Pitney Bowes - Q2 2023

Transcript

Operator (participant)

Good morning, welcome to the Pitney Bowes Q2 2023 Earnings Conference Call. Your lines have been placed in a listen-only mode during the conference call until the Q&A segment. Today's call is also being recorded. If you have any objections, please disconnect your lines at this time. I would now like to introduce participants on today's conference call: Mr. Marc Lautenbach, President and Chief Executive Officer; Ms. Ana Maria Chadwick, Executive Vice President and Chief Financial Officer; and Mr. Alexander Brown, Senior Manager, Investor Relations. Mr. Brown will now begin the call with a safe harbor overview.

Alex Brown (Senior Manager of Investor Relations)

Good morning. I'm Alex Brown, 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 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 2022 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 forward-looking statements as a result of new information or developments. Also, for non-GAAP measures that are used in the press release or discussed in our presentation materials, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release.

Finally, we have provided a slide presentation and spreadsheet with historical segment information on our website. Now, I'd like to turn the call over to Marc.

Marc Lautenbach (President and CEO)

Thank you, Alex, and good morning, everyone. I appreciate you all joining us this morning. The Q2 played out as we expected, as trends from Q1 largely continued. SendTech and Presort grew profit for the quarter, although SendTech left some transactions on the field that we were expecting. We expect those transactions to close in Q3. Presort had a solid quarter, growing both revenue and profit for Q2. Both of these businesses are well-positioned for Q3 and second half. Global Ecommerce continued to experience different crosscurrents. On the one hand, our cross-border business continued to face headwinds as two of our largest clients changed how they access our offerings. Our digital expedited business traded with the overall e-commerce market. However, the large social platform opportunity I've mentioned on previous calls began to come online.

Hard to predict how this opportunity will roll out, but it could be a very interesting opportunity. Growth in our Domestic Parcel business, where our opportunity to create value is centered, accelerated in Q2, and parcel growth for the quarter was right around 30%. We are winning new clients, and our growth is well above the market. Pricing and weights are less than expected, but consistent with historical periods where retail performance is under some stress. Our network continued to perform well, and our service levels are very competitive in the market. Finally, our costs are progressing as expected and are consistent with what was expected in our long-term plan. Let me unpack the cost dynamics in this business because they provide the foundation of our confidence. Our unit costs for transportation improved 12% quarter-to-quarter and 26% year-to-year.

Going forward, to achieve our long-term plan, our plan assumes postal costs trading with inflation, transportation unit costs remaining relatively flat, labor cost inflation offset by nominal productivity, and fixed cost absorption improving as volumes improve. Said another way, the plan relies on fairly standard cost improvements, resumption of market pricing, and volume growth well less than we are experiencing right now. For me, however, the big news about the quarter was how well we positioned ourselves for the second half. We got a lot of important work done. Ana will give you more details, our restructuring program is proceeding as we expected, if not slightly ahead of schedule. Much of the cost and expense takeout is centered in GEC, as we rightsize that business for the reset of our cross-border business, and we fine-tune to account for better-than-expected performance of the network.

We also completed our refinancing, which positions the balance sheet for the next several years. Our bank began to buy receivables from our captive leasing company, fundamentally improving the earnings power of our bank and diversifying the bank's balance sheet. We've been working on this for a good bit, and this development improves the posture of our bank, which was already very strong. The July USPS rate case expanded Workshare discounts, recognizing the substantial value of the Workshare program to the USPS and our clients, and improving the economics of our Presort business going forward. To summarize, Q2 turned out as we expected, but lots of work came to fruition that set us up very well for the second half and going forward. With that, I'll turn over the floor to Ana to walk through the operating and financial details of the quarter.

Ana Maria Chadwick (EVP and CFO)

Thank you, Marc. Good morning, everyone. Before I begin my financial review, I'll note that the year-over-year revenue information will be discussed on a comparable basis.

... which, as previously discussed, adjusts for the impact of currency, the disposition of Borderfree, and a revenue presentation change for our Digital Services. This revenue presentation change primarily affects Global Ecommerce revenues and, to a lesser extent, SendTech. The change does not affect the dollar profitability of our activities. Also, unless otherwise noted, I will speak to other items, such as EBIT, EBITDA, and EPS, on an adjusted basis. Total revenue for the quarter was $776 million, which is a decrease of 5% compared to the prior year's Q2. Gross profit for the company was $259 million, compared to $274 million for the same period last year, a 6% decrease. SG&A was $223 million in the quarter, and down $4 million from prior year.

