Ladies and gentlemen, good afternoon, and welcome to the Pitney Bowes Third Quarter 2011 Earnings Results Conference Call [Operator Instructions] 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 your speakers for today's conference call: Mr. Murray Martin, Chairman, President and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President and Chief Financial Officer; and Mr. Charles McBride, Vice President, Investor Relations. Mr. McBride will now begin the call with a Safe Harbor overview.

Thank you. 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 2010 Form 10-K annual report and other reports filed with the SEC that are located on our website at www.pb.com by clicking on Our Company and then our 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. Now our Chairman, President and Chief Executive Officer, Murray Martin, will start with an overview of the quarter. Murray?

Thanks, Charlie. Good afternoon and thanks for joining us. Let me start by sharing some thoughts on our performance, and Mike will follow with the details on our third quarter results and I will discuss our guidance for the full year. Afterwards, we will take your questions. Our performance this quarter reflects both the adverse impact of sustained economic uncertainty on most of our global customer base, as well as the positive effect of our Strategic Transformation initiatives. We experienced revenue weakness throughout much of our business as the global economic environment affected buying confidence and delayed some capital and lease commitments. The notable exception was our Software business, which experienced a 15% increase in revenue during the quarter. This growth was fueled by strong demand for our software solutions, particularly in the Americas and Asia-Pacific. We are pleased that the ongoing execution of our Strategic Transformation initiatives enabled us to improve the profitability in the third quarter despite the revenue challenges. During the quarter, EBIT and EBIT margin grew in International Mailing, Software and of Mail Services, and the EBIT margin also improved in North America Mailing. Excluding the impact of the insurance reimbursement we received this quarter, presort network efficiency gains drove ongoing improvement in EBIT at Mail Services. The net insurance recoveries during the quarter neutralized the losses we experienced in the first 2 quarters of the year related to the Dallas fire. Before I turn it over to Mike, to discuss the quarter, let me address some of the conflicting public perceptions and media reports about the mailing industry. This past year, the U.S. Postal Service delivered nearly 170 billion pieces of mail and helped sustain a $1 trillion mailing industry, which underscored the vital role it plays in the economy and in our society. It…

Thank you, Murray. Our revenue for the quarter was $1.3 billion, a decline of 3% on a reported basis when compared with the prior year. Currency this quarter was a 2% benefit to revenue. As Murray noted, revenue was adversely impacted this quarter by heightened economic concerns among many of our customers especially some of our larger customers who have delayed making capital investment commitments. Breaking down our revenue for the quarter between U.S. and non-U.S. operations, U.S. revenue declined by about 6%. Outside the U.S., revenue on a reported basis increased 3% versus the prior year, while excluding the impact of currency, revenue declined 4%. Non-U.S. operations represented 31% of our total revenue. Let me give you a quick update on the status of our recovery from the fire last February at our Dallas presort facility. As I stated last quarter, a new site was quickly identified after the fire and outfitted with state-of-the-art equipment. Less than 5 months after the fire at the end of June, the new permanent facility opened its doors. In August, the new facility achieved operational efficiency comparable to the original Dallas site. We have continued to work closely with our insurance carriers to resolve our claims related to the fire. During the quarter, we received from the insurance carriers additional reimbursements related to the fire that included compensation for the lost earnings, we experienced in the first 2 quarters of the year which were about $15 million or $0.05 per share. Accounting rules are such they were unable to offset the estimated $19 million in lost revenue we experienced with any of the insurance proceeds. We expect to finalize our remaining claims with the insurance carriers shortly. Turning to adjusted earnings before interest and taxes or EBIT for the quarter, it was $235…

Thanks, Mike. Turning to our full year outlook. We are modifying our guidance to reflect the number of factors, which Mike discussed, including our results year-to-date. We now expect 2011 revenue in the range of minus 3% to minus 4%, excluding the impacts of currency. We're also narrowing our 2011 guidance for adjusted earnings per diluted share from continuing operations to reflect the impact in the third quarter of the tax settlement with the IRS for tax years 2001 through 2004. We now expect adjusted earnings per diluted share for the year in the range of $2.30 to $2.35. We are also narrowing our 2011 guidance range for GAAP earnings per diluted share from continuing operations to a range of $1.89 to $2.04. The change in the GAAP guidance range also reflects asset impairment and goodwill charges for International Mail Services, as well as the sale of a leveraged lease in Canada. The above range does not include results from discontinued operations. In the fourth quarter, we reached agreement with the IRS on the tax treatment of a number of issues and agreed to tax -- revised tax calculations as part of the negotiations to settle a 2005 to 2008 IRS tax examination. As a result, we will recognize an income tax benefit of at least $30 million in the fourth quarter with approximately $5 million recorded in discontinued operations. The impact of this agreement with the IRS is not included in our earnings guidance for the year. We are increasing free cash flow guidance for the year by $100 million and now expect to generate free cash flow for 2011 in the range of $850 million to $950 million. This is based on our free cash flow to date and expectations for the fourth quarter. We are making progress on our journey to transform our ability to deliver sustained and long-term value for customers and shareholders. We remain confident in the actions we are taking, focused on enhancing the customer experience and committed to investing in the growth of our business. Thank you. Now let's open the line for questions.

