必能寶 (PBI) 2010 Q2 法說會逐字稿

Good evening and welcome to the Pitney Bowes second quarter 2010 earnings results 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. Murray Martin, Chairman, President, and Chief Executive Officer; Mr. Michael Monahan, Executive Vice President and Chief Financial Officer; and Mr. Charles McBride, Vice President Investor Relations. Mr. McBride will now begin the call with the Safe Harbor overview.

Thank you. Included in this presentation are forward-looking statements about our expected future business and financial performance. Forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from our projections. More information about these risks and uncertainties can be found in our 2009 Form 10-K annual report, and other reports filed with the SEC that are located on our website at www.PB.com by clicking on Our Company and Investor Relations.

Please keep in mind that we do not undertake any obligation to update any forward-looking statements as a result of new information or developments. Now our Chairman, President, and Chief Executive Officer, Murray Martin, will start with an overview of the quarter. Murray?

Good afternoon, and thanks for joining us today. Let me start by sharing some thoughts on our performance. Mike will follow with the details of our second quarter results, and then we'll take your questions.

We remain focused on transforming our business to position Pitney Bowes for long-term growth and value creation. During the quarter, however, our near term performance was adversely impacted, by a challenging global business and economic environment. The related slowdown in new equipment investments and installations by customers was particularly evident within our small and medium business solutions and our production mail groups.

When we originally gave our 2010 guidance, we expected stabilization and improvement in global business conditions as the year progressed. We instead witnessed deterioration in conditions towards the end of the second quarter and into July.

Revenue for the quarter was $1.3 billion, a decline of 6% compared with the prior year. Adjusted earnings per share was $0.48 compared with $0.55 for the prior year, and it included a one-time charge of $0.05, primarily to correct rates used to estimate earned but unbilled international mail services revenue. Mike will provide more detail on this later.

We continue to take actions to make it easier for our customers to do business with us during these uncertain times. Some of those actions may have a near term impact on financial performance, but we are confident that they will have a long-term benefit for customer retention and will enhance customer value.

For example, we offer lease extensions on existing equipment as an option for our customers. We saw an increasing number and proportion of customers in our SMB Solutions Group take advantage of this offer during the quarter. Lease extensions are profitable transactions. They help us retain customer relationships though they generate less sales revenue than a new equipment lease.

The transition of our software business model provides an example of actions that we believe will benefit customer value in our Enterprise Business Solutions Group. We continue to transition some solutions to annuity based pricing, which customers prefer in today's global market. While, as previously discussed, this shift impacts revenue in the near term it will become a long-term benefit as we build our recurring revenue streams from term licenses and continue expansion of our SaaS offerings.

Our actions to reduce costs and enhance productivity are producing meaningful benefits in the near term, while we transition to an overall more flexible and competitive cost structure in the longer term. During the quarter, these benefits were visible in improved EBIT margins in international mailing, management services, software and marketing services. The improvement in management services global EBIT margin resulted from our focus on more profitable contracts, ongoing productivity initiatives, and a continued transition to a more variable cost structure.

In software, ongoing integration of operations and focus on product offerings continued to improve EBIT margin while productivity initiatives drove EBIT gains in international mailing and marketing services. The disciplined implementation of our strategic transformation program is helping us in the near term while positioning us for the long term. We achieved net benefits of more than $20 million during the second quarter and approximately $30 million year-to-date.

We continue to target net benefits of at least $50 million in 2010. These significant benefits have helped to mitigate some of the current business weakness while at the same time freeing up funds to invest for the future.

The reinvestment of a portion of the benefits from strategic transformation, coupled with our strong free cash flow, has given us the flexibility to develop, acquire and deliver innovative new offerings and important capabilities in growth areas. These new solutions help our customers grow their business and manage their mail and document operations more efficiently.

In May, we completed the launch of our ConnectPlus communications and mailing system in the US. Our global rollout will continue in phases going forward. ConnectPlus has a web and application based software architecture that provides instant online access to numerous mailing, printing, and reporting applications.