Within SG&A, unallocated corporate expenses were $48 million, up from $41 million a year ago, which was largely due to timing of employee variable compensation. Interest expense, including finance interest, was $38 million, which is up $4 million due to higher interest rates on our floating debt. Adjusted EBITDA was $72 million, compared to $82 million a year ago, and adjusted EBIT was $32 million, compared to $39 million in prior year. Adjusted EPS was a $0.02 loss in the quarter, compared to $0.02 in prior year. GAAP EPS was $0.81 loss in the quarter. GAAP EPS includes a non-cash $0.67 goodwill impairment charge related to the Global Ecommerce segment, due to performance of our Global Ecommerce unit through June 30, 2023, and continuing changes in macroeconomic conditions. Turning to cash flow. GAAP cash from operating activities was break even.

Free cash flow was a use of $11 million, compared to a source of $8 million last year. CapEx for the quarter was $26 million, down from $32 million in prior year. During the quarter, we paid $9 million in dividends and made $8 million in restructuring payments. Let's dive into our three business segments. I'll start with SendTech. SendTech reported revenues of $321 million in the quarter, down 4% compared to prior year. We continue to make progress on our product refresh and are now 63% through the IMI migration, which is up 20% points from prior year. We are now entering a stage of our product life cycle, where we will have less new lease opportunities, offset by a corresponding increase in fixed-term lease extensions. This is largely due to our success in placing new equipment over the past several years.

From a financial perspective, this shift results in lower upfront equipment sales, offset by higher-margin financing revenue spread over the lease term. This is a net positive to cash flow. These dynamics, coupled with transactions being deferred, played out in Q2, with equipment sales down 11% compared to prior year, and financing revenue only down 1%. Shipping continues to be a bright spot for SendTech. In the quarter, shipping-related revenue grew 14% over prior year and now comprises 12% of segment revenues. We remain very encouraged by the traction our shipping products are receiving, especially in the enterprise segment, where we saw our largest growth. Moving to profit. Adjusted segment EBIT grew 2% over prior year, as SendTech removed costs faster than revenue declined. We achieved this through initiatives to drive efficiencies and simplify the business. I will highlight two.

First, we reorganized our supplier network to be less concentrated in China, while also lowering the cost of equipment manufacturing and freight. These actions helped offset product mix headwinds and resulted in flat equipment gross margins year-over-year. Second, we continue to optimize our sales and customer service operations, driving more clients' touchpoints to lower-cost channels. For example, more than 50% of our US SMB client service requests are handled via an automated chat function. This has resulted in a 22% decline in total customer touchpoints while maintaining an over 80% customer satisfaction score. These actions continue to demonstrate the durability of the business. I'll spend a moment on the performance of financial services inside of SendTech. This quarter, we made significant progress positioning our financial services for long-term success by growing finance receivables including those held at the Pitney Bowes Bank.

We also initiated a program where our bank will participate in the financing of select captive lease receivables, an initiative that will be good for the bank and the enterprise overall. Finance receivables grew $12 million over the quarter to $1.2 billion, We continue to see healthy payment trends across our financing portfolio, with delinquencies improving to its best level in over 15 years. Next, let's turn to Presort. Presort generated revenue of $143 million in the quarter, up 3% from prior year. Total sortation volume declined 5% to 3.6 billion pieces. Revenue per piece expansion and growth in higher-yielding mail classes offset volume decline. Adjusted segment EBIT for the quarter was $20 million, an increase of 59% compared to last year. Adjusted segment EBIT margin improved 500 basis points to 14%.

The improvement in margins highlights the team's excellent work driving operational efficiencies. More specifically, margin improvement was due to better revenue per piece, continued labor productivity gains from our investment in new sorters, and lower unit transportation costs. As Marc Lautenbach mentioned, the USPS implemented new rates on July 9th, that reflect the value our Presort network provides our clients and the Postal Service. These new rates, along with continued technology investments and operational improvements, will help drive continued strong performance in the second half. Let's shift to Global Ecommerce. Revenue was $313 million, down 9% versus prior year. Adjusted segment EBIT was a loss of $38 million, compared to a loss of $29 million last year. Cross-border continues to weigh heavily on segment performance.

