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Stamps.com Inc. (NASDAQ:STMP)

Q1 2011 Earnings Call

April 28, 2011 5:00 pm ET

Executives

Jeff Carvari – Director of Finance

Ken McBride – President and Chief Executive Officer

Kyle Huebner – Chief Financial Officer

Analysts

Kevin Liu – B. Riley & Company

George Sutton - Craig-Hallum Capital Group LLC

Graham Ryan -- Baer Capital

Operator

Good day, ladies and gentlemen and thank you for standing by, and welcome to the Stamps.com First Quarter 2011 Financial Results Call. (Operator Instructions)

And now, I would now like to turn the program over to your host for today, Mr. Jeff Carvari. Mr. Carvari, 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 first quarter 2011. 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, 2010, 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 were very pleased with our first quarter performance. Q1 revenue for our core PC Postage business, which excludes the non-core enhanced promotion channel, was $20.6 million, up 14% versus Q1 2010. The 14% revenue growth is our highest quarterly growth rate since Q2 2008, prior to the current economic downturn. Q1 total revenue was $22.8 million, which is up 9% versus Q1 2010. Q1 non-GAAP earnings per share was $0.24, that was up 27% versus Q1 2010.

Growth in our non-GAAP earnings per share continues to benefit from strong revenue growth in our core PC Postage business. Q1 paid customer churn dropped to 3.0%, this level matched our lowest quarterly churn rate since we began reporting this metric. Q1 paid customers increased sequentially by 20,000 versus Q4 2010. This is also our largest sequential increase since we began reporting this metric. Q1 postage printed by our customer base grew by 44% versus Q1 2010, including postage printed by our high volume shipper per customer segment, which was up 90%.

On the call today, we’ll talk about our PC Postage business metrics and business, our financial results, and our business outlook. So now let’s begin with a more detailed discussion of the PC Postage business. Just as a reminder, the customer metrics we discuss on the call are only for the core PC Postage business, which excludes all enhanced channel promotion activity. For a more detailed definition of how we calculate each of our metrics, you may refer to our quarterly investor metrics spreadsheet at investor.stamps.com. The Core PC Postage revenue was $20.6 million in Q1, up 14% versus Q1 2010. We were pleased with the continued acceleration and the revenue growth in our core business. We saw a nice rebound in our SoHo business area and our Enterprise and Shipping segments are also now starting to contribute to our core business revenue, in a more material way.

We acquired 67,000 gross small business customers in Q1, that was up 4% versus Q1 2010, and our cost review of the small business customer acquired, or CPA was $115 in Q1. That was up 3% versus Q1 2010. Q1 2011 was our highest ever acquisition during Q1, and tied our highest quarterly acquisition ever, with Q4 of last year. Despite our strong Q1 performance, we continue to believe that the economic environment, with respect to small business, remains challenging.

(Inaudible) still continues to depress our small business customer acquisition levels relative to pre-recession levels. We would note that the small business surveys, such as the one we track from the National Federation of Independent Business, the NFIB, have shown meaningful improvement compared to the level that we saw at this time last year. However, the current levels of the NFIB survey are still well below the levels that we saw in the pre-recession 2006 and 2007 timeframe.

We continue to earn a very good return on our market investment on our current CPA levels. Our monthly churn during Q1 was 3.0%, which is down versus 3.4% in Q1 2010, and down versus 3.4% in Q4 2010. We were very pleased to see our sequential and year over year churn metric continue to decrease as the Q1 churn at 3.0% tied our lowest quarterly churn since we began reporting this metric.

We believe our overall churn rates are benefitting from several factors, including improvements in the economy compared to Q1 2010, lower churn rates in our Enterprise and our high shipping segment, new product features which are driving more usage of our service, and our ongoing customer retention efforts. Paid customers in Q1 was 360,000, and that number was up 7% versus Q1 2010 and up 20,000 versus Q4 2010. This is the largest sequential quarterly increase in paid customers since we began reporting this metric, and was driven by our strong customer acquisition and our lower churn.

