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Edited Transcript of STMP.OQ earnings conference call or presentation 7-May-20 9:00pm GMT

Q1 2020 Stamps.Com Inc Earnings Call

LOS ANGELES Jun 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Stamps.Com Inc earnings conference call or presentation Thursday, May 7, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey Carberry

Stamps.com Inc. - CFO

* Kenneth T. McBride

Stamps.com Inc. - CEO, President & Chairman of the Board

* Suzanne Park

Stamps.com Inc. - Director of Finance

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Conference Call Participants

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* Allen Robert Klee

National Securities Corporation, Research Division - Research Analyst

* George Frederick Sutton

Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst

* Kevin D. Liu

K. Liu & Company LLC - Founder & CEO

* Tyler Jacob Wood

Northland Capital Markets, Research Division - VP & Senior Research Analyst

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Presentation

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Operator [1]

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Greetings and welcome to Stamps.com's First Quarter 2020 Financial Results Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Suzanne Park, Vice President of Finance. Please proceed.

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Suzanne Park, Stamps.com Inc. - Director of Finance [2]

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Thank you. Good afternoon. On the call today are CEO, Ken McBride; and CFO, Jeff Carberry. The agenda for today's call is as follows: We'll review the results of our first quarter 2020. We'll provide an update on elements of our business model and partnerships. And finally, we'll discuss our financial results and talk about our business outlook, but first, the safe harbor statement.

Safe harbor statement under the Private Securities Litigation Reform Act of 1995. This release includes forward-looking statements about our anticipated financial metrics and results, all of which involve risks and uncertainties. Important factors, including the company's ability to complete and deliver its products and services, maintain desirable economics for its products and services and monetize its customers' transactions with carriers; the impact of the ongoing COVID-19 pandemic and the efforts of governments, businesses and individuals to mitigate the effects of such pandemics on the company, its customers, its carrier and integration partners and the global economy; the company's ability to successfully integrate and realize the benefits of its past or future strategic acquisition or investments; the company's ability to diversify its relationship with carriers; and the impact of foreign exchange fluctuation and geopolitical risks, which could cause actual results to differ materially from those in the forward-looking statements, are detailed in filings with the Securities and Exchange Commission made from time to time by Stamps.com, including its annual report on Form 10-K for the fiscal year ended December 31, 2019, quarterly reports on Form 10-Q and current reports on Form 8-K. Stamps.com undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The financial results we discuss on the call today include non-GAAP financial measures. In the first quarter of 2020, GAAP net income was $16.5 million and GAAP net income per fully diluted share was $0.91. Our non-GAAP financial measures exclude the following first quarter items: $10.7 million of noncash stock-based compensation and $5.6 million of noncash amortization expense of acquired intangibles and debt issuance costs. Our non-GAAP financial measures include $8.9 million of additional non-GAAP income tax expense in the first quarter. Our Mailing and Shipping numbers include service revenue, product revenue and insurance revenue and do not include any revenue from Customized Postage. Please see our first quarter 2020 earnings release and metrics posted on our investor website for reconciliations of our non-GAAP financial measures to the corresponding GAAP measures.

Now let me hand the call over to Ken.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [3]

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Thanks, Suzanne, and thank you for joining us today. On today's call, we'll cover several topics. We'll discuss the impact that COVID-19 has had on our business. We'll discuss the progress and go-forward plans of our various business initiatives in the U.S. We'll talk about our progress and plans on our initiatives internationally. We'll discuss some recent developments in our Customized Postage business. And we'll talk about some of the employee and corporate programs we've implemented in light of COVID-19. And then Jeff will discuss our metrics, our Q1 financial results and our guidance for the remainder of 2020.

So let me begin by discussing the overall impact that COVID-19 pandemic is having on our business today. So far, the COVID-19 pandemic has resulted in a significant positive impact to our new customer acquisition and a significant increase in the volume of packages that our customers process using our software particularly since mid-March when many companies and individuals began working from home and sheltering in place. For the first quarter as a whole, acquisition was up almost 50% year-over-year while our cost per acquisition dropped dramatically. The surge in acquisition started to meaningfully accelerate in the last 2 weeks of the first quarter. During the month of March in particular, we saw an increase of over 100% in customer acquisition versus the same month last year. We've continued to see similarly strong acquisition trends to date in the second quarter. The month of April was up over 300% year-over-year for acquisition. The acquisition surge in the last few weeks of the first quarter resulted in a significant sequential increase in our paid customers for the first quarter, the largest number of customers added sequentially ever as a company outside of our acquisitions we've done. The paid customer number increased by 27,000 to reach 777,000. Some factors for why we're seeing a large number of new customers coming to our service include a large number of people are looking for an alternative to go into the post office or to other retail locations in order to do their mail and their packages. Our incredible brand awareness that we have built up over the last 20 years across all of our properties meant that we were the big beneficiary of that shift online.

