必能寶 (PBI) 2007 Q2 法說會逐字稿

Good afternoon, and welcome to the Pitney Bowes second quarter 2007 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 objections, please disconnect your lines at this time. I would now like to introduce your speakers for today's conference call: Mr. Murray Martin, President and Chief Executive Officer, Mr. Bruce Nolop, 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. Please go ahead, sir.

Thank you, and good afternoon. Let me remind you that you can find today's earnings press release in 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 or national political or economic conditions, timely development and acceptness of new products, timing of potential acquisitions, mergers or restructuring, gaining product approval, successful entry into new markets, changes in interest rates, and changes in postal regulations as more fully outlined in the Company's Form 10K annual report filed with the Securities & Exchange Commission. Additionally, if there are any nonGAAP measures discussed during the call such as adjusted earnings per share, earnings before interest and taxes, or EBIT, free cash flow and organic revenue, there will be a reconciliation of those measures to GAAP measures located again on our website at www.pb.com/investorrelations. Now our President and Chief Executive Officer, Murray Martin, will start with an overview of the quarter. Murray.

Good afternoon. Thank you for joining us for the is announcement of our second quarter earnings. I will start with a broad overview of our performance, and Bruce will follow with a detailed review of our quarterly results and our guidance for the balance of the year. I will conclude with our plans for long-term growth, and then open the lines for your questions. We are pleased with our strong second quarter performance, which underscores our ability to deliver value to shareholders and to our customers. During the quarter our revenue grew 11%. GAAP income from continuing operations grew 27%, and our earnings per share were $0.69, a 28% year-over-year increase. Our adjusted income from continuing operations increased 10% to $159 million, and our adjusted earnings per share increased 11% to $0.71, which was at the high-end of our guidance.

This quarter's results were led by strong performance in three segments. U.S. Mailing, software, and mail services. First, as we anticipated last quarter, our U.S. Mailing results benefited from the new shape-based postage requirements, which fueled demand for our solutions and that resulted in double-digit revenue growth. Second, we had excellent results in our expanding software business due to our growing suite of applications. And, third, the continued growth in mail services reflected customers recognition of our value in increasing the efficiency and reducing the costs of their mailings. This is particularly important in light of the increased emphasis on work sharing and price flexibility as a result of the U.S. postal reform and as exemplified by the recently enacted rate case. Our strengths during the quarter reflect the ongoing success of our strategies, which are focused on enhancing our core mailing business and expanding into higher growth areas throughout the mail stream. We have taken actions to expand our offerings and enhance our operating efficiency in anticipation of the opportunities arising from the changing postal environment.

This quarter reflected the benefits from those actions as the postal rate change led customers to our equipment, our software, and our services to help them navigate the dynamic pricing and regulatory environment. And while we do not expect the benefits from shape-based pricing to continue for the remainder of the year, we are in a good position for longer-term benefits as postal rates become more flexible under postal reform legislation. We also are expanding into higher growth areas of the mail stream to take advantage of emerging opportunities. Mail services and software are both businesses that we were not in prior to the start of our transformation for growth. With the addition of these businesses, we can provide our customers with a broader range of end-to-end mail stream solutions and participate in the faster-growing segments of the mail stream. We're able to succeed in these new businesses due to our strong distribution capabilities, our understanding of the mail stream, and our large customer base. Our production mail segment performed as expected during the quarter as we continued to get good placements of a variety of equipment in both the U.S. and the Asia-Pacific markets.

Although we also continue to experience weakness in Europe, our international mailing results were adversely impacted by continued investments for growth in sales and marketing channels and the transformation of our European back office operations. In marketing services we experienced lower revenue in the motor vehicle registration program, and while we achieved excellent written business in our management services segment during the quarter, our results were impacted by our continued investment for growth in sales and marketing channels, as well as difficult comparisons to the prior year and weak performance in the legal solutions vertical. Now, let me turn it over to Bruce for a more detailed look at our results.