At the end of the quarter, we announced an agreement to acquire UK based Portrait Software PLC. We expect to complete this transaction in the third quarter. This acquisition is consistent with our long-term growth strategy to expand into faster growing spaces, not necessarily dependent upon physical mail. Portrait will enhance our customer communication management capabilities and offerings as well as our analytical expertise.

Let me now turn it over to Mike for a discussion of the second quarter financial results.

Thank you, Murray. As Murray noted, revenue was $1.3 billion for the quarter, a decline of 6% compared with the prior year. Currency had virtually no impact on revenue growth in the quarter.

Breaking down our revenue for the quarter between US and non-US operations, US revenue declined by 7% when compared with the prior year and outside the US revenue decreased by 3%, again with little impact from currency in the quarter. Non-US operations represented 29% of total revenue.

Adjusted earnings before interest and taxes, or EBIT, for the quarter was $203 million. This was $31 million lower than last year as a result of lower revenue, which included declines in relatively high margin, financing, and rentals revenue, as well as the international mail services adjustment. However, we reduced our costs as a percentage of revenue in the quarter for equipment sales, software, rentals, and support services, when compared with the prior year, in large measure because of the productivity initiatives we have been implementing.

Selling, general and administrative, or SG&A, costs decreased $5 million compared with the prior year. The year-over-year comparison reflects the reinstatement this year of certain employee related costs, which we temporarily reduced. Otherwise, our SG&A costs would have further declined year-over-year due to the benefits from strategic transformation.

EBIT margins improved year-over-year in four of our seven business segments, international mailing, software, management services and marketing services. These improvements in EBIT margins were a result of our continued focus on reducing our cost structure and increasing our operating efficiency across all the business segments.

As expected, the EBIT margin in US mailing continued to be pressured by reduced rentals and financing revenue, which as previously discussed will lag in improvement in US mailing equipment sales.

While we have clearly done a lot to improve our productivity, we are committed to doing even more through our strategic transformation program, especially in the current environment. Strategic transformation is enabling us to improve the way we go to market and interact with our customers, plus we are putting in place new processes and systems that will make our operations more efficient and profitable.

When we add back depreciation and amortization to our adjusted EBIT, adjusted EBITDA for the quarter was $280 million or $1.34 per share. Net interest expense in the quarter, including financing interest, decreased about $4 million when compared with the prior year to $50 million. This was primarily the result of a lower average interest rate during the quarter. The average interest rate in the quarter was about 4%, 26 basis points lower than the prior year.

The effective tax rate for the quarter on adjusted earnings was 31.5%. This was lower than the tax rate on adjusted earnings last year which was 34.4%. The lower tax rate in the quarter was the result of timing of certain tax related transactions and the mix of business. We expect the tax rate and adjusted earnings could vary during the course of the year, depending on the timing and mix of business but on average for the year should be within a range of 34% to 35%.

The GAAP tax rate for the quarter was 33.9%. The GAAP tax rate was higher than the adjusted rate, primarily for two reasons. First, we had a $3 million tax charge related to certain leveraged lease transactions outside the US, and, second, we had a small tax charge for out of the money stock options that expired during the quarter.

Adjusted earnings per share from continuing operations for the quarter was $0.48, which was lower than our adjusted earnings per share of $0.55 for the same period last year. As Murray already stated, adjusted earnings per share for the current quarter included a one-time $0.05 charge related to the international mail services portion of our mail services business segment.

During the quarter, we discovered some inaccuracies in shipping rates used in international mail services to estimate revenue on items that were already shipped but not yet billed. These estimates did not affect the amount actually billed to customers. These shipping rates apply to the periods from 2007 through the first quarter of 2010. Further analysis showed that the impact was not material in any given quarter.

