Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Pitney Bowes Inc (NYSE:PBI)
Q3 2019 Earnings Call
Nov 5, 2019, 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]. 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 and 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 2018 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 for 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 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. Mark?

Marc B. Lautenbach -- President and Chief Executive Officer

Thank you, Adam. And thank you all for joining the call. We delivered a solid quarter, and one of the best quarters for revenue growth in a very long time. At an enterprise level revenue this quarter grew 6% when adjusted for currency and market exits, which was driven by 20% growth in our Global E-commerce business and an improved performance in our global SMB organization, which you will see from our earnings press release, we have renamed, Sending Technology Solutions or SendTech for short .

While we do not expect 6% revenue growth every quarter, the third quarter performance is clear evidence that the steps we have taken and continue to take to transform our company are paying off. Shipping was the key driver for the quarter. Our domestic parcel services grew its delivery and return volumes 27% in the quarter to 29 million packages processed. Shipping products comprised 38% of our total revenue in the third quarter.

To put this in perspective, shipping revenue was 20% of our overall revenue two short years ago. Importantly, we continued to bring in new clients in the quarter and of course we continue to make the required investments to build out our network, to accommodate the significant growth. As I mentioned before, you need to invest in front of this growth

Adam David -- Vice President, Investor Relations

We're also making the necessary investments to ensure we can handle what we expect to be a very successful peak season, which we are now entering. It is also true that the kind of growth we are experiencing brings some operational challenges. While we experienced some operational issues in our fulfillment business, we believe we have addressed most if not all, and we are confident that we are well positioned to meet the demands of our clients. Sending Technology Solutions also turned in a much improved performance in the quarter.

Revenue in the third quarter declined less than 3% when adjusted for currency and market exits, which is much better than recent trends. Particularly to note we grew equipment sales in four out of seven major markets, including the United States. Within SendTech, through the end of the quarter, we've installed over 1,000 SendPro C units since launching this product two years ago and we're on track to roll out the SendPro C to all major markets outside of North America within the next six to nine months.

We're also in the process of extending our physical footprint within the SendPro family of products to our low end client base over the next several months in the US. This will mark a significant milestone, making the majority of our SendTech products refreshed with a modern shipping and Mailing platform and easy to use client interface and connected via our world-class IoT technology. Our Presort business turned in a solid performance growing revenue 5% in the quarter and improved volumes. Presort margins also improved from its first half performance as a result of initiatives we've put in place earlier in the year. We expect these trend to continue to improve.

Also in the quarter, as you know, we sold our software and data business. Our software business has grown in 2017 and 2018. This enabled us to sell the business for $700 million, which was an attractive price at a strong multiple. As I've said many times, we will do what is right to create long-term value for the company. Our software business has proven to be more valuable outside of PB then if it remained in our portfolio. The software business has been an essential part of the PB family especially in helping to advance our digital transformation.

We remain focused on the balance sheet. The majority of net proceeds from the software sale are being used to pay down debt. Over the last two months, we have repaid three term loan due this year and next year and earlier this month we secured a new Term Loan A. These actions in aggregate will reduce our near-term debt towers and make for a much more manageable maturity profile.

In addition, we close

Marc B. Lautenbach -- President and Chief Executive Officer

On a new revolving credit facility, which will provide ample liquidity to execute our business plan. We have good access to the capital markets and our team has done a nice job optimizing our debt structure. Stan will take you through more of the details in his remarks.

Finally, let me make a brief comment on the cyber attack we experienced a few weeks ago. Here are the major takeaways. First, there is no evidence that client or employee data was compromised or improperly accessed. Second, our disaster recovery processes works and we were back up and running relatively quickly. Third and finally, to the extent there were incremental cost of the attack, we have cyber insurance, which we believe should cover the preponderance of these costs.

Unfortunately, these kinds of attacks are becoming more common in the business world today. That said, I'm pleased with how our team handled it and I'm particularly heartened by the response from our clients. At the very outset, we were transparent with our clients with what was going on. While there is no simple recipe for how to deal with these kinds of situations, I'm proud of the urgency and diligence our team demonstrated, especially with our clients. We will continue to make the necessary investments in cyber and of course we will make sure we operationalize whatever lessons that are to be learned from this incident.

The third quarter was an important step forward in our transformation. Revenue growth is fundamental to the transformation and on that measure we delivered, We move forward with momentum in our shipping business, a coherent portfolio with businesses where we have a right to win and the balance sheet which is in good shape. I've said this before, the transformations are never quick and easy and our transformation is no exception. That said, I'm proud of the progress our team has made and I'm particularly proud of the team's grid and resilience.

With that let me turn it over to, Stan.

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

Good morning and thank you for joining the call. We made progress against our strategic initiatives in the third quarter and turned in a solid performance overall .With the announced sale of Software, we are creating a more focused and streamlined portfolio. We're able to further leverage synergies and reduce costs over time while operating more efficiently around our core competencies of shipping, mailing and financing.

