Q2 2020 Stamps.Com Inc Earnings Call
All today include non-GAAP financial measures in the second quarter of 2020, GAAP net income was $51.7 million and GAAP net income per fully diluted share was $2.73.
Our non-GAAP financial measures exclude the following second quarter items.
13.2 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 11.7 million of additional non-GAAP income tax expense in the second quarter, our mailing and shipping numbers include.
Service revenues product revenue and insurance revenue and do not include any revenue from customers stage. Please see our second quarter 2020 earnings release in 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.
Thanks, Suzanne and thank you for joining us today.
On today's call.
Hi, Opex will discuss the impact of cover 19.
Impacted sat on our business.
I will discuss the progress and go forward plans of our various business initiatives in the US we'll discuss our progress in our plans on various and initiatives internationally and then Jeff will discuss our metrics our Q2 financial results in our guidance for the remainder of 2020.
So let me begin by discussing the overall impact that for the 19 had on our business today.
Carbonite team continues to have significant net positive impact to our business by driving customer acquisition and shipping volume growth as the shift to working from home fundamentally alters the way businesses and consumers transact.
E Commerce activity remained elevated throughout the quarter, we clearly benefited as businesses have varying sizes continue to adopt our technology solutions to help improve their commercial activities.
The second quarter is a whole customer acquisition was up almost 250% year over year, while our customer.
Our cost per acquisition dropped by more than 50%.
Surgeon acquisition started to meaningfully accelerate in the last two weeks of the first quarter. We continued to see strong acquisition trends throughout the second quarter.
Although acquisition growth moderated a bit in July Nevertheless remained very strong and acquisition was up over 150% for that month.
The acquisition surge resulted in the largest number of customers added during any quarter in the history of the company.
By the end of the second quarter paid customers increased by 179000 sequentially to reach an all time high 559 to 500 956000.
Some factors for why we are seeing a large number of new customers coming from our service include a large number of people. We're looking for an alternative to go into a carrier retail location in order to do their mail and packages an incredible brand awareness that we built across all of our properties meant that we were a big beneficiary of that shifted behavior.
One of the questions. We expect our shareholders to have is whether these new customers are just using our solutions as a short term measure while workers have shifted to work at home model during the pandemic or if they will stick with our solutions longer term.
We would expect that certainly there will be a mix of both types of behavior.
We have seen a very positive early indication that the quality of the customers requiring is similar to what we've seen in the past and in some areas may even be better.
We believe maybe the customers are discovering efficiencies benefits of the mailing and shipping that will resonate favorably for long term usage. While initially these customers may simply be trying to avoid a visit to a retail location. Many may want to maintain the efficiency in convenience of new workflows with our solutions for the long term.
Customers are also discovering how much they can save using our great online discounts.
Customers can save 9% on the first class letters paying only 50 cents versus the retail rate of 55 cents.
We save customers up to 40% off you Sps retail prices for packages and with our EPS partnership we're able to serve customers up to 62% off EPS is standard daily rates.
The savings at up quickly and cover our monthly service fees once a customer reaches a very modest amount of package volume.
We have found the common challenge we encounter is getting people to try our solutions once they do they love it the discover more and more that the sophisticated features that will really can save them a lot of time and they discover the great discounts that we offer.
With the two fundamental benefits, we expect that many customers will continue to rigor regularly use our solutions in the.
Our quantitative analysis of customers acquired during Cobot may team is also very encouraging.
The conversion rates from acquired to paid customers.
Status remains consistent with more recent pre coverage whoops were seeing a favorable mix of new shipping customers.
The encouraging customer trends have also manifested themselves in a decrease in customer churn by 0.6% in the second quarter versus the second quarter last year.
Churn reached the lowest level, we have seen for many years.
Lower churn is particularly encouraging with the surge in new customer acquisition as we typically see high churn in the early part of a customer lifetime.
So overall, we're encouraged by the trends and optimistic that many of these new customers will become long term users of our solutions.
Of course monitor the customer trends carefully given the unusual circumstances, we are in right now.
