Good morning and welcome to the Pitney Bowes fourth quarter and year-end 2012 results conference call. Your lines have been placed in a listen-only mode during the conference until the question-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 your speakers for today’s conference call, Mr. Marc Lautenbach, 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. Please go ahead.

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 2011 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 section. Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. Also for non-GAAP measures used in the press release or discussed in this presentation, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally, we have provided slides that summarize most of the points we will discuss during the call. These slides can also be found on our Investor Relations website. Now our President and Chief Executive Officer, Marc Lautenbach will start with a few opening remarks. Marc?

Thanks, Charlie, and good morning, everyone. Let me start by thanking all of you for joining our discussion of the fourth quarter and full-year earnings. I’ve been at Pitney Bowes a little less than 60 days now. In that time, I’ve learned a tremendous amount about our company, about our capabilities. But as you would guess, it would be premature for me to declare a new strategy for our company at this early date. I will, however, help you begin to understand the lend through which I am working at the business by telling you a little bit more about my background at IBM and what I’ve been doing since I’ve been here at Pitney Bowes. Two-thirds of my executive career at IBM was in small and medium business. I had pretty much every executive role there was inside that business. I had substantial roles in our inside sales organization, which was responsible for the preponderance of our relationships and account management. I had substantial positions in marketing and in 1998 I moved to Asia to run our small and medium business operation in Asia Pacific. And finally in 2001, I was named general manager of small and medium business for all of IBM responsible for all of our operations. In that time, we completely redesigned our strategy. We reengineered the go-to-market using telesales, third parties and the web, dramatically increasing our reach into the market driving efficiencies and ultimately better client service. We created the express product line, a product line designed specifically for the mid market. And we moved substantial resources to growth. The net result was that SMB business at IBM became a substantial contributor to IBM’s top and bottom line. More recently, I was a managing partner of IBM’s consulting and systems integration business in North…

Thanks, Marc. This morning we reported results for the fourth quarter and full year 2012. During the quarter, we had growth in four of our business segments, and we expect some of these positive trends to continue into 2013. I’ll discuss those trends in more detail as I take you through the results of each of the business segments. Additionally, our board of directors approved a first quarter dividend of $0.375 per share for our common stock. Before we get started, though, I want to remind everyone that as we announced last quarter, we intend to sell our International Mail Services business, which was part of our Mail Services segment. As a result, this business is now treated as a discontinued operation, and therefore our results for 2012, 2011, and 2010 have been restated to reflect this. Restated financials by quarter can be found on our investor relations website. Now let me take you through the results. The fourth quarter revenue totaled $1.3 billion, a decline of 1% compared to the prior year, on both a reported and constant currency basis. This quarter’s decline in revenue was the lowest year over year rate of decline in five quarters. Revenue benefited from growth in the international segment of our mailing business, our software business, management services, and mail services. However, revenue was adversely impacted by the decline in recurring revenue streams in our mailing business, but at a lower rate of decline than in the prior year. Adjusted earnings per share from continuing operations for the quarter were $0.56, compared with $0.98 per share for the same period in 2011. 2011 adjusted EPS from continuing operations included a $0.37 per share benefit related to favorable tax settlements last year. GAAP earnings per diluted share for the quarter were $0.55. GAAP EPS…

(Operator Instructions) Your first question comes from the line of Blaine Marder – Loeb Capital Management.

Now, Marc, as you start with a clean sheet of paper, as you know, the stock is down over 55% in the last five years. Can you give us a sense of, one, your timing in terms of reaching certain strategic decisions what work you have left to do before you can do that and, two, give us a window into your thinking and the board in terms of strategically addressing certain issues at the company such as debt levels, the level of the dividend, asset or business sales and restructuring, implementing some restructuring? Can you give us a window into your and the board, at least initial thoughts and thinking?