Thanks, Murray. Our revenue for the quarter was $1.5 billion, which represents an 11% increase from the prior year. Foreign currency contributed about 1.5% and acquisitions about 4% to this growth. Therefore, excluding the impact of acquisitions in currency, our revenue growth was 5.5%. We were very pleased with our revenue growth this quarter, which came in at the high-end of the guidance that we provided earlier. As Murray stated our performance was led by three of our business segments. First, the U.S. mailing segment achieved double-digit revenue growth for the first time in many years. However, the stimulus from the recent postal rate case will not continue into the third and fourth quarters, therefore we expect the U.S. mailing segment will have normalized revenue growth for the full year.

The second upside was the software segment ,which experienced excellent results as customers look to us to help them develop, target and print their customer communications. Excluding the impact of currency and acquisitions, our software revenue grew by 28%. The third driver was mail services, which continued to deliver outstanding results due to significant growth in both presort services and cross-border mail services. Excluding the impact of acquisitions and currency, mail services grew by 20%. As Murray also noticed, we have some opportunities for improvement, which we're actively addressing. First, we experienced weaker sales in rentals of mailing equipment in Europe. Second, our management services results were adversely affected by the legal solutions vertical market and lower off-site printing volumes. And finally, marketing services continued to face lower revenue in motor vehicle registration services. Overall our revenue in the U.S. grew by 12%, while our revenue outside the U.S. grew by 9%. In addition to favorable currency translation, the growth outside the U.S. included strong performance in our Asia-Pacific operations for both mailing equipment and software solutions.

Our earnings before interest and taxes, or EBIT, grew by 11% during the quarter. Our EBIT margin for the quarter was 20.1%, which was virtually unchanged from the prior year's margin of 20.2%. Our SG&A ratio was also constant this quarter. However, if you adjust for currency and acquisitions, it actually improved by 30 basis points or 3/10%. This will continue to be a focus going forward as we execute our strategies to control expenses and benefit from positive operating leverage. Our GAAP earnings per share for the quarter increased 28% to $0.69. This included a $0.02 impact for aligning the MapInfo accounting with our procedures for software.

On an adjusted basis, our earnings per share for the quarter increased 11% to $0.71 per diluted share, which was at the high-end of our guidance of $0.68 to $0.72. Our earnings per share benefited this quarter from a lower tax rate, which we now expect to be 34.25% for the year versus an estimated 34.5% previously. Our effective tax rate is lower because we are generating more state and local tax benefits than we originally anticipated. Our earnings per share was further helped by the decline in shares outstanding. Our shares outstanding this quarter were approximately 1% below what they were in last year's second quarter. Our cash flow from operations for the quarter was $187 million. This included $61 million of capital expenditures, which was considerably below our depreciation and amortization of $98 million. Our free cash flow was $155 million for the quarter, which keeps us on track to generate $550 million to $625 million of free cash flow for the year. We used $73 million of our cash to pay dividends to shareholders and we also repurchased $85 million of stock during the quarter. This means that we are continuing to return all of our free cash flow to shareholders in the form of dividends and stock repurchases.

For the year-to-date we have generated $310 million in free cash flow, and we have returned $320 million to shareholders. After taking into account other cash sources and uses, including the acquisition of MapInfo, the net effect was that we increased our debt by $501 million during the quarter, which increased the total to about $4.8 billion. And as of June 30th about 69% of our debt of the fixed rate and 31% was floating rate. We have no long-term debt coming due the rest of this year, and therefore we continue to have consider flexibility to respond to potential changes in financing conditions.

As we look to the third quarter, we are forecasting revenue growth in a range of 8% to 11% and for the full year we expect revenue growth in a range of 7% to 10%. We are maintaining our guidance for adjusted earnings per share at $2.90 to $2.98 for the year and our GAAP earnings forecast remains at $2.85 to $2.93. Our guidance implies a percentage increase of 8% to 11% from last year for our adjusted earnings per share and 14% to 7% on a GAAP basis. For the third quarter we're forecasting adjusted earnings per share of $0.70 to $0.74, which compares with $0.64 last year. On a GAAP basis we're forecasting third quarter earnings per share of $0.68 to $0.72, which compares with $0.64 last year -- I am sorry, with $0.66 for adjusted, $0.64 for GAAP for the comparison. So that concludes my remarks, and now Murray will give you further perspective about our strategies and outlook.

