Good morning, and welcome to the Pitney Bowes Third Quarter Earnings Conference Call. Your lines have been placed in a listen-only mode during the conference call and question-and-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 participants on today's conference call, Mr. Marc Lautenbach, President and Chief Executive 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 earnings press release, our 2017 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 that 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. We continue to make progress against our strategic initiatives and move forward in our transformation. In the third quarter, revenue continued to deliver double-digit growth, and through the first three quarters of this year, revenues grown on both reported and a pro forma basis. Let me provide you an update on the milestones we achieved since we last spoke 90 days ago. Stan will follow-up with a more detailed discussion on the quarter and we will then take your questions. Our portfolio continues to shift to shipping, which is available through our Commerce Cloud. Shipping revenues comprised more than 30% of our overall revenue in the quarter and that number continues to grow. On a pro forma basis, total shipping volumes in our Commerce Services business grew 14% over prior year and also increased from prior quarter. On a year-to-date basis, this takes our label and parcel volumes to nearly $400 million. One of the main pillars of our strategy is to remove the complexity of shipping for our clients and we are doing it. The growth we are seeing in our volumes is the proof point. In support of our shipping strategy, we recently opened our new Fulfillment, Delivery and Returns Center in Greenwood, Indiana. This facility leverages cutting edge technology that we can service our domestic shipping clients more quickly and efficiently. This Super Center is unique in its ability to facilitate the entire ecommerce process by leveraging state-of-the-art technology, including solutions powered by robotics to efficiently fulfill orders, enable deliveries, and process returns for consumers in ecommerce retailers. We are also reaping the benefits of Newgistics cross-sell opportunities while reducing the complexity of shipping for our clients. Earlier this year, we launched a new offering within client which…

Thank you, Marc, and good morning. This quarter revenue grew over prior year and we continue to reduce spend and our debt. EBITDA also grew over prior year. We continue to make good progress against our strategic initiatives and the portfolio continued to shift more towards shipping. As our portfolio shifts with the growth of our global ecommerce business inclusive of Newgistics, our seasonality will also shift even more towards the fourth quarter. And while more work still lies ahead, we are seeing the progress begin to manifest itself in our financial performance. Let me turn to our results. As always unless otherwise noted, my statements going forward will be on a constant currency basis when talking about the revenue comparisons and on an adjusted basis when talking about earnings related items including cash flow. Reconciliations of our non-GAAP to GAAP measures can be found in the financial statements posted with our earnings press release and on our Investor Relations website. For the third quarter, revenue totaled $833 million or growth of 14% over prior year. On a pro forma basis, with Newgistics assumed to both periods revenue rounds to flat compared to prior year. Looking at revenue by group, Commerce Services grew 59%, SMB declined 3%, and software declined 19%. Adjusted EPS was $0.27 for the quarter. GAAP EPS was $0.41. GAAP EPS included $0.03 in restructuring charges and that $0.03 charge related to the early redemption of our 2019 notes. GAAP EPS also included a net benefit of $0.04 related to the 2017 tax legislation. The net gain of $0.16 and discontinued operations largely related to our recent divestiture of our Production Mail business. GAAP and adjusted EPS include a net benefit of $0.03 largely from the resolution of certain tax examination. Free cash flow was $94 million…

Thank you. [Operator Instructions] Your first question comes from the line of Ananda Baruah from Loop Capital. Please go ahead.

Hi, good morning, guys. Thanks for taking the question. Really appreciate it. I think just three if I could to be really quick. The first is just with regards to the December quarter revenue guidance in the comments around seasonality. If I just do the quick math, I think it implies at least 50% sequential revenue growth Q-over-Q. Is that accurate? I just want to make sure I'm not doing any of my numbers wrong. And then if it is, can you sort of just layout the signposts for us with regards to the forecast totally make sort of that skew because of the ship, because of the ecommerce and the shipping, but maybe if there's any additional detail you can give us with regard to that to get us context around. What could be the drivers as you go into year-end, some of the specific stuff things? And then I have a couple follow-ups.

