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Stamps.com Inc. (NASDAQ:STMP)

Q4 2010 Earnings Call

January 25, 2011 05:00 pm ET

Executives

Jeff Carvari – Director of Finance

Ken McBride – President and Chief Executive Officer

Kyle Huebner – Chief Financial Officer

Analysts

George Sutton - Craig-Hallum Capital Group LLC.

Kevin Liu – B. Riley & Company

[Graham Green – Baer Capital]

Operator

Good day, ladies and gentlemen and thank you for standing by, and welcome to the Stamps.com Fourth Quarter 2010 Financial Results Call. (Operator Instructions)

And now, I would now like to turn the program over to Jeff Carvari, Director of Finance. Sir, the floor is yours.

Jeff Carvari

Thanks 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 fourth quarter and fiscal year 2010. Then we will discuss the financial results and talk about our business outlook, but first the Safe Harbor statements.

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 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, 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. Overall we were very pleased with our fourth quarter performance. Revenue growth for our core PC Postage business, which excludes the enhanced promotion channel, was up 11% versus the fourth quarter of last year 2009 and up 10% for the overall fiscal 2010 versus fiscal 2009.

Both the fourth quarter and the annual revenue were the highest levels in the company's history. Quarterly revenue growth was our highest since mid-2008. We were pleased to achieve the double-digit revenue growth for the year in our core PC Postage business especially in light of the continued difficult economic environment for small businesses.

Fourth quarter non-GAAP operating income was $4.1 million which is up 49% versus last year. This was the highest quarterly non-GAAP operating income in the company’s system. Operating income benefited from strong revenue growth in our core PC Postage business.

Fourth quarter non-GAAP earnings per share was $0.30. It was up 69% versus last year and our full year 2010 non-GAAP earnings per share was $0.93 which was up 51% versus 2009. Both the fourth quarter and the annual non-GAAP earnings per share were the highest in the company's history.

We continue to see strong results from our Enterprise business with overall 2010 revenue growth of 63%. Our higher volume shipper segment also continues to show strong progress with fourth quarter postage printed by our high-volume shippers growing at 81% versus the fourth quarter last year.

We had our first full quarterly results with our Amazon partnership and that positively contributed to our fourth quarter results. And we completed the previously announced $2 per share special dividend which helped improve our capital structure.

On the call today we’ll talk about our PC Postage metrics and business, our financial results and our business outlook.

Now let's begin with a more detailed discussion of the PC Postage business. The customer metrics we’re going to discuss on this call exclude on enhanced promotion channel activity. For a more detailed definition 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 $19.3 million in the fourth quarter, which is up 11% versus the fourth quarter of 2009. We were pleased with the continued revenue growth in 2010 in our core business area. We acquired 67,000 gross small-business customers in the fourth quarter which was up 1% versus the fourth quarter of 2009. And our cost per new small-business customer acquired or CPA was $109 million in Q4 which was up 2% versus the fourth quarter of 2009.

We were pleased to see a return to year-over-year growth in our customer acquisition as we saw a notable pickup in customer acquisition in the fourth quarter reversing the year-over-year declines we saw in the seasonally-slower second and third quarters.

Customer acquisition had a very strong sequential increase going from the 49,000 customers acquired in the third quarter to 67,000 acquired in the fourth quarter.

We believe that the challenging economic environment with respect to small businesses still continues to impact our small-business customer acquisition. On that note we would note the small-business survey such as the one by the National Federation of Independent Businesses, NFIB has shown recent improvements but are still showing mere recessionary level readings that are significantly below pre-recession levels.

Given the small business economic outlook we were pleased that we were able to grow customers acquired by 4% for fiscal 2010 versus fiscal 2009. We continue to earn a very good return in our marketing investment at our current CPA levels. Our monthly churn during the fourth quarter was 3.4% down versus 3.7% in the fourth quarter of last year 2009 and down versus 3.6% we saw in the third quarter of this year 2010.

We were encouraged to see our sequential and year-over-year churn metric continue to decrease as our 2010 quarterly churn rates of 3.4% to 3.6% were consistently lower than our 2009 churn rates, which ranged between range between 2.6% and 4.4%. The average monthly churn rates for 2010 was on a monthly basis 3.5% for the year, which is a considerable improvement over the 3.9% average monthly churn we saw during 2009.

