Jan 31, 2018
Executives
Adam David - Vice President-Investor Relations Marc Lautenbach - President and Chief Executive Officer Michael Monahan - Executive Vice President and Chief Operating Officer Stan Sutula - Executive Vice President and Chief Financial Officer
Analysts
Kartik Mehta - Northcoast Research Allen Klee - Sidoti Glenn Mattson - Ladenburg Thalmann
Operator
Good morning, and welcome to the Pitney Bowes Fourth Quarter Earnings Conference Call. Your lines have been placed in the listen-only mode during the conference until the question-and-answer segment.
Today's call is 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. Mr.
Marc Lautenbach, President and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President, Chief Operating Officer; Mr.
Stan Sutula, Executive Vice President, Chief Financial Officer and Mr. Adam David, Vice President, Investor Relations.
Mr. David will now begin the call with a Safe Harbor overview.
Adam David
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 2016 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 table 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. Marc.
Marc Lautenbach
Good morning and thank you for joining the call. As in the past, I will provide an update on the Company’s strategic transformation and how our 2017 annual results played into our overall transformation.
Stan will provide an overview on the full-year and details around the quarter and then take you through our 2018 annual guidance. We will then open the call for your questions.
From our perspective, the headline of the quarter and the year is that the Company moved to growth, - slight growth excluding Newgistics, but growth nonetheless. Our growth is a result of our ongoing efforts to reposition the portfolio to growth markets.
Some of these efforts have been around portfolio changes and some of the success is a function of organic efforts. The subtext is that this growth is centered broadly around shipping.
When companies are trying to transform, reposition a business that was in sector decline to a position of growth is the first step, but certainly not the last. In large part, these new dynamics informed our decision to publicly speak about our evaluation of strategic alternatives.
As a matter of practice, on an annual basis, our Board has looked at strategic alternatives. But given PB is now a different Company, centered around different themes, the dynamics around this year’s evaluation of strategic alternatives were unlike previous years.
We will have an update on our evaluation of alternatives once we have concluded the process. I said in November, Pitney Bowes is a different Company than five years ago.
The Company that is positioned to grow. Perhaps the best example for how different we are is our new SendPro C-Series product.
This new product enabled value, cloud initiatives, our new enterprise platform and delivered through a new set of channels. None of this was even contemplated in 2012.
More on our progress with this new product in a moment. But the short story is new product is exceeding our expectations on almost every dimension.
Now let me turn to progress against our strategic initiatives, beginning with the reinvention of our mail business. Again, our new SendPro product is a digitally connected product based on an open platform that enables mailing, shipping and other third-party applications.
In the fourth quarter, we have seen clients move to the new equipment faster than we expected. Services and attach rates are strong and we are seeing payment-to-payment increase.
The SendPro product embodies our initiative to reinvent our core business. Early days for sure, but there is much to be optimistic about this new product.
Broadly, the products that we have announced in our SMB business over the last two years are contributing to the stabilization of our equipment sales. It is also worth noting that our Production Mail business performed very well in the quarter and in the year.
In large part, this performance was driven by new products announced and delivered over the last 24 months. In terms of operational excellence, we continue to see progress.
Our gross inventory is now about $110 million. As a reminder, in 2012, the same number was over $250 million.
Additionally, our DSO has improved over that same time period. As you all remember, we announced in November a new set of initiatives to take out an additional $200 million of growth spend.
This is on top of nearly $300 million of expense we have already taken out over the last five years. Stan will give you specifics, but we have made good progress here.
This new initiative to become more efficient is a result of many things. But in large part this is enabled by our enterprise business platform and our new channels.
Finally, again, Stan will elaborate more, we have made very good progress stabilizing our shipping API platform and our service levels are now at industry norms. This gives us the opportunity to fuel our growth and facilitate our capture of new clients.
Turning to our third strategic initiative of - digital commerce. Our digital commerce segment grew significantly in the year, driven by our e-Commerce business in the stabilization of our software business.
Our software business grew slightly in the year. The new channels continue to progress well in the quarter.