One of the questions we expect our investors to have is whether these new customers are just using our solutions during the current work-at-home environment or if they will stick with our solution longer term. We would expect that, certainly, there may be a mix of both types. But generally speaking, we believe that many of these customers will discover the superior way of doing their mail and packages and will stick with it long term and never go back to the hassle of doing their packages in other ways like retail locations. They also now understand how much they can save using our great online discounts. Our customers save 9% on their first-class letters, paying only $0.50 versus the normal rate of $0.55. We save customers up to 40% off USPS retail prices for packages. And with our new UPS partnership, we're able to save customers up to 62% off UPS' standard daily rates. The savings add up quickly and cover our monthly service fees once a customer reaches a small amount of package volume. We found that a challenge is always getting people to just try our solutions and that once they do, they love it. So we're hopeful that many of these new customers will become long-term users of our solutions, but we will, of course, monitor customer trends carefully given the unique circumstances we are in right now.

In addition to the surge in new customer acquisition, we also saw a strong increase in the total shipping volumes that we process through our software across all of our major carriers and all of our brands. Our customers range from very small domestic businesses to very large multinational businesses and cover virtually every industry. As such, we have customers who have been strong beneficiaries of increased e-commerce consumption driven by COVID-19 as well as customers who have unfortunately had to suspend operations. We've also seen strong recent growth in domestic shipping trends as more consumers adopted the work-from-home model and as e-commerce activity picked up with consumers shopping more online. Overall, the total U.S. dollar volume we processed across all of the carriers we supported in the U.S. meaningfully accelerated starting in the second half of March, and that trend has continued into April. March saw a nice double-digit growth. And then during the month of April, we have seen growth north of 50%. The dramatic increase in package volume indicates that our solutions are working very well to address the needs of our customers. Again, the question is whether the surge in volume is a longer-term trend or just a transitory phenomenon. That remains to be seen. We do believe that once customers use our solutions more regularly, they discover more and more the sophisticated features that can really save them a lot of time and they discover the great discounts that we offer, which can really save them a lot of money. With those 2 big value propositions, we expect that many customers will continue to use our solutions more regularly for the long run.

Now let me give a quick update on our UPS partnership. Late last year, we signed a new partnership with UPS, which allows us to offer attractive UPS package discounts to our customers. The UPS package discounts we are able to offer customers under our new partnership are the discounts are as much as 62% off UPS' standard daily rates, and the discounts are available through our products without any necessary existing shipping volume that is frequently required to qualify for discounts when working with UPS in other ways. Within our e-commerce multi-carrier properties, including ShipStation, ShippingEasy and ShipWorks, we have always provided a UPS shipping capability. However, the new UPS partnership allows us to more actively and effectively drive customers and shipping volume to UPS. New solution went live in ShipStation with a subset of customers last year in the fourth quarter, and we rolled it out more broadly to a larger number of ShipStation customers during the first quarter. We also began rolling it out to ShippingEasy, ShipWorks, Stamps.com and Endicia branded solution customers during the first quarter.

Within the Stamps.com and Endicia-branded products, offering UPS shipping is an entirely new capability that we just began to roll out to new and existing customers. Within those products, we previously had exclusivity arrangements with the USPS that are now no longer in place. So we're now able to offer Stamps.com and Endicia customers a UPS shipping solution side-by-side with USPS services. Accessing UPS is very simple with a default account and discounted rates available immediately when the customer first begins to use the product. We are seeing rapid adoption of the UPS solution and a very steep growth trajectory in the volume of packages that we process. Over the past few months, we have seen sequential month-over-month growth in excess of 250%. We would caveat that to say it's early in the growth, it's off a relatively lower starting base. Nonetheless, we're very excited about our new UPS relationship. We expect them to be a great long-term partner for Stamps.com and all of our company products and solutions.

With that, let me turn to some of the initiatives we're working on in the U.S. market. First, we're continuing to invest heavily on growth in the shipping part of the business. As you know, we devote a large percent of the company's resources to target the e-commerce shippers. In 2020 and beyond, we expect to continue making the large investments in order to attract those types of shippers to our solutions. We're continuing to increase our investment in all of our channels, including direct sales, direct mail, traditional media, radio, television, search engine marketing, search engine optimization as well as refining our customer acquisition processes through the affiliates, the partners in the telemarketing that we do in other areas.

Second, we plan to expand the features and functionality of our solutions particularly in the multi-carrier shipping part of the business. The e-commerce shipping industry is very dynamic, and we invest a significant amount of our research and development resources and continuing to innovate in that market. Our goal is to be able to meet the needs of as many customers as possible so that we can maximize our customer acquisition, maximize our average annual revenue per paid customer or ARPU, reduce our monthly customer cancellation rates and increase overall customer usage. For 2020, we're focused on delivering new capabilities, such as more sophisticated third-party logistics support, delivery options provided in the shopping cart, drop shipping, branded tracking, returns, pickup and drop-off, and we're continuing to enhance our capabilities in our mobile apps.

Third, we plan to continue bringing innovative and cost-effective solutions to U.S. customers that are sending packages to other countries. As you recall, during 2017, we launched a new international shipping initiative called GlobalPost, where we offer customers access to discounted international shipping rates through our private label carrier partnerships. As a reminder, these are programs where companies can do a portion of the work for the carrier and receive a discount on their postage rates. During 2018, we added the Global Advantage Program, which is a great bundled customer solution built on top of the GlobalPost carrier that includes customer benefits such as free package pickup, free insurance, upgraded delivery speeds, enhanced tracking, simpler customs procedures and other benefits. We're seeing nice growth in this area, and we expect to continue to drive these solutions in 2020. We would also note that now we offer DHL Express and UPS as international shipping options that are very attractive for this customer base.

