PITNEY BOWES INC. Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains statements that are forward-looking. We caution readers that any forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act) may change based on various factors. Forward-looking statements are based on current expectations and assumptions, which we believe are reasonable; however, such statements are subject to risks and uncertainties, and actual results could differ materially from those projected or assumed in any of our forward-looking statements. Words such as "estimate," "target," "project," "plan," "believe," "expect," "anticipate," "intend" and similar expressions may identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking statements in this Form 10-Q speak only as of the date hereof, and forward-looking statements in documents that are incorporated by reference speak only as of the date of those documents. Our results of operations, financial condition and forward-looking statements are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with theSecurities and Exchange Commission . In particular, we continue to navigate the impacts of the COVID-19 pandemic as well as the risk of a global recession, and the effects that they may have on our, and our clients' businesses. Other factors which could cause future financial performance to differ materially from expectations, and which may also be exacerbated by COVID-19 or the risk of a global recession or negative change in the economy, include, without limitation:
•declining physical mail volumes
•changes in postal regulations or the operations and financial health of posts in theU.S. or other major markets, or changes to the broader postal or shipping markets
•the loss of, or significant changes to,
•our ability to continue to grow and manage unexpected fluctuations in volumes, gain additional economies of scale and improve profitability within our Global Ecommerce segment
•changes in labor and transportation availability and costs
•the impacts of inflation and rising prices on our costs and expenses, and to our clients and retail consumers
•declines in demand for our ecommerce services resulting from supply chain delays or interruptions affecting our retail clients, or changes in retail consumer behavior or spending patterns
•global supply chain issues adversely impacting our third-party suppliers' ability to provide us products and services
•competitive factors, including pricing pressures, technological developments and the introduction of new products and services by competitors
•the loss of some of our larger clients in our Global Ecommerce and Presort Services segments
•expenses and potential impacts resulting from a breach of security, including cyber-attacks or other comparable events
•the potential impacts on our cost of debt due to potential interest rate increases
•our success at managing customer credit risk
•changes in foreign currency exchange rates, especially the impact a
strengthening
•changes in tax laws, rulings or regulations
•capital market disruptions or credit rating downgrades that adversely impact our ability to access capital markets at reasonable costs
•our success in developing and marketing new products and services and obtaining regulatory approvals, if required
•the continued availability and security of key information technology systems and the cost to comply with information security requirements and privacy laws
•changes in international trade policies, including the imposition or expansion of trade tariffs, and other geopolitical risks
•our success at managing relationships and costs with outsource providers of certain functions and operations
•changes in banking regulations or the loss of our
•increased environmental and climate change requirements or other developments in these areas
•intellectual property infringement claims
•the use of the postal system for transmitting harmful biological agents, illegal substances or other terrorist attacks
•impact of acts of nature on the services and solutions we offer
Further information about factors that could materially affect us, including our
results of operations and financial condition, is contained in Item 1A. "Risk
Factors" in our 2021 Annual Report, as supplemented by Part II, Item 1A in this
Quarterly Report on Form 10-Q.
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Financial Results Summary - Three and Nine Months Ended
Revenue
Three Months Ended September 30 , Nine
Months Ended
Constant Constant
Actual % Currency % Actual % Currency %
2022 2021 change Change 2022 2021 change change
Business services $ 518,405 $ 551,384 (6) % (5) % $ 1,667,267 $ 1,688,860 (1) % (1) %
Support services 107,642 113,413 (5) % (3) % 325,619 347,266 (6) % (5) %
Financing 67,757 71,936 (6) % (4) % 207,084 223,201 (7) % (6) %
Equipment sales 83,528 83,234 - % 4 % 262,810 256,304 3 % 5 %
Supplies 37,455 38,211 (2) % 2 % 116,761 119,090 (2) % 1 %
Rentals 16,127 17,271 (7) % (4) % 49,810 55,128 (10) % (8) %
Total revenue $ 830,914 $ 875,449 (5) % (4) % $ 2,629,351 $ 2,689,849 (2) % (1) %
Revenue
Three Months Ended September 30, Nine
Months Ended
Constant Constant
Actual % currency % Actual % currency %
2022 2021 change change 2022 2021 change change
Global Ecommerce $ 354,326 $ 398,011 (11) % (10) % $ 1,166,623 $ 1,229,526 (5) % (4) %
Presort Services 144,824 139,296 4 % 4 % 444,302 417,041 7 % 7 %
SendTech Solutions 331,764 338,142 (2) % 1 % 1,018,426 1,043,282 (2) % - %
Total revenue $ 830,914 $ 875,449 (5) % (4) % $ 2,629,351 $ 2,689,849 (2) % (1) %
Segment EBIT
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 % change 2022 2021 % change
Global Ecommerce $ (34,881) $ (20,950) (66) % $ (77,402) $ (58,157) (33) %
Presort Services 20,561 21,062 (2) % 53,044 56,247 (6) %
SendTech Solutions 95,234 98,950 (4) % 295,374 320,541 (8) %
Total Segment EBIT $ 80,914 $ 99,062 (18) % $ 271,016 $ 318,631 (15) %
Revenue decreased 5% (4% at constant currency) in the third quarter of 2022
compared to the prior year due to a decrease in business services revenue
primarily driven by lower Global Ecommerce volumes, lower support services
revenue driven by a declining meter population and a shift to cloud-enabled
products and lower financing revenue. Global Ecommerce revenue decreased 11%
(10% at constant currency), Presort Services revenue increased 4% and SendTech
Solutions revenue declined 2%, but increased 1% at constant currency.