Good morning, Ananda. Thanks for the question. So as we look at the full-year guidance, this portfolio is quickly shifted to growth. Revenue year-to-date were 16% constant currency growth over the prior year. Now in Q4, that level dropped just given Newgistics will annualize here over it. But if you look at Q4 heading in, the SMB, we had arguably the best quarter we've had in a very long time in SMB, and the streams and EBIT margin are expected to perform kind of similar to Q3 are improved slightly. But then when you look at holiday volumes and driving scale, this is the driver for ecommerce and Newgistics. I mean this a big lift for both of those businesses. Presort, we continue to invest in improvement, managing transport and labor costs and as they pick up going through. And then software, software is going to be one of the bigger drivers quarter-to-quarter. When you look at it in that regard, we have a difficult quarter in software, but as you go to the fourth quarter, there are more renewables, there's a larger pool of big deals and certainly an easier compare. So if you look at Q3 to Q4, we remain confident of being within our annual guidance range revenue of 11% to 15%.

Okay, great. And then just to follow onto that one, is this kind of seasonality, I mean it's early days in bringing this portfolio together in this way. But it seems like I didn't count the high end of the guide, but it's probably like imply something like 80% Q-over-Q rev growth. So it was just kind of like 50% to say 80% or so, do you think this is going to be normal for the December quarter going forward, if you guys are successful with this?

As you moved towards shipping because of what the peak is in those industries. Our business, we've talked about this over the last several quarters is going to continue to shift towards Q4. If you just kind of think of globally extend the rate of growth that we have in that business, both through Newgistics, cross-border and looking at ecommerce in total, I do believe that we'll continue to see a shift in our portfolio to be more backend weighted into Q4 just as natural occurrence of the volumes in that business.

In a very simplistic level, if you think about the two drivers quarter-to-quarter in software, so if you look at the range of software, unfortunately it kind of purposes quarter-to-quarter, which adds variability in quarter-to-quarter. We believe the fourth quarter looks more like the higher end of the ranges we experienced over the last couple of years. And then if you think about the shipping business, we talk about shipping, but underneath it – business to consumer or we talk to consumers. So if you think about all the stuff that goes on in the holiday season, Black Friday, Singles Day, and all those kinds of things. Those are the kinds of things that are in the fourth quarter. So I think there's a natural skew of these businesses around seasonality then software has its own unique characteristics on top of that.

Yes, we see Newgistics as a – just to add-on to that, accelerate in Q3 over the first half growth rate, so we like where that business is going.

That's the other aspect of it. As we exploit the cross-sell opportunities, so there's a natural seasonality to all these businesses, partly because of the holidays, partially because of how businesses operate. But we're also picking up incremental demand from cross-selling Newgistics and how we reconfigure our capabilities. So there's a bunch of things that kind of add momentum as we go into the fourth quarter.

Okay. Got it. That’s super helpful. And I just keep it to one quick follow-up. Just the 5% discount, can you just walk through the dynamics, how we should think about that, the mechanics behind that? How it impacts you guys in the opportunity?

Yes, if I can just go up a level, so as you look at what's going on with the USPS in particular. If you think about Pitney Bowes reason for being for almost 100 years. It was to help the USPS become more efficient and drive value into their business. So as we look out what's on the horizon with the USPS and as they strive as the other institution does become more economically sound, in general we see that as an opportunity for Pitney Bowes and USPS to do even more together. As it relates to the $0.05 discount, let me quote the USPS here because I think it's worth noting. Meter based payment is more efficient than stamp based payment. It eliminates the need for stamp production, distribution and cancellation and fosters more consistent use of the postal system. Slow in the migration of mail volume to electronic channels, small business volume in particular should be protected by this decision. So I think that – I think the postal service as a quite well. In general, this makes meter mail more attractive vis-à-vis alternatives that can't help, but be a stimulus for Pitney Bowes in 2019.

And I think our new C-Series that we launched last year, actually positions clients to take full advantage of this and add shipping to that capability as well. So it enhances the value proposition of our offering.