As a result, we made a one-time out of period adjustment to reduce revenue in international mail services by about $21 million in the current quarter and EBIT by about $16 million, primarily related to the correction of estimated shipping rates. We have conducted a focused review of the process and determined that this was an isolated situation. Additionally, we have taken actions to mitigate the risk of a similar occurrence in the future.

Currency exchange rates did not have a significant impact on earnings for the quarter. GAAP earnings per share included pretax restructuring charges and asset impairments that totaled $49 million or $0.15 per share in the quarter. Additionally, as noted with regard to our GAAP tax results, GAAP EPS for continuing operations in the quarter included net tax charges of $0.02 per share related to the items I noted earlier.

GAAP EPS in the quarter also included a $0.01 per share loss for discontinued operations, which is related primarily to interest on uncertain tax positions related to our former capital services business.

Free cash flow was $157 million for the quarter, and $451 million year-to-date. Free cash flow year-to-date was about $8 million more than the prior year. During the quarter, free cash flow benefited from lower capital expenditures, and lower finance receivables. However, the contribution to cash flow from finance receivables was $11 million less than last year.

During the quarter, we returned $80 million to our shareholders in the form of dividends.

Based on the strength of our free cash flow through the end of July we repurchased about 1.2 million shares of our stock for $29 million. We increased our commercial paper balances by about $44 million during the quarter to $143 million. About 78% of our total debt is fixed rate, and 22% is floating rate.

Let me now highlight a few points about our strategic transformation program. In the second quarter we continued to implement initiatives identified by our project team and we finalized the planning for others we will implement throughout 2010 and 2011.

During the second quarter, our restructuring charges were largely for severance costs related to the elimination of approximately 400 positions across the Company. Since the program's inception we have eliminated approximately 1,300 positions. Year-to-date we achieved net benefits of approximately $30 million and continue to target net benefits of at least $50 million in 2010.

We expect the benefits to build throughout the year as we implement our plans. We are targeting annualized net benefits for the full program in the range of at least $150 million to $200 million by the end of 2011 and we expect to achieve the full annualized run rate of benefits in 2012. That concludes my remarks. Now, Murray will discuss our guidance.

As you saw in our earnings release, we're modifying our revenue and earnings guidance for the year but increasing our guidance for free cash flow. These changes reflect business trends during the second quarter, the economic business outlook for our customers for the remainder of the year, and the one-time adjustment in the second quarter. The global economy and business environment have not stabilized or improved as quickly as we had originally anticipated when we provided guidance earlier this year.

Also, contrary to our previous expectations, and based on the uncertainty surrounding the current economic outlook, we no longer expect the business environment to improve as much in the second half of the year. Given the continued volatility and uncertainty concerning currency, we will now provide constant currency revenue growth guidance. On a constant currency basis, we now expect revenue for the year will be in the range of flat growth to a 3% decline compared to our original expectation of revenue in the range of 1% growth to a 2% decline.

Adjusted earnings per share for the year is now expected to be in the range of $2.10 to $2.30, and GAAP EPS is expected to be in the range of $1.49 to $1.85. This compared to our previous adjusted EPS guidance in the range of $2.30 to $2.50 for the year and GAAP EPS guidance for continuing operations in the range of $1.71 to $2.07.

Our current GAAP EPS guidance includes tax charges of $0.13 per diluted share related to out of money stock options, certain capital lease transactions outside the US, and the impact of healthcare legislation enacted at the beginning of the year. GAAP EPS also includes expected restructuring charges and asset impairments in the range of $0.32 to $0.48.

We are increasing free cash flow guidance for the year by $50 million based on the strong generation of free cash flow in the first half of the year and the outlook for the remainder of the year. We now anticipate generating free cash flow for 2010 in the range of $700 million to $800 million compared to the earlier range of $650 million to $750 million.

We continue to realize the benefits of our ongoing actions to improve the Company's efficiency and market responsiveness and to identify and capitalize on long-term growth opportunities. We believe these benefits will become increasingly visible as the economy recovers and business confidence rebounds.

Thank you. Now let's open the line for questions.