In 2017, we new set of progress with our new channels will be characterized as channel shift. In 2018, we are working with new partners to take us to new markets and to new clients.
While we made good progress with our software business, we are still not where we need to be. Our Global e-Commerce business grew nicely in 2017.
We continue to invest in this business and added new clients. Our newest acquisition Newgistics performed very well in many ways better than we expected in the quarter.
More importantly, reaction from our clients and prospects continues to be very strong. Again, the story of 2017 was around growth.
For the year, revenue grew 4% including Newgistics. And without Newgistics we still grew slightly for the year.
From a growing rate perspective, we grew 2% on a pro forma basis in the fourth quarter, which gives you a feel for the momentum of the portfolio. Clearly, we have more work to do.
It’s been a tough route to get to this points, but most companies working to transform don't make it thus far. Now we need to move to more profitable revenue growth.
With that, let me turn it over to Stan.
Stan Sutula
Thank you, Mark and good morning. As Mark discussed, we made progress against our strategic objective over the course of 2017, which included investments from our longer term growth.
In 2017, we improved our revenue performance as we continue to reposition our portfolio to growth markets. However, we've realized we have more work to do.
Let me start with our full-year results, and then I will drill down into the details of the fourth quarter and update you on our outlook for 2018. 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 free cash flow.
Reconciliations of all non-GAAP to GAAP measures can be found in the financial statements posted within our earnings press release and on our Investor Relations website. For the full-year, based on the guidance ranges we provided during our third quarter earnings call, revenue and adjusted EPS performed within the respective ranges and free cash flow came in just above the top end of the range.
Revenue was $3.5 billion, which represents growth of 4% over prior year. This included one quarter of incremental revenue related to the Newgistics business.
On a pro forma basis, total revenue would have been slightly up over prior year. Looking at revenue by group.
Digital Commerce grew 32%, enterprise grew 3% and SMB declined 5%. Adjusted EPS was $1.41, GAAP EPS was $1.39.
GAAP EPS included charges of $0.21 for restructuring and asset impairments, $0.03 in transaction costs largely related to the Newgistics acquisition, a charge of $0.01 for the early redemption of our May 2018 note, $0.03 gain from the sale of technology for a mining industry application to a channel partner. GAAP EPS also included an estimated one-time non-cash net benefit of about $39 million or $0.21 per share recorded on the provision for income tax fine related to the enactment of the tax cuts and Jobs Act of 2017.
This net benefit is comprised of $130 million benefit related to the re-measurement of the net U.S. deferred tax liabilities arising from a lower U.S.
corporate tax rate, offset by an estimated one-time tax charge of $91 million related primarily to a U.S. tax on the unremitted earnings of the company's foreign subsidiaries.
Free cash flow was $384 million and GAAP cash from operations was $496 million. Looking at our capital allocation strategy and usage of cash for the year.
For the year, we expect free cash flow to pay $139 million in dividends to our common shareholders as well as paying $41 million in restructuring payments. Our capital expenditures totaled $171 million.
From a debt perspective, we issued $1.45 billion in new debt, redeem $965 million of existing debt through the year. Total debt increased over prior year, which is attributable to the funding of our Newgistics acquisition for $475 million.
At year end, we had $1 billion in cash on our balance sheet. Of this amount, approximately 60% is overseas.
I will come back to this when I provide an update on our 2018 outlook. Let me now take you through the details of the quarter.
In the fourth quarter, we delivered $1.05 billion in revenue. Adjusted EPS of $0.40 and free cash flow of $145 million.
Revenue grew 17% over prior year and included the incremental contribution from Newgistics. On a pro forma basis, revenue would have grown 2% this quarter.
We continue to experience a shift in our portfolio toward growth markets which is evidence in the overall growth this quarter with three out of the six segments growing year-over-year. Excluding the impact of Newgistics, revenue benefited from strong double digit growth in our Global e-Commerce segment as well as strong growth in our Production Mail and Presort Services segments.
Software and SMB revenues both declined in the single-digit range. For the quarter, adjusted EPS was $0.40 which was a decline of $0.13 from prior year.