Let me discuss the details of our third quarter's performance. As in the past, unless otherwise noted, my statements going forward will be on a constant currency basis when talking about revenue comparisons and on an adjusted basis when talking about earnings related items including cash flow. Reconciliations of our 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.

Also with the announced sale of Software Solutions, current and prior period results for this business have been recorded as discontinued operations. We have posted a file on our Investor Relations website, which provides a historical view reflecting this recast. And finally, as Mark mentioned, we have renamed Global SMB to now be called Sending Technology Solutions and consolidate the reporting to be one segment, we will refer to this segment as SendTech in our remarks going forward.

Turning to our results. The portfolio continues to shift a higher growth markets. Commerce Services comprised 52% of revenue. Our shipping related revenues made up 38% of total revenue in the quarter. Both of these metrics are solid proof points of the progress against our long-term model.

For the third quarter, we turned in a strong top line performance. Revenue totaled $790 million and grew 4.5% over prior year. You take the market exits into consideration, revenue grew 6% over prior year.

Looking at revenue by segment. Global E-commerce grew 20%, Presort Services grew 5% and SendTech Solutions declined less than 3% when you exclude the impact of currency and market exits.

Adjusted EPS was $0.24 for the quarter. GAAP EPS was a loss of $0.02 and includes charges of $0.05 related to discontinued operations, as well as $0.20 for restructuring and asset impairment costs, which include a non-cash $0.16 impairment charge related to capitalized software costs incurred in the development of a new enterprise business platform in certain international markets.

GAAP and adjusted EPS also include a net benefit of $0.13 related to the release of a foreign deferred tax asset valuation allowance, which was previously disclosed and as a one-time item. Free cash flow was $69 million and GAAP cash from operations was $96 million, compared to prior year free cash flow was lower by about $7 million as we experienced lower net income and higher capital expenditures this quarter, which were partly offset by higher reserve account deposits. Looking at capital allocation, at the end of the quarter we had $652 million in cash and short-term investments on our balance sheet.

During the quarter, we used free cash flow to return approximately $14 million to our shareholders. We repurchased 1 million shares for $5 million, we paid nearly $9 million in dividends to our common shareholders. Year-to-date, we have repurchased a total of 18.6 million shares of our stock, totaling 105 million do not anticipate any further share repurchase for the balance of the year.

Within the quarter, we also used cash for capital expenditures of $36 million and for restructuring payments of $6 million. Within Wheeler Financial, we have funded over $6 million in loans as of the end of the third quarter and have a healthy pipeline as we enter the fourth quarter. We are helping our clients to be more successful in their business. but at the same time we are being deliberate in the quality of clients we extend financing to. From a debt perspective, we ended the quarter with $3.1 billion in total debt, which is about $200 million lower than prior year and $175 million lower than prior quarter. During the third quarter, we prepaid the balance of $165 million on our term loan due in September 2020.

Additionally, in November, we repaid our $150 million term loan due this month and the balance of about $280 million on a term loan due in December 2020. We have also secured a new five year Term Loan A and the amount of $400 million. And as we have communicated, we are using the net proceeds from our Software sale to reduce debt. We also look to refinance other maturities in the near term in order to reduce our future maturity towers. Looking at the composition of our debt today, when you take the implied debt associated with our gross finance receivables of $1.1 billion, along with the $652 million of cash and short-term investments on the balance sheet into account, our implied net debt position on an operating company basis is currently $1.3 billion today.

Additionally, we have replaced our existing revolving credit facility with a new one, securing $500 million over a five year term. We have had good access to the capital markets and our team has done a nice job reducing near-term debt obligations with more work to be done in regards to longer-dated maturities, making our debt maturities, more manageable.

Turning to the P&L, starting with revenue performance by line item as compared to prior year. Business services revenue grew 15% and equipment sales grew 2%. We saw declines and financing of 6%, rentals of 7%, support services of 8% and supplies of 10%. The market exits from earlier in the year impacted the year-over-year decline in several of the line items, resulting in over a one point negative impact on the overall revenue comparison in the quarter.

Gross profit was $333 million with a margin of 42.2%. This is a decline of 4 points from prior year, which largely reflects the shifting mix of our portfolio. SG&A was $253 million or 32.1% of revenue compared to prior year SG&A increased about $12 million was relatively flat as a percent of revenue. The increase in SG&A is largely due to higher employee related variable compensation as compared to prior year along with investments in E-commerce, which was partly offset by lower spend in SendTech.

R&D expense was $12 million or 1.6% of revenue. Compared to prior year, R&D expense declined about $3 million and improved a half a point as a percent of revenue. EBIT was $69 million and EBIT margin was 8.7% compared to prior Prior year EBIT declined $28 million and EBIT margin declined by 4 points driven primarily by the gross profit decline in addition to the increase in SG&A this quarter.

Interest expense including financing interest expense was $40 million, which was $2 million higher than prior year. The provision for taxes on adjusted earnings was a credit of $12 million, which reflects a one-time $23 million release of a foreign deferred tax asset valuation allowance recorded in the quarter. Average diluted weighted shares outstanding at the end of the quarter were $171 million, which is about 17 million shares lower than prior year.