[Operator Instructions] Your first question will come from Shannon Cross with Cross Research.

I've got a few questions for you. The first is on linearity during the quarter and actually I'll sort of combine -- can you talk about linearity, as well as specific verticals that were weak during the quarter and probably, more importantly, ones that you expect weakness from, whether it's geographic or verticals during fourth quarter?

We certainly saw an effect from Europe with the change in the ongoing debt discussions in the third quarter and also in North America on a large ticket items. So this particularly affected DMT, which has the large capital expenditures. We also would note in the quarter that there was a lot of discussion about the Postal Service which affected our core business in the quarter. We are seeing changes as that has really started to die down in the -- as a hot topic in the media, but it definitely had some impact in the quarter.

What specifically -- what slowed, I guess, within the comments about the Postal Service issue, like what specific business lines?

That would be across the mailing businesses particularly DMT and our traditional mailing business. The concern of customers in misreading the communication as to the viability of the Postal Service and its ability to survive were main items that customers were discussing and they wanted clarity before signing into long-term contracts.

Okay. That makes sense. And linearity?

Shannon, I think if you look at the constant currency base of revenue, second quarter to third quarter, they're actually quite similar in terms of overall revenue. So a part of it is a comparison to the prior year but to Murray's comment, it's really around the equipment sales line particularly the large ticket DMT equipment and to some extent, in the U.S. Mailing business. When you look at the recurring revenue streams, if you recall when we gave guidance at the beginning of the year, we said we expected an impact from the -- impact on the recurring revenue streams to be about $0.25 to $0.30 for the year. If we look at year-to-date, it's about $0.20 and in the third quarter, about $0.07. So it's tracking right in line with what we had given as guidance originally and the third quarter is pretty much in line with the first half of the year. So there's puts and takes within the line items, but those line items generally are tracking to what our original view of them were. So the biggest variance here is around the equipment sales side.

Okay. And then, can you maybe just -- Mike, can you walk us through the guidance from an EPS standpoint for fourth quarter just on an apples-to-apples basis because there's so much in and out. So if you think about where consensus was for fourth quarter, which I had in front of me but just happen to close, how should we think about what you're guiding to now relative to that number?

Sure. So if you look at our numbers, what we've done is taken the reported 3 quarters, and then adjusted our guidance range obviously for the fact that we're through 3 quarters of the actual, as well as in effect the $0.08 that is included for the gain on the tax settlement that was included in adjusted earnings. That's the really the only variance, it's that $0.08. The $0.05 in the quarter for Mail Services is just a recovery of the earnings we lost in the first half of the year. So the way I would look at the guidance is the 3 quarters of adjusted earnings and then obviously our full year guidance, which is the revised guidance we gave.

Okay. Great. And one last question, it's just on share repurchase. How are you thinking about share repurchase going forward? And what was your ending share count -- or the average for the quarter in the ending share count?

The average for the quarter on a fully diluted basis was I think $203 million and we were I think just below $200 million on actual account basis. In terms of terms repurchase, we kind of look at that as the option on the end with our cash flow. Actually that in the quarter it was $202 million not $203 million but in terms of the cash flow at the end of the day, we look at share repurchase as one of those variables. We have bought $100 million this year. We have $50 million remaining. And consistent with what our original authorization was, we look at whether we would acquire that over the next 3 to 9 months.

Right. And but I guess, there's no change of sort of your thoughts from the long term standpoint with $850 million to $950 million in cash generation, that this remains a focus?

I would say that hasn't changed our perspective on it.

Our next question in queue, that will come from the line of Ananda Baruah with Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: I guess just a couple along the same lines, if I could. Just on the verticals where you saw Production Mail be softer than expected. Can you talk about some of the specific verticals where you may have seen softness there?

