Good morning, and welcome to the Pitney Bowes Second Quarter 2021 Earnings Conference Call. Your line has been placed in listen only mode during the conference call until the question and answer 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. Mark Lotenbeck, President and Chief Executive Officer Ms. Anna Maria Chadwick, Executive Vice President and Chief Financial Officer and Mr. Adam David, Vice President, Investor Relations and Financial Planning. Mr.
David will now begin the call with a safe harbor overview.
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 2020 Form 10 ks Annual Report and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to update any forward looking statements as a result of new information or developments.
Also, for non GAAP measures used in the press release or discussed in this presentation, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally, we have provided slides that summarize many of the points we will discuss during the call. These slides can also be found on our Investor Relations website. Now our President and Chief Executive Officer, Mark Lautenbach, will start with a few opening remarks. Mark?
Thank you, Adam, and thank you, everyone, for joining today's call. We delivered a solid quarter and first half of the year and continue to make progress against our overall objectives. Every business grew revenue and improved EBIT from prior year. Overall, revenue at constant currency grew 6% and EBIT grew 16%. Semtech and Presort both grew revenue, albeit as expected given the easier compare and both businesses grew EBIT.
Presort continues to see a nice recovery in volumes from pandemic levels and EBIT margins remain in the double digit range, moving back toward the long term model. SendTech's revenue growth was led by a strong performance in our SendPro product family in addition to continued double digit growth in our SaaS based shipping portfolio. The business recorded its 3rd consecutive quarter of year over year EBIT growth and continues to maintain its EBIT margin above 30%. Global E Commerce grew revenue this quarter despite a tough prior year comparison and importantly also improved quarter to quarter. EBITDA turned positive in the quarter and both EBIT and EBITDA improved meansfully over prior year and prior quarter.
The path to profitability for e commerce is an integrated approach around talent, training, automation and execution. We've made several important additions to our team and the new management talent along with the maturation of our existing workforce are clearly yielding results. We continue to work to optimize our shipping lanes and continue to focus our investments toward more automation. We continue to make good progress with substantial opportunity still in front of us. Entering the second half of twenty twenty one, I like where we sit.
The revenue comparisons will get more difficult in the second half of the year compared to the first half, but this quarter was a glimpse into what the business can look like when we hit on all cylinders and that improved profitable revenue growth is within our grasp. Over the course of the last year or so, I have said that Pitney Bowes will come out of this pandemic, a bigger and better company. And while we are not out of the woods with the pandemic, we're certainly on the trajectory of being a bigger company, and we're working every day at becoming a better company. With that, let me turn it over to Anna.
Thank you, Mark. Our second quarter results reflect solid momentum across all of our businesses. We continue to make good progress and are set up well for the second half of the year. Unless otherwise noted, I will talk to revenue comparison on a constant currency basis and other items such as EBIT, EBITDA, EPS and cash flow on an adjusted basis. Revenue was $899,000,000 and grew 6% over prior year.
Adjusted EPS was $0.11 and included a $0.03 tax benefit in the quarter. Free cash flow was $87,000,000 and cash from operations was $79,000,000 which was a solid performance in the quarter and in line with our expectations. Although down from prior year, it is important to remember that last year included a $66,000,000 contribution from the decline in our finance receivables, which was largely COVID related. This was an item that we identified as a headwind to our free cash flow comparison earlier this year. During the quarter, we paid $9,000,000 in dividends and made $5,000,000 in restructuring payments.
We spent $40,000,000 in CapEx as we continue to invest in our network and productivity initiatives across the business. We ended the quarter with $814,000,000 in cash and short term investments. Total debt was $2,400,000,000 which is down $289,000,000 from prior year. When you take our finance receivable and cash into account, our implied operating debt is $567,000,000 Let me turn to the P and L, starting with revenue versus prior year. Equipment sales grew 46%, supplies grew 14% and business services grew 6%.
We had decline in support services of 1%, rentals of 2% and financing of 16%. Gross profit of $301,000,000 improved about $17,000,000 over prior year on growth across all segments. Gross margin was 33%, which was slightly down from the same period last year, but an improvement from the last two quarters. SG and A was $236,000,000 and approximately $3,000,000 higher than prior year. SG and A was 26 percent of revenue, which was nearly a 2 point improvement over prior year.
