必能寶 (PBI) 2006 Q1 法說會逐字稿

Good afternoon, and welcome to the Pitney Bowes first-quarter 2006 earnings conference call. Your lines have been placed in a listen-only mode during the conference call until the 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 your speakers for today's conference call -- Mr. Michael J. Critelli, Chairman and Chief Executive Officer; Mr. Bruce P. Nolop, Executive Vice President and Chief Financial Officer; and Mr. Charles F. McBride, Vice President, Investor Relations. Mr. McBride will now begin the call with a Safe Harbor overview.

Thank you, and good afternoon. Let me remind you that you can find today's earnings press release and the attached schedules on our website at www.PB.com/InvestorRelations.

The forward-looking statements contained in this presentation involve risks and uncertainties and are subject to change based on various important factors, including changes in international and national political or economic conditions; timely development and acceptance of new products, timing of potential acquisitions, mergers, or restructurings; gaining product approval; successful entry into new markets; changes in interest rates and changes in postal regulations as moved more fully outlined in the Company's Form 10-K annual report filed with the Securities and Exchange Commission. Additionally, if there any non-GAAP measures discussed during the call, such as adjusted earnings per share; earnings before interest and taxes, or EBIT; free cash flow; and organic revenue growth, there will be a reconciliation of those measures to GAAP measures located again on our website at www.PB.com/InvestorRelations.

And now, our Chairman and Chief Executive Officer Mike Critelli will review with you the results for the quarter. Mike?

Thanks very much, Charlie, and good afternoon. We're pleased that our first quarter performance continued the momentum we exhibited throughout 2005, with good growth in revenue, EBIT, earnings per share and free cash flow.

There are four things I would like to highlight about the quarter. First, we experienced diversified growth throughout the mailstream. Second, we achieved an overall increase in our EBIT to revenue margins. Third, we continued to execute our strategies for balanced use of cash to add shareholder value. And fourth, we continued to make progress towards the disposition of our capital services external financing business.

We believe that the mailstream presents tremendous opportunities for the long-term success of our business. Our ongoing expansion throughout the mailstream enhances our ability to deliver value, and diversifies our sources of growth, as reflected in this quarter's performance.

Revenue grew by 7%, of which 5% was organic. A number of areas contributed to this quarter's revenue growth, including financial solutions, supplies, software, U.S. management services, mail services, and ongoing demand for our digital mailing equipment worldwide. This was the sixth consecutive quarter that our organic growth was within our targeted range.

Our EBIT margin improved from 19 to 20%, excluding special items and capital services as we continued to focus on higher value offerings, productivity improvements, and cost management throughout all of our businesses. This margin improvement was particularly evident in mail services and U.S. management services.

As we reviewed with investors at our recent analyst day, our goal is to deliver returns to shareholders through a blend of dividends, share repurchase, and strategic acquisitions. We generated $203 million in free cash flow during the quarter. Free cash flow is equal to $267 million in cash from operations less $83 million of capital expenditures. And it excludes $19 million in restructuring payments. We used $73 million of this free cash flow to pay a dividend of $0.32 per common share, a $0.01 increase from the prior year. During the quarter we also invested $152 million to repurchase 3.6 million of our shares of common stock.

Finally, we continued the strategy of using a portion of our free cash flow for acquisitions that strengthen our current businesses, or give us greater presence in fast-growing segments of the mailstream.

We just completed today the acquisition of Ibis Consulting. Its software and services allowed us to expand our electronic discovery offerings in the rapidly growing $3 billion litigation support market. We're also excited about the expanded distribution capabilities that Ibis provides through its channel partners. By combining the Ibis Consulting's capabilities with those of Compulit within our legal solutions business, we can now deliver even more electronic and physical document management solutions for the complex support needs of law firms and corporate legal departments.

During the quarter we also acquired Emtex Software. Its solutions allow large-volume mailers to simplify document production and centrally manage complex multivendor and multisite print operations.

