CEO Discusses Q2 2011 Results - Earnings Call Transcript

Includes: STMP
by: SA Transcripts Inc. (NASDAQ:STMP)

Q2 2011 Earnings Call

July 28, 2011, 5:00 p.m. ET


Jeff Carvari – Director of Finance

Ken McBride – President and Chief Executive Officer

Kyle Huebner – Chief Financial Officer


George Sutton – Craig-Hallum Capital Group LLC

Kevin Liu – B. Riley & Company

Graham Ryan – Baer Capital


Good afternoon, ladies and gentlemen, and welcome to the second quarter 2011 financial results. (Operator Instructions).

I would like to introduce your host for today’s conference, Mr. Jeff Carvari, Senior Director of Finance. You may begin.

Jeff Carvari

Thanks very much, and good afternoon, everyone. On the call today is Ken McBridge, CEO and Kyle Huebner, CFO.

The agenda for today’s call is as follows. We’ll give the results of our second quarter, 2011. And we’ll discuss financial outlook, but first, the Safe Harbor statement.

The Safe Harbor statement under the private recent reform act of 1995. This release contains forward-looking statements such as our expectation items that involve risks and uncertainties. Important factors including the company’s ability to compete and ship its products, maintain desirable economics for its products, and obtain [inaudible] could cause actual results to differ materially from those in forward-looking statements are detailed in findings of the Securities and Exchange Commission made from time to time by including its annual report on Form 10-K, [inaudible], quarterly reports on Form 10-Q, and current reports on report 8-K. takes no obligations related publicly, current visions, and forward-looking statements to reflect events or circumstances after the date hereof or reflect the current [inaudible] events.

Allow me now to go over to Ken.

Ken McBride

Thanks Jeff, and thank you for joining us today.

Today we announced the best quarter in the company’s history. We achieved record results in multiple areas including revenue earnings and key customer metrics. Across the board, every one of our businesses had outstanding performance.

Second quarter total revenue was $26.6 million, which was up 26% versus the second quarter of 2010.

In our core PC postage business, which excludes the non-core enhanced promotion channel, revenue was $22.3 million. And that was up 23% versus the second quarter of 2010.

This was an all-time record level for our total revenue and for our core revenue as well this quarter. This is also the highest quarterly year-over-year growth rate we have ever experienced for our core PC postage revenue. And also the highest quarterly growth rate for total revenue since 2006.

Second quarter non-GAAP earnings per share was a new record high of $0.45. That was up 124% versus the second quarter of 2010.

Our earnings were driven by the strong revenue growth in our core PC postage business.

Second quarter paid customers increased sequentially by 7,000 to a record high of 368,000 total paid customers. We usually see muted growth or even a decline in this metric during the second quarter. So it was nice to see growth during this quarter.

Second quarter average revenue per paid customer or RPU was $20.20, up 13% over the second quarter of 2010. This was our highest RPU since we began reporting this metric.

And second quarter postage printed by our total customer base was $152 million. And that was up 53% versus the second quarter of 2010. This was again the highest postage printed amount and the highest year-over-year growth rate since we began reporting this metric. Growth in total postage printed was driven by strength in our high volume shipping business segment where we experienced total postage growth of 111% year-over-year.

During the second quarter, we applied breakage accounting to our PhotoStamps boxes sold through retail channels, which contributed to $2.2 million through PhotoStamps revenue. Even excluding the impact of the PhotoStamps retail box breakage revenue, we would have still achieved all of the records in revenue and earnings this quarter that we just mentioned.

In particular, our non-GAAP earnings per share without the breakage revenue would have still been the highest level in the company’s history.

On the call today, we’ll talk more in detail about the PC postage business metrics and business, our financial results, and we’ll discuss our business outlook.

Now, I’m going to begin with a more detailed discussion of the PC postage business. The customer metrics we discussed on the call are only for the core PC postage business, which excludes all enhanced promotion channel activity. For more detailed definition of how we calculated each of our metrics, you may refer to our core and metrics spreadsheet invested on

Core PC postage revenue was $22.3 million in the second quarter, which was 23% versus the second quarter of 2010. We were very pleased with the continued acceleration in the revenue growth in our core PC postage business. Over the past four quarters, our core PC postage revenue year-over-year growth rates have gone from 8% to 11% to 14% to now, 23%. The increase in our core PC postage revenue was attributable to continuous strength in our SOHO customer segment. And also helped by our enterprise and high volume shipping customer segments, which are now contributing to our core business revenue growth in a more material way.