Paid customers in the fourth quarter was 340,000, which was up 6% versus the fourth quarter of fourth quarter of 2009 and up 7,000 versus the third quarter of 2010. In the continued challenging economic environments for small business we were pleased we were able to continue to generate paid customer growth in our core PC Postage business.

Our ARPU, the average revenue per paid customers was $18.92 in the fourth quarter which was up 4% versus the $18.12 we saw in the fourth quarter of 2009. The increase in ARPU was partially attributable to an increase in the average store and insurance revenue per paid customers driven by increased uses of our service and partially attributable to having a larger number of customers on higher price points. Our ARPU is also benefiting from our effort in both Enterprise and high volume shipping.

Total postage used by all our customers was $139 million during the fourth quarter, which was up 39% versus the fourth quarter of 2009. We saw an acceleration of quarterly year-over-year postage growth throughout the year with growth of 18%, 20%, 26% and now 39% in the first, second, third and fourth quarters respectively.

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 drive from our service. The increase is also a result of our increased focus in the high-volume shipping segments. Our postage printed in the fourth quarter by that segment of customers grew by 81% year-over-year.

Even for our customers outside of the high volume shipping segment we saw a solid 26% year-over-year postage growth in the fourth quarter. We were pleased with what we have been able to accomplish in business despite the challenging small-business environment including growth in revenue, paid customers, ARPU postage printed and pro forma earnings and free cash flow. We believe that improvements in the small-business economic environment from current levels provide a lot of upside to our SOHO core business especially to the extend small-business economic environment can return to pre-recession levels.

Now let's turn to the 2011 plan for PC Postage. In the small-business SOHO area we plan to modestly increase our customer acquisitions spend outside the enhanced promotion channel. The return on investment on our market spend remains attractive and we continue to believe that the lifetime value of the non-enhanced promotion customer is at least two times higher than the current cost of acquisition. We also feel that we continue to see signs of improvement in the macroeconomic environments being reflective in our SOHO customer acquisition metrics.

Based on these improving trends, we expect to increase our PC Postage small business acquisition spend, excluding enhanced promotional channel by approximately 5% to 10% during 2011 versus the 4% growth we did in 2010.

We feel it is important to continue to invest in our small-business customer acquisition channels for the long-term growth of the business. And we expect that we will continue increasing customer acquisition spread in our various marketing areas, including direct mail, traditional media, online marketing and other areas.

Also in the SOHO area, we're going to continue optimizing our business model and our overall customer experience in several ways. During 2010, we made several optimizations such as we continue to optimize our website including adding new content, new articles in our corporate blog, we launched our improved and more straightforward selection and delivery method for our customer promotional items, expand our presence on social networking sites, expand our customer web portal and expand the content in multimedia on our website.

And we had several product releases during 2010, including we made improvements to our batch capabilities, expanded our e-commerce integrations and added general product enhancements.

During 2011, we expect to continue making improvements to our SOHO business in several ways, such as continuing to optimize our registration process and our post registration customer interactions, continue to expand our presence on social networking sites, expanding our customer web portal, expanding content and multimedia on our website and launching new features in our client product that will make mailing easier for our customers and adding new shipping capabilities as well.

In the Enterprise area, for 2011, we're going to continue scaling up our sales and marketing efforts in that business. Customers continue to be attracted to us versus the postage media based on our dramatically lower total cost of ownership and the visibility into individual and for the activity that isn’t available with the postage meter.

During 2010 we made a lot of great progress in the Enterprise area as we continue to build our customer base and we grew Enterprise revenue 63% for the full year of 2010.

We continued to see churn rates in Enterprise that are much lower than in our SOHO business. We’re also seeing ARPU at a higher level, as our monthly service fees are higher in Enterprise than in our SOHO area. During 2010 we continued building our sales team and improving our sales efficiency.

In 2011, we plan to continue enhancing our Enterprise efforts. We plan to continue increasing and optimizing our lead generation efforts and we plan on increasing our sales team size and to continue working on improving our sales efficiency.