Within SG and A, corporate expenses were $56,000,000 which was up about $7,000,000 from prior year largely due to higher employee variable related costs. R and D was $11,000,000 or 1% of revenue, which was up approximately $4,000,000 from prior year. During the quarter, we received the remaining insurance proceeds of $3,000,000 for the RIOT ransomware attack. EBITDA was $96,000,000 an increase of $6,000,000 over prior year and EBITDA margin was 11%, which was flat to prior year. EBIT was $56,000,000 an increase of $8,000,000 over prior year and EBIT margin was 6%, which was a slight increase over prior year.
Interest expense, including finance interest was $36,000,000 Our tax provision was a benefit of about $300,000 and includes a benefit related to a U. K. Tax legislation change, which also contributed about $0.03 to EPS in the quarter. Shares outstanding were approximately 179,000,000. Dollars Let me now turn to each segment's performance.
It is important to note that the year over year comparison includes the impact of COVID. Prior year results saw a positive impact on e commerce revenue and an adverse impact on Centek and Presort. As such, I will also provide growth rates from 2019 to 2021 for the larger transactional parts of our business. Within e commerce, revenue grew 3% to $418,000,000 and also grew from 1st quarter levels. The revenue growth over prior year was driven by our cross border services and partially offset by lower domestic parcel and digital services.
Domestic parcel volumes were $44,000,000 in the quarter. Compared to the Q2 of 2019, e commerce revenue grew 48%. Demand for our services continues to be strong as new business signings accelerated from the Q1 as we're getting merchants on boarded for peak season while balancing demand from current clients. We also continue to have success with bundling our services, which now represents close to 50% of all new business. EBITDA for the quarter was $8,000,000 EBIT was a loss of $11,000,000 Both EBIT and EBITDA were meaningful improvements from prior year.
We also made significant progress sequentially where 2nd quarter's EBIT margins improved nearly 400 basis points as compared to Q1 as we were able to improve our productivity and work through some of the residual impact from last year's peak that we saw earlier in the Q1. We continue to work to improve service levels and make progress against our productivity initiatives within our domestic parcel services, while still dealing with industry wide concerns around high transportation costs and a competitive labor market. We made progress on several unit economics as compared to the Q1, with the greatest being around labor and transportation cost per piece. We saw a reduction in our labor cost per piece in part due to the contribution of our new management talent along with the maturation of our existing workforce. Parcels processed per hour continued to improve from 1st quarter levels.
Transportation cost per piece also improved versus prior quarter as we continue to better optimize our shipping lanes. Our improvements in execution coupled with better network balancing are certainly yielding results. We continue to invest in automation, including high end sorters in our larger facilities and sort to light automation in our midsized facilities. We also announced our partnership with Ambi Robotics last month, which we will be rolling out across our network over the next few years. These initiatives take time to integrate, train our employees and produce results.
And while we're seeing some early benefits, we expect to yield additional benefits during the upcoming peak season. Also, as mentioned last quarter, we are in the process of opening 2 new sites and upgrading another. We expect to have this completed prior to the peak season and it will allow us to handle volumes more efficiently. Ultimately, we expect transportation and labor productivity along with optimizing our final mile cost to be critical drivers in attaining our long term e commerce margins. And as Mark mentioned, we have made some important additions to our e commerce management team in order to execute this plan.
It is an exciting time and our e commerce business is moving in the right direction with substantial opportunities still in front of us. Our Presort Services and Centek businesses both turned in solid performances, which were in line with our expectations. Within Presort, revenue was $135,000,000 and grew 14%. Compared to the Q2 of 2019, presoak revenue grew 5%. Average daily volumes grew 10% over prior year, largely driven by growth in 1st class volumes of 4% and marketing mail volumes of 39%.
EBITDA was $23,000,000 and EBITDA margin was 17%. EBIT was $16,000,000 and EBIT margin was 12%. EBIT and EBITDA dollars improved from prior year due to revenue growth and margin expansion. We remain focused on our productivity initiatives, having improved pieces fed per labor hour by 3% resulting in 60,000 less processing hours versus prior year. Within Semtech, revenue was $346,000,000 and grew 6%.
We continue to differentiate ourselves in the market with a wide range of end to end mailing and shipping offerings that are attractive to businesses ranging from large enterprises to small offices. Sentek's SaaS based shipping products grew at a low double digit rate over prior year to $31,000,000 this quarter. The number of labels printed through our shipping offering grew over 30% and paid subscriptions grew about 70% over prior year. Additionally, shipping volumes that our U. S.