We continued to move forward in reviewing various alternatives for the disposition of our capital services external financing business. As announced last month, based on the potential for an extended timeframe for completion of the spinoff, we expanded the scope of asset and business disposition options under consideration to include a sale of the business or a sale of all or a portion of the assets. We intend to decide in the near future on the best course of action for our shareholders.

Consistent with this strategy, we also announced during the first quarter that we signed a definitive agreement to sell the Imagistics portfolio for approximately 280 to $290 million to De Lage Landen Operational Services, LLC, a subsidiary of the Rabobank Group. The Imagistics portfolio is part of the capital services external financing business. We will be waiving the condition that the sale of the Imagistics lease portfolio be contingent on a supplemental ruling from the IRS as it relates to a potential spinoff of the capital services external financing business. Therefore, we expect the sale to close shortly.

As we look to the second quarter, we expect revenue growth in the range of 5 to 7%, and we expect earnings per share in a range of $0.62 to $0.69. Excluding potential restructuring charges, we anticipate second-quarter earnings per share in the range of $0.66 to $0.70. This forecast includes an expected contribution of $0.01 to $0.03 from our capital services business.

For the full year 2006, we increased our guidance for revenue growth to 5 to 7% and increased our expected diluted earnings per share by $0.03 to the range of $2.67 to $2.82. Excluding the $0.05 to $0.10 per share of anticipated restructuring charges for the year, adjusted earnings per share is expected to be in the range of $2.77 to $2.87. Included in the earnings per share estimates for the full year 2006 is $0.08 to $0.10 from the capital services business.

In closing, we are pleased that our progress continues in 2006 as we diversify throughout the mailstream to deliver enhanced customer and shareholder value. Thank you, and now we will be happy to answer your questions.

(OPERATOR INSTRUCTIONS) Jay Vleeschhouwer, Merrill Lynch.

Mike, to the extent that your businesses or parts of them are economically or volume sensitive, for the year to date, what parts of the business have become more marginally better since the end of 2005 in terms of your organic outlook?

Secondly, at the analyst meeting in New York, you focused on your software and retail opportunities. If you could update us some more on progress in software and the retail strategies that you have? Then a follow-up.

There really wasn't any significant impact, positive or negative, from either mail volumes or copy volumes in the first quarter. You know, in the PSI business, we did get some more pricing improvement in the quarter, which helped margins. And we did see some improved volumes in IMEX.

But in terms of broader economic indicators, in North America, there really wasn't any major impact. We do see some delayed and lumpy capital spending in our DMT business in Europe, which didn't help us in the first quarter.

As far as the software business, it grew by, I believe -- organically about 10.8% for the quarter. And on the retail side -- I am assuming you're talking about eBay and the other solutions. Are you talking about anything (multiple speakers)

No, Mike; I was actually talking about some of the things you demoed at the meeting, like the personal kiosk and those of sorts of things.

Really not a factor here, because those required postal tenders. We continue to get maintenance revenue from the kiosks we have deployed in the stores. But we have a number of promising prospects. But the kiosks that we demoed are going to go through various kinds of competitive solicitations in the various markets in which we're offering them to the post. And those are going to take some time.

Okay. And then lastly for me, could you just bring us up to date on the effectiveness of, or your measurement of your cross-selling activity?

Cross selling was -- I think we experienced some positive impact from cross-selling done last year. It wasn't a big factor in terms of revenue increase in the first quarter, although we have a very strong pipeline for the remainder of the year. I visited one state government customer where we had -- we put online a records management process that brought together management services, Group 1 Software, and global mailstream solutions. But the bulk of the work on that was done last year, although we started to see some revenue in the first quarter.

Matthew Troy, Citigroup.

I had a couple of questions. First, if you could give an update on postal reform. I was talking to a contact in the Administration late last week, and brought up an interesting point -- that being that the second session of the 109th really, for all intents and purposes, maybe coming to an end in June, if we think about the August recess -- and the November elections will certainly serve as a distraction.

