Good day, ladies and gentlemen, and thank you for your patience. You joined Stamps.com Incorporated Fourth Quarter 2013 financial results call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference maybe recorded.
I would now like to turn the call over to your host, the Senior Director of Finance, Mr. Jeff Carberry. Sir, you may begin.
Thanks very much. Good afternoon, everyone, and thanks for joining us. On the call today is Ken McBride, CEO; and Kyle Huebner, CFO. The agenda for today’s call is as follows; we’ll review the results of our fourth quarter 2013; then we’ll discuss financial results and talk about our business outlook, but first, the Safe Harbor statements.
Safe Harbor statement under the Private Securities Litigation Reform Act of 1995, this release contains forward-looking statements, such as our expectations and financial guidance that involve risks and uncertainties. Important factors, including the Company’s ability to complete and ship its products, maintain desirable economics for its products, and obtain or maintain regulatory approval, 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, 2012, 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.
With that, let me hand the call over to Ken McBride.
Thank you, Jeff. Thank you for joining us today. Today, we announced another great quarter. During the fourth quarter, we achieved strong non-GAAP results including operating income of $9.9 million which is up 30% year-over-year. Operating margin of 30.7%, net income of $10.1 million, that was up 33% year-over-year and earnings per fully diluted share of $0.61, and that was up 29% year-over-year.
We also achieved record total postage printed by our customer base, which hit $1.6 billion for 2013. We achieved continued strong growth in our high volume shipping area record customers in our enterprise business, record paid customers overall. We were very pleased with our fourth quarter and our overall fiscal 2013 outcome.
On the call today, we’re going to talk in more detail about PC Postage metrics, business, and our financial results and our business outlook. Let’s begin with a more detailed discussion of our business, PC Postage.
As always we exclude the enhanced promotion channel activity from our metrics and strategic discussions throughout the call today. For more detailed definition of how we calculate each of our metrics, you may refer to our quarterly investor metric spreadsheet available at investor.stamps.com
Core PC Postage revenue, which is comprised of our small business, enterprise and high volume shipping customer segments, was $30.3 million in the fourth quarter, that was up 10% versus the fourth quarter of 2012. For 2013, as a whole, total core PC Postage revenue was up 12%. Our compound annual growth rate for the last four years for our core PC Postage has been 16%.
During the fourth quarter, we acquired 79,000 gross small business customers and that was down 11% compared to the fourth quarter of 2012. And our cost per new small business customer acquired or CPA was $110 in the fourth quarter. And that was up 6% versus the fourth quarter of 2012. For 2013 as a whole, we acquired 304,000 gross small business customers. That was down 3% compared to 2012. Our CPA for the year was $116. That was up 3% versus 2012.
We saw some increased competition for ad space in 2013 as the overall economy has improved and that has impacted our acquisition. We also continued to focus on acquiring higher quality customers with better files to pay conversion rates and higher expected lifetime values. And that has impacted our reported metrics for 2013.
Our average monthly churn during the fourth quarter was 3.2%, which is slightly – up slightly versus the 3.1% we reported in the fourth quarter of 2012. We commonly see quarter-to-quarter fluctuations in our churn rates. Current churn rates are at levels comparable to those seen prior to the recession. Our overall churn rate for all of 2013 was 3.3% and that was the same as in 2012.
Paid customers in the fourth quarter was $468,000 that was up 8% versus the fourth quarter of 2012. Slightly lower year-over-year growth rate and paid customers for the fourth quarter was primarily the result of the lower growth acquisition and our focus on acquiring higher quality, higher lifetime value customers that we’ve just discussed.
Average subscriber revenue per paid customer or ARPU was $21.57 in the fourth quarter and that up 3% versus the fourth quarter of 2012. The increase was a result of a continued mix shift towards the higher value customers in our enterprise and high volume shipping segments and higher average store revenue per customer driven by increased usage – per customer driven by our increased usage in our service across all of our segments. The ARPU improvement was partially offset by lower average insurance revenue per customer.