Clients finance grew nearly 70% over prior year. Our end to end value proposition continues to resonate with clients as they adopt and use these new offerings, which bring value to their businesses. Equipment sales grew 46% over prior year. Compared to the Q2 2019, equipment sales grew 1%, which is an important metric as this is a key indicator for future streams in the traditional side of the SendTech business. This also points to how our new sending products are resonating with clients and helping to strengthen our portfolio.
We continue to see strong placement of our SendPro C and Mail Station multipurpose devices. Our international operations also saw strong equipment sales growth and we continue to roll out new products in these markets. Through the quarter, we, like many others, experienced some transportation challenges related to our supply chain. We are proactively managing our inventory and are able to place a significant level of new equipment despite those challenges. Looking ahead at the second half of the year, we continue to closely monitor the semiconductor industry and potential supply shortage concerns.
While it is still a bit too early to tell, we would expect the impacts, if any, to be more pronounced in the Q4. We will look to mitigate any potential supply shortages by working closely with our suppliers and repositioning our solutions with our clients as necessary. EBITDA was $115,000,000 and EBITDA margin was 33%. EBIT was $107,000,000 and EBIT margin was 31%. EBIT and EBITDA dollars improved from prior year and was the 3rd consecutive quarter of improvement for both metrics.
Let me now turn to our full year outlook, which is in line with what we have previously communicated. As we all know, there is still a level of uncertainty in the macro environment, particularly as new COVID variants continue to ramp up and concerns around supply chain remain. And we will continue to monitor any potential impacts closely. We still expect annual revenue at constant currency to grow over prior year in the low to mid single digit range. We still expect adjusted EPS to grow over prior year and more specifically to be in the $0.35 to $0.42 range.
We still expect free cash flow to be lower than prior year due to items that benefited 2020 and are not expected to continue at the same level this year. Prior year included a lower level of CapEx and finance receivables and higher customer deposits. We also expect our tax rate in the second half to be higher and return to more normal levels. Looking at the timing, we expect 3rd quarter revenue to be in line with 2nd quarter and the 4th quarter to be larger than the 3rd given a strong holiday peak season. Taking the midpoint of our adjusted EPS guidance into consideration, we currently expect our Q3 to represent nearly 20% of our full year attainment.
Let me conclude on this. In the beginning of the year, we said that we expected revenue and adjusted EPS to grow and we remain committed to this outlook. Each segment has delivered a solid performance through the first half of the year, improving revenue, EBITDA and EBIT from prior year. We continue to generate good free cash flow and remain focused on maintaining a a strong balance sheet. We also continue to make measurable progress and are confident in our ability to achieve our financial objectives.
Thank you. Operator, please open the line for questions.
And our first question today comes from the line of Shannon Cross with Cross Research. Please go ahead.
Thank you very much. I was just wondering how we should think about run rate for volume during the quarter, and if you're able to meet domestic fulfillment. So if we think about it as about 40,000,000 parcels, a good run rate and then how should we think about that's sort of for non peak post pandemic. And then how should we think about specifically what you're doing to ramp up for the Q4? Thank you.
Sure. Thanks, Jen. So I think it's easy to get lost in a sea of numbers. There are so many different dynamics and currents running through the marketplace. So if I might, let me kind of start with a macro view and then go to a micro view.
So if you think about this from a macro perspective, e commerce purchases as a percent of total retail last year went from roughly 16% percent to 26%, so over a 50% increase. Subsequently, that number has regressed a little bit, but it's still 24%, 25%. So slightly below last year, but substantially above pre COVID. Within that overall dynamic, there's also quarter to quarter dynamics. So if you think about last year in the world of COVID, Q1, we got 2 months in before the virus hit.
2nd quarter was kind of the tsunami. And not only did you have many customers moving to e commerce and the Internet for purchasing, but you had retail outlets that were essentially closed. So within the quarter to quarter dynamics last year, you had a particularly strong set of dynamics in the Q2 and to a degree that moderated a touch but lasted throughout the year. So Q2 was kind of for all kinds of different reasons an unusual quarter. From a micro perspective, I should make one other comment from a macro perspective.