In addition to the surge in second quarter, New customer acquisition. We also saw strong increase in total shipping volumes during the second quarter.
Total us dollar shipping volume, we processed across all carriers, we support in the US meaningfully accelerate is starting in the second half of March and that trend continued through the second quarter and on into July.
We saw year over year volume growth in both the second quarter and in the month of July in excess of 50%.
Our customers, who are often ship shippers of goods have been strong beneficiaries of increased ecommerce consumption as end customers have shifted to purchasing online versus at retail locations during the pandemic.
The dramatic increase in packaged volumes that we have seen indicates that our solutions are working very well to address the needs of our customers again the question as to whether the surgeon volume has a longer term trend or just a transitory occurrence remains to be seen.
We generally believe were merchants adopt updated methods or workflows. They tend to continue the new behavior. We're also generally believed that as consumers have shifted more of their purchasing online their general comfort with online purchasing and the recognition of the efficiencies of online purchasing may lead to E commerce, retaining a sizable portion of the increase percentage of purchases.
Made online as opposed to through retail channels.
Also we note that a significant number of retailers and unfortunately declared bankruptcy or closed locations. As a result of the covered 19 pandemic. So customers simply have fewer in person retail shopping choices, which would all else equal generally benefit the E commerce industry.
With that let me give a quick update on the you'll see us partnership.
Late last year, we signed a new partnership EPS, which allows us to offer attractive you guess discounts to our customers Dps package discounts were able to offer customers under our new partnership are very attractive the discounts or as much as 62% off EPS is standard daily rates the discounts are available.
Throughout products without any necessary existing customer shipping volume that is frequently required to qualify for discounts when working directly with EPS.
Within our ecommerce multi carrier properties, including Shipstation shipping easy and Shipworks, we've always provided EPS shipping capability.
However, the new partnership allows us to more actively and effectively drive customers and shipping volume to us to EPS.
The new Ucas solution went live in Shipstation with a subset of customers in the fourth quarter. We have now rolled it out to the majority of our customers across all of our brands.
[noise] accessing EPS is very simple with an automatic account and discounted rates available immediately when the customer first begins to use the product.
We're seeing rapid adoption in the U.S. solution and very positive growth in the volume of packages that we process.
In the second quarter. The volume of are you PS packages increased by more than 700% sequentially versus the first quarter.
However, as we just began rolling out the EPS to our portfolio brands in the first quarter, we would expect the sequential trends to moderate in the coming quarters.
We're very excited about our EPS relationship, we expect them to be a great partner for stamps dotcom and all of our company products and solutions.
With that let me now remind everyone about some of the initiatives, we're focusing on in 2020 in the U.S market.
First we plan to continue invest heavily on growth in the shipping part of our business.
We developed a large percentage of our company's resources to target ecommerce shippers.
In 2020 and beyond we expect to continue making these large investments to attract these types of shippers to our solutions.
We plan to continue to increase our investment in direct sales direct mail traditional media radio television search engine marketing search engine optimization as well as refining our customer acquisition process through affiliates partners telemarketing and other areas.
Second we plan to expand the features and functionality of our solutions, particularly in the Multicarrier shipping part of our business.
The E Commerce shipping industry is very dynamic and reinvest a significant amount of our development resources and continuing to innovate in the 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 prepaid customer.
Reduced our monthly customer churn rates and increased 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 and pickup drop off.
And continuing to enhance our capabilities in our mobile apps.
Third we plan to continue bringing innovation innovative and cost effective solutions to the us customers that are sending packages to other countries.
During 2017 lost in international shipping initiative called.
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 received 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 global coast and includes customer benefits such as free package pickup for reinsurance upgraded delivery speeds enhanced tracking simpler customs procedures and other benefits.
We also now offer DHL Express and GPS is international shipping options.
We expect to continue to drive these solutions in 2020.
Now, let me discuss some of our plans for expansion outside of the less.
Starting with our acquisition of met APAC in 2018, we began a path of expanding our business from a domestic only usbs focused model told the global multi carrier E Commerce shipping solutions company.
Over the past several years Weve entered into a significant number of partnerships for our international market.