Thanks, Bruce. And as I stated in April, we have an unwaivering focus on the six priorities for accelerating long-term growth in value. First, grow all our cash flow. Second, increase customer value. Third, improve our operational efficiency. Fourth, solidify the performance of our core mailing business. Fifth, expand international business. And finally, focus on growth areas within the mail stream. We are making progress against these priorities. Let's look at our international business for an example.

Although we expect to continue facing difficult comparisons for the balance of the year, we have put in place marketing programs to improve performance, and we're continuing to invest and position ourselves for the long term. As Bruce noted, we experienced very strong growth in Asia which we see as an area for continued long-term growth opportunities. We are actively preparing to take advantage of new opportunities as the international markets continue to evolve, and this is one of the driving forces behind the expansion of our software business. We're comfortable with our guidance, and we will continue to make progress against our long-term goals for the balance of the year. We expect software and mail services to continue leading our growth, and U.S. production mail to continue benefiting from strong equipment placements.

In U.S. Mailing as we previously stated we expect to experience a normalized volume of activity for the full year. This segment's growth will be supported by placements of digital mailing systems and mail creation equipment and continued increasing demand for our supplies and our payment solutions. While we expect improving trends for the balance of the year, we are also taking actions to enhance the long-term value of our marketing services and our management services business. In marketing services we are broadening our customer relationships to lessen the business impact caused by a single program or a single client. Additionally, we anticipate growth in management services during the second half of the year as a result of the high volume of new business that was written this quarter, our excellent customer retention, and the benefits from the realignment of our legal solutions operation. In closing let me reiterate my confidence in our underlying business momentum. We had a good quarter. We're on track for the year. Our strategies are working, and we're focused on our priorities for delivering long-term shareholder and customer value. Now, we'd be happy to take your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from the line of Carol Sabbagha with Lehman Brothers. Go ahead, please.

Thanks very much. Just a couple questions. First, on the U.S. mailing business, a couple of months into or more than a couple months now, into the postal reform, are you getting any feeling for the timing of when new legislation may go in that would be attractive longer term for Pitney, about a rate structure that's more complicated than it currently is?

As we look at the continuing evolution there, the -- there is currently a discussion whether to have another rate case or to whether to progress to the new format. We would expect that to be finalized before the end of the year, and we would expect in the next -- over the next 18 months to see changes begin to occur.

Which is better for you, another rate case or a new format?

I think we're somewhat neutral on that. There is puts and takes on both. We think that as long as the customers are looked at in the best manner, that will be best for us in the long run. We believe that as we focus on ensuring the customers are seeing more value out of the mail stream and that that is the focus from regulatory reform that we'll see long-term benefit.

Okay. And, Murray, just two more questions. One on management services. That business has been on a bumpy ride for a couple years now, a couple bad quarters, a couple good quarters. When you look at that business, why do you think it hasn't been able to consistently perform at the level expected? And would you consider disposing of all or part of that business?

First of all, I think we've made good progress in management services. We've been transitioning the business model to a more technology-based business, and that as you mentioned has made some waves and lumpiness as we've continued that transition. We are seeing a very strong traction with our offerings as we look forward, as was experienced this quarter with tremendous written business, and we'll see that flowing through the balance of the year. That's why we're more optimistic looking forward at the balance of the year. As to the latter part of your question, as we look at all of our businesses, we're continuously looking at how to maximize shareholder value and how to deliver the best returns. So we look across all of our businesses continuously on how to do that, and we will continue to do so.

My last quick question is on international mailing. In that business at least on the revenue side, is it tough compares with the rate -- with the size-based stuff having happened in the U.K. last year, or are you losing some market share in that business?

Actually as we look at the market share, we see ourselves doing very well in market share in Europe, and we did have the -- as you recall -- the major uptick last year, particularly in the U.K. with the shape-based rating that went in, and it is very difficult comparisons. At the same time we've been resolving and consolidating that whole back office move that we began a year ago. So we're seeing that transition through. And then we're continuing to invest in expanding our sales and marketing throughout more countries in Europe and accelerating the investments there, because we do see the opportunity as we look at the changing environment, but we will feel the comparative pressure through the third quarter, and then it should lighten from there.

Great. Thank you very much.

We will go next to Jay Vleeschhouwer with Merrill Lynch. Please go ahead.