(Operator Instructions). We do have a question from the line of Shannon Cross. Your line is open. Please go ahead.

Thank you. Good afternoon. Can we get a little further into the declines that you saw in terms of demand coming from SMB as well as what you saw in Europe? I guess we're a little confused because coming out of some of the office equipment guys, whether it was Xerox or Canon, what have you, we saw a definite uptake in terms of demand for office equipment, and it didn't seem like there was any slowdown in terms of SMB.

I am just trying to figure out if this is mailing versus copiers or if this is a change in your customers and behavior? Any color you can give us in terms of what you're hearing from customers and then I have a couple of follow-ups.

If we start first with Europe, the production mail in Europe, which is large ticket sales, with the uncertainty that was occurring in Europe is when we started seeing a slowdown there as decision making cycles lengthened and there were delays in taking equipment, so that is where we saw the European shift, and that was -- began around mid-second quarter.

In the SMB segment, we have offered the lease extension option, and when we see uncertainty in the market, customers opt for lease extension rather than new product, so we're seeing more of the lease extension as we have described before that has an impact in the near term although long term it provides fairly similar returns from a profitability with less revenue, so we started seeing that late in the quarter, that there was some slowdown in that area. Early in the quarter we did not see that, but the late period bookings we did.

I guess you have been seeing lease extensions for the last several quarters, so how has this changed? Again, is there sort of a change in how people are thinking about leases or in your installed base, your sales strategy, just was there anything other than just customers going, oh, crap, we might double dip and pulling back?

Shannon, just to give you a sense in terms of numbers, we had a doubling of the number of lease extensions this year second quarter to second quarter last year, and about a 40% increase from the first quarter. The shift of that has been a little farther down the customer base to some smaller customers. As I think you know our customer base though it is SMB tends to be more on the small side of the customer base and then a small percentage of our customers are larger entities, so we saw a fairly significant shift from that perspective, and we have also offered the lease extensions in some of our larger markets in Europe, and we did see an increase there as well. I think there is just --- there's an overall lower demand in the small business marketplace as well.

Was there any impact from any of the austerity budgets we're hearing about in Europe?

I would say not that you could say directly related to the austerity but certainly I would say the business environment and the business mood in Europe and particularly in the UK which is a large market for us, you know, we do think has -- plays a factor.

And then just going back to leases really quick, can you walk us through how we should think about lease extensions and when they should start to be refreshed because --- or start to -- when you get to the end of if I have a customer and I've extended it for a year will you extend it for another six months, or isn't it fair to say that at a certain point here there is going to be a lot of extensions from 2008 and 2009 that are going to need to be equipment sales effectively?

Yes. The typical lease extension is actually three to four years in length, so these are not generally short-term extensions, but longer term extensions, so that obviously puts the new equipment placement out another cycle, but likely on average less than what would have been if it was a new equipment sale, so that's what we're seeing in terms of an impact from that.

Okay. Then just my final question is on the cash flow and the cost savings, you held to $50 million for cost savings. Are you going to try to extract more given the weakness this quarter or just in general that you're seeing and then with the strength in cash flow is there any expectation that you may be more aggressive on share repurchase than you would have otherwise been?

With respect to the cash flow, I am sorry, I forgot the first part of the question.

The first part of the question was actually on the cost savings. You held the $50 million.

I am sorry. On the cost savings side of it we have achieved about $30 million through the first half of the year, so we obviously will continue to be aggressive around that. We have a number of projects in place that we expect to continue to contribute benefits as we go forward and we're always looking for opportunities to enhance that.

From a share repurchase standpoint, we obviously do have the cash flow capability to implement the program we have in place, and we have approximately $120 million of authorization remaining.

So do you anticipate being more aggressive given the cash flow that you -- given that you just took up cash flow?

Certainly we indicated in May that we sought the authorization, received it, and began purchasing, so certainly we have been out of the market for a period of time, and we have been focused on beginning to buy back shares, so obviously we're being more aggressive than we have been prior to this quarter.