I was wondering if you could just give us an update? Do you think it's reasonable to assume we'll get more definitive progress towards reform as the bill sits in committee now before June? And two, what do you see as a key entitlement? My friend says that while everyone is focused seemingly on military and escrow, that there are some issues relating to the FASB pension and postretirement benefit that could be even a larger impediment that perhaps people aren't thinking about right now. And then I have a follow-up.

First of all, I think there has been a lot of behind-the-scenes work which we understand is moving the various stakeholders in Congress and the Administration closer to resolution, but there has been no formal meetings of the conference committee. But that's not surprising, because under the rules of the House of Representatives, once the House is convened, there is a very short timeframe within which the conference committee should act. But I believe there has been good progress made, but we have nothing official or further to report.

Relative to the long-term benefit issues, it has always been assumed in our assessment of the legislation's impact that the military pension, the escrow and retiree medical would be dealt with in a package, and that the effect would be long-term positive for the U.S. Postal Service, and perhaps short-term would have some positive impact on rate mitigation.

The only issue that I think is going to be challenging, although I think there is some good work that has been done on this by the various stakeholders -- I think the price cap is going to end up being the most complicated issue to resolve, although I do think it will get resolved. And I do think there is sufficient time, given where we are, for this bill to pass during this session.

Okay. Second question just relates to the current quarter results and your guidance for the year. Am I correct in assuming that the $0.69 number that you reported this quarter is fully burdened by options expense, and that your guidance for the year also incorporates options expense?

That's correct. And the options expense was roughly $0.02 a share for the quarter, and $0.09 is our estimate for the year.

So it was an even better [bead] than I thought. Great quarter, guys.

Carol Sabbagha, Lehman Brothers.

Just a couple of questions also on guidance. You're raising guidance by $0.03, it looks like. Is that just the capital services asset sale this quarter?

That's correct, Carol. That's really just a catch-up for that. We have not changed the fundamental guidance for non-capital services.

Did you change the revenue guidance for non-capital services? It looks like you raised it up --

Carol, that reflects that we just announced the closing of Ibis. And the foreign currency is not as negative as we anticipated when we gave the guidance.

Oh, okay. And the capital, is that -- sorry for the focus on little nitty-gritty things, but the $10 million in that other -- is that the capital services sale?

That's the asset sale within capital services.

Okay, just making sure. And then on the potential sale or spinoff of the capital services business, do you still expect to give us clarification within that original 60-day period, which would imply beginning of May?

And then should we read too much into the fact that you are allowing Imagistics to be sold off without getting IRS ruling? Should we read into that you are likely to sell the capital services business and not spin it off?

No -- on the second question first, we concluded that the risk of it jeopardizing an IRS ruling was small and manageable, and that it was better to secure the cash and get it done than hold it up.

On the first question, I am going to -- we do have a Board meeting the date of our annual meeting. But it would be presumptuous of me on a complex issue like this to say that there will be a decision on a certain date. However, our goal is to get this done as quickly as possible.

Okay, and then on the global businesses services, the margins clearly were better than what we were expecting in both managed services and in the mail services businesses. Can you talk about where we could see margins end up for those kind of coming out of this year? They both seem to be trending on a decent improvement quarter on quarter.

Bruce, why don't you talk to that one?

Carol, just as a general comment that in management services, as you noted, they had an exceptionally good margin quarter. And part of that was that there were some good contracts in off-site -- production printing off-site. And that is where we might have some question as to how sustainable that would be. Obviously, our goal is to maintain that flow but that tends to be less predictable.

But overall, what I can tell you management services -- is that, at least -- especially in the U.S., they will definitely have an uptick in margins for the year. They're seeing a good improvement in gross margins. The strategies are working -- the focus on better contracts in terms of the margins. The vendor relationships are improving. The focus on cost -- everything is working. So we haven't given a specific margin forecast, but you can definitely assume that it will be better for the year.

And in terms of mail services, that's a story, as we have told you before, where they were being burdened by the integration of new sites, in particular the Ancora sites. And that journey seems to be behind them. And we should have improving margins going forward.