Overall, we're excited about the continued progress in Enterprise, and we feel that we are seeing returns on the investments we have been making in this area. We still feel that the length of sales cycle and we account with a lot of process our Enterprise efforts will likely take several more years to become a material contributor to our top and bottom line.

However we would note that during 2010 Enterprise began modestly contributing to the bottom-line of our overall business. We are expecting to see continued strong growth out of the Enterprise business line going forward and we expect that will be great area for us on the long-term.

In our high-volume shipper area, we plan to continue scaling up our efforts in this area in 2011. Our goal in this area is to attract high-volume shippers such as warehouses, fulfillment houses, e-commerce shippers, large retailers and other types of high-volume shippers.

While we have had these types of customers using our platform traditionally, we began a more aggressive portion of this area during 2008 and we continued scaling up this area in 2009 and 2010.

During 2010, we continued to invest in our shipping technology and our sales and marketing efforts. We improved our batch capability with easier order management, easier order flow, the ability to customize e-mails and the ability to print packing flips as part of the batch capability. We also continue to add additional shopping card integrations for easier data export and import from the tool the customers like to use.

We launched a partnership with Amazon.com that makes our domestic and international shipping labels available to Amazon.com marketplace users and we continue to scale our sales efforts using our national sales force.

During 2011, we are continuing to invest in our shipping technology in our sales and marketing efforts. We will continue to invest in improvements in the software and features to further improve scalability of the product to the largest high volume customers.

We will continue to add additional shopping card integrations for easier data export and import from the tools the customers like to use. And we will also continue to drive new software integrations into sophisticated high volume shipping solutions such as multi-carrier shipping software. We will continue to scale and drive our sales efforts using our national sales force.

Attracting high volume shippers is a strategic focus for our company and it is also one of the most important strategic initiatives of the U.S. Postal Service and as our most important partner we are focused on making them as close as we can in this area. We showed that our 2011 PC Postage plan is a very solid one. It’s also with our long term opportunity to grow this business hard and very attractive.

Despite a small business economic environment that, while showing signs of improvement remains challenging, we planned to take advantage of these opportunities for the benefit of our long term shareholders.

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

Kyle Huebner

Thanks Ken. We will now review our fourth quarter financial results. We will discuss our fourth quarter financials on a non-GAAP basis, which exclude the following items. $646,000 of stock-based compensation expense, $634,000 asset write off related to the company’s billing system and $3.4 million of compensation expense related to the special dividend and its impact on employee stock options.

The reconciliation of non-GAAP to GAAP is contained in the earnings release posted in our website. Total revenue for the fourth quarter was $22.7 million, which is up 5% compared with Q4 ‘09. The fourth quarter market continuation of year-over-year growth in total revenue with the growth in our non-enhanced promotion PC Postage revenue outweighs the declines in our enhanced promotion and PhotoStamps revenues.

Non-enhanced promotion PC Postage revenue was $19.3 million in Q4 up 11% compared with the Q4 ‘09. The year-over-year increase in the non-enhanced promotion revenue was driven by both increases in paid customers and increases in ARPU as discussed in metrics section.

Enhanced promotion PC Postage revenue was $955,000 in Q4, down 31% compared with Q4 ‘09. The decline in enhanced promotion revenue was primarily attributable to lower marketing spend which was down 57% compared with Q4 ‘09 as we continue to reduce our investment in this segment of the business.

PhotoStamps revenue was $2.4 million in Q4, down 17% compared with Q4 ‘09. Decline in PhotoStamps revenue was also primarily attributable to lower marketing spend, which was down 65% compared with Q4 ‘09 as we continue to reduce our investment in the PhotoStamps business.

PC Postage gross margin was 78.3% in Q4 compared with 77.6% in Q4 ‘09. Cost per sales includes promotional expenses related to customer acquisition of $771,000 in Q4 compared with 550,000 in Q4 ‘09. So PC Postage gross margin excluding promotional expenses was 82.1% in Q4 compared with 80.5% in Q4 ‘09.

PhotoStamps gross margin was 24.2% in Q4, which was up slightly compared to 23.6% in Q4 ‘09. Total sales and marketing was $7.6 million in Q4 which was down 4% compared with $7.9 million in Q4 ‘09. PC Postage sales and marketing spend decreased by 3% compared to Q4 ‘09, primarily as a result of the decrease enhanced promotion market spend.