Thank you.

Our next question comes from the line of Ananda Baruah. Your line is open. Please go ahead.

Thanks for taking the question. Murray, I guess just sort of following on Shannon's question, in which ways -- if you could just walk through which ways I guess you guys were most surprised in which you saw the softness, I guess. Was it the use of extensions, increasing sort of pretty broadly that caught you guys by surprise? Was there also a sales component to that, that just kind of came on and caught you by surprise and I guess you mentioned in the script sort of a shift to annuity based pricing. How much of an impact did that have? I know this -- there is multi-parts to this, but sort of finally on the extensions, was there any -- was any of it a case of you guys going out and more aggressively offering extensions, or was it a case of the extensions have been out there and more folks just decided to utilize them?

I think that as we look at it, there are a number of things. First, as you recall in the first quarter we were seeing some uptick in demand in the SMB marketplace. As we got late in the second quarter we actually saw demand decline particularly in the area of new business, so there was less new business starts.

Our program has remained relatively similar on lease extensions, and as I look at it and look at confidence in the marketplace, is usually as you see the shift and so as we got through the quarter, we saw a lower demand with new business starts and expansion in the tail end of the quarter, but then the shift to lease extensions accelerated as we went through the quarter from the marketplace.

So I think that was the primary driver in the area. When it comes to the annual payments on software, that has been something that has continued to move forward over the last number of quarters as more and more companies are looking for annual payments rather than term contract payments, so they're signing up for term with annual payments rather than an upfront lump sum. This really ties into paying for usage, and it is moving in the direction of the Software as a Service product that we discussed in April that we are launching as we go forward into that marketplace, so we will continue to see the contract revenue being extended over time rather than upfronted, and we'll see an acceleration in software as a service.

Got it. Thanks. That's helpful. Can you just give us any sense what revenue trends have been like in July relative to the slowing that you saw in June? Did you feel as though things have stabilized to some degree off of what you saw in the second half of the June quarter?

As we look through the first components of July through the first three quarters of July, we saw a similar trend to what we saw in late June, so we saw that sort of staying level at a reduced rate and again with the extensions being in the accelerated form, so we did not see a bounce back as we looked at July. July is always lighter than June, but if we look at the comparative trends, it followed a similar pattern.

Got it. Okay. And I guess just final one for me, for right now, it looks like you guys are kind of pointing to SMB softness. What was your enterprise? What were the enterprise dynamics for the quarter? It seemed like production was certainly softer and you mentioned Europe as being a driver of that, but a lot of your services businesses were also soft, and I know a lot of that is enterprise based, so can you just give us a sense of what enterprise trends were as well?

Sure. As we look at software, if we adjust for the annuity based pricing, we would actually have seen an increase in software of about 1%, and we saw a significant gain in profitability, so we see that trend continuing positive.

In management services, we have been aggressively moving on the profit side as we have been talking about and you can see margins continuing to improve there, in that space, as we focus on our new business there and our extension of existing contracts. We did and have discussed in the past that the revenue would be affected by contracts that were terminated last year running into this year, but our focus on turning to a more variablized cost structure and productivity improvement is paying off well in that space.

As we look at the mail services segment, the presort segment has continued to grow in both volume and revenue and profitability so that has continued to grow, and we have the one-time adjustment which takes that segment down in the quarter, but in the quarter -- it is up how much, Mike?

Yes. Exclusive of the adjustment the revenue in mail services would be up 6%.

Right. So we see all of those areas with significant EBIT improvement and two of those three with revenue improvement.

Then we get to production mail and in production mail, as we mentioned, we saw a slowing in Europe. However, our bookings continued to be reasonably strong in the US, with some backlog improvement. But that's the one area that was down year-over-year, and the print business is coming a little slower. We did introduce another printer, which will not be available until late in the year, beginning of next year, and some of that volume will shift to that printer, which will take it out of this period from a revenue recognition.