The total postage printed by all of our customers was $1.6 billion in 2013. That was up 36% versus 2012. Total postage printed continues to be driven mostly by strong growth from the high volume shipping segment. For the fourth total postage was up 12% to $448 million. For this quarter we faced a very tough compares [ph]. Postage printed in the fourth quarter of 2012 was up 90% year-over-year.
We continue to see a positive correlation between total postage usage and our core business metrics. So we are pleased to continue another year of strong growth of total postage usage. Our success in 2013 continues to come against a background of poor economic data especially with respect to small businesses as the NFIB Index continues to fluctuate around the 93 level and that’s considered to be pre-recession readings.
Now, with that, let’s discuss some detailed initiatives we’re working on at PC Postage. In our small business area, we plan to continue building and optimizing our customer acquisition activity. The return on investment we see in our marketing spend continues to show at least the two times return. So we plan to increase our 2014 small business customer acquisition spend by approximately 5% to 10%.
We plan to continue utilizing a full variety of marketing channels including direct mail, traditional media, online marketing and other areas. And across each of our marketing channels, we plan to continue to focus on efficiently scaling the total spend while keeping cost for acquisition at a reasonable level.
In our enterprise area, we plan to continue scaling up our sales and marketing efforts. Our solutions continue to have a stronger customer value proposition compared to postage meters that are dramatically lower total cost of ownership and have greater visibility and controls that are not available with the postage meter.
Total 2013 enterprise revenue was up 36% year-over-year and its contribution to our bottom line results in 2013 doubled from the prior year. We’re pleased with our continued progress in enterprise and feel that we are now achieving the very attractive returns on investment in this area that we have been talking about for some time. And a strong returns are being positively reflected in our overall financial results.
We will continue our strong focus on the enterprise area during 2014. In high volume shipper area, we are really on the life cycle in this area and we’re continuing to ramp up our efforts. Our service is a great solution for shipping with the postal service for high volume shippers such as warehouses and fulfillment houses, e-Commerce shippers, large retailers and other types of high volume shippers. Total of 2013 high volume shipping postage was up 37% year-over-year.
For 2014, we’ll continue to focus on scaling business area in the high volume shipping area. We’ll continue to introduce improvements in the software and features to further improve scalability of product to the largest high volume customers. And we’ll continue to add new shopping cart integrations for easier data export and import from the tools that customers like to use.
For example, we recently announced new integrations with 3DCart and Data Commerce [ph] both of which are e-Commerce solutions that allow retailers to build market and successfully operate an online store. We’ll continue to scale our marketing efforts and our sales efforts using our national sales force. We would also continue to scale and optimize our sales and marketing in this area.
Across all of our business areas, we have and will continue to spend a lot of effort optimizing every aspect of our customer funnel and our customer experience. We’ll continue to optimize the website, the registration process and all of the post-registration customer interaction.
We’ll also continue to launch new features in our client, a product that make mailing and shipping easier for our customers. With that, let me talk about Postal Reform and other [indiscernible] items.
So the Congress recently continues to work on it, but make only small progress in the push for Postal Reform. We do not think any change in this area is imminent. As the postal service continues to struggle financially, it sought and it received a special above inflation adjustment called an [indiscernible] case which resulted in a 7% percent jump in first-class postage rates from $0.46 to $0.49.
However, as part of that price increase, a historic new first-class discount was introduced for PC Postage users. We’ll now only have to pay $0.48 instead of the $0.49 for first-class stamp. This is the first time in history that such a single piece letter discount has ever been made available by the postal service.
This discount follows more than decade long effort by Stamps.com to gain recognition for the cost savings that its customers provide for the postal service. By avoiding retail locations, bar coding their mail, pre-cleansing their addresses, Stamps.com customers cost the postal service dramatically less than other sales channels.
We are excited about the new discount and we’ll feature it probably in our marketing going forward.
Now with that, let me turn it over to Kyle who will provide more detailed discussion of our financial results and our business outlook.