The changes in how our two largest cross-border clients access our services, which we described in last quarter's earnings call, contributed to over 100% of the year-over-year decline in segment revenue and drove lower adjusted segment EBIT. Cross-border revenue, excluding Borderfree, declined $55 million versus prior year and $24 million versus last quarter. Gross profit was down $13 million and $4 million against the same time periods. Moving forward, we expect changes in cross-border to be less significant on a sequential quarter basis. We continue to be encouraged by the progress in Domestic Parcel, with several strong leading indicators that set the stage for improved financial performance. These are: strong service levels, volume growth, and unit cost improvement. Let me unpack these items. First, service levels were very competitive in the quarter, with on-time delivery reaching the high 90s during several weeks in the quarter.

This performance bolstered client satisfaction scores, which reached an all-time high, and more new clients want our services. Second, Domestic Parcel volumes were $50 million, up 29% over prior year, against a market that is close to flat. Domestic Parcel revenue grew 19%. Third, higher volumes, coupled with operational improvements, drove 8% lower unit cost versus prior year and 3% lower versus prior quarter. Our transportation and labor costs are now in line with our long-term model. Unit transportation costs declined 26% versus prior year and 12% versus prior quarter, and labor costs declined 12% and 3% against the same periods. However, similar to Q1, a mix of lighter-weight parcels, combined with pricing pressures from market overcapacity, resulted in lower revenue per parcel.

In addition, our regional delivery offerings, which have been essential to winning more volume in the market, have also impacted revenue per parcel. These dynamics absorbed the improvements in unit costs. We already started to address this issue with our newly signed 2023 clients, which on average, come at a higher revenue per parcel and margin. We expect volumes from our new clients to start ramping up in the second half and scale as we move into 2024. From an operating expense perspective, we completed a significant portion of the planned headcount reduction. We also made progress on our plan to consolidate facilities. In total, we have started the process to close three facilities, all of which will occur in Q3. These actions marginally benefited expenses in Q2 and will provide further benefit in H2 and going forward.

Cost actions, combined with more attractive incremental volume we expect to come online in H2, are the major building blocks required for long-term profitability in the segment. We expect continued pressure on revenue per parcel in Q3. Let me shift gears and discuss the meaningful progress we made on the restructuring and cost reduction plan announced last quarter. We reduced headcount and shifted more processes to shared service centers, resulting in restructuring charge of $22 million. We are reaffirming our annualized savings target of $75 million by the end of 2024 from the restructuring plan and productivity measures in Global Ecommerce. Regarding capital structure. We took several significant actions to strengthen our balance sheet. During the quarter, we bought $13 million of bonds in the open market, bringing the total purchase to $39 million year-to-date.

Most importantly, earlier this week, we raised $275 million in a private placement offering maturing March 2028. Net proceeds will be used to redeem the remaining balance of our 2024 notes, as well as a portion of our Term Loan A. After this refinancing, our next maturity will be in 2026. Moving to guidance. For full year 2023, we expect revenue to be on the lower end of our guidance, relatively flat on a comparable basis. We continue to expect adjusted EBIT performance to outpace the % change in revenue. We also anticipate Q3 revenue and EBIT to improve versus Q2 as incremental volumes in Global Ecommerce, new rate case in Presort and cost actions materialize. In conclusion, SendTech and Presort maintained strong momentum with profit growth.

While cross-border remained a headwind in the quarter, strong service levels, volume growth, and unit cost improvement in domestic parcels positioned Global Ecommerce well for the second half. Operator, please open the call to questions.

Operator (participant)

Thank you. Ladies and gentlemen, if you do wish to ask a question, please press one and then zero on your telephone keypad. You can withdraw your question at any time by repeating the one-zero command, if you're using a speakerphone, please pick up the handset before pressing those numbers. Once again, if you have a question, it's one-zero at this time. One moment. We'll go to Anthony Lebiedzinski with Sidoti and Company. Please go ahead.