Hi. This is Woojin Ho for Jay Vleeschhouwer. Murray, can you comment on the MapInfo integration and generally what are you seeing in terms of multi-product offer sales versus single product offer sales, for instance just Group 1? Hello?

I am sorry. We've seemed to have lost our host line lines. Just one moment. They should be dialing right back in.

Hello?

One moment while we return to the question and answer session. Will the gentleman who was speaking when they were cut off please requeue?

It was Woojin Ho with Merrill Lynch.

(OPERATOR INSTRUCTIONS) Yes. Please go ahead. Yes. Go ahead please.

This is Woojin Jin with Merrill Lynch. Can -- Murray, can you comment on the MapInfo integration and generally what are you seeing in terms of multi-products offer sales versus single products offer sales?

Sure. Sorry for that little interruption, but we're back in here. MapInfo is going very well. The integration is very solid. It is progressing very strongly. We saw great organic growth in the quarter, so we've seen significant acceptance in the marketplace of the shift with the Pitney Bowes name. We're seeing across the suite of software products more and more interrelationships as well into our marketing services and mail services where address management, location intelligence, tying all of that together is very, very important to more and more of our customers. So we're getting more and more lift, not just from software and software, but software and hardware combinations.

All right. Now in terms of Europe, I understand that you had some tough equipment comps, but what are you seeing in terms of demand for big ticket items? And what can Pitney do to accelerate its exposure to that market given that your revenues are not proportion at to their share of GDP versus the U.S.?

The large ticket, which is really in DMT has been difficult there for about a year, and that has to do -- it is not Pitney. It is the whole market segment has been slow across the area. We do see that -- looking forward that it will start to come back. The equipment is aging in that market segment, so there will have to be a swing back as we look forward. But there is nothing specifically different about us than others. We are, however, going to be launching some new products later in the year, which we think will accelerate us in the larger ticket area.

Thank you.

Thank you. Our next question is from Julio Quinteros with Goldman Sachs. Go ahead, please.

Hi. Good evening, guys.

Hi.

Real quickly on the accounting for the MapInfo purchase accounting, want to make sure I understand that. The [$5.214 million] in the accounting related charge, where does that flow through your income? Is that flowing through in the cost of goods or the SG&A line item?

It is actually in the revenue recognition.

Okay.

Is the issue. It is at whether you take the revenue up front or whether you take it in over the course of the year, and we do it over the course of the year, and that's why it -- all the revenue eventually gets counted. It comes in more slowly.

Got it. That's where the adjustment -- perfect. As you look at the segment here where we had the pressure on the European operation offset by the U.S. segments, so when I am looking at the Mailstream Solutions -- the Solutions business, especially related to the comments you made about expecting the U.S. Mailing piece to sort of fall back down in the more normalized range in the second half of the year relative to international mailing, which is obviously under some pressure here, how can -- how comfortable are you guys as U.S. Mailing sort of decelerates to the normalized range and international picked up in the back half of the year, that those two would be able to balance each other out so that the continued pressure from international mailing doesn't actually cause some disruptions in the performance for you guys in the second half of the year?

As we look at it, the -- we think that the two combined will be fine in the period. We've looked very closely at what is transpiring in every country with deregulation in Europe and what the opportunities are here in the U.S. Our lease portfolio gets richer later in the year, so we are seeing that as being able to stay within the range that we had projected all along.

Okay. And finally, as far as the SG&A uptick, I thought I might have heard something in the comments you made about what might have driven some of the SG&A uptick. Was some of that currency related? And if not, can you sort of walk us through what led to the SG&A uptick sequentially?

Yes. It is really a couple things. One is currency, and the fact that you have a higher SG&A ratio outside the U.S. than in the U.S., so when currency goes up, it tends to hurt the ratio. And then secondly, the acquisitions in particular MapInfo software has a higher SG&A percentage, and so that also just changes the mix. So again that's what we're seeing on an organic basis if you just strip out those two factors, we were down 30 basis points year-over-year, and that's on the SG&A, 30, and then if you look at just the G&A portion which even a better story, that was actually down 80 basis points. So in a sense we are lowering our SG&A on organic basis while at the same time actually increasing our investment in selling and marketing.

Okay. Those are both down year-over-year 30 bips and 80 bips.