GAAP EPS was $0.48 and included restructuring charges of $0.10. Transaction cost of $0.01, net charge of $0.01 for the early redemption of our May 2018 note.
GAAP EPS also included a net benefit of $0.21 related to tax legislation. Free cash was $145 million this quarter, which was a reduction of $19 million from prior year, mostly due to lower net income.
On a GAAP basis, we generated $155 million in cash from operations. During the quarter, we used free cash flow to pay $35 million in dividends to shareholders and $11 million for restructuring payments.
Looking at the P&L, starting with revenue performance by line item as compared to prior year. Business Services grew 80% driven by the incremental contribution from Newgistics.
Excluding Newgistics, Business Services grew double digit, driven by the continued growth in Global e-Commerce as well as strong growth Presort Services. Equipment sales grew 3% driven by growth in Production Mail.
Software revenue declined 5%. We also had declines in supplies of 2%, support services of 6%, rentals of 9% and financing of 11%.
All largely due to the performance of our SMB Group. Gross profit was $497 million with a margin of 47.3%.
Excluding Newgistics, gross margin was about 52.6% a decline of 380 basis points from prior year, which is largely reflective of the shifting mix of our portfolio and the declines in SMB. SG&A was $326 million or 31.1% of revenue.
Compared to prior year, SG&A was $44 million higher due to the costs related to Newgistics which were not in prior year as well as investments in e-Commerce. This year also included partial funding of our performance-based incentive plan which was not paid out last year.
SG&A was partly offset by lower expense in the SMB business. R&D expense was $33 million or 3.1% of revenue.
Compared to prior year, R&D expense increased $1 million and improved by 50 basis points as a percent of revenue. EBIT was $138 million and EBIT margin was 13.1%.
Compared to prior year, EBIT declined $49 million and EBIT margin declined 800 basis points. The decline was driven primarily by the decrease in the Company's gross profit in Newgistics acquisition, investments for growth and the partial funding of our performance-based incentive plan.
Interest expense, including financing interest expense, was $44 million, which was $3 million higher than prior year. The provision for taxes on adjusted earnings was $19 million and our tax rate was 19.8%, which was lower than prior year by 12 points.
During the quarter, we recognized benefits associated with the resolution of certain tax examinations. Diluted weighted shares outstanding at the end of the quarter were 188 million, which is about two million shares higher than prior year.
Now, let me discuss the performance of each of our business segments this quarter. In the SMB Solutions Group, revenue was $441 million, a decline of 7% from the prior year.
EBIT was $140 million and EBIT margin was 31.8%. In North America Mailing, revenue was $340 million, which was a decline of 7% versus prior year.
Equipment sales grew this quarter driven by good performance with our new SendPro C-Series. As we discussed last quarter there has been some lumpiness in our equipment sales numbers throughout the quarters.
On a full-year basis, North America Mailing’s equipment sales grew slightly, which is an improvement from where they had been in the prior years, which points the future stabilization and is a positive indicator for future revenue streams. The decline in recurring revenue streams mostly from financing, rentals and services contributed to the lower revenue performance this quarter.
As Marc pointed out, in the fourth quarter we have seen clients move to the new equipment faster than expected, services and attach rates are very strong and we have seen payment-to-payment increases. EBIT was a $128 million and EBIT margin was 37.7% which was a decline of a 180 basis points from prior year due to the decline in recurring streams, however, an improvement from the last two quarters.
In International Mailing, revenue was a $102 million which was a decline of 7% from prior year. Equipment sales declined largely driven by weakness in UK and Nordics it was partially offset by growth in Australia and Japan.
Recurring revenue streams also contributed to the overall decline. EBIT was $12 million and EBIT margin was 12% which was a slight improvement of 30 basis points over prior year.
In the Enterprise Business Solutions Group, revenue was $256 million, which was growth of 8% over prior year. EBIT was $47 million, which was growth of $2 million from prior year and EBIT margin was 18.4%, which was a decline 70 basis points from prior year.
In Production Mail, revenue was a $128 million, which was growth of 8% over prior year. Equipment sales grew double-digits this quarter on strong printer and sortation equipment placements.