Your respect of the C-Series is it does multi-care something shows those prices evolve in that marketplace and the competitive marketplaces. The ability for clients to do price compare versus the different cares is even more important going forward. So we like what we're seeing from what's gone on so far.

Okay. Great. That’s great. Thanks so much.

Thank you.

Your next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Please go ahead.

Hi, good morning. Thanks for taking the questions. Just one point of clarification against the last question. I think Ananda had said that that the rev guide pointed to 50% sequential growth. But perhaps that's not taking into account some of the adjustments that were made in the portfolio because of the way I do my math is at the low-end it's like 13% sequential growth that at the high-end it's like 28% sequential growth?

I thought he said 15%, but…

He said 15% maybe, okay, but so just to be clear on that, okay. Otherwise, I wanted to ask questions about number of things, there were some interesting things in the quarter. The outperformance in SMB, I mean, can we talk about that a little further and just talk about how it's sustainable to what level it is, I mean…?

How they long?

Yes. I mean, I think it's the second quarter in a row where the recurring streams kind of performed a little better. So perhaps Marc, you want to expand on what your thoughts there?

Sure. I’ll add and Stan will enhance. So I would still points you towards our long-term guidance as it relates to how our businesses perform. So it’s tempting with quarter-to-quarter swings to over interpret a particular quarter. That being said, if you look at the SMB performance in the third quarter, it was within our overall long-term range. So the different those things match thing, yes, we think it's sustainable. I would point out in particular you mentioned the streams. Our services business had just a great performance in the quarter. They're really doing a good job with their existing legacy business, but they're also doing a good job picking up new business and importantly our financial services business is setting as well. So lots of good things and you made a really insightful point. So it's easy to kind of get overly enamored with equipment sales and all those kinds of things that that stream revenue, stabilizing it 300 million-ish or so, is at important factor because it protects the overall cash generation of the company. Now Stan will elaborate on that.

So Glenn, as we look at North America Mailing, we’re pleased with the performance this quarter. Overall revenue is down 2%, equipment and sales were up 2%, the stream revenue though, I think it’s actually the one to focus on as you highlighted, it’s down 3.6%, that's the best performance recently. Gross profit margin has been consistent over the last several quarters, expense continues to improve year-to-year, and EBIT dollars grew year-to-year, and EBIT margin was up four points. So the revenue certainly wasn't easier to compare in the current quarter given last year we’re announcing the new product that came out late in the quarter, but we're really pleased with the margin expense performance. I think more importantly, one quarter doesn't make an overall trend, but we really liked the progress and it gives us confidence that we will perform in the long-term model over time at this minus 2% to minus 4% and 30% to 35% EBIT. So good quarter overall in North America Mailing. You also see it manifest itself and finance receivables, which reduced on a year-to-year basis at a slower rate than it has in prior quarters.

Can you remind me, you said you give a number for a number of units that were converted to the new meter? Is that – are we – how far along in the process are we in that conversion and maybe, are we towards the bottom of the pendulum swing as it relates to that?

We've shipped about 57,000 units over the past year. We've said originally that this will address about half of our overall population, so we still have a ways to go. I'd say we're early in. And keep in mind we're just starting. In 2019, we'll be rolling out this capability to the non-U.S. So I'd say, we're still early innings on this, and again that offering combined with the meter mail benefit of $0.05 now in multi-carrier shipping and the ability we have launched five new apps this quarter as well. I think the value proposition only strengthens for the C-series.

I'd build off that last point, so as we think about the C-series, it’s for sure in meter replacement, but candidly it’s much more than that. So we don't look at the opportunity for C-series. It’s just a meter replacement for ours or our competitors. We look at that as a utility device that carries contemporary applications for shipping into the market. So in that sense, it's a whole different ballgame.

Okay, great. Thanks. I'll pass onto someone else. Thanks guys.

Your next question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead.

Hey, good morning. Marc, I wanted to ask you a little bit about Global Ecommerce business, and when you think it can achieve sustained profitability? I realized you've been investing in it and trying to achieve as much growth as possible and take market share. I'm wondering at what point do you think you foresee sustained profitability.

