Pitney Bowes Earnings Call NUGGETS: Cash Generation, Free Cash Flow
Shannon Cross – Cross Research: My first question is just on sort of cash generation, cash usage, clearly you’re using it to pay down debt. You didn’t buy any stock this quarter. I’m sure you’re painfully aware of where your stock price is at right now. So, I’m just kind of curious near-term and even longer term, how you’re thinking about cash flow generation and use of cash given all the different things that you can invest in?
A Closer Look: Pitney Bowes Earnings Cheat Sheet>>
Michael Monahan – EVP and CFO: Yeah. Thanks for the question Shannon. In terms of the use of cash, obviously, we’ve taken a balanced approach to how we use the cash we generate. Obviously, we provide a healthy dividend which consumes about $300 million of cash on an annual basis and provides a good foundational return to the shareholder. We’ve been investing back into the business both through increased R&D and investments in things like Volly, as well as using some cash for paying out on our strategic transformation program. So, as we go forward, we’ll continue to look at a balanced use of our cash flow for return to shareholders, as well as to manage our overall debt portfolio.
Shannon Cross – Cross Research: Then, I guess if you look at your SMB business much clearly was under a fair amount of pressure, continues to be. What are the drivers, I noticed, you talked about supplies for copiers and printers, which I don’t remember seeing in any recent releases, so I guess how much of one-on do you think is recurring versus should start to alleviate, and is this still just a matter if we need to look for small business creation before this division starts to sort of write itself?
Murray D. Martin – Chairman, President and CEO: I think there are number of thinks there. Shannon, one, small business creation at the lower end of the SMB market is important for placing units and creating growth. However, we are seeing the initiative that we put in place starting to have some positive effect on the challenges that have been there. Our retention rates continue to improve with our customer base, so we are seeing fewer customers leave and in the long-term that will definitely help us from the revenue side. Also of the Connect+ system continues to place, and then as I mentioned, we launched web connected which is really brings web connectivity to the low end of the meter line and will then start opening up the ability to add web-based applications for those customers. So those are the areas that we see as mitigating, however certainly small business creation is what would create the greatest stimulus.
Shannon Cross – Cross Research: Then my last question I guess is, and I think I know the answers, but I just would like to hear what you have to say. The post office clearly has this $5.5 billion or whatever it is, pension payment coming due. I understand that they actually have to fund all of their postretirement benefits I think upfront or however that works out. But just can you remind us how we might think about this from a Pitney standpoint? Any issues with potentially the post office purchasing large ticket equipment, just anything that might come from what they are talking about right now.
Murray D. Martin – Chairman, President and CEO: Sure. First, we think that the post office has been taking a lot of actions and should be able to continue to take more actions to address its structure we’re supportive of them in their initiatives in that regard. As to the effect to us, we do sell large ticket items to the post office. We really are a provider for them. We provide services. So in our Mail Services business we continue to see growth there as we handle more and more of mail in the presort and now in the standard area, so both first-class and standard. So we don’t see there any issues there coming back directly. Certainly, any uncertainty about the post office can create people wondering which could have an indirect effect, but there would be no direct effect.
Shannon Cross – Cross Research: Just to be clear, in terms of an increase in postage or anything that might come out of that, there has been no announcements around that at this point I believe. So, in theory, there’s – sometimes you have some ups and downs in terms of sales depending on when rate increases and concerns around that, there is nothing that’s pending in the next couple of quarters?
Murray D. Martin – Chairman, President and CEO: Not that we see. Under postal reform there are limitations on what rates can change, when and by how much. So those are pretty well baked into the system and the Postmaster has said that he’s not looking to go outside of what their regulatory agreement is, or ask for anything special at this point.
Free Cash Flow
Julio Quinteros – Goldman Sachs: Maybe just to kind of come back to the first set of questions earlier around the way I guess I was thinking about it was more around the pressures in the business, the declines that you’re seeing, how long and how far can this last and you guys still be able to generate the free cash flow, because it seems like that’s the disconnection that we – I think when we talk to investors the most that they seem most focused on what you have, a steadily declining income statement, if you will, but the offsets on the free cash flow side continue to surprise in that, it is pretty resilient. So, if you can give us maybe some view on how much more pressure you guys can tolerate before this annual free cash flow actually would start to decline more meaningfully in a more meaningful fashion that would be kind of helpful.
Michael Monahan – EVP and CFO: Julio, it’s Mike. Just to touch on that, I think there’s obviously a couple of factors that drive free cash flow and certainly, earnings are one and I think what we’ve shown over an extended period of time is an ability to manage our cost structure relative to the change in the revenue profile of the business and that’s represented in the fact that in that core mailing business we’ve had eight consecutive quarters of improving margins. So, as we go through sort of a transition of the business, we have been managing the cost side of it. The other is, we have been evolving to a model that requires less capital in terms of capital expenditures back into the business and that’s come down substantially over the last several years as we’ve moved to more digitally-based products and lower cost in terms of delivering our products to our customers. In terms of the business model, obviously, as Murray talked to, there is a number of things that we’re doing from a product and services perspective to diversify the revenue streams within the SMB business to be able to drive growth in the business on a revenue per customer basis. Obviously, lower rental asset investments, but maintaining those revenue streams and the finance receivables is where we see the biggest change over the period and obviously, that’s why we focused on equipment sales as a key driver to driving that finance receivables balance as we go forward.
Julio Quinteros – Goldman Sachs: Maybe just to put it more or maybe in around some contexts around numbers if the revenue falls to 8% sort of 10% level, can you still achieve the $750 million to $850 million in free cash flow?
Michael Monahan – EVP and CFO: Well, put it in context, the North American Mailing businesses now around a third of our revenue base. So, when we look at our overall cash flow, it’s generated across the entire portfolio of businesses and so as we look at the enterprise businesses and the opportunity we see there that obviously has a mitigating factor to the core mailing business and obviously our objective in the core mailing business as we’ve done in the international side of the business attained stable meter base in Europe which has been relatively flat for a few quarters now, the revenue has been up just slightly for the last three quarters. We’re looking to drive a change in the U.S. or the North American business as well. We’ve also experienced a positive meter growth in Canada as well, so we are seeing particularly in the international market some leveling of those businesses.