Support Services and Supplies revenue were also up from prior year. EBIT was $19 million and EBIT margin was 14.8% which was a decline of 140 basis points over prior year mostly due to the mix of products within equipment sales where we sold a higher percent of printers and sorters which saw lower margin than our inserters.
In Presort Services, revenue was $128 million, which was growth of 8% over prior year and driven by improved revenue per piece along with higher first class flats and parcel volumes processed. Revenues partially offset by lower standard class mail volumes processed.
EBIT was $28 million, and EBIT margin was 22%, which was relatively flat to prior year. In the Digital Commerce Solutions group, revenue was $352 million, which was growth of 84% over prior year and included the incremental revenue from Newgistics.
Excluding incremental revenue contribution from Newgistics, revenue grew double digit over prior year. EBIT for the group was $10 million and EBIT margin was 3%.
A decline from prior year of about $7 million or 650 basis points respectively. This quarter’s EBIT included $4 million and an incremental amortization of intangibles related to Newgistics along with the continued investments in e-Commerce.
In Software Solutions, revenue was $88 million, which was a decline of 5% from prior year. Revenue declined due to lower license and services revenues.
The decline in license revenues primarily in location intelligence and customer information management, but partially offset by growth in Customer Engagement Solutions. The indirect channel continue to show growth this quarter, data and SaaS revenues also grew this quarter.
EBIT was $10 million and EBIT margin was 11.8% which was a decline of $2 million and 170 basis points respectively driven by the lower revenue. In Global e-Commerce, revenue was $263 million, which was growth of 168% over prior year and included incremental revenue from Newgistics.
Newgistics volumes processed in the quarter exceeded original expectations and revenue delivered strong growth over prior year results. Clients are recognizing the value proposition we bring to the table, which presents a great opportunity for us going forward.
Excluding Newgistics, Global e-Commerce revenue grew at similar levels as previous quarters. This sustained double-digit revenue growth was driven by strong performance in both cross border retail and marketplace volumes along with domestic shipping.
The domestic shipping increase is driven by complete delivery, which is our end-to-end carrier service enabled by our shipping APIs. Through the quarter, our shipping API platform maintained stability and with our industry norms.
We also grew new clients onto our platform, including V-Technologies, a leading provider of integrated shipping software solutions with over 500 e-Commerce merchants. As we mentioned last quarter, due to the sensitivity around the holiday season, many merchants held off moving their volumes to our shipping API platform as to not cause any disruption to their clients.
The thing said, we still saw a 60% increase and shipping labor volumes in the fourth quarter over the third quarter volumes. EBIT was breakeven for the quarter and largely driven by investments in market growth opportunities as well as the incremental amortization of acquisition related intangible assets for Newgistics, which will be just over $4 million a quarter going forward.
Before we update you on our 2018 guidance, I want to inform you of a new group we formed in January called Pitney Bowes Commerce Services, which is a combination of our Presort and Global e-Commerce segments. Lila Snyder has been appointed President of this new group.
In 2017, these businesses processed more than 16 billion mail pieces and enabled nearly 0.5 billion parcels in the U.S. and around the world.
We reorganize these businesses in a way that the best positions us to capitalize on the synergies and growth opportunities we have identified. We will report the financials for this new group starting with our first quarter 2018 earnings and will provide a further update at our Analyst Day in March.
Now, let me update you on our 2018 annual guidance. Overall, the Company expects annual revenue, excluding the impacts of currency to grow in a range of 9% to 13% when compared to 2017.
We expect adjusted earnings per share to be in a range of $1.40 to $1.55 and free cash flow to be in a range of $350 million to $400 million. Let me double click on each of these areas as there are several drivers and factors to take into consideration.
First, on revenue. Our revenue growth guidance of 9% to 13% includes a full-year impact of Newgistics.
As we have discussed previously, our portfolio is shifting to growth as a result of our work around shipping becoming a larger contribution to overall revenue. Excluding the incremental revenue for Newgistics, we would still expect overall revenue to grow in 2018 driven by the continued double-digit revenue growth in Global e-Commerce largely through growth in our domestic shipping APIs and carrier services offerings as well as continued cross-border expansion.