And during 2018 in 2019, we began efforts to test our shipstation product in the UK, Canada and Australia.
During 2020, we're ramping up our marketing business development and product development efforts and significant ways.
First for Shipstation and for ship engine, we're developing partnerships carrier relationships product enhancements and marketing our solutions and target in our target countries.
Shipstation launched a new partnership with Mccardell, Libra, which will open up the sizable Latin American market to Shipstation sellers and further enhances the advantages sellers have working with Shipstation.
Shipstation International second quarter shipments increased over 200% year over year versus the second quarter 2019.
For the remainder of 2020, we expect to improve our capabilities to support further international expansion, such as language and currency trends currency translation systems.
We expect to launch a French language version of our Shipstation product.
Second in our metal pack business, we continue to make progress in both customer acquisition and technology, including re Architecting, the technology platform and driving new innovations.
In metal packed Europe, we had a strong second quarter with seven significant.
New customer additions, including a large European fashion retailer one of those arduous third party logistics globally.
During the quarter. We also continued to develop a strong us pipeline of potential deals with companies that are prominent household names.
We also saw encouraging adoption rates for new products, such as our returns portal and our delivery tracker.
Both features will significantly enhance E commerce operations and the consumers shopping experience for our large omnichannel customers.
We also continue to do development work designated to allow designed to allow connection of the 450 met APAC carrier services to the Shipstation International platform.
Finally during 2020, we plan to invest development resources into building a simpler international E Commerce Multicarrier shipping solution based on the stamps Dot Com web solution technology platform.
Internationally, we are planning to replicate our us strategy, where we go to market with two main brands a simpler stamps dotcom like web solution for up and coming ecommerce customers and a more powerful and complex shipstation solution for more sophisticated ecommerce customers.
Once the developments. This further along we'll begin to test market.
The stamps dot com like solution to some select international markets.
With that now let me turn to an update on how the coded pandemic is impacting employees of our company.
The deeply committed to the health and wellbeing of our employees. We took early an aggressive steps to make sure that our employees were safe as possible. We moved to a companywide work at home model the week of March 9th.
Because our business is to build and market software on the Internet. We were at 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 some challenges we ended the workout with the operational changes. However, today, our employees have shown amazing resilience working through the inevitable challenges and working from home 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 ongoing cobot 19 pandemic.
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 wait until employees can safely returned to the office.
[noise] remixed, leaving we remain extremely excited about the future of our company and the enormous value proposition of our ecommerce technology and service offerings.
Our goal is to be positioned the 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 to level. The number of our partnerships and integrations the size and strength of our us Some international sales forces and the scale and success of our marketing programs.
We've always managed care companies cost structure very aggressively and as a result, we have a very healthy cash flow very strong balance sheet with over $275 million in cash and investments and no debt currently.
As we are experienced.
As we experienced the large acceleration in our business. It reinforced the significant brand awareness that we have created for our market leading solutions.
We're in a great position to continue to execute our business plans and to be in a global leader at a multi carrier ecommerce shipping in 2020 and beyond.
With that now I'll turn the call over to Jeff.
Thanks very much.
We will now review, our second quarter 2020 financial results.
The discussion hovercraft results today include non-GAAP financial measures assets and described a reconciliation of non-GAAP financial measures to the corresponding GAAP measures balance in our earnings release and in our metrics on our Investor website.
Total revenue was 206.7 million in future and that was up 49% year over year versus future 19.
Total revenue, excluding medevac was 191.0 million in Q2 and that was up 51% year over year versus Q2 of 19.
The growth in revenue and the second quarter was primarily driven by strong growth in our mailing and shipping business, which is United States benefited from strong domestic shipping growth and was offset by international shipment decline both of which we believe are attributable to the ongoing proven that can paradigm.
Revenue was also positively impacted by strong growth and customized postage as purchases road ahead of the programs termination.
Mailing and shipping revenue was 197.9 million in Q2 and that was up 46% year over year versus Q2 of 19.
Mailing and shipping revenue, excluding that a path was 182.2 million in Q2 and that was up 8% year over year future of 19.