PhotoStamps sales and marketing spend decreased by 65% compared with Q4 ‘09. R&D spend was $2.0 million in Q4 which was up 4% compared with Q4 ’09. The increase is primarily related to headcount related expenses.

G&A spend was $2.8 million in Q4 which was up 3% compared with Q4 ‘09. Legal spend in Q4, was down sequentially versus Q3 ‘10 level but was up compared with Q4 ‘09 levels.

Non-GAAP operating income was $4.1 million in Q4 which was up 49% compared with Q4 ‘09. The growth was primarily attributable the growth in our non-enhanced promotion, PC Postage revenue and strong expense control. Non-GAAP net income was $4.4 million or $0.30 per fully diluted share based on $14.6 million fully diluted shares compared with $2.9 million or $0.18 per fully diluted shares based on 15.9 million fully diluted shares in Q4’09. We are very pleased to achieve our highest ever non-GAAP EPS for the second consecutive quarter.

Free cash flow, defined as non-GAAP net income plus D&A less CapEx, was positive $4.5 million in Q4. For the fourth quarter, D&A was $231,000 and CapEx was $144,000.

We will now review our full-year 2010 financial results, which we will also discuss on a non-GAAP basis. A reconciliation of non-GAAP to GAAP for 2010 is contained in today's earnings release as well.

2010 total revenue was $85.5 million, up 4% versus 2009 and which was comprised of the following. Non-enhanced promotion PC Postage revenue was $73.8 million, up 10%, enhanced promotion PC Postage revenue was $4.5 million, down 27%, PhotoStamps revenue was $7.2 million, down 16%.

2010 PC Postage gross margin was 77.4%, which included $2.7 million in promotional expenses. So 2010 PC Postage gross margin excluding promotional expenses was 80.8%. 2010 non-GAAP operating income was $13.0 million up 40% versus 2009. 2010 non-GAAP operating margin was 15.1%, up compared with 11.3% in 2009.

2010 non-GAAP net income was $13.7 million, up 35% versus [2010]. 2010 non-GAAP net income per fully diluted shares was $0.93, up 51% versus 2009. The $0.93 non-GAAP EPS was significantly higher than our previous high of $0.79 per share in 2006.

2010 free cash flow as defined above was $13.5 million or [$0.92] per fully diluted share for the year. We ended Q4 with $35 million in cash and investments or $2.44 per ending balance sheet share, retaining a very strong balance sheet and the required financial flexibility to capitalize on any opportunities going forward.

Special dividend, during the fourth quarter, we completed the previously announced $2 per share special dividend to shareholders. The total amount of the dividend payment was $28.9 million based on 14.5 million shares outstanding as of the November 11, 2010 record date.

We incurred one-time compensation expense of $3.4 million in the fourth quarter related to the special dividend and its impact on employee stock options. We currently estimate that approximately $1.87 of the $2.0 special dividend will qualify as a tax-free return to capital with the remaining amount treated as a taxable dividend.

The final classification will be reflected on the Form 1099-DIV provided to shareholders. Shareholders are encouraged to consult their own tax and financial advisors regarding the implication of the dividend on their own individual circumstances.

As a result of our more optimized capital structure, we expect to realize a higher return on equity going forward and to provide shareholders with a more pure play investment opportunity in our business.

For example, 2010 pro forma return on equity was 22% and had we done the special dividend at the beginning of 2010, the pro forma return on equity would have been in excess of 35%.

Share repurchase, during 2010 we repurchased 1.5 million shares at a total cost of $13.8 million. We did not repurchase any shares during the fourth quarter of 2010. On February 3, 2011 the Board of Directors approved the new share repurchase plan effective upon the expiration of the current plan on February 15, 2011, authorizing the company to repurchase up to 1 million shares of Stamps.com stock during the next six months.

We've returned more than $250 million to shareholders since 2002. They were $107 million in special dividends and $146 million in share repurchases. Through the repurchase of 14 million shares we have reduced our current split-adjusted total shares outstanding by approximately 45% compared to the total shares outstanding at the beginning of 2002.