Thanks, Ken. We will now review our fourth quarter and 2013 financial results. We will discuss our financials on a non-GAAP basis which excludes the following stock based compensation expense is $900,000 in Q4 and $4.5 million in 2013. And a non-cash income tax benefit of $9.7 million in Q4 in 2013.
Reconciliation of non-GAAP to GAAP numbers are contained in the earnings release on our website.
Total revenue was $32.4 million in Q4, up 8% versus the fourth quarter of 2012. And was $127.8 million in 2013, up 11% versus 2012. Growth in total revenue continues to be driven by our core PC Postage revenue, which was up 10% in Q4 versus the fourth quarter of last year and was up 12% in 2013 versus 2012.
The growth in core PC Postage revenue was a result of both increased paid customers and higher ARPU, as discussed by Ken in the metrics section.
Non-core PC Postage revenue from the enhanced promotion channel was down 14% in Q4 versus the fourth quarter of last year and down 5% in 2013 versus 2012. This decrease was expected and as a direct result of decreased marketing spend, as we continue to reduce our investment in this area of the business.
PhotoStamps revenue was $1.5 million in Q4, down 23% versus the fourth quarter last year and was $4.7 million in 2013, down 17% versus 2012. PhotoStamps decrease was also expected and is also a direct result of our decrease in marketing spend, as we continue to reduce our investment in this area of the business.
Core PC Postage revenue accounts for approximately 95% of our total revenue reflecting our long-term strategic focus of allocating resources and investments to the higher return core PC Postage business. However, we will continue to operate in the other two non-core businesses as long as they contribute to the bottom line and without requiring significant internal resources.
PC Postage gross margin was 83.8% in Q4 versus 78.9% in the fourth quarter last year and was 81.0% in 2013 versus 78.9% in 2012. Cost of sales includes promotional expenses related to customer acquisition which was a benefit of $0.1 million in Q4 compared to an expense of $0.9 million in the fourth quarter of 2012.
And for the full year, it was an expense of $2.4 million in 2013 compared to an expense of $3.5 million in 2012. The fourth quarter of this year benefit resulted from an adjustment to reflect lower promotional coupon redemption rates that we saw in 2013 compared to prior periods. 2013 full year promotional expense is more – is expected to be more indicative of the level of promotional expenses going forward.
In our recorded investor metrics, our customer acquisition spend includes both promotional expenses and sales and marketing spend. As we feel they are both cost directly related to acquiring customers. As such, we feel it’s more informative to look at PC Postage gross margins excluding the promotional expenses as a better indicator of the ongoing gross profit for that business.
On that basis, PC Postage gross margin excluding promotional expenses was 83.3% in Q4 versus 81.9% in the fourth quarter of last year and 82.9% in 2013 versus 82.1% in 2012. The improvement in the PC Postage gross margin excluding promotional expenses was primarily due to cost leverage with the revenue growth that we have seen.
PhotoStamps gross margin was 25.8% in Q4 versus 28.7% in the fourth quarter last year and was 21.5% for the full year of 2013 versus 24.5% in 2012. PhotoStamps gross margins decreased compared to 2012 primarily because of lower fixed cost leverage resulting from our declining PhotoStamps revenue, and because we did not passed through Postage rate increases in the form of higher prices to customers.
Sales and marketing spend was $10.0 million in Q4, up 2% versus the fourth quarter last year. And was $38.6 million in 2013, up 2% versus 2012. The increase in total marketing was due to increase marketing spend in our core PC Postage business partially offset by decrease sales and marketing spend in our enhanced promotion and PhotoStamps businesses.
We expect this trend to continue as we continue to focus our efforts on the best way to scale our core PC Postage marketing spend while maintaining favorable customer economics and while minimizing our investments in our non-core businesses.
R&D spend was $2.6 million in Q4, up 16% versus Q4 last year, and $10.0 million for the full year 2013, up 7% versus 2012. The increase was primarily related to increase headcounts related to these expenses to support our expanded product offerings and technology infrastructure investments. R&D as the percent of revenue was 8.0% in Q4 and 7.8% in full year 2013 which are comparable with 2012 levels.