With that, let me turn to some of the plans for expansion outside of the U.S. Starting with the acquisition of MetaPack that we made in 2018, we began a path of expanding our business from a domestic-only, USPS-focused model towards a global, multi-carrier e-commerce shipping solutions company. Over the past several years, we've entered into a significant number of partnerships for the international market. During 2018 and 2019, we undertook efforts to begin test marketing our ShipStation product in the U.K., Canada and Australia. During 2020, we expect to ramp up our marketing, our business development and our product development efforts in the international markets.

First, for ShipStation and for ShipEngine, we plan to continue to develop partnerships, carrier relationships, product enhancements and to continue to market our solutions in our target countries. Our international shipments through ShipStation were up 87% year-over-year versus the first quarter of 2019. During 2020, we expect to improve our capabilities to support further international expansion, such as language and currency translation systems, and we are currently expecting to launch a solution in France as our first non-English-speaking market. We also expect to further enhance our cross-border capabilities with features such as duties and tax and -- duties and taxes, customs documents added to our ShipEngine product.

Second, internationally, in our MetaPack business, we continue to make progress in both customer acquisition and technology, including re-architecting the technology platform and driving new innovations. During the first quarter, we've continued to develop a strong U.S. pipeline of deals that are household names. And MetaPack really had no presence in the U.S. before we acquired them. So bringing MetaPack to the U.S. with our U.S. sales teams was one of the synergies we've identified in the deal. In MetaPack, we continue to win new customers in Europe, although we would note that the current COVID environment has caused some slowdown in the process of closing some of those deals. We also continue to do development work designed to allow us to connect the 450 MetaPack carrier services to the ShipStation international platform.

Finally in international, during 2020, we continue to plan to invest development resources into building a simpler international, e-commerce, multi-carrier shipping solution based on the Stamps.com-branded web solution. Internationally, we're planning to replicate our U.S. strategy where we go to market with 2 main brands: the simpler Stamps.com like web solution for up-and-coming e-commerce customers; and a more powerful and complex ShipStation solution for more sophisticated e-commerce customers. We're working on an international version of the Stamps.com web solution during 2020. And once that's in place, we expect to begin some test markets -- marketing of the Stamps solution to some selected international markets. We've begun the development of these solutions, and we have begun planning our marketing approach as we prepare to enter the new markets.

With that, now let's discuss some recent developments we've had in our Customized Postage business. You'll recall that Customized Postage is a form of USPS postage that allows consumers to turn digital images into valid USPS-approved postage, which we offer under the PhotoStamps brand name. We recently received notification from the U.S. Postal Service of a decision they've made to end the Customized Postage program on June 16, 2020. The decision by the USPS followed the recent filing of a lawsuit against the USPS by a third party, alleging First Amendment religious expression harm as a result of USPS regulations restricting all religious images. We believe this decision by the USPS was unnecessary, not well considered. But it's difficult at this time to know if we will be able to bring the program back in the future. We certainly expect to keep trying as we believe it's a fun product that brings a lot of joy and creativity to the mailing world. However, financially, it is not material. Contribution to the bottom line is in the low single digits for EBITDA annually.

So with that, let me turn to the -- some of the corporate programs we're doing related to COVID-19. As a company, we're deeply committed to doing our part as a corporate citizen to help every way we can. In April, we launched a new program to provide our software to all U.S. senior citizens, age 65 and over, without our monthly service fee during the current COVID-19 pandemic crisis. This pandemic has impacted the lives of the senior citizens of this country more than any other group. Our hope is that senior citizens in regions all over the U.S. will benefit from this program by allowing them to safely mail and ship all of their letters and packages without leaving their homes. We are also exploring several additional ways to get involved and help the world as we all face this terrible pandemic together.

Let me now discuss some of the human resources aspects of our -- the COVID-19 effect on our company. We're deeply committed to the health and the well-being of our employees. We took early and aggressive steps to make sure that our employees were as safe as possible, and we moved to a company-wide work-at-home model the week of March 9, with all of our over 1,300 employees worldwide. Because our business is building and marketing software on the Internet, we were in a very good position to be able to make the change to an all-remote work model early without a significant impact on productivity. As expected, there were challenges we needed to work out with these operational changes. The issues were somewhat exacerbated by the fact that our customer acquisition surged in March more rapidly than we've ever seen before. However, our employees are showing amazing resilience, working through the challenges quickly and effectively. We've actually increased our head count and overall full-time equivalent hours to absorb some of the demand for our service during the COVID situation to date. We expect that we can continue to be very effective as an organization under the new all-remote approach for as long as necessary in order to keep our employees safe. We're lucky to be in a position where we can be patient and we can wait until employees can safely return to the office.