Anthony Lebiedzinski (Senior Equity Analyst)

Good morning, and thank you for taking the questions. First, I guess maybe a little bit of a bigger picture question. This is your first public call since the board of directors was changed. You know, what can you share with us so far as far as in regards to the initial assessment of the new board?

Marc Lautenbach (President and CEO)

Listen, here's what I would say about the, the board. I would say the following: the, the onboarding that we went through with the new board members was terrific. They were highly engaged, asked lots of great questions, and hopefully we passed on lots of great information. That's the first thing I would say. I'd say the second thing, you know, as we reconstituted the committees and the board chair, all of those votes were unanimous. You see people coming together to move forward.

Then I would say, you know, beyond that, you know, there's a fairly intensive effort for, I, I would say, the entire board, the, the new board members as well as the existing board members, to, you know, drive shareholder value, consistent with, how you would expect.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay. Thanks for that. You know, in, in regards to, GEC, obviously, cross-border was the biggest headwind within that. If we were to exclude cross-border, can you comment on, on the profitability of, of, of GEC? You know, how, you know, the numbers could have been looking, but just kind of ballpark, maybe estimates.

Marc Lautenbach (President and CEO)

Yeah, I would say, directionally, domestic parcels profit increased, and expedited kind of trade with the market. I think Ana said it in her remarks or somewhere, you know, the, the deterioration in cross-border revenue and profit consumed everything and then some of the, of the progress that the rest of the segment made. That, that's gonna find its right level, you know, one way or the other. You know, as we've said all along, and I, I go back to, is, as we contemplate our long-term plan and where the value creation opportunity is, it's in domestic parcels. You know, I would say the cross-border is creating some noise right now in the results and, you know, the team's doing their best to kind of work their way through it.

You know, we continue to keep our eye on the prize, and that's in the domestic parcels. You know, if you kind of go through that dynamic, you know, the, the parcel growth in Q2 was terrific, well above the market. The unit costs behaved exactly, if not a little bit better than what we would have thought, and are consistent with kind of the endpoints of the long-term plan. The service levels were terrific.

You know, as I said, there's some, there's some pressure on revenue per piece, which is a little bit of a market phenomenon and a little bit of some of the new customers that we've brought on, that come with, you know, slightly different revenue per piece because they're much more, you know, focused on regional types of services. Therefore, you know, while they bring less revenue per piece, they also bring less cost. You know, the, the more we set the costs, and the, and the revenue per piece, the more that we get confident that those dynamics are working out precisely the way that we, you know, would expect in the long-term plan.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay. You know, just to follow up, as far as, you know, cross-border, that's been, you know, sort of the biggest challenge for a few quarters. Is that a sub-segment that you could perhaps maybe carve out and look to divest, or is that not, that's not something you would consider?

Marc Lautenbach (President and CEO)

No, I... We would absolutely consider, and, and this is true across the board. I mean, I've always said, you know, we, we certainly put the portfolio together in a way that, you know, they can share structures and get efficiencies and economies of scale and all those things. At the same time, you know, we maintain optionality, so if a business, and you saw it with Borderfree, I mean, right, so Borderfree is kind of the proof in the pudding. You know, that was a business that we, we chose to exit. You know, I would say the rest of the cross-border business, you know, we have that same degree of optionality.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay. I, I know you mentioned that the, the revenue per piece will be down in Q3. Is that something, is that dynamic, is something that you would expect in Q4 as well? Or do you think that at some point you could start to see a reversal of that or maybe just kind of flattening out, given the new client wins and, and, or so far, and maybe potential new client wins that you have in the pipeline?

Marc Lautenbach (President and CEO)

I would say, you know, revenue per piece, quarter to quarter is a, a touch of a question for me right now. Obviously, you know, so much of that depends on client dynamics, what, you know, what clients are hitting the ball, what consumers are buying, et cetera. you know, quarter to quarter, I think it's a little bit of a guess. Year to year, I do expect that it will, it'll likely be down because of some of the new clients. Again, you know, if you look at RPP, revenue per piece declined in Q2, and transportation costs declined the same amount. so, you know, it's, it's easy to over-rotate on one particular variable.

You really got to look at, you know, the contribution margin, and we look at it a client basis. Looking at one variable without kind of looking at the attendant, you know, unit cost, it could lead you to the wrong conclusion.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. All right. Well, thanks. I'll pass it on to the next caller, and, best of luck.

