Welcome to the Pitney Bowes first quarter earnings conference call. Your lines have been placed in a 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. Marc Lautenbach, President and Chief Executive Officer, Mr. Stan Sutula, Executive Vice President and Chief Financial Officer, and Mr. Adam David, Vice President, Investor Relations. Mr. David will now begin the call with the Safe Harbor overview.
Good morning. Included in this presentation are forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release, our 2018 Form 10-K annual report, and other reports filed with the SEC that are located on our website at www.pb.com and by clicking on Investor Relations. Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. 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. Our President and Chief Executive Officer, Marc Lautenbach, will start with a few opening remarks. Marc?
Thank you, Adam, good morning, everyone. I'd like to focus my comments on our performance in the quarter. As with every quarter, there were pluses and minuses. Stan will take you through the financial details, I'd like to address our performance versus our expectations, starting with revenue. Revenue was down 1% to prior year, excluding impacts of currency and previously announced international SMB market exits. Overall, revenue was in line with our expectations. Looking at earnings, our overall results were not where we wanted them to be to start the year. Our operational profit performance was largely what we expected in SMB and software. There were a few areas that impacted earnings that I'd like to drill down on and discuss, as they were the material deviations from what we expected in the quarter.
The first was a charge that we recorded in the North America Mailing segment related to a tablet replacement program to address a battery longevity issue, which also included upgraded technology in our SendPro C. Stan will take you through the details, but this resulted in a $9 million, or $0.03 charge in the quarter, and was not anticipated at the start of the year. It is important to note that excluding this charge, North America Mailing EBIT margins would've been 37.8%, which is more in line with our performance over the last four quarters. Turning to Global Ecommerce, to a smaller degree, profit underperformed our expectations in the quarter. Part of the miss was due to a delay in the approval of one of our Negotiated Service Agreements, or NSAs, with USPS. USPS is an excellent partner, and this NSA has subsequently been approved.
It just took longer than we thought, and as a result, we incurred higher than expected shipping rates in the quarter. Additionally, productivity around labor and transportation were not what we expected in the first two months, but improved upon exiting the quarter. As a reminder, when we opened our Greenwood, Indiana facility last September, productivity was understandably low. That said, productivity has subsequently increased and is higher than earlier in the year. This is a positive harbinger for the power of automation across the rest of our network, particularly as we continue to expand operations and open new sites. Business mix also impacted Global Ecommerce in the quarter. This segment is comprised of different capabilities, cross-border, fulfillment, delivery, returns, and APIs. These all come with different margin structures. We continue to balance gaining scale and managing the mix of these different businesses.
I would characterize the profit dynamics in e-commerce partly as one time in nature, and the balance being growing pains. However, they were not structural. Going forward, we will take actions to be more purposeful in driving mix and productivity. We remain focused and excited about the long-term opportunity for us within this business. E-commerce is a large and growing market where we have strong value proposition. The other item impacting earnings, which drove the preponderance of the shortfall from expectations in the quarter, was around execution missteps within our Presort Services. Last year, we engaged a third-party consultant to help address issues around productivity and pricing within the Presort Services. This business continues to be pressured by the transportation and labor market. We have talked about investments in automation in this business and leveraging our Newgistics network to help address the higher costs.
We are confident that our work with the consultants, along with these investments, will yield future benefits. Also, within Presort in the first quarter, our volume of mail processed went up, but our revenue per piece went down as we're seeing a mix of mail shifting to higher volume clients. As the quarter progressed, we began to successfully layer in a new pricing strategy, although some of the changes came too late in the quarter to make a difference. We will continue to layer in our pricing strategy over the coming months. I would squarely identify the issues we experienced within Presort in the quarter as execution issues.
I am confident that over time, our actions will take hold and improve performance to move this business back to the long-term margin profile, but it is taking longer than expected. I now want to go back to the top line, as that is the best indicator of our long-term success. In SMB, we continue to place our SendPro C in the market, and since launching, now have nearly 85,000 units placed with scheduled launches in several international markets over the next few quarters. During the quarter, we also announced the launch of Wheeler Financial, a subsidiary of the Pitney Bowes Bank. We've been working on this for a year, getting the right talent, network and operations in place, and building pipeline. Wheeler Financial will help clients purchase equipment critical to their industries in which they operate.