R2, our average revenue per paid customer was $19.09 in Q1, and that was up 6% versus the $18.03 we saw in Q1 2010. The increase in the R2 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. Our R2 was also benefitting from our efforts in both Enterprise and high volume shipping. Total postage used by all customers was $145 million during Q1. That was up 44% versus Q1 2010. We’re pleased with the continued accelerating growth year over year in postage printed.

Over the past eight quarters, our year over year postage printed growth rates were 8%, 12%, 14%, 18%, 20%, 26%, 39% and now 44%. The increase is also a result of our increased focus on the high volume shipping segment, where postage printed during Q1, by that segment of customers, grew by 90% year over year. For our customers outside the high volume shipping segment, we also saw a strong 31% year over year growth rate in our Q1 postage usage.

Postage usage continues to grow at a faster rate than our paid customers, resulting in an increased average usage per customer. This is indicative of the value customers derive from our service, and we believe that the strong growth in our postage printed this quarter is correlated with the lower churn rate in our business this quarter. We are pleased with what we’ve been able to accomplish in our business, including accelerating revenue growth, improvements in our customer metrics, and strong pro forma earnings and free cash flow, despite the challenging small business environment.

We believe that improvements in the small business economic environment from current levels provide a lot of upside in our SoHo Core business; especially to the extent that small business economic environment can return to pre-recession levels. Now let’s turn to the 2011 plan for PC Postage. In the SoHo area, we plan to increase our customer acquisition spend outside the enhanced promotion channel. The ROI on our marketing spend remains attractive and we continue to believe in the lifetime value of a non-enhanced promotion customer is more than two times higher than the current cost of acquisition.

Based on our improving trend that we saw during Q1, and our improvements in the Q1 metrics, we now expect to increase our PC Postage customer acquisition spend by approximately 10 to 15% for fiscal 2011, which is an increase versus our previous expectation of a 5 to 10% increase range. 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 we will continue to increase customer acquisition spend in our various marketing areas, including direct mail, traditional online marketing and other areas.

Also in SoHo, we’re continuing to optimize our business model and our overall customer experience in several ways, such as optimizing our registration process and post registration customer interactions, expanding our presence on social networking sites, expanding our customer web portal, expanding content multi-media on our website, launching new features in our client product that will make mailing easier for our customers, and adding new shipping capabilities as well.

During Q1, we launched our new version 8.8 software, with features targeted to e-commerce merchants, such as customizable ship notification emails, packing slips, and increased order detail visibility. In the Enterprise area, we’re continuing to scale up our sales and marketing efforts. Customers continue to be attracted to us versus a postage meter based on our dramatically lower total cost of ownership, and the visibility into individual employee activity that isn’t available with a postage meter.

During Q1, we continued to make progress in the Enterprise area, as we continued to build our customer bases and grew Enterprise revenue by 43% year over year. We continue to see churn rates in Enterprise that are meaningfully lower than our SoHo business. We’re also seeing higher R2, as our monthly service fees are higher in the Enterprise segment than they are in the SoHo area.

Overall, we’re excited about the continued progress in Enterprise, and we feel that we are seeing returns on the investment we have been making in this area. We still believe that the length of the sales cycle and account rollout process means that our Enterprise effort will likely take several more years to become a material contributor to our top and our bottom line; however, we will note that starting in 2010 and continuing into 2011, our Enterprise business began to modestly contribute to the bottom line of our overall business.

We are expecting to continue to see strong growth out of the business line going forward, and we expect it will be a great area for us in the long term. In the high volume shipper segment, we’re continuing to scale up our efforts in that area as well. Our goal in this area, as you know, is to attract high volume shippers such as warehouses, fulfillment houses, e-commerce shippers, large retailers, and other types of high volume shippers.

