Pitney Bowes (PBI) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Oct. 29, 2026

CALL PARTICIPANTS

• Assistant Treasurer and Director, Investor Relations - Alex Brown
• Chief Executive Officer - Kurt Wolf

TAKEAWAYS

• Revenue -- $456 million, reflecting a decline in the mailing install base at SendTech that was partially offset by volume growth in Presort Services.
• Adjusted EPS -- $0.42, a 35% increase from the prior year driven by cost reductions and interest expense savings from debt repricing.
• Adjusted EBIT -- $114 million, growing 6% year over year as cost discipline in SendTech outweighed higher transportation costs in Presort.
• Adjusted Free Cash Flow -- $147 million, representing a 144% increase due to improved working capital and prepayments from new customers.
• Cash from Operations -- $151 million, more than doubling from $67 million in the prior-year period.
• Debt Reduction -- $148 million in the third quarter, which included a $46 million tender offer for long-dated debt at a discount to par.
• Term Loan B Repricing -- 75 basis points reduction on the interest margin of the $585 million facility, lowering future interest expense.
• Share Repurchases -- 1.0 million shares for $17 million in the third quarter at an average price of $16.84 per share.
• SendTech Adjusted Segment EBIT -- $115 million, rising 14% year over year despite lower revenue due to a $13 million decline in operating expenses.
• Presort Volume -- 3.4 billion pieces, growing 4% year over year following new client wins and the acquisition of volumes from competitors.
• PCI Volume Capture -- 2 billion pieces annualized, secured late in the quarter after the competitor exited the market in August.
• 2027 Revenue Headwind -- $60 million to $80 million, stemming from the scheduled termination of a noncore fulfillment contract.
• Full-Year Revenue Guidance -- $1.83 billion to $1.86 billion, with the company raising the low end of the range.
• Full-Year Adjusted EBIT Guidance -- $450 million to $470 million, narrowing the range while maintaining the midpoint.
• Full-Year Adjusted EPS Guidance -- $1.58 to $1.67, refined based on third quarter performance and cost efficiency.
• Full-Year Adjusted Free Cash Flow Guidance -- $380 million to $420 million, representing an increase from the previous range.
• Presort Transportation Costs -- $6 million increase year over year, driven by higher fuel prices and freight inflation.
• Sorter Payback Period -- 2 to 3 years, supporting the company's decision to increase capital expenditures for equipment refreshes.
• Presort Volume Capacity -- 15% increase in immediate volume absorbed following market consolidation, which initially necessitated higher overtime costs.
• Non-GAAP Adjustments -- $7.1 million in pension expenses for plans slated for termination, excluded from adjusted earnings results.
• Capital Allocation YTD -- $108 million total debt reduction year-to-date, reflecting prioritized deleveraging.
• SendTech Product Mix -- Gross profit remained flat despite lower revenue, supported by favorable product mix and lower tariff costs.

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RISKS

• Wolf stated, "the previously mentioned termination of a noncore contract during Q4 will create a headwind for this business during 2027," noting the impact will range from $60 million to $80 million.
• Wolf noted that absorbing 15% more volume immediately in Presort meant that the company ended "up with a lot of overtime" and "suboptimal operations in the short term."
• Wolf stated that "the pricing you could assume was below our typical pricing" for the large customers captured from PCI, which will create a persistent hit to margins for those specific accounts.

SUMMARY

Pitney Bowes Inc. (NYSE:PBI) reported third quarter results that featured a stabilization of revenue alongside growth in adjusted operating income and free cash flow. Management reported that the company is transitioning from a period of stabilizing core operations to a strategic pivot toward revenue growth by 2028. The quarter was defined by significant market share gains in the Presort segment following the exit of a major competitor and a disciplined focus on cost reduction within SendTech. The company also successfully executed multiple capital allocation initiatives, including debt repricing and a tender offer, to improve its interest expense profile and balance sheet strength.