Marc Lautenbach (President and CEO)

Thank you.

Operator (participant)

Next, we can go to Kartik Mehta with Northcoast Research. Please go ahead.

Alex Brown (Senior Manager of Investor Relations)

Hey, good morning, Marc. I know we've had a lot of conversation about the cross-border business, and I'm wondering, do you think this is a secular issue for you, or is it temporary? You know, right now I know it's a drag, and I'm wondering if there's a way to reposition the business to make it profitable, or is it just you need volume and maybe it's a temporary issue?

Marc Lautenbach (President and CEO)

Yeah, listen, Kartik, I, I think that's to be determined, you know, in, in all candor, you know, it, it is a business that's highly concentrated in two customers. Those customer relationships, as I said, have, you know, evolved. You know, those dynamics we don't expect to change. The, the issue around exchange rates has stabilized a touch, so that's a little bit less of a problem. You know, I, I think it's a question mark of how that cross-border business evolves going forward. You know, again, I, I think it's easy to kind of over-rotate on cross-border. I, I would draw your attention back to the domestic parcel business. I mean, that's where, you know, the biggest chunk of the revenue is. If you look at the long-term plan, that's where all the incremental EBIT is.

You know, to this, to your question, the cross-border thing is gonna work itself out one way or another. Either we'll, we'll get that business, you know, moving forward, or if not, you know, I'm, I'm confident that it's got some value in the marketplace.

Kartik Mehta (Executive Managing Director, Director of Research and Research Analyst)

Then, Marc, I know one of the things that you were doing was automating a lot of the warehouses, a lot of the distribution facilities. Kind of where do you stand on that? Obviously, it must be paying some dividends as you're seeing lower unit cost.

Marc Lautenbach (President and CEO)

Yeah, I would say we are mostly done with the automation investment. We are in the process of deploying it. We had a great review with the team on that a couple of weeks ago. I would say we've got some sites that are, you know, aggressively deploying and using the new automation. We've got some that have, you know, some opportunities in front of them. What I would say is, you know, that automation is producing the productivity that was contemplated in the business case when it is, you know, deployed as was planned.

Kartik Mehta (Executive Managing Director, Director of Research and Research Analyst)

... Hey, Marc, just one last question. You know, in today's environment, where maybe labor is still hard to get, and companies are looking to make their parcels or e-commerce a little bit more efficient, what are you hearing from your customers or as, as, your salespeople are out? Are companies looking to outsource that, or is that attitude changing at all?

Marc Lautenbach (President and CEO)

Outsource what? I'm not sure I understood the question.

Kartik Mehta (Executive Managing Director, Director of Research and Research Analyst)

Just outsourcing all their parcel needs, you know, coming to a company like you to say, "Hey, take over the entire parcel shipment process for us.

Marc Lautenbach (President and CEO)

Well, I mean, we provide a portion of the total logistics chain. We don't do the whole thing end to end. I would say the mid-market customers are more interested in outsourcing, you know, more of it. Larger customers are a little bit more selective. You know, I would say, as you look at the benefits of our business model, I would point to a couple of things. One is, you know, the Postal Service final mile delivery is got terrific economics and, you know, one that economics that others, you know, have a very hard time recreating. I would say, as it relates to our capabilities in the middle, our unit costs, our labor costs are very, very competitive versus our competitors, and we're more flexible to deal with.

You know, we provide a nice, veneer of economic capabilities for clients for, you know, middle mile to get parcels to the, you know, into the Postal Service network.

Kartik Mehta (Executive Managing Director, Director of Research and Research Analyst)

Thanks, Marc. I appreciate it.

Marc Lautenbach (President and CEO)

Yep.

Operator (participant)

Time for one more question. We'll go to Matt Swope with Baird. Please go ahead.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

Hi. Good morning, Marc and Ana. Just, just, one last for me on, on GEC. If you took out cross-border, would Global Ecommerce have had positive EBITDA for the quarter?

Marc Lautenbach (President and CEO)

I'm not gonna get to that level of detail. What I would say is, or just reiterate what I said, is, you know, if you take out cross-border, you know, EBITDA performance, the EBITDA performance would have been better.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

Okay, fair enough. Ana, one, one that I've asked you a couple times before on the cash side, could, could you characterize again for us the make-up? You have, you have about $560 million of cash and short-term investments. How much of that cash is, is available to you versus tied up in the bank or, overseas, et cetera?