Let me now discuss the performance of each of our business segments this quarter. In our Commerce Services Group, revenue was $410 million, which was growth of 15% over prior year. EBIT was a loss of $4 million and EBITDA was $21 million. Within Global E-commerce revenue was $279 million, which was growth of 20% over prior year. This top line performance benefited from growth in volumes across each of our E-commerce solutions. The revenue growth was primarily driven by continued strong volume growth in our domestic parcel services which grew delivering returns volumes over prior year by 27% to 29 million parcels in the quarter and 89 million parcels year-to-date .

Volumes through our shipping solutions and cross-border offerings also grew this quarter over prior year. We continue to add new clients this quarter. As an example Etsy shows Pitney Bowes to help provide their sellers with additional, cost effective shipping options. EBIT was a loss of $22 million in the quarter and EBITDA was a loss of $4 million. The loss was driven by three major areas; continued investment, mix of business and incremental costs associated with our fulfillment services. Let me drill down into each of these areas.

First, continued investment. As mentioned on previous calls, we continue to expand our network primarily in major markets on the east and west coast. This naturally requires operational and capital expense upfront and we will not read the productivity benefits until the facilities are fully functional. In addition to the new facilities, we continue to invest in engineering and marketing programs, which will support the growth of this business along with improving its margins. Through our investments, we continue to remain competitive on speed and reliability when it comes to our service delivery times. On average, we continue to deliver parcels just under three business days.

Second, mix of business, we continue to ramp up volumes in our domestic parcel service for delivery and fulfillment revenue outpacing returns. As we have talked about in the past, our returns business is at a higher margin, which creates a shift in total margin. As delivery and fulfillment get to scale, this mix shift impact will Soften. In third, incremental costs associated with our fulfillment services, we added a number of new clients, which brought in incremental volumes to which we had to reallocate and in some cases ramp up resources to handle based on the needs of our clients. We also had some execution issues, which we are addressing through a series of actions that will streamline decision-making, we work closer to the client and improve operational execution. In addition, in the quarter, we had to increase our bad debt expense related to one of our retail clients filing bankruptcy.

Within Presort Services revenue was $131 million, which was growth of 5% over prior year total volumes processed grew nearly 6% to nearly $4.3 billion in the quarter, volumes grew across all categories with the major drivers being first class and Marketing Mail. Gross margins increased over prior quarter and prior year driven by lower labor cost per unit as a result of the productivity actions that we put in place earlier this year. In fact, overall labor costs were down despite the nearly 6% year-to-year growth in volumes.

This was partly offset by lower revenue per piece driven by mix. EBIT was $18 million and EBIT margin was 13.5% which is an improvement over the first half of this year and less than half a point lower than prior year. Margins this quarter also included 3rd-party consulting fees. EBITDA was $25 million and EBITDA margin was 19%. Turning to our SendTech segment revenue was $380 million, which was a decline of 5% from prior year. Excluding the impact of market exits revenue declined less than 3%. Equipment sales grew this quarter as we saw growth in four out of seven of our major markets. In the US, the growth was due in part to converting the backlog that we talked about at the end of last quarter. [Indecipherable] also grew in France driven by large deal, and we had growth in Japan and Germany in the quarter.

The rate of decline in our recurring revenue streams was similar to prior periods. Business services revenue grew which is helped by the new shipping streams that we are creating through our shipping capabilities. EBIT was $131 million and EBIT margin was 34.5% which is an improvement over prior year of one point despite higher costs associated with China tariffs. EBITDA was $141 million and EBITDA margin was 37%.

Let me now update you on our annual guidance for 2019. With regard to the ransomware attack in October, we have insurance to cover these events, and we are working with our insurers. At this point, virtually all operations are up and running and no data has been compromised. It is important to note that we expect a significant portion of any impact of profit to be Covered by insurance. However, the timing of receiving those proceeds will likely be in 2020. Given this ransomware attack is a unique event, the majority of the incremental costs and subsequent insurance recoveries will be excluded from our adjusted EPS. However lost revenue, the resulting profit associated with that lost revenue were still eligible for insurance coverage will remain in the company's adjusted results and will impact the company's full year performance.

We are reaffirming our annual guidance for adjusted EPS and free cash flow. We expect the impact of the ransomware attack to our full year revenue could be approximately 1.5%. We expect revenue on a constant currency basis to be in the range of 1% to 2% growth when compared to 2018. This range does not contemplate any impact of the ransomware attack, which could be approximately 1.5%. We expected adjusted EPS to be in a range of $0.65 to $0.75. And free cash flow to be in a range of $175 million to $205 million.

In summary, we made good progress against our strategic initiatives. Having announced the sale software, which creates a more focused and streamlined portfolio and further supports our strategy to operate in markets where we have competitive advantage. On a comparable basis, we grew revenue 6% this quarter driven by growth in Global E-commerce to 20%, which points to the work we have done to shift our portfolio.