That's correct. And that's the way you have to look at it because each quarter has its own characteristics. When we look internally, we look comparison of year-over-year.

Got it. Okay. And then can we go forward with the current level around 31.2%, I think, is what I have for -- as a percentage of revenues. Should we expect that to come down or should we be thinking about that as more or less a new level we have to get used to here?

Yes. It will come down if we don't do any new acquisitions. In other words, that that's the only factor that would affect it. Otherwise, you can expect that we will continue to be lowering that, and we have a target out there of 28% that we said before we bought MapInfo, but just directionally that continues to be the trend that we see.

Can you remind me 28% over what period of time?

2010.

Okay. Great. Thanks, guys.

Thank you. Our next question is from Matt Troy with Citigroup. Please go ahead.

Hi. Actually it is Stan [Furman] sitting in for Matt. First, just going back to MapInfo, can you ist give us a quick refresher as the strategic fit and how that's looking both from a synergy standpoint and from a growth perspective, especially with your -- with respect to your core mailing offerings?

I will take the first part on strategic fit. As you look at addressing and you think about address hygiene and address quality, the natural extension of an address is its physical positioning, and that's really where the whole geospacial comes in, as to where is the physical location of the address, and that then ties directly into our software as to how to better maximize efficiency for routes, better efficiency for delivery point validation, it provides new data for us to enhance the entire address quality segment of the business. And then at the same time it ties directly into our marketing services, which takes advantage of when somebody needs to locate something, we can help them locate it and then help them market directly to it. All of that ties directly into our mail because that marketing is done through direct mail, and therefore it is a very close contiguous tie-in for us and is stimulating a lot of activity.

The other thing I would note is when we acquired Group 1, they had a location intelligence business located in Boulder, and so that was first of all how we learned about this particular market segment, and we knew it had high growth and a lot of potential. But secondly is we are going to get substantial synergies by integrating these -- our existing location intelligence operation into the MapInfo. That's in the form of R&D, administrative expense and marketing and selling expense, so we're very confident this will work out to be a very good acquisition for the Company.

All right. Thank you. Also, last quarter you mentioned the delay in the postal rate approval that was being shifted from the first quarter into the second quarter. Have these revenues now been fully realized, or should we expect some business trail or some of this benefit trailing into the third quarter?

We would expect they are pretty well fully realized in the quarter. There was the shift we talked about, and we see them as fully realized at this point.

Okay. And what do you see in terms of risk the other such bubbles or the shifting revenues in the foreseeable horizon? And if so, if you do see any, when would that -- when would you see them?

I am not really seeing anything of any significance that would create a bubble at this point. As we look at regulatory change, those could always be positive and sometimes they're a challenge, but we don't have any dates on anything specific at this point. Generally, they're positive, and we look forward to when the next opportunity occurs.

Okay. Moving on to the competitive environment, Neopost continues to grow, albeit from a much smaller install base, but I am wondering have you seen anything different from them either in terms of pricing or simply more street on the feet? Also [Friden Postalia] they've recovered from bankruptcy now and becoming more visible at least from a press release perspective. What are you seeing from them?

Well, I think that the press releases are good, but when you look at market share, it is staying basically the same. So if anything the latter one there has been some decline in Germany on their market share, so we're continuing to do very well in Germany. Our market share is growing there. As you look across the board, we are not really dropping market share anywhere in the world and are usually neutral to positive, so therefore growth at other companies are experiencing are not as a result of market share shift, but usually from other areas they've moved to or from expansion to direct from dealer-related businesses.

Okay. And that applies to both [Friden] as well as Neopost?

We haven't seen much change in the go to market strategy of [Frankaten].

Finally, in terms of resiliency of your business model, can you give us a refresher real quickly on relative resiliency in terms of how you guys do in a sideways market?

Yes. I would say that that's continues to be one of the hallmarks of Pitney Bowes is that we are not very sensitive at all to market conditions that the fact that when most of our equipment is leased, and those leases come due roughly every four years gives a real predictability about the business, and that's something. And in the high-end, the production mail part of the business, which tends to be more economically sensitive, in that case we're just introducing a number of customized products and really matching the customer's needs with what we offer them. And so we can really have our destiny in our own hands and not as much subject to the economic environment as we might have been in the past.