Leveraging our economies of experience with 40-plus years of equipment financing and 20 years in banking, we're expanding our offering to help our clients grow their businesses. Similar to what we are doing in the shipping space, this is a natural adjacency and truly representative of the company's long-term strategy. In our software business, last year we recognized a very large deal in the first quarter. This year, we did almost the same amount of revenue without the benefit of a large deal of last year's significance. Our channel efforts are continuing to pay off. It is worth noting that our Commerce Services business is now our largest revenue segment group. In our Global Ecommerce business, revenue ramped through the quarter, and we exit the quarter with a strong revenue performance, which should continue in the second quarter.
Likewise, we continue to add new logos and the churn in our Newgistics business declined substantially on a year-to-year basis. Both of these dynamics indicate we have something that the market wants. To that end, there were meaningful advances to our capabilities in our Global Ecommerce business. We added to our network and announced two differentiated capabilities that the market has been clamoring for. The first is we announced a pilot to create a two- to three-day guaranteed delivery product that will be fast and much more affordable than alternative offers. This will help retail clients better compete in an increasingly competitive marketplace. This capability is based on our decades of knowledge of moving mail and deep data science capability, which we have developed over the last several years. This is what we mean when we talk about leveraging our scale and our experience.
Secondly, we announced a branded experience for our clients as it relates to tracking shipments. Simply put, this will allow clients to put their brand in front of customers' activities to track their shipments. Today, this is primarily done through the logistics providers' websites. The result is the retailer or marketplace loses control of what is one of the most important experiences in the world of e-commerce. The combination of these two capabilities will be a game changer for our clients as a meaningful step forward in our ambition to take the complexity out of shipping. On a side note, a few weeks ago, I had the opportunity to participate in our e-commerce client event, Retail Revolution. There were over 200 attendees, and it was a who's who of retailers and marketplaces. They were only there for one reason: Pitney Bowes is building something that the market needs and wants.
It was remarkable to reflect that four years ago, our Global Ecommerce business was one capability with one client. To summarize, we expect revenue to grow this year, making the third consecutive year of growth, which is an indication of the capabilities we have created and the future we are aspiring to. I'm not pleased with our profit performance for the quarter. However, the execution issues we encountered are within our control to fix, and going forward, we will fix them. Some are easy, and some will take longer. As a result, we are upping our 2019 guidance, which Stan will take you through in more detail. With that, let me now turn the call over to Stan.
Thank you, Marc, and good morning. Our first quarter overall revenue results were in line with our expectations. However, our earnings performance fell short. Before I discuss the details of our first quarter, it's important to note a few items. First, as in the past, unless otherwise noted, my statements going forward will be on a constant currency basis when talking about revenue comparisons, and on an adjusted basis when talking about earnings-related items, including cash flow. Reconciliations of all non-GAAP to GAAP measures can be found in the financial statements posted with our earnings press release and on our investor relations website. Second, our results reflect the new lease accounting standard, or ASC 842, which was implemented on January 1st. Results in both current and prior periods reflect this new standard.
We have posted a file on our investor relations website with the recast financials as they relate to this lease accounting change. Additionally, we also determined that certain costs previously classified as R&D should be classified as a cost of revenue or SG&A expense. Prior period financial statements have been recast to conform to the current period presentation. Finally, we previously announced the sale of our direct operations in six smaller European markets. This transaction does not qualify for discontinued operations treatment, and as such, prior year has not been recast. It will therefore negatively impact our revenue comparison to prior year by about a point, which is reflected on our guidance. Turning to our results, we continue to make progress against our long-term objectives in the first quarter. The portfolio continues to shift to higher growth markets.
Commerce Services comprise 46% of revenue, which is the second consecutive quarter where it was the largest component of our overall revenue. Our shipping related revenues made up roughly one-third of the total revenue in the quarter, that contribution continues to grow. For the first quarter, revenue totaled $868 million, which was a decline of 2% from prior year. When you take the market exits into consideration, revenue declined 1% from prior year. Looking at revenue by group, Commerce Services grew 6%, Software declined 2%, and SMB declined 7%, when you exclude the impact of currency and the market exits. Adjusted EPS was $0.12 for the quarter. GAAP EPS was a loss of $0.01. GAAP EPS includes a $0.10 loss related to the market exits, which was primarily driven by the write-off of cumulative translation adjustments.
