Good morning and welcome to the Pitney Bowes Second Quarter 2017 Results Conference Call. Your lines have been placed in a listen-only mode during the call until the question-and-answer segment. Today's call is being recorded. If you have any objections, please disconnect your lines at this time. I would now like to introduce your participants on today's conference call, Mr. Marc Lautenbach, President and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President, Chief Operating Officer; Mr. Stan Sutula, Executive Vice President, 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 2016 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. Also, for non-GAAP measures used in the press release or discussed in this presentation, you can find reconciliations to the appropriate GAAP measures in the tables attached to our press release and also on our Investor Relations website. Additionally, we have provided slides that summarize many of the points we will discuss during the call. These slides can also be found on our Investor Relations website. Now, our Executive Vice President and Chief Financial Officer, Stan Sutula, will start with a few opening remarks. Stan?

Thank you, Adam, and thank you, everyone for joining the call this morning. Today, I will take you through the details of our second quarter results and provide an update on our annual guidance. Marc will follow with an update on our performance against our strategic initiatives and then we will open the call for questions. 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. This quarter is a reflection of our ongoing investments around our strategic vision, which is becoming apparent in our revenue performance. The year-over-year revenue trend is improving from where we have been in the last two years, and our businesses are moving toward their long-term growth ranges. But we expect revenue to continue to improve, our margins are experiencing some pressure, as a result of the shifting portfolio and the required investments. We have work to do, but are confident we have the right initiatives in place in order to improve the bottom-line for the second half of the year. I will talk more about that after I take you through the details on the quarter. In the second quarter, we delivered $821 million in revenue, adjusted EPS of $0.33 and free cash flow of $18 million. Revenue was flat to prior year and continues to be in line with our annual guidance. Revenue in the quarter benefited from continued double digit growth in our Global Ecommerce segment as well as growth in our Presort Services segment. Within SMB, revenue declined 2%, which is in…

Thank you, Stan, and good morning. Our second quarter represents a continuation of the progress we are making against our strategic agenda. As Stan reported, our top line performed within the annual guidance range and our earnings were impacted by necessary investments this quarter. We're continuing to see the shift of our portfolio to higher growth, digital solutions, which gives us confidence that the investments we have been making are the right ones and what will drive our future growth on both our top and bottom lines. Let me take you through what we have achieved this quarter and how it relates to our overall strategic agenda. In terms of reinventing our mail business, last year we launched the Commerce Cloud which gives our clients access to the broad range of innovation across Pitney Bowes and our partners in the shipping, mailing and digital commerce markets. The Commerce Cloud enabled us to offer our initial, flexible, multi-care sending solution to meet the office shipping and mailing needs of our clients. Our initial SendPro product has been well received in the market. We have since been investing in bringing this offering across our middle of the line portfolio through a unified platform which leverages our SmartLink IoT technology, and will be available for our current and prospective clients to convert to as their secure platform. This is the next generation and the evolution of office shipping, mailing and ecommerce fulfillment. In the next few weeks we will launch this new SendPro family of products. Let me be clear, this is more than an upgrade to an existing product line. This is a game changer for Pitney Bowes and there is no equivalent product like this in the market. For our SMB clients whose business needs and the way they do business…

Q&A Operator: Our first question is from the line of Shannon Cross, Cross Research. Please go ahead.

Thank you very much for taking my question. I guess, the first question I have is just somewhat digging in what you were just talking about, but I'm trying to figure out how long you see this period of investment. At what point do you think you'll start to see some decent leverage so that we'll see upside to operating profit? And I'm just trying to think about this year, next year, what – I know this is a long process, but I guess I was little disappointed in what we saw in North American Mailing, so just any idea you can give us on timing or how you are thinking about it maybe from a 50,000-foot level?

Sure, Shannon, it's Stan. Let me start here. So for the investment levels, we're going to continue to invest where we see that opportunity. And we talked about the investment in Global Ecommerce, and particularly around Shipping APIs and building out the outbound marketplace, including Australia. Those investments also go across the rest of the business and as we look at the rest of the business and how we think about that, we believe that those investments will manifest themselves over time and particular as we do scale. And the North America Mailing as you mentioned, we have a big product launch here coming up in the next few weeks, and that's the C Series. Now that product addresses about half of our installed base and the market opportunity that's out there. So we do expect that as we go through time, we'll see some benefit that comes through. Now I can't give you an exact timeframe of how that plays out, but as you look across our lines of business combined with our ongoing operational excellence, we're going to continue to drive productivity, and I think you'll see that we front-end loaded marketing this year. So, we expect that improvement as we go through the back half of the year.