The average repurchase price of the 14 million shares repurchased since 2002 at $7.48 when adjusting for the one-time dividends. So our share repurchase program has created significant shareholder value.

NOL shareholder update, as of December 31, 2010 we have approximately $225 million in federal NOLs and $145 million of state NOLs. We estimate that also as of December 31, 2010 our Section 382 ownership shift was at an approximately 22% level compared with the 50% level that would trigger and impairment of our NOL assets.

As part of our ongoing programs to preserved future use of our NOL asset Stamps.com request that any shareholder contemplating becoming a 5% shareholder equivalent to approximately 720,000 shares or more, contract the company before doing so.

Now turning to guidance, we expect fiscal 2011 revenue to be in a range between $82.5 million to $92.5 million. We expect fiscal 2011 GAPP EPS to be in a range between $0.65 to $0.85 per fully diluted share. GAAP numbers assume an estimated $3 million of stock-based compensation expense.

Excluding the stock-based compensation expense, we expect 2011 non-GAAP EPS to be in a range between $0.85 to $1.05 per fully diluted share. We expect to see upper single digit growth in 2011 PC Postage revenue excluding the enhanced promotion channel. We expect enhanced promotion revenue in marketing spend to be down in 2011 compared to 2010, consistent with the 2010 trend we saw and as we continue to reduce our investment in the segment of the business.

We expect PhotoStamps revenue marketing spend to be down in 2011 compared to 2010 as we continue to reduce our investment in this segment of the business as well. We expect 2011 PC Postage customer acquisition spend outside the enhanced promotion channel to be up 5% to 10% compared to 2010 as we continue to invest in this core part of our business.

We expect legal expense to remain high in 2011 related to our patent infringement lawsuits. Although the Kara Technology lawsuit was settled last year, we expect the litigation expenses related to the Indicia lawsuit to be higher this year than last year.

We know that there is still a high degree of uncertainty regarding the timing of litigation related expenses in 2011 as these expenses are typically driven by court ordered schedules which are outside of our control and hard to predict.

While we don't provide quarterly guidance we have historically seen higher overall cost in Q1, which can result in Q1 pro forma EPS being down sequentially compared to Q4. We do expect to increase our customer acquisition spend in Q1 compared to Q4 which negatively impacts Q1 EPS results and expected revenues benefits in future quarters.

In terms of our outlook on our business relative to the economic environment, we believe that the challenging small business economic environment continues to negatively impact our business in metrics relative to historical levels.

We are pleased with the recent improving trends we saw towards the end of 2010 and are hopeful that these trends continue into and throughout 2011. We believe there is upside potential to our SOHO business if small business economic environment can return to pre recession levels.

In summary, we were very pleased with our overall fourth quarter and 2010 results, including improvements in all of our customer metrics, growth in our non-enhanced promotion revenue, growth in non-GAAP operating income and growth in non-GAAP earnings per share to record levels.

Our non-enhanced promotion PC postage business model with 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, attractive return on equity, strong free cash flow generation and a large deferred tax asset in excess of $90 million. We have demonstrated our commitment to enhancing shareholder value including returning over $250 million of excess cash to shareholders via special dividends and our share repurchase program.

With that we’ll open it up for questions.

Question-and-Answer-Session

Operator

Thank you, (Operator Instructions). Our first question in the queue is George Sutton Craig-Hallum Your lines now open.

George Sutton - Craig-Hallum Capital Group LLC.

Hi guys, another nice quarter.

Ken McBride

Hey, George.

George Sutton - Craig-Hallum Capital Group LLC.

So ken you spoke upfront about the macro environment and in particular the NFIB numbers, but also during the call the you mentioned that you saw things tick up near the end of the year which I really think is when [D&A] NFIB and others have started to state that things have improved. Is there a way that we should think about a correlation that you see in your business versus any of the different statistics that are out there?

Ken McBride

Yeah, I mean generally speaking George we do tend to see and we watch the NFIB data fairly closely just try to understand the overall sentiment of small business optimisms because you know they do a monthly survey of odd numbers small business. So we monitor that level and generally speaking from most of last year it was kind of in the high 80s, low 90s where anything below 93 is considered to be recessionary.