So lots in that question – let me first state the obvious point that strategies are evolving and ongoing. So you ought to expect that we continue to clarify our strategy going forward. But I would caution you to not think that there’s going to be an epiphany that will be delivered upon the market. We will have more to say about our strategy for the respective businesses and our financial strategy in the investor meeting in May. In terms of the second part of your question about capital structure and dividend, divestitures, acquisitions, I’ll let Mike comment more detailed but the prison that we’re working through all of those decisions is how is it that we create the maximum shareholder value? So it is not lost on anyone around here, the board of directors or the leadership team what’s happened to the stock price. So as we think about those decisions going forward, it is through the lens of how it is that we create more shareholder value going forward. So I’ll let Mike elaborate further.

Yes, Blaine, in terms of capital allocation, obviously we look at the needs of the business. We look at the balance of returning cash to shareholders as well as looking at the debt ratings and our access to the capital markets and have taken an approach there to balance those over time and use a different mix as appropriate for the opportunities and all in the business. So as Marc said, we’ll continue to evolve that as a strategy as the business evolves, and obviously keep people posted on that.

Okay, and finally, Mike, to what do you attribute this slowing decline in both recurring revenues as noted earlier equipment sales? Is it economy-driven, or company-specific initiatives, or a little of both?

I would say it’s somewhat of both. We have a situation where we’ve brought some new products to market in the form of Connect+. We’ve rolled that out globally. We’ve obviously been very focused on customer retention in the business as well. And we are seeing really a maturing of the lease base in particular, where we have really about four years now elapsed from the time that we saw a real drop off in the economy to that kind of moving through the base, and that’s why we expect to see some continued improvement in the trend in the underlying recurring revenue streams. And obviously getting some growth on the enterprise side has been a benefit as well.

We’ll go to the line of Ananda Baruah with Brean Capital. Please go ahead.

I guess just following up on the last question, what might be sort of your basic set of philosophies surrounding your business, and what might be some of the things that, for you, after 60 days, sort of might seem like they might fit well with Pitney or be the most obvious for you to bring to bear on the business as you get started? And then I have a couple follow ups.

In terms of philosophy, I’m not sure it’s anything that’s terribly divine. I do look at the business through three different lenses. The first is, foundationally, how do our clients see our business? Second, how do our employees see our business? And finally, how do our shareholder see the business? And you work to balance the interest of those three constituents to drive value, to drive value for the clients and drive value for the shareholders. So that’s kind of the foundation of how I’m looking at the business. And as I said at the outset, when I describe my experiences in small or medium business, in terms of how I we reengineered the go-to-market, how it is that we created new products, how it is that we moved resources to growth areas, are all experiences that I’ve had in my previous life that color how I think about the small or medium business inside of Pitney Bowes. In terms of the enterprise business, obviously my most recent responsibilities inside of IBM were in our GBS business, our consulting and systems integration business, which is a services business. We had deep relationships with many software companies, so I understand those businesses from the client as well as the development forward. So we’ll move forward. Right now we’re focused on executing the first quarter, and we’ve got plenty to do in the next 90 days to drive value for our clients and for our shareholders.

And just with regard to the guidance, can you and Mike maybe talk to what you see as the drivers of the revenue growth for next year? Growth would be a pleasant change. And maybe talk about which segments you expect to grow and those drivers of that. And then I guess it seems like if you do grow revenue next year, it seems like the EPS guidance would imply margins actually being softer, just at a higher level. And could you sort of talk to that as well?

Sure, I’ll take that one. And yes, we would all appreciate revenue growth. The growth will likely come as I noted on the enterprise side. We’ve seen a continued improvement in the management services business and positive growth there. We see the software business as being able to contribute to that growth as well. And our newer initiatives, particularly around ecommerce and print outsourcing both have the potential to contribute to growth. As we noted on the SMB side, or the mailing side of the business, while we’ll still have some impacts on the recurring revenue stream, the natural migration of the lease base, we do expect that to moderate more and we do expect there to be less of an impact as we go out over the course of the year from both the level of CP or lease extensions that we do as well as more moderation in the lease space. Those are the major drivers. With respect to the margins, it’s obviously more of a mix shift between the higher margin mailing business versus growth in some of the enterprise businesses like management services as well as some of the investment we’re doing to ramp up some of the new growth initiatives.