I would also like to let everyone know that I was one of the unlucky ones to contract COVID-19. I tested positive for the virus back in mid-March and I experienced several flu-like symptoms for a short period of time. I quarantined myself and I recovered in my own home. I recovered quickly and had been back and fully engaged in our business since that time. And during my illness, our company did not miss a beat in any way, as you can clearly see from our first quarter financial results and our metrics. Our thoughts and prayers go out to all the individuals and their families and friends that have contracted the virus, particularly the more than 0.25 million individuals that have lost their lives worldwide in this pandemic. I would also like to express my deepest gratitude to all those health care workers and first responders who are doing so much for all of us. We're very grateful for your sacrifices during this challenging time.

We remain extremely excited about the future of our company and the enormous value proposition of our e-commerce technology and service offerings. Our goal is to position this company for the best long-term outcome as the myriad of worldwide trends play out. The value proposition we provide is very strong, driven by the strength of our multi-carrier properties, the level and number of our partnerships and integrations, the size and strength of our national sales force, the scale and success of our marketing programs.

We are a very seasoned management team. I personally had managed this company now for 19 years, including through 2 major recessions, the 2001 to 2003 recession post dot-com bubble and the 2007 to 2009 financial crisis. We've always managed our company cost structure very aggressively. And as a result, we have a very healthy cash flow and a very strong balance sheet with over $215 million in cash and investments currently on our balance sheet. We would note that as a result of our strong cost-focused culture, during the 2008 to 2009 financial crisis -- 2007 to 2009 financial crisis, we were able to continue to execute as a company without doing any layoffs. We continued to execute well and generated a healthy cash flow throughout that entire recession. In fact, we continued to repurchase stock throughout the entire period at very attractive prices.

Our strong business track record and our experience also gave us comfort to continue to provide financial guidance today. More recently, we're experiencing a large acceleration in our business, reinforcing the significant brand awareness that we have created for our market-leading solutions. We're in a great position to continue to execute on our business plan throughout 2020 and beyond, and we expect to continue to get stronger as an organization and continue to solidify our position as the global leader in multi-carrier e-commerce shipping.

With that, now I'll turn the call over to Jeff.

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Jeffrey Carberry, Stamps.com Inc. - CFO [4]

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Thanks, Ken. We'll now review our first quarter 2020 financial results. The discussion of our financial results today will include non-GAAP financial measures. As Suzanne described, a reconciliation of non-GAAP financial measures to the corresponding GAAP measures can be found in our earnings release and in our metrics on our investor website.

Total revenue was $151.3 million in Q1. That was up 11% year-over-year versus Q1 of '19. Total revenue, excluding MetaPack, was $137.5 million in Q1. That was up 12% year-over-year versus Q1 of '19. The growth in revenue in the first quarter was primarily driven by strong growth in our Mailing and Shipping business, which in the United States benefited from strong domestic shipping growth and was offset by international shipping declines, both of which we believe are attributable to the ongoing COVID-19 pandemic and responses to it. Revenue was also positively impacted by strong growth in our GlobalPost and Global Advantage Program.

Mailing and Shipping revenue was $148.3 million in Q1, and that was up 12% year-over-year versus Q1 of '19. Mailing and Shipping revenue, excluding MetaPack, was $134.5 million in Q1, and that was up 12% year-over-year versus Q1 of '19. The growth in Mailing and Shipping revenue was driven by increases in paid customers and ARPU as well as growth in our GlobalPost and Global Advantage Programs. We estimate that total revenue derived from our shipping customers grew at a low double-digit rate year-over-year and as a percentage of total revenue in Q1 was approximately 80%. We estimate that revenue derived from our shipping customers in Q1, excluding MetaPack, grew year-over-year at a low-teens rate and as a percentage of total revenue was approximately 70%. We also estimate that our revenue derived from our SOHO mailers as a percentage of total revenue was in the high teens and grew year-over-year at a high single-digit rate. Mailing and Shipping gross margin was 74.8% in Q1 versus 74.9% in Q1 of '19. Mailing and Shipping gross margin was positively impacted by growth in revenue associated with our traditional carrier business, including USPS and UPS, which was offset by the growth of our international offerings, including the Global Advantage Program, which can have lower gross margin -- have a lower gross margin profile than our other service fee revenue components. MetaPack's gross margin under U.S. GAAP was approximately 63% in Q1.

We had year-over-year increases in our Q1 operating costs primarily driven by growth in R&D and sales and marketing related to strategic investments to support innovation and long-term growth. As Ken mentioned, we continue to aggressively scale our operational investments to drive our international business strategies. Non-GAAP operating income was $40.4 million in Q1, up 7% year-over-year versus Q1 of '19. Adjusted EBITDA was $41.5 million in Q1, and that was up 6% year-over-year versus Q1 of '19. Adjusted EBITDA margin was 27.4% in Q1 versus 28.8% in Q1 of '19. The decrease in adjusted EBITDA margin was attributable to higher operating expenses associated with our 2020 initiatives, as previously discussed, and to a lesser extent, MetaPack. Non-GAAP adjusted income per fully diluted share was $1.32 in Q1 based on a non-GAAP tax expense rate of 40% and was up 7% year-over-year versus $1.23 per share in Q1 of '19, based on a non-GAAP tax expense rate, also up 40%. Fully diluted shares used in the EPS calculation was 18.2 million for Q1 versus 18.0 million for Q1 of '19.