The growth in mailing and shipping revenue was driven by increases in pay customers and our.
We estimate a total revenue derived from our shipping customers grew in excess of 50% year over year and as a percentage of total revenue in Q2 was approximately 80%.
We estimate that revenue derived from our shipping customers in Q2 was pointing that out also grew year over year in excess of 50%.
And as a percentage of total revenue was in the low seventies.
We also estimate our revenue derived from our several mailers as a percentage of total revenue was mid teens.
And grew year over year in excess of 20%.
[noise] mailing and shipping gross margin was 80.3% in Q2 versus 75.3% for future of 19.
Maybe we should in gross margin positively impacted by growth in revenue associated with our traditional carrier business, including U.S., GAAP, EPS, which was offset by strong growth in our Medifast business.
Which have a gross margin of 57%.
We had year over year [noise].
Primarily driven by growth in R&D and sales 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 strategy.
Non-GAAP operating income was 79.9 million in Q2 and that was up 111% year over year versus Q2 of my team.
Adjusted EBITDA was 81.0 million in Q2 and that was up 106% year over year versus Q2 was 19.
Adjusted EBITDA margin was 39.2% in Q2 versus 28.3% in Q2 was 19.
The increase in adjusted EBITDA margin was driven by strong revenue growth in a more favorable mix of higher margin service revenue.
Non-GAAP adjusted income per fully diluted share was $3.11 in Q2 based on a non-GAAP tax expense rate of 26%.
As a 148% year over year versus $1.25 per share in Q2 of 19 based on a non-GAAP tax expense rate of 40%.
Fully diluted shares and used the EPS calculation was $18.9 million for Q2 versus 17.8 million for Q2 of 19.
With that let's now discuss our customer metrics. Our total paid customer metric was 956000, which was up 29% versus Q2 of my team. It was our highest number paid customers and our company's history.
This was driven by the strong new customer acquisition and reduced customer churn.
Our second quarter churn rate was 2.8% turn was down to 0.6% year over year.
Second quarter ARPU was $68.98.
In ARPU was up 30% year over year, driven primarily by growth for the shipping focused areas of our business.
Total second quarter Riskiest postage printed was a record 2.4 billion and that was up 47% versus the second quarter of putting our team.
The total you'll see us postage printed metric includes both higher growth shipping volume and traditional non package mail volume, which was up slightly this quarter as oppose to the study to clients. We've historically seen driven by a longer term trying to declining melt usage in the Ross.
Let's now discuss our cash debt and uses of cash.
We ended Q2 with 275 million in cash and investments, which was up 59 million from 260 million at the end of Q1 of 20.
The increase in cash and cash and investments was primarily driven by strong operating cash flows changes networking capital and cash from ops mesh sizes.
And was partially offset by share repurchases and the prepayment and full of our debt balance under our previous credit agreements.
During Q2, the company repair the principal balance of 47.4 million under our previous credit agreements, resulting in the elimination of just from a balance sheets.
On June 29 to 2020, the company amended and extended the previously existing credit agreement for a new revolving credit facility of up to 130 million, where the term of two years.
During Q2, the company repurchased approximately 56000 shares at a total cost of approximately 9.4 million.
On August 32020, our board of directors approved a new $40 million repurchase plan replaces our current plan and runs through February of 2021.
With that let's now turn to guide on US as we discussed last quarter our guidance reflects the following.
The new multiyear Usbs reseller agreements.
Our Usbs partnership, which we rolled out throughout the first quarter of this years, where a customer base across all of our properties.
And expected increases in operating costs related to our continued investments in the U.S. and abroad.
Our updated guidance also reflects the following.
First the termination of the customized postage program effective mid June.
Second us traditional seasonal slowness in the third quarter potentially exacerbated by decreased back to school related shopping and the extraordinary strength for the second quarter, which potentially reflects discretionary purchases brought into the second quarter by the curve of 19 Pandemics.
And third a cautious outlook on the cobot 19 related impacts to our customer acquisition churn and shipping volume.
Yup.
