(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q (this "Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You can find many (but not all) of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "projects," "seeks," "intends," "plans," "could," "would," "may" or other similar expressions in this Report. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this Report that are not historical facts are also forward-looking statements.
We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this Report, or that we may make orally or in writing from time to time, are based on beliefs and assumptions made by us and information available to us at the time made. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.
Please refer to the risk factors under "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, 2018, as well as those (if any) described elsewhere in this Report and in our other public filings. The risks included are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Report.
Our trade names and registered trademarks include Stamps.com, Auctane, Endicia, MetaPack, NetStamps, PhotoStamps, ShippingEasy, ShipStation, ShipWorks, and the Stamps.com logo. This Report also references trade names and trademarks of other entities. References in this Report to "we" "us" "our" or "Company" are references to Stamps.com Inc. and its subsidiaries.
Stamps.com(R) is a leading provider of Internet-based mailing and shipping solutions in the United States (U.S.) and Europe. Under the Stamps.com and Endicia(R) brands, we offer United States Postal Service (USPS) solutions to mail and ship a variety of mail pieces and packages through the USPS and are in the process of preparing to offer non-USPS carrier shipping solutions. Customers using our solutions can receive discounted postage rates compared to USPS.com and USPS retail locations on certain mail pieces such as First Class letters and domestic and international Priority Mail(R) and Priority Mail Express(R) packages. Stamps.com was the first ever USPS-approved PC Postage vendor to offer a software only mailing and shipping solution in 1999. Endicia became a USPS-approved PC Postage vendor in 2000. Under the MetaPackTM, ShippingEasy(R), ShipStation(R), and ShipWorks(R) brands, customers use our multi-carrier solutions to ship packages through multiple carriers such as Canada Post, DHL, FedEx, Royal Mail, UPS, USPS, and others. Our customers include individuals, small businesses, home offices, medium-size businesses, large enterprises, e-commerce merchants, large retailers, and warehouse shippers.
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Mailing and Shipping Business References
When we refer to our "mailing and shipping business," we are referring to our mailing and shipping products and services for both our Stamps.com and MetaPack segments, including our mailing and shipping technology solutions, mailing and shipping integrations, mailing and shipping supplies stores, and branded insurance offerings. We do not include our customized postage business when we refer to our "mailing and shipping business." When we refer to our "mailing and shipping revenue," we are referring to our service, product, and insurance revenue generated by our mailing and shipping business. We do not include our customized postage revenue generated by our customized postage business in our "mailing and shipping revenue."
Mailing and Shipping Business
We offer the following mailing and shipping products and services to our customers under the Stamps.com, Endicia, MetaPack, ShippingEasy, ShipStation, and ShipWorks brands:
USPS Mailing and Shipping Solutions
Under the Stamps.com and Endicia brands, customers use our USPS-approved mailing and shipping solutions to mail and ship a variety of mail pieces and packages through the USPS. Customers can purchase and print postage 24 hours a day, seven days a week, through our software or web interfaces. Typically, customers fund an account balance prior to using our service.
Our USPS mailing and shipping solutions enable users to print "electronic postage" directly onto envelopes, plain paper, or labels using only a standard personal computer, printer, and Internet connection. Our solutions support a variety of USPS mail classes including First Class Mail(R), Media Mail(R), Parcel Select(R), Priority Mail, Priority Mail Express, and others. Customers can also add USPS Special Services to their mail pieces, such as Certified Mail(R), Collect on Delivery, Insured Mail, Registered Mail(R), Restricted Delivery, Return Receipt, Signature Confirmation(TM), and USPS Tracking(R). Our customers can print postage (1) on NetStamps(R) labels, which can be used just like regular stamps,
Our mailing and shipping solutions incorporate address verification technology that verifies each destination address for mail or packages sent using our solutions against a database of all known addresses in the United States. Our mailing and shipping solutions are also integrated with common small business and productivity software applications such as word processing, contact and address management, and accounting and financial applications. Our shipping solutions feature integrations with hundreds of partners including popular shipping management products, shopping carts, online marketplaces, and other e-commerce solutions.
We target different customer categories with service plans that provide various features and capabilities. We target smaller offices, home offices, and smaller online sellers that need a more basic set of mailing and shipping features. We target larger enterprises that need a richer set of mailing capabilities such as multiple-user functionality, automated Certified Mail forms, additional reference codes and higher allowable postage balances. We target shippers such as e-commerce merchants, online retailers, fulfillment houses, warehouses, and large retailers that need shipping specific features such as direct integration into the customer's order databases, faster label printing speed, and the ability to customize and save shipping profiles. We target large corporations with multiple geographic locations that need enhanced reporting and the ability for a central location, such as a corporate headquarters, to have greater visibility and control over postage expenditures across their distributed network of locations. We target large volume mailers that need features designed for presort mail, Certified Mail, and bulk address updating.