Let's now discuss our customer metrics. Our total paid customer metric was 777,000, which was our highest number of paid customers in our company's history. This is driven by the strong new customer acquisition and customer churn. Our first quarter churn was 3.0%, and that was down 0.1% year-over-year. Our first quarter ARPU was $63.60. ARPU was up 6% year-over-year, driven by growth in the shipping focused areas of our business. Total first quarter USPS postage printed was 1.6 billion. That was up 1% versus the first quarter of 2019. The total USPS postage printed metric includes both higher growth shipping volume and traditional nonpackaged mail volume, which continues to see a steady decline, consistent with the long-term trend of declining mail usage in the U.S.

Let's now discuss our cash, debt and uses of cash. We ended Q1 with $216 million in cash and investments, which was about $59 million from $156 million at the end of Q4 of '19. The increase in cash and investments was primarily driven by the following: strong operating cash flow, changes in net working capital and cash from option exercises. And that was partially offset by share repurchases and a scheduled debt repayment. During Q1, we made a required principal repayment of $3.1 million, resulting in total debt under the credit agreement excluding debt issuance costs of $47.4 million.

During Q1, the company repurchased approximately 80,000 shares at a total cost of approximately $9 million. Our current share repurchase plan was approved by our Board of Directors on February 13, 2020, commenced on February 24, 2020, and runs through August of 2020. On February 28, 2020, our Board of Directors adjusted the repurchase parameters of the plan in response to increased market volatility due to COVID-19. As of May 6 of this year, we have repurchased approximately $8.8 million under the current plan.

Now turning to guidance. As we discussed last quarter, our guidance reflects the following: the new multiyear USPS reseller agreements; the new UPS partnership, which we rolled out in the first quarter to the majority of our customers across all our properties; and expected increases in operating costs related to our continued investment in the U.S. and abroad. Our updated guidance also reflects the following: first, the anticipated termination of certain Customized Postage products effective mid-June of this year; and second, a cautious outlook on the COVID-19-related impacts to customer acquisition, churn and shipping volume growth. As Ken discussed, although recent trends have been strong, likely related to e-commerce activity driven by COVID-19, we believe there is significant risk that broader macroeconomic weakness could weigh on our business. For example, we have some customers of our Global Advantage Program who recently suspended operations in light of COVID-19. And as that product is accounted for on a gross basis and has a relatively lower margin, their suspensions will disproportionately impact revenue. We will continue to monitor our customers and their shipping volumes closely.

And now on to specific quantitative guidance. We are maintaining our previous fiscal 2020 revenue guidance range of $570 million to $600 million. We expect our shipping revenue will be in a range of approximately flat to up in the mid-single-digit range. We expect our mailing revenue derived from our SOHO mailers will be approximately flat year-over-year. And we expect our Customized Postage revenue will be eliminated beginning in June of this year as a result of the anticipated termination of the program by the USPS. We expect operating expenses to increase in 2020, reflecting the annual effect of the strategic investments we made throughout 2019 and additional strategic investments we anticipate making in 2020 around both our U.S. and our international efforts. We continue to expect fiscal 2020 adjusted EBITDA to be in a range of $135 million to $155 million. Our guidance implies a full year adjusted EBITDA margin in the low to mid-20% range. We continue to expect non-GAAP tax expense will be approximately 40% of non-GAAP pretax income for 2020. Our full year 2020 effective tax rate could differ from our current estimates based on a number of factors. We continue to expect fully diluted shares to be between 18.0 million and 19.5 million in 2020. We continue to expect fiscal 2020 non-GAAP adjusted income per diluted share to be in a range of $4 to $5. And finally, we continue to expect capital expenditures to be approximately $2 million to $4 million in 2020.

And with that, we'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from George Sutton of Craig-Hallum.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [2]

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Ken, my sincere congratulations on making it through the COVID experience.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [3]

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Thank you. It's nice to be done.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [4]

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It's a new badge of honor for you. So...

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [5]

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It is.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [6]

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Relative to the 27,000 customers, can you give us any breakdown as to the composition of those relative to your multi-carrier options versus the Stamps.com property?

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [7]

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Yes. So we don't give a breakdown delineating acquisition between our properties. Suffice it to say though, given the performance of the mailing business, it was a combination of both mailing customers as well as shipping customers. On the shipping side, obviously, given the volume growth, it's a combination of new customers we acquired as well as, we believe, increased volume associated with COVID-19-related effects, the people working from home and doing more e-commerce consumption.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [8]

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So one of the dynamics in the quarter that was very interesting is Amazon, of course, to protect essential services, turned off a lot of their options for their third-party sellers. And I'm curious, did that have a specific impact that you saw on some of those new customer numbers?