We said that at about 76% recurring revenue, and that's what creates stability in the model.

Okay. Thank you very much.

Thank you. Next we'll go to Eric Carlson with AKO Capital. Please go ahead.

Yes. Hi. Two questions. Firstly on the U.S. Mailing, I just wondered, you seem pretty of confident the market will slow down from Q2 in the second half of the year. Have you already seen that or is that something you expect to happen, and then secondly on international mailing, can you talk a little bit more about what your marketing programs are there in terms of what is it actually that you're doing. Is it pricing related or hiring more salespeople? Is it advertising, and also in which geography is it you're doing these efforts? Thanks.

First of all, in the U.S. Mailing, we really don't see any change in the underlying business. We did have -- we'd class it more as a bubble in Q2 where there was accelerated revenue from kits that upgraded the machines rather than changing the equipment, and so people added features to their existing hardware, and that was a one-time positive, but the underlying market is basically staying the same. In international, we have continued to expand our representation, particularly in the U.K. and in France, and that's where we've been spending the sales and marketing to enhance our capabilities. There we are not -- in the U.K., we're not seeing it as a price situation. We're seeing it as expanding our coverage and then adding broader solutions. We've introduced some new products and services there, and so we expect to see those realizing results going forward.

Great. And in France, what is actually that you're doing there? Is it more salespeople or a bit of pricing there as well?

In France, we've expanded our sales organization, and we've also entered the small business segment of the market, and that is moving very well for us.

Great. Thanks so much.

Just one followup on that. That's a rental market -- marketplace, so therefore you have your expense up front and the stream revenue comes in over a four-year time period, so you really see it follow -- the results follow the investment.

Yes. Thanks.

Next we have Pam Dawkins with the Connecticut Post. Go ahead, please.

Thank you. This is for Mr. Martin. I have been writing recently about the lay-off announcements due to the upcoming deal with Wipro, and I wanted to just find out a little bit more about this restructuring and deal with Wipro came about, and also how and when will you be accounting for it in your earnings, and about -- do you have estimates for how much this will cost you?

Firstly, as we look at what we're doing, we're continuously looking to optimize our organization. We're looking to increase our functionality and focus on our core areas and areas that will generate return for us and for our shareholders. As we look at some of our services areas, in those areas many times it is better for the employees and for the organization to have an outsource arrangement. We are obviously very large in the outsourcing business ourselves with our management services business. Similarly, there are portions of our business that we have outsourced over time. We have had a relationship with Wipro for many years. They already are an outsourcer in our application development area. We have not completed any transaction or final agreement. We have announced that we're looking at how we would go about transitioning this. It is less than 200 people involved, and as always we ensure that we do all transitions in an ethical and a caring way for our employees to ensure that they're treated fairly, to see that they have the best career opportunities for themselves, and then at the same time we focus on how we can deliver value for Pitney Bowes. So that is a summary of what we've done and where we are. We are not expecting any significant charges to occur as a result of this.

And how is that?

As we complete a transaction we'll advise.

Okay. Thank you.

Your next question is from Shannon Cross with Cross Research. Please go ahead.

Hello. This is Austin [Bernardus] in for Shannon. Two very quick questions. First, I wanted to get an idea of how internal growth was progressing for PSI? I noticed you continued to add new locations, and would like to get a better understanding of how you're progressing there.

PSI grew in the 20% range in the quarter, so it is continuing to grow very well. We're seeing volume to continue to grow. There is a very positive effect for customers to enhance their outsourcing of this to us. The wider range is made getting to the five digits more important, and with our volume we're able to do that better than anyone else. So therefore we're continuing to see that, and we expect to continue to see it move forward.

And so is it safe to say you continue -- that you would expect a mid-to-high double-digit range growth for the next year or beyond?

That's what we would anticipate.

Okay. And my next question is, with respect to the weakness -- some of the weakness you've seen abroad and particular in your legal services, how much of that is based upon demand versus competition in that area?

First, I take it as two questions. Let me deal with the European portion first. I think that is more demand than competition. What we had with the rate change is there was a large pull forward of equipment in Europe. We did not have the same effect here in the U.S. In the U.S. we added services to the existing equipment. In Europe they tended to change the equipment earlier so we have a slight delay until that cycle comes back in, but it is really -- we don't see it from a competitive side. On the legal side there it is really the -- I think we had challenges that we have addressed internally, and I wouldn't look at that as a market issue.