As Ken discussed, although recent trends have been strong driven by driven by increased ecommerce activity. We believe there is a risk that broader macroeconomic weakness could impact our business in the second half of 2020.
We will of course continue to monitor our customers and their shipping volumes very closely.
Now onto specific quantitative guidance.
We expect fiscal 2020 revenue in a range of 650 million to 725 million.
Which compares to the previous guidance range of 570 million to 600 million.
We expect growth in our shipping revenue will be a range of approximately high teens to low twentys year over year, we expect growth in our mailing revenue derived from our several members will be in the low to mid teens year over year.
And as previously discussed our customized postage revenue was eliminated effective June 16th between 20, and as a result and termination of the program by Dsps.
We expect operating expenses increased in 2020, reflecting the annual effects of the speech investments we made throughout coming at team and additional switching investments, we anticipate making in 2020 for both our us and international efforts.
We expect fiscal 2020, adjusted EBITDA to meet a range of 180 million to 240 million, which compares to previous guidance of 135 million to 155 million.
Our guidance implies a full year adjusted EBITDA margin in the high 20% to low 40% range.
We expect non-GAAP tax expense will be approximately 28%.
Of non-GAAP pretax income for 2020, which compares where previous estimates of 40%.
Our full year 2020 effective tax rate could differ from our current estimates based on number of factors.
We expect fully diluted shares to be between 18.3 million and 20.2 million in 2020, which compares to a previous estimate of 18.0 million and 19.5 million.
We expect fiscal 2020, non-GAAP adjusted income per diluted share in a range of $6 in 25 cents to $9 in 25 cents, which compares to our previous estimate of $4 to $5.
And finally, we continue to expect to capital expenditures to be approximately two 2 million to 4 million in 2020.
And with US we'll open the call for questions.
Thank you.
I'd like to ask a question. Please signal by pressing star what are your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to let us know treat your equipment again press star one to ask a question.
And we'll take our first question, Dave George Sutton with Craig Hallum.
Thank you I feel like I should say Merry Christmas and happy holidays, because it sure feels like a Q4 results.
I wondered if you could bifurcate the 179000 customers between the single carrier offerings and the multi carrier offerings.
Sure drug so we actually it's Alex.
Breakdown customers further can we get publicly but I would remind you of thats all of our customers now our multi carrier customers. We don't have any single carrier customers. So through all of our properties now our customers can avail themselves of.
And historically you ask SFS products, both you guys, yes, and yes and of course are multi carrier products. They have access to over 40 carriers.
He asked me a different way then are you able to break it into work from home benefits versus the E commerce benefits in terms of.
The additional customers.
Yes, the method of the call.
It is it's.
When you look at the customer acquisition.
The customers in the post covered cohorts are looking very similar in terms of our performance.
In terms of conversion activity.
Trico that so.
Invariably we've got some customers who are going to be perhaps more short term in nature, but given the quantitative analysis for customers.
And given us can kind of went through in detail as to what we think customers.
Experience when they when they join our services with the first time, we think will realize the benefits of our services the efficiencies.
On the cost savings and even though co. It maybe a catalyst to join our service.
It looks like based on the qualitative and quantitative analysis those customers hopefully will perform in line with pre cohorts.
Got Ya.
Lastly from me real White space for you in my view remains international expansion. Certainly this was a growth inflection quarter. There can you talk about a long term plan relative to how you've grown up in new Afton. You are you hearing it with an accelerated.
Replay of the U.S. growth scenario, and if you could marry up M&A potential as you think through that that was very helpful.
Sure George Yes, I think our number one focus from growth is international and we as you know in Washington, UK, Australia and beyond in Canada, and so we then early marketing in those markets and you've seen great success I think you heard the numbers.
We gain on the call we had.
Growth in the second part of that was up over 200% year over year on shipments. So we've seen really nice adoption of markets. We're still very early.
And now we're working on.
Language and currency translation solutions, so the weekend enhancing market in other languages and other currencies.
The active development project this year.
First target is branch.
And just languages and we'll be launching that both in Canada is lower than planned.
And so I think continued focus on just going after each market.