• Management noted that the exit of PCI from the sortation market provides evidence of a cyclical low in industry margins. CEO Wolf stated, "more rational industry pricing is likely in the near future."
• The company is refreshing its sortation equipment to improve the cost structure of its Presort network, with management anticipating a payback period of two to three years on these investments.
• The SendTech segment is facing a significant revenue headwind in 2027 due to the termination of a noncore fulfillment contract, which Wolf noted was a profitable business but disconnected from core shipping and mailing operations.
• Management reported that the ongoing strategic review process has entered the external review phase, though they declined to provide further details during the call.
• The company's bank segment is continuing to pilot new technology-driven platforms, including a logistics lending initiative designed to support broader growth across its shipping and mailing ecosystem.
• The significant increase in adjusted free cash flow was partly attributed to prepayments from new customers won in the wake of competitive consolidation in the mail sortation industry.

INDUSTRY GLOSSARY

• GEC: Global Ecommerce, a former business segment of Pitney Bowes.
• PCI: Presort Central Inc., a sortation market competitor that exited the industry in 2026.
• Presort: A service that sorts mail by zip code before delivery to the USPS to earn postage discounts.
• SendTech: Sending Technology Solutions, the company's largest segment by revenue.
• Term Loan B: An institutional loan facility typically with a longer maturity and different repayment structure than a revolving credit line.
• Workshare discount: A reduction in postage rates offered by the USPS to companies that perform mail processing tasks like sortation.

Full Conference Call Transcript

Operator: Good morning, and welcome to Pitney Bowes Third Quarter 2026 Earnings Conference Call. Today's call will include remarks by Pitney Bowes' management, followed by a question-and-answer session. [Operator Instructions] I will now turn the call over to Alex Brown, Assistant Treasurer and Director, Investor Relations. Please go ahead.

Alex Brown: Good morning, and thank you for joining us. Included in today's presentation are forward-looking statements about our future business and financial performance. Forward-looking statements involve risks and uncertainties that can cause actual results to be materially different from our projections. More information about these items can be found in our earnings press release our Form 10-K and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to update forward-looking statements as a result of new information or developments. Also included in today's presentation are non-GAAP measures.

Specifically EBIT, EBITDA, EPS and free cash flow are all on an adjusted basis. You can find reconciliations for these items to the appropriate GAAP measures in the tables attached to our press release. We have also provided a slide presentation and a spreadsheet with historical segment information on our website. With that, I'd now like to turn the call over to Kurt.

Kurt Wolf: Good morning, and thank you for joining us today. We continue to deliver strong results in the third quarter with year-over-year improvements in EPS, adjusted EBIT and adjusted free cash flow despite our increase in investment in growth. Our results in Q3 and the start of Q4 have given us confidence to up the midpoints of our revenue and adjusted free cash flow guidance range. Now I'd like to quickly address our 5 key strategic priorities. Presort picked up significant volume late in the quarter as a result of PCI's exit from the market.

These volumes will create a year-over-year tailwind over the next 4 quarters but I also believe this exit is further evidence that the industry margins are near a cyclical low and that more rational industry pricing is likely in the near future. Regarding our SendTech segment, we were able to achieve higher margins despite increased growth and focused investment, thanks to continued cost discipline. That said, the previously mentioned termination of a noncore contract during Q4 will create a headwind for this business during 2027. Moving to Pitney Bowes Bank. We continue to invest in technology and infrastructure to support future lending platforms and all 3 pilot programs continue to make progress, particularly our logistics lending platform.

With respect to capital allocation, we completed a tender offer for $46 million worth of our long-dated debt at a discount to par and also reduced our Term Loan B interest rate by 75 basis points through our repricing. Finally, our strategic process has entered the external review phase. As mentioned at the start of our last call, we will not answer questions related to the process, but we'll provide updates as appropriate. In summary, we executed well across all of our strategic priorities and momentum continues to build as we focus on achieving profitable revenue growth by the end of 2028.

As always, I will end the call by thanking the exceptional team of more than 6,000 Pitney Bowes employees that I have the pleasure of working with. The results we are delivering and the momentum that we are building is entirely thanks to their hard work and dedication. With that, let's open the call to questions.