We’ve always had these types of customers using our platform, but we began a more aggressive push into this area starting in 2008, and continuing through the current year. We’re continuing to invest in our shipping technology and our sales and marketing efforts, including investing in improvements to the software and features to further improve scalability of the product to the largest high volume customers.

Adding e-commerce integrations for easier import and export from the tools and platforms that customers like to use, delivering new software integrations into sophisticated high volume shipping solutions such as multi-carrier shipping software, and scaling and driving our sales efforts using our national sales force. Attracting high volume shippers is a strategic focus for our company and also one of the most important strategic initiatives of the US Postal Service.

As our most important partner, we are focused on making them as successful as we can in this area. We feel that our 2011 PC Postage plan is a very solid one, and we have already made very strong progress against the plan so far this year, as evidenced by our solid Q1 results. We feel that the long term opportunities to grow this business are very attractive, despite the small business economic environment, while showing signs of improvement, remains challenging. We plan to take advantage of these opportunities to the benefit of our long term shareholders.

Now with that, Kyle will discuss more detailed financial results (inaudible).

Kyle Huebner

Thanks Ken. We will now review our Q1 financial results. We will discuss our Q1 financials on a non-GAAP basis, which excludes $796,000 of stock based compensation expense. The reconciliation of non-GAAP to GAAP is contained in the earnings release posted on our website.

Total revenue was $22.8 million in Q1, which was up 9% compared with Q1 2010. Q1 marked a continuation of year over year growth in total revenue, with a strong growth in our Core PC Postage revenue outweighing the declines in our non-core enhanced promotion and photo stamps revenues. Q1marked our fifth consecutive quarter of year over year growth in total revenue and was our highest quarterly revenue growth since 2006.

Core PC Postage revenue was $20.6 million in Q1, up 14% compared with Q1 2010. The year over year increase in Core PC Postage revenue was driven by both increased paid customers and increased R2, as discussed by Ken in the metric section. Non-core PC Postage revenue from the enhanced promotion channel was $805,000 in Q1, down 39% compared with Q1 2010. The decline in enhanced promotion revenue was primarily attributable to lower marketing spend, which was down 49% compared to Q1 2010, as we continue to reduce our investment in this segment of our business.

Photo stamps revenue was $1.4 million in Q1, down 8% compared with Q1 2010. The decline in Photo stamps revenue was also primarily attributable to lower marketing spend, which was down 41% compared with Q1 2010, as we continue to reduce our investment in the Photo Stamp business. PC Postage gross margin was 76.3% in Q1, compared with 76.0% in Q1 2010.

Cost of sales includes promotional expenses related to customer acquisition of $842,000 in Q1 2011, compared with $743,000 in Q1 2010. The year over year increase in promotional expenses was driven by increased levels of customer acquisition. PC Postage gross margins, excluding promotional expenses was 80.3% in Q1 2011, compared with 79.8% in Q1 2010.

Photo Stamps gross margin was 21.2% in Q1, which was down compared to 28.3% in Q1 2010. Photo Stamps gross margin declined this year primarily as a result of lower revenue, a higher mix of high volume business orders which carry a lower gross margin, and a one time cost benefit in Q1 2010 that did not recur in Q1 2011.

Total sales to marketing spend was $8.1 million in Q1, which was up 4% compared with $7.8 million in Q1 2010. PC Postage sales to marketing spend increased by 5% compared with Q1 2010, as a result of increased marketing spend in the small business, Enterprise, and shipping segments, and partially offset by a decrease in non-core enhanced promotional marketing spend.

Photo stamps marketing spend decreased by 41% compared with Q1 2010. R&D spend was $2.1 million in Q1, which was up 40% compared with Q1 2010. The increase was primarily related to head count related expenses. G & A spend was $3.1 million in Q1, which was up 17% compared with Q1 2010. The increase in G&A was attributable to the increase in legal spend versus Q1 2010. During Q1, the judge set a schedule in the second Endicia litigation, which included a trial date in December 2011. As a result of this new schedule, we experienced an increased level of litigation activity and cost in Q1, and we expect this increased level of litigation activity and cost to continue throughout the remainder of the year.