And then just the last one for me, you announced the approval of a dividend but you didn’t raise the dividend. I think this is the first time in a while. So does that signify any kind of shift in the dividend policy or is that reading into it too much?

Yes, as we’ve said in the past, the board reviews and approves the dividend each quarter and we kept it flat in the first quarter in part to allow Marc to complete his strategic review of the business and we expect to make capital allocation recommendations in line with that strategic and in line with opportunities and business as we go forward.

Your next question comes from the line Scott Wipperman – Goldman Sachs.

Mike, I think you mentioned in your comments about some of the success of the Connect+ machine in your international mailing business. I guess first, is there a reason why you’re seeing better success with that in the international markets versus North America?

Yes, there is a reason and that’s a product that has to get approved market-by-market around the world and it was most recently approved in France which has generally been one of the later markets to get the product approved in. It is a large mailing market. It’s the second largest actually in the world to the US. And so the launch of that in France has been well received and Germany was the market just before France, so again, we’ve seen good pickup of that product there.

And Marc, maybe just some initial thoughts from you just how you view some of these software investments. I guess specifically I’m wondering your views on the (Vali) initiative.

I think the – and obviously as I said, I’m 60 days into this, so I’m still learning. I’m very pleased, I’ll say at the outset, to walk into a company that has a set of software assets that I think can be the basis for our growth going forward. And the interesting thing about the software business is to me is that as you grow those businesses from a margin perspective, you actually mix up, so you can increase your margins for the company as you drive more and more software growth and that’s no easy feat given the great job that the company’s done on margins live to date. So I think that’s a really interesting dynamic. I think the software business is, going forward, should be a substantial part of our growth strategy and the part that’s most intriguing to me is to look at the technologies and the technology threads that run through our core business. You think of the meters all the way through the software business and how it is you drive synergies. So I’m excited. I think there’s good opportunities there. We do have more to do in terms of completing my strategic review of how we assemble those in a way that drives value for our clients and, importantly, our shareholders. And I think there’s some things that are distinctive about Pitney Bowes that we can do that with those assets. (Vali), right now we’re heads down, completing our commitments to Australian Post and that’s – you’ll see that my focus can be very balanced between strategy and execution. And right now on (Vali) we’re about execution in terms of delivering our commitments and we’ll say more about how we go forward in the next 60 to 90 days.

And then just one last one – just, Mike, we’ve seen some peers that have finance receivable porfolios, look to rightsize those portfolios, divest some blocks of assets and receivables. Is that something that you guys are all looking at? And I guess if you could just share how much cash generation came from the receivables in the quarter.

In terms of looking at the portfolio, we have looked at it periodically over time, in terms of ways for potentially securitizing or otherwise… Actually, many years ago we did some things like that. It’s not terribly tax-effective for us to do that today, and quite honestly, we find it valuable to have that linkage of the credit availability for our customers within our business model. So that’s something we continue to evaluate, but don’t have an immediate plan around. In terms of the finance receivables, it was very minimal, only about a $3 million contribution to cash flow in the quarter. So relatively flat balances year over year.

We will go to the line of Kartik Mehta with Northcoast Research. Please go ahead.

Could you expound on the areas of investment you’d have going into 2013, what the three areas are, and how that compares to 2012? Are there areas where you’re maybe investing more in 2013 or less compared to 2012?

Yeah, there’s a couple of key areas of investment. Obviously we plan to continue to invest in Volly, and we’ve assumed an investment level consistent with 2012. So we don’t expect that to be a variance year over year. But we continue to make meaningful investment in that. As I mentioned, we have begun to implement our ecommerce program, and we’re investing in building out for the technology and delivery platform around that business in terms of delivering with eBay, a very substantial product offering to their user base. And we began that rollout in the fourth quarter and we’ll continue that throughout 2013. Obviously we continue to invest in R&D across our business, and we expect R&D levels to be similar to what they were in 2012. Those are some of the key investment areas.

So, Mike, in the ecommerce, can you talk about maybe the level of investment, maybe the dollars, how that’s impacting margins right now until that product becomes something that’s generating revenue and margins for you?