Segment EBIT in the quarter decreased 18% compared to the prior year period.
Global Ecommerce EBIT decreased $14 million primarily due to the decline in
revenue and lower margins. Presort Services EBIT decreased $1 million , or 2%,
primarily due to higher operating costs. SendTech Solutions EBIT decreased $4
million , or 4% primarily driven by the decline in revenue and lower margins.
Refer to Results of Operations section for further information.
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Outlook
We earn a larger percentage of our revenue in the fourth quarter as compared to
other quarters, primarily because there are higher shipping volumes during the
holiday season. We also expect shipping volumes to benefit from new clients
gained in the third and fourth quarters of 2022. We believe we are
well-positioned to process the holiday shipping volumes due to network
optimization and increased productivity driven by the investments we have made
in our facilities, automation and management systems. However, certain factors
beyond our control could have adverse impacts on the global shipping market,
including, but not limited to, reduced consumer spending due to inflation and
recessionary factors, adverse changes in labor and transportation markets,
including higher fuel costs and other adverse geopolitical developments.
We see market opportunities for our businesses and continue to invest in new
solutions and services targeted at these opportunities. This includes
investments in our physical networks in Global Ecommerce and Presort Services
for greater efficiency and economies of scale, investments in our mailing
business around shipping solutions, lockers and expanded financing offerings,
and upgrading our technologies and processes across all three segments and
Corporate shared services. Our mix of business continues to shift to higher
growth, lower margin markets, and while the investments we are making today may
put downward pressure on our margins in the near-term, we expect these
investments to provide a platform for long-term growth and margin improvements.
On a consolidated basis, we expect revenue (constant currency) in 2022 compared
to 2021 to range from a low-single digit percentage decline to low-single digit
percentage growth and EBIT to range from a high-single digit percentage decline
to a mid-single digit percentage increase. We also expect free cash flow to be
positive for the full year 2022.
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RESULTS OF OPERATIONS
In this discussion, we refer to revenue growth on a constant currency basis.
Constant currency measures exclude the impact of changes in currency exchange
rates from the prior period under comparison. We believe that excluding the
impacts of currency exchange rates provides investors with a better
understanding of the underlying revenue performance. Constant currency change is
calculated by converting the current period non-U.S. dollar denominated revenue
using the prior year's exchange rate. Where constant currency measures are not
provided, the actual change and constant currency change are the same.
Management measures segment profitability and performance using segment earnings
before interest and taxes (EBIT), which is calculated by deducting from segment
revenue the related costs and expenses attributable to the segment. Segment EBIT
excludes interest, taxes, unallocated corporate expenses, restructuring charges,
asset and goodwill impairment charges and other items not allocated to a
business segment. Management believes that Segment EBIT provides investors a
useful measure of operating performance and underlying trends of the business.
Segment EBIT may not be indicative of our overall consolidated performance and
should be read in conjunction with our consolidated results of operations.
Effective for 2022, we refined our methodology for allocating transportation
costs between Global Ecommerce and Presort Services, resulting in an increase to
Global Ecommerce EBIT and a corresponding decrease to Presort Services EBIT of
approximately $3 million and $9 million for the three and nine months ended
September 30, 2022 , respectively.