All of this was against an industry capacity that was really oriented towards pre COVID levels. So think of an industry that was had capacity to accommodate the 16% or 17% with this influx of demand. From a micro perspective, Pitney Bowes is a challenger. We tried to say yes to as many customers and as much volume as we could, partially because we saw it as an opportunity to get to scale, partially because we are a customer driven company and we wanted to help out as many clients. And candidly, many clients just didn't have choices next year as some of the other participants in the industry shut down.
So I would say in retrospect, we probably took a little bit more volume than we could handle well. And within that, we probably took some parcels and some particular lanes that in retrospect, we just couldn't accommodate as much as we wanted to. So as we go forward, we are very focused on handling the volume that we think we can do exceptionally well. So that limits you to certain lanes, where we've got capacity as the industry continues to be capacity constrained and candidly, certain size parcels. So our sweet spot within the marketplace is parcels that are 1 pound ish, slightly above, slightly below.
So within that, as you said, we saw volume around 40,000,000 to 45,000,000 parcels in the second quarter. We suspect that will be probably slightly higher in the Q3 as clients begin to prepare for peak and then a 4th quarter that will be on top of that, perhaps slightly below last year. But our focus is on what we can do well, what we can do with a high service level to a client and importantly, what we can do profitably. One of the things that happened last year is we got so much volume all at once. We had to throw a lot more cost at it, both from a labor and transportation perspective.
We're clearly going to try to accommodate as many clients as we can again this year, but we're going to do it in a way that we can have the highest commitment to service levels at the same time, do it in a way that's economical and profitable to us. So hopefully, I know that's a long winded answer, but I think it's important to kind of understand the overall dynamics.
No, I think that was really helpful. I guess one question or my follow-up question is just how do we think about your opportunity to grow and this is over a longer term period of time? Is it incremental customers that are around that 1 pound level? Or will you develop your facility such that you can handle a wider variety of parcels? I'm just trying to think about how you think about your CapEx investment and what you do?
Thanks.
No, that's a early question. So if you think about kind of going forward, so you had this kind of one time step up with a slight digression. I suspect as you get into 2022, the out years kind of what you're thinking about for sustained growth, it goes back to the 10% to 15% growth that the market was clipping along at. In terms of how we're thinking about it, the gating factor on size of parcel isn't as much your network footprint as it is the tooling inside of the warehouses. So there's different tooling that accommodates different sized parcels.
So yes, we will continue to build out our footprint. We've got a couple more sites that we'll bring online here in the second half of the year. But we're going to tool them kind of for what we think our sweet spot in the marketplace is. So I'd say, think about the 10% to 15% long term. We will continue to build out the network.
I think the build out of the network and we're looking at different scenarios candidly right now, do you accelerate the build out and finish it? Or do you do it over kind of a more staged process and kind of meter that out? I think the overall capital spending for the quarter was $40,000,000 That was kind of a reversion back to what it was. That's kind of how we're thinking about it for the moment. If we change that and we decide that we're going to accelerate, we will.
But the total build out of the network is, in the context of our balance sheet, certainly very manageable.
Okay, great. Thank you so much.
And we do have a question from the line of Allen Klee with Maxim Group. Please go ahead.
Hi, good morning. Two questions. One is the adding of the 2 new facilities for e commerce plus optimizing another one, what percent does that increase your capacity in domestic parcel? And then second, you highlighted cross border as an area that attributed to your global e commerce results. Could you just go into a little bit of what's behind that?
Thank you so much.
Yes. I'm going to defer on the first question, and
I don't get back to you
in terms of how much capacity that increase. I don't think it materially increased the capacity. It was more a modernization of the existing facilities. And as we as you think about the economics of that business, the deeper you can ingest into the postal network and the closer you are to be able to ingest deeper into the postal network, the better economics that you have. So it was more kind of a fine tuning of the footprint to improve our efficiency and our costs as opposed to something that dramatically improved our increased capacity.
And I'm sorry, what was your second question, Alan?
Cross border.
Cross border, yes. So cross border is a combination of a couple of things. First of all, exchange rates matter a lot in cross border. So when you've got a relatively strong dollar to other currencies, that helps. We continue to invest in our cross border platforms.
We've got a couple of large clients that continue to give us more and more demand, particularly from the United States into Canada. And interestingly enough, we're able to protect pricing in that marketplace as well. So it's you've got some macro things that are going for you with currencies and we've got a very good capability, particularly U. S. To Canada, which is attractive to some of the larger clients with meaningful scale.
Thank you.
And we do have a question from the line of Kartik Mehta with Northcoast Research. Please go ahead.