Sure. As I mentioned there was about a $2 million incremental investment in the fourth quarter. Obviously as we build out that platform, as the volumes scale, we will see margin improvement in that business with the scaling of volumes. But part of the reason I talked about first half expenses being higher than second half expenses is because we expect there to be an investment period in the first half of the year, and assuming that those volumes ramp as expected, then that could be a contributor in the second half of the year.

And then on the free cash flow side, as we move forward and hopefully it continues to drive revenue, will there be a period of time where you anticipate cash flow to be somewhat flat because of some of the lack of benefit from the finance receivables? Or should free cash flow once again begin to improve as the revenue continues to improve?

Obviously the single most important variable in cash flow is earnings, so our focus is on getting back earnings growth. That starts with getting the revenue growth and getting the leverage from our infrastructure that Marc touched on and I touched on earlier in my comments. So that will be the most important piece, but we also think there’s opportunities to continue to refine the working capital in the business and improve that. I expect finance receivables to be less of a contributor of cash as we go forward, and that’s assumed in our guidance in 2013.

Mark, do you believe that it will be until May that you’ll wait to give your strategic vision? Or do you anticipate that you might talk about your strategy earlier than that?

May is the right expectation. If you think about a typical 100 days, that kind of places you right into the middle of between now and then. So we’ll have the investor day conversation in May, and I think that would be very natural time with the conclusion of my 100 days, investor day. We can talk about the first quarters. I think that gives me enough time to complete my understanding of the business and is a natural time to communicate.

Your next question comes from the line of Shannon Cross – Cross Research.

My first question is on verticals and what you – in terms of customers, verticals and what you heard geographically, Mike, from customers during the quarter. I’m curious about where there were strengths and weaknesses and obviously with your product sets we can see where that was. But the other question I have is did you see business getting better or worse as you went through the quarter and obviously through the last – first few weeks of the first quarter?

In terms of the verticals, obviously the one vertical that we probably saw the most impact from I referenced in discussion of the software business was around government, particularly in the European markets where we have seen some impact of the cutback in budgets in all in some of the government agencies around the world. I don’t think we’ve seen other verticals in particular that have had issues. In terms of the second part of your question, the trend in the quarter, we did not see a big variation in the business. As you know, a significant portion of our revenue streams are recurring in nature. We did see some better print volumes in PBMS towards the end of the quarter that contributed to their growth but that was more project based. But generally speaking, did not see any unusual trends. Production mail, we did see some better written business towards the end of the year, which yielded the backlog that you see. That was driven by some large implementation – or future implementations.

And then with the strength in PBMS and the projects you talked about, is this something that you think could be recurring? Is it the strength that came in the quarter – are you seeing maybe a – are you actually embracing more of a growth perspective on this business? I know for quite a while you were really focused on driving profitability and obviously with services businesses sometimes you end up having to invest before you see a big ramp. So I’m curious of your thought process around PBMS since it did move into the growth category, which is nice to see.

There were really two parts that contributed to that. I would say that the team has worked aggressively over the last 12 plus months to really refine their offerings and take more of a vertical approach, sector approach and have had success in getting new written business. As those new projects have come online, that’s driven an improvement in the revenue run rate and was a contributor to it going positive. And then as I mentioned, we did have some project work at the end of the year, which is not unusual but we did get a good level of project work at the end of the year that supplemented that. But we do see that business has the potential for ongoing revenue growth.

Then my last question is on cash flow just as we look to the guidance that you provided. Obviously finance receivables will be a little bit less of a contributor next year, not providing much. So what are the other puts and takes, if there are any, that we should keep in mind in terms of your drivers of cash flow given that income is going to be flat to down depending on where you come in from an earnings standpoint?

Yes, just on a straight up comparative basis, we did have tax receipts come in in 2012 that won’t likely repeat themselves in 2013 but that’s reflected in our guidance number. The other variables really are around working capital and earnings themselves are the most variable of the lines and, as I mentioned, we’re focused on being more effective on the working capital side and obviously looking at driving earnings as a very important part of our goals going forward.

