Stamps.com CEO Discusses Q3 2010 Results – Earnings Call Transcript

| About: Stamps.com Inc. (STMP)

Stamps.com Inc. (NASDAQ:STMP)

Q3 2010 Earnings Conference Call

October 28, 2010 5 PM ET

Executives

Jeff Carvari – Director of Finance

Ken McBride – President and CEO

Kyle Huebner – CFO

Analysts

Sarkis Sherbetchyan – B. Riley & Co.

George Sutton – Craig-Hallum Capital Group

Graeme Rein – Bares Capital Management

Presentation

Operator: Good day, ladies and gentlemen, and thank you for your patience. You joined the Stamps.com Incorporated Third Quarter 2010 Financial Results Call. (Operator Instructions)

I would now like to turn the call over to your host for today, Mr. Jeff Carvari, Director of Finance. Sir, you may begin.

Jeff Carvari

Thanks very much and good afternoon, everyone. On the call today is Ken McBride, our CEO; and Kyle Huebner, CFO. The agenda for today’s call is as follows. We will review the results of our third quarter 2010. Then we’ll discuss that results and talk about our business outlook.

First, the Safe Harbor statement, the 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 involves risks and uncertainties. Important factors, including the company’s ability to compete 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, 2009, 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.

Now, let me hand the call over to Ken.

Ken McBride

Thank you, Jeff. And thank you for joining us today. We are very pleased with our third quarter performance. The third quarter non-GAAP earnings per share was $0.24, which is up 44% versus last year. This is our highest quarterly non-GAAP earnings per share in the history of the company.

The quarter revenue for our core PC Postage business, which excludes the enhanced promotion channel, was up 8% versus the third quarter last year.

We continue to see strong results from our Enterprise business with third quarter revenue increasing by 61% versus the same quarter last year. Our high-volume shipper segment also continued to show good progress with Q3 postage printed by high-volume shippers growing 55% versus the third quarter last year. And we launched a partnership with Amazon.com during the third quarter.

Also today, we announced a special dividend of $2 per share, which is a testament to the strong free cash flow generation of our business model and continues our demonstrated history of returning excess cash to our shareholders.

On the call today, we will talk about the special dividend, the PC Postage metrics in business, the PhotoStamps business and our financial results and business outlook.

Today, we announced that the Board of Directors has declared a one-time special dividend of $2 per share, representing an expected cash, total cash distribution to shareholders of approximately $28.5 million. The Board of Directors approved the special cash dividend to distribute excess cash from the company’s capital structure and to allow the company’s shareholders to take advantage of the current low dividend tax rates.

As a result of a more optimized capital structure, we expect to realize a higher return on equity going forward to provide shareholders with more of a pure play investment opportunity in our business. We will retain a very strong balance sheet and the required financial flexibility to capitalize on any opportunities going forward.

The special dividend continues our demonstrated history of returning excess cash to our shareholders. Including this special dividend, we have returned over $250 million to our shareholders since 2002. Including a $78 million solid special dividend we paid in 2004 and the current special dividend of $28.5 million, total special dividends represents over a $106 million.

In addition, the company has spent approximately $146 million repurchasing its shares and through this share repurchases, Stamps.com has reduced its current total shares outstanding by approximately 45% compared to the total shares outstanding at the beginning of 2002.

Now, we will begin a more detailed discussion of the PC Postage business. The customer metrics we will discuss on the call exclude all enhanced promotion channel activity. For a more detail definition of how we calculate each of our metrics, you may refer to our quarterly investor metrics spreadsheet at investor.stamps.com.

The non-enhanced promotion PC Postage revenue was $18.2 million in Q3, which was up 8% versus the third quarter of 2009. We’re pleased with the continued revenue growth in 2010 in this core part of our business.

We acquired 49,000 gross small business customers in Q3, which is down 7% versus the third quarter of 2009. Cost per new small business customer acquired or CPA was $124 in Q3, which was up 9% versus the third of 2009. We believe that the challenging economic environment with respect to small business continues to impact our small business customer acquisition.

We would note that the small business surveys such as the one by the National Federation of Independent Businesses and FIB and the one by Wells Fargo Gallup are still showing recessionary level readings and readings that are significantly below the pre-recession levels. We’d also note that the third quarter is our seasonally slowest acquisition quarter historically.

