Good morning, and welcome to the Pitney Bowes Fourth Quarter, Full Year 2014 Results Conference Call. [Operator Instructions] Today is 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 the Safe Harbor overview. [Technical Difficulty] is 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 2013 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 most of the points we will discuss during the call. These slides can also be found in 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 us. By now, I hope you had a chance to review the press release announcing our full-year and fourth quarter financial results and our guidance for 2015. We're very pleased with our results for all of 2014, including our fourth quarter performance. We did a good job navigating a fairly turbulent macroeconomic environment. The fourth quarter clearly demonstrated the resilience and strength of our business model, our strong market position and our strong offerings. Mike will provide an overview of our fourth-quarter, full year and our 2015 guidance. I'm going to provide perspective on our overall transformation. Bottom-line, we've made tremendous progress against our three strategic initiatives to transform our company and unlock shareholder value. Just to remind everyone, our three strategic initiatives are, number one, stabilize our mail businesses, number two, drive operational excellence, and finally, growing our business through expansion in digital commerce. Let me take each of those initiatives in order. First, stabilizing the mail business. Over the last two years, we have taken steps to re-engineer our go-to-market model, moving to sales techniques which are much more scalable, including telesales and the web. These initiatives are providing the benefits of providing better client service and are substantially more efficient. This transition is complete in North America and under way in Europe. In the second quarter, we pointed to some disruption in our North American business, as we changed our coverage model. We continued to have some disruptions in the third quarter. In the fourth quarter, however, we saw improvements from the trends in the second and third quarter and we continued to expect improvement going forward. We're in the process of executing these go-to-market changes in Europe and we expect to continue to execute these changes on a country-by-country…

Thank you, Marc, and good morning. As Marc mentioned, we're very pleased with our full year results as we achieved our annual guidance targets for revenue, adjusted earnings per share and free cash flow. For the full year, excluding the impact of the divested revenues in Europe, revenue grew 2% on a constant currency basis. Adjusted earnings per share from continuing operations were $1.90 and free cash flow was $571 million. We were able to achieve our annual guidance targets on strong digital commerce solutions and presort services revenue growth and the benefits of our operational excellence cost initiatives. And we achieved these results despite changes to our SMB portfolio and sales force, a challenging year-over-year comparison in our production mail business and a strengthening US dollar, particularly in the latter part of the year. We worked through these challenges, we stayed focused and even expanded our cost reduction initiatives. We continued to optimize our business portfolio by also investing in our growth initiatives, a new ERP system, and a new brand. We also continued to effectively implement our capital allocation strategy and returned value to our shareholders through a competitive dividend and a $50 million share repurchase. Our actions throughout the year support our multi-year strategy to stabilize our mailing business, achieve operational excellence, and invest for growth. I will update you first on how the actions we have taken positively impact our fourth-quarter results, and discuss later how we expect these actions to impact our 2015 and mid-term financial results. Turning to the quarter, revenue for the fourth quarter totaled $984 million, compared to the prior year. Revenue declined less than 1% on a constant currency basis and 3% on a recorded basis. Despite the headline, recorded revenue decline, our underlying operational performance was solid. As we noted…

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

Hi, guys. Good morning. Thanks for taking the question. Appreciate it. I have a few, if I could. I guess, the first is, just with regards to the North American mailing, Marc, could you just sort of walk through in a little bit greater detail where you are in, I guess the transition? It's good to see the results actually starting to come back through the P&L. But, can you give us some sense of where you are, any kind of, I guess, sort of lack of a better term, coaching up the sales force to sell higher value-add solutions and, kind of, how far you think you have to go until you feel like you're where you want to be, not necessarily with the numbers but with getting folks ready to do that? I have a couple follow ups. Thanks.

Yes. So, I would say that we were better than the second and third quarters and that is a clear line of improvement. That said, we expect more. If you kind of un-layer the different coverage elements, I would say our face to face coverage is driving increased productivity and operating at this point about where we thought. Inside sales is coming up the curve, but still more to do. And then finally, what we haven't talked a lot about is the web and as we pointed to, we re-launched our web in January. So I would say that's the place where there's more productivity to realize. So, all in all, I would say better, but still not where we think it can ultimately perform.