Looking at each carrier they are happy to get different integrations with different carriers in each market. So there's little to work in each market to get back business development as well as partnership.
Partnership buffer.
But overall I think we're really happy with the progress we made internationally.
To the M&A internationally, we certainly are open and active.
You know.
Very happy to deal with acquire at larger organization internationally, we aren't buying a pack and that he has a nice platform to be able to build on our national solution with the with the almost 500 carriers that they support.
Having more additional.
Small business focus.
Software solutions internationally, and we would be great Havent now as you know, we haven't announced anything so.
We have found something and makes sense, but we still actively looking and actively seeking out M&A on that front.
That's a well congrats on the great results.
Thanks running.
Next we'll hear from Alan Greenspan with National Securities Corporation.
Yes, hi, congratulations really great quarter, I thought I heard you say customer acquisition costs were down 50% year over year.
It seems like two things could go into that one being.
Customers are just shifting to online so they're going to just do that without you try harder and second in the environment. We've been in its been cheaper to to pay for advertising is there a way to think about.
Those two factors.
And if you've seen anything on the advertising on the cost of marketing.
Got you that would make that change.
Yeah, I think I think it's somewhat below I think that we certainly see.
More effective more effective numbers in our programs.
I think is perhaps before just looking for for a solution.
And we have ramped up our marketing efforts. So we've done both and we've seen more cost effective.
More cost effective media costs, we've also seen more effective.
Search engine marketing solution, though so we've seen across the board both those you know additional.
Efficiency in our marketing as well as you know improve Eddie I think a part of it also comes from just the brand awareness we bill.
People are out there looking for solutions, we've heard about us for years and years.
We spent over half a billion dollars on on branding in the last 10 years at a significant brand in the market. So I think that Thats part is we just getting a lot of organic growth coming directly directly to our website before or after seeking a solution.
As they shift this shift there.
Focus as we move on.
Great and then internationally you mentioned met its medpac.
Signed up seven new customers and Theres, a pipeline of Oh of U.S., a retailer type customers could maybe you talk a little.
Hi, good about what you would be you offering to those potential customers and and what you think about is the opportunity there.
Yes.
Yeah, I think the you know in first quarter, we saw.
It out in the pipeline that people were just kind of like trying to figure out what's left in there and their business, but the good news is during the second quarter. We saw some of the pipeline start to move again.
We saw with the Europe as well as we started to see some good traction in the U.S. So in terms of whether customers are adopting was the is the traditional medicine hat solution.
The ability to add to multiple carriers across multiple countries.
Integrated into their solutions they are backend, whether that's their warehouse management solution in their transportation management solution across multiple warehouses. So it's really those very large.
Very large retailers and refining a good traction with and I think we were pleased with.
Hopefully growth.
Volumes, we've seen similar kinds of.
Increases in the gross in the volumes of existing customers, but also in the new customer adoption seems to really kind of started to move forward again.
Thank you my last question as you talked about how you kind of want to recreate the stamps dot com model.
Internationally with.
Basic product in a in a multicarrier solution.
Could you go into that a little more you see in the U.S. it.
You offer convenience and.
And I had a lot of other things, but you also offer discounts because of your relationship with the U.S., Yes, and yes.
Yes.
How would that work with dealing with so many countries.
Is there a chicken and egg problem or how do you or do you need to do that or how do you. How do you think about that.
Yes, I think you're talking about so so we're really doing what kind of go to market now, mostly just shipstation and those market and so you know shipstation is a very very powerful product.
Well the result of that complicated and so what we're doing now we're working on bringing a simple solution, which is more akin to what we do with a standby mode solution to those markets as well as well. So do we have that we have a a lower end and higher than you have the ability to kind of bring in upcoming meat.
Commerce upping, having E commerce customers into a more simple solution and move them up overtime as the growth in more complex disability like Shipstation, who really kind of missing at that level like in the marketplace now.
If we focus on developing that this year and so we're working on that factored in development in terms of the.
You know that customer use less or not.
We offer but also for the savings in time and say you know the convenience and so.