We do expect to see a sequential increase in customer acquisition in the [inaudible] stronger fourth quarter. We continue to invest in customer acquisition as we are still earning a very good return on our marketing investment at the CPA levels.

Our monthly churn during the third quarter was 3.6%, which was down versus 3.8% in the third quarter of 2009. We were encouraged to see our year-over-year churn metric continue to decrease as our 2010 quarterly churn rates of 3.4% to 3.6% are running lower than our 2009 quarterly churn rates, which range of 3.6% to 4.4%.

Paid customers in the third quarter were 334,000, up 6% versus the third quarter of 2009. We did see a sequential decline in paid customers, which was attributable to the seasonally slower customer acquisition and which was consistent with past trends as we experience a sequential decline in paid customers during the third quarter in each of the last three years. We are pleased with the year-over-year growth in paid customers.

ARPU was $18.13 in Q3, which is up 2% versus the third quarter of 2009. The increase in ARPU was partially attributable to an increase in the average store and insurance revenue per paid customer, driven by increased usage of our service, and partially attributable to having a larger number of customers on higher-priced plans.

Total postage used by all of our customers was 108 million in the third quarter that was up 26% versus the third quarter of 2009. Postage usage continues to grow at a faster rate than our paid customers, resulting in increased average usage per customer, which demonstrates the value customers derive from our service. The increase is also a result of our increased focus on the high-volume shipping segment where postage printed in Q3 by that segment of customers grew by 55% year-over-year.

Even for our customers outside of the high-volume shipping segment, we saw a solid 19% year-over-year growth in postage usage. We are pleased with what we have been able to accomplish in our business despite this challenging small business environment, including growth in revenue, paid customers, ARPU, postage printed and earnings and pre-cash flow.

We believe that improvements in the small business economic environment from current levels provide a lot of upside in the SOHO core business and especially to the extent that small business economic environment can return to pre-recession levels.

Now, let’s turn to the 2010 plan for PC Postage and talk about our progress we’ve made against the plan to date. In the SOHO area, we have continued to modestly increase our customer acquisition spend outside enhanced promotion channel. We expect to increase our PC Postage small business acquisition spend outside the enhanced promotion channel by approximately 5% for fiscal 2010. We continue to believe that the lifetime value of a non-enhance promotion customer is at least two times higher than the current cost of acquisition.

Also in the SOHO area, we’ve continued to work on optimizing our business model and our overall customer experience in several ways, such as making our software installation process easier and more seamless, expanding our presence on social media and networking sites, expanding our customer web portal, expanding content and multimedia on our website and several planned product releases in 2010, including improvements to our batch capability, expansion of our e-commerce integrations and other general enhancements.

The continued work we have done and in improving our product has resulted in some awards for our efforts such as the prestigious American Business Awards New Software of the Year, we recently won over great products such as the latest Firefox version 3.6.

In the Enterprise area, for 2010, we’ve continued to scale and optimize our sales and marketing efforts. During the third quarter, we continued to make great progress in the Enterprise area with year-over-year revenue growth of 61%.

We have continued to gain traction with new accounts and to increase penetration in existing accounts. We continue to see lower churn rates and higher ARPU in Enterprise compared to our SOHO business and we’ve continued to build our sales team and improving our sales efficiency.

Overall, we’re very excited about the continued progress we’ve made in Enterprise and feel that it’s – we’re beginning to see the returns on investment we’ve been making in this area.

In the high-volume shipper area, we’ve continued to scale and grow the business in 2010. Our goal in this area is to attract high-volume shippers such as fulfillment houses and e-commerce shippers, large retailers and other types of high-volume shippers.

During the third quarter, we continued to see acceleration of our growth in this area. For instance, our third quarter postage printed in the high-volume shipping segment grew 55% versus the third quarter last year. This compares to 37% growth we saw in the second quarter of this year and 30% growth in the first quarter this year.

During 2010, we have continued to invest in our shipping technology and our sales and marketing efforts. We’ll continue to improve our batch capability with easier order management and order flow. We’ve continued to add additional shopping cart integrations for easier data import and export from the tool that customer like to use. And we’ve continued scale our sales efforts using our national sales force.

Attracting high-volume shippers is a strategic focus for our company and is also one of the most important strategic initiatives with the U.S. Postal Service. And with as our most important partner, we are focused on making them as successful as we can in this area.