Our newly renamed SendTech segment delivered strong EBIT and EBITDA margins with a lot of runway still in front of us to shipping and third-party financing ramp up. We remain focused on our balance sheet. We will use a majority of the net proceeds from the software sale to reduce near-term debt and we will continue to assess the capital markets in the near term to make our debt profile more manageable.

With that, let's now open the line for questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Your first question comes from the line of Allen Klee from National Securities. Please go ahead.

Allen Klee -- National Securities -- Analyst

Yes, good morning. Starting off with the question -- with the comments on what you've been doing with your debt. Could you give us for the new $500 million five year term loan what the interest rate is on that and then maybe what your pro forma interest rate run rate is based on all the changes that you've announced so far?

Marc B. Lautenbach -- President and Chief Executive Officer

Hey, Allen, good morning. Thanks. So, first of all, just for clarity the term loan that we took out was actually $400 million, the revolving credit facility was $500 million. So if you take a look and go through the $400 million TLA and you could see this on the attachments for 8-K that we'll do later here this morning was LIBOR plus 175. So that puts it in the range for the new debt here on the TLA for $400 million

And I think your second follow-up was on a pro forma basis. I'd tell you, if you look at what we retired here of the $300 million TLA that was due December and the $200 million TLA that was in September, those are 3.6% and 3.8% respectively on the latest all-in rate. So you can see, we'll have a material impact there. What will have an impact as we go forward is what we're going to do with the remainder of the net software proceeds as well as we adjust for the debt for next year.

So we're not going to do guidance for next year, but I think you get a feel for what we are looking at coming out of Q3.

Allen Klee -- National Securities -- Analyst

Okay, thank you. And then with Global E-commerce I understand the investments going after a large opportunity. Does any of this -- and it's had an impact on your margins in the quarter, which hopefully helped long term. Does this change at all what you've said on the Analyst Day of your forecast for what the timing and the opportunity is for the profitability for global E-commerce ?

Marc B. Lautenbach -- President and Chief Executive Officer

So on Global E-commerce in the quarter, let me start there. First of all, the revenue grew 20% that's actually the strongest growth this year. And we did have an EBIT loss in the quarter driven by really three areas, the continued investment, we added two new larger facilities, one on East and one on the West Coast, but those are needed to drive the volume and we grew volumes 27% in the quarter and shipping APIs, which feed into that grew 155%. So some good performance on the volume growth.

Second, the mix of business which we've talked about, we continue to ramp up volumes in our domestic parcels with delivery and fulfillment revenue outpacing returns that has a mix effect, which impacted margin. And we talked about some execution issues and fulfillment. Now, we brought on some several new clients in fulfillment and as we are ramping up we had to bring additional resource and to address those. I think that's a shorter term. So we are still driving E-commerce to get to EBIT positive in 2020. As we take a look at that, that's going to be a ramp up in volumes to build scale, operational improvements and reduce cost structure.

So we continue to invest in net market opportunity and we recognize that this is going to be a big move from where we are here in 2019. But we continue to work around that growth brings scale, we announced, you may have seen the press release, we announced a pricing increase that will go out, it's lower than market and fewer fees in the competition. We're going to expand the gross margin through efficiency both transport, labor and our rate through scale. And finally, as we alluded to in the comments that group has taken some structural actions to both improve their own efficiency and speed of decision making. Now, what we're doing from a global perspective for PB is also taking out additional corporate structure. So we're on the path to deliver that profit in 2020 and with a plan B, to take out additional structure.

Allen Klee -- National Securities -- Analyst

Okay, that's great. And then for the SMB segment, I thought the, -- can you talk. -- you mentioned you're looking to roll out the SendPro in -- internationally. And then I thought I heard a version for the lower end clients. Could you maybe expand a little on this and what the opportunity is?

Marc B. Lautenbach -- President and Chief Executive Officer

Sure. So within SendTech, firstly, I had one is better revenue performances. We declined 3% excluding the market exits, which is the best performance this year. I think importantly underneath that though equipment sales grew in the quarter and they grew both in North America as well as international. Now the opportunity with an international, we are just starting that rollout of SendPro C and that will go out over the next few months through our international markets. So that will certainly be a tailwind for those markets as they get the opportunities to sell that new technology. And that we continue to invest in this product line and there will be additional content coming out for lower end clients.

Allen Klee -- National Securities -- Analyst

Okay, thank you so much.

Marc B. Lautenbach -- President and Chief Executive Officer

Thanks, Allen.

Operator

Your next question comes from the line of Ananda Baruah from Loop Capital. Please go ahead.

Ananda Baruah -- Loop Capital -- Analyst

Hi, Mark, Stan, good morning. Thanks for taking the question. A few if I could. I just wanted to get a sense -- just to make sure that I understand, how are you guys seeing the demand in buyer just in general, over the last 90 days and really the way I'm trying to understand it from is when you announced the sale of the software business, it seemed as though the guidance for the core company was set a bit lower at least the low end of the guide wise.

And then just, it seems like the tax benefit might have been $0.3 greater than originally anticipated. Correct me if that's not accurate, which would seem to dovetail with sort of -- with the guidance coming of the software sales. So could you just sort of like walk through that with me, and just sort of level set me on all of these dynamics? Thanks.