Let me step back and provide a little bit of context because I think it's important. So the way that that business gives the profitability is three-year old. But the most important one is scale. So if you think about the things that we're doing to drive profitability in the business scale is number one. The Newgistics integration and the synergies around Newgistics are number two. And number three is operational excellence stuff that they're doing. So if you go back to that first one and you double click on scale, we think it's important to make those investments in the network and customer acquisition, and if we can find acquisitions that make sense because that gets us to sustained profitability sooner versus later, in terms of any particular period, we're EBITDA positive in the third, we think that will continue to be true in the fourth. And then, we'll get into 2019 soon enough. So I think it's sooner versus later. I'm not going to put a particular timeframe on it because of the nature of the opportunities. The more that we can make investments that get us to scale, the better off that is in the long-term. And the reason is, if you think about our businesses, if you look at the shipping business and in terms of an external marketplace, the multiples that go in shipping and logistics market are higher than office supplies. So sooner we can get on profitability tilted towards shipping, the sooner we can have a different conversation about multiples.

Marc, if you just look at it, I know you talked about a little bit about the USPS and the $0.05 discount, but it seems like there's a lot more going on at USPS and maybe Congress and others pushing for changes. Just overall what's happened, what do you see that – what are the positives that could come out of that for Pitney in order, some of that maybe negative that might happen because of all the changes that are being proposed?

Well, I mean again, I go back to the very top level. So if you look at all the changes that are being discussed or contemplate for the USPS. It's about how you make that entity more financially viable going forward. As you think about why Pitney Bowes has existed for almost 100 years now? It's been to that particular cause to help the USPS be more economically viable. So in general, we see what's going on as an opportunity of the meter mail is a good example. If you look at some of the workshop programs, that's the second example. And then we'll see what happens on the negotiated discounts and that's still in front of us. But what I would say about the negotiated discounts in the competitive market rates is as we look at the value that we provide to the postal service in those competitive markets. We're really confident of the value that we provide, and that's something that you'd want to build off of.

Thank you very much. I appreciate it.

Your next question comes from the line of Allen Klee from Maxim Group. Please go ahead.

Good morning. In the Presort segment, you spoke of taking actions to reduce spend and then investing in automation. Do you believe that this can get you back to where margins had been there over time, say the around 20% EBIT margin range? Thank you.

If you take a look at Presort, 2Q is difficult quarter for them. But if you look at what happened in Q3, grew revenue in that business, we took a number of faction and EBIT margin bounced back to 14%, so just below where we are now. The year-to-date margin is 15%. So we said that the margin and long-term plan for this business should be north of 15%. We're still confident. We will operate in that level. Let me give a little color on what we've done in this business. Debbie Piper runs this business for us, it is 37 centers across the U.S. and we have invested heavily and capital. We have doubled the capital spend on a year-to-year basis that is doing things like shorter refreshes, which we get a big productivity boost out of that. We've invested in sleevers, which automates a very difficult part of the process for us and we've enhanced the facilities that our workers operate in. When we look at that, that long performance of combining these, we are seeing synergies now of combining trucking routes with our Newgistics facilities and those routes that go both to clients and to the post, and as we look at that combined with the labor efficiencies, we're confident that we'll continue to improve this margin. There is another aspect of Presort that we're getting into in a deep way and that's found in packet mail, think of kind of heavy flat if you will, a calendars and things like that that get mailed. We launched this in a more material way here in the second half and we think that will contribute to both growth and it leverages our investments in a network, our investments in people, and our investments in the management team. So I like this business. I think it will continue to improve and operate within a long-term model range.

Thank you. And my last question is for cross-border e-commerce. What's your view to – do you think that the current run rate is where it's going to stay out or do you think there could be any positive changes there?

Yes, for cross-border, there's a certain sensitivity here obviously to changes in the U.S. dollar and the weekends are strengthens, it does impact demand. So we expect an improved performance in Q4 versus the previous quarter as a result of the holiday season. And I think it's important to note, while it didn't have a great revenue quarter here this quarter, it is being recognized in the industry. For the second year in a row, we are the number one ranking for international commerce and fulfillment technology by the Internet retailer, 1,000 vendor reports and that is a survey of a 1,000 top online retailers. So I think our offering is strong in cross-border and it's not entirely dependent on currency, but currency has a big effect and that's why we have a multifaceted portfolio within global e-commerce. So we're confident that that will improve here in Q4.