Hi, this is Alex on for Kartik. Good morning. Our first question had to do with just the profitability of Global Ecommerce. And within this elevated demand environment, could you just talk about some of the factors that increased profitability for the quarter? Was it the in source of new lanes, better use of the spot market and variable label?
Just some of those factors that improved this quarter?
I want to take a crack at that and I'll add some color.
Sure. So we saw improvements in 2 key variables. I mean, we saw with the changes in management and labor strategies that we have been implementing in combination with the automation, we saw improvement in parcels per hour. So our labor productivity is improving. And the second factor that we also saw improvement was around our transportation.
So we're continuing the strategy that we have mentioned about in sourcing lanes and making sure we optimize the capacity of the trucks better. So those two factors, I would say, were at the top. And of course, we continue to work our postage and ensure we deliver at the best penetration levels that we can in the USPS. So I would put them in kind of that order.
Yes. I think Ana said it quite well. I would also add, so if you think about pricing, so pricing quarter to quarter, importantly, stayed pretty steady. So as the industry continues to be capacity constrained, pricing is holding. We expect pricing will actually go up in the second half of the year as there's more volume and more demand.
As Anders said, labor was an improvement quarter to quarter, pretty substantial improvement, But that's not really much of a product of the automation. That's just the labor model maturing. So if you think about what our labor strategy had been or what it was when we bought Newgistics a bit of ago, it was all a temporary labor force. And it remained a temporary labor force well into last year. That's problematic because you just don't get enough continuity in the specific roles.
So as we move to a more permanent workforce, you can see the productivity improve. So we're now at, I think, 40% of the workforce is permanent. We want to get that a little bit higher, which will allow you to kind of flex up and down with volume. So I say that because it demonstrates and reveals the power of just having a more mature model. And also importantly, the benefits of automation are still in front of us.
So while we added some automation in the quarter and kind of like what we're seeing, I would consider those as kind of test and learn and sandbox type initiatives. So it makes you very excited about that. Transportation improved good quarter to quarter. It's still well above last year. So if you look at the transportation unit cost from this year to last, it's still way high.
So we still have an opportunity in front of us. You saw some benefit from the redesign of the network. You saw some benefit from being able to in source more of our own trucks. But again, there's lots of opportunity in both labor and transportation. And there is opportunity in our postal cost, which is the biggest single line item.
But that's a function of being able to ingest deeper into the postal network. And I would say, the other thing we kind of I mentioned in my remarks and Anna mentioned in her remarks, I mean, if you look at the 16 sites that we have now, we have 16 new leaders over the last 12 months. So we have a very experienced team right now. And I would say not just experienced in the world of warehousing and logistics, but experienced in the world of postal ingestion, which is kind of its own little world. And then on top of those 16 leaders, we first of all, I would mention Nick Smith, who was really the architect of much of our strategy around Global Ecommerce has moved to a product in the strategy world, which is terrific.
It gives them more time to kind of think about how we go forward. But to the team, we've also added a new person running our 16 centers, it's from Amazon as well as an individual from C. H. Robbins running our transportation. So what you're looking at now, starting with Nick and team, led by Greg Zegris, is a very experienced team.
It's been there and done that. And it's fascinating to see as you put these new leaders in place, how quickly they're able to do the basic blocking and tackling and you see improvements.
Okay, great. Thank you. And then also in regards to the growth that you saw within the equipment sales, I know part of that growth was just from the comparison of last year, but was there anything major that was also contributing to that growth for this quarter? Was that the higher product sales within the SENPRO product family?
Yes, you're absolutely right. Part of that was, of course, the easy comparison that was mentioned, but we're seeing great attraction in the market from the, Senpro family, both the mail station and the Senpro C and the shipping capabilities that, that tags along. So we're seeing that and we started, also some international rollouts of the product.
Again, it's easy to kind of get lost in the year to year dynamics and there's so much noise in numbers. But Ana's comment about growing 1% versus 2019, you think about that, that's a meaningful accomplishment in the context of a market, a male market that's still declining. And if you go back to 2019, that kind of takes out all of the comparison issues and it leads you back to precisely the point that Onna made is it's new product innovation. If you look at the new products that the SenTek team has introduced, they're just doing great and they're doing great domestically, and we're starting to roll them out internationally. And if you look at their overall revenue, that's driven by new products, it's meaningful.