Your next question comes from the line of Erik Karsson – AKO Capital.

I just had a question on 2014. Assuming a moderately recovering economy, do you think the SMB business can grow in 2014?

At this point, we’ve looked ahead to 2013 and really are not in a position to make predictions around 2014.

And just on your international mailing business, if you could, so we saw a market improvement in this quarter, and it was the best growth rate we’ve seen for nine quarters, I think. To what extent was that you gaining market share and to what extent was that the underlying market improvement for you?

There were really a couple of key contributors. One was the performance of our new Connect+ product, as we noted, particularly in France and Germany. In the Nordics, we do sell other products as well, and we had a very strong quarter in the Nordics business as well. So those were the key drivers, and we think that was a solid performance across the geography. Obviously there were other markets in Europe that, because of the overall economic situation, didn’t do as well, but collectively we were satisfied with the results.

And do you think the international mailing business can grow this year?

We think that there’s the opportunity for that business to grow. Obviously it’s a matter of what happens in the overall marketplace and then just our day-to-day performance in the market.

We will go to the line of Hale Holden with Barclays. Please go ahead. The line is open.

Would it be possible for you to give us a breakdown for the free cash flow guidance of what percentage is generated offshore for 2013?

Generally speaking, about 80% of our free cash flow is generated in the U.S., and about 20% outside the U.S. Obviously that can vary a little bit. But generally that’s a good rule of thumb.

And then Marc, I was hoping to pin you down a little bit further on capital allocation. Your predecessor sort of gave the impression that a dividend cut was really unlikely, or not something that was on the table. So I was just curious if you could tell us, for the May meeting, and after your 100 days, if it was possible or potential that you would actually cut the dividend.

I’m not going to preview where I come out on May. Obviously as Mike said, the dividend is a decision that’s the board’s decision. It’s made on a quarter by quarter basis. And it’s made in the context of delivering great shareholder value. And we’ll conclude the review and talk more about it in May.

We’ll go to the line of Chris Whitmore with Deutsche Bank. Please go ahead.

Mike, I wanted to follow up on your comments around the mail cycle, and the meter cycle, through 2013. You suggested it would improve due in part to a better renewal cycle or lease cycle runoff from four years ago. But if I look at 2008 to 2009 equipment sales, equipment sales in 2009 versus 2008 were actually down 20% or so. So help me understand how the full year cycle is playing into a better outlook for 2013.

In terms of the lease cycle, our average lease terms are actually probably in the 50-51 month timeframe. There are various periods of time that we can offer extensions for our customers on. There is a tail-end effect of that. It’s a piece of the overall equation in terms of the timing of when we place equipment, and when that equipment runs off. So that’s one piece of it. The other piece of it that we touched on was due to the fact that we have less customer privilege which is the lease extension program in 2013, than we had in the first half of 2012, which would have a leveling effect as we get into the second half of the year.

And then looking at margins in the equipment business, they look a little bit lower than I would have guessed for Q4, particularly in light of the restructuring. Have you seen any change in competitive environment or pricing or can you give us a little color on the margin performance there?

Yes, the overall equipment margin is probably more about mix than it is about margin in the individual businesses. There is a little bit of effect in there even in the mailing business, related to doing less CP and more new equipment but there’s also a mix of non-mailing equipment in international that’s higher and then there’s a mix of equipment in BMT that had more print and less inserter than the normal average. So it’s the combination of those three things that yield that margin relationship.

So you haven’t seen much of a change in the competitive environment for (inaudible), for example getting …

No, I wouldn’t put it on an account-by-account basis. We don’t see a big change in the competitive environment. It’s much more about a mix of the revenue sources.

And finally, Marc, I just wanted to come back to the strategy question, the capital allocation strategy one more time. Let me ask the question in a different way. It sounds to me like you want to imply the software strategy at some extent. Do you think you have the right assets in place to take the software business the way you want it to be today or do you think acquisitions may become a more significant part of the strategy going forward?

Yes, I’m going to go back to my original answer that we’ll talk more about that. I will tell you that I’m very impressed with the base of what we have in this company in terms of technology assets and businesses in important capabilities. So I think there’s a great base to build off of.