In particular, what we saw is financial services having some hold back as they looked at what the debt situation was around the world and their potential effects. So we've seen some hesitancy in that sector in particular. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Okay. And I guess, Murray, what's the best way for us to think about -- as we think about sort of past December quarter, I mean, when we think about sort of what the trends may -- maybe going into 2012? I mean is it best right now based on your conversations with customers not to expect that, that comes back anytime soon, or are we sort of in a wait-and-see pattern there? Are they in a wait-and-see pattern?

I think if you look on an annualized basis rather than a quarterly, and realize that with the volatility in markets, there are things that affect periods. But over the longer term, I think that the trends will stay consistent because these assets generate savings in cost and enhanced stability for them to communicate with their customers. So I don't see these as long-term deferrals but they are large ticket and have quarter-to-quarter impacts. So what I'd look at is the annual and realize that it will shift on periodic basis as you have economic swings that occur, but I don't think on the long-term, it will have a material effect. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Okay. That's helpful. And then just on the guidance, may be Mike or Murray, it seems as though you guys are guiding for about, I mean sort of flattish revenue Q-over-Q to get to your annual guidance of between the -- down 3% to 4%?

Well, remember that our guidance is on a constant currency basis and through the 3 quarters, we're in that 3 to 4 range. So that's why we guided the way we did on an annual basis. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Right. And I guess that's was my next question. What did you guys have baked in terms of FX impact into the Q4 guidance right now?

Well, again, the guidance is on a constant currency basis so we're not factoring it into that. The 9 months to date is about 3.5% constant currency versus the reported that you see. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: I got it. I got it. Okay. And a couple more if I could then I'll get back in the queue. Just a clarification on Shannon's question. So should we use, for September quarter -- Mike, in the context of your guidance, should we be using $0.61 for the September quarter?

You would take the $0.69 less the $0.08 of the IRS, that would give you $0.61, correct. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Got it. And then just a last one for me for now. So can you just talk about sort of what's going on with the production operating margins, and should we expect a net loss -- operating losses in December quarter as well or is there anything you can do to sort of in the near-term, to clean that up a bit?

Yes, there's a couple of things associated with that. One is that, remember that the expenses for Volly are included in the Production Mail segment for reporting purposes, so that's obviously pure investment that's going on today. That really doesn't affect the Production Mail business directly in terms of its sale of equipment, but those expenses are included there because we're leveraging that customer base. So that's number one. Number two is that this business tends to have its strongest quarter in the fourth quarter in terms of seasonality within the year. So it tends to be a business where you see leverage off the revenue. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Okay. Great. So it sounds like we should expect some sort of profitability -- we can expect some sort of profitability in the fourth quarter in Production Mail?

If you were to take the Volly expenses out in the third quarter, I think it would be net marginally profitable to begin with in the third quarter. So, fourth quarter, if the revenue is higher, that would generate some leverage.

[Operator Instructions] And our next question in queue will come from Chris Whitmore with Deutsche Bank.

I wanted to ask about the weakness in the SMB North American Mailing business. That performed a bit worse than I expected. And it looks like it's a combination of both equipment placements in addition to -- or meter placements in addition to the recurring streams. Can you kind of flush out, number one, what's your seeing in terms of meter demand and meter placements? And then number two, where are we in the lease renewal cycle and the echo from the previous upgrade cycle?

So I'll cover the first part, Chris. On the meter renewal cycle in the third quarter was one of the softer quarters on the leases that are available. That begins to start moving more a little more positively as we move forward but that was sort of the -- a negative effect in that area. We have seen a positive trend in renewals. So there are more on a percentile being renewed. We did see the lease extensions continue in the third quarter at a little higher rate than we expected and I think that has to do with my comments about all the press around the postal service. I think we'll see that beginning to abate in the fourth quarter and as we go into next year, as the Postal Service is now beginning to start to talk positively about mail, and is starting to actually put advertising and marketing out about the value of mail and different programs to stimulate mail. So I think we'll start to see -- we'll see a reduction in the negative impact that we had in the third quarter and attending towards more positive feel about mail. On the second part of your question, Mike?

Yes. In terms of the recurring revenue streams within the core mailing business, we did see, and again, it’s a bit of a mix bid, we did see supplies down a little bit in terms of greater than the trend line in part because of the lower equipment sales. Rental and support services, we've seen that kind of -- particularly rentals level off in terms of the trend of decline in that business so it's been relatively stable. And support service is actually improving with finance a little bit negative, again, more associated with the equipment sales than anything else. But net-net, again, we're seeing the trend in the recurring revenue streams in line with what our original annual guidance was.

So that annual guidance implies $0.35 to -- I'm sorry, $0.25 to $0.30 of EPS hit this year. Should we expect the same kind of a headwind for 2012 earnings?