GAAP EPS also includes charges related to discontinued operations, transaction restructuring costs, each charge being about $0.01 per share. Versus our expectations, EPS for the quarter was impacted predominantly by weaker performance in our Presort business due to execution around productivity as well as pricing. To a lesser extent, e-commerce fell short of our expectations. In addition, there were two unusual items impacting the quarter. The first being a charge of $0.03 per share related to a tablet replacement program to address a battery longevity issue for our SendPro C. The replacement not only addresses the battery longevity, but also provides clients with our latest technology, including a memory upgrade and a better user interface. This issue was identified during the first quarter, we continue to work through this item, both with battery experts and suppliers.
Through our analytics, we can predict the life cycle of the battery and to head off any potential disruption, we are upgrading the displays, resulting in the $9 million or $0.03 per share charge. The other item impacting EPS, albeit to a lesser degree, was the delay in the approval of one of our NSAs with the USPS, which has subsequently been approved. Free cash flow was $32 million, and GAAP cash from operations was $70 million. Compared to prior year, free cash flow was lower, partly due to the decline in net income and the timing of reserve account deposits, which was offset by the timing of working capital. Looking at capital allocation, at the end of the quarter, we had $904 million in cash and short-term investments on our balance sheet. During the quarter, we used free cash flow to return approximately $49 million to our shareholders.
We repurchased 5.6 million shares for $39 million. We paid $9 million in dividends to our common shareholders. We also made $8 million in restructuring payments and spent $29 million on capital expenditures. From a debt perspective, we ended the quarter with $3.25 billion in total debt, which is $321 million lower than prior year. Let me give you a little bit more context on our debt composition. Overall debt was $3.25 billion. If you take the implied debt of $1.1 billion associated with our finance receivables, along with the $0.9 billion of cash and short-term investments on the balance sheet into account, our implied net debt position on an operating company basis was about $1.2 billion at the end of the quarter. Looking at the P&L, starting with revenue performance by line item as compared to prior year. Business services revenue grew 5%.
We had declines in software and financing revenues of 2%, support services of 7%, rentals of 9%, supplies of 13%, and equipment sales of 14%. Gross profit was $389 million, with a margin of 44.8%. This is a decline of about four points from prior year, which is largely reflective of the shifting mix of our portfolio. Gross profit was also negatively impacted by one point due to the tablet replacement charge. SG&A was $299 million, which was a decline of about $3 million from prior year. SG&A as a percent of revenue was 34.5%, which was approximately one point lower than the prior year and largely a result of the lower revenue. R&D expense was $22 million or 2.5% of revenue. Compared to prior year, R&D expense declined about $3 million and improved slightly as a percent of revenue. EBIT was $69 million, and EBIT margin was 7.9%.
Compared to prior year, EBIT declined $46 million, and EBIT margin declined by five points, driven primarily by the gross profit decline. Interest expense, including financing interest expense, was $39 million, which was $4 million lower than prior year as a result of the debt we had paid down over the course of last year. The provision for taxes on adjusted earnings was $8 million. Our tax rate was 26.6% and relatively flat to the prior year, as we normally experience a higher tax rate in the first quarter. Average diluted weighted shares outstanding at the end of the quarter were 188 million, which is about 600,000 shares lower than prior year. Let me now discuss the performance of each of our business segments this quarter. Starting with Commerce Services, revenue was $401 million, which was growth of 6% over prior year. EBIT and EBIT margin were essentially breakeven.
EBITDA was $24 million, and EBITDA margin was 6%. In Global Ecommerce, revenue was $266 million, which was growth of 9% over prior year. Within Global Ecommerce, our domestic parcel services delivered strong double-digit revenue growth as volumes continue to ramp up through our network. We continue to grow volumes both through our services in China as well as expanding our domestic client base. Shipping solutions also delivered strong double-digit revenue growth as volumes through our shipping APIs and delivery services accelerated in the quarter. The segment's revenue growth was partially offset by a decline in our cross-border business, largely due to weakness in volumes, the strength in U.S. dollar, as well as regulations and taxes in some of our larger inbound markets. EBIT was a loss of $15 million, and EBIT margin was a negative 5%. EBITDA was $2 million, and EBITDA margin was 1%.
We continue to invest in market growth opportunities, which includes marketing programs and facilities, as well as operational excellence initiatives. We have not lost sight of the long-term growth opportunity here, and we will continue to invest in this area to drive long-term value. Higher labor and transportation costs continue to be an area that we are addressing. We continue to leverage resources across our network to partly offset these incremental costs. We experienced higher than normal domestic shipping rates due to a delay in the approval of one of our NSAs with the USPS, which has since been approved. Additionally, margin was also impacted by product and client mix. In the quarter, we saw a majority of the revenue growth coming from faster growing but lower margin services. We expect that unit costs across the portfolio will improve over time through scale.
