Good morning, and welcome to the Pitney Bowes Fourth Quarter Earnings Conference Call. Your lines have been placed in the listen-only mode during the conference 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 participants on today's conference. 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 a Safe Harbor overview.

Good morning. Included in this presentation are forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our earnings press release, our 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 table 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 President and Chief Executive Officer, Marc Lautenbach will start with a few opening remarks. Marc.

Good morning and thank you for joining the call. As in the past, I will provide an update on the Company’s strategic transformation and how our 2017 annual results played into our overall transformation. Stan will provide an overview on the full-year and details around the quarter and then take you through our 2018 annual guidance. We will then open the call for your questions. From our perspective, the headline of the quarter and the year is that the Company moved to growth, - slight growth excluding Newgistics, but growth nonetheless. Our growth is a result of our ongoing efforts to reposition the portfolio to growth markets. Some of these efforts have been around portfolio changes and some of the success is a function of organic efforts. The subtext is that this growth is centered broadly around shipping. When companies are trying to transform, reposition a business that was in sector decline to a position of growth is the first step, but certainly not the last. In large part, these new dynamics informed our decision to publicly speak about our evaluation of strategic alternatives. As a matter of practice, on an annual basis, our Board has looked at strategic alternatives. But given PB is now a different Company, centered around different themes, the dynamics around this year’s evaluation of strategic alternatives were unlike previous years. We will have an update on our evaluation of alternatives once we have concluded the process. I said in November, Pitney Bowes is a different Company than five years ago. The Company that is positioned to grow. Perhaps the best example for how different we are is our new SendPro C-Series product. This new product enabled value, cloud initiatives, our new enterprise platform and delivered through a new set of channels. None of this was…

Thank you, Mark and good morning. As Mark discussed, we made progress against our strategic objective over the course of 2017, which included investments from our longer term growth. In 2017, we improved our revenue performance as we continue to reposition our portfolio to growth markets. However, we've realized we have more work to do. Let me start with our full-year results, and then I will drill down into the details of the fourth quarter and update you on our outlook for 2018. 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 free cash flow. Reconciliations of all non-GAAP to GAAP measures can be found in the financial statements posted within our earnings press release and on our Investor Relations website. For the full-year, based on the guidance ranges we provided during our third quarter earnings call, revenue and adjusted EPS performed within the respective ranges and free cash flow came in just above the top end of the range. Revenue was $3.5 billion, which represents growth of 4% over prior year. This included one quarter of incremental revenue related to the Newgistics business. On a pro forma basis, total revenue would have been slightly up over prior year. Looking at revenue by group. Digital Commerce grew 32%, enterprise grew 3% and SMB declined 5%. Adjusted EPS was $1.41, GAAP EPS was $1.39. GAAP EPS included charges of $0.21 for restructuring and asset impairments, $0.03 in transaction costs largely related to the Newgistics acquisition, a charge of $0.01 for the early redemption of our May 2018 note, $0.03 gain from the sale of technology for a mining industry application to a channel partner. GAAP EPS also included an…

Thank you. [Operator Instructions] Our first question comes from the line of Kartik Mehta, Northcoast Research. Please go ahead.

Good morning, Marc and Stan. Stan, I know you talked about the North American Mailing business and the drivers to what is happening with EBIT and I’m wondering if you could just walk through maybe timing of when you anticipate that to stabilize and possibly reverse?

Sure. Thanks, Kartik. So talking about North American Mailing, if we start with the gross margin in 4Q, it was 72.4% that was a decline of just over 200 basis points than our prior year and most of that was driven by the lower stream revenue. But I think it is important to note that there has been some stability in that margin and that margin is relatively flat to 2Q and 3Q. In terms of when do we expect that start to return, we've been fairly consistent here that with the new product we're going to need an elongated period of equipment sales to refill those finance receivables. Now we started on that journey. So we had growth in the fourth quarter, we had growth for the full-year in equipment sales in North America, but it will take a longer period. This least stream, if you will, the average life is over four years. So it will take a period of time to see that moderate through time. Now, started with equipment sales and we need to keep that going, then obviously we are going to continue the work the other gross profit, margin efficiencies in North America Mailing.

And then Marc, I realize you guys are thinking about bringing about $500 million of cash back and paying down debt. But this year you will generate close to $375 million free cash flow and what is the use of that cash at this point, will you continue to pay down debt or build the cash under balance sheet until the strategic review is completed?

Yes. In terms of our capital allocation priorities, they haven’t changed. Right now we have committed ourselves to investment grade ratios that continues to be true. So the money from overseas will be a step forward although more work to do. We have continued to be committed to a competitive dividend. That continues to be true. And then broadly, Karthik as to your point, I mean we work at creating strategic flexibility for any cash. But as we have said all along, our view is that we would not let cash accrue in the balance sheet for extended period of time, we put to use.