So, the innovation pipeline is really starting to hit the ball and hit the ball hard.
Okay, great. Thank you. Thanks for the insight.
And we do have a
question from the line of Anthony Lebiedzinski with Sidoti and Company. Please go ahead.
Good morning and thanks for taking the questions. So first on the global e commerce side, so nice to see that you will be able to get that to be EBITDA positive for the full year. So in order to get that business to be EBITDA positive, is that more of a function of gaining more productivity or more scale? Can you just comment on your high level thoughts there?
Yes. So first of all, I'm going to take a small victory out that we're actually EBITDA positive in the first half by a couple of $100,000 So we expect that to continue in the second half as we get more efficient and more productive and more volume. In terms of your broader question of the path for profitability, sustained profitability towards our long term models for Global Ecommerce, I'm going to caveat this upfront in that if you would have asked me that question 18 months ago, I would have given you an answer of how we get to the long term model. The world's changed a lot in the last 18 months, not the least of which pricing has gone up by 20%, 25%, unit cost on transportation has gone up substantially. So we're redoing the long term model.
But with that caveat of how we think about the long term, if you look at the path to the long term margins, it will principally be driven by labor and transportation. So labor and transportation provide 60% of the total. If you think about the postal costs, that's another couple of points. If you think about the benefit the mix between mix, scale and pricing, that's a slight positive. But transportation and labor are the principal cost and also warehousing kind of gives you a couple of points as well.
So labor and transportation are the things to keep an eye on. And I don't think that I mean, we're going to fine tune the long term model. I don't think that will change that much.
Got it. Okay. That's very helpful. And then switching over to the Sentek business. So you posted your 3rd consecutive quarter of improved EBITDA.
How sustainable is that? What are your thoughts there?
Well, we think it's the right long term thought. It's something that I wouldn't lead you to believe that that's something you would expect in 2022. But as we think about the long term model, we clearly believe that, that business is positioned to be able to grow revenue and grow profit. It's just got to it's got to get the shipping business into a lesser degree, the financial services business of a little bit more scale. So long term, yes.
Short term, we might have a couple of quarters as we have kind of getting our nose above water. Medium term, we expect continued progress.
Got it. And just to follow-up on that actually in the Semtech piece. So how much of your revenue is now coming from shipping?
Well, it's $31,000,000 out of the total.
Got it. All right.
Thank you and best of luck.
Thank you.
And we do have a question from the line of Ananda Barhouwer from Loop Capital. Please go ahead.
Hey, good morning guys. Thanks for taking the question. Hey Mark, just on the I guess on sort of the e commerce marketplace and your thoughts about it, I guess or at least the company's position that it does sort of go back to being a 10% to 15% revenue growth business. With I guess, what are your thoughts on percentage of retail remaining online? And it sounds like so a couple of things.
Is it stronger is retail online stronger now? I mean, maybe through some company sort of just purchasing online being still 24%, 25%. Is that higher than you thought it would be when we entered the year? And if it does stay elevated meaningfully above the mid teens level, would that alter your thought process around the 10% to 15%? Or would it alter your thought process around long term pit knee?
And then I have a couple of follow ups. Thanks.
Sure. So I would say there's been kind of an evolution of thinking on percent of retail over the Internet. When COVID first hit, that was kind of the $1,000,000 question is how much of this volume sticks. I think shortly after, shortly into the pandemic crisis, people became convinced that buying habits had changed substantially in a more permanent way. So yes, I think you can argue whether it's going to be 24%, 25%, 26 percent where it settles out, but it's going to settle out well above where it was.
I think it's pretty clear. And certainly, working from home over the last 16 months, it's been striking the number of deliveries that come to the door. I don't think that's ebbing at all. I do think once it kind of finds that new level, that 24%, 25%, 26%, then it's going to have a personality that's driven much more by kind of retail and consumer trends. 10% or 15% is going to be well above what retail as a sector grows.
So you'll continue to see that percentage increase. But I don't think it's it's not our expectation anyway that it's going to grow 20%, 30%, 40% in a sustained way. In terms of how that makes me think about the opportunity, I love this opportunity. It's an opportunity that's got strong secular growth. It's an opportunity that's got industry players that are responsible in terms of how they think about pricing and how they think about managing demand.
It's an industry that leverages our relationship with the post. It's an industry where we've got the right to win. And if you think about, you followed the company for a while, Presort is a postal ingestion model for mail. What our global e commerce business is, is a postal ingestion business for parcels. So we understand the space.
