Q3 2020 Stamps.Com Inc Earnings Call
[music].
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your hosts Suzanne Park, Vice President of Finance. Thank you MS Park, you may begin.
Off the call today or can Mcbride and CFO, Jeff Carberry. The agenda for today's call is as follows will review the result of our third quarter of 2020.
Will provided 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 to safe Harbor statement.
The financial results, we will discuss on the call today include non-GAAP financial measures in.
In the third of 2020, GAAP net income was $64 million and GAAP net income per fully diluted share with $3 30.
Are non-GAAP financial measures exclude the following third quarter items $10.2 million of non-cash stock based compensation and $5 $6 million of non-cash amortization expense of acquired intangibles in debt issuance costs.
Okay, and the third quarter.
Remained exceptionally strong in October.
More than 80% year over year.
Can you strengthen acquisition has driven us to the highest number of paid customers in the history of the company.
By the end of the third quarter pay customers increased by 31.
Approximately 100 basis points year over year to four 2% versus 3.2% in the third quarter of 2019.
The increase was primarily driven by churn in the mailing segment of the stamps dot com customer base.
The churn uptick was entirely expected given the very large magnitude of acquired customers. During the second quarter that resulted in a higher churn during the third quarter.
Comers.
Let me let me now give a quick update on the EPS partnership.
<unk> solutions.
Let me remind everybody know about some of the initiatives we're focused on in the in the <unk> in 2020, and the U S market first.
Plan to continue to invest heavily on growth in the shipping part of our business.
In August ship station long launched it go to market collaboration with a S. A P.
And which ship station and they will support E Commerce sellers via the integration of interplay enterprise resource planning software from.
In October ship station also deepened its partnership with Alibaba.
By enabling BTB merchants in the U S, who sell on Alibaba dot com to more efficiently process fulfil and ship orders from Alibaba Dot com.
And we expanded door to door tracking capabilities from 36 countries to over 200 countries.
And France during the fourth quarter.
We remain extremely excited about the future of our company and the enormous value proposition of our ecommerce technology and service offerings.
It was 193.9 million in Q3 and that was up 42% year over year versus Q3 of 19.
Total revenue excluding met APAC was 177.1 million in Q3, and that was up 43% year over year to secure routines.
The growth in revenue in the third quarter was primarily driven by strong growth in our mailing and shipping business, which in United States continue to benefit from strong domestic shipping growth, albeit at moderate levels of growth.
And was offset by weak international shipping performance, both of which we believe are attributable to the ongoing COVID-19 pandemic.
Year over year revenue growth was negatively impacted by the customized postage program termination in June resulting in zero revenue in Q3.
It was at 107% year over year versus Q3 of 19.
Adjusted EBITDA margin.
6.7% in queue treat versus 25, 3% in Q3, our last year.
The increase in adjusted EBITDA margin was driven by strong revenue growth at a more favorable mix of higher margin.
Service revenue.
<unk>.
Non-GAAP adjusted income per fully diluted share was $3 83, and Q3 based on a non-GAAP tax benefit rate of 6%.
And was up 243% year over year versus $1 12 per share in Q3 of 19 and based on a non-GAAP tax expense rates of 40%.
Fully diluted shares Houston, EPS calculation was $19 4 million in Q3 versus $17 formulated in Q3 of last year.
Which now discuss our customer metrics.
Totally paid customer metric was 987000, which was up 33% versus Q3 of 19.
As our highest number of pay customers that are companies history of some chest.
This was driven by strong new customer acquisition, and partially offset by an increase in customer churn.
Quarter by code and then Tim.
And second a generally cautious outlook on a per 19 related impacts to our customer acquisition churn and shipping volume growth.
As Ken discussed, although recent trends have been strong we've seen moderation as one would expect given the strength of the second and third quarters combined with a modest relaxing the stay at home restrictions on businesses.
And now onto our specific quantitative guidance.
To $2000.
We expect fiscal 2020, non-GAAP adjusted income per diluted share to be in a range of $10 35 to $11.35, which compares to our previous customer $6.25 to $9 and 25 pounds and.
And finally, we continue to expect capital expenditures to be approximately $4 million in 2020 and with that look it up for questions.
Ladies and gentlemen, you'll now have our question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please let me know pull for questions.
Our first question comes from George Sutton with Craig Hallum. Please proceed with your question.
Thank you Jeff one of the things you mentioned was that you you believe there may have been some Paul forward from Q4 into Q3 retail purchases relative I think you're assuming relative to the holidays generically around the ecommerce universe I think there is.
Is a very significant amount of enthusiasm relative to this upcoming retail season, Amazon Prime day, obviously.
As a start to that season saw significant growth. So I'm. Just curious are you seeing anything different than the generic world that we are tracking.
And do you see any impacts or benefits relative to the surcharges and everything that the the carriers are doing to try to limit volume during specific periods.