Ana Maria Chadwick (EVP and CFO)

Sure. About, about 1/3 of that is available to us as U.S. cash on hand, then the rest is between the bank and international.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

So again, just being highly theoretical, if you chose to deploy all $200 million of that, third, would you still be able to run the business, or do you need to keep some of that cash around?

Ana Maria Chadwick (EVP and CFO)

No, I need, I need, I need a good amount of that to run my working capital needs.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

Gotcha. Okay. Marc, maybe back to the board question. What is the cadence of meetings with the board? You know, when, when is your guys' next meeting, or how often does that happen?

Marc Lautenbach (President and CEO)

You know, I would say it, it varies. I mean, you know, we altered the board schedule to accommodate the new board members. I would say right now, they're maybe more frequently just because there's, you know, more coming up to speed. I, I'm not gonna comment on the, on the specific, you know, cadence per se, but I, I would say right now, it's a very active and engaged board.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

No, that's fair. You can, you can imagine that people are sort of interested in, in what might come out of that. Maybe to focus on the two other businesses just for a second. On the, on the SendTech side, you showed nice profitability, in the face of some, some revenue challenges still. Can you just talk a little bit about the profitability mix in SendTech and, and what we should expect in that going forward?

Ana Maria Chadwick (EVP and CFO)

Sure. The profitability, we expect to continue at those margins that we're anticipating. From a revenue perspective, I touched on this during my remarks here. As we are now 63% through the IMI conversion, more of those new opportunities for clients that are coming up have a mix of renewal or an extension concept to their leases instead of a new product being put out, because our product lasts longer. What we'll see in the dynamics playing out is we will see less of the upfront, which comes with that original equipment sale, and more of very good profit margin renewals coming through a stream revenue, and that flows better to the bottom line.

net-net is a very positive thing from a durability of those cash flows as we anticipate in the, in the SendTech segment.

Marc Lautenbach (President and CEO)

I'll give you the CEO summary. We expect those margins to kind of continue where they are, you know, through the long-term plan. We just had all the businesses update their long-term plan, and, you know, the, the margins that we've experienced in the last five years are kind of like the margins we expect the next five years.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

Will we see the same kind of trend, where maybe there's a little bit of pressure on the revenue side, but, but solid performance on the profitability side?

Ana Maria Chadwick (EVP and CFO)

Correct.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

That's, that's great. Speaking of good profitability, the, the Presort numbers were, were exceedingly strong. Could, could you talk about sort of the, the same forward conversation about where revenue and where profitability goes in Presort?

Marc Lautenbach (President and CEO)

Yeah, let, let me just make a connection. I think if you look at the Presort results, they were absolutely terrific. You know, to us, Presort, in some ways, is the poster child for Global Ecommerce. You know, if you look at those two businesses and you substitute the word mail for parcels, you know, they're fairly analogous. Candidly, if you look at the history of Presort over the last, you know, 15 years and as they've built scale and as they've got more operationally sufficient or excellent, you can see those margins improve. In terms of Presort going forward, you know, last time we gave guidance around Presort, it was margins 15%+. I still think that's the right basic ZIP Code. You know, we expect flat to slightly positive, you know, revenue growth there.

It's a, it's a good business, and I would say there's, there's opportunity, certainly on the revenue side, to do better than that if there's some interesting acquisitions that become available or more customers, you know, decide to outsource, which is also possible. You know, bound and packet mail and Marketing Mail continue to be great opportunities. You know, I, I would say the, the rate case that the Postal Service passed in July, A, it's terrific for the marketplace, and it's, you know, reflective of the value that we provide, but that's a really important boost to our economics, and our customers' economics going forward.

Matt Swope (Managing Director and High Yield Corporate Bond Analyst)

That's great. That's really helpful, Marc and Ana. Thank you.

Marc Lautenbach (President and CEO)

Thank you.

Operator (participant)

We can go to Peter Sakon with CreditSights. Please go ahead.

Peter Sakon (Senior Analyst, Special Situations)

Hi, good morning. Following up on the Presort business, can you talk about the, the, in the press release, the growth in the higher-yielding mail classes? Can you elaborate on what that means?