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [9]

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Yes. I mean Amazon definitely changed a lot of things in the first quarter as a result of what's happening right now and prioritized the essential goods for shipping. So we may have seen some move over. We did -- we certainly saw Amazon. I'm sure you saw the news that they had pulled out of the Shipping with Amazon capabilities. So that new thing that they were launching and the new third-party logistics program, they had pilots running in Los Angeles and New York, Chicago and a couple of other cities. And so they decided to halt that. It wasn't clear from their announcement whether that was temporary or permanent, but we worked with those sellers that were using that solution and moved them to other carriers. And so there was really no disruption there. Some of the Amazon services that were discontinued in other areas, we probably didn't receive new customers as a result of that. It was more just shift in volume from existing Amazon usage in those channels to other solutions within our multi-carrier properties.

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George Frederick Sutton, Craig-Hallum Capital Group LLC, Research Division - Partner, Co-Director of Research & Senior Research Analyst [10]

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Understand. Lastly from me, you gave the UPS volumes, which was fascinating and, I would assume, fairly significant for them. I'm curious what kind of attention that's being given potentially by other partners who aren't enjoying those volume increases and then also what, if any, has the reaction been from the U.S. Postal Service seeing some of those volumes move over?

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [11]

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Yes. I mean we haven't really disclosed the specific volumes. We just wanted to get everybody kind of a flavor of how things are going. And so the -- we just now started to launch it. And I think more broadly -- and we saw the big uptick in volumes with the months of March and April up about 250% month-over-month. So they're growing very rapidly albeit from a small base. And certainly, that's raising eyebrows in the shipping industry. I think the information is not public until 20 minutes ago. So -- and it's not really meant to be like a full disclosure. That's not something we plan to do going forward. But we're super excited about it. It's clear that the UPS solution is resonating very well with our customer base. It's clear that we picked the right long-term partner. And the discounts they're offering are terrific. And the way we set it up, the ease of signing up for the solution, it's literally like a one-click thing as you sign up for Stamps.com. So -- and then it's just a pull-down so you can pick between UPS and USPS. It's very, very simple, very easy. It uses the same account. So we're using what's called -- we call it the wallet. So all of your all of your money on deposit, when you go to print a label, it goes out either USPS or UPS from one account. So there's no extra accounts. There's no -- it's really as simple as it gets.

And so we've seen -- since we launched that, we've really seen a big uptick and a big uptake on that by the customers. And really, we're just still getting going. We really just launched -- I mean in ShipStation, we launched back in early December, but we've been kind of rolling it out, making sure everything works well and customers like it well. And so we -- and we really didn't start to launch across the other properties until later in the first quarter. So I would say there's -- that's just the tip of the iceberg in terms of what we could see going forward. So I think that we see UPS as a great long-term partner and I think vice versa. And so we're talking to very senior folks there, and they're excited about continuing to find ways to make the partnership better and better. In terms of reaction of other carriers, why -- I guess we'll have to see where that goes because like I said, nobody really understood how well it was doing until we just talked about it 20 minutes ago.

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Operator [12]

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The next question is from Kevin Liu of K. Liu & Company.

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Kevin D. Liu, K. Liu & Company LLC - Founder & CEO [13]

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First question here. Just on UPS. I know it's rolled out now across your various platforms. Curious if you could talk at all in terms of just kind of the penetration rates that you're seeing thus far? Is it still a very small number of merchants that have taken advantage? Or are you seeing that being more broad-based in terms of how it's contributed to volumes?

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [14]

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Yes. It's still really early. We just got it going. I mean we -- like I said, we launched it in ShipStation in Q4, and we just started to roll it out more broadly. We launched it to a segment of that customer base. We just want to make sure it worked well and the customers adopted it well and that there weren't any glitches. And so we were cautious in terms of how we rolled it out to ShipStation. And then we really didn't start rolling it out across the rest of the properties until very recently really, I would say late in Q1. So we -- I would say like we're just getting started and we've seen really, really great adoption. Like I said, we set it up. It couldn't be any easier to sign up for a UPS account. It's literally -- as you're signing up for the service, you just agree to the -- you agree to let a UPS account be created, and there it is. And like I said, we have a unified payment system. So all of your money gets stored in one place, which we call the wallet. And then all of the different carriers that you use, like UPS and USPS, get deducted from that same balance. So you just have to manage one balance. And it's literally like a pull-down where you can select between the carriers. So it's as easy as it gets. And I think for anything that's over 2 pounds, it clearly makes sense to consider UPS over USPS as a more cost-effective solution. And even for some of the smaller packages with some of the discounts they've offered into our customer base, they're seeing some nice volume. We're seeing nice volume move over. And we're happy to work with UPS as a great long-term partner and we're excited and I think vice versa.

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Kevin D. Liu, K. Liu & Company LLC - Founder & CEO [15]

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Got it. And I was hoping you could talk a little bit about just how GlobalPost and your Global Advantage Programs are impacted at all by some of the restrictions that USPS has in terms of being able to deliver to other countries right now. It doesn't sound like the growth has suffered at all, but just curious operationally how you guys are managing through that.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [16]

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Yes. There's -- I mean we haven't seen really, I think, a big impact to the number of countries that they've suspended deliveries to, weren't like a significant size. We have seen some customers -- like Jeff mentioned, some customers that have stopped really operations. And so some -- I think we have -- we talked about the volume that's increased and we've seen a dramatic increase. But within that, we've seen an even bigger increase of e-commerce, the smaller users and some larger users who have suspended or changed or -- for various reasons. It really just depends on what industry you're in, right? I mean if you're selling essential goods, your business is probably taking off. And if you're selling luxury items or other things that people aren't really looking to buy right now, then your business is not taking off or it might be going the other direction. So we kind of have both things going on within our customer base. And certainly, GlobalPost is one of the solutions that some of our -- it tends to be something that the larger customers use more. And so we have seen some folks pulling back from that just because their business is going in that direction.