Sure it's quick questions. So.
I guess I would say, we're not see anything significantly different in terms of the broader trends without the pottery commerce icky.
Economy is experiencing we are seeing moderation from extraordinary levels and cute cute you on Q3, so that growth we would expect to get you to moderate as army generally opens up and we had a pivot from.
Ah supply different recession.
Things open up so I'd expect to see continued moderation in growth rates.
So we are seeing that moderation continue we would expect a seasonal bump.
All of equal however, the question becomes really what does the first order effect is the first of all if that's going to be the moderation with some purchases pulled into Q2 and Q3.
Or is the first order of that going to be as the seasonal seasonal bumped point of going to overshadow that I think both factors are happening. However, I think that from our perspective, we'd like to be conservative.
I'd like to add to overestimate the things that are.
And our ability to estimate that banned the impact of Covid. So.
I guess Broadway I wouldn't say that there's a big difference what we're seeing in the broader marketplace.
But we are certainly seen moderation on the question becomes what level of seasonality and do you experience in queue for relative to Q3, given the enormous strength a few free and Q2. So those are kind of a qualitative factors are considered and looking at our guidance.
Certainly things could could not better idea.
Drop better but.
Not necessarily going to get off my skis on things that are very difficult estimate given the volatility and posted covid.
Georgia.
Help.
You mentioned the surcharges I just wanted to comment on that really quickly.
The.
The UPN surcharges are not being applied to our customers.
So we are not seeing those come through of course, the USPS surcharges are across the board to all their customers. So there is a little bit of an increase there, but generally speaking I don't think we're expecting to see a big impact from from the surcharges coming in queue for.
I don't know if this is helpful. But I know my wife was an extremely aggressive ecommerce Byron Q2, and Q3 and has absolutely no plans to let up for Q4. So I don't know if that's helpful.
Rarely forgive.
[laughter].
Just here to help.
So.
There was a very interesting.
<unk> that Alibaba did with ship station and they brought up a couple of things that I don't think you've brought up and I. Just wanted to confirm that one was that you plan to expand to an additional five countries internationally in 2021 and also that there was some pretty significant work you're doing it sounds like with Ali Bob.
On the B b functionality in traditional you've been a beta C player. So I'm curious if you can give us perspective there.
Yeah, I think you you are accurate and both of those statements I think that we we talked about Alibaba back in July and it was an initial integration.
After the Latin American market so.
It's just continuing to build our capabilities development wise do the partnerships, we need to do in those countries add the carriers, we need to add in those countries and then just starting to do the marketing.
Thank you my other question is how do you think about your have your mix is going to be impacting your gross margin going forward cook compared to where it's running now.
Yes, I think his relation gross margin as as you continue to see growth and shipping and ask the attribution shifts more towards should be revenue as opposed to mailing revenue you're going to see some natural lifting gross margin, we're certainly not going to forecast.
What that more because that's what we're not sure where it ultimately falls out of it still obviously moving in the direction of an increase percentage from from shipping, but certainly I'd expect to see gross margins move.
As the shipping.
Come out of our business grows relative to the nausea components.
Okay. Thank you so much good job on the corner.
<unk> and then answer to the previous question I want to make sure. We got precise numbers. So in terms of operating free cash flow expert from expenses 79.8 million for the quarter in terms of cash generated from option exercises that was $76 formula into the quarter.
Thank you.
Our next question comes from Kelvin Lewis K Loom company. Please proceed and two questions.
Hi, good afternoon, and congrats on the strong results as well.
Thanks, Kevin pointed us.
Wanted to circle back on your guidance for the year, obviously, you're being conservative in light of Covid, but you also did mentioned you wanted to see that you're.
You expect to see the normal.
No bumps, but in that context, you guidance right now suggests queue for is actually lower from a revenue perspective prior quarters. So I just wanted to clarify that there was no sort of change within kind of your relationships with other integration partners or carrier partners.
This is purely just you know you guys can conservative as usual.
Yeah. That's a good question. So if you're looking over your obviously, there's there's this growth there quite a bit obviously on a relative basis, you'll have to Q3 sequentially. It doesn't apply it down Q4 relative to Q3, which obviously differs from a stroke of pattern. So again, it's really a function of while we would essentially expect to see a seasonal bump around the holidays.
There is a factor there, which is moderation and also to extremely high Q Jones you three levels. So.
Based on the guidance on the high end you'd expect to see the back half of the year higher than the front half of the year, but you do have this artifact given the level of moderation that certainly very well could happen in queue for relative to Q3.
Sequential decline in queue for again I'd be very happy to be wrong.
But certainly we do empirically see moderation and shooting levels. So the question becomes how high is queue for going to be do you still have that same level of seasonality given how much consumption has possibly been brought forward from Q4 into Q2 and Q3 so it.