And then the final area within the enterprise which is marketing services, we saw good growth in both revenue and in profitability. So it was up 7% in revenue. In general, if we take that one-time out we saw a pretty good return in the enterprise area, a strong profit growth, and as good as expected on the revenue side excluding the adjustment.

Thanks. I guess one more if I could. Does any of this that you've seen over the last -- it sounds like it is kind of two to two and a half months, does this have you sort of reconsider any of your thinking around cyclical versus secular, kind of thinking that always seems to kind of surround the business?

As we look at it, certainly there is a definite strong economic component to this as you look at the reports that have been coming out over the last week. There has been a lot of economic uncertainty and decision making that people are expressing, and we see that as the major component.

However, certainly there are segments within the mailing segment which we have discussed previously that do have headwinds that we are looking to overcome, and those we don't expect to see any difference on if we go back to the report that the Postal Service issued which was about 2% per year decline over the next decade, so that we see as a long-term head wind that we'll be facing, but as we have also mentioned, it isn't pure volume because there is an access component here as well.

But certainly when there is economic uncertainty, people will look for an extension of what they're doing rather than moving forward with new goods and that does take down revenues in the near term. On the long term it has a positive effect from the less need to invest in new product to put into the fleet because we're utilizing the assets that are already there.

Okay. Thanks a lot.

(Operator Instructions). We have a question from the line of Chris Whitmore. Your line is open. Please go ahead.

Thanks very much. I wanted to go back to this extension question and try to understand, maybe you can help us understand why customers are able to extend a piece of equipment that's been there for three to four years for another three to four years without it impacting their operations. In other words, why isn't there more pressure to upgrade to the latest and greatest equipment?

Chris, I think that a good portion of that is, if you recall a number of years ago we moved to connected devices, and so we have already moved our product family into a fairly advanced technology, which was ahead of the majority of the markets, so if people can get access to rate changes and et cetera remotely rather than having to have physical components set out and adjustments. The inkjet printing was put in place, et cetera, so those devices, if we go back further in time, we used to have about a seven- to eight-year life cycle on mailing machines. That came down during the technology change into a four- to five-year cycle, but there is nothing that's mandated change that would keep the existing devices from running and performing very well.

They certainly have the capability and the longevity to do that, and we continue to add and download because part of that connectivity was that we could download and update the software in the equipment so we keep that software up to date as well as the rates. And that makes the equipment very viable in a longer term arrangement.

So as we look forward and as you look at ConnectPlus, and our future products, it is adding new capabilities and technologies such as web services, which will expand the capability and move them forward into handling more applications and more parcel applications that they might be doing in other means, so that will be the next reason for people to shift, but during this environment people are staying close to what they have been doing and not making change, and it is much easier to sign a lease extension than it is to take a new contract and have that run through a business.

So is there anything on the regulatory standpoint that would change the requirements and maybe force an upgrade that you can see over the next 12 to 24 months?

We don't see anything in any of the markets that would force an upgrade over the next couple of years. We normally would be working in advance with the posts on those because they look to not affect their customers but have it happen in cycle so that their customers can naturally cycle through the equipment.

I think that as we look forward, we'll see more and more things around marketing, which is why we have launched color, the ability to add other services such as address correction, et cetera, from the device, and then with the expansion in shipping, that shipping will be added and become easier to do on the new devices than on old devices because they have the ability to drive label printers, et cetera, that will enhance that capability, so I think it will be more from a market demand and expansion of capabilities and the consolidation around one device rather than multiple devices in the mailing and shipping area.

Chris, part of that is working with the posts to integrate those services, so it is not necessarily a regulatory change, but it is an enhancement of the access of their services.

So with ConnectPlus, for example, we have been working very much with the USPS to put the flat rate boxes, et cetera, all into that device so that it can handle their new rates and their new capabilities as they move forward. So we will continue to add those new services, and some of those will have to be on new devices rather than existing install base.

Do you think any of the softness you're seeing is related to a pause in front of the new product announcements or do you think something more fundamental is happening?