That's really helpful. Thanks for the detail. That's great. And I guess just commensurate with that, the $0.08 to $0.09 in expanded marketing for 2015, is this – should we think of this as sort of a net new initiative in the context of your overall marketing initiatives and is this an incremental $0.08 to $0.09 relative to what you've been talking about to this point?

Well, so the way to think about that is that will continue to be a going rate expense. So, as we move to more alternative channels and indirect sales techniques, it's important to have the marketing support in order to drive those things. I would codify that within your expense structures going forward that we are planning on it as a going expense.

Got it. That's very helpful and clear. And last one from me for now, I guess ERP, I guess sort of from a dollar basis it seems like it's somewhere in the $20 million to $25 million range for 2015 in terms of investment. Maybe Mike, can you just sort of, I guess, confirm that or not. And then, is that a gross or a net investment and does that include benefits, any benefits you may begin to see this year? Thanks.

Yes. So, the number that you're quoting is right. We said it's roughly $0.07 to $0.09 incremental in 2015. So that's in addition to what we saw in 2014. Part of that is mix, where some of it is capitalized, some of it is expensed. We anticipate more of it to be expensed in 2015 relative to 2014, but that's correct if you use a rough equivalent of $0.03 per share – $3 million of EBIT per share would translate into the numbers that you described.

Great. Thanks a lot.

Thank you.

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

Thank you very much. Good morning. Can you talk a bit about what's going on in e-commerce? You referred from others in the industry that the stronger dollar is slowing some sales. But, sort of, what's the relationship with eBay? How aggressive is eBay being in trying to expand countries and grow that, and just how should we think about where e-commerce will probably come in this year? Then I have a couple follow-ups.

Well, listen, probably questions about eBay are best answered by eBay. I would say that business continues to grow and scale nicely. It is, as you pointed to, Shannon, affected by exchange rates. I mean, so if you think about the preponderance of that business that's US outbound, so when exchange rates begin to fluctuate, that has the obvious impact of increasing the price of goods. And what we saw in the fourth quarter is those businesses in particular are susceptible to those types of currency fluctuations. And if you un-layer it even more, you'll get blings like US to Russia, where there was fairly dramatic currency impacts. I mean, those lanes were commensurately affected. So, on balance, I would say the business continues to scale nicely, didn't scale in the fourth quarter the way that it had the previous quarters and thus, the overall net impact to digital commerce. That said, it's still growing well and we're pleased with it.

I would also note that we did launch in the UK, outbound in September. We did add UK to US later in the fourth quarter. So that does provide, although it's much smaller, does provide some counter balance.

Thank you. And can you talk a bit about milestones for ERP implementation and, perhaps, maybe the incremental expense in branding, just things we should look for as we go through the next say, six quarters or so to see sort of where the investments are that we can sort of track to see that things are on track?

Sure. I'll touch on ERP first. As we cited, the incremental expense this year is really around significant portion of completing the developments, so all the design work and that is done. We're really now in the build phase of the program. There's also, in 2015, we anticipate a lot of work relative to data and so that will be the big focus for 2015. Looking six quarters out, we expect in the latter part of that time frame to begin the implementation in a staged fashion. So we will start on a geographic basis and then roll out accordingly.

Okay. And then, with regard to the branding, anything we can look for or is it just sort of ongoing expense?

Well, you can – you will see right now a new website which, I think is terrific and well-received by the clients. Over time, you'll see more on social media and we'll do a dose of advertising at some point this year. But as we look at the most effective tactics vis-a-vis advertising, social media seems to be the most cost effective way. There's lots of things you could point to right now, new website, new logo. But the full impact of this will be felt over some number of years.

I would add that the other things that are less visible from a day-to-day basis is a lot of lead generation activity. That goes on in support of our direct sales organizations as well, as well as the collateral that they have that kind of ties together with the new branding.

And my last question is just with, I'm sorry, just with regard to share repurchase, how aggressive do you anticipate being? Given the stock has been, I mean, overall stocks have been all over the market with currency and everything that's been going on. Generally speaking, with the stock in the low 20s, given the opportunities that you have in terms of leveraging what you've got in place right now, any thoughts on being more aggressive, especially with the cash balance?