It is certainly.
Conservative but entirely.
Potentially realistic.
Potential outcome, that's very realistic as well in terms of in terms of our guidance French on the high end at least to Kevin and just to comment to add an additional comment you asked about whether there's anything specific to our business internally. The answer is no everything is continuing to move forward positively we're not seeing any internal changes in partnership or.
Carrier relationships or anything like that that's driving us to give the guidance I think it's more just wanting to be conservative and predicting.
Predicting the macro factors is challenging for any company at this point and we just want to make sure conservative as as we move into coupons.
But it certainly appreciate that color Uhm do you have a question I had was on just the ramp up a bit EPS relationship and I know early on the focus was on your we will take care of your platforms, maybe talk about what sort of penetration you've got from an account perspective, there in terms of food actually contributing to that EPS growth. If you can.
And then beyond that I think I just saw it sounds dot com Fort Miley announced that it was rolled out across that platform just a week ago or so wondering how you expect kind of the pacing of those accounts till the end of the program to be given that it looks like there has to be some mental updated on your customers part.
Well in terms of your your first question in terms of the <unk> partnership.
Think we are.
I think we're just starting to build that partnership and reviewing it is a very long term very strategic partnership for us where we're excited about the adoption we've seen so far, albeit on a small base I think our volumes of grown very.
Very rapidly we saw Ah.
Six tax increase in the second quarter, and then it almost doubled again, sorry up 50% nearly 50% in the third quarter, So and I think in the fourth quarter, it's an interesting environment for adoption because we're looking at a situation where.
Is less expensive than USPS, even down for the really smaller packages not first class, but for the priority mail packages and so.
That'll be something that we highlight as customers go into print.
Print USPS labels will certainly point out that they can save money by switching the EPS.
From USPS and.
Making sure that we always delivered the best solution for our customers I'm not sure if that's going to continue longer term the.
The USPS surcharges really just during the fourth quarter at this point.
But I think we're seeing adoption continuing.
We're pushing the solution and chip station initially and we've now roll it out across all of our products and so.
Additional marketing pushing it out there with emails and Webinars, an additional marketing as we do pop ups and other things. So we feel like we're just getting started with the <unk> relationship. When we're reviewing it is a very very look great long term multiyear partnership at this point.
That's great.
Go ahead.
Sorry, I think you pretty much answered in terms of how you expect things to turn out the other part of that question had just been around as you will get out to you that attempts dot com customers. It looked like they might have to opt into it whereas early on you guys.
Kind of turned it on for everybody. So.
Curious how that affects adoption rates ups's during the holiday period.
Yeah no we.
We're taking the same approach with everybody at this point.
We did have maybe some slight differences as we initially rolled it out but.
Now when a customer comes in when they sign up all they have to do is click agree basically the solution is there the rates are in there the capabilities in there it's being run to the same what we call the wallet, which is kind of our single balance so when a customer puts her credit card in and buys funds.
You're able to use those funds for either USPS or so it doesn't take anything other than a click to click to accept the terms of conditions.
It's as simple as a guest which is why we are so excited about it it's.
We're putting in front of the centers customers come in and like I mentioned with the more attractive rates the ups's providing for the for the customers. We expect to see some good adoption this quarter an ongoing.
Alright, and just lastly for me one of the housekeeping items on.
On the balance sheet, the other assets seem that jumped out quite a bit from cute due to kiss you just wondering what that was attributed to.
The primary driver for that is really going to be a new recently signs in Austin and under lease rules required to capitalize beliefs. So no casual impact you see an increase in assets and liabilities for the amount of Louise.
Primary driver for the call sheet of now.
Alright, thanks, so much.
Got it thanks, Kevin.
Thank you.
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Our next question comes from Alan <unk> with National Securities. Please proceed with your question.
Yeah, Hi last quarter, you said that your customer acquisition costs was down around 50% and you were kind of taking advantage of that I'm not sure. If if you had a metric like that if I heard something for this quarter. If you did and then what what is that doing in terms of how you were thinking.
About your spend right on sales and marketing thank you.
Yeah, we did say that our customer acquisition cost was down 30% year over year for the third quarter and so we're seeing really good strength across all the channels.
From TB too.
Online marketing direct mail is doing great.
Radio, particularly online.
Online podcasts and other online streaming.
Have all done extremely well so.
We're seeing record growth and acquisition and likewise are seeing.
Low cost per acquisition, so the lifetime value as several multiples higher than the the acquisition costs are assuming great Roy on those dollars that we're spending.
And I think we're continuing to ramp that up.
Aggressively in terms of the spend.
Thank you very much.
Thank you.
Sure No further questions at this time I'd like to turn the club called back over to management for any closing remarks, you may have.
Thanks for joining us and.
As always if you have any questions you can contact us through our Investor relations.
Online is invested off-campus dot com.
Thank you.
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