During July 2010, we launched a partnership with Amazon.com that makes our domestic and international labels available to Amazon.com marketplace users. The service allows customers to automatically pay for postage using their marketplace payments account to setup a default ship from address, so that they don’t have to type or write it for each shipment and to automatically populate the “Ship To” address on the label.

Domestic and international mail process are supported and marketplace users may request a courier pickup from the USPS. The transaction fee is charged to Amazon merchants for each label printed at $0.07 per label. We are excited about this partnership with Amazon.com.

Overall, we feel that our 2010 PC Postage plan is a very solid one that our long-term opportunities to grow this business are very attractive.

Now, a quick word about – and more detailed discussion on the PhotoStamps. During third quarter, we continued our focus on profitability in the PhotoStamps area with a smaller, more targeted marketing plan. We decreased our total sales and marketing for PhotoStamps by 52% versus the third quarter of 2009.

As a result of this decreased spend, total revenue was $1.4 million for the third quarter, which was down 24% versus the third quarter of 2009. The decrease in revenue during third quarter was expected given the magnitude of our decrease in sales and marketing activity. During the third quarter, we estimate that the PhotoStamps business was profitable.

During 2010, we have continued keeping the tightening in our marketing spends, and we expect that the PhotoStamps business will again be profitable for 2010 as a whole.

Longer term, we do not expect to invest heavily in the PhotoStamps area until the economy improves, but we do continue to believe that there are opportunities to grow the business in a better economic environment.

With that, Kyle will discuss our more detailed financial results and our business outlook.

Kyle Huebner

Thanks, Ken. We’ll now review our third quarter financial results. Today, we are going to discuss our financials on a non-GAAP basis, which exclude $771,000 of stock-based compensation expense; a reconciliation of non-GAAP to GAAP is contained in the earnings release posted on our website.

Total revenue was $20.7 million in Q3, which was up 2% compared with Q3 ‘09. Q3 marked the continuation of year-over-year growth in total revenue, where the growth and our non-enhanced promotion PC Postage revenue outweighed the declines and the enhanced promotion and PhotoStamps revenues.

Non-enhanced promotion PC Postage revenue was $18.2 million in Q3, up 8% compared with Q3 ‘09. The year-over-year increase in non-enhanced promotion revenue was driven by both increases paid customers and increased ARPU, as discussed in the metrics section.

The enhanced promotion PC Postage revenue was $1.1 million in Q3, down 32% compared with Q3 ‘09. The decline in enhanced promotion revenue was primarily attributable to lower marketing spend, which was down 39% compared with Q3 ‘09, as we continue to reduce our investment in this segment of the business.

PhotoStamps revenue was $1.4 million in Q3, down 24% compared with Q3 ‘09. The decline in PhotoStamps revenue was primarily attributable to where we’re marketing spend, which was down 52% compared to Q3 as we continue to reduce our investment in the PhotoStamps business as well.

PC Postage gross margin was 77.8% in Q3 compared with 78.6% in Q3 ‘09. Cost per sales include a promotional expenses related to customer acquisition of $573,000 in Q3 compared with $449,000 in Q3 ‘09. PC Postage gross margin, excluding promotional expenses was 80.7% compared to 81.1% in Q3 last year.

PhotoStamps gross margin were 21.1% in Q3, which were up slightly compared with 19.0% in Q3 of ‘09.

Total sales and marketing was $6.8 million in Q3, which was down 5% compared with $7.2 million in Q3 ‘09. PC Postage sales and marketing spend decreased by 3% compared with Q3 ‘09, primarily as a result of the decreased enhanced promotion marketing spend.

PhotoStamps sales and marketing spend decreased by 52% compared with last year.

R&D spend was $2.0 million in Q3, which was flat compared with Q3 last year.

G&A spend was $3.1 million in Q3, which was approximately flat compared with Q3 ‘09. Legal spending Q3 was consistent with Q2 last quarter and Q3 of last year levels.

Non-GAAP operating income was $3.4 million in Q3, which was up 34% compared with Q3 ‘09. The growth was primarily attributable to growth in our non-enhanced promotion PC Postage revenue and strong expense control.

Non-GAAP net income was $3.5 million or $0.24 per fully diluted share based on 14.5 million fully diluted shares compared with $2.7 million or $0.17 per fully diluted share based on 16.2 million fully diluted shares in Q3 of 2009.