I'd say that we'll be continue to be opportunistic as it relates to share repurchases. Our first priority is investing in our business and as we pointed to, are making some. I think prudent, but some fairly significant investments in our business, whether it be the brand, the systems, and the product. We will selectively look at acquisitions that may make sense, that fit to the segments that we've described and then we will continue to return money to our shareholders. If you look at 2014, between the dividend, the share repurchases, it was – Mike will give you a specific number, but it was pretty close to $185 million to $190 million. So, we feel pretty good about the money that we're returning to shareholders. And I would say again, in an interest rate environment, that's very low interest rates, we like our total shareholder return.

Thank you very much and hope you're not getting too much snow up there.

Thanks, Shannon. Be safe.

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

Thank you. Mike, I was hoping you could elaborate a little bit more on equipment sales, was down double-digits this quarter, and if you could maybe parse it up into what the primary components were. I know, last quarter, there was some impact because of Europe and others. So I was hoping you could just provide a little more color on that?

Sure. If you look at it on a consolidated basis and you'd factor out currency and look at the underlying, the bigger driver to the decline in equipment sales was actually production mail. And that was driven, in part, because last year in the fourth quarter we had a couple of large deals that included both inserting, as well as some production printers, which carry a fair amount of equipment revenue. If you look at the underlying SMB equipment revenue, the other thing I should say in the consolidated is the comparison for the product line and the markets we exited in Europe. So again, sort of equalizing for those, the underlying SMB business improved over the last couple of quarters. The equipment sales was down mid-single digits versus close to 10% in the last couple of quarters, on an apples-to-apples basis. So, it's consistent with the progress that Marc noted in terms of our overall sales force improvements.

And then, I think, Mike, you said for 2016 you anticipate $30 million to $40 million in savings, but you also anticipate reduced ERP expenses. Would that $30 million to $40 million be inclusive of the reduced ERP expenses or is it $30 million to $40 million plus reduced ERP expenses?

It's the latter. Its $30 million to $40 million of incremental cost savings, based on the programs that we've identified in the fourth quarter of this year and we expect that 2015 will be the peak year for investment in ERP, because of the cost of the build process and the data cleansing process. 2016 will be principally implementation, which we expect will be something less than what we are investing in 2015.

I was hoping to get your thoughts on digital commerce. You talked about FX having an impact. I'm wondering, was there an impact at all from the inability or maybe difficulty in signing new customers, especially with the way FX is going? And then just a bigger picture, as you've now been running the business for a little while in the digital commerce, is there something you would need to add to maybe take it to the next level or is it just being patient in time?

Well, listen, we'd always like to have more clients. Our priority has been to ensure that we provide a great level of service to the clients we have already. As Mike pointed out, we brought online eBay UK in September, and ramped that up predominantly late in the fourth quarter. We added some merchant direct new clients as well. So, we've added clients there, more to do. So, I continue to be very optimistic about that business. But it's unlike a typical software business in that, you've got to make sure that you have the right logistics capability as you add those clients. Because you've got to be able to provide great service and I would point out that this business is a business that consistently delivers 4 to 5, 9s [ph] of service levels. And, if you look around all the stuff you read in the press about clients that have had issues shipping, we're very sensitive to make sure that we're not on that list.

Yes, I would just add, we're just about at 50 merchant direct customers at this point.

I would say that answer kind of, perhaps, underlines the assumption of your question. I mean, clients still are very interested in this capability and exchange rates. I expect exchange rates will be fairly volatile in the coming year, given everything that's going on with, kind of, divergent monetary policies around the world. That being said, global commerce is here to stay. So, you'll have some momentary disruptions in this business, but the underlying trends we continue to see are very positive.

Are you seeing any greater competition for these customers as other companies try to also fight for this business or is the competition level the same and now it's just a matter of making sure that you have the infrastructure in place, so you can provide the quality of service that your customers would expect?

I would say that the competition for this is, you know, has been fairly intense and it will continue to ratchet up. That said, as we look at what's going on in the industry, what others have bought and what not, we certainly like the way that we're positioned. We have enough intimacy with this market to know other's capabilities and we like how we're situated. So, if there was something that made sense in the space to add to the portfolio, we certainly would look at it.