Non-GAAP operating income was $3.4 million in Q1, which was up 22% compared with Q1 2010. This growth was primarily attributable to growth in our Core PC Postage revenue and stronger expense control, partially offset by higher legal costs. Non-GAAP net income was $3.5 million, or $0.24 per fully diluted share, compared with $2.9 million or $0.19 per fully diluted share in Q1 2010, which represented 22% and 27% year over year growth respectively.

We were pleased that the year over year income growth that we achieved in 2010 carried over into Q1 2011. Free cash flow, defined as non-GAAP net income plus D&A plus CapEx was a positive $3.6 million in Q1. For Q1, D&A was approximately $230,000 and CapEx was approximately $150,000. Share repurchase; during Q1, we repurchased 175,000 shares for a total cost of $2.2 million.

Under the currently authorized share repurchase plan, we have repurchased approximately 200,000 shares at a total cost of $2.6 million. The company’s current repurchase plan remains in effect through August 2011, with a remaining authorization of approximately 800,000 shares. We’ve returned more than $255 million in excess cash to our shareholders since 2002, to approximately $107 million in special dividends and approximately $148 million in share repurchases.

The adjusted average repurchase price of the 14 million repurchases shares since 2002 is $7.54. So our share repurchase program has created significant shareholder value compared to our current stock price. Our annualized Q1 return on equity was 31%, and this benefitted significantly from the special dividend we did in Q4 2010.

And now for shareholder update, as of March 31, 2011, we had approximately $225 million in Federal NOLs and $150 million in state NOLs. We estimate that as of March 31, 2011, our section 3D2 ownership shift was at an approximately 16% level compared with 50% level that would trigger an impairment of our NOL assets. As part of our ongoing program to preserve future use of our NOL assets, we request that any shareholder contemplating becoming a 5% shareholder, equivalent to approximately 715,000 shares or more, contact the company before doing so.

Now turning to guidance; we expect fiscal 2011 revenue to be in a range between $85 to $95 million. This compares to previous expectations of $82.5 million to $92.5 million. We expect 2011 GAAP EPS to be in a range between $0.70 to $0.90 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 $0.90 to $1.10 per fully diluted share.

This compares to previous expectations of $0.85 to $1.05 per share. We expect double digit Core PC Postage revenue growth for the full year 2011. We expect PC Postage customer acquisition spend to be up 10% to 15% in 2011. This compares to previous expectations of a 5 to 10% increase. We expect non-core PC Postage revenue and marketing spend for the enhanced promotion channel to be down in 2011, compared to 2010, consistent with the recent quarterly trends we have seen.

We expect legal expenses to increase significantly in 2011, related to our patent infringement lawsuits. Subsequent to our February 11 earnings call, the court scheduled a trial date for the second patent litigation with Endicia for December 2011. As a result of this new schedule, our revised guidance now assumes the cost of going to trial in 2011.

We note there’s still a high degree of uncertainty regarding the timing of the Endicia related expenses in 2011, as these expenses are typically driven by court ordered schedules, which can change and are outside of our control and are hard to predict. While we don’t provide quarterly guidance, we would note that Q2 and Q3 have historically been seasonally slower compared to Q1 and Q4, which have been seasonally stronger.

We typically see deterioration from Q1 to Q2 in our key customer metrics, such as customer churn, customer acquisition levels, and R2. These metrics are key drivers of our core PC Postage revenue. In particular, we also expect to see an increase in churn rates in Q2, related to seasonal factors and consistent with historical patterns we have seen in past years.

In terms of our outlook of our business relative to the economic environment, we believe that the small business economic environment has improved over the past year, but still continues to negatively impact our business and metrics relative to historical levels. We are pleased with the recent trend in our customer metrics, in Q4 2010 and Q1 2011 and believe that the improvements are partially attributable to improvements in the economy, and we are hopeful that those trends continue to grow in 2011.