I'll just add to that...

And then...

I'll go to a higher level, Shannon, as I'm inclined to do. I think if you kind of look at the segments one at a time and starting with SMB and zeroing specifically on North America. To your question, we expect to see improvement in the second half of the year. Some of that's because of some I would say timing issues in the business, but it's largely because of the product announcement that we have. So, to your question about when does that start paying off, my answer is it starts paying off in the second half. As it relates to the other side of the business, the Digital Commerce business, again in our Global Ecommerce business, we expect to see leverage in the second half of the business as volume increases. We're very excited about the API opportunity, that somehow is good revenue opportunity – that's a good profit opportunity for us as well, and that scaled quickly in the second quarter so we see leverage in that in the second half of the year. And as we always said, Software is a second half story. So, we expect to see the investments in the channel that we're – that we have made paying off in the second half of the year. And we'll continue to have, I would say puts and takes on any given quarter as we see and react to different opportunities. But I think the point that I would step back and say is, the trends are clear, the revenue is beginning to fill in, the margins in SMB and Enterprise are within the long-term guidance. So, those will moderate on any given quarter. But the basic answer to your question is we expect to see leverage in the second half.

And I guess Xerox also reported this morning, and they had a pretty significant pressure on their equipment sales because of the new product launches they had and timing and all of that. How should we think about potential for – I don't know training channel, slowdown anything like that as we see that this launch of SendPro. Because again at Xerox their equipment sales were down, I think it was 16%. Again, different companies, but also both going through a pretty significant refresh of the product lineup.

Sure. And I got a lot of respect for our neighbors up the street. I would start with by just providing a little bit of baseline. Our equipment sales actually increased in the second quarter. And candidly, we said last year 2016 was an anomaly, so I'm going to go back to 2015 SMB equipment sales, where we're actually up versus 2015. And that's important because we're able to make those transition and still keep equipment sales at the right basic trajectory. We don't expect to slow down. We have built – we're building the inventory. We're doing the training as we speak. So, I do not expect to see a slowdown in our equipment sales in the second half of the year, on the contrary. And I would say the broader point is, this really is a game changer for us. We're going from a product, which has sustained this company, the mail meter, for almost 100 years to a whole new set of possibilities for our clients. Certainly, the evidence in the mail will continue to be central to how we think about our buyers from the market, but also shipping another third-party apps. So, you can kind of get lost in a sea of numbers here, but the basics are that we'll create a whole new set of possibilities to retain and attract new customers. And importantly regarding the economics, reaffirm (35:22) sustain those streams that are underneath that business.

Great. And then just my last question is how should we think about sustainability of cash flow? What do you think it sort of – it's been ongoing cash flow? Just when you think about the puts and takes and the pressure on the margin, about the growth and the investment and then potential for working capital improvements and continued runoff of well, theoretically maybe not, but a finance receivables? How are you thinking about cash flow?

So Shannon, we did narrow our range for free cash flow for the year to $400 million to $430 million, that really reflects our experience here in the first half. And free cash flow in the first half, obviously, we're not pleased with that number. It's down roughly $67 million year-to-year, but a big chunk of that is timing. And when we look underneath, we saw accounts payable, a big swing year-to-year, as well as, if you look at accrued liabilities, there's two big items in there. Presort customer deposits, which we've already seen recover, and then looking at actual payroll. We're on a bi-weekly for roughly two-thirds of our population. That has an oddity in this quarter, that had a year-to-year impact. So we see a lot of timing in that, we're confident in the $400 million to $430 million of free cash flow for the year.

Okay. Thank you very much.

Our next question comes from the line of Brendan Hardin, Northcoast Research. Please go ahead.

Hey. Thanks for taking my call here. So just a couple of quick questions. I guess in terms of the Software business, how much of the improvement in Software is due to the deals that we're kind of pushed out in 4Q 2016 versus the progress with the third-party integrators or just overall market improvement? And then how would you characterize the backlog in that business?