REVENUE AND SEGMENT EBIT
Global Ecommerce
Global Ecommerce includes the revenue and related expenses from business to
consumer logistics services for domestic and cross-border delivery, returns and
fulfillment.
Revenue Cost of Revenue Gross Margin
Three Months Ended September
Three Months Ended September 30, Three Months Ended September 30, 30,
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 354,326 $ 398,011 (11) % (10) % $ 333,964 $ 364,375 5.7 % 8.5 %
Segment EBIT
Three Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ (34,881) $ (20,950) (66) %
Global Ecommerce revenue decreased 11% (10% at constant currency) in the third
quarter of 2022 compared to the prior year period driven by an overall decrease
in volumes. Cross-border and digital delivery volume declines contributed
revenue declines of 5% and 2%, respectively. The sale of Borderfree in the
beginning of the third quarter also contributed a 4% decline in revenue.
Gross margin decreased $13 million and gross margin percentage decreased to 5.7%
from 8.5% compared to the prior year period. Cross-border gross margin declined
$14 million due to the decline in volumes and the loss of $6 million of gross
margin in the prior year period from Borderfree . Cross-border gross margin for
the third quarter of 2022 benefited from lower transportation costs of $9
million due in part to the revised transportation cost allocation methodology.
Digital delivery gross margin declined $5 million also due to the decline in
volumes. Domestic parcel delivery services gross margin increased $6 million
compared to the prior year quarter; however, the prior year period included an
$8 million charge reflecting the estimated cost of a price assessment.
Segment EBIT loss for the third quarter of 2022 increased
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Revenue Cost of Revenue Gross Margin
Nine Months Ended September
Nine Months Ended September 30, Nine Months Ended September 30, 30,
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 1,166,623 $ 1,229,526 (5) % (4) % $ 1,058,457 $ 1,122,031 9.3 % 8.7 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ (77,402) $ (58,157) (33) %
Global Ecommerce revenue decreased 5% (4% at constant currency) in the first
nine months of 2022 compared to the prior year period due primarily to lower
volumes, partially offset by pricing actions. Cross-border and digital delivery
services volumes contributed revenue declines of 7% and 2%, respectively, which
were partially offset by domestic parcel delivery services contributing revenue
growth of 4% due to pricing actions.
Gross margin was consistent with the prior year and gross margin percentage
increased to 9.3% from 8.7% compared to the prior year period. Domestic parcel
delivery services gross margin increased $34 million over the prior year due to
pricing actions, improved warehouse productivity and an $8 million prior year
charge reflecting the estimated cost of a price assessment. Cross-border gross
margin declined $26 million compared to the prior year period primarily due to
the decline in volumes driven by the strengthening of the U.S. dollar, and a
decline of $15 million from Borderfree , driven in part to the sale of this
business on July 1, 2022 . Digital delivery services gross margin declined $8
million compared to the prior year period primarily due to the decline in
volumes and revenue.
Segment EBIT loss for the first nine months of 2022 increased $19 million to a
loss of $77 million compared to a loss of $58 million in the prior year period,
due to higher operating expenses of $20 million primarily driven by higher
credit card fees of $9 million , higher employee-related expenses of $7 million
and higher credit loss provision of $3 million .
Presort Services
Presort Services includes revenue and related expenses from sortation services
to qualify large volumes of First Class Mail, Marketing Mail, Marketing Mail
Flats and Bound Printed Matter for postal worksharing discounts.
Revenue Cost of Revenue Gross Margin
Three Months Ended September 30, Three Months Ended September 30,
Three Months Ended
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 144,824 $ 139,296 4 % 4 % $ 107,789 $ 103,194 25.6 % 25.9 %
Segment EBIT
Three Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ 20,561 $ 21,062 (2) %
Presort Services revenue increased 4% in the third quarter of 2022 compared to
the prior year period. The processing of First Class Mail and Marketing Mail
contributed revenue growth of 3% and 1%, respectively, primarily due to the
impact of pricing actions.
For the third quarter of 2022, gross margin increased $1 million and gross
margin percentage was relatively unchanged compared to the prior year period.