Operator: [Operator Instructions] Our first question will come from the line of Aaron Kimson with Citizens.

Aaron Kimson: I'll start with Presort. I'm modeling mail volumes of about 130 million pieces sequentially in the quarter, so that would be $520 million annualized. That, obviously, ignores any seasonality. You commented you won 2 billion pieces annualized from PCI since it shut down in August and a lot of that volume came late in the quarter you just mentioned. But can you help us think about how much of the net new volume in the quarter was driven by PCI versus the net new logos and boomerang customers you've previously spoken about and to the cadence of how the PCI volume may come into the network over the next few quarters?

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

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

Paul Evans: Yes, Aaron, this is Paul. It's great opportunities for us. Generally, we see the payback is 2 to 3 years. Sometimes it can be a little bit longer, but on average, it's about 2 to 3 years. So we are putting out capital this year, we'll put out capital next year for that. But I mean, we're doing this because we believe in the Presort business, and this is the right thing for us to do.

Aaron Kimson: Got it. Congrats on the strong results.

Kurt Wolf: Thank you, Aaron.

Operator: Our next question will come from the line of Curtis Nagle with Bank of America.

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

Kurt Wolf: Yes. Curtis, thanks for the question. So with respect to pricing, I guess what I could say is, what really happened, and I apologize for a long explanation, but hopefully, this will make it perfectly clear. In July of 2024, there was a rate case that increased the work share discount substantially. So margins expanded across the entire industry, which set off like a gold rush for customers. So what you saw is competitors being increasingly aggressive trying to win new customers because the margins just had expanded significantly. PCI, in particular, this is just our opinion, got extremely aggressive on pricing to the point that they left themselves no margin, presumably due to transportation cost, diesel, et cetera.

My view is they more or less, drove themselves out of business being too aggressive on pricing. I think this is driven by that rate case that created these high margins. What you're seeing now is much lower margins. You're seeing it for us. You're seeing it Capital Presort exited service, I think, December of last year. PCI exited September of this year. You can never make too much of rumors, but Debbie has heard scuttle of other competitors having some serious problems. So the reality is, I think there's a you would expect there to be a recognition from the industry that pricing as it stands today. It's not sustainable for the long term.

So our expectation, and again, we can't drive -- we have to -- we're still -- we're a dominant player, but we can't set price. We can only react to the price that's out there. Our expectation is that based on where competitors and us stand in terms of margin that pricing should start to go up just to get players to sufficient ROI to justify continuing to operate in the space. And as we said in the letter, again, we expect that to happen, but we're not resting on our laurels. We're doing a lot to integrate the PCI volumes. There's a lot of work to be done there.

So we expect to get a lot of margin pickup from that. We can talk more about it if you'd like but also, as Paul spoke to, we're making a lot of investments to continue to bring down our cost of operations, so we can get higher margins and better ROI on the business.

Curtis Nagle: Okay. I mean since you mentioned it, yes, if you could, I guess, elaborate more on the margin rate you expect to get from PCI, that would be awesome. Appreciate it.

Kurt Wolf: Yes, absolutely. So just -- so whenever -- with PCI ceasing operations, one thing that is -- this just demonstrates some of the value that we offer in the space. We're the one national player. So when people looked and said, "Hey, we have a lot of volume, we need to move". We were the natural choice. So we picked up a disproportionate share of the volume out there. Some of it is we want to secure clients. We want to have good partnerships these have tended to be larger customers that we picked up. So the pricing there was lower is just the economics of the industry.

And as far as margins going forward, we've absorbed an additional 14%, 15% roughly of our volume. And as you can imagine, in an industry where you're trying to run at 100% capacity, if you add 15% capacity immediately, you end up with a lot of overtime, you end up with suboptimal operations in the short term. So our thought going into this was to take the volumes we could and then adjust on the back end to correct -- to start to hire permanent employees set our network such that we can handle the volumes without having to go to extraordinary lengths. So over time, as we adjust the new volumes, we expect margins to improve.