Yes, there might be little flattening out in one quarter as we bring on board one additional site, because we did add another city short -- recently in Detroit. But other than that, the average for the rest of the year should continue to be an improvement over last year.

And Bruce, how much did the good contracts from the off-site business help margins in the quarter, just so we won't be surprised over the next couple of quarters?

I don't have that quantified, but --

Probably about 1% (multiple speakers) is a good number.

At the moment, yes, yes.

On the EBIT side -- 1% on the EBIT side. And then you've got to --

Yes, and Carol --

I'm sorry, on the EBIT -- yes, on the EBIT margin side.

And Carol, to clarify, I think there will definitely be on the second quarter and the rest of the year [above] year over year. What I'm less confident about is whether sequentially quarter by quarter it will go up.

Got it, okay. And my last question is, is it possible to get the revenue growth by the segments you gave out -- like five segments you gave out excluding FX and acquisitions?

This would be the organic assumptions, and that would exclude strategic transactions -- and just to make sure everybody understands, it excludes currency. So if you go down the line, within global mailstream solutions, inside-the-U.S. mailing would be 4.6; inside-the-United-States DMT would be 6.5; and outside the United States, which is a combination of both mailing and DMT, that would be 2.5.

And then for the business services segment, the two parts are management services is 3.7 -- and I should plan out there, Carol, that the growth in the U.S. was roughly 6%, but that was offset by a decline in the international operations. (multiple speakers) mail services was 18%.

And did the management services exclude or include the [shell] exit?

We adjust for that, since that is just a change in passthrough revenue. So that's in our definition of strategic transactions or changes in the business.

It will fall out as a comparator by the third quarter. I think it will be mostly gone in the second quarter. But by the third quarter, it will be completely gone in terms of having a distorting effect on the prior year comparisons.

Shannon Cross, Cross Research.

One question on mailing services -- obviously, it's been very strong, and it seems as if it will continue. But since you say there's one more city to build out, what is -- when you give 18%, is that organic? That can't be organic without including some of the incrementals. So I'm just trying to figure out on an apples-to-apples basis when the thing is fully built what we can expect it to run at? And I'm actually thinking PSI more than anything there.

Shannon, just to clarify, this quarter was pretty much a same-store type quarter. And so it did not have the effect of new sites. In fact, that's what makes it a particularly noteworthy quarter is that that reflects both higher volume and more dollars per pieces and [ponds] in these locations, and then Imagitas also had organic growth from its run rate when we acquired it.

Okay, great. So (multiple speakers) keep doing 18%, that's a great number.

(multiple speakers) it won't necessarily be that high every quarter, but that is indicative of the underlying growth rate of that business.

Okay, that's fantastic. And then a question just in terms of sort of overall demand. Obviously, you have mailing up 4.6% organically. What should we think are still the drivers within that, and what should we think about market share, because -- obviously you're the dominant player, but what's really driving some of that growth?

Well, we are seeing good growth, of course, in the supplies revenue worldwide. Small-business solutions worldwide -- actually stronger growth outside the United States than in the United States. Payment solutions has a very strong growth.

And within the U.S., our mail creation productline had a very strong quarter. And that's important, because even after meter migration winds down a bit, mail creation is still going to be a strong growth driver. It might even be stronger as our sales professionals focus more on that than they do trying to upgrade or convert customers to digital product. Certainly, if we include software in the mailstream component, that I think has excellent growth potential. And I think I mentioned payment solutions grew almost 13% in the quarter. So that continues to have growth potential.

And then -- boy, there was almost an accident outside my window. Anyway, then looking at the software, can you give us an update on Group 1 and some of the things that you -- I think, Mike, we talked about in terms of opportunities to expand that into other services? How is that business going?

Well, the geocoding part of the business had a phenomenal quarter. The mail efficiency piece is something that we're going to be watching very closely. We expect a postal rate change announcement anytime now for 2007. And we're going to take a close look at that obviously to see if there are any signals that the Postal Service will look at address incentives. At this stage, we have no indication that they will.