We obviously haven't given 2012 guidance yet. I think as we talked about this originally, we would expect to see a diminishing impact on recurring revenue streams based on what we saw '10 to '11 and then we would expect to see that diminish further '11 to '12.

When I look at the recent trends in terms of meter placements, et cetera, it seems to suggest your install base continues to decline at about that mid-single-digit rate year-on-year. Is that fair, first? And then secondly, should we expect the similar kind of trend in the recurring streams going forward in terms of a mid-single-digit rate of decline?

I think that the numbers are the numbers but it's really mix that affects revenue. And as we stated, Connect+ is continuing to be a bigger and bigger part, which is a larger ticket and so you're seeing a shift in our focus on the customers themselves and a much heavier focus on the up-market as we have products that go beyond Mail that include mail, shipping, tracking, et cetera. So we're seeing a continued uptake in the larger ticket. We expect to see that continue on an ongoing basis and we would also expect to see that some of the shift-out that has occurred in mailing to start abating as we go forward.

I would just add to that, Chris, that at the low end, where -- that which influences those meter account numbers, there has been real lack of new business formations that we normally see out of a recovery. And so, we haven't added as much of that and in -- quite honestly, haven't marketed it as aggressively at that end without seeing the new business formations. As the general economy turns and we start to see that pick up, then we would look back to that segment for additional opportunity.

[Operator Instructions] And we have a follow-up from Ananda Baruah with Brean Murray. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: I guess, Murray, a couple of things, can you talk about, now that we're getting closer to the end of the year, any potential opportunity or incremental cost savings as you move into '12? Are there any areas that you guys are beginning to identify where you could see some cost savings above and beyond the current guidance, the $250 million to $300 million?

Well, I think as we've stated for some time, we are and we'll always continue to be focused on enhancing our productivity, and that will continue on every quarter on a go-forward basis. We have been saying that we are coming to conclusion of the program that we have been in, that won't change our focus on cost and usually towards the end of the program, there is more things that do come forward. But it wouldn't be -- I don't think we could predict that at this time. Certainly as we get another 30 days in to the quarter, we'll have a pretty good idea what other areas, business units will come forward with. But it is and will continue to remain -- our priority is to continue to reduce our cost base, so that we can enhance our margins and then gain leverage as the revenue begins to swing. We would expect to get better leverage to the bottom line. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Got it. That's helpful. And I guess, just as we think about the cash flow model for '12, even if it's too early to sort of give guidance. It seems like you have softer revenues, but may be you can get -- you should have some bit of ongoing improvement on margins on those revenues. Is that the right way to think about it? And then I guess just a couple of other buckets. How should we think about CapEx? And there are a lot of -- or there have been this year at least, a lot of moving parts on one-time items. So I guess, are there any one-time items that are cash impacted that we should think about that could influence '12?

Yes, in terms of CapEx, our spend this year is pretty much in line with last year with the one incremental investment in replacing the Dallas facility. So we're tracking to our original expectations around that and I don't anticipate anything at this point in time that would dramatically change that outlook as we go forward in terms of capital needs. In terms of cash flow, again, we tend to look at these things on an annualized basis. The timing of tax payments in this case in 2011 where we may have the delay of taxes from third to fourth quarter, we don't think that's an annual differential. We do have some cash that we received on the levered net cash flow received on the levered leased transaction as an incremental item. But beyond that, there's not a lot that would change our overall expectations on cash flow. Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division: Okay. And actually, just one last one if I could here. Mike, the remaining insurance claims that you guys have, is that -- do you expect to get that in Q4 and is that baked into the Q4 guidance?

Any additional claims we get are not likely to have a P&L impact. It would really be reimbursement for assets that we've invested in, in terms of the facility that we've replaced. But we have not baked that into our expectations at this point.

[Operator Instructions] And along a few moments, I'm showing no additional questions in queue. Please continue.

Sure. During the quarter, sustained global economic uncertainty impacted our revenue with a notable exception of Software, where strong demand drove a 15% increase. Our Strategic Transformation initiatives enabled us to improve profitability in the quarter despite the revenue challenges. With the EBIT and EBIT margin improvement in International Mail Software and Mail Services and the EBIT margin improvement in North America Mailing, we've also seen continued progress with Volly, as we continue to sign our third-party mailers. We have positioned ourselves to leverage the growth opportunities in the total delivery channel as we look at physical, digital and hybrid. We remain confident in the actions we're taking as we make progress on our journey to deliver long-term value for our shareholders and customers. Thank you and have a great quarter.

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