Operator: Our next question will come from the line of George Tong with Goldman Sachs.

Keen Fai Tong: With respect to SendTech, can you size the revenue associated with the noncore contract that's winding down? And if you exclude that, what the underlying revenue trajectory should look like in 2027?

Kurt Wolf: Yes, George, thanks for the question. So it's -- I mean it's a decent chunk of revenue. It's -- think of it in the $60 million to $80 million range in terms of revenue. So it's a pretty big hit for us. And the thing that we really want to accentuate is, this truly is noncore. This was a part of the old GEC. This was a fulfillment business. We don't do fulfillment. It's not even close to any other business that we do. It was just a profitable business that was left over from GEC. So we always knew this business was going to go away.

So that's going to be roughly $60 million to $80 million hit for 2027. And I would say, absent that, there's no doubt in my mind that we would be at growth in 2027 were it not for the loss of this one contract.

Keen Fai Tong: Got it. That's helpful. And then with respect to Presort in the quarter, revenue per piece fell a bit. Can you talk a little bit more about that? What drove that? And whether that specific pressure should persist?

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

Operator: Our next question will come from the line of Jasper Bibb with Truist Securities.

Jasper Bibb: Maybe I wanted to follow up on a prior answer. I guess I'm wondering what the incremental margin might look like on those PCI volumes or maybe if you don't want to comment on PCI specifically, like typically what those incremental margins look like for Presort, when you see volumes rising like this?

Kurt Wolf: Yes. Jasper, Generally, what I'd say -- and this is true of just about any business. The larger a customer is the -- typically the lower the pricing, the lower the margin. So this was disproportionately large customers. So overall, the pricing you could assume was below our typical pricing just because of the size. And same with the margin, it's going to be a lower margin customer. And just to be clear, that's something that will persist. This is because they're larger customers, we do see pricing in the industry or expect pricing in the industry to start to adjust and become more rational.

But to be clear, it's not like these customers were going to increase price on specifically. It's just that we expect margin to come across the entire portfolio of customers, if that comes through. So I would just say lower margin due to larger size. And it's not sort of -- it's not a onetime hit. It will be a persistent hit because they just are larger customers and going to naturally be at a lower margin for the long term.

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

Kurt Wolf: Yes. Yes. So with respect to that, and I'll get to SendTech. One thing I'd say is historically, as a company, I would say we made 2 mistakes typically. One, is we identified one idea that we jumped on to wholeheartedly like GEC and pursued, and it may not have always been the right idea or we've made a lot of temperate investments across a whole variety of opportunities. And I will get to SendTech. But when we think about growth, we're trying to think very holistically using a very broad aperture and not to get too wonky here, but I previously was co-founder, a founder of 3 successful start-ups.

In the discipline that a startup has is that you have to go in front of a VC and convince them of an amazing idea. The problem that happens with corporate start-ups for lack of a better idea is you have a parent that says, we need growth, what do you have. And that it's much easier to get an idea through. So what we're doing is being deliberately thoughtful and not just saying, hey, shipping is an opportunity for growth. We think it is. but we're going to wait for the great idea. We make sure that we have the right idea.

But beyond that, when I talk about broadening the aperture, are there other things we can do beyond just what the obvious is. Is there opportunities to use the bank to help grow Presort and that's something that the bank is now doing. So we're thinking more holistically what are all the good ideas out there. So we have more ideas to choose from. So when we talk about growth, it's not a guarantee. It's going to come from one place or the other. There's ways we're looking at use of our data within the organization. We think we can help generate growth.

Just the information that we have, we can we can use that to make better decisions with our customers, et cetera. So there's a lot of initiatives we're talking about. I do think with SendTech, we'll get there. Obviously, shipping software is an amazing opportunity. So I don't want to say by 2028 necessarily that SendTech itself will be at a pace of growth. There's just confidence with all of the initiatives we have across the 3 business.