Traditionally and way back in ‘06, ‘07 it was closer to a 100. So for most of the year, we did continue to seek kind of high 80s, low 90s. We did start to see some improvements in the last couple of months of the year and actually continuing into 2011 related to that survey too. I think it's gone as high as now 94 in January. So we are happy to see that and optimistic and hopeful that it will continue into 2011.

Kyle Huebner

I would add to that George that in terms of small business optimism index, a change by a point or two doesn’t necessarily directly correlate to our results, but when you get kind of an order of magnitude change and going from 88 to 94, that does, we do tend to see kind of correlations.

I think it’s the kind of low point of the recession that was in the low 80s. So the 94 reading is just fairly above the 93 recessionary level and as Ken said kind of well below the 100, but it is an improvement from kind of the mid-and-upper 80s that we saw for kind of the middle of 2010.

George Sutton - Craig-Hallum Capital Group LLC.

I understand. Okay, thank you for that. And you also mentioned that the U.S. Postal Service, one of their [big] objectives is to increase Enterprise revenues and I know that, I mean supportive with you on that basis, can you give us a sense of where that stands today and what's sort of expectation do you have for 2011 built into your guidance for working with U.S. Postal Service, any new programs that are assumed or just a continuation of the existing programs?

Ken McBride

Yeah, really in both of our newer areas in the Enterprise area as well as in high volume shipping area, we tried to work as closely with the Postal Service as we can in order to better understand customer needs, get customer leads. Really kind of more in the shipping area, it's a very big strategic focus of the postal service.

So we spent a lot of time with the Postal Service trying to figure out customers to target and getting opportunities from them on the shipping front and then working with them hand-in-hand during the sales process with the customer. A lot of times we’re going into these accounts with the Postal Service trying to sell Postal Service versus like I said actual EPS situation.

So we're kind of in there as the technology expert helping the Postal Service, get these customers up and shipping on the postal technology. So it's something we're doing in both the high-volume shippers as well as the Enterprise area and it’s a great additional channel for us to generate leads.

Kyle Huebner

In terms of the guidance George, we’re basically assuming that we continue to work on maximizing the benefits from the current programs that are in place and so there is no new sort of programs assumed in the guidance, but rather continuing to maximize the opportunity that we have in place already.

George Sutton - Craig-Hallum Capital Group LLC

Great, and then lastly if I could related to taxes. So you obviously have some big NOLs both Federal and state, I was under the beliefs that California has been pulling back on some of those NOL capabilities in the current environment. Is that a true statement from your perspective and how are you looking at your state taxes?

Kyle Huebner

Yeah, so in terms of the state taxes, the California had suspended use of the NOLs for 2010 and ’11. They had already suspended them in 2008 and’09, but what happens is we have other tax credits such as the R&D tax credit such that we’ve been able to effectively offset our state taxes even during the period while the NOLs have been suspended and so we would expect that to be the case for 2011. So for 2011, we would expect our cash taxes to be consistent with what we saw in 2010.

George Sutton - Craig-Hallum Capital Group LLC

Great, thanks guys.

Kyle Huebner

2% of pre-tax area.

Ken McBride

Thanks, George.

Operator

Thank you, sir. Our next questioner in queue is Kevin Liu with B. Riley & Company. Your line is open.

Kevin Liu – B. Riley & Company

Hi, good afternoon guys.

Ken McBride

Hi, Kevin.

Kevin Liu – B. Riley & Company

You guys have see nice gradual improvement in ARPU and as you look at the growth, you’re getting on the high-volume shipper side as well as the Enterprise side, any sense whether ARPU should hold steady as these growth rates or would you expect that to start accelerate here in 2011?

Kyle Huebner

I think the ARPU has been kind of a consistent improvement over the last few year, again as we’ve focus on things like the Enterprise segment and the high-volume shipping segment, you’ll notice that our insurance revenue, we saw a strong growth in that, we rolled out an international packaging insurance offering during the year.

So I think the growth you saw in 2010 is kind of reflective in those efforts. As we look to 2011, I don’t think you will necessarily see that accelerate, but we would hope to kind of continue with the progress as we continue to focus on those areas.