We have the right to win. We've got all the right intellectual capital to be an important player here. And again, we ride off the Postal Service's scale. So we're able to participate in this marketplace without having to buy planes, trains and automobiles. So I really like where we're situated and I like it couldn't be a better opportunity for us.
Going back to the conversation you and Shannon were having, is there an opportunity to sort of change the tooling or add to the tooling in the warehouses and expand the TAM, I guess, at some point in the future that would make a difference to the business?
I don't feel compelled to have to expand the TAM. It's plenty big as is. So if you think about the addressable market on small parcels, we can grow substantially for a long, long period of time without having to focus on retooling our warehouses. So addressable opportunity is not the problem.
Okay, awesome. I got 2 more quick ones. Given what you've seen so far in the marketplace this year, do you feel any different about sort of the leverage points in the e commerce model? Do you think you can get to some of them more quickly over time? And this maybe doesn't take longer.
I mean, I just sort of what's your thought process 6 months into this year on the leverage points on e commerce over time?
Yes. I still think 2024 is kind of the right thought for us in terms of getting to the long term model as I look at what needs to get done and as we kind of refine the volume a little bit, be more congruent with our capabilities and then letting the labor model and then the transportation kind of mature. So we're as I said, we're updating the long term plan now and we'll review that with you sooner versus later. But right now, I think it's I still think the overall margin aspiration timeframe is kind of correct. Some of the elements underneath it might be a little bit different.
I mean, certainly pricing I mean, well, we know they're different. The pricing is way different than what we thought 18 months ago as our transportation costs. So labor costs will kind of, I suspect, at an hourly worker, they'll go up, but we have such an important opportunity to automate that our focus is on how we bring in a more reliable labor base that stays with us and add automation to that. That's
helpful. And then just quick housekeeping. This one would be for Anna. Anna, can you quantify the benefit from the lower bad debt expense to the e commerce EBIT?
Yes. So the benefit was around $7,000,000
for the quarter.
Got it. And any context around if that sort of going forward, if that will continue or change in any way?
No. I mean, we expect the levels that we have to be realistic. Of course, we have some seasonality, as you know, based on our billings and everything. But we feel pretty good with our customer base and the types of credit that we have in our receivables. So based on what we see into the future, we think the levels should maintain.
And to the extent DSO is a predictor of this, which it is, DSO in that business is terrific. So I mean their cash conversion in that business is crazy good and their DSO is at industry best levels.
That's helpful. Thank you, guys. Thanks a lot.
And we do have a question from the line of Jeff Harlib with Barclays. Please go ahead.
Hi, good morning. Can you go into a little more detail about the semiconductor and supply shortages that you cited potentially in 4Q, in which products and which businesses?
Yes. It's in Semtech, in our Senpro product line. So we use chips from principally Asia. So it's kind of the same chips that everyone else is vying for, we're vying for as well. We're pretty confident that we've seen our way through the Q3.
But you follow the space, so you understand how dynamic that is. And it presents some risk, temporary risk to the Q4. We see that risk as less than we did probably 30 days ago, but there's still a risk. Okay. And then in Semtech, can
you just talk a little bit about the in terms of the Sempro refresh cycle, you've seen very strong equipment sales. How much of your base do you see that rolling through? And when do you see that sort of maturing?
So we see it rolling through all of our base. If you think about that business, it's a lease business. So the normal rhythm is you have probably 20% to 25% of your products come up for renewal each year or trade up to a new technology. So it's kind of rolling through on a fairly predictable basis, I think there's a couple more years left. And certainly, most of the international opportunity is still in front of us.
Got it.
Thanks very
much. And with no further questions in queue, I'll now turn the call back to Mr. Lautenbach for any additional remarks.
Terrific. Thank you. And thank you for joining today's call. Early in the year, we said we're poised for improved profitable revenue growth. We characterized profitable revenue growth as the last chapter of a successful transformation.
And we also said that Global Ecommerce would be EBITDA profitable this year. And while this year isn't done, I like where we stand on profitable revenue growth and I really like where Global Ecommerce stands in terms of being EBITDA positive. So another data point in the second quarter, more work to do for sure, but I certainly like how we're situated as we get into the second half of the year. Thank you for your time, and we'll talk soon.
And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT and T teleconference services. You may now disconnect.