SendTech Bank, which is currently a part of SendTech and Presort as well as other ideas we have that are more holistic and use the advantages we have with our existing business. we're very confident that we have enough good ideas that if you think of it from a VC standpoint, we have enough good ideas in the hopper that some of those are ultimately going to pan out as we pilot and test them, and we'll get to growth overall for the company. So I know it's a nonanswer answer.

I'd like to think that SendTech is going to get to growth in 2028, but the increased confidence really comes from the fact that we have a lot of really good ideas internally that we're exploring.

Jasper Bibb: No, that's really helpful. Maybe one last quick numbers question. I think from 4Q adjusted EBIT implied by your guide is, seasonally a little below where things kind of normally are as you go from the third quarter into the fourth quarter. Could you just frame that for us? Would you say that's like more conservatism? I know you have some expense timing things this quarter versus the third quarter. Just any kind of context there would be great.

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

And we've shown that how we tightened the range.

Kurt Wolf: And Jasper, for a few things that Paul has mentioned, we talked internally as well. Last Q4, we had, I believe, it was a $5 million benefit to EBIT as a result of, I think, it was equipment revaluation. So we did have some things that helped us last year. The other thing, and again, thankfully, I have Paul and Alex and the whole finance team to help me on the accounting questions, I don't fully understand. But there's a lot of -- I think when you get into Q4, there's a lot of questions in terms of like bonus accruals and things like that, that create a lot of variability for your Q4.

So we wanted to keep a large range, not because we're not comfortable with where the business is going, and we're not trying to be overly conservative. It's just a recognition that there's a lot of things that can come up in Q4 from an accounting standpoint that could ultimately lead to results that are a little harder to predict. So...

Operator: Our next question will come from the line of Anthony Lebiedzinski with Sidoti.

David Witzke: So with the exit of PCI in 3Q and you guys strengthening your position as the dominant player in the sortation market or [ presortation ] market. Do you think there's an opportunity for you guys to be more of a price leader as you talk about improving pricing and margins and I guess as we look back historically, late '24, the Presort margins were high 20% range, even got to a little over 30% in the early part of '25. So I know there are some headwinds with higher fuel and transportation costs, but maybe if you could just talk to us as far as like the timing of the pricing and margin improvement that you expect.

How do you guys think about that?

Kurt Wolf: Yes. Anthony, good chatting and good morning. So what I would say is we're not a leader. I would argue we're not a leader in terms of pricing, but we are going to do what's right for our business. So right now, our belief is across the entire industry, margins are particularly low. We look at our business assume that we're one of the smaller players. I can only imagine the margins they're seeing not as attractive as we are. It's -- right now, it doesn't make a whole lot of sense to be investing in the space just based on the low returns people are getting.

So our expectation is we're focused on getting price in part because as you highlighted, our costs have gone up dramatically, diesel prices, lack of drivers. There's a whole host of issues that are really facing the industry, us and our competitors. And there is a flow-through effect to ultimate customers. So our expectation is that as we do that, that it's not going to -- that a competitor is not necessarily going to come in and have a significantly better pricing offer simply because they're facing the same cost that we are.

And likewise, as we're trying to compete to get other people's business, we have to be very cognizant, particularly given that we've taken this volume on that our costs are higher. So I think in general, everybody is pricing -- everybody is doing what's right for their business. As people price the margins just aren't sustainable at these low levels in our view. So our expectation is pricing is going to be higher on a go-forward basis. And added to that, we are looking at things like fuel surcharges, et cetera. We may have signed a contract when diesel was at $3 a gallon, and now it's at $7 a gallon.

That's a dramatic cost increase and a contract we might have signed 2, 3 years ago that was profitable, may not be profitable anymore just because of diesel prices and the lack of drivers. And I'm sorry, there was a last part of your question that I know I didn't address. Can you repeat what that was?