Segment EBIT decreased slightly compared to the prior year period. Gross margin
and segment EBIT were adversely impacted by lower volumes but these impacts were
substantially offset by pricing actions and productivity improvements.
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Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30,
Nine Months Ended
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 444,302 $ 417,041 7 % 7 % $ 343,745 $ 315,368 22.6 % 24.4 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ 53,044 $ 56,247 (6) %
Presort Services revenue increased 7% in the first nine months of 2022 compared
to the prior year period. The processing of First Class Mail and Marketing Mail
contributed the majority of revenue growth of 4% and 2%, respectively, primarily
due to the impact of pricing actions.
Gross margin decreased $1 million and gross margin percentage declined to 22.6%
from 24.4%. Segment EBIT decreased $3 million , or 6% in the first nine months of
2022 compared to the prior year period. Gross margin and segment EBIT were
impacted by higher transportation costs of $20 million driven by increased
demand, higher fuel costs and higher allocated costs due to the revised
transportation cost allocation methodology, and higher labor costs of $7
million . The impact of these higher costs has been partially offset through
higher revenue driven by pricing actions and productivity improvements.
SendTech Solutions
SendTech Solutions includes the revenue and related expenses from physical and
digital mailing and shipping technology solutions, financing, services, supplies
and other applications to help simplify and save on the sending, tracking and
receiving of letters, parcels and flats.
Revenue Cost of Revenue Gross Margin
Three Months Ended September 30, Three Months Ended September 30,
Three Months Ended
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 19,255 $ 14,077 37 % 38 % $ 10,668 $ 4,610 44.6 % 67.3 %
Support services 107,642 113,413 (5) % (3) % 36,357 37,849 66.2 % 66.6 %
Financing 67,757 71,936 (6) % (4) % 13,692 11,710 79.8 % 83.7 %
Equipment sales 83,528 83,234 - % 4 % 60,125 62,182 28.0 % 25.3 %
Supplies 37,455 38,211 (2) % 2 % 10,470 10,704 72.0 % 72.0 %
Rentals 16,127 17,271 (7) % (4) % 6,211 6,480 61.5 % 62.5 %
Total revenue $ 331,764 $ 338,142 (2) % 1 % $ 137,523 $ 133,535 58.5 % 60.5 %
Segment EBIT
Three Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ 95,234 $ 98,950 (4) %
SendTech Solutions revenue decreased 2%, but increased 1% at constant currency,
in the third quarter of 2022 compared to the prior year period. Support services
revenue declined 5% (3% at constant currency) primarily due to a declining meter
population and shift to cloud-enabled products. Financing revenue declined 6%
(4% at constant currency) primarily due to lower lease extensions as more
clients are deciding to lease new equipment rather than extend leases on
existing equipment. Partially offsetting these decreases, business services
revenue increased 37% (38% at constant currency) primarily due to growth in
subscription services.
Gross margin decreased $10 million and gross margin percentage decreased to
58.5% from 60.5%, primarily due to declines in financing and support services
revenue which have high gross margins. Segment EBIT decreased $4 million , or 4%,
due to the
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decrease in gross margin, partially offset by lower operating expenses of $6
million , due to employee-related expenses, professional fees and credit loss
provision each declining $2 million .
Revenue Cost of Revenue Gross Margin
Nine Months Ended September 30, Nine Months Ended September 30,
Nine Months Ended
Constant
Actual % Currency %
2022 2021 change change 2022 2021 2022 2021
Business services $ 56,342 $ 42,293 33 % 34 % $ 30,408 $ 16,925 46.0 % 60.0 %
Support services 325,619 347,266 (6) % (5) % 110,658 111,172 66.0 % 68.0 %
Financing 207,084 223,201 (7) % (6) % 37,827 35,369 81.7 % 84.2 %
Equipment sales 262,810 256,304 3 % 5 % 186,798 185,474 28.9 % 27.6 %
Supplies 116,761 119,090 (2) % 1 % 32,901 32,383 71.8 % 72.8 %
Rentals 49,810 55,128 (10) % (8) % 18,879 18,940 62.1 % 65.6 %
Total revenue $ 1,018,426 $ 1,043,282 (2) % - % $ 417,471 $ 400,263 59.0 % 61.6 %
Segment EBIT
Nine Months Ended September 30,
Actual %
2022 2021 change
Segment EBIT $ 295,374 $ 320,541 (8) %
SendTech Solutions revenue decreased 2% (flat at constant currency) in the first
nine months of 2022 compared to the prior year period. Support services revenue
declined 6% (5% at constant currency) primarily due to a declining meter
population and shift to cloud-enabled products. Financing revenue declined 7%
(6% at constant currency) primarily due to lower lease extensions as more
clients are deciding to lease new equipment rather than extend leases on
existing equipment. Partially offsetting these decreases, business services
revenue increased 33% (34% at constant currency) primarily due to growth in
subscription services.