We are very pleased to achieve our highest ever non-GAAP EPS. Free cash flow, defined as non-GAAP net income plus D&A less CapEx, was positive $3.5 million in Q3. For the quarter, D&A was $214,000 and CapEx was $255,000. We ended Q3 with $68 million in cash and investments.

We expect to distribute approximately $28.5 million for the special dividend. We also expect to incur one-time expenses of approximately $3 million during the fourth quarter of 2010 related to the special dividend and its effect on employee stock options. However, the actual expense may vary from this estimate depending on the pre-dividend stock price.

We anticipate ending the 2010 fiscal year with approximately $35 million in cash and investments. Our previously authorized share repurchased plan remains in effect through February 2011 with the remaining authorization of approximately 2 million shares.

During the third quarter, we repurchased 87,000 shares for a cost of $911,000 and year-to-date 2010, we have repurchased 1.5 million shares for cost of $13.8 million.

NOL Shareholder updated. We have approximately $220 million of Federal NOLs and $140 million in State NOLs. We estimated that as of September 2010, our Section 382 ownership shift was at an approximately 22% level compared with a 50% level that would trigger potential impairment of the NOL assets.

As the result of the decline in the ownership shift, the Board of Directors suspended the NOL Protective Measures effective July 22nd, 2010 and as a result shareholders are now allowed to become 5% shareholders without and restrictions.

Now, turning to guidance. We expect fiscal 2010 revenue to be between $80 to 90 million. We expect fiscal 2010 GAAP EPS to be between $0.20 to 0.40 per fully diluted shares. GAAP numbers assume an estimated $3 million of stock-based compensation expense, $5.2 million of legal settlements and reserves and $4 million of non-cash tax benefit and approximately $3 million of expenses associated with the special dividend and its impact on employee stock options.

Excluding these items, we expect 2010 non-GAAP EPS will be between $0.70 to 0.90 per fully diluted share. This compares to previous guidance of $0.65 to $0.85 per share and compares with original guidance given in February of 2010 of $0.50 to 0.70 per fully diluted share.

We expect to see upper single-digit growth in 2010 PC Postage revenue, excluding the enhanced promotion channel. We expect enhanced promotion channel, PC Postage revenue and PhotoStamps revenue and marketing spend to both be down in 2010 compared to 2009 as we continue to reduce our investment in these segments of the business.

We expect 2010 PC Postage customer acquisition spend outside the enhanced promotion channel to be up approximately 5% compared to 2009 as we continue to invest in this core part of our business.

We expect customer acquisition spend in Q4 will be up from Q3, similar to 2009 as we increase our marketing in coordination with the seasonally stronger fourth quarter. We expect legal expenses turned high in the fourth quarter related to our patent and infringement losses.

We also note that California recently announced that they will be suspending new, some NOLs for state income tax for 2010 and 2011.

So, in summary, we were pleased with our overall third quarter results, including our growth in non-enhanced promotion revenue, growth in non-GAAP operating income and record non-GAAP earnings per share.

Our non-enhanced promotion PC Postage business model with the recurring revenue and high gross margins continues to grow despite the challenging small business economic environment and we are excited about the prospects for the Enterprise and shipping opportunities.

We have a strong balance sheet, strong free cash flow generation and awards the deferred tax asset in excess of $90 million. We have demonstrated our commitment to enhancing shareholder value including returning over $250 of excess cash to shareholders via special dividends in our share repurchase program.

With that, we will open up for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from the analyst from B. Riley & Company.

Sarkis Sherbetchyan – B. Riley & Co.

Hi, guys. Can you hear me well?

Ken McBride

Yes. Hi, Kevin.

Sarkis Sherbetchyan – B. Riley & Co.

This is Sarkis, stepping for Kevin.

Ken McBride

Okay. Hi.

Sarkis Sherbetchyan – B. Riley & Co.

Given the uncertainty regarding the USPS postage rate appeal, can you maybe talk about what you have factored into your assumptions for sales and marketing spend in Q4?

Kyle Huebner

Yes. So, the USPS actually generate case to raise rates in January of 2011 was rejected by the postal regulatory commission. So, that rate increase won’t happen this January.

In terms of our marketing spend; Q4 is our seasonally strongest quarter from a customer acquisition perspective. So, we still plan to increase our marketing spend in Q4 compared to Q3 just based on the seasonality. The fact that the rate case got rejected doesn’t change our view that key force is a seasonally good time to invest money in the business.