Within Presort Services, revenue was $135 million, which was flat to prior year. Compared to prior year, we processed higher volumes of first-class and standard mail, as well as flats. The growth in volumes processed is a positive sign that we are gaining share. However, a change in client mix towards larger clients drove a lower revenue per piece. As Marc mentioned, we have begun layering in productivity actions in a new pricing strategy. EBIT was $15 million, and EBIT margin was 11%. EBITDA was $22 million, and EBITDA margin was 16%. Presort margins this quarter were lower than we expected. EBIT continues to be impacted by higher transportation and labor costs, along with the lower revenue per piece.
Compared to prior year, margins were also impacted by higher employee wages related to the increase we initiated early in the second quarter of last year, as well as higher bad debt expense and consulting fees associated with our productivity and pricing work. Turning to SMB, revenue was $394 million, which was a decline of 9% from prior year. Excluding the impact of our market exits, revenue declined 7%. EBIT for the group was $122 million, and EBIT margin was 31%. EBITDA was $131 million, and EBITDA margin was 33%. In North America Mailing, revenue was $315 million, a decline of 7% from prior year. Equipment sales declined largely due to lower top-of-the-line and bottom-of-the-line product sales, partly offset by growth in our SendPro C unit placements. Since launching, we have placed nearly 85,000 SendPro C units and are on track in transitioning our client base into the new product.
Recurring revenue streams declined in line with the average of the last four quarters. As mentioned previously, we recorded a $9 million charge related to a tablet replacement program for our SendPro C in the quarter. When you exclude this item, gross margins improved one point over prior year and continue to perform within a tight range as they have over the last several quarters. EBIT was $111 million, and EBIT margin was 35%, which is 2.6 points lower from prior year. Excluding the tablet replacement charge, EBIT margin would have been 37.8%, which is in line with the last four quarters. EBITDA was $117 million, and EBITDA margin was 37%. In International Mailing, revenue was $79 million, a decline of 14% from prior year. Excluding the impact of our market exits, revenue declined 6%.
Equipment sales declined largely driven by weakness in Germany and France, but partly offset by growth in the U.K. and Japan. Recurring revenue streams also contributed to the overall decline. EBIT was $12 million, and EBIT margin was 15%, which was a decline of one point from prior year, mostly due to the decline in revenue. EBITDA was $14 million, and EBITDA margin was 18%. Turning to Software Solutions, revenue was $73 million, which was a decline of 2% from prior year, driven by lower license revenue, but partly offset by higher data updates, SaaS, and services revenue. Smaller deals grew double digit in the quarter, marking the sixth consecutive quarter of double-digit growth. Additionally, prior year benefited from a $7 million Location Intelligence deal, which created a tough comparison for the quarter.
EBIT was $2 million, and EBIT margin was 2%, which was a decline of one point from prior year, mostly due to a decline in license revenue. EBITDA was $4 million, and EBITDA margin was 6%. Let me now address our 2019 guidance. We are updating the full year based largely on Presort Services performance and to a lesser extent, a slower profitability ramp in Global Ecommerce, as well as the unexpected charges we incurred in the first quarter. Our updated 2019 guidance is as follows. Revenue, excluding the impacts of currency, to grow in the range of 1%-3% as compared to prior year. Adjusted EPS to be in a range of $0.90-$1.5, and free cash flow to be in a range of $200 million-$250 million. Let me also address timing through the year.
As the portfolio continues to shift to growth, particularly around shipping, the fourth quarter will increasingly be our largest revenue and earnings-generating quarter. Our second quarter revenue and adjusted EPS will be impacted by this portfolio shift. Additionally, we are investing in our third-party financing initiatives as we begin to originate loans and leases, which will impact expense ahead of the streamed revenue that will be recognized over time. We also expect our spend reductions to ramp throughout the year. Therefore, we expect the second quarter's EPS attainment to the full year to be approximately one point lower than prior year's second quarter EPS attainment. As a reminder, we have recasted our financials for the new leasing standard and have posted a file with the eight-quarter history on our investor relations website. With that, operator, please open the line for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touch-tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star one at this time. One moment, please, for your first question. Your first question comes from the line of Ananda Baruah from Loop Capital. Please go ahead.