I wouldn't see it as related to new product. The product is really targeted at the upper end of the market, so it is at the high-end mailers, and so there certainly is a transition as we move out of one product into the new product, but we aren't really seeing it there. It is more in the down market, new business starts, expansion of small business, those are the areas that really are the ones that drive our business forward, and if you have a slowdown in starts, a lack of confidence, and a lack of expansion in those small businesses, that does affect our ability to place new units.

And last one from me is around the rental and the financing line. Given the pullback on equipment, what's your outlook on the two lines as we go forward? Do those have the potential to weaken further from here or should we expect stabilization?

Well, we have factored obviously into our guidance the impact of the lower sales to date and our projection forward on those rental and financing lines. They obviously will continue to kind of map to the install base, so that is reflected in our guidance. We don't expect a dramatic change from the trend we're on, but obviously not turning to the type of improvement that we would like to see. We really have to see the equipment sales growth to drive those lines forward.

Got it. Thank you very much.

We do have another question, a follow-up question from Ananda Baruah. Please go ahead.

Just a clarification. The $0.48 which is the adjusted, does that include or exclude the impact of the $0.05 used to correct the international rates? So, meaning if we --

Adjusted earnings have been reduced by the $0.05.

Got it. If that did not occur, then the number would have been $0.53.

That's correct.

Great. Thanks. Mike, just real quick, is there -- I know you said this was one-time in nature, but the charge is one-time in nature but have the -- has there been any ripple impact into the second half of the year from the rates changing baked into your guidance?

No, we don't expect that the rate issue will have an impact on a go-forward basis.

Okay. Thanks.

(Operator Instructions). We do have another question from Chris Whitmore from Deutsche Bank. Please go ahead.

Thanks. Just wanted to follow up. Wanted to ask about the competitive environment, whether or not you have seen a change in the behavior from Neopost as you progressed through the quarter and can you comment on market share trends?

We have not seen any real change in the market among Neopost or [Frank Tech]. The market has stayed basically the same. Our information shows that we have gained a small market share, small market share gains in Europe and that we're basically stable in the US, so we're not seeing any shift in market and any particular action from anyone in the space.

Thank you.

We do have another question from the line of Hale Holden. Your line is open. Please go ahead.

Sorry. Just very quickly, on your dividend yield 5.8%, 5.9%, and funding rates are very low right now, is there any sense that maybe you would wanted to accelerate the buyback through debt financing given where the current interest rate environment is, and maybe you could talk to the importance of just keeping the single A rating as we go forward?

Sure. In terms of the share buyback, obviously we have the authorization. We can do that either through free cash flow which we think would be sufficient, but we could also obviously finance that.

In terms of ratings, I think we do view an investment grade credit rating as important in terms of funding of our overall business, so that's what we're focused on at this point.

Okay. Thank you.

We do have another question from Steve Searl. Your line is open. Please go ahead.

Just a follow-up to that question. Do you define investment grade as in the single A category?

I would say investment grade is single A to -- well, obviously it goes as far as triple B, triple B plus as investment grade, so our focus is to keep the rating as robust as we can.

Would you consider making a significant reduction in dividend to boost the free cash flow you have to reinvest in other areas?

We think we have sufficient cash flow to fund the dividend as well as invest in what we see as important investments in the business.

Okay. Thank you.

Thank you.

There are no further questions at this time. Please go ahead.

We remain committed to our long-term growth strategies and strategic transformation program, both of which are already producing meaningful benefits. Our strong financial position and free cash flow give us a financial and strategic flexibility as we work through this uncertain environment and position the Company for long-term growth and value creation. I want to thank each of you for participating in today's call. Thank you.

Ladies and gentlemen, this conference will be available for replay after 7 p.m. today until August 17th, 2010, at midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code 163565. International participants may dial 1-320-365-3844. Again, those numbers are 1-800-475-6701 and entering the access code of 163565. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.