G&A spend was $3.8 million in Q4, up 21% versus the fourth quarter of 2012, and $13.6 million for the full year of 2013, up 9% versus 2012. The increase was primarily related to increase headcount related expenses to support the growth in the business we’ve experienced. G&A as the percent of revenue was 11.7% in Q4, and 10.6% in 2013 which were up slightly compared to 2012 levels, comparable to longer term historical levels.
Non-GAAP operating income was $9.9 million in Q4, up 30% versus the fourth quarter last year, and $38.6 million, up 35% versus the full year of 2012. Non-GAAP operating margin was 30.7% in Q4, and 30.2% for the full year of 2013, compared to 25.4% in the fourth quarter last year, and 24.7% for the full year 2012. The income growth and the margin expansion were primarily attributable to revenue growth in our core PC Postage business, PC Postage gross margin expansion, and strong cost controls.
Non-GAAP adjusted EBITDA was $10.6 million in Q4, up 32% versus the fourth quarter of last year, and $40.8 million in 2013, up 37% versus 2012. This metric is calculated as non-GAAP operating income less the G&A [ph] contained in operating expenses which was $667,000 in Q4, and $2.2 million for all of 2013. We’ve almost quadrupled our adjusted EBITDA over the past four years, going from $10.5 million in 2009 to $40.8 million in 2013.
Non-GAAP net income was $10.1 million, up 33% versus the fourth quarter of last year, and $38.9 million for the full year 2013, up 36% versus 2012. Non-GAAP net income was $0.61 per share in Q4, up 29% versus $0.47 per share in the fourth quarter last year, and $2.39 per share for the full year 2013, up 41% versus 2012. Diluted shares used in the EPS calculation were 16.6 million in Q4, up 3% versus 16.1 million in the fourth quarter last year, and 16.3 million in 2013, down 3% versus 16.8 million in 2012.
Capital expenditures for the business were $800,000 in Q4 and $3.8 million in 2013. As expected our capital expenditures for the business were higher than historical level in 2013 as we increased our level of investment in our technology platform to improve the reliability and scalability of our solutions [indiscernible] to handle the large Postage volumes and growth we are experiencing.
Non-GAAP free cash flow generated by the business was $9.9 million in Q4 and $37.3 million in 2013. This metric is calculated as non-GAAP net income plus the D&A contained in operating expenses, less capital expenditures related to the business. This calculation excludes capital investments related to our new corporate headquarters as well as tenant related D&A. We ended Q4 in the year with $87 million in cash and investments or approximately $5.39 per ending balance sheet share.
During the fourth quarter, we did not repurchase any shares. The company is currently authorized to repurchase up to 1 million shares of Stamps.com stock during the next 14 months. Since we began repurchasing our shares in 2002, we have returned a total of $187 million in excess cash to our shareholders through our share repurchase programs.
As of December 31, 2013, we had approximately $200 million in Federal NOL and $95 million in state NOL which when combined with our other tax credits result in a gross Differed Tax Asset or DTA of about $62 million. We have a valuation allowance of approximately $21 million against the gross DTA, resulting in a net DTA on the balance sheet of approximately $41 million.
We estimate that as of December 31, 2013, our section 382 ownership shift was out at approximately 19% level compared with the 50% level that will trigger an impairment of our NOL asset potentially trigger [ph]. As part of our ongoing program to preserve future value of NOL assets, we request that any shareholder contemplating owning more than 645,000 shares contact the company before doing so.
Now turning to guidance, we expect to 2014 – fiscal 2014 revenue to be in a range between $125 million to $140 million. We expect fiscal 2014 GAAP EPS to be in a range between $1.80 to $2.20 per fully diluted share. GAAP numbers assume approximately $5 million of stock based compensation expense.