Kevin Liu – B. Riley & Company

Got it and on the marketing spend side, CPA improved pretty dramatically from the prior two quarters, you guys probably had your best new growth registered ads from a small (Inaudible). So just kind of curious why coming into 2011 you guys are planning for the 5% to 10% level whereas heading into 2010 originally you guys made a plan for double digit increases on the marketing side?

Ken McBride

Yeah, I mean I think it’s something that we set a target going into the year based on the programs and the opportunities we have available. We’re trading off kind of the scalability of programs, the risk of incremental spend, target CPAs, one thing that we saw last year is that in Q2 and Q3 we saw more pronounced seasonality. So we saw kind of I think a stronger Q1 and Q4 than we were expecting and maybe a little bit weaker Q2 and Q3 than we were expecting.

So the customer acquisition spend is just kind of target we start at going in to the year, but it’s something we monitor the environment, the results of our program and our opportunities and so as we go through the year, if we see a stronger than expected economic environment or acquisition programs we certainly have the flexibility to increase that number and spend more than that if we feel the ROI is there.

Kevin Liu – B. Riley & Company

Got it and with respect to your marketing channels, we’ve often spend a lot of time talking about the direct mail channel. Curious about what you guys are doing on the social media marketing side whether that's actually an attractive subscriber acquisition channel and what sort of spent that goes into there versus some of your more traditional ones?

Ken McBride

Yeah, we spend, I mean I think we spend a fair amount of effort working on the social media side doing a lot of the traditional programs, outreach to Bloggers working obviously we have Facebook page and Twitter and so we do spend a lot of effort there on that front.

We spend a lot of effort on the online search term optimization as well as the website STO. So building up content on our website to improve the STO as well as improving our acquisition through search term. So we do a lot of direct mails, but we also spent a lot of effort and time and energy on the online aspect of acquisition.

Kevin Liu – B. Riley & Company

All right and last question for me just, with you respect to churn guys have come back down into that normalize rate, you’ve typically been in. Anything else you guys fell like you can do a new programs in place to further reduce that or is it primarily depend on the general environment from here now.

Ken McBride

Yeah, I would say that certainly in the SOHO space the kind of general economic environment is a factor. If that continues to improve that should ultimately help us with the churn rates.

In general I think as we develop additional product features, as we increased the postage usage per customer, that’s indicative that customers are getting more valuable out of the service and we would hope that longer-term value would lead to lower churn rates.

Similarly as Enterprise and high-volume shippers who turned up lower churn rates and to the extent we’re able to increase those as a proportion of the base that would help. So I think there is a number of factors over the next few years that should give us opportunities to reduce the churn rates.

Kevin Liu – B. Riley & Company

Alright, that’s all I have. Congrats again on a great quarter.

Ken McBride

Okay, thanks.

Kyle Huebner

Thanks Kevin

Operator

Thank you, sir. Our next question are in queue is [Graham Green – Baer Capital], your question please.

Unidentified Analysts

Good afternoon. Got a couple of quick ones, I didn't catch what the asset write down was for?

Kyle Huebner

We had about $630,000 in fixed assets. We had a started a billing project a couple of years ago and made the decision in the fourth quarter to abandon that billing project. It never actually went live. So we ended up just writing off the, that $630,000 of fixed assets that we didn’t capitalize there.

Unidentified Analyst

Okay. And along those lines, in terms of capital spending for the next year, is there any thing coming down the pipe that is unusual or most of your investment is going to be sort of on the income statement?

Kyle Huebner

In terms of our CapEx for 2010, we had about $1.1 million of CapEx. As well look to ’11, I would say it should be in that, about a $1 million for the year range.

Unidentified Analyst

Okay. Thanks a lot.

Kyle Huebner

Thanks.

Operator

Thank you, sir. (Operator Instructions) There appears to be no additional question in the queue, I’d like to turn the program over to Ken McBride for any closing remarks.

Ken McBride

Thank you for joining us. And if you have follow-up questions, as always you can contact us at investor.stamps.com or at our Investor Relations line 310-482-5830. Thanks you.

Kyle Huebner

Thank you.

Operator

Thank you, sir and ladies and gentlemen, this does conclude today’s program. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect.

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Source: Stamps.com CEO Discusses Q4 2010 Results - Earnings Call Transcript

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