Pitney Bowes (PBI)

Q1 2011 Earnings Call

April 29, 2011 8:00 am ET


Charles McBride - Vice President of Investor Relations

Michael Monahan - Chief Financial Officer and Executive Vice President

Murray Martin - Chairman, Chief Executive Officer, President and Chairman of Executive Committee


Chris Whitmore - Deutsche Bank AG

Ananda Baruah - Brean Murray, Carret & Co., LLC

Hale Holden - Barclays Capital

Unknown Analyst -

Shannon Cross - Weeden & Co., LP



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Good morning, and welcome to the Pitney Bowes First Quarter 2011 Earnings Results Conference Call. [Operator Instructions] I would now like to introduce your speakers for today’s conference call, Mr. Murray Martin, Chairman, President and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President and Chief Financial Officer; and Mr. Charles McBride, Vice President, Investor Relations. Mr. McBride will now begin the call with the Safe Harbor overview.

Charles McBride

Thank you, and 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 2010 Form 10-K annual report and other reports filed with the SEC that are located on our website at www.pb.com by clicking on Our Company and Investor Relations. Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. Now, our Chairman, President, and Chief Executive Officer, Murray Martin will start with an overview of the quarter. Murray?

Murray Martin

Good morning, and thanks for pulling yourselves away from coverage of the Royal Wedding to join us. Let me start by sharing some thoughts on our performance, and Mike will follow with the details on our first quarter results, and then I'll discuss the rest of the year. Afterwards, we'll take your questions.

During the quarter, we continued to gain momentum in our clients for long-term growth as we made progress against several initiatives that we discussed at year end. For the third consecutive quarter, both Equipment Sales and Software revenues grew. The continued improvement in Equipment Sales was led by increasing demand from high-volume mailers to update their Hardware and Software production platforms. Our growth in Software was fueled by global demand for Data Analytics and Location Intelligence Solutions. The increase in Software revenue was also supported by the growing recurring revenue stream related to the increasing number of multiyear licensing agreements. While revenues for the quarter benefited from these increases in Equipment Sales and Software, it was offset by the expected lower recurring revenue streams related to our SMB Solutions Group. We have previously explained that lower SMB Equipment Sales in past years created a headwind that reduces our supplies, rentals and financing revenue streams. We anticipate that these headwinds will continue to diminish as equipment sales improve.

As expected, the declines in the SMB recurring revenue streams did moderate in this quarter. During the quarter, we continued to reap substantial benefits from our ongoing Strategic Transformation program. The program is delivering improvements in customer processes and infrastructure, cost savings, as well as an enhanced ability to deliver new products and services. The savings and the investments made possible by Strategic Transformation will enable us to continue to introduce a number of new Customer Communications Management solutions for SMB and Enterprise customers this year.

Earlier in the quarter, we announced Volly, our secure digital mail delivery system. We have continued to get positive feedback from all stakeholders, and make progress with partners. We introduced additional CCM [Customer Communications Management] solutions for Enterprise customers, including the expansion of our Intellijet production print line and Portrait Miner 6.0 software for predicting customer behavior. We are providing SMB customers with the industry's only family of cloud-based solutions, including pbSmartPostage and PbSmart Connections, an email marketing and communications platform. In addition, earlier this week, we announced SendSuite Live, a new web-based shipping platform that strengthens our market leadership in the Transportation Management Services shipping marketplace.

We also continued our progress in the stabilization of our base business in the quarter. Positive trends, including continued gains in customer retention, and ongoing placements of new products such as our Connect+ web-based communications system. Connect+ has already been launched in Canada, U.K. and Australia, and it's global rollout will continue throughout 2011.

Overall, SMB equipment sales declined, however, in part, due to the phase movement of the select group of customers to alternate sales channels. These channels will best serve their needs, as we continue to offer more products and services online. Consistent with prior shifts, we saw improving sales productivity throughout the quarter. We expect our channel transition initiatives to drive longer-term growth through greater engagement of small business customers with our new web-enabled solutions. These moves are also helping to create a more efficient cost structure, as we align the value of the sales with the cost of the delivery channel. These are all important contributing factors to our projected stabilization in this business in 2011.

Let me now turn it over to Mike for a discussion from our first quarter financial results.

Michael Monahan

Thank you, Murray. Our revenue for the quarter was $1.3 billion, a decline of about 2% on a reported basis when compared with the prior year, and a decline of about 3% when you exclude the impact of currency. Breaking down our revenue for the quarter between U.S. and non-U.S. operations, U.S. revenue declined by about 5%. Outside the U.S., revenue on a reported basis increased 4% versus the prior year, excluding the impact of currency revenue outside the U.S., increased 1%. Non-U.S. operations represented 32% of total revenue.

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