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Kevin D. Liu, K. Liu & Company LLC - Founder & CEO [17]

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Understood. And then just lastly here, I know there's probably a degree of conservatism from COVID-19 here. But looking at your guidance for the full year now, Q1 tends to be one of your softer quarters. And then on top of that, you're still ramping UPS. So if we kind of extrapolate that out for the full year, it would seem like you'd already be at the top end of your guidance. So is there anything you're seeing in terms of some of your larger shipping customers that gives you any pause at this point? Or are you simply just being kind of conservative in light of what's going on in the world?

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Jeffrey Carberry, Stamps.com Inc. - CFO [18]

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Yes. Thanks for the question, Kevin. So you're right. We are seeing strong performance in Q1, and that is continuing into April, as Ken mentioned. So from a fundamental standpoint, things are looking very attractive. However, there is an inordinate amount of risk to the broader macroeconomic picture and the impact that could have on aggregate demand, which would obviously potentially have a negative impact. Even if e-commerce trends did persist, overall aggregate demand could fall and that could weigh on the business. So I think from my perspective, we're reaffirming guidance with a caveat that obviously, on the one hand, things are looking quite good in the short run, but that could change very quickly depending on how the economy shapes up. So I think overall, it's just maintaining guidance but with a pretty conservative caveat that things could turn sour if the economy turns sour.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [19]

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Yes. Kevin, I mean I would just add that I think that more than 80% of companies have now pulled guidance. So I think that just the fact that we haven't pulled guidance, we feel confident in what we've put out there. We've managed through these types of scenarios before. We managed through the Great Recession. We started off managing the company during the dot-com implosion and we -- so we know how to do this, but we certainly don't want to be in a position where we're getting out ahead of our guidance. We want to be conservative because certainly, like things look positive in the world as of right now at least if you're a stay-at-home online business. However, I think there is concern and we want to make sure we're not going too far in terms of assumptions that this is going to -- the economy is going to continue to churn along because certainly, there's a lot of things out there that are concerning just not for us specifically but just for the whole world economically. And so I would say that in the last 19 years since I've been running the company, we've never missed our guidance, and so I don't want to start now. And so we want to be conservative, make sure we leave guidance out there so we can give you some indication, "Hey, we're still confident that we can make our numbers and" -- but -- and not pull back altogether from our guidance, which I think is something we don't need to do because of how we manage the company.

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Kevin D. Liu, K. Liu & Company LLC - Founder & CEO [20]

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Yes, understood. Well, Ken, glad to hear you recovered and congrats to all of you on another strong quarter.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [21]

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Thanks, Kevin.

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Operator [22]

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The next question is from Allen Klee of National Securities.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [23]

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Can you talk about how you're factoring in potentially a higher customer churn rate in your guidance?

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Jeffrey Carberry, Stamps.com Inc. - CFO [24]

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Thanks, Allen. I wouldn't say we're actually factoring in a higher churn rate into our guidance. I think that kind of falls within the broader conservatism of maintaining our guidance range in light of Q1 results and again kind of mentioning April did well. So we're not assuming a higher churn rate, but obviously, if we did have a higher churn rate resulting from macroeconomics loading its weight on the business, then that would certainly impact the business negatively. But we're -- to be clear, we're not assuming that in our numbers currently.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [25]

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Okay. I'm not sure if I missed it, but did you speak to how MetaPack performed during the quarter?

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Jeffrey Carberry, Stamps.com Inc. - CFO [26]

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We didn't break them out separately, but MetaPack, similar to the U.S., we saw some improvement versus -- by virtue of e-commerce consumption. But obviously, there is some slowness in Europe resulting from Brexit as well as from coronavirus. We'll obviously break out in the financials MetaPack separately as part of our international segmentation. So those numbers will be there for you.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [27]

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Yes. I think we -- I think what we saw largely was like a slowdown in new deals because clearly, people are concerned about other things than signing a new agreement, which we think is just a delay, a temporary delay. But on the flip side, we -- like the rest of our business, our customers in MetaPack offer online solutions and online e-commerce sales. And so that has seen a lift just like every other part of the -- of really the worldwide economy as people kind of stay at home and order more stuff. And so we saw a similar nice lift in the MetaPack business from the volume perspective, which is good because that's directly tied to volume, how we monetize the businesses through -- largely through a transaction fee. So we're happy to see that. Of course, we'd like to see the deal pipeline start to move again, but we're confident that's going to happen. It's just a matter of kind of working through this period of time. And then in the meantime, we've seen a nice lift from their businesses translating through into our business.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [28]

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And as your business has shifted to -- most of your revenues coming from shipping, I know that just looking at paid -- new customers is tricky or to figure out what that means compared to the past. So I guess what I'm wondering is of this large add that you're getting, is there a way to think about how that's kind of breaking out between SOHO and shipping-type customers?