We are working actively on business development with all the terror in those markets as well and our goal was to ultimately offer discounts.
Two young customers versus what the reseller direct rates might be a list raised for those carriers, but that's a longer process, but we do think the you know so far what we've seen in the market is even without the discounts.
Traction.
Customers, just getting into the capability the and the power we break for their solutions.
Great. Thank thank you so much and congratulations again.
That's all.
Oh No question will come from Kevin Lu with came to a company.
Hi, good afternoon.
Hi, Chris.
I was hoping it and a little bit more like some of your commentary around guidance I'm sure sequentially, obviously, very typical seasonality and you talked about it being perhaps a little bit more pronounced.
Current environment is that informed by some of the body's you're seeing just in terms of any moderation in July and August.
And then maybe looking into that.
Wondering what your expectations for peak season, this year or do you think that they can get back if not exceed Q2 levels are you being more conservative.
Given the broader macro environment.
Yeah, I know very questions, Kevin So I think in general the overlay on the on the guidance range is one of some conservatism to the bottom end, obviously with a much more conservative a potential impact from covered on the higher around that is so much more modest one.
We do believe though that's the.
Got it certainly wasn't form by July volumes, but there's also a.
Real possibility that given the strength of Q2.
That would have potentially exacerbated seasonality really not expected to Q3 down sequentially, maybe down sequentially more than we might otherwise expected given the fact that Q2 was so strong and maybe that indicate people pull forward some purchases into Q2 that might other what's happened later in the year.
Q4, you know depending on the impact on Q3 would obviously imply that Q4 happens to be.
But again the budget does assume some conservatism on the high end with regard to covert because there's obviously a very able to had a big impact for us in Q2.
And what it portends for the balance of the year with Cobra in terms of vaccines and infection rates and extinguishment <unk>, what's the promoters if anyone's guess I think at the end of the day. There's there's just a lot of uncertainty with regard to to coated and I think it's dangerous to extrapolate too strong.
Wrongly that keeps you result into the balance of the year given how much of an impact could quickly had on Q2.
[noise] I'll just say that's really helpful and then.
Yes.
It sounds like you guys might be fully rolled out across the base is there anything you feel you can do it as I kind of more adoption of you can't see everything.
But to the customers.
At this point and then also given the volume.
Certainly the focus.
It's actually increasing prices and keeping surcharges wondering what sort of stability you had your pricing.
You know you're going to change here, how should we think about whether they come back and look for opportunities perhaps limits on the margin Lake Eire, given how much capacity limited right now.
Yeah. It was seen as you're picking up a little bit Kevin, but let me let me take a shot at some of the questions. You have there so in terms of customer adoption of yes.
So as you know our software is will be designed to allow customers to choose either algorithmically or specifically so rare yes on balance has an equivalent product for a cheaper price customers make automatically default into that that service offering to the extent worse, it's more of a gray area in terms of differentials service level.
Rules and equivalent prices are comfortable prices.
Given the customer has has a choice and obviously.
Depending on their interpretation of the relative services and and what any value more or less they may choosing we may help them influence that decision.
So at the other day as it's a tough winnable things and it comes down to to both offer into technologies allow customers to choose the right product for themselves and also us educating customers on the relative benefits of of the myriad of terrorists, we offer and how they differentiate themselves not just on cost, but service levels and and timeliness and hold much another fab.
Occurs.
In terms of the the partnership it is a great partnership and we see U.P.S. I'm also into deals with with other other parties and some of which are competitors of us we view that generally as a good thing that shows that as you kiosk as aggressively going after the.
Definitely market.
And we think at the end of the day that that's a strong benefit for us as well as other players in the space, but if we were excited about it we worked very closely with yes, and we can't comment obviously on future deals and future discounts and and the whole host a factors deliver arrangements.
I will say, though it is a strong mutually beneficial relationship for all of us.
Got it and I just love to hear you know, obviously you're talking for fun.
Okay.
Hi.
You look at thoughts.
Your conversations providers that have raised significant amounts of capital.
Your interest level in terms of raising capital and I know you have a lot.
National attention, but are there kind of adjacent areas.