The document composition software of Group 1 should have good growth going forward. But I think if things do not change, we're still expecting double digit -- 10% or better growth from Group 1 for the remainder of this year, and depending on whether the USPS announces address incentives, that could go higher.

Okay, and then just one final question -- Bruce, any change or difference in your thoughts on cash flow for the full year?

No, we still feel very comfortable on $600 million. And that would be irrespective of what we decide with capital services.

Okay, and actually on that -- is there any way to consider that a discontinued ops? I'm sure you have gone over it with your accountant.

It depends, Shannon, on what decision we make. That's one of the factors to take into consideration in the review of alternatives is they have different accounting effects.

Julio Quinteros, Goldman Sachs.

A quick question on my side relates specifically to the international segment. First of all, if you could just kind of walk us through the parts on the international side in terms of the weakness there.

Also, wondering about the eventual ramp-up of some of the emerging markets like India, China, Brazil, etc. -- when do those become meaningful for the model, and what kind of trends generally are you seeing with your recent investments in some of the sort of sales and marketing efforts around -- I believe it was both Brazil and India? So any update you could provide on that front, that would be helpful.

As a general matter, we had strong performance from small-business -- low to medium volume meters through the small-business group in most of the world we had strong performance wherever we have financial solutions. We have strong supplies growth across the board.

Outside of Canada, our mail finishing and mail creation productlines did well. We had three areas of weakness. Canada just had a sales structure change, and it took us longer to get up and running there. So we didn't have a good quarter in Canada. But we had a good month of March, and we feel that Canada is going to bounce back in the second quarter and beyond.

The two areas of challenge in Europe were DMT, where the business is lumpy. We got some good written business. So we expect improving performance as the year goes on. And I think the issue in DMT Europe is that we need to leverage the full strength of all of our solutions. We haven't yet integrated the selling and marketing efforts to the degree that we could for Group 1, Emtex, and DMT in terms of approaching customers with the full power of Pitney Bowes' offerings. So we're doing some work to try to improve that.

We also I think with the -- we are going to do some work to strengthen the mail [co-sortation] offering. And we expect as the markets liberalize, we're going to get some benefit there. The only place right now where we are getting some good revenue out of mail code in Europe is Germany. There has been some liberalization in the UK, but we have to probably broaden our product offerings for that. And the rest of the markets, it just hasn't taken off.

When it gets to emerging markets, good growth off small bases pretty much everywhere in the emerging markets, but not meaningful at this point in time. India had excellent growth. China, we're just starting to see -- but we're not seeing a commercial market in mail finishing, because the post office still controls all metering. But we're starting to see some uptick in mail creation solutions in China -- and India, we had pretty good performance across the board, but again, off a small base. I would say that we are probably -- and Brazil, we had a good quarter. I would say, though, that realistically we're three to five years away from Asia-Pacific and Latin America emerging markets -- and I am excluding Japan from this -- really having a meaningful impact on our topline and bottom line. But they are all growing well.

And are there any -- as you look at those emerging markets, in particular, I know that they're off of relatively small bases. Are there any acquisition opportunities that you guys would contemplate to accelerate the contribution from those areas?

We are continually looking at acquisition opportunities in adjacent spaces. But we aren't far enough along to talk about any opportunities at this point in time. But the answer is yes; we always are looking at ways to look at adjacencies in the mailstream that are more meaningful for the Asia-Pacific and Latin American markets.

And let me just come back to your point with regards to China. You made a point about mail creation as an opportunity. But on the other side, there was some kind of a regulatory issue? Can you just kind of walk through that again?

As we said all along, China -- unlike other markets, there is no commercial market for postage meters. [China Post] does all metering at China Post facilities with China Post employees. So the market opportunity that we have in many other markets to sell or rent or lease meters and the aligned equipment is not available in China and it's very hard to tell when the China post authorities will change their mind.