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

Kurt Wolf: I think that period was a very -- and you saw what happened when our margins got to that level as the pricing just came down. So really have to say we can get back into the 30s. I'm not so sure that's the case. And a few more things to note, by the way, something to keep in mind is we have corporate expense that we can't efficiently allocate or effectively allocate down to Presort. So Presort margins for us are actually lower than what we report because of that. So again, apply that to our competitors, their margins are lower.

But when we look at our Presort business, as we think about where our margins are now, the stress in the industry, the fact that we've seen Presort going out of business at this level of margin, it's almost tautological or it just follows logically that margins need to go up industry-wide. So I've only been in this chair for 16 months, something like that. So I continue to learn now that I'm inside the company, and it's giving a much better sense of what's probably reasonable.

And I think mid-20s on margin is probably mid -- I think maybe even a little above mid-20s, but I don't see us getting back into the 30s for a sustainable period because I think at those points -- at that point, pricing will kick in. And one last thing to add, I know it's a long answer, but again, we continue to invest. So the investments we're making, we believe, are continuing to give us a better cost structure than our competitors, which will support longer higher margins in the long term, simply because it's a higher level of investment.

So we'll be at a higher investment level than competitors conceivably, but also hope that should translate to higher margins as well. So that's what -- another thing that gives me confidence in getting to the mid- to upper 20s for margins in the Presort business.

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

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

Operator: Our next question will come from the line of Kartik Mehta with Northcoast Research.

Kartik Mehta: Kurt, maybe just to understand a little bit about the SendTech margins. You guys have done a great job expanding those margins. And you talked a little bit about this noncore customer or this revenue going away. And as you look at that segment of the business, is there an opportunity to reduce cost or do other things to be able to sustain the margins that you have in this business? Or do you think as we go into 2027 with the loss of that customer, the margins will be pressured in 2027 compared to 2026.

Kurt Wolf: Yes. Thank you for the question, Kartik. So just let me make a few comments on that. First of all, losing this noncore piece of business, it will be negative for margin just because you sort of -- you lose some of the leverage. So the margin on that business on an internal accounting basis. is about equal to other businesses. But the reality are we're going to end up with effectively stranded costs that we can't eliminate because it was shared services across the overall business. So again, a noncore piece of business, but it's an attractive piece of business. So unfortunately, that will be a hit to margins.

And then another hit to margin in the short term, and then I'll address sort of the counteracting piece of it is we're really focused now on getting the growth. So we're already investing, and that's one of the things I'm really proud of the team for delivering, we're hiring people. We're purchasing software, buying -- we're investing in growth in the business, and we're still able to improve our margins or improve profitability. But we're going to continue to invest in growth as we come up with more and more of these opportunities, and we start to grow into those opportunities. So that will create a headwind in SendTech as well.

But the one thing I will say is what we've really focused on even prior to me stepping in for the last almost 3 years now or 2.5 years has been a culture of continual efficiency improvement. So we're not looking to do [ risks ]. We're not looking to do significant cuts. But it's a part of running a business these days. I think what was it, Microsoft recently announced I think a cut, there's been some large companies that are very successful out that are reducing costs. We're constantly looking at opportunities. where we can reduce costs.

And Todd and his team, Debbie and her team, Steve and his team are all doing a good job of balancing investment in growth while also figuring out ways to save and create efficiencies within their business so that we can offset some of the costs that we're putting into growth initiatives. So it's a longer answer. But I guess what I'd say is -- in the short term, I would say that SendTech margins, probably roughly in the right ballpark. One thing to note is that assuming we break out the bank, the bank is currently reported as a part of SendTech.

So you're going to see -- you naturally see a change in the margin reported for SendTech if the bank is no longer reported as a part of it. But if you combine SendTech and the bank, you'd get back to those same level of margins more or less.

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

Paul Evans: Look, I mean, obviously, we realized a lot of the benefits and improvements in working capital. And Kurt talked about we're continually improving our cost structure. So we realize benefits from that. One way to look at -- I'll tell you how I look at it. I look back at the LTM free cash flow, and it's just astounding what this business provided with the right focus. And obviously, we were confident to up it for the year. Again, it's just a strong sign of how much free cash flow opportunity is available here. I don't believe '27 will be as high as '26. And so -- but it's certainly still commendable where our cash flow will be going forward.