Hi, guys. Good morning. Thanks for taking the question. A couple, if I could. Marc, on the Presort, and thanks for the context on the quarters through the years with the different dynamics. Specifically to the Presort, how long do you think, or how should we think about those actions layering in over the next couple of few quarters? Based on what you can see, when do you think that business gets back to kind of stable, or as the actions are intended to have it become?
Sure. Stan will keep me honest on this because he's got the schedule in front of him. As you look at the work that we've done with the third party, I'd stress that that's work that began last summer, this is something that we've in some ways anticipated. We saw, I would say, de minimis benefit from that in the first quarter. We'll see a little bit in the second quarter, and it will be principally in the second half. The benefits come in, what I would say, two buckets. One is pricing, which we're starting to layer now, and that will be some of the benefits we realize in the second quarter. The productivity benefits, which are an important part of getting that business back on track, are the second half.
In addition, what we're staring at, you can kind of get lost in a sea of numbers in Presort, there's a couple of things that have happened. One is, it's not, for those of you who followed the company for a while, dissimilar to what was happening to the production mail business. The customer base is consolidating. As the customer base consolidates, while volume continues to increase, albeit not quite as much as we had hoped, volume is increasing. The volume is moving to customers who have more pricing power. They just have deeper discounts. To a degree, we can fine-tune that is what it is. It also gives you an important opportunity to offset transportation costs, SG&A, where that volume came from, where it was more distributed. A long-winded answer to a question.
We've spent more time thinking and talking about Presort in the last four weeks than I have in the last four years because it's generally been a business that's performed exceedingly well. Short answer, a little bit in the second quarter, mostly in the second half.
Okay, got it. That's actually helpful context. Then just with regards to the transportation and labor costs, I know you're not the only ones, obviously, that are experiencing that dynamic. Do you have the visibility, if that continues to sort of be as pronounced as it is, I guess really my question is, for how long do you think you'll need to address that? Is that more of like a one-time, we can get it into the cost structure sort of addressing dynamic? Or is this something where for this year into next year, as long as these things remain pronounced, you'll have to adjust the cost structure to address it?
Ananda, let me take that from a couple of different angles here. First, let's talk about labor. My view is any business that has this much of a labor base, a significant amount, is always going to be driving productivity. If you recall last year in early in the second quarter, we actually took part of the savings from tax reform and increased the hourly wages to be more competitive in the marketplace.
That certainly has cost us on a cost basis, on a year-on-year basis. We'll wrap on that in Q2. We come at this from different angles. One of the pieces of work with our consultant is to go through things like scheduling, labor productivity, time studies, et cetera, that will help us gain productivity overall. We've also invested heavily in automation. As we start to roll that out, we'll come at this from both angles, becoming more efficient with the labor we have, and then being able to automate more of that activity. I think from a labor point of view, that productivity mission is never going to end. It might have different flavors as you go through time.
I think on a year-to-year basis, we'll see some easing of that as we go through 2Q and into the back half of the year from the actions that we've put in place. On transport, you're more suspect to the market, where you go out into the spot market, and we keep rebalancing what we do internally with what we do through third parties. We've also taken additional steps to gain synergy between our Newgistics acquisition and Presort through the labor, I'm sorry, and transport. I still think we have a ways to go to capture all of that, the concept's relatively simple, and that is full trucks are much cheaper to run.
Got it.
A thumbnail version of that. I think labor is going to be a chronic problem, not just for Pitney Bowes, but for the country as you continue to have low unemployment and there's wage pressures. Listen, there's aspects of that that's good from a societal perspective. At Stan's point, there's a bunch of things that we have in place that will mitigate that. As you think about transportation costs, it's a little bit different dynamic between Presort and Global Ecommerce. Global Ecommerce actually exited the quarter on the transportation cost line that they had planned more or less. I mean, it was close enough for government. Presort, on the other hand, wasn't. Part of that is a function of what's going on in the marketplace. Candidly, part of it was a function of what I said before.
When your volume consolidates, you should be able to get transportation savings, and we didn't get those as quickly as we would've liked.
Got it. That's all helpful. Just one quick wrap-up, and then I'll cede the floor here. Just given the handful of actions that are taking place, and you already spoke to the guide, but let me ask it this way, too. Should we now anticipate that the December quarter will be more weighted towards the profit targets for the year than typical, as it sounds like, really, it's not going to be until Q3 where I think a bunch of these actions get hold? That's just for me. Thanks.