Yes.
Peter M&A in or what do you think you'll be able to be able itself.
So you really focus on kind of strategy a good.
Yeah, I mean, I think there we're open.
We're open to both acquisitions that are kind of more in our core shipping.
Multi carrier capability, particularly internationally.
In markets that were not in our markets that were they have preexisting relationships are they don't carry relationships that help us accelerate into that market or where there's just a local understanding. We would you know I think we would be very open to acquisitions in those areas.
I think in you know in in sort of horizontal expansion I think was your second part of your question certainly expanding into new or an additional areas that makes sense from you know for for our customers that are things that they may be looking for that may make logical sense like we've talked in the past about things like him.
Between management and customer marketing.
You know additional pieces of the of the of the puzzle for those customers will certainly be something as well that we would be we will be taken a look at under the M&A umbrella.
Coming to the other part your question was if I, if I, if I heard correctly capital structure and our ability to access capital you probably noticed that we did.
It's not a new revolving credit agreement of 103 million for two years, we paid off all of our debt outstanding prior to that so we have a debt free balance sheet. So I think you know look I think we have ample capital through the revolver to do deals or the size that are probably.
More likely than not and should we find something thats, a big an attractive it requires more than 100 pretty knowing our revolver I think obviously, given our financial performance given our track record and the strength of the management team.
I don't think we'd have a problem accessing the capital markets, obviously with the economy. There was some risk in terms of markets season, not if the economy goes into recession, but obviously, we're not there yet.
Thanks, Matt or even in a in a tighter economy I think companies with strong performance like ours, but good fundamental business models.
I think our access to capital for something attractive I'm, even larger than the other three like we have with would pretty likely be there for us.
Okay, great. Thanks for taking my question, Okay, that's going on something.
Hi, Kevin.
We do have a follow up from Allen Klee with National Securities Corporation.
Yes, Hi can you give us an update on the U.S.P.S. and.
In terms of the government whatever's going on and.
To potentially help help them.
With financings and any changes on.
New offerings or anything.
Potentially make them more competitors.
Sure.
Yeah, I think were like the rest of the <unk>. That's the rest of public work you know, we're continuing to monitor the U.S.P.S. his financial situation very carefully.
Although I would say that in general.
Situation seems to have improved versus what what it looked like in April.
Made some public projections back in April 2020, and they were projecting that than expected cash by October of this year well they've revise those now and they did come out with some new very conservative projections that are assuming you know.
The mail to package volumes decline back towards the pre cousin level and then a male continues to decline.
Similar levels and based on that the newer projections it may more recently.
He said that they have enough cash to continue through late 2021. So do you currently sitting on about 13 billion on the balance sheet. So I think they're relatively okay position.
And they have seen also the decline in mail volumes has it been isn't that it started often and initially back in April we were seeing like high Thirtys low fortys kind of declines in their different segments of their mail and now declines you're closer to like the 20 Twond.
And then they seem to know ongoing.
Driven partly by us and other things that package volumes have been very robust given their packaging volumes are going up over 60% and then so above and beyond the 13 billion and the improvement in their business. They also recently got an additional 10 billion in the line of credit which was allocated under the carrier.
That but how did he negotiated with the Treasury department, so that just happened.
I believe last week and so now they have no 23 billion currently on the balance sheet I think they still have another 4 billion that they can access to their traditional letter of credits that are close to 30 billion and total cash.
And their businesses improving so I think we so we feel confident that they'll be fine.
There are under new leadership now under new leadership is really focused on.
Reducing cost.
Aggressively reducing or eliminating overtime. So it looks like it really moving into right direction, we're comfortable with their with their current app.
Great. Thanks, Thank you again.
Excellent thanks Alan.
There will conclude todays question and answer session I'd now like to turn the conference over to Mr., Ken Mcbride for any additional closing remarks.
Hey, Thank you for joining us as always if you have how questions you can contact us.
A lot of Investor.
Relations numbers three went on with 45.30 for our website yesterday and Subcom.
Thank you.
That does conclude today's conference call. Thank you for your participation you may now disconnect.
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