We also expect Presort to continue to perform around market ranges. We expect our software business to continue to improve its performance driven by the indirect channel.
Within our Production Mail business, we expect revenue to continue to perform roughly in line with the market ranges. We expect SMB to continue to decline, but we are beginning to see the early signs of stabilization in equipment sales which were down less than 1% on a global basis in 2017.
The new SendPro products are expected to continue to drive equipment sales performance in North America Mailing and while we expect the recurring revenue streams to moderate, it will take time for the streams to fully stabilize. Let me take you through how we are looking at our adjusted EPS for 2018.
There are several headwinds and tailwinds that need to be taken into consideration. The first thing is shift and mix of our portfolio that I just described as I went through each of the segment’s revenue expectations.
The portfolio mix is shifting to the higher revenue growth areas, but lower margin businesses and therefore, while we expect 2018 revenue to grow, we also expect contraction to our overall gross profit margins driven by the changing mix of the portfolio. Last quarter, we announced a 200 million gross spend reduction program that will take place over the next two years.
Our business model is changing and we must change how we operate as a company. Of that 200 million spend reduction, we expect to recognize approximately 60% of the savings over the course of 2018.
And of that amount about 60% will be people related and the rest will come from a reduction in programs, third-party spend and all other areas. We had called this a growth spending reduction program because some of these savings will be reinvested in the business.
In 2018 we plan on continuing to invest in growth opportunities for competitive advantage and market leadership, along with reinstating our variable compensation which remains pay for performance. Therefore, excluding the expense associated with Newgistics, we would expect about 50% for the 2018 growth savings to impact our bottom-line.
It is important to note that we also have three quarters of incremental spend along with the incremental amortization of intangibles in 2018 related to Newgistics which was not in our 2017 results. In regards to Newgistics, we expect to recognize revenue synergies through cross-sell opportunities in our Global e-Commerce and Presort businesses as well as cost synergies once fully integrated.
That being said, we expect Newgistics to be accretive in 2018. Also we will benefit from tax legislation, we expect our 2018 tax rate on adjusted earnings to be in a range of 23% to 27%.
This is lower than our historical average tax rate, but relatively flat to our 2017 full-year adjusted rate due to the resolution of certain tax examinations during 2017. We plan to use some of the savings enabled by the lower tax rate to raise wages for the majority of our U.S.
hourly employees and to provide additional financing offerings to our SMB client base. Looking at free cash flow as we communicated, we expected to be earnings driven as we have done significant work around inventory and working capital requirements over last few years.
We therefore expect free cash flow to be in the range of $350 million to $400 million in 2018, which is similar to 2017. At this time, we have not factored in any significant increase to our finance receivables, resulting from the additional financing offerings to our SMB clients.
In regard to tax legislation and repatriation as I mentioned earlier, we have $1 billion in cash on our balance sheet. Of this amount, approximately 60% is overseas.
As part of the tax reform, we intend to repatriate overseas cash, we will keep adequate balances for our businesses to operate in other countries, but we would expect to bring about $0.5 billion back to the U.S. We have earmarked that cash to be used to pay down future debt maturities in order to delever our balance sheet.
Our interest expense will benefit from this pay down, we still expect higher interest expense over prior year, primarily as a result of the additional debt used to fund in Newgistics acquisition, the timing of issuances in 2017. Let me also address the timing of some of these items in 2018.
We expect the cost savings, tax benefits and Newgistics revenue and cost synergies along with the seasonality of our growth businesses to ramp up throughout the year. We also expect interest expense to be higher earlier in the year due to the timing of our expected debt pay down.
As such, we would expect our first quarter attainment of our full-year EPS to be at the low end of our historical attainment over the last five years. We recognize there is more work to do, we are confident in our ability to continue to transform the portfolio, simplify our operating model and deliver on our commitments.
We look forward to talking to you more at our Analyst Day on March 6th. With that, operator, please open the line for questions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Kartik Mehta, Northcoast Research.
Please go ahead.