I would say, kind of starting at the market, I would very well continuing – we continue that confidence in the markets we've chosen. If you look at the first half results, as the three deals that did not close in the fourth quarter, one of them closed in the first half. It was slightly less than what we were anticipating in the fourth quarter. And if you look at the year-to-year progress it's hard to isolate any one thing but the indirect channel is driving all of the incremental improvement and growing well above double-digits on a year-to-year basis. And importantly to your last point about backlog, if you look at the pipe that's been generated internal, and specifically the pipe that's generated from the third parties, or with the third parties that's what gives us confidence about the back half of the year. But that's – we got to prove that. But that's the basic dynamics within the business.

Okay. Thanks, Marc. So, and then I guess we saw some promotions in SendPro, and I was curious is that SendPro exclusive or is that across SMB-wide, whether it'd be meters or is it just more or less to try and improve user growth in the SendPro product line?

Well, Brendan it was directed at the SendPro, in particular the new offering here for the low end, but it really does blanket the entire base, and frankly we got some details left off of it and we like the exposure of it so much so we're going to continue that promotion versus our competitors at $5 per month. So, it does – was directed specifically at that low end offerings but it does have a blanket effect over all the SMB offerings.

I would just add, I mean, we think one of our competitors in particular has had a free run in the low end of the market in the API market, and they've done well and we acknowledge that and, that said, it's our intent to become much more aggressive in that space. And you saw it in the second quarter and we'll sustain that.

Okay, guys. Thanks.

Our next question is from the line of Ananda Baruah, Loop Capital. Please go ahead.

Hey guys. Thanks a lot for taking the question. Just two from me real quick. Are you guys – or could you provide, you have in the past, an update on anticipated cost, any cost savings from your Enterprise Business platform investments to the extent that that isn't forming some of the investments that you're talking about, would love the sort of remaining cost and the expected benefits. And I'll just ask on the free cash flow side, just to peel back a little bit more, the timing issues that you talk about, is there anything were there anything unusual about the timing issues in the context of the business dynamics that you spoke to or is it really just the business mix issue this quarter with regards to the way the timing showed up in the free cash flow? Thanks.

Sure. Let me take the first one. So the Enterprise Business platform is an investment that really is pervasive across all of Pitney Bowes. It's not just as a cost savings, it actually enables a lot of the new offerings that we're putting out into the market. When we originally launched this, we said that in 2017 we would generate between $45 million and $55 million of savings, and we're in fact on track to achieve that for this year. Now this is ongoing. We're still going to roll this out and the non-U.S. in 2018 and in fact we're already taking steps to do that like rolling out salesforce.com out into there. So there is ongoing investments that are part of that, but we are achieving the savings that we are looking for.

I'll make just a broader point there, I mean, so to Stan's response, I mean platform continues to be on track both in terms of the cost that we had estimated as well as the efficiencies that we were hoping to realize in 2017, it's kind of right in the – right in the gearbox. This is the part that was never part of the business case that we didn't talk about and we didn't – basically economics on it was all the new product announcements that we made. So, the equipment sales in SMB, that we've realized over the last year and our Mail Finishing products, that was enabled by those business platform. The Global Ecommerce results that we're achieving in the 15% to 20% growth, that was enabled by this platform, the new product that we're about to announce in a couple weeks was enabled by this platform. So it was – but that was painful to go through last year, but when you look at the level of benefits that – that platform is driving, it was well worth it. And it's somewhat a microcosm of the entire Pitney Bowes story. We are continuing to opt to make those kinds of investments and they're expensive and they're disruptive, but the possibilities they create for the firm longer term are very compelling.

And I'd add to that, that I think we're at the very beginning of truly leveraging the analytics they come out having that insight to the business. I think that's the exciting part for the future. So let me take you through the cash flow and the timing and I'll go in a little bit more detail. So we were down $67 million year-to-year and a part of that is driven obviously by net income. But there are three components to the timing. The first one is accounts payable, which is $39 million year-to-year. And as I mentioned last quarter, there was an accounts payable timing between 1Q and 2Q of prior year. In fact, when we launched the Enterprise Business platform, we elected to prepay a set of our invoices, so that our vendors would not be impacted as we transition to that platform. That's what's driving the year-to-year timing and accounts payable. We expect that to normalize on a year-to-year basis as we go into 3Q. The second piece of timing is around Presort customer deposits. And we saw into – the month ended on a Friday, and what we saw was the deposit level was lower. We've already seen that fill-in. And we think that was roughly $18 million to $20 million of overall customer deposits. So we've seen that fill-in coming into 3Q. And then the last part is, we pay a large percent of our population bi-weekly and it's simply a timing of that days of accrued this quarter versus last quarter and that's about $17 million. So as we head into the back half, we expect that the accounts payable and the accrued liabilities will normalize as we head into third quarter on a year-to-year basis. And what we're looking at with an improving net income as we ramp through the second half is that we're comfortable with the $400 million to $430 million of free cash flow guidance for the year.