Your next question comes from the line of Barbara Noverini – Morningstar.

So regarding your global shipping solution with eBay, it appears to be quite scalable yet it also appears to be more labor intensive on your end than what you’ve offered through eBay in the past. However, I expect that you are leveraging existing facilities to provide the services. So can you comment on the margin profile of this business and what your expectations for growth will be for it?

There are really two components to that business. There is the technology piece, which is providing that fully landed cost capability and the second piece of that is the enablement of the physical delivery of the goods on a cross order basis. We’re using a combination of our own capabilities, particularly the technology piece is our own, and also working with third parties as well as leveraging our own capabilities in the delivery element of it. So it won’t be all fixed costs in terms of facilities and labor to enable that delivery piece. We’ll do a combination of fixed and variable with partners in that. What we’re focused on in particular is creating the value and the technology side of it.

(Operator Instructions) Your next question comes from the line of Ananda Baruah – Brean Capital.

Mike, Marc, just want to go back to the revenue growth. I guess what has you have the confidence that this year the revenue gets back to growth and can you talk to the drivers there? And then should we assume given that you’re talking about a little bit more investment in the first half of the year that we actually see negative leverage in the first half of the year and maybe a little bit better leverage in the second half of the year?

Yes, in terms of revenue growth, as I outlined, we’re looking at the trends that we saw throughout 2012 – I think manifest themselves again in the fourth quarter. As I mentioned, we expect that the contribution would come more from the enterprise side of the business and, in particular, contribution from the software business and the growth initiatives that we outlined. To the second part of your question, it’s somewhat linked to those growth initiatives, some upfront investment and then getting some leverage from the growth on the backend. As I also mentioned, the relationship on the recurring revenue streams in the core mailing business continuing to improve as we’ve seen over the last year or so. So those are the key drivers and that’s why we identified the difference between the front and back halves of the year.

I’ve got one additional point. I spent the last several years working for a company that was tremendously successful in terms of driving earnings growth and revenue growth is clearly an important part of the equation and there’s no getting away from that. That said, there’s a lot that can e done in terms of productivity and mix that drives important shareholder value as well. So as I look at the business and our strategic review, well look at all the different levers that drive earnings and I think there’s plenty of great existence (terms) out in the industry of how to drive great shareholder value using lots of the levers.

I guess just on the revenue I guess I would just – is there something that you guys see manifesting itself in a much more indicative way exiting this year coming into – exiting ’12, coming into 13, than it has in the past that gives you increased confidence in positive revenue growth this year? I guess that’s what I was wondering.

Yes, and I would – what I’d point you to is just the trends that we outlined relative to the fourth quarter as being the same as going into ’13.

Then just my last one is can you give us a sense of what the cash tax is and the cash interest were in 2012? You made some comments I think, Mike, about taxes being lower I think in ’12 than in ’13.

Yes, I would say it’s likely that it would be more neutral in ’13 where we had a tax refund in ’12 that was in the $70 million range.

That was the cash tax. How about cash interest?

I don’t expect it to be materially different.

Can you give us a number, the cash interest number?

I don’t have it off the top of my head.

There are no further questions in queue at this time. Please continue.

In closing, the progress reflected in the fourth quarter results were driven by year-over-year revenue growth in core businesses and continued improvement in revenue trends throughout our SMB group. We will drive shareholder returns, as Marc said, by continuing to take actions as necessary to reduce costs and make the appropriate investments in the profitable growth of the business. Thank you for joining us.

Thank you. And ladies and gentlemen, this conference will be available for replay after 10:00 am this morning until February 28, 2013 at midnight. You may access the AT&T exhibitor playback service at any time by dialing 1-800-475-6701, entering the access code 275683. International participants may dial 1-320-365-3844 using the same access code 275683. Once again, those numbers are 1-800-475-6701, international 1-320-365-3844. The access code is 275683. That does conclude our conference for today. Thanks, again, for your participation and for using AT&T Executive Teleconference service. You may now disconnect.