Kartik Mehta
Good morning, Marc and Stan. Stan, I know you talked about the North American Mailing business and the drivers to what is happening with EBIT and I’m wondering if you could just walk through maybe timing of when you anticipate that to stabilize and possibly reverse?
Stan Sutula
Sure. Thanks, Kartik.
So talking about North American Mailing, if we start with the gross margin in 4Q, it was 72.4% that was a decline of just over 200 basis points than our prior year and most of that was driven by the lower stream revenue. But I think it is important to note that there has been some stability in that margin and that margin is relatively flat to 2Q and 3Q.
In terms of when do we expect that start to return, we've been fairly consistent here that with the new product we're going to need an elongated period of equipment sales to refill those finance receivables. Now we started on that journey.
So we had growth in the fourth quarter, we had growth for the full-year in equipment sales in North America, but it will take a longer period. This least stream, if you will, the average life is over four years.
So it will take a period of time to see that moderate through time. Now, started with equipment sales and we need to keep that going, then obviously we are going to continue the work the other gross profit, margin efficiencies in North America Mailing.
Kartik Mehta
And then Marc, I realize you guys are thinking about bringing about $500 million of cash back and paying down debt. But this year you will generate close to $375 million free cash flow and what is the use of that cash at this point, will you continue to pay down debt or build the cash under balance sheet until the strategic review is completed?
Marc Lautenbach
Yes. In terms of our capital allocation priorities, they haven’t changed.
Right now we have committed ourselves to investment grade ratios that continues to be true. So the money from overseas will be a step forward although more work to do.
We have continued to be committed to a competitive dividend. That continues to be true.
And then broadly, Karthik as to your point, I mean we work at creating strategic flexibility for any cash. But as we have said all along, our view is that we would not let cash accrue in the balance sheet for extended period of time, we put to use.
Kartik Mehta
And then just one last question, Marc. Just the progress on your shipping APIs.
I know in the fourth quarter it was difficult just because of what retailers might have wanted to do. But as we have started the first quarter maybe progress, I don’t know if you can give some metrics that would help to show the progress you are making in that part of the business?
Marc Lautenbach
Yes. So our stability in the fourth quarter was good.
If you look at our stability from Black Friday till the end of the year, it was that industry norms. So that’s basically 4.9, so I think that is one important metric.
As you look at the pipeline, to your point that was deferred in the fourth quarter, pipeline is good and we are kind of working our way through that pipeline.
Stan Sutula
I would add that the volumes in fourth quarter were actually up 60% over third quarter.
Kartik Mehta
Thank you gentlemen, I appreciate it.
Operator
Our next question comes from the line of Allen Klee, Sidoti. Please go ahead.
Allen Klee
Hi, good morning. For Newgistics, can you talk a little about where you stand on going - or what the plans are in 2018 for the integration and the potential benefits?
Stan Sutula
Sure, Allen. So, first, we are very pleased with the start of Newgistics.
They had a terrific fourth quarter exceeded on expectations. And actually while we said we were going to leave them isolated, we saw some early signs of the potential synergies and I will give you example of that.
As their peak went through in fourth quarter, we actually used to borrowed labor from our Presort businesses to help supplement that peak. I think it’s a really good example of where we trade off labor between the two organizations.
So now as we head into 2018, the teams are already well integrated, are working through determining the right place to handle all the parcels because you will recall we are driving some personal volume in our Presort business. So we are going to move that and centralize that through Newgistics.
We are already going through the leases on both organizations looking at the transportation routes. We have put teams in place to deal with all of that.
We are delighted to have them on board. They had a terrific start.
I think it’s going to be a great addition to the Pitney Bowes family. And as we look forward those synergies, we're also seeing on the revenue side, the cross-sell opportunity with clients now to offer them end-to-end everything from helping them due the demand gen on cross-border side to fulfillment, to shipping and now to returns, and the ability to finance all that, we remain really excited about the potential in the synergies here that we will achieve in 2018.
Allen Klee
Okay, thank you. And then just finally two things on digital commerce solutions.