Gross margin for the first nine months of 2022 decreased $42 million and gross
margin percentage decreased to 59% from 61.6%, primarily due to declines in
financing and support services revenue which have high gross margins. Segment
EBIT decreased $25 million , or 8%, due to the decline in gross margin, partially
offset by lower operating expenses of $14 million , due in part, to lower
employee-related expenses, lower professional fees, lower credit loss provision
and other cost savings.
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UNALLOCATED CORPORATE EXPENSES
The majority of selling, general and administrative (SG&A) expenses are recorded
directly or allocated to our reportable segments. SG&A expenses not recorded
directly, or allocated to our reportable segments, are reported as unallocated
corporate expenses. Unallocated corporate expenses primarily represents
corporate administrative functions such as finance, marketing, human resources,
legal, information technology and innovation.
Three Months Ended September 30, Nine Months Ended September 30,
Actual % Actual %
2022 2021 change 2022 2021 change
Unallocated corporate expenses $ 42,908 $ 49,176 (13) % $ 141,537 $ 162,957 (13) %
Unallocated corporate expenses decreased $6 million in the third quarter of 2022
and $21 million in the first nine months of 2022 as compared to the prior year
periods primarily due to lower variable compensation expense.
CONSOLIDATED EXPENSES
Selling, general and administrative
SG&A expense for the third quarter of 2022 declined$15 million compared to the prior year period, primarily due to lower variable compensation expense of$8 million , lower professional fees of$5 million and lower credit loss provision of$2 million . SG&A expense for the first nine months of 2022 declined$20 million compared to the prior year period, primarily due to lower variable compensation expense of$24 million and lower professional fees of$4 million , partially offset by higher credit card fees of$9 million . Research and development (R&D)
R&D expense for both the third quarter and first nine months of 2022 declined
Restructuring charges
Restructuring charges, consisting of costs for employee severance and facility closures, were$4 million for the third quarter and$13 million for the first nine months of 2022. See Note 9 to the Condensed Consolidated Financial Statements for further information.
Other (income) expense
Other (income) expense for the third quarter of 2022 includes a$4 million gain from the sale ofBorderfree and a$4 million gain from the receipt of deferred proceeds related to the 2021 sale of a business. Other (income) expense for the first nine months of 2022 also includes a$14 million gain from the sale of ourShelton, Connecticut office building, a$3 million gain from the 2019 sale of a business and a charge of$5 million from the early redemption of debt. See Notes 7, 10 and 16 to the Condensed Consolidated Financial Statements for further information.
Income taxes
The effective tax rate for the three and nine months ended
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2022 , we had cash, cash equivalents and short-term investments
of $607 million , which includes $152 million held at our foreign subsidiaries
used to support the liquidity needs of those subsidiaries. Our ability to
maintain adequate liquidity for our operations is dependent upon a number of
factors, including our revenue and earnings, our clients' ability to pay their
balances on a timely basis, the impacts of changing macroeconomic and
geopolitical conditions and our ability to manage costs and improve
productivity. At this time, we believe that existing cash and investments, cash
generated from operations and borrowing capacity under our $500 million
revolving credit facility will be sufficient to fund our cash needs for the next
12 months.
Cash Flow Summary
Changes in cash and cash equivalents were as follows:
2022 2021 Change
Net cash from operating activities $ 9,229 $ 216,174 $ (206,945)
Net cash from investing activities 16,391 (111,686) 128,077
Net cash from financing activities (136,180) (291,849) 155,669
Effect of exchange rate changes on cash and cash
equivalents (25,273) (4,940) (20,333)
Change in cash and cash equivalents $ (135,833) $ (192,301) $ 56,468
Operating Activities
Cash flows from operating activities in 2022 declined $207 million compared to
the prior year period. This decline was driven in part by lower collections of
accounts receivable in 2022 compared to 2021 as we began 2022 with less
receivables available for collection compared to the beginning of 2021. Also
contributing to lower cash flows was increased payments of accounts payable and
employee payroll due to timing, higher income tax payments, higher interest
payments due to increases in variable rates, a postage payment in 2022 related
to a 2021 volume-related vendor price adjustment and higher inventory levels
built up in 2022 in anticipation of future demand and to mitigate against supply
chain risks.