Customers may pay us a monthly fee, based on a subscription plan which may be waived or refunded for certain customers, for which we provide them access to our platform. We have been, and in the future potentially could be, compensated directly by the USPS and/or other carriers for shipping labels printed that meet certain requirements. We may earn revenue from customers that have access to our platform when they purchase postage or print shipping labels. We may earn revenue that may take the form of some or all of the spread between the rate a customer pays and the rate the carrier or integration partner receives, either charged directly or paid by our partners. We may earn other types of revenue shares or other compensation from specific customers that have access to our platform or through integration partners.
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For a description of some of the recent and potential future changes to our shipping and mailing business and related risks, see "Risk Factors--Risks Related to our Industry--The discontinuation of certain financial compensation arrangements with the USPS will have an adverse effect on our revenues and operating results, unless we are successful in replacing the lost revenue and profit with similar compensation from the USPS or other potential partners, of which there is no assurance," "Risk Factors--Risks Related to our Industry--The USPS could modify, discontinue or terminate agreements and other financial compensation arrangements, which would have an adverse effect on our revenue and operating results," "Risk Factors--Risks Related to our Industry--The USPS or our integration partners could cause discounts our customers receive to be diminished or terminated, which would have an adverse effect on our results of operations, reputation and competitiveness," and "Risk Factors--Risks Related to our Industry--Strategic business Partners or carriers could modify or terminate agreements and other financial compensation arrangements, which could materially adversely affect our results of operations and prospects," in our Annual Report on Form 10-K for the fiscal year ended December 1, 2018, filed with the SEC on March 1, 2019.
See also "Business Outlook and Forward-Looking Statements," below, in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Multi-Carrier Shipping Solutions
We offer multi-carrier shipping solutions through our MetaPack, ShippingEasy, ShipStation, and ShipWorks brands and are in the process of preparing to offer non-USPS carrier shipping solutions through our Stamps.com and Endicia brands. MetaPack, ShippingEasy, ShipStation, and ShipWorks offer leading multi-carrier solutions for shippers including e-commerce merchants, online retailers, warehouses, fulfillment houses, large retailers, and other types of shippers that use multiple carriers such as Canada Post, DHL, FedEx, Royal Mail, UPS, USPS, and many others.
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As part of our mailing and shipping services, we offer back-end integration solutions where we provide the technology to print mailing and shipping labels for transactions to partners who manage the front-end users. Our solutions integrate directly into many e-commerce platforms, allowing web store managers to completely automate their order fulfillment process by processing, managing, and shipping orders from virtually any e-commerce source through a single interface without manual data entry. Managers can retrieve order data and print complete shipping labels for all types of packages.
We have integration partnerships with the USPS where we provide electronic postage for mailing and shipping transactions generated by certain USPS-branded programs. For example, we provide the electronic postage for Click-N-Ship(R), a web-based service available at USPS.com that allows USPS customers to purchase and print shipping labels for certain domestic and international mail classes or packages at no additional mark-up over the cost of postage.
In addition, we have hundreds of integrations through our various brands with partners and carriers, including marketplaces, shopping carts, and e-commerce platforms as part of their multi-carrier shipping solutions. Integrations with partners include Amazon, BigCommerce, ChannelAdvisor, eBay, Magento, PayPal, Shopify, Volusion, Yahoo! Stores, and many others. Carrier integrations include Canada Post, DHL, FedEx, Royal Mail, UPS, USPS, and many others.
Mailing & Shipping Supplies Stores
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On August 15, 2018, we, through our wholly owned subsidiary Pacific Shelf 1855 Limited, completed our acquisition of MetaPack Limited. The net purchase price totaled approximately �171 million, or $218 million using the August 15, 2018 GBP to USD exchange rate, and was funded from current cash and investment balances.
Results of Operations
The results of our operations during the three and nine months ended September 30, 2019 include MetaPack's operations. The results of our operations during the three and nine months ended September 30, 2018 include MetaPack's operations beginning on the August 15, 2018 acquisition date. Please see Note 2
The results of our operations during the three and nine months ended September 30, 2018 include service revenues paid directly to us by the USPS for certain classes of shipping labels ("Package Incentive Payments") under an agreement that terminated on December 31, 2018. The results of our operations during the three and nine months ended September 30, 2019 do not include any Package Incentive Payments. Accordingly, care should be used in comparing periods that include Package Incentive Payments with those that do not include Package Incentive Payments.