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Jeffrey Carberry, Stamps.com Inc. - CFO [29]

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Yes. So from the metric, it's going to be a mix of both SOHO and shipping customers. So you saw the stream business kind of grow in the low teens rate. And obviously, that's a function of both increasing customers on the shipping side as well as increasing volumes from some of our existing customers, offset by some declines in the customers who had some unfortunate suspensions to their business because of COVID. So I think net-net, you're seeing a mix of those 2 things. You saw a small business, SOHO -- the SOHO business kind of grow in the mid-single-digit range. We were expecting the business overall for the year, we affirm guidance of effectively flat for the year on the SOHO business. So you would necessarily deduce from that, that part of that growth on the SOHO side was related to new customer acquisition. So we're seeing growth on both sides. We're going to see how those customers perform and look at those cohorts and make sure that those customers do persist after, hopefully, stay-at-home orders are lifted for broad segments of the population both domestically and internationally. So we'll see how that evolves. But right now, we're excited about the growth in the customers. As Ken mentioned, we think that those customers, once they try our service and COVID being the catalyst to try it for us, they will stick with us largely. But of course, we'll continue to closely monitor that.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [30]

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My last question -- I know you may not be comfortable talking about this, but what we're hearing now with the U.S. Post Office and kind of with our government proposing -- or well, some comments of desires to raise their packaging, pricing and maybe a new person in charge of the USPS, how -- what's your take on all of that?

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [31]

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Yes. Well, so certainly a lot of things going on in that world. It's very active right now. I mean they certainly have seen a -- I think they've seen a fairly precipitous drop in their mail volumes, but then they've also seen a very large increase in their shipping volumes. And so they've kind of seen both aspects of it. Of course, they make the vast majority of their revenue on -- or their profit on the first-class mailing. So that's certainly been an issue for them. And they certainly face some financial challenges, I think, like many, many other industries. And so they were included as part of the CARES Act. They got a $10 billion, I guess, line of credit increase, and so they're negotiating through that, I think, with the Treasury Department as to how exactly that's going to be implemented.

And so while there's been some conversations, some things said publicly, it certainly seems like Congress is very behind, making sure the Postal Service does fine during this process. And they did announce a new Postmaster General yesterday that's going to succeed Megan Brennan, who's retiring after 5 years as the PMG. And so the new person, Louis DeJoy, is now the 75th Postmaster General. And so we're excited about him. He's an outsider, the first outsider in quite some time, and he's got a lot of experience in the logistics and the shipping market. So I think he'll come in with a lot of knowledge and he is also -- I think based on what we know of him -- and we do know him from prior relationships and folks that we know and actually folks that work here, he's definitely a person who supports partnerships, public and private partnerships. We believe he's very much behind that. As you may recall, the task force that put together a report last year on -- at President Trump's request came out with lots of recommendations. And one of the key recommendations in there was public-private partnerships are important. And so I think that with his -- by his connection with Trump, with President Trump and -- I think that we'll see him in alignment with those thoughts in that report, and so that will be good for us. But of course, we'll have to get to know him and certainly be in D.C. a lot and talking to him. We're a huge partner of theirs and vice versa. So I think net-net, we're sad to see Megan go. She's been a great Postmaster General, but we're excited to start working with the new PMG as soon as he takes office, which I believe is in mid-June. So...

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Operator [32]

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The next question is from Tyler Wood of Northland Securities.

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Tyler Jacob Wood, Northland Capital Markets, Research Division - VP & Senior Research Analyst [33]

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Just one from me. Is there any color you could give us on how the competitive landscape has changed within the last couple of months with the increase of businesses trying to set up an online channel? You've maybe seen competitors get more aggressive on pricing or marketing to try and capitalize then.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [34]

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We haven't really -- I mean I think that we've spent 20 years in this industry, building the brands and across all the brands that we have, and we are, far and away, the most prevalent company out there. And we do $6 billion in total postage, we do $13 billion worldwide in total shipping and postage volumes. And so I think as this shift has happened from really kind of more of a retail off-line to an online mode of operating by all these businesses and individuals, we have been the primary beneficiary of that. And so we haven't really seen any competitive aspects of losing in any cases. In fact, we've probably seen the opposite, which is, as the strongest company in the industry, we're getting stronger. And so we -- I think that we're happy with how things have developed and we really haven't seen -- we haven't seen much from competitors in terms of changes or prices or anything like that.

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Operator [35]

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There are no additional questions at this time. I would like to turn the call back to Ken McBride for closing remarks.

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Kenneth T. McBride, Stamps.com Inc. - CEO, President & Chairman of the Board [36]

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Thank you very much for joining us today, and thanks for the well wishes on my recovery. And things are going great as a company. We're excited and we're moving forward. And I said I feel like we're in a great position organizationally. So if you have follow-up questions, you can contact us through our Investor Relations hotline and that's (310) 482-5830, or just come to our investor website at investor.stamps.com and put in a request and we'll get back to you ASAP. Thank you.

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Operator [37]

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This concludes today's conference. You may now disconnect your lines. Thank you for your participation.