One software was down sequentially and maybe just talk about what is going on there and the outlook? And then I heard you guys say that part of your transition is now to move to profitable growth and I was wondering if that applies to the Global e-Commerce for 2018 or how you think about that?
Thank you.
Marc Lautenbach
I will do them in reverse order, so answer to your second question is, yes, we expect Global e-Commerce to be a profitable revenue growth for 2018, albeit, I would say a moderate profit as we continue to invest in the business investments and we will continue to invest although lower than the 2017 levels. As it relates to software, as we said in the third quarter, there was a single large software deal in third quarter that certainly affected the overall results.
I would say conversion really had no large deals of any significance in the fourth quarter. So the quarter-to-quarter difference was principally around that.
We have got more work to do here, I mean the business grew last year, so that’s an improvement from where we were. The indirect channel continues to mature, I would say most of last year, they spent kind of selling the [indiscernible] base together as we move into 2018 and gain confidence in our products and candidly become more adept at the sales motion that's required to sell our products that should expand.
So as we contemplate software going forward, we continue to believe, it’s part of our growth as we move forward
Allen Klee
Thank you
Operator
[Operator Instructions] We have a question from the line of Glenn Mattson, Ladenburg Thalmann. Please go ahead.
Glenn Mattson
Good morning. On SMB, can you guys talk about just the process of stabilization as we move through the year and then what the outlook is long-term as far as long-term growth rates as you guys see it currently?
Michael Monahan
Sure, Glenn. If you take a look at SMB, I mean, we talked about this little bit earlier with the question earlier on stabilization, it starts with equipment sales, but we don't see the market changing here.
I would ask you to join us on March 6th for Analyst Day and Jason Dies will take it more at a broader on the SMB strategy, but we still expect that market to be in decline of 2% to 4%. And while we're looking at that market, we're realistic on that expectation and so, what we're trying to do is to bring efficiency and productivity into the SMB business, we're going to expand some of our offerings to try to bring in new revenue and profit streams.
And I think the innovation that we brought here in 2017 is a good example with the SendPro C-Series. With that, it’s not just the traditional mail meter, you open up a opportunity for new revenue stream with multicarrier shipping with the printers that attach to it, the scale that attach to it as well as the supplies that go with printing labels.
We also because it’s on an open platform, open up the opportunity to bring new apps to our clients, new capabilities, new financing, so we are looking to expand the offering to that clientele. And that clientele we know really well.
We know their credit history, we know what they do and I think the opportunity to bring more value into that remains an opportunity for us to improve the overall performance. But in terms of looking at 2018, we do not expect SMB to return to growth.
We expect the market to continue to be down 2% to 4%. What we are looking to do is to inject some offerings into the platform, bring more efficiency into it.
And I think you have seen the margin here over the last three quarters has been relatively flat.
Marc Lautenbach
Let me to offer a little if I may. So if you think about it in very simplistic terms, the streams are a function of what has happened in the last four years.
So if you lose a meter three years ago, that continues to roll through [indiscernible] several years of equipment sales at flat in order to counter balance what is happened in the last several years. We kind of glance through it fairly quickly.
If you think about the equipment sales being flat in the market was down 3% or 4% when we have got a significant chunk of the market, that’s a fairly substantial accomplishment. So Stan said it right, as we contemplate the mail meter itself, we don’t see that market changing.
The option of this new product is that the new applications give clients a new reason shipping being the first but certainly not the last to hold on to that asset and to stabilize their streams. So that's kind of the way that the dynamic works out.
So we need a couple of more years for equipment sales kind of flat or so then the streams will follow and then we are watching closely how the third-party apps perform in our own absence with shipping as well and that creates the ultimate counter balance.
Glenn Mattson
That’s helpful Marc. So would you expect that in order to get back to those industry decline rates of 2% to 4%, that would take as you mentioned a couple of years of their performance like you have had or would you get back to market rates faster than that?
Marc Lautenbach
I think we will get back to market rates faster than that.
Glenn Mattson
Okay. And then I imagine I’m not going to speak broadly on strategic alternatives today, but could you make a significant case for why this should still all be one company?