Sarkis Sherbetchyan – B. Riley & Co.

And if, let’s say, the appeal were to fall through, would you add incremental sales and marketing dollars for Q4?

Kyle Huebner

My understanding is the appeal process is going to take a while to play out. So, to the extent that they won the appeal or they file a different rate case for an inflation base amount. We think that will play out next year. So, we don’t really see a scenario in which it would be a Q4 spend decision based on what happens next year.

Sarkis Sherbetchyan – B. Riley & Co.

Okay, thank you. And my next question relates to the competitive landscape. So given that you guys have made some nice progress with high-volume shippers and enterprise, do you see any of your competitors, such as Endicia, entering your traditional SOHO market?

Ken McBride

I wouldn’t say we’ve seen any really changes in behavior from Endicia. They continue to focus; it seems primarily on the high-volume shipping segment and on their initiative with DYMO Stamps. I think rebranding themselves as DYMO Endicia was pretty indicative of where they’re focus is. And we really haven’t seen much in terms of the change of their behavior – mailing users as in SOHO.

Sarkis Sherbetchyan – B. Riley & Co.

And my final question relates to your enterprise sales reps, maybe if you can refresh my memory on how many you currently have.

Ken McBride

Yes, I know we have approximately 8 reps currently.

Sarkis Sherbetchyan – B. Riley & Co.

About 8 reps.

Ken McBride

Yes.

Sarkis Sherbetchyan – B. Riley & Co.

And in the next six months, do you plan to add enterprise sales reps to your team?

Ken McBride

Yes, I mean we’re continuing to build out the enterprise initiative in terms of the number of sales reps, the marketing spend and to the extent that we see the activity out of the reps with a good or a lie [ph], we’ll continue to add scale that business as we go. So, at this point, I think we’re pretty optimistic on how the business is done so far and going forward, our expectation is that we will continue to increase our sales in marketing effort in that area.

Sarkis Sherbetchyan – B. Riley & Co.

Great, thank you. Congrats on the quarter and good luck, guys.

Kyle Huebner

Thanks.

Ken McBride

Thank you.

Operator

Thank you. Our next question comes from George Sutton of Craig Hallum.

George Sutton – Craig-Hallum Capital Group

I’m going to ask some similar questions but with a different spin. Relative to the Postal Service, it sounds like they’re struggling to get funding for next year and, as a result, could end up accelerating the closure of a number of offices. That, I would think, would be helpful to you as a small business provider realizes they have less options to go to the post office. Is that a fair statement?

Ken McBride

Yes, that’s a fair statement, George. I mean I would note that closing post offices is not as easy as it seems. It requires an act of Congress and the Postal Service, I think have been working on doing that for some time. And of the original list they published last year, I believe it was over 1,000 locations that they had targeted for closure. I believe only two of those actually got closed.

So, it’s not as easy as it seems to close a post office. But to the extent that they do proceed with that, we would definitely see – we believe a potential positive impact on our business versus the retail post office. Our primary customer that we’ve attracted to date has really been formally a retail post office user and so, to the extent that their local retail post office is closed are value proposition to become more compelling for that customer.

George Sutton – Craig-Hallum Capital Group

Okay. With respect to your special dividend, which I congratulate you for, do you plan to continue to maintain the share repurchase program as well?

Kyle Huebner

Yes.

George Sutton – Craig-Hallum Capital Group

Are there any changes expected as a result of the dividend?

Kyle Huebner

Well, we already had a share repurchase program in place. So, we’ve kept that program in place. So, I think we still share repurchase as a good use of cash and with our strong free cash flow, I think we believe that we can continue with the share repurchase programs in addition to having done the special dividend as oppose to at being one of the other. We see it as something we could accomplish both.

George Sutton – Craig-Hallum Capital Group

Now, obviously, you have some – what appear to be significant opportunities in both the enterprise and the high-volume markets. We don’t necessarily have a lot of metrics or a great sense as to how large those businesses could be for you. At what point will we start to get more either metrics or a sense of how aggressively you plan to spend in those areas to grow those opportunities?

Kyle Huebner

Yes. I think, George, in those areas, I think they are a little bit more competitive. So, at this point, we’re trying to provide kind of a key metric that what’s investors follow on with the business without kind of giving the way too much information from a competitive standpoint.