Marc B. Lautenbach -- President and Chief Executive Officer

Sure. Let me start with

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

Number side of that question. So, first of all, as we take a look, when we did the guide, remember, our software business tends to be more back-end loaded and as we extracted out for the year, that was reflected in our guidance. We're also coming up on some different -- more difficult compares as we go through the back half of the year, but if you come back to -- in Q3, we had good growth year overall and when you go across the segments all three really performed well in the quarter from a revenue perspective.

So from that side of it, we've seen solid performance and that will come up again say Q4. On the tax benefit, we had disclosed in our queue that, that tax benefit was approximately $20 million and it came in just under $23 million. So again, it's on a tax basis. So that's $0.02 $0.025. Do you want to comment --

Ananda Baruah -- Loop Capital -- Analyst

Got it. I --

Marc B. Lautenbach -- President and Chief Executive Officer

Yeah, I mean, on-demand just I'll go up a little, if I might. If you look at our global E-commerce business, we continue to see a strong demand environment there. If you look at what the analyst predict for the holiday season, it's up 4%, that's strong. If you look at the delivery and returns performance underneath that will release the shopping survey here in a couple of days, but continued strong demand for a better delivery and returns experience. As it relates to SendTech in the meter business, you're right, the last 90 days was a pretty strong demand environment different than trend. We continue to be optimistic about our opportunities to perform well in that business, particularly with the new product, but obviously demand is going to continue to be challenged as it is in for Mail. So I'd say it's mixed, but we like how we're positioned in each of the markets.

Ananda Baruah -- Loop Capital -- Analyst

And Marc, it sounds like -- it sounds like the core metering business has not -- hasn't gotten softer over the last 90 days, it's worth it sounds like you're saying it's probably been a bit stable?

Marc B. Lautenbach -- President and Chief Executive Officer

I mean, yeah, I mean, retrospectively look, the last 90 days, it was stronger than the trends that we have seen, if you look at -- Allen asked a question before about the opportunity on the low end. I mean that the opportunity in the low-end is 10s of thousands, 100s of thousands of low-end meters. So the market for mailing is continuing to go through the secular decline. That said, we've got opportunities to continue to refresh internationally for SendPro C and the low-end opportunities entirely in front of us. So we like our product positioning, if you will, in a market that continues to be challenged.

Ananda Baruah -- Loop Capital -- Analyst

And Marc, what -- how should we think about the puts and takes from sort of Your normalized EBIT run rate is going through the end of the year. The puts and takes to EBIT as we go into 2020. And I know you're not giving guidance here, but should we think of the goal of the EBIT growth for 2020, I think, you can help us there with the lead will be useful?

Marc B. Lautenbach -- President and Chief Executive Officer

Well, you're right, we're not going to 2020 guidance now, but we will do it in late January or February. As Stan said there's several things that are positive, that are in front of us. So the Global E-commerce team has taken structural actions that have already taken effect, Presort have taken structural actions that have already taken effect. And then there is corporate actions on top of that, so there's a series of actions from an expense perspective that are already done. The mix dynamics will continue as the mix of the business continues to change. So -- but suffice it to say that our focus is getting to EBIT positive here sooner versus later.

Ananda Baruah -- Loop Capital -- Analyst

Okay. Okay. Great. Just, Stan, a couple of quick ones for you. Any particular reason that corporate costs increased year-over-year. I think it was about $20 million?

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

Yeah. So, if we take a quick look at what happens overall on the expense side of the equation. One of the drivers is employee variable comp and that's as much to do with last year on a release as it is to do with this year in an accrual. If you go and peel that back little farther though, Commerce Services actually improved on a year-to-year basis. Mark referenced, some of the structural actions and the overall corporate spend improved as well. And then and SendTech they improved by over $10 million year-to-year, and I apologize I said Commerce Services actually was an investment here of about $5 million on a year-to-year basis, that investment is really coming along for expanding the go to market. So when you kind of put that together SendTech was clearly a help, the employee variable comp here was a hurt which had more to do with last year than this year and then we continue to make the investment in Commerce Services.

Ananda Baruah -- Loop Capital -- Analyst

Got it. Got it. And then, just last one from me, for now, guys, I appreciate it. Can you just give us, I think you've touched on sort of refinancing the remainder of what you are going to refine it, can you -- but just more specifically, can you just refresh us on the timeline that you're looking at now to get the refinancing done? How much now are you -- can you update just how much you're looking internal refinance and then the third part I can repeat this within a moment, if this is And broadly specifics, but just on the new loan, is that secured debt and can you just -- when you can tell us about the term, will be helpful?

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

Yeah. So a lot in that question, Ananda, but let me take a shot here. So, first of all, you can see, we were very active in Q3 rolling rate into Q4. So if you take a step back, we had three term loan payments between Q3 and Q4, we did $165 million in September, and then we had a pay-downs of roughly $150 million and -- $278 million in November. So if you kind of add all those up at a big round number, that's roughly $600 million of pay down.