Excluding the stock base compensation expense, we expect fiscal 2014 non-GAAP EPS to be between $2.10 to $2.50 per fully diluted share. Based upon 2013 year ending shares outstanding and the current stock price, we estimate the diluted shares for 2014 would be approximately 17.0 million compared to 16.3 million diluted shares in 2013, which will create somewhat of a headwind in our 2014 EPS calculation compared to 2013.
We expect growth in 2014 core PC Postage revenue to be up between 5% to 10% versus 2013. Our core PC Postage revenue growth is driven in part by the degree to which we can effectively scale our marketing spend and our customer acquisition spend. To our ability and success in this area will have a meaningful impact on our revenue growth.
We expect growth enhanced promotion revenue and PhotoStamps revenue to be down in 2014 compared with 2013 because we continue to minimize our investment in these areas. We are targeting 2014 small business PC Postage customer acquisition spend to be up 5% to 10% compared with 2013.
We do expect Q1 of 2014 customer acquisition spend to be sequentially higher compared to Q4 ‘13, as we expect promotional expenses in Q1 to be closer in line with historical trends. We expect capital expenditures for the business in 2014 to be approximately $2.5 million.
In summary our core PC Postage business model with recurring revenue and high gross margin is continuing to demonstrate strength. We’re seeing solid performance across many of our financial and key customer metrics.
We have a strong balance sheet, attractive return on equity, strong free cash flow generation and awards deferred tax asset. We have demonstrated our commitment in enhancing shareholder value including a return in $294 million of excess cash to shareholders via special dividends and our share repurchase program.
We believe we have a very attractive and sustainable business model and are looking forward to delivering results over the next five years. With that, we will open it up for questions.
Thank you sir. (Operator instructions) Our first question comes from George Sutton of Craig-Hallum. Your line is open.
George Sutton – Craig-Hallum
Guys, I know in Q3 you had lowered the spend a bit to reflect the slower seasonal period. And I’m just curious in Q4, the actual absolute dollar spend was down year-over-year and actually versus the past couple of years. I’m curious the logic behind doing that.
Yes. So George, this is one of the things that I would strength to [ph] clarify in the remarks which is we had an adjustment to our promotional expense that was actually about a million dollar swing factor versus last year. So we’re at last year was about $900,000 expense, there was actually a [indiscernible] $100,000.
So the actual marketing spend itself was up year-over-year. And so the fact that when you look at the absolute dollar number it’s down, that’s actually more reflective of the adjustments that we made to the promotional expense number.
George Sutton – Craig-Hallum
Okay. You mentioned wanting to go after a higher quality customers obviously when you moved away from the enhanced promotional channel that was one way to do so. I’m curious what you mean within the context of your core PC Postage, how you’re looking at the customer segments differently?
I guess what we’re trying to do is we’re trying to focus our dollar spend in areas that really provide the greatest ROI so that particular channel or particular segments to certain channels if we see that area is giving us a lower return, we will curtail that effort and try to pick that money out in other places where we’re seeing higher return. So we’re constantly trying to balance that. And so, the remark was really just kind of I guess reflection on that something we do all the time continuing to try to balance the efficiency across our channels.
Yes. I mean, there’s areas like direct mail where you can go to a very specific level of detail in terms of who the target [ph]. And when we look at our lifetime values the shipping segment is obviously within let’s say the world of direct mail we may shift more of our dollars to target a higher volume shipping customer which has – ends up with a higher CPA and you are – potential customers but the value of those customers are higher say, that one – that might be one example.
George Sutton – Craig-Hallum
Okay. Lastly for me, I was thrilled to see the pricing difference between online and traditional mail. If we were to think hypothetically a year forward where there may have been one or two additional price changes on the retail side, would you anticipate that discount to further widen? Is that the sense you would have?
Yes. I mean, we second that as we’re excited about it George. I think the concept of – we think it should have been here long time ago, something we’ve been working on for quite some time, very clear that we save them a lot of money. So we’re really happy that it’s finally reflected in the cost that they pay. And I think we’re going to market it very heavily.