Okay, guys. Thanks. All that's really helpful. And just one follow-up on the Enterprise Business platform comment, so are the investments that you talked about – that you talked about on this call those for the just completed quarter and for the second half of the year, those are incremental to investments that you've previously spoken about with regards to Enterprise platform? Just a clarification on that.

No. There is no incremental investments beyond what we had originally outlined whether it be the Global Ecommerce or the new SMB products, those are the things that are enabled by the platforms like any platform you get great leverage as you scale. So that's the beauty of it.

Got it. Helpful Marc. Thanks a lot.

We have a question from the line of Allen Klee, Sidoti. Please go ahead. Allen Klee - Sidoti & Co. LLC: Yes. Hi. In the SMB segment, can you help me understand a little more the give and takes with equipment sales and loss recurring revenue? More specifically when you add equipment sales, do most of that equipment has recurring revenue attached to it?

Sure, Allen. So yes, when typically when we add new equipment or replacing the existing equipment that's out there, it does fall into and drives stream over time. Now, remember, our portfolio has been facing a decline through time, so one quarter or frankly even two quarters of equipment sales is not going to move the needle yet on the recurring streams, that's going to take us time to work through the normal lease base. Remember our leases are 48 months plus or minus, so it's going to take some time for ongoing equipment sales to manifest themselves into the recurring streams. Now, why we're confident about this is the new product addresses such a big part of the overall segment in which we play, roughly 50% that that will help we think drive equipment sales over time, which will help drive the recurring streams as that plays out. Allen Klee - Sidoti & Co. LLC: Okay. So...

There is two ends to this bucket. There is equipment sales, which you pour in each quarter, and then there is the erosion of the base. So, one of the reason we're excited about the new product is we think it gives us a much better opportunity to stem the erosion at base, because instead of just being dependent on how they use a meter and how they mail that gives them other possibilities to retain that equipment and the stream. Allen Klee - Sidoti & Co. LLC: When you – okay. When you do a SendPro sale, is it typically replacing a postal meter, so you're looking at the relative economics, or can it also be an add-on?

So, two components. So, one, it can replace an existing meter that's out there in our install base. So, obviously, as we bring that, we think that brings additional value to the client, because it also brings shipping capabilities, which they did not have on the old machine. We also think this is a great competitive play out into the market, in particular the middle of the line where we have the most opportunity to gain share. We think there is nothing else in the market like this and it really does position us well on a competitive takeaway in that middle of the line area. Allen Klee - Sidoti & Co. LLC: Okay. Thank you very much.

Overall, our market share is well above 50% and the middle of the line it's 40-ish, so it's – that is the relative opportunity for us in the marketplace and not only against competition, but new prospects as well. Allen Klee - Sidoti & Co. LLC: Okay. And then, in ecommerce, is there any thought longer-term of – you said longer-term operating margin guidance, but I understand that you're investing for growth now, but thoughts of like of the timing to get to those margins or when you might think it gets to breakeven?

So, as we look at ecommerce, we're going to keep investing as long as we see that market opportunity. We've grown double-digit for over two years. So, let me do a quick rundown. We believe that those investments, the margins will improve as we build scale, and we've seen evidence of this. If you look at Q4 of last year, when we had our peak retail, we actually did drive an EBIT margin of 6%. Let me give you a feel for the portfolio and how this will manifest itself in profit. In Shipping APIs, we're investing in that product and technology, and we did announce over 15 new capabilities just this quarter. That profit comes with the scale and it's relatively quick to monetize, and we expect that we will see a contribution in the second half. On complete marketplace, we're building out that platform and integration capabilities for our retailers that allows them to offer their goods on global marketplaces. That's a volume and scale. We're also going to go through on a consumer experience in helping those retailers with their demand gen, and that's something unique to Pitney Bowes, and the affiliated marketing. And again as we scale those markets, we will see the profit. On the outbound markets, we're investing in new outbound market opportunities like Australia, and we've added 18 clients to that since we've launched. And again that will come with scale, and we've seen that really with the U.S. outbound marketplace, the margins are pretty decent. The UK is scaling up, the margins continue to improve, and we believe that we will see the same thing as we look at Australia. And then we're going to continue to invest in marketing on proprietary events here as we launch our products and bring that visibility to our clients. So, we're confident in the opportunity. We're going to continue to invest as long as we see that opportunity, and we believe that the margin and profit will manifest itself as these businesses scale. Allen Klee - Sidoti & Co. LLC: Thank you.