And then just one last question, Marc. Just the progress on your shipping APIs. I know in the fourth quarter it was difficult just because of what retailers might have wanted to do. But as we have started the first quarter maybe progress, I don’t know if you can give some metrics that would help to show the progress you are making in that part of the business?

Yes. So our stability in the fourth quarter was good. If you look at our stability from Black Friday till the end of the year, it was that industry norms. So that’s basically 4.9, so I think that is one important metric. As you look at the pipeline, to your point that was deferred in the fourth quarter, pipeline is good and we are kind of working our way through that pipeline.

I would add that the volumes in fourth quarter were actually up 60% over third quarter.

Thank you gentlemen, I appreciate it.

Our next question comes from the line of Allen Klee, Sidoti. Please go ahead.

Hi, good morning. For Newgistics, can you talk a little about where you stand on going - or what the plans are in 2018 for the integration and the potential benefits?

Sure, Allen. So, first, we are very pleased with the start of Newgistics. They had a terrific fourth quarter exceeded on expectations. And actually while we said we were going to leave them isolated, we saw some early signs of the potential synergies and I will give you example of that. As their peak went through in fourth quarter, we actually used to borrowed labor from our Presort businesses to help supplement that peak. I think it’s a really good example of where we trade off labor between the two organizations. So now as we head into 2018, the teams are already well integrated, are working through determining the right place to handle all the parcels because you will recall we are driving some personal volume in our Presort business. So we are going to move that and centralize that through Newgistics. We are already going through the leases on both organizations looking at the transportation routes. We have put teams in place to deal with all of that. We are delighted to have them on board. They had a terrific start. I think it’s going to be a great addition to the Pitney Bowes family. And as we look forward those synergies, we're also seeing on the revenue side, the cross-sell opportunity with clients now to offer them end-to-end everything from helping them due the demand gen on cross-border side to fulfillment, to shipping and now to returns, and the ability to finance all that, we remain really excited about the potential in the synergies here that we will achieve in 2018.

Okay, thank you. And then just finally two things on digital commerce solutions. One software was down sequentially and maybe just talk about what is going on there and the outlook? And then I heard you guys say that part of your transition is now to move to profitable growth and I was wondering if that applies to the Global e-Commerce for 2018 or how you think about that? Thank you.

I will do them in reverse order, so answer to your second question is, yes, we expect Global e-Commerce to be a profitable revenue growth for 2018, albeit, I would say a moderate profit as we continue to invest in the business investments and we will continue to invest although lower than the 2017 levels. As it relates to software, as we said in the third quarter, there was a single large software deal in third quarter that certainly affected the overall results. I would say conversion really had no large deals of any significance in the fourth quarter. So the quarter-to-quarter difference was principally around that. We have got more work to do here, I mean the business grew last year, so that’s an improvement from where we were. The indirect channel continues to mature, I would say most of last year, they spent kind of selling the [indiscernible] base together as we move into 2018 and gain confidence in our products and candidly become more adept at the sales motion that's required to sell our products that should expand. So as we contemplate software going forward, we continue to believe, it’s part of our growth as we move forward

Thank you

[Operator Instructions] We have a question from the line of Glenn Mattson, Ladenburg Thalmann. Please go ahead.

Good morning. On SMB, can you guys talk about just the process of stabilization as we move through the year and then what the outlook is long-term as far as long-term growth rates as you guys see it currently?

Sure, Glenn. If you take a look at SMB, I mean, we talked about this little bit earlier with the question earlier on stabilization, it starts with equipment sales, but we don't see the market changing here. I would ask you to join us on March 6th for Analyst Day and Jason Dies will take it more at a broader on the SMB strategy, but we still expect that market to be in decline of 2% to 4%. And while we're looking at that market, we're realistic on that expectation and so, what we're trying to do is to bring efficiency and productivity into the SMB business, we're going to expand some of our offerings to try to bring in new revenue and profit streams. And I think the innovation that we brought here in 2017 is a good example with the SendPro C-Series. With that, it’s not just the traditional mail meter, you open up a opportunity for new revenue stream with multicarrier shipping with the printers that attach to it, the scale that attach to it as well as the supplies that go with printing labels. We also because it’s on an open platform, open up the opportunity to bring new apps to our clients, new capabilities, new financing, so we are looking to expand the offering to that clientele. And that clientele we know really well. We know their credit history, we know what they do and I think the opportunity to bring more value into that remains an opportunity for us to improve the overall performance. But in terms of looking at 2018, we do not expect SMB to return to growth. We expect the market to continue to be down 2% to 4%. What we are looking to do is to inject some offerings into the platform, bring more efficiency into it. And I think you have seen the margin here over the last three quarters has been relatively flat.