Now some of that we took out of cash on hand and then we took a new Term Loan A, which we talked about earlier, for $400. So kind of round numbers, that's a net $200 million reduction. Now, the timing is obviously going to be influenced by when we conclude on the sales of Software Solutions unit. So that's going to impact the timing as we go through. Then you hit some year-end dynamics here as well in terms of timing. So we expect to close on that transaction in 2019, which would enable us now to go into the second mode of what we're looking to do for the refinance

I'm not going to give the exact time line of that, that's obviously going to take what we can do in the market. I will tell you we're looking and evaluating all of those options and we have a map of how we want to use those proceeds, but I think you'll see two things coming out of that. First is that, there'll be a reduction to the near-term towers. And second, that we will look to set up those towers a very longer period of time to be a more manageable debt profile. So that's what I'd want to leave you with on that action. On the securitized component, so, yes, the term loan, our RCF are secured facility. And I would tell you that those are in line with companies that are equivalent on a grade.

Ananda Baruah -- Loop Capital -- Analyst

Okay. That's super helpful. Okay. This is the last one from me, just Marc a clarification, your comment about working to get to profitability is it possible if that that could occur for the overall company in 2020 ?

Marc B. Lautenbach -- President and Chief Executive Officer

We'll do guidance in January. But yeah, I mean it's possible.

Ananda Baruah -- Loop Capital -- Analyst

Okay, thanks a lot guys. I appreciate it.

Marc B. Lautenbach -- President and Chief Executive Officer

Thanks .

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. Stan, you talked about the Global E-commerce business and a couple of execution issues that happened in the 3rd quarter, are those resolved or could those linger into the 4th quarter and have an impact on the results of the business?

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

Yeah. Kartik, thanks. So the Execution issue is really around fulfillment and we brought in several very large clients, we had to step up, catch up on the backlog and then open the malware incident, the ransomware incident wasn't helpful as we went through that component. I would tell you that fixing the underlying structural components of being able to handle that volume, I do believe has been addressed. And obviously as we're heading into peak, we also believe we've addressed the staffing that goes along with that. So while we're recovering through the ransomware incident, which I think the teams have made incredibly good progress on, we look go forward. I would tell you that those execution issues are largely behind us.

Kartik Mehta -- Northcoast Research -- Analyst

And then you talked about getting to a positive EBIT for Global E-commerce I believe in 2020 and as you said Stan that's a pretty big delta of to where you are now. And I'm wondering, is that all related to the volume, are there other components within that business that would allow you to achieve that?

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

It's a overall balanced equation here, Kartik. So, a few things; first, volume is clearly going to help, right. The more volume the better rates you can negotiate. But we've had a whole series of productivity actions within our Global E-commerce unit and we are seeing some traction on labor and transport as well. So, we're going to see productivity come across. Those two facilities we brought on, obviously, those are very large facilities, you have to gear up and invest in transport and labor to get them stood up before you start moving volume. But we expect that will move volume through those in the fourth quarter at peak.

So that was clearly a headwind here that we had in Q3 and one of the things I think we'll get better. We've also -- as you saw, the press release, launched a price increase that goes out and that's in line with the industry. I think our's is a little bit lower and has far less fees associated with it, but that will also provide us a tailwind. And then we also mentioned that, that unit has taken some structural actions. And I think those structural actions -- this unit has grown so rapidly over a short period of time that inherently we've become an efficient and Leila and her team I think have taken the appropriate actions which will streamline their decision making, but also take out that structure.

So I think those tailwinds are what will help us driving into 2020 to drive toward that profitability.

Marc B. Lautenbach -- President and Chief Executive Officer

I just make one additional point. I mean if you just -- Stan started and I think it's fair repeating, if you look at those structural actions; pricing, done. Structural cost take-out, done. If you look at the other cost takeout that tends to be around a negotiation with particular carriers, much of that is done. So this isn't the stuff that we're betting on the come [Phonetic] , this is the stuff that's either in side or already done and there is still go get for sure, but there's a lot more of this that's already done. Then meets, yeah, and we'll have more to say in general, for sure.

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

And on the revenue component, we continue to add new clients and we grew volumes here 27% and we've had good traction on that side as well.

Kartik Mehta -- Northcoast Research -- Analyst

And then just one last question, Stan, as you talked about the Presort business, is the margin that your third quarter margin a good run rate or are there any puts and takes on it that will impact margins as you move forward?

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

Look, I've been pleased with the progress our Presort team has made. If you take a look, know that EBIT margin has gone from 11.2% in Q1, 12.1% in Q2 to now 13.5%. And there is a combination here. I think one of the telling comments I made in the script is, while labor cost has come down at the same time volumes went up, I think that's a good sign that we're delivering productivity through Presort. We're also growing revenue here. So we continue to see traction in the market. I would expect that those margins will improve off of this level. Our long-term model is to get greater than 15% and I think we'll make progress here in fourth quarter.