Thank you very much.

Thank you.

[Operator Instructions] Your next question comes from the line of George Tong from Piper Jaffray. Please go ahead.

Thanks. Good morning.

Good morning, George.

Could you provide some thoughts on how you expect SG&A dollar savings in 2015 to hit as you move through the year?

Yes, in terms of the savings, obviously as we implement the programs that we identified in the fourth quarter, those will yield some benefits throughout the course of the year. I would say that because some of the activities are focused on the European marketplace and there is, I'll say a more extended process to implement all of those, we would expect that this would come in over the course of the year, throughout the year in terms of seeing the benefits. I would note that, as we identified up front, the timing of some of the investments may be a little bit more front end loaded in terms of both marketing as we do the initial launches of the branding, as wells as ERP, where we have a more intense period of work in the first half of the year. So there will be a little bit higher spend in the first half of the year versus the second half of the year on the investments. The benefits should come in across the year.

Got it. Can you also provide maybe, a little bit more of a detailed progress report on the UK eBay partnership and how large the revenue opportunity is compared to the US outbound eBay relationship?

Here's the way I think about that. I mean, the first thing, to answer your question factually, that business has scaled quicker than I would have expected. There's not a ton of existence terms here. But, if you look at how the US business scaled versus how the UK business scaled, you would observe the UK business has scaled faster. In terms of the overall market, I tend to look at the overall GDPs of the various countries as kind of a proxy for relative opportunity. Is that the easiest way for me to think about it, George?

The other thing I would note, George, is just that we are outbound to fewer markets than the US. Today it's about 17 markets versus 64 for the US. So, over the course of 2015 and beyond, we will be adding additional outbound markets from the UK.

And along that line, can you discuss your progress in adding new marketplaces to your e-commerce platform, including new countries with eBay outbound and other potential international marketplaces besides eBay?

Obviously, we'll keep you apprised of our progress there as we have something to announce. I don't have anything different to announce right now, George.

Okay. I guess, last question. Could you discuss the measures that you're tracking to monitor sales force productivity and how these metrics progressed as you moved through 4Q and thus far into 1Q?

Sure. Let me start with – we tend to focus predominantly on SMB for understandable reasons. We haven't talked a lot about software and we have experienced a fairly substantial change in our go-to-market there with a much more specialized sales force. If you look at the measure that we're staring at in software, besides licensed revenue growth, which I would point to as really a strong marker for the quarter. If you look at our yield rate on deals, kind of our pipeline, our yield rate on the pipeline in the fourth quarter was almost 10 points above what it was the previous year. So that speaks to the impact of specialization as it relates to software in particular. Within SMB, there's really a couple of different ways that we look at it. The first, and obvious is kind of, SG&A as a percent of revenue. So, obviously we're doing, I won't say more, but we're doing with a lot less people a similar revenue trajectory, if I could say it that way. With what we've experienced so far is better client service and if you were to point to the USPS market share data, at least stable share to if not, up a tick. So, we look at a bunch of different metrics as it relates to the productivity of our sales force and we obviously get it down to a salesman level, what they're doing on a daily basis. We have great tools that we're, I would say, early innings on between salesforce.com and a few other kind of adjacent tools that allows you to get productivity at a very granular level and we're looking at it on a salesman basis, I mean, almost on a daily basis.

All right. Thank you.

Thank you.

At this time there are no further questions.

Thanks, operator. Let me close then. So, hard to know precisely what 2015 is going to bring. It's clearly a rather unsettled macroeconomic environment. That being said, I like the way we're positioned. We have a geographic footprint with a strong North American presence and a much more variable expense structure in Europe. We've got strong market positions, recurring revenue, significant initiatives to drive productivity that are already under way and significant growth opportunities with real momentum from 18 short months ago. Finally, we've got a very strong balance sheet which is the foundation of a competitive dividend and I think that's the strong part of our overall investor thesis and we like where we're positioned from a capital allocation perspective. So, bottom line, we'll see what 2015 brings from a overall economic environment. But I like the hand we're playing here, not just for 2015 but for the long run. So, thanks again for joining our call. We hope everyone in the Northeast stays safe today and we'll talk to you again in April.