Three and Nine Months Ended September 30, 2019 and September 30, 2018
Total revenue decreased 5% to $136.2 million in the three months ended September 30, 2019 from $143.5 million in the three months ended September 30, 2018. Total revenue decreased 1% to $410.9 million in the nine months ended September 30, 2019 from $416.7 million in the nine months ended September 30, 2018. Mailing and shipping revenue, which includes service revenue, product revenue, and insurance revenue, was $132.9 million in the three months ended September 30, 2019, a decrease of 3% from $136.5 million in the three months ended September 30, 2018. Mailing and shipping revenue was $401.2 million in the nine months ended September 30, 2019, a decrease of 0% from $401.9 million in the nine months ended September 30, 2018. Customized postage revenue decreased 52% to $3.3 million in the three months ended September 30, 2019 from $7.0 million in the three months ended September 30, 2018. Customized postage revenue decreased 34% to $9.8 million in the nine months ended September 30, 2019 from $14.8 million in the nine months ended September 30, 2018.
The following table sets forth the breakdown of revenue for the three and nine months ended September 30, 2019 and September 30, 2018 and the resulting percentage change (revenue in thousands):
Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 % Change 2019 2018 % Change Revenues Service $ 124,643 $ 127,810 (2.5 )% $ 375,979 $ 373,932 0.5 % Product 5,116 4,705 8.7 % 15,306 15,276 0.2 % Insurance 3,106 4,023 (22.8 )% 9,871 12,684 (22.2 )% Mailing and shipping revenue 132,865 136,538 (2.7 )% 401,156 401,892 (0.2 )% Customized postage 3,307 6,957 (52.5 )% 9,792 14,755 (33.6 )% Other - 12 (100.0 )% - 52 (100.0 )% Total revenues $ 136,172 $ 143,507 (5.1 )% $ 410,948 $ 416,699 (1.4 )%
We define "paid customers" for the quarter as ones from whom we successfully collected service fees or otherwise earned revenue at least once during that quarter, and we define average monthly revenue per paid customer (ARPU) as one-third of quarterly mailing and shipping revenue divided by paid customers.
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The following table sets forth the number of paid customers in the period for our mailing and shipping business (in thousands):
First Second Third
The following table sets forth the change in paid customers and average monthly revenue per paid customer for our mailing and shipping business (in thousands except average monthly revenue per paid customer and percentage):
Three Months Ended September 30, 2019 2018 % Change Paid customers for the quarter 743 732 1.5 % Average monthly revenue per paid customer $ 59.60 $ 62.14 (4.1 )% Mailing and shipping revenue $ 132,865 $ 136,538 (2.7 )%
The number of paid customers increased by 1.5% in the three months ended September 30, 2019 compared to the three months ended September 30, 2018 primarily as a result of our customer acquisition efforts.
Our average monthly revenue per paid customer decreased by 4.1% in the three months ended September 30, 2019 compared to the three months ended September 30, 2018. This was primarily attributable to the termination of our agreement with the USPS which provided for Package Incentive Payments in the 2018 period, partially offset by revenues from MetaPack which did not have a full quarter of revenue in the comparable period of 2018 and a year-over-year increase in consolidation services revenues.
Revenue by Product The following table shows our components of revenue and their respective percentages of total revenue for the periods indicated (in thousands except percentage): Three Months Ended Nine Months Ended September 30, September 30, 2019 2018 2019 2018 Revenues Service $ 124,643 $ 127,810 $ 375,979 $ 373,932 Product 5,116 4,705 15,306 15,276 Insurance 3,106 4,023 9,871 12,684 Customized postage 3,307 6,957 9,792 14,755 Other - 12 - 52 Total revenues $ 136,172 $ 143,507 $ 410,948 $ 416,699 Revenue as a percentage of total revenues Service 91.5 % 89.1 % 91.5 % 89.7 % Product 3.8 % 3.3 % 3.7 % 3.7 % Insurance 2.3 % 2.8 % 2.4 % 3.1 % Customized postage 2.4 % 4.8 % 2.4 % 3.5 % Other 0.0 % 0.0 % 0.0 % 0.0 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
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Our revenue is derived primarily from five sources: (1) service and transaction related revenues from our USPS mailing and shipping services, our multi-carrier shipping services and our mailing and shipping integrations; (2) product revenue from the direct sale of consumables and supplies through our Supplies Stores;
Nov 12, 2019
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