Ana Maria Chadwick (EVP and CFO)

Sure. Inside of Presort, we have, you know, first-class mail, we have Marketing Mail, Marketing Mail flats. You know, there's different classes, and first-class mail is the vast majority of what we process, and that is what mainly declines in that mid-single-digit range. On the other hand, we've been going into Marketing Mail and Bound Printed Matter, which are classes of mail that are growing. They represent a small portion of the total at the moment, but we anticipate that growth to continue and help offset some of the first-class mail declines.

Peter Sakon (Senior Analyst, Special Situations)

Oh, that's great. Thank you. Can you talk about, you said that a lot of the investment has been done in automation, for CapEx in the quarter, what was it by division, if you happen to have that handy?

Marc Lautenbach (President and CEO)

Go ahead.

Ana Maria Chadwick (EVP and CFO)

Sure. What we've talked about is CapEx on a year-over-year basis, is, is declining because the vast majority of our Global Ecommerce investments are done. I, I will tell you that about 40 or so % of our total CapEx is attributable to Global Ecommerce. Then SendTech would be the next big one. Presort has done a lot of the refresh of the sorters already, so I hope that gives you a little bit of a perspective.

Peter Sakon (Senior Analyst, Special Situations)

Okay. Marc, twice you've said, you know, on the cross-border business, you know, I think you said one way or the other. What is your sense of timing on resolution of that business?

Marc Lautenbach (President and CEO)

Listen, I mean, we're gonna make a thoughtful decision on that business. I mean, I would say, the board and management, you know, continually looks at the portfolio, so it's not like it's a, you know, once-a-year thing. That's how we look at the portfolio, you know, all of the time. You know, the decision that we'll make is what's the best way for, you know, first of all, the customers and the team, and ultimately our shareholders to, to move forward. I'm not gonna box myself into a timeframe.

Peter Sakon (Senior Analyst, Special Situations)

Okay. I guess the last part on the cross-border. Given the negative EBITDA, you said there's value in the marketplace. Is that, I guess, consistent, or like, is it maybe more expensive to close it, because otherwise you would not have, you know, lost that EBITDA?

Marc Lautenbach (President and CEO)

I didn't say it was negative EBITDA. I just said the decline in EBITDA out-surpassed the improvement in the other businesses.

Peter Sakon (Senior Analyst, Special Situations)

Are you saying that cross-border business is EBITDA positive?

Marc Lautenbach (President and CEO)

I didn't say it was negative.

Peter Sakon (Senior Analyst, Special Situations)

Okay, thank you.

Operator (participant)

I'll turn the call back over to Mr. Lautenbach for any closing remarks.

Marc Lautenbach (President and CEO)

Great, thanks, everyone, for joining this morning. I, I, I want to go back to kind of the, the theme of my life. The Q2 played out, you know, largely as expected. It was consistent with Q1, so not a lot of drama in Q2 result. You know, what I really like is how we're positioned going forward. You know, we've been fighting through a, you know, an interesting economic moment for the last, you know, candidly, couple of years since COVID. The effect, the, the broader economy, affected supply chains, affected retail. You know, it feels like we're getting on the tail end of that right now. As we're coming out of that period, I, I like how we're positioned.

Our cost and expense are in good shape, good opportunity, as we get into the second half, that will make a, you know, a meaningful difference. All of the costing, not all the, you know, most of the cost and expense benefits are still in front of us, and we'll start to realize those in the second half. That's terrific. The Presort, you know, and SendTech, as I said, are well positioned in H2 for continued good profit performance. That's important, you know, to the overall ballast of the enterprise. It's also important for our cash. As it relates to Global Ecommerce, you know, the Domestic Parcel momentum is absolutely terrific, and we see that continuing.

Then again, you know, we didn't get any questions, but there were some important adjustments that we made that will fortify the bank, the PB Bank, going forward, that, you know, we're really excited about how the bank is, is well positioned. This economic moment that we're in is going to end, and the company is extremely well positioned on all fronts as we go forward. With that, we'll close this morning's call, and we'll look forward to visiting with you going forward. Thank you.

Operator (participant)

That does conclude our conference for today. Thanks for your participation in using AT&T Teleconference Service. You may now disconnect.