Okay. My final question is what was your internal growth for revenue year-over-year?

5.5% was the organic growth.

Okay. Thank you very much.

We will go next to Josh Golden with JPMorgan. Please go ahead.

Yes, good evening. You made an acquisition here, and you continued to repurchase shares. My question really focuses on the balance sheet from a fixed income investor standpoint. What will leverage look like going forward in terms of your credit rating? Are you still focusing on an A credit rating or are you willing to let that go down into a BBB? Can you give me color on what you plan to do with the balance sheet and how much debt you plan to maintain on it?

We have been increasing a debt as you noted, but our credit statistics have maintained maintained strength, and we look at such things as coverage of interest and debt to EBITDA, and those have gone well, and are relatively stable. We have been in constant communications with the rating agencies and they're well aware of what our strategies are, and we continue to be focused on maintaining a credit rating that will allow us to give financing to our customers and meet our obligations. That doesn't mean that we won't consider lower rating for the right opportunity, but we have no plans to change our basic credit profile at this time.

So would you say just through the normal course of business that you'd prefer to maintain an A credit rating?

An A rating, yes.

Okay. Thank you very much.

Next we have Lloyd Zeitman with Bernstein. Please go ahead.

Good afternoon, folks.

Hi, Lloyd.

Murray, I believe you mentioned PBMS had a good quarter in writing business, and I wonder if maybe you can add some color to that. And also the margins that the new business is expected to carry, should they be similar to what we've seen over the last year or so before this quarter, somewhere in the 7% to 8% range?

Yes. I am not sure what you meant by give you a little more color to it, but it was one of the strongest we've had in quite a few year to give you a little insight into what that is. The margin is equal or better than our current trends. So at the same time as we're seeing that, we're seeing a lower cancelation rate. So our retention rate of our existing customers is also stronger than it has been in the two together should give us a good look forward as we go out. But we would expect to see the margin to go from where it is positively.

Yes, and one thing I would add, Lloyd, is the written business is not only in facilities management or onsite, but it also increasingly is long-term print contracts which can be good margin.

Okay. I think you handled the question just fine, Murray.

Thank you.

And also Singapore announced a new meter discount plan. I know it is not one of the bigger markets, but is there anything that you see elsewhere outside of Singapore in terms of maybe an attitude to do something like this? And also can you give us an idea if Singapore really means anything to your overall results?

Well, first of all, we now have about six countries that have moved to meter discount programs and what is really transpiring as the posts relook at becoming stand-alone entities that need to deliver a breakeven to positive rather than being negative, they're looking at where they can actually generate value. And more and more of them are coming to realize the meter program provides a number of things, it provides loyalty, but more than that it provides a very efficient method of managing their funds at a much lower cost than any other means that they can put in place. So we've been working and are continuing to work with posts around the world that are seeing this and looking at how to recognize that value in their business model. We expect to see this continue to increase as a take rate around the world as countries see the value of this technology. As to Singapore itself, we have a very strong presence there, but it is not going to materially affect the results because of its size. But I think the more important thing is its strong indicator for that countries around the world, not just in Europe, but in Asia as well, are seeing the value and the cumulative effect of this will be very positive.

Okay. And just one more thing, MapInfo. Do you see the accounting situation bleeding over into 2008?

It will, Lloyd, just because it takes a year for it to run through. So it will be through May, but it will be less of an impact next year, but there will still be some bleeding through.

And I guess at this point you're not really ready to give us some ideas?

No. We'll do that in connection with we give guidance for 2008, we will update on any differences between GAAP and adjusted earnings.

Okay. Thanks very much.

Thank you. (OPERATOR INSTRUCTIONS) We have no further questions, gentlemen. Do you have any closing remarks?

Thank you very much. I appreciated the questions. I think they were very solid and enlightening to clarify some items. So I thank you for all of your work, and looking at our results, and we look forward to continuing to deliver enhanced shareholder value, which is our focus, and will remain our key focus as we go forward through the balance of the year and into the future. Thank you, and have a good day.

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