The short answer is yes. I mean, if you think about, and we kind of glossed over it in one sentence, but now Commerce Services is the largest segment that we have. If you think about the way that companies participate in Commerce Services, so much of their revenue is in the fourth quarter because of the obvious reasons of the holiday seasons and whatnot. The profit will follow that, but it's just a changing nature of the company a bit.
You saw from 2017 to 2018, that fourth quarter became a bigger part of the year, and I think you'll see that increase again as you look 2018 to 2019, just simply mix of the business and the underlying dynamics like Presort.
The other thing I would say is, we didn't spend a lot of time in the prepared remarks, is the software business is starting to behave like a proper software business. I would say, in my first several years here, it was the only software business I've ever seen that actually has balanced first half, second half in terms of revenue. Most software businesses are very skewed to the second half, and particularly the fourth quarter. There's a bunch of different dynamics that will push profit into the fourth quarter.
Okay, great. Thanks a lot, guys.
Thank you.
Your next question comes from the line of Kartik Mehta from Northc oast Research. Please go ahead.
Hey, good morning. Marc, just a big picture thought on the Presort business. As you look at profitability of this business over the next two to three years, what do you think about the margin profile for this business as we go over the next two, three years with these labor costs that are having a negative impact and obviously transportation because the economy is so strong? Just to get your thoughts on that.
Yeah. Last time we provided long-term guidance for Presort was in the 15%-20% range. We'll update long-term guidance here in a couple of weeks at Analyst Meeting, which I believe we've announced. I would say 15-ish. I don't think it's going to be a material departure from where we've been. It's to the point that I said, most of the issues that we're looking at, it's not our controllable totally by us. There's reasonable offsets. By the way, that was reaffirmed by the third party. That's not something that we're starry-eyed about. That's something that we've worked with outsiders to get an affirmation of.
As you look at the e-commerce business, that business is going to do, again, probably north of $1 billion. Yet it's right now being challenged profitability-wise. I know you said you're investing in the business, at what point do you think this business starts really generating operating profits rather than all the investment that's needed?
Yep. We'll say more in Investor Day, let me kind of draw a line between a couple of things that helps illustrate the point. Last year in the first quarter, we talked about the churn in Newgistics business. If you think about the Newgistics acquisition, we consummated the acquisition in the fourth quarter of 2017. You're, for all practical purposes, in a shutdown period in terms of making changes to the network. As we rolled that business into the first quarter of 2018, we had a fair amount of issues servicing clients. The short story was, we just simply didn't have enough capacity to accommodate the volume.
Fast-forward 12 months later, the level of churn that we experienced in Newgistics in the first quarter, depending on how you want to look at it, was either 50%, or you could say 10% of the churn that we had achieved in the previous quarter. Why is that? We built capacity ahead. If you look at the network, the Newgistics network in particular, I think we've got five times the level of capacity. This dynamic, it's one way of saying is, as long as you've got this bow wave of volume that we're continuing candidly to enjoy, you're going to invest capacity in front of that, or you're not going to keep it. That's important because the most important long-term factor in profitability of this business is scale.
We'll talk about this in some level of depth in a couple of weeks, but we think we need 250 million to 300 million parcels to get to our long-term targets. Now, we'll get to profitability before then, but for sure, as you're thinking about this business, as long as we're growing as much as we have the last six quarters, you've got to invest capacity or you're not going to keep the clients. By the way, it's no different than what UPS or FedEx have said in their announcements as well. Everyone's adding to their network to take advantage of this opportunity. We all come at the opportunity from slightly different ways, but writ large, shipping is a heck of an opportunity.
Maybe, Marc, just one question follow up on that. You talked about 250 million to 300 million parcels. Where are you today in relationship to that number?
We'll talk about that more in a couple of weeks, but we've got a year or two to go to get to the level of scale. I'd say, as we look at desk and sell, fourth quarter of next year, we feel like we're operating at scale, and then you've got to sustain that going forward.
All right. Thank you very much. Appreciate it.
Thanks, Kartik.
Your next question comes from the line of Allen Klee from the Maxim Group. Please go ahead. Allen Klee, your line is open. Check your mute button. Okay, we'll move on. We'll go to the line of Glenn Madsen from Ladenburg. Please go ahead.