Thank you.

Your next question comes from the line of Shannon Cross from Cross Research. Please go ahead.

Thank you very much for taking my question. The first one is, I'm curious and maybe there's nothing to really think about yet because it's a ways off. But the talk about renegotiating the postal treaty. How should we think about that in terms of volumes? I mean, it appears that it would make it cheaper for us to maybe ship, I don't know, are more expensive with internship and just your thoughts there.

If you’re trying to the UPU Shannon, we don't really have any volume that goes through that particular program. So it's – I think it's important for the postal service is not so important for Pitney Bowes.

Okay. So that won't make yours more, more competitive I guess. And then, from a divestiture standpoint, you've made several divestitures and improved your balance sheet, which had been definitely the correct decision. Now that you're appearing to stabilize some of the mail meter business, or the mail meter business in general? Does it make sense to maybe look even further strategically between the two businesses? I don't know, maybe you could just talk a little bit about, why better together versus separate at this point, because again, with the growth you're seeing any commerce, clearly that's not being reflected in your multiple. So what are your thoughts?

Yes. So that's a good question. When we think about a lot. So the first thing that I would say as we contemplate divestitures in particular. We use the same criteria that we have started out with and plus the one that we had with [indiscernible], so that is strategically coherent, acceptable returns, and leaders within the marketplace. And then one we had with [indiscernible] was that it's not worth more to somebody else then would be to us. So as you're thinking about Global Ecommerce or Commerce Services and SMB in particular, the strategic coherency is around shipping and the assets that they share, particularly the API technology, but also Commerce Cloud and others. So we think in the context of the first three criteria, the portfolio makes sense together as it relates to the last point about more to ask them to somebody else. That's one that we continually look at, we will – we'll do what we've done in the past and as we conclude an assets worth more on the market to the market than it is dust and we'll make the correct shareholder decision. So it's one that we continually to decision that we continually look at and revisit.

Great. Thank you.

Your next question comes from the line of Anthony Lebiedzinksi from Sidoti & Company. Please go head.

Yes. Good morning and thank you for taking the questions. So I wanted to follow-up on a previous question in regards to Global Ecommerce. And Marc, are you prepared to say how much in terms of the - your answer about scale? Is there a particular revenue run rate that you need to get to the scale that you think you need to get to better leverage that business?

Yes. We think of it in terms of parcels. So parcels are important is if you think about the economics of that business, it's driven by the type of scale that you provide the carriers, USPS, UPS, Federal Express to the more parcels you can ingest in their network, the better economics you'd get. So I would say that were as we contemplate our three to four year plan, we get to the desired economics. So we asked the question before about wanting to get to profitability. So we don't, we think profitability center, the desired economics, we way within our long-term plans. So I'm not going to pin this down to a particular point in time. The candle, it's why we're interested in acquisitions is we are, because if you can find an acquisition that gets you there sooner versus later that's accretive. So whether it’s a big acquisition or smaller acquisitions. That's kind of our interest. Today as you look at our evolution in that business and I'm not sure how long have you been following the Company? How the company evolved in Presort. That's kind of how we think about it. So you think about it, an anchor acquisition or a couple of anchor acquisitions and then a bunch of tuck-in acquisitions that become immediately accretive. But that's kind of the economic formula that we're contemplating. We'll talk more about that early next year as we get into Analyst Day.

Okay. And also as far as the Newgistics, so earlier that show you collocated one of the Newgistics operations within the existing Presort site, can you give us an update on that, and should we expect additional sites like that to be opened?