And our next question comes from the line of Glenn Mattson, Ladenburg Thalmann. Please go ahead. Glenn G. Mattson - Ladenburg Thalmann & Co., Inc.: Yeah. Hi, thanks for taking the question. Marc, you called out a new client, a large new cross-border client, just curious since you mentioned, is it a platform or retailer, and is it significant to the level that it could drive growth for a period of time all by itself or is it just highlighting the progress you're making?

I'm not going to get into whether it was a marketplace or e-tailer. It is significant in terms of its ability to drive growth and that's – we wouldn't have called it out otherwise. Glenn G. Mattson - Ladenburg Thalmann & Co., Inc.: Okay. And then also I think you're – building on the last question, on all the new features, the other thing that's stuck out to me was the label volume of 3x from March to June. Can you talk about exactly how that happens and maybe a little bit about how that maybe translates into revenue growth? In what form does that translate as far as dollar terms?

Sure. Glenn. So, as we add these new capabilities, clients who are out there in the market are looking for certain capabilities that meet their clients' needs. As they come onto the platform, they now start to print labels, and this monetizes our investments up front with this. So, as they print the labels, that's what monetizes and drives both the revenue and profit stream. As the clients come on, they embed it into their capability then as they go print those labels and grow their volume, we will see a direct benefit in that quarter, both from the volume and the profit that goes along with that volume. Now, we're continuing to invest here. We expect to continue to bring out new capabilities. We're very confident of what we have, in a very contemporary platform. We are out with our clients helping them meet their needs, and we're going to continue to invest along those lines.

Let me just add to that. So, as I said, the volumes scaled substantially from the beginning of the quarter to the end of the quarter. It was more skewed to the end of the quarter than what we expected. So while we exited the quarter the way we thought, it took us a little bit longer to get there. So, we didn't quite get the revenue or the profit leverage that we expected in the second quarter. That said, this is unique versus other aspects of that business, because it produces pretty immediate operating leverage to the marketplace. And then I would just double click on the point that Stan kind of made at the end. This is a big opportunity, and our approach to this marketplace is to really help these clients drive volume in their platform. So, we'll look at how we can leverage our own business, our own Small and Medium Business platform coming out in order to help them drive volumes. So we think this is a good market opportunity, we think this is a place where one of our competitors has had the market to themselves for a bit, and we're anxious to drive the very client friendly approach into this marketplace that drives value for our clients and for Pitney Bowes. Glenn G. Mattson - Ladenburg Thalmann & Co., Inc.: Great. That's it for me. Thanks for the color.

And at this time, there are no other questions in queue.

Thank you, operator. Let me close. Second quarter was a complicated quarter. There were a lot of moving pieces. And candidly, we know we had the opportunity to do better than we did. That being said, if you step back and you look at our progress against our strategic agenda, I continue to be very encouraged about where we are. This new product we're about to announce in SMB really is a game changer. It allows you to cement the relationship with the million clients that you have in that business and extend value to a whole new set of marketplace in a far different way than we've been able to in the past and anyone else in the marketplace. If you think about a digitally connected software-as-a-service small or medium business, start up with a million clients, we talked about it at Investor Day, this is the realization of that aspiration. Enterprise continues to kind of operate within the bandwidth that we had suggested in 2013. Software has been a second half story, it continues to be a second half story. We think we're set up to succeed, we've got to prove it, we've got to prove it to the marketplace, and we need to prove it to all of you. And then finally, the Global Ecommerce business just continues to be one of the most compelling opportunities we've seen. Some of these opportunities that we encountered in the second quarter, we anticipated some of the opportunities in the second quarter that we realized, we had anticipated. We will always opt for serving those markets as we go forward. So as I said, the second quarter was a complicated quarter. Lots of moving pieces, as there has been over the last couple of years. I think the trend is clear and we're excited about the second half. So with that, I'll close and we look forward to talking to you in 90 days. Thank you.

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