Marc B. Lautenbach -- President and Chief Executive Officer

The other expense that we had in the third quarter which Stan mentioned was that the expense for the consultant. So that's obviously an expense that subsides over time.

Kartik Mehta -- Northcoast Research -- Analyst

Thank you very much. I really appreciate it.

Operator

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

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Good morning and thank you for taking the question. So I guess first on the Global E-commerce, so you mentioned that you opened two new facilities. Just wondering if perhaps you could isolate the initial start-up costs for those facilities. And as you get into 2020 do you anticipate to open additional facilities to handle the volume ?

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

Yeah, so, thanks Anthony, thanks for joining this morning. So I can't isolate out the exact cost of those facilities. As you would imagine there is capital expenditure cost that we have that gets capitalized on our balance sheet as we set up the equipment within those facilities, then obviously staffing labor and the management and the transport that all goes in with setting those up.

Clearly that had an impact in the quarter. As you look on a go-forward basis, we have mapped out our plan and that's included in our comments on Global E-commerce on the capital and the number of facilities that will be needed to support the growth inherent in the model. So short answer is, yes, we will continue to add facilities and that's going to be variablized by the growth that we see and a traction we see in the market.

These two new facilities are both quite large ones, roughly half a million square feet and the other one is a little bit bigger. So large on the each end-of-the-coast here which will help us do a lot of our China inbound as well.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Got it. Okay, thanks for that explanation. And so looking at the equipment sales, obviously, those were up for the first time in a while, Stan you talked about closing a large deal in France if you were to exclude that French deal, would your equipment sales still be up and how should I think about that line item going forward?

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

Yeah, hey look, large deals are part of our business. So if we don't have a large deal, we don't get down back end. So this is part of something team worked really hard on. But I would tell you that we still would have grown and roughly with without that large deal. When we think about equipment sales, one of the tailwinds we had coming into the quarter which we won't have on a go-forward is, if you recall we talked about a large backlog in North America. The team did a good job working through that backlog and getting those installed, and that helped to drive equipment sales in the quarter.

But having equipment sales grow, we've said before it's not going to be a straight line. We're going to see some ebbs and flows with that. I'm pleased with the international growth if you heard the comments we also grew in other countries outside of France and Japan and in Germany. So, the growth wasn't isolated to just the country, it's a large deal. As we head into the fourth quarter, you won't have that backlog to clear out, but we have new product offerings coming in, in the international marketplace.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Got it. Okay, thanks for that. And also at the Analyst Day, you guys talked about the SMB or now SendTech segment that you're looking to have the EBIT in that segment be flat or grow in 2021. Are you still on track with that goal?

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

Clearly I can give guidance for 2020, what I'd point to is the performance in the quarter. We had a very strong EBIT margin, the strongest we've had this year and it was up year-to-year. So that contribution from SendTech I think is a good indication that they're making progress. And you saw it in multiple fronts, in multiple places, this isn't just one angle that came, they've reduced their structural expense. They're bringing out new product wheeler Financial is an investment that is just pulling up, but will yield over time. So they're making long-term investments, they're taking productivity actions to contribute. And I think we see that in their performance here with a very strong EBIT performance.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Got it. Okay. And lastly as far as the tax rate for this year, what's your expectation. And I assume that your tax rate will be much higher next year, but any kind of color in -- for 2020, that would be very helpful?

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

Yeah, I think if you take a look as we kind of wrap up the year here. We'd expect that the operational tax rate will go back into the range we guided to, probably candidly toward the higher end of that range. And if you take a look, and we're talking about EBIT on a year-to-year basis in 2020, while we're not going to give guidance we need to keep in mind that there was a 20, -- just under $23 million tax benefit in 2019 that will become a headwind next year. As we think about net income. So segregate EBIT versus net income. So the tax rate for next year on an operational basis, I have to see what other things happen and tax, but I think you should think about our operational guidance for this year to be roughly in line for next year.

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Okay, thank you very much. Best of luck.

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

Thank you.

Operator

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

Shannon Cross -- Cross Research -- Analyst

Thank you very much. Just a couple of questions. The first one is on the price increases. Is there any reason to believe that they won't go through across your product set or is there a potential for volume discounts or something that would offset some just as we think about next year? Thank you.

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

Thanks, Shannon. So look, the price increases, when you think about this. We've announced them through that as you know the industry does this, they're not all going to go through. There's going to be some volume discounts in particular as we sign larger clients etc., So you are going to see some give and takes. I don't think I would take just the existing revenue and POP it up by the amount of the increase and that's going to be also a competitive pressure, what the pricing is in the market. If you look at what's happened in the market. We're certainly not the outlier here. The market has moved in this direction. And I think ours is competitive

Shannon Cross -- Cross Research -- Analyst

Okay, thank you. And then, I'm curious Amazon has obviously made some moves to try to speed their delivery and significant investment there, what are you hearing from your customers in terms of the delivery times that they would, A, I guess, their customers are wanting to see, but more importantly that they're willing to pay for?

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

So

Shannon Cross -- Cross Research -- Analyst

So yeah three years -- three days, five days, one day, I'm just curious as to sort of what the discussion is out there?