We believe there is upside potential with our SoHo business, if the small business economic environment can return to pre-recession levels. In summary, we were very pleased with our overall Q1 results, including improvements in our key customer metrics, strong growth in our core PC Postage revenue, and growth in non-GAAP income and earnings per share. Our core PC Postage business model, with recurring revenue and high gross margins is demonstrating accelerating growth, and we are excited about prospects for the Enterprise and shipping opportunities.

We have a strong balance sheet and attractive return on equity; strong free cash flow generation and a large tax deferred asset in excess of $90 million. We have demonstrated our commitment to enhancing shareholder value, including returning over $255 million of excess cash to shareholders, via special dividends and our share repurchase program. With that, we will open up for questions.

Question-and-Answer Session

Operator

(Operator Instructions.) Our first question comes from Kevin Liu of B. Riley & Company.

Kevin Liu – B. Riley & Company

Hi, good afternoon you guys, and congrats on the strong quarter. I know you gave a couple of explanations around the improved churn rate here, so as you look at that number, I’m wondering how comfortable you are that something around this level is fairly sustainable going forward, and also were there any particular programs you may have gotten more aggressive on, with respect to customer retention rate in the quarter?

Kyle Huebner

Kevin, I highlighted the seasonal patterns that tend to drive our churn metrics, so I would look at our historical investor metrics, just to ensure that the seasonal patterns are being incorporated. If you take a step up and look at kind of the full year, you know, we are hopeful that the factors that resulted in positive churn trends in Q4 and Q1 are things that continue, that we continue to see throughout the year, so to the extent that we continue to see positive results on some of these factors that Ken mentioned, then I think that we’re hopeful that the full year churn rates would be reflective of what we’ve seen recently.

Kevin Liu – B. Riley & Company

And just to fill out that a little, I remember over the past few years you guys have really focused on the non-enhanced promotional channels, (inaudible) you also invested significantly on the other side and high volume shipper side. How many quarters of this type of metric would you need to see before you’re comfortable saying that maybe there’s been a structural shift in the types of churn rates we should start to expect out of this type of business?

Kyle Huebner

I think when you work with the Enterprise and the shipping, how their more recent efforts compare to the SoHo business, which we’ve been in for over ten years, so I think it’s a trend that we started a year or two years back, and you know, the more we invest in that segment, the more it becomes a material part of the overall business. So I think it’s just really a continued investment in the Enterprise and shipping segment, to the extent that we continue to invest in those and see positive results, then we would expect it to continue to be a trend, when we see it longer, over a multi-year time frame.

Ken McBride

Just to add a couple of things, so you know, I think that the Enterprise segment and the high volume shipping segment tend to be lower churn segments, but I think we’ve done a really good job in the last couple of years on focusing on the product, product features, usability, that’s always been one of our key focuses. And to some extent, it could be that the economy has been masking some of the cumulative effects, and we’ve been really focusing on that usability aspect of our service, and now perhaps with improvements in the economy, those long term benefits of the intense focus we’ve had on the product are starting to show through, in the SoHo area in particular.

Kevin Liu – B. Riley & Company

And regarding the high volume shipping channel, and the significant increase in postage printed there, I guess that’s more driven by say a relationship like Amazon, or is it fairly broad strength across some of the integrations that you’ve done in recent quarters?

Kyle Huebner

It’s really, I would say, broadly speaking, maybe the first quarter where you’ve seen kind of the impact of what we’ve been focusing on in the product side with all the e-commerce integration focus where we’re focusing on building a better batch capability in our solution, having better import/export, adding more stuff and more features and kind of perhaps reaching the tipping point with version 8.8. You know, version 8.7 and 8.8 of the tool that really provided kind of final couple of items that people really wanted to see before they really switched more of their volume to us. So I think it’s continued focus on product, product enhancements, improvements in the software, focusing on really trying to make the shipping features more usable and more available to our customers, and that kind of all coming to a head in Q1. But I would say it’s really strength across the board.