Good morning. I believe it was on the e-commerce business, you talked about strength in adding new logos and reducing churn in subs. Can you give us any sense of what churn has been historically and what the change was?
Let me first of all talk to the new logos point, because I think it speaks to the demand. We've added 270 new logos in our Global Ecommerce business over the last 12 months. Again, you guys have followed the company for a bit. Glenn, you for a long time. You think about what this business was four years ago, it was one client. We've added 270 new clients in the last 12 months. In terms of churn, I think the industry trend in this business is, I'd say high single digits. We were in that range last year. We're at a fraction of that this year.
Okay.
Getting win backs.
Great.
Again, we talk about these things as disparate things. The only reason we're able to do that is we're investing in front of the volume.
Right. Okay. On the software side, it was, I think, the second quarter where you highlighted small deals helping to carry the day. Maybe you could just expand on that a little more and talk about the outlook for software for the rest of the year.
Let me start with the bottom line. I'm bullish about the outlook for software for the rest of the year. You look at the first quarter, we referenced back to the large deal that we recognized last year in the first quarter that was $7 million-ish. If you look at the first quarter this year, we had several deals that were $500,000 to $1 million, so good-sized deals, but nothing of seven-figure or not many seven-figure deals. That's important because at our scale, this is always going to be a lumpy business. What inoculates you against the true lumpiness is that you build this broad bow wave, if you will, of $500,000 to $1 million-dollar deals. We feel good about the business going forward. We've got some large chunky deals that are in front of us.
It'll affect the SKU obviously through the year. Let me give a little bit more color. Small deals grew double-digit this quarter. That's actually the sixth consecutive quarter of double-digit growth. If you look at the indirect channel, we've talked about that. That also grew a nice double digits here. I think more interesting is we're seeing the composition of that pipeline shift and roughly two-thirds of those deals in the pipeline are lift deals versus shift deals.
In Glenn's language, that means partners are bringing us deals, which again was always the theory of the case. We always thought we had good products, but we had a hard time getting to new logos. What we're now starting to see is affirmation of that hypothesis. When partners start bringing you into deals, that tells you that they're confident of what you've got. And that lift is just flat out incremental to what the direct sales force produces. It's taken way too long to get to that point, but we're now starting to see the benefits of what we've worked on for the last several years.
Okay, great. Thanks. That's it for me.
Thanks, Glenn.
We'll go back to the line of Allen Klee from the Maxim Group. Please go ahead.
Good morning. For the NSA that you mentioned that got approved but was delayed, can you tell us if the terms that it got approved on were relatively similar to what they were in the past? Is there something that's changed in it that could have a meaningful impact on the profitability you expect from that business?
Allen, it's relatively in line with our previous arrangement.
I would just broadly add, our relationship with the Postal Service has never been better. That was one NSA out of seven, and candidly, probably a dozen different initiatives. We're really pleased with that relationship, and it continues to be important.
Remember, this is a wide-ranging relationship, right? It's everything from meters to work share and Presort to the initiatives through Newgistics that inject parcels into their network. This is far broader than any one NSA.
This particular NSA was kind of almost next to the same as what we had experienced.
Okay. When you said part of the reason that you factored into your new guidance was a slower ramp in Global Ecommerce, by that, did you mean the slowness that we saw in this current quarter? Or do you mean that in the next two quarters until we get to four Q would also be at a slower ramp?
Let me split that, because I think it's important to dissect it. We're still investing ahead of this curve. From a revenue perspective, we believe revenue will perform better than it did in first quarter. In first quarter, Global Ecommerce grew 9%, the exit rate was 16%. Coming out of March, the month of March was 16%. We expect that Global Ecommerce will go back to double-digit growth. From a profitability side is really the comment on the ramp. We continue to invest in new facilities. We've opened two so far this year. We continue to invest in automation capability and new offerings, and to go through investments in technology. Those have a front-end load to them, but we think they're important, both comment back to churn and serving clients better, but also to expand that marketplace for us.
Make an additional point about Global Ecommerce. I know there's been a concern by some of our investors, and I understand it, that we've been chasing revenue at any cost in that marketplace. To the Global Ecommerce team's credit, they're actually starting to get out of some of the businesses that they were in where they don't see a path to acceptable margin, some of the relationships that they don't see acceptable margins. While I understand people would like this business to be profitable sooner versus later, and with the growth that we've seen, there's always a concern that you're chasing revenue and growth. I would just highlight to our investors and to our analysts that they're getting out of particular businesses where they don't see the opportunities for long-term profitability.