But to break it down into the components, I would say, we're always looking for opportunities for working capital benefits. And we have naturally have some built into our business by its design, and so I think we've used those in a very appropriate manner. As you can see how we've allocated capital and the shares that we've repurchased and how we've kept our debt flat and we've cut our interest expense and then a number of other things.

Kurt Wolf: And Kartik, to add to that, a couple of quick things. I think that -- there's a lot of variabilities we've seen within our business from a working capital standpoint. 2026 appears to be -- we're having tailwinds as a result of it. And you don't always have tailwinds. So at some point, we're -- unfortunately, we will face headwinds and all analysts, I'm sure you'll sit there and look at our business and normalize 1 year is going to be too high 1 year is going to be too low in reality is somewhere in the middle. Another thing that just to call out is twofold.

One is, as I mentioned, we're increasing investment just because we've identified attractive areas for investment. So we do expect with the sorter refresh. We're leaning heavily into that. We've underinvested in prior years. So we're going to be accelerating investments. So CapEx, we do expect to -- we have a catch-up. We may get to a point where we're over normalized CapEx, but we're going to need to catch up for years of underinvesting. Compounding that is that historically because we were in such tight financial conditions we would typically lease a lot of equipment. So those payments were spread out over years.

So what you may see, for example, is in a year like '27, when you compare that to a year like '24, let's say, in '24, we were leasing. So our CapEx on sorters might have been low, first of all, because we were underinvesting but even lower still because -- the cash impact because we were leasing instead of just outright purchasing. So we're going to get double hit in the short term because we're going to increase our expenditure on sorters but we're also going to continue to have lease payments when we couldn't just outright buy the equipment.

So there's going to be a small transition period where we're paying old leases and new CapEx that won't carry that -- those future lease payments with them. So there's going to be -- and we'll talk more about it as we discuss guidance for 2027, but those are some things just to keep in the back of your mind as you try to model for '27. We're always going to do what's right for the business, and sometimes that means taking a short-term hit to cash flow just to get the business where it should be in terms of how we operate on a go-forward basis.

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

Kurt Wolf: Yes. Thank you, everybody, today for joining. I'd just like to make a few final comments. First of all, I can't express enough gratitude to all the employees here at Pitney Bowes. I open by saying that, and I close by saying it I would say what we're accomplishing right now is nothing short of amazing, and it's due to, like I said, the 6,000 employees here. Hopefully, investors and analysts are starting to realize the discipline and excellence that we're showing in execution and that we're starting to get some appreciation and credit for our ability to execute on plan.

And one of the -- and then the second point I would go from there is what's really exciting for me as the CEO of this company is for so long, we've been focused on trying to fix what we have. And now we're really pivoting to a focus on how do we grow and how do we have success going forward. So this will be a new chapter. And as analysts, what you're going to see is increased investment, you're going to see we're going to see increased investment, not just from a CapEx standpoint, but also from a cost standpoint. And we hope that we've earned people's respect and appreciation that we can execute on plans.

So we do expect a period of transition where we are investing in growth before we get the revenue from that growth, but it's important for the success of this business that we get to revenue growth, that's ultimately what all investors want and it's going to be a period of transition. A lot of companies typically will -- you acquire something which we did with -- when we bought the Newgistics business. It's an easy way to get revenue growth right out of the gate. We're trying to do it what I believe to be the right way, which is to prudently build for the future. So we're in this period of transition.

But again, I think our ability to execute gives me a lot of confidence that as we're making these investments, these investments will pay off. So I'm looking forward to the day where we start talking about all the growth initiatives and the actual positive revenue that we're starting to put on the board that is also tied to increased profitability. So thank you, everybody, for listening, and thank you for your continued trust in us and the management team and the employee base. Thank you all.

Operator: This concludes today's Pitney Bowes Third Quarter 2026 Earnings Conference Call. You may now disconnect.

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