I mean I think originally it was hopefully to rebuild the sale channel I mean hopefully cross-sell a lot of products into the SMB base. I don’t know if that has played well or if that’s still part of the long-term strategic plan or if these are really two separate entities that could be better suited to be independent?
Marc Lautenbach
Yes, we will go deep on this at the Analyst Day. But I will give you the high level answer now.
So if you think about what I just said as it relates to the SMB business and shipping being the principal application that gives us the opportunity to - for stabilize then ultimately sell more into that installed base. On the other side of the ledger, if you think about our commerce services segment that too is all around shipping.
When you look at the technologies that underpin that, the API Technologies, the Global Carrier Services, Pitney Bowes Commerce Cloud, those technologies are all shared. Interesting enough, the assets from many of those technologies come from our software business.
So we will go deeper on that, but that is to ensure that the case is that we're very focused on leveraging economies of scale and the economies of experience across our portfolio to ensure that the breadth of the portfolio remains coherent. But shipping is kind of the theme across the business.
Glenn Mattson
Okay. Thanks for that.
Operator
We have a follow-up question from the line of Allen Klee, Sidoti. Please go ahead.
Allen Klee
Yes, hi. I appreciate the challenges of managing a business through transition and all the actions you have taken.
Given this, can you point out to any actions that you think that have improved your ability on forecasting this year versus last?
Marc Lautenbach
Yes. I would say the move to new systems was disruptive in many different ways.
But it certainly created the degree of cloudiness in terms of our ability to look at future, in particular around streams. [indiscernible] 2016 in particular, I mean the system were still new, point one, two, we are still learning the systems, point two and I think the combination of those things created less visibility into the business than we had hoped.
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Early days for sure, I mean as I look at other companies, I think they are perhaps a little bit ahead of us, but we are making up ground quickly. What will not change Allen, is that as you think about how we think about the free ups in the business, we will always trade short-term performance for one term value.
So that's not going to change. So there is degrees of visibility that I think are getting better for sure.
But our preference are biased towards long-term value remains the same.
Allen Klee
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Stan Sutula
So why I don’t start with the 1Q skew. So as we said in the prepared remarks, Allen.
There are a number of things as we head in. One, the actions on the $200 million will have a skew as we bring back cash to pay down debt that has a timing effects of higher interest expense on the beginning of the year.
And as you look at some of those items, and we look at the overall performance and we expect that the first quarter when you take that as a percentage of the full-year, will be at the lower end of the five-year history and I think that will give a feel for how to position that within the year.
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And for example, as we look at our new segment now with Presort and Global e-Commerce and Newgistics, all combined that allows us to go to market in a more consistent dynamic and that should help us significantly in that approach. So you can expect a material change.
Marc Lautenbach
So if you are asking some of the brand expense that we have incurred over the last couple of years around advertising. Right now as we sit, we don’t plan any material advertising initiatives.
From a TV perspective in 2018, we will continue to invest in our brand but it would be much more individual and social than big buy or something that would cause lumpiness.
Stan Sutula
Yes, and that would be a benefit to us.
Marc Lautenbach
On the other side it, the sales channels, we continue to move to a broader array of channels, digital channels, sell channel, indirect channels and we will continue to move that and we think that not only gets us to new markets but is also more efficient.
Allen Klee
Thank you.
Operator
And at this time, there are no other questions in queue. Mr.
Lautenbach, do you have any additional remarks?
Marc Lautenbach
Hi there and thank you again everyone for joining us this morning. Listen as I said at the outset, the headline is simple and that is we have moved this Company into growth and you don’t need to work far to understand how unusual that is in today’s world.
The portfolio has substantially moved and we think that is the first step, but certainly not the last step as we move forward. As we continue to move forward, the businesses will for sure make investments but as they scale they will create profit.
And to the question that was asked about the synergies across the portfolio, we believe that gives us important leverage as we add revenue it will be profitable revenue growth. So more to say in March when we are together at Analyst Day, but that’s where we are for today.
Thank you for joining us.
Operator
Ladies and gentlemen, that concludes our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service.
You may now disconnect.