At this point, those two businesses are smaller parts of the overall PC Postage business, but growing and we’re definitely excited about them. So, really the goal is to grow those to be a more material part of the overall business over the next three to five-year period, and it’s something we’ll just evaluate as we feel those businesses reach a critical scale point. We will evaluate giving a more full set of metrics on them.

George Sutton – Craig-Hallum Capital Group

Okay. Thanks, guys.

Kyle Huebner

Thanks.

Ken McBride

Thanks, George.

Operator

Thank you. Our next question comes from Graeme Rein of Bares Capital.

Graeme Rein – Bares Capital Management

Thanks for the special dividend. That’s great news. Quick question on the revenue model for the Amazon partnership, I believe you said that they charge $0.07 per label. Is that correct?

Ken McBride

That’s correct.

Graeme Rein – Bares Capital Management

And how do you guys factor in with that? Is that – can you talk about how that’s split up or can you just talk about how you guys are generating revenue also at the partnership?

Ken McBride

We can’t really disclose information beyond what we really did in the call. But I think the primary thing is the customers are paying $0.07 per transaction. So, from that perspective, it’s really a volume-based solution. Customers can also opt to purchase insurance, which is Stamps.com Insurance through the Amazon interface, so that’s an opportunity for us as well.

Kyle Huebner

From an accounting standpoint, the revenue will flow through the service revenue and insurance revenue lines and our P&L.

Graeme Rein – Bares Capital Management

Okay. And any update on the litigation front?

Kyle Huebner

Yes, I can give a quick update. So, the Kara litigation, you’ll recall we settled that litigation. So that’s the full settlement agreement has been executed. So that is settled at this point.

In the Endicia litigations, in the first one, you’ll recall that we are appealing at summary judgment ruling and so, we are in the middle of that appeal process at this point. And so, we’re continuing to move forward with the appeal process.

In the second Endicia litigation is underway and active. We are currently in the discovery phase of the case. So, that one is there’s a higher level of activity going on right now in that litigation.

Graeme Rein – Bares Capital Management

Okay. Thanks for your time.

Operator

We do have a follow-up question from George Sutton of Craig Hallum.

George Sutton – Craig-Hallum Capital Group

Yes. I just wanted to make sure I understood from an accounting perspective the costs you will incur as a result of the special dividend. Could you be more specific about that?

Kyle Huebner

Yes. So, you’d be $2 dividend, you will result in the stock price going down by $2. So, there’ll be a loss of economic value for the option holders, if no action is taken.

So, what we are going to do is compensate the option holders for the lost value either through reduction in the exercise price of the option or a cash payments in accordance with applicable tax and accounting rules. So, for the special dividend related reduction in the exercise price, it’ll be done in compliance with the terms of our equity plan in the manner that’s bowie [ph] neutral, will not result in many additional stock-based compensation expense.

But there are certain circumstances, where we can’t adjust the exercise price to reflect the special dividend without adverse pacts consequences. So, in those cases, we will make a value neutral cash payment to the option holder for the whole value and that will be expensive compensation. But since it’s a value neutral payment, it will be booked as from an accounting perspective as compensation expense, but it’s really not a true – that $3 million is not a full true economic cost of the company doing the dividend.

George Sutton – Craig-Hallum Capital Group

I understand.

Kyle Huebner

Does that make sense?

George Sutton – Craig-Hallum Capital Group

Yes. So, from a GAAP perspective, does it get – I’m just curious – will it affect the GAAP or non-GAAP numbers in the quarter?

Kyle Huebner

Yes. So, for Q4, they expected $3 million expense will basically be allocated out to the operating cost line. So, cost to sales, sales of marketing, R&D and G&A. So, from the GAAP perspective, there will be a $3 million additional cost allocated amongst those line items. And then we will pro forma that out and show the non-GAAP excluding those numbers, so that you are able to better compare the results.

George Sutton – Craig-Hallum Capital Group

Got you. Okay, perfect. Thanks, guys.

Kyle Huebner

Thanks.

Ken McBride

Thanks, George.

Operator

(Operator Instructions) There appear to be no further questions in queue, so I’d like to turn the call back over to Mr. McBride for any closing remarks.

Ken McBride

Okay, great. Thank you for joining us. If you have any follow-up questions, you can contact us at investor.stamps.com or our telephone number 310-482-5830. Thanks you.

Kyle Huebner

Thank you.

Operator

Thank you, sir and thank you, ladies and gentlemen, for your participation in today’s conference. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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