On the other hand, the upstream solutions like the folding and inserting, the addressing and the software and integrated systems -- we are starting to see direct-mail volumes grow in China, and the post does not regulate that. So we are more optimistic about mail creation and Group 1 solutions, as well as DMT, that are unregulated than we are with the regulated products. (multiple speakers)

(multiple speakers) lastly for me, then -- along those same lines, the opportunities in India and Brazil -- are the regulatory environments more favorable than what you find in China? And if you could just kind of characterize what you guys are encountering there, that would be helpful.

India is -- yes, India has a commercial meter market. The issue in India has been that the Postal Service has lost a significant share in the mail to unlicensed private couriers. However, there is legislation pending in the Indian Parliament that would be the equivalent of our Private Express statute that would carve out a space in which there would be a monopoly that would be enforced, and there would be licensing of couriers so there would be more of a level playing field between the post office and the couriers, the alternative carriers.

That legislation is pending. It's difficult to predict if or when it will pass. But I think it's significant that there is legislation in India that would bring more regulation and regularity to the mail market.

India as well is seeing an uptick in mail volumes for mail creation and document messaging technologies. Additionally, in India, we have been able to repurpose our postage meters for [text metering] applications. India still uses [text] stamps on real estate deeds and other valuable documents in document transfer situations. So we have seen very good growth.

The thing to keep in mind about India, though, is that you always have to divide the revenues by about a factor of five, because everything -- just like labor is less costly there, everything else is less costly -- pricing is lower, but we are seeing very good growth there, and we are probably more optimistic in the short to medium term about India than China.

Brazil -- we have a joint venture. It started from a very low base. And we're seeing good growth there. But again, it is at an earlier stage of evolution in India.

Maybe just one last, last question -- sorry about that. As you guys continue to explore your own cost structure, especially on the SG&A and R&D side, I know that obviously you guys have done some work with sending work abroad to China and to India. How much more opportunity is there to continue to reduce the cost structure by leveraging some of your own offshore initiatives -- or further leveraging offshore initiatives, excuse me?

Well, we have been careful and selective and using offshore resources for IT, call center, and engineering. And we continue to move work selectively where it makes sense. And I think there is opportunity.

We also think there is a lot of productivity opportunity through programs like our Six Sigma program that we have throughout the Company. And in Europe, we are going to embark -- well, we're at the early to middle stages of moving to shared services as well as offshoring.

So we think that there's more upside in terms of cost structure in a relative sense in Europe, although we think there is opportunities in every part of the world for shared services, offshoring, Six Sigma initiatives, and just general technology upgrade improvements as well as strategic sourcing.

(multiple speakers) I should note that in this quarter, although it's not obvious because of capital services' transitional expenses, SG&A ratios -- if you exclude capital services ratios, capital services' transitional expenses, I think we improved by 40 -- basis points?

That's correct (multiple speakers) and if you wanted just to look at it purely organically, excluding acquisitions, the improvement was a half percentage point.

Yes, we are seeing SG&A and margin improvement.

Lloyd Zeitman, Bernstein.

Let's see --- the situation with DMT and the Canadian restructuring costs -- are you giving out any specifics on that as to how that impacted the quarter?

DMT Europe --

Maybe we should just elaborate a little bit about what they were, too? Maybe that's the most helpful thing. And I would just comment -- one that we didn't mention here is in DMT in Europe, we bought a company called [Group Mag]. And we have encountered activity from the competitor, [Kern], from whom we bought -- or previously was the equipment manufacturer that dealt with the dealer -- after we purchased the dealer, they have engaged in unlawful activity. And that cost us about $3 million of revenue in Europe. And that's something that we are addressing through legal channels.

Yes, we got a judgment in our favor during the first quarter. We got an injunction against continuation of their unlawful conduct. The damages component of that will probably take quite a few months to be determined. But it's certainly possible that in some later quarter, we might be reporting an increase in our EBIT from the recovery of those damages.

And then the issue in Canada relates to the acquisition of Danka. So it's restructuring related to that acquisition. And that was the service operations that we acquired from Danka in Canada. And those costs are being incurred right now.