Anthony, thanks for the question. Newgistics here as we look, we've accelerated the growth in the second half of the year, growing 19%. This year, we've opened four new facilities, remember they had nine. We've consolidated two. So when you talk about investments into this business, a good example of launching these, including our Super Center in Greenwood, Indiana. And we have to set up all the transport, all the labor, and all the volume is not there yet, and we think we're well positioned for peak. But we're going to continue to invest. And I mentioned before that when you look at part of the benefits to Presort is the transport costs of combining some of these lanes with Newgistics. We see that on both sides of the house. And remember, of the original nine, eight are within an hour of the Presort facilities. So here's a couple examples of where that can truly help us on transport and labor. On transport, you can fill the trucks much cheaper and reduces the demand for having to go out and use the spot market, which has increased dramatically this year. On labor, the two businesses have very different labor profiles and so the peak season for Newgistics and the shipments is obviously fourth quarter and returns is mid-December through early first quarter. But Presort, busy time of the year, it’s actually in January with all the year-end statements. So we're in a process now of taking the labor force and being able to leverage that labor force to help assist during peak. It leaves us a much better position this year candidly than last year to do that. So we like this combination and I think you'll see us bring that closer and closer over time. Now, why not go faster? Obviously, we have leases of these facilities in both businesses. We're not going to go break leases early just to bring these together, but we'll bring those together over time because we see a lot of benefits.

Okay. That makes sense. Thanks for that explanation. And lastly, as far as the Software business, you guys mentioned that there was a timing shift, some deals shifted from 3Q to 4Q, I wanted to get a better sense of the magnitude of that. And also, I would be curious to know what the software sales we're excluding the impact or adjusting for the impact of 606?

If you take a look at the Software business in Q3, I’ll talk about that first. There was a lower level of renewables in the quarter. Remember this business has changed under 606. Even if you signed or renewed early, that revenue will not show up in the quarter anymore where it used to in the past. So with the lower level of renewals in the quarter that impacted performance. And in Q2, we did have a strong overall performance where it grew 13% on a year-to-year basis. And keep in mind, we disclosed it last year, in Q3 of 2017, we had a large location intelligence deal which certainly impacted the year-to-year performance. Now there were some bright spots here within the software. I think one of the best ones for us is small deals. Small deals grew a healthy 26% on a year-to-year basis. That's double-digits each of the first three quarters on the year-to-year basis. So as we look at fourth quarter, this is going to be part earlier. We had the question of how much does revenue go up on quarter-to-quarter? And let's say it's in the low to mid double-digits that it increases on a quarter-to-quarter basis, and software will be a part of that. There's more renewals in Q4. There's a bigger large deals in Q4, and we expect to see that continued performance with small deals. In terms of 606, you actually will see this upcoming in the Q. It had a smaller impact benefit here in Q3 than it did in the prior quarters. And then obviously that will wrap around as we head into 2019.

I’ll just make one additional point because I think it speaks to kind of how 606 affects market dynamics. If you go back to the third quarter of last year where we had the large deal that was toe head renewal. So typically when you're running a Software business before 2018, you look at the inventory of deals in the quarter, and you make a judgment about that, inventory is sufficient to do what you need to do within the quarter and you act accordingly. So last year as we looked at the third quarter, which is always a difficult quarter for any software vendor just because of the seasonality of that business works. So we were able to pull ahead a large renewal. As you get into 2018, that option is no longer available to you, so…

We can find it…

Yes, the economics are little bit different. So 606 an interesting thing. It changes a little bit in terms of how you think about bringing your deals forward and I suspect over time it will even out, but it makes the business a little bit lumpy right now.

Okay. Thank you very much. End of Q&A

And at this time, there are no further questions. I'd now like to turn the conference back to Mr. Lautenbach for any closing remarks.

Thanks, operator. Listen let me just close with a couple of high level remarks and some of these I made before. If you think about, Pitney Bowes over the last couple of years, it's a company that's growing the topline. It has reduced our expense substantially. It has reduced debt and same time we have made significant investment in innovation and our capabilities. As we look forward to the fourth quarter and 2019, you can begin to see those decisions paying dividends. So we like our position as we go into the fourth quarter, more work to do for sure. But fundamentally, this is a business that's been repositioned for a healthy and prosperous future. So more work to do, we'll talk in 90 days and we'll update you then. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.