As far as getting bigger, I don’t think that that’s likely to happen but we will continue to try to push for it going forward. So right now, it’s a fairly meaningful discount; we think the cost earnings justifies more but I think it’s – it took us a decade plus to get the $0.01 so we wouldn’t want to promise that we will spring the size of the second penny in less than a year. Hopefully not another decade but probably somewhere between the two is more of a reality.
George Sutton – Craig-Hallum
Okay. Thanks guys.
Thank you. (Operator Instruction) Our next question comes from Kevin Liu of B. Riley & Company, the question please.
Kevin Liu – B. Riley & Company
Hi good afternoon guys.
Kevin Liu – B. Riley & Company
First questions were just kind of around guidance, initially I was going to ask more so around why the range was a bit larger on this time around. Although when you said 5% to 10% growth on core PC postage, I think, given where you guys exit at 13 that would already put you on that about $126 million on this core PC postage alone and assuming PhotoStamps and – that enhance promo channel aren’t going away and I guess I’m curious why the low end in the guidance is actually as low as it is?
Yes, I mean, two different thoughts Kevin, one is just in terms of the range, if you go back to your 2009, we were kind of typically giving a stake EPS a $0.20 range when our EPS was $0.90 and so now that our EPS is in the – was 239 last year, we just felt like having the range we put out now is kind of equivalent to the range on – that we had in 2009.
But really I think the more important thing is that we run the business for the three to five year horizon and in the subscription model, your expensing things like acquisition cost day one and earning the benefit over the next three to five years. And so we – for us we want to give a guidance range that allows us the flexibility that – and that’s been the business for the long term if we have these opportunities.
And on the sales and marketing side, the targets 5% to 10% but if we – as we did with traditional media a few years ago, if we have an opportunity or develop a channel and we want to increase the sales and marketing by 10% to 20%, we want the flexibly that this add if that’s the right thing for the business.
The other thing I would point out is it’s the beginning of the year and so there’s always more uncertainty when you’re putting out guidance in the beginning of the year. In February of 2008, I don’t think anyone predicted what was going to happen in 2008 but we were able to still come in within our guidance range that year.
So we obviously are aiming to execute on the business and make the right long term investments and we refine the outlook as we go through the course of the year but when we put out the guidance now we’re – there’s kind of a higher level of uncertainty relative to – by the time we go to October.
Kevin Liu – B. Riley & Company
Yes, I’m not sure we understand the light greens [ph] on the bottom line, it was more – so just around the revenue line where you guys have generally held the tighter range and in particular since you are guiding to 5% to 10% core PC postage growth, I think I was just a little unclear as to why you would even have a 125 number at the low end.
Yes, I mean, as I said, it’s meant to reflect a variety of scenarios. If the economic environment falls off the cliff or the small business economic environment melts down and that’s the scenario that happened in a way then – so we just – I think our guidance always kind of takes into account in a different scenario and now it’s – including things that are outside of our control.
Kevin Liu – B. Riley & Company
Okay, fair enough. And then – just with respect to the increase in sales and marketing spend plan for this service, wondering if you could talk a little more about how you plan to allocate that throughout the year and in particular I would be curious if you’re going to be far more aggressive here in the first quarter given the discount that you guys are able to extend to your customers now and then more about this as you look towards the back half the year with elections coming up again and potentially ad rates if they’re going up for ads based thing unavailable, how are you guys planning around that to ensure you can best spend against your plan?
Yes, so I mean – I think with the small business area we’ve been at this quite a long time and we have all these channels fairly honed but I think we have pretty good predictability in terms of where the spend will go.
Now that being said, we make constant adjustments throughout the year so first quarter – fourth quarter, first quarter has always been – those two quarters have always been our strongest season of quarters and so as a result of that we do hit the marketing, gas pedal is a bit more on those two quarters. It’s not something necessarily where you can kind of go up and down too much because you have sort of a steady stay level that you need to maintain in terms of just kind of keeping the channels going.
And so we’re trying to balance scaling in the best CPA and utilizing the channels as well as we can, so we do look – we do hit it heavy in the first quarter, we do typically hit it heavier in the fourth quarter.