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

Yeah. And I think it varies on the clients, Shannon. So when we take a look, there is a combination of free versus fast. And when we look at that in the marketplace, remember a lot of the retailers that we deal with don't necessarily want to participate in the Amazon ecosystem. So they are looking at how do they most cost effectively get their product to the consumer and they're balancing fast versus free. Our studies have shown us that, if there something if it's, "free", there is nothing really free in the world. With Amazon you pay Prime, but here for our retailers, if it's free and they can get it within two days that seems to satisfy a large number of the clients. And you've seen us move our average delivery to under three days. That's going to -- that's an average of under three days in certain markets where we have the facilities and more importantly where our clients have their inventory located allows us to do it faster than that.

Marc B. Lautenbach -- President and Chief Executive Officer

Let me just plug shipping survey that comes out in the next several days, because that speaks to a lot of these dynamics. I think just To summarize what we're hearing from clients and importantly what we're hearing from consumers as well is, really, it's got to be two days or less and free. And that's kind of where the -- the measure is, the second thing that we're continuing to hear and it was born out and last year's survey is that most consumers continue to be unhappy with their online experience. So that speaks to the opportunity that's in front of us. Clearly, the bar continues to be raised, which all of the retailers need to respond to and that's precisely the opportunity that we're selling into. And that's why we're so excited about how we're positioned in this marketplace, but more coming on next couple of days in the shipping survey.

Shannon Cross -- Cross Research -- Analyst

Okay. Yeah, we'll look for that. And then just my other question is with regards to the cyber attack. What have you learned from it? I guess, what changes are you making? Will there be incremental investments required in 2020? What are we getting at 2020 -- yeah, god time flies, that maybe aren't already incorporated in expectations, because of incremental security needs in that. I'm just kind of curious as you step back if that you are making any changes?Thank you.

Marc B. Lautenbach -- President and Chief Executive Officer

Sure. We're still going through the forensics of the attack. I would -- that said, I'd highlight a couple of things which we know, your perimeter defense needs to be strong, where you need to be incredibly strong as once they're inside your network. We knew that before. And that was reaffirmed. In terms of incremental costs there'll be contained within the various budgets, we may I think quite well, we'll rebalance some of those budgets. We've already taken actions to implement some new software that is more behavioral oriented than screening for particular viruses.

So we'll get through this in the next several weeks to kind of get through lessons learned, but more to come. The other thing I'd say and it's saved us, it's our backup, there's two things that really were important for us to getting back up relatively quickly. One is, our backup was really, really good. So the reason we were able to restore our database is we have back to where it largely unaffected by the principal malware attack.

The second thing is our disaster recovery processes worked well. I must admit that we didn't contemplate something of the sprats, but if you look at our various disaster recovery process one at a time, all of those plans held. So what saddening [Phonetic] is it's just unfortunately a fact of life for companies and governments and other public institutions in today's economy. So you need to continue to get Better and better here because the bad guys are getting better and better.

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

Yeah. I guess, I'd add a couple of things to that. First, just to reiterate, there is no evidence at any customer accounts or sensitive client partner employee data were impacted or extracted from our systems. Our financial system, this particular virus is a Microsoft Windows-based target and our financial systems and data are non-Windows systems, so they were not affected. And I -- you always learn a lot when you go through these and for sure we have made and will make a number of updates to our architecture and the investments that go along with that, but you also learn a lot about the culture.

And I know Marc, I'll speak for Marc here, we couldn't be more proud of our team. They demonstrated a commitment to our clients and an enormous amount of grid. So I want to thank the PB team for that incredible dedication to get us back up and running. So we don't take a slightly. In fact, right now, we're working just as hard after recovery to make sure that we rebuild all that resiliency and prevent this from happening again really pleased with how the team did this bringing this back up

Shannon Cross -- Cross Research -- Analyst

Thank you.

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

Yes. Thank you, operator and thank you again for everyone joining. I would just reiterate what I said in my closing remarks. If you abstract up a level and evaluate the dynamics, we've got really strong momentum in our shipping business. Secondly, in our SendTech business, we've got good momentum because of the core investments we've made those investments in new products are now going to be spread around the world. So we like our positioning there. Our Presort business likewise has taken important structural actions, you see it in the labor costs and then underneath that we continue to drive operational excellence across all of our business.

So listen, it's a dynamic market, lots of things you can control lots of things you can control. But I'm pleased with the progress we've made, and I'm pleased with the position going forward. And if you look at the balance sheet actions that have been taken, that's just fortifies what we think has our strength going forward. So thank you for your time this point and we'll talk soon.

Operator

[Operator Closing Remarks]

Duration: 57 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

Allen Klee -- National Securities -- Analyst

Ananda Baruah -- Loop Capital -- Analyst

Kartik Mehta -- Northcoast Research -- Analyst

Anthony Lebiedzinksi -- Sidoti & Company -- Analyst

Shannon Cross -- Cross Research -- Analyst

More PBI analysis

All earnings call transcripts

AlphaStreet Logo