Kevin Liu – B. Riley & Company

And the last question for me, this is regarding the USPS click and ship program that you guys won, I’m wondering if that contributed at all in Q1 here, and sort of what your expectations are for that.

Kyle Huebner

So click and ship, was something that the contract we got during Q1, so there was some impact during Q1, but I would say it was not a material factor, relative to the overall strength in our numbers. We don’t break out the specific impact in our guidance, but it’s something that our increased revenue and EPS guidance does incorporate the Q1 results as well as things like the (inaudible) contract.

Kevin Liu – B. Riley & Company

I appreciate the color, thanks.

Operator

Thank you, our next question comes from George Sutton, of Craig Hallum Capital.

George Sutton - Craig-Hallum Capital Group LLC.

Hey guys, this is actually Jason filling in for George. I just wanted to take you back on something that Kevin just asked. You noted that the small business environment continues to be weak, and in regards to churn, where do you think that you can get that, as we see the environment getting better over the course of the next year or so?

Kyle Huebner

I think if you look at our historical churn rates, kind of pre-recession, we were kind of in the 3.0 to 3.4% range, then during the initial part of the recession, we were up as high as kind of the 3.6 to 4.0% range. We’ve now come down, come back down the last two quarters, to that 3.0 to 3.4 range. So we’re kind of matching what we say pre-recession, but I think the important point is one Ken mentioned, where a lot of the investments we’ve made in the product and our customer retention efforts were made after the recession, so we really don’t have a true apples to apples benchmark, with the current product and the current retention programs as to what the churn potential is. So we can’t really give a specific target number, but our focus continues to be on focusing on the factors that we believe will help drive the churn lower, and as the economy hopefully improves over the next couple of years, we’ll be able to exceed the kind of churn rates we saw pre-recession.

George Sutton - Craig-Hallum Capital Group LLC.

Okay, fair enough. And one follow up, if I could. I know it’s kind of a trend recently that the gross margins on PC Postage have been decreasing a little bit, after they were more stable in the last year or so. Is there anything impacting that decrease?

Kyle Huebner

I think the first thing to look at with the gross margins is that the PC Postage gross margin includes promotional expenses. The promotional expenses are really driven by customer acquisition, so you will see quarter to quarter fluctuations in the gross margin, depending on our levels of customer acquisition, so I mentioned we experienced higher promotional expenses this year, related to our higher levels of customer acquisition. If you strip out the promotional expenses, I mentioned that Q1 we were at 80.3%, which was up from 79.9% last year, or in Q1 last year.

If you look at the whole year, the gross margin, ex-promotional spend, was 80.8%, so you know, Q1 was slightly down from the full year last year, but I wouldn’t say there’s been a material change. Some of that results around our customer service, and as we are investing in things like Enterprise and high volume segment, there’s to some degree higher levels of customer service that those customers expect, so we have to make some investments around higher levels of support and service. So in general, I think 80.3 was down versus 80.8 last year, but I wouldn’t say that there’s a material significant kind of decline that we’re seeing, if you look forward.

George Sutton - Craig-Hallum Capital Group LLC.

Okay, great. That’s all I’ve got. Thank you very much.

Operator

(Operator instructions.) Our next question comes from Graham Ryan of Baer Capital.

Graham Ryan -- Baer Capital

Good afternoon. Ken, could you talk a little bit about the Enterprise product and you know, any sort of anecdotal feedback from your customers? What do they really like about it, what needs improvement? Just anything you can provide on how that product’s being accepted in the market.

