 you can begin to see those decisions paying dividends. So we like how we're positioned as we go into the fourth quarter, more work to do for sure. But fundamentally this is a business that has been repositioned for a healthy and prosperous future. So more work to do. We'll talk in 90 days and will update you then. Thank you.

Operator

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

Duration: 59 minutes

Call participants:

Adam David -- Vice President, Investor Relations

Marc B. Lautenbach -- President and Chief Executive Officer

Stanley J. Sutula -- Executive Vice President and Chief Financial Officer

Ananda Baruah -- Loop Capital Markets -- Analyst

Glenn Mattson -- Ladenburg Thalmann -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Allen Klee -- Maxim Group -- Analyst

Shannon Cross -- Cross Research -- Analyst

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

More PBI analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.