Let me to offer a little if I may. So if you think about it in very simplistic terms, the streams are a function of what has happened in the last four years. So if you lose a meter three years ago, that continues to roll through [indiscernible] several years of equipment sales at flat in order to counter balance what is happened in the last several years. We kind of glance through it fairly quickly. If you think about the equipment sales being flat in the market was down 3% or 4% when we have got a significant chunk of the market, that’s a fairly substantial accomplishment. So Stan said it right, as we contemplate the mail meter itself, we don’t see that market changing. The option of this new product is that the new applications give clients a new reason shipping being the first but certainly not the last to hold on to that asset and to stabilize their streams. So that's kind of the way that the dynamic works out. So we need a couple of more years for equipment sales kind of flat or so then the streams will follow and then we are watching closely how the third-party apps perform in our own absence with shipping as well and that creates the ultimate counter balance.

That’s helpful Marc. So would you expect that in order to get back to those industry decline rates of 2% to 4%, that would take as you mentioned a couple of years of their performance like you have had or would you get back to market rates faster than that?

I think we will get back to market rates faster than that.

Okay. And then I imagine I’m not going to speak broadly on strategic alternatives today, but could you make a significant case for why this should still all be one company? I mean I think originally it was hopefully to rebuild the sale channel I mean hopefully cross-sell a lot of products into the SMB base. I don’t know if that has played well or if that’s still part of the long-term strategic plan or if these are really two separate entities that could be better suited to be independent?

Yes, we will go deep on this at the Analyst Day. But I will give you the high level answer now. So if you think about what I just said as it relates to the SMB business and shipping being the principal application that gives us the opportunity to - for stabilize then ultimately sell more into that installed base. On the other side of the ledger, if you think about our commerce services segment that too is all around shipping. When you look at the technologies that underpin that, the API Technologies, the Global Carrier Services, Pitney Bowes Commerce Cloud, those technologies are all shared. Interesting enough, the assets from many of those technologies come from our software business. So we will go deeper on that, but that is to ensure that the case is that we're very focused on leveraging economies of scale and the economies of experience across our portfolio to ensure that the breadth of the portfolio remains coherent. But shipping is kind of the theme across the business.

Okay. Thanks for that.

We have a follow-up question from the line of Allen Klee, Sidoti. Please go ahead.

Yes, hi. I appreciate the challenges of managing a business through transition and all the actions you have taken. Given this, can you point out to any actions that you think that have improved your ability on forecasting this year versus last?

Yes. I would say the move to new systems was disruptive in many different ways. But it certainly created the degree of cloudiness in terms of our ability to look at future, in particular around streams. [indiscernible] 2016 in particular, I mean the system were still new, point one, two, we are still learning the systems, point two and I think the combination of those things created less visibility into the business than we had hoped. Early days for sure, I mean as I look at other companies, I think they are perhaps a little bit ahead of us, but we are making up ground quickly. What will not change Allen, is that as you think about how we think about the free ups in the business, we will always trade short-term performance for one term value. So that's not going to change. So there is degrees of visibility that I think are getting better for sure. But our preference are biased towards long-term value remains the same.

So why I don’t start with the 1Q skew. So as we said in the prepared remarks, Allen. There are a number of things as we head in. One, the actions on the $200 million will have a skew as we bring back cash to pay down debt that has a timing effects of higher interest expense on the beginning of the year. And as you look at some of those items, and we look at the overall performance and we expect that the first quarter when you take that as a percentage of the full-year, will be at the lower end of the five-year history and I think that will give a feel for how to position that within the year. And for example, as we look at our new segment now with Presort and Global e-Commerce and Newgistics, all combined that allows us to go to market in a more consistent dynamic and that should help us significantly in that approach. So you can expect a material change.

So if you are asking some of the brand expense that we have incurred over the last couple of years around advertising. Right now as we sit, we don’t plan any material advertising initiatives. From a TV perspective in 2018, we will continue to invest in our brand but it would be much more individual and social than big buy or something that would cause lumpiness.

Yes, and that would be a benefit to us.

On the other side it, the sales channels, we continue to move to a broader array of channels, digital channels, sell channel, indirect channels and we will continue to move that and we think that not only gets us to new markets but is also more efficient.

Thank you.

And at this time, there are no other questions in queue. Mr. Lautenbach, do you have any additional remarks?

Hi there and thank you again everyone for joining us this morning. Listen as I said at the outset, the headline is simple and that is we have moved this Company into growth and you don’t need to work far to understand how unusual that is in today’s world. The portfolio has substantially moved and we think that is the first step, but certainly not the last step as we move forward. As we continue to move forward, the businesses will for sure make investments but as they scale they will create profit. And to the question that was asked about the synergies across the portfolio, we believe that gives us important leverage as we add revenue it will be profitable revenue growth. So more to say in March when we are together at Analyst Day, but that’s where we are for today. Thank you for joining us.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.