Investing Activities
Cash flows from investing activities for 2022 increased $128 million compared to
the prior year driven by higher proceeds from the sale of businesses and assets
of $131 million primarily due to the sale of Borderfree ($93 million ) and our
Shelton, CT office building ($51 million ) and lower capital expenditures of $43
million . These improvements were partially offset by payments of $49 million for
the settlement of foreign currency exchange contracts. We enter into foreign
currency exchange contracts with third-parties to offset the earnings volatility
caused by changes in foreign currency exchange rates and the revaluation of
intercompany loans denominated in a foreign currency. Although there is minimal
impact to our reported earnings, the settlement of these derivative contracts
result in cash outflows or inflows.
Financing Activities
Cash flows from financing activities for 2022 improved$156 million compared to the prior year primarily due to lower net repayments of debt of$121 million and lower premiums and fees paid to refinance debt of$45 million , partially offset by$13 million of common stock repurchases.
Financings and Capitalization
During 2022, we have reduced debt by$113 million , primarily from the redemption of the remaining$90 million of outstandingApril 2023 notes and scheduled term loan repayments of$18 million . TheApril 2023 notes were redeemed in March and a$5 million pre-tax loss was recognized.
The credit agreement that governs our
The PB Bank (the Bank), a wholly owned subsidiary, has become a member of theFederal Home Loan Bank (FHLB) ofDes Moines . As a member, the Bank has access to certain credit products as a funding source known as "advances." As ofSeptember 30, 2022 , the Bank had yet to apply for any advances. 39 -------------------------------------------------------------------------------- Each quarter, our Board of Directors considers whether to approve the payment, as well as the amount, of a dividend. There are no material restrictions on our ability to declare dividends. We expect to continue to pay a quarterly dividend; however, no assurances can be given.
Contractual Obligations and Off-Balance Sheet Arrangements
As ofSeptember 30, 2022 , we have entered into real estate and equipment leases with aggregate payments of$104 million and terms ranging from three to seven years that have not commenced. Most of these leases are expected to commence in the fourth quarter of 2022 and some into 2023. AtSeptember 30, 2022 , there are no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on our financial condition, results of operations or liquidity.
Critical Accounting Estimates
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or sooner if circumstances indicate an impairment may exist. The impairment test for goodwill determines the fair value of each reporting unit and compares it to the reporting unit's carrying value, including goodwill. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, the goodwill impairment loss is calculated as the difference between these amounts, limited to the amount of goodwill allocated to the reporting unit. We determined that the agreement to sellBorderfree was a triggering event that indicated an impairment may exist. Accordingly, we performed a goodwill impairment test of the Global Ecommerce reporting unit to assess the recoverability of the carrying value of remaining goodwill. We engaged a third-party to assist in the determination of the fair value of the reporting unit. The results of our test indicated that no impairment existed; however, the estimated fair value of the Global Ecommerce reporting unit exceeded its carrying value by less than 20%. The determination of fair value relied on internal projections developed using numerous estimates and assumptions that are inherently subject to significant uncertainties. These estimates and assumptions included revenue growth, profitability, cash flows, capital spending and other available information. The determination of fair value also incorporated a risk-adjusted discount rate, terminal growth rates and other assumptions that market participants may use. Changes in any of these estimates or assumptions could materially affect the determination of fair value and the associated goodwill impairment assessment. Potential events and circumstances that could have an adverse effect on our estimates and assumptions include, but are not limited to, declining revenue, our inability to grow volumes, gain additional economies of scale and improve profitability, continued increases in costs and rising interest rates. The goodwill balance related to the Global Ecommerce reporting unit atSeptember 30, 2022 was$339 million . We will continue to monitor and evaluate the carrying value of goodwill for this reporting unit, and should facts and circumstances change, a non-cash impairment charge could be recorded in the future.
Regulatory Matters
There have been no significant changes to the regulatory matters disclosed in our 2021 Annual Report.
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