You know ad rates go up and down, I think sometimes you see the – we’ve seen the political cycle, BP is part of the equation but the overall economy also seems to be a big factor as well so just as businesses get stronger they have more money to spend and so on and so forth, that goes into the marketing channel, drives up the supply and demand, the cost and this is – we’re very conscious and so that sometimes drives us to pull back.
So it’s an area where we’re constantly looking at it so we feel – we put the 5% to 10% number out there that’s – given our current view of where we think things are going to go based on 10 years of history plus current view of all our channels. So I think the first quarter will always be one of our heaviest quarters and as we go into the political cycle, usually that’s our – one of our lighter quarters because of the seasonal slowdown around summertime and then we’ll pick it back up sort of post -October usually. So a lot of times the selection cycle won’t be as big of an effect.
Kevin Liu – B. Riley & Company
Okay, thanks for taking the questions and good luck.
(Operator Instructions) Our next question comes from Tim Klasell of Northland Capital Markets, your line is open.
Hi, this Josh [ph] in for Tim. So I guess my first question is how much of your revenues in the quarter came from shippers, hitting volumes that won’t be likely to repeat until the next holiday season?
Well we – in a part – we don’t breakout specific shipping revenue because e-Commerce and merchants are small business as well as shippers. I think the best way to look at it is on year-over-year growth because that neutralizes or – the seasonality and so as we move in to Q1, there are certainly – the e-Commerce businesses do operate year round and some cases the e-Commerce businesses are growing fast enough that that’s actually a more important factor than the seasonality but I think the best way to think about is just looking at it as year-over-year growth in our core PC postage revenue and that neutralizes for the seasonal impacts.
Okay, thank you. And then have you seen a noticeable increase in postage run through the systems since the $0.01 price reduction was implemented?
We know it’s only been a couple of weeks so I think it’s – January 26 is when it went live and so it’s really kind of too early to tell. It takes a while for customers to kind of – and I think what we’re helping is that the ones that increase will really be not necessarily drive customers to use postage more but will drive our marketing message and help us acquire new customers because we can talk about the discount that our customers now receive for everything, every meaningful mail class the postal service offers so it’s a – even the message used to be discount on shipping versus going to the post office and now I think it’s discount on to everything at least everything that’s meaningful, offered by the post office.
So it’s nice to think for customers to be able to receive a discount in exchange for the fees that it has. So I think we’re excited more about that and that’s going to take a while to play out.
So you don’t – you haven’t seen any short term increase in customer interest both the discount and on spend usually [ph].
I think it’s too early to –
It’s only been a couple of weeks and we’ve – we announced it, we put our press release, we put it up on our website, we’d start to incorporate it into our marketing materials but it usually takes us some time to be able to see the effect of what something like that can do.
Okay, and then my final question is are you looking at raising subscription prices in 2014 or are you kind of guiding to a flat pricing year-over-year?
We haven’t really changed our pricing for quite some time but that being said, we are – like everything in our model, we’re constantly looking at optimizations and price is certainly one of the factors that we look at and so you will typically find us testing different prices and to extent we can demonstrate to ourselves a meaningful lift in lifetime value or ROI for the – a higher price point would be something we would implement but at this point in time we are assuming that we’re sticking at the current status quo.
The other thing I would add is this cycle tends to be long because you have to measure the impact on turn rates over time in order to get comfortable with the lifetime value impact. So it’s something that even if we started testing, we wouldn’t need to monitor for a sufficient period of time to get comfortable with the – this whole impact on the lifetime value.
Thank you. (Operator Instructions) And as there appear no further questions in queue at this time, I’d like to turn the call back over to CEO Ken McBride for any closing remarks, sir.
Thank you and thanks again for joining us. We – we’re always here for questions, telephone number is (310) 482-5830 or you can reach us by going to investor.stamps.com. Thank you.
Thank you sir and thank you ladies and gentlemen for your participation. That does conclude the stamps.com program. You may disconnect your lines at this time. Have a great day.
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