Ken McBride

Sure, you know, the Enterprise product is – I think we’ve been into this now for a while, so I think that when you look at what the Enterprise product is from an end user perspective, it looks a lot like a small business solution. That’s largely, with Enterprise, what we’ve been targeting, is distributed corporate and the niche of the distributor locations tend to look more like a small business. So the end user product is generally our core PC Postage product prints, print shipping labels, prints out stamps, it’s a complete mailing/shipping solution for the end user. And then later, on top of that, in our Enterprise offering is really what we call our batch board, which from a central web based solution, a corporate controller or a CFO can log in from a central location, and monitor usage and set parameters across the entire network of locations.

So potential monthly limits on usage, then taking a look from the location perspective or all the way down to the user perspective, what are the trends of my usage across the location? That visibility is something that is really unique to us in the marketplace. That’s not something that Pitney-Bowes has, or we see with any of our competitors. That’s really one of our key selling points when we walk into these large locations, we talk about the cost we can save you versus a postage meter, and typically we promise people, before we even walk in the door, that we can save them at least 50% versus the postage meter, and generally, once we do the analysis, we tend to save people more than that. So the cost savings versus a postage meter, and then the enterprise’s ability from the dashboard, so those are kind of the things that people really focus on when they’re looking at our Enterprise solution.

Graham Ryan -- Baer Capital

Are they any kind of holes in the product, or functionality that you’d like to add in the future that’s sort of been requested by your customers?

Ken McBride

No, I think we started the push on Enterprise really three or four years ago, and I think in the first couple of years we had request coming from customers, in terms of things that might be missing and then capabilities we needed to add, we’ve added, through the years, we’ve added the dashboard and enhance the dashboard. We’ve also added a more flexible payment methods, so a lot of times most of our small businesses pay with credit cards, but corporations tend to have desires to pay in multiple ways; by check, by credit card, by ACH credit, by ACH debit, so we’ve added all those capabilities over the last couple of years, and I would say the product is probably more mature at this point in the cycle.

Kyle Huebner

The other thing I would add, Graham, is there is on our website, stamps.com/enterprise, there’s a whole segment of our website dedicated to the Enterprise, and we have specific case studies on customers and different industries and how they’ve utilized our solutions and that’s something. You can go there and read some of those and get a sense as well on actual specific customer examples.

Graham Ryan -- Baer Capital

Okay, great. And the Amazon relationship, that revenue is hitting the service line, is that correct? And could you comment on how that’s progressing, sort of the year over year change, how much is that attributed to that relationship?

Kyle Huebner

In terms of the revenue, there’s actually two components, so the transaction or service fees related to the Amazon relationship get booked to our service revenue line, but customers also have the option of purchasing insurance for the package through our insurance offering. So to the extent that they opt to do that, then our insurance revenue line contains some of the Amazon related revenue for insurance purchases.

Graham Ryan -- Baer Capital

Okay, that’s perfect. And then a couple of quick ones; do you have a share count at the end of the quarter and do you also have the legal expense for the quarter?

Kyle Huebner

In terms of the legal expense, we don’t break that out specifically for reasons – given that we’re in an act of litigation. What I can say is the best way to look at it is just look at quarter to quarter fluctuations, and typically our non-legal G&A is fairly flat to up modestly, you don’t tend to see significant fluctuations on the non-legal G&A. So if you look at kind of the quarter to quarter and year over year fluctuations, that tends to be primarily driven by legal expenses. So you can get it from that perspective, but we can’t break it out specifically. In terms of the share count, for Q1 the fully diluted shares was 14.6 million. We’ve continued to do some share repurchases after the quarter, so I don’t have the actual ending share count in front of me, but it would be slightly lower than the 14.6 million.

Graham Ryan -- Baer Capital

Okay, thanks a lot, and congrats on the quarter.

Operator

Thank you, and I’m showing no further questions in queue at this time. I’d like to turn the call back over to Mr. Ken McBride for any closing remarks.

Ken McBride

Thank you for joining us, and if you have any follow up questions you can contact us at investor.stamps.com or our investor hotline at 310-482-5830. Thank you.

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