Thank you. Your CapEx in the quarter was around $29 million. Is that sort of a reasonable quarterly run rate going forward?
You're going to see that shift around. We typically look, we'll give you an update on CapEx in total at Investor Day. If you look at last year, I think you'll see that'll increase slightly year to year, not dramatically.
Okay, thank you. Lastly, this is just something I missed, if you could clarify. In the guidance, you said that something would be 1 point lower year-over-year for the second quarter. Could you just clarify what that was?
Sorry. We were talking about the skew of the year. This goes a little bit back to the earlier question. When you go look at the attainment, we are going to continue to shift to be more back-end loaded. When you look at 2Q as a % of the year, we think that attainment will be about 1 point lower than it was prior year.
You mean if you take the % that it is of the year's-
Correct
revenue, whatever % that was in 2018, it'll be 1 point less than that.
Yeah. That was specifically to earnings.
Oh, to earnings.
Yes.
Okay. Thank you so much.
You're welcome.
As a reminder, if you do have a question, please press star then one. Next, we'll go back to the line of Ananda Baruah from Loop Capital. Please go ahead.
Hey, thanks for the follow-up. Just was wondering, with Stamps.com's announcement to sort of discontinue the preexisting nature of its relationship with the USPS, if you've seen any structural changes in the market environment. I know you have a business that sort of gets it, gets the things the same way. Then secondarily, if you believe that there's any opportunity there for you in an incremental way given the change in the relationship with Stamps and the USPS. Thanks.
We've obviously followed that fairly closely, as you might imagine. Far we've not seen, to your point, structural changes in the market. Let me be clear about that. Stamps did talk about a 3% price increase for aspects of their customers. We've not seen evidence of that yet, so hard to know. If and when that does occur, then that potentially would create an opportunity for us to have conversations with clients where we haven't had the opportunity before. Suffice it to say, with the changing dynamics of USPS, this will create opportunities. As well, to be candid, there's also threats in that as well. We like how we're situated.
Yeah. Look, our competitive offerings are pretty wide in our approach to market through parcel, through all of the things we offer through Global Ecommerce on returns, et cetera. We like our position in the competitive market, and I think if you look at the growth we've had in Global Ecommerce, that manifests itself into good client acceptance.
One of the strategic beliefs that Lyle has had about that business, I think it's been borne out to be true, is that there's an advantage to physically touching the parcels as opposed to just printing the labels. Obviously, physically touching the parcels comes with a different margin and a different set of investment structures. That said, as you contemplate what's meaningful to USPS, I won't say that printing labels isn't unimportant. We certainly print a lot of labels as well, and we're happy to do that. If you can do things actually with the parcel that helps ingest into the Postal Service network or other networks, other logistics provider networks, that's even more advantageous. I think what you're seeing is the wisdom of some of the strategic beliefs bearing out.
That's great. Thanks a lot, guys.
At this time, there are no further questions. I'd now like to turn the call back to Mr. Lautenbach for any closing remarks.
Great. Thank you. Let me just reaffirm what I said outside. We're not pleased with the first quarter performance. It's not something that we anticipated, not something we're pleased about, but it is something we can recover from. If you contemplate the dynamics in the first quarter and you isolate the things that went wrong, the battery issue is a one-time issue that we get through. The NSA deferral, we're already through it. The dynamics inside of Presort, candidly, are disappointing, but it's also a business that's got a proven track record of execution. As you contemplate those three dynamics together, I don't believe any of them have anything to do with the long-term vibrancy or the long-term opportunity of this company.
On the other side of it, if you look at SMB, at the margin structure, if you look at software in terms of the channel dynamics and candidly, the pipeline that's in front of them, and Global Ecommerce from an exit rate in terms of revenue and some of the productivity initiatives, the long-term theory from my perspective here is intact. The first quarter was disappointing. It was a bump in the road. That being said, it doesn't change my view one iota of the long-term prospects of this company. We'll talk more on Investor Day, and we'll render some of these dynamics more explicit, particularly around Global Ecommerce and profitability, because I know that's something that appropriately weighs on people's minds. We like our long-term position, and nothing's changed about that.
Just a reminder, Investor Day is May 29th, and we look forward to seeing you there.
Thanks.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.