But again, we expect that that's going to wind itself down as a problem over this quarter and next quarter. So we expect to see improved results in Canada. And we have a good written business pipeline on DMT.

The reason I'm not giving you specific numbers is that it's still a very lumpy business. And what we tend to see in DMT Europe to the same degree that we saw it four or five years ago in the U.S. is less predictability on the timing of revenues. And that's why it's a little hard to say what it would have been if the written business had converted during the quarter, as I can't tell you when -- it's going to work. What we're trying to do is build a stronger service revenue stream and have a broader range of solutions with a little more predictability in revenues. But we do expect improvement over the quarter.

And I should mention one other thing in Europe that relates to EBIT margins. I mentioned earlier we're moving toward shared services and outsourcing. We did have in the first quarter fairly significant dual redundant transition costs as we're moving to shared services and offshore. So as the year moves on, probably by the fourth quarter, we're going to start to see some benefits. And then next year, things will flip around, and we will see significant benefit from what we are doing with Europe.

So we achieved these results with the baggage of a not particularly exciting performance in Europe and Canada, which makes me feel very good, because I think all of those are going to continue to improve.

Okay, [EMS] -- revenues came in about flat year to year, and that was somewhat above what I was expecting. Do you see maybe -- do you have a better outlook there than you had, let's say, just a few months ago?

I would say generally yes. Keep in mind the U.S. was up, as Bruce said, organically around 6%, but Europe was down around 9%. I think we're more confident of the U.S.'s ongoing improvement. We did get a little bit of a bump up from some off-site business in the first quarter. But we expect to see steady improvement in the U.S. business for the remainder of the year.

Europe is going to take longer. We are at an earlier stage. We're probably where we were a couple of years ago in terms of the implementation of a profit-focused strategy and a focus on areas where we do not compete with the United States, with the post office, because Europe is a little different [mode] than the United States. I would say that we're largely complete on our transition toward profitability and we are going to be focused on going forward on revenue growth. In Europe, we're a little bit behind in that process.

And as I said, the added challenge in Europe which we don't face here are our post offices competing in mailroom management and commercial print at, frankly, ridiculously low prices. And we will not compromise our standards on doing money-losing business just to keep the business.

All right, that's always good to hear. Just one other thing, the accounts receivable -- in the last quarterly call, there were some issues discussed there. It looks like they were pretty much flat quarter to quarter, and you guys had a pretty good quarter overall. Essentially, have the issues of last quarter been pretty much resolved?

Lloyd, we made good progress this quarter. And what is misleading is behind the absolute numbers of accounts receivable is the fact that we do a number of advanced billings at the beginning of the year.

So when you net it all out, the accounts receivable line of the balance sheet contributed $40 million from free cash flow when you combine it with advanced billings. So that to us was up a good performance. And we're making progress. We're not done. We still are working on it. So there's room for further improvement, but you should know that first quarter was a good result.

One of the things we did toward the end of the year was move the portfolio management or portfolio review responsibility to our financial solutions group, which if you look at the finance receivables have had an exceptional record. And they are getting their arms around the problem. And I think we can see improvements on the accounts receivable.

There are certainly parts of accounts receivable issues are (technical difficulty) [related] to billings and other kinds of issues. But there are blocking and tackling on the collections side kinds of things that I think we can do to improve those accounts receivables. And I expect we will be giving that increased focus as we move forward.

(OPERATOR INSTRUCTIONS) There are no further questions. Please continue.

I'm very -- as I said during my opening remarks, we felt we had a good quarter. And we have a good outlook for the rest of the year, and we look forward to -- certainly, we will see all of you or talk to all of you during the second-quarter earnings call. And we are, as we said, going to move as expeditiously as possible on the capital services issues. That's the conclusion of my remarks.

Thank you. Ladies and gentlemen, this conference will be available for replay after 8:30 p.m. Eastern Time today through midnight May 1. You may access the replay service by dialing 1-800-475-6701 and entering access code 825672. International participants, dial 320-365-3844. (OPERATOR INSTRUCTIONS)

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