We acquired 63,000 gross small business customers in Q2. And that was up 20% versus the second quarter of 2010. And our cost per new small business customer acquired, or CPA was $124 in Q2. And that was down 3% versus the second quarter of 2010. This was our highest customer acquisition for any second quarter in the history of the company.

We have seen strong results in some of our older marketing initiatives. And we have been running some newer programs, which are also doing very well.

Our monthly churn during the second quarter was 3.5%, which is down versus 3.6% in the second quarter of 2010. It was good to see a decrease in year-over-year churn again this quarter. We did expect to see a sequential increase in churn rates in the second quarter compared to the first quarter as is typical in our business.

Overall, we believe year-to-date churn rates are down year-over-year due to several factors including incremental improvements in the economy that incurred in the first half of 2010, lower churn rates in our Enterprise and high volume shipping customer segments, new product features, which are driving increased usage of our service, and our ongoing customer retention efforts.

Paid customers in the second quarter was 368,000, which was up 9% versus the second quarter of 2010. And up 7,000 sequentially versus the first quarter of 2011. The growth in paid customers was the direct result of our strong acquisition and lower churn.

RPU was $20.20 in the second quarter. That was up 13% versus the $17.91 we saw in the second quarter of 2010. The increase in RPU was attributable to an increase in the average store revenue per paid customer driven by the increased usage of our service, which drives increased consumable purchases, an increase in the average insurance revenue per paid customer driven by strong growth of postage printed by high volume shippers, and insurance feature improvement such as the addition of our international package insurance offering. And RPU increase was attributed to higher monthly fees per customer in our high volume shipping and enterprise customer segments, which are becoming a more material part of our PC postage business.

Total postage used by all customers was $152 million during the second quarter. That was up 53% versus the second quarter of 2010. We watched this metric carefully as we believe it is a clear indicator of the value customers drive from our service. And when we see strength in overall customer usage of our service, other metrics tend to follow and show strength as well.

We have seen an acceleration in our year-over-year growth rates per total postage printed for the past eight quarters with growth of 12%, 14%, 18%, 20%, 26%, 39%, 44%, and now 53%. The accelerated growth has resulted in a string of new record highs for total postage printed.

Our increased focus on the high volume shipping segment has been a strong contributor to our growth in total postage printed. And in the high volume shipping segment, we have also seen very strong accelerating growth over the past eight quarters, which was 8%, 24%, 30%, 37%, 55%, 81%, 90%, and now 111%.

For our customers outside of the high volume shipping segment, we also saw a strong 36% year-over-year growth in second quarter postage usage.

We continue to believe that the economic environment with respect to small business remains challenging related to pre-recession levels. As you know, we monitor several small business economic surveys including a monthly survey by the National Federation of Independent Businesses, the NFIB, which tracks an overall small business optimism index on a monthly basis. Based on that index, we continue to experience recessionary conditions in the small business environment. With the backdrop of a challenging small business economic environment, we are even more pleased that we have been able to deliver record results across all of our businesses during Q2.

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 the 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 in our marketing spin remains attractive. And we continue to believe that the lifetime value the more enhanced promotion customers more than two times higher than the current cost of acquisition.

We were able to increase our second quarter SOHO customer acquisition spend by 16% versus last year while realizing a decrease in the cost per acquisition, CPA, by 3%. Based on those improving trends, which we saw in the second quarter, we now expect to increase our PC postage customer acquisition spend by approximately 15% to 20% in 2011. That compares to our previous expectation of an increase of 10% to 15%.

We expect that we will continue increasing customer acquisition spend in our various marketing areas including direct mail, traditional media, all my marketing, and other areas. We believe it’s important to continue to invest in our small business customer acquisition channels for the long-term growth of the business.

Also in the SOHO area, we’re continuing to optimize our business model and overall customer experience in several ways, such as continuing to optimize the website, registration process, post registration customer interactions, continuing to expand our presence on social networking sites, expand our customer web portal, expand the content in the multi-media on our website.

We’re also continuing to launch new features in our client product that make mailing shipping easier for our customers. For example, during the second quarter, we re-released version 8.9 of our client software, which added several great new features, such as enhanced support for new Priority Mail classes such as discounted regional rate boxes that allow shippers to lower their cost when shipping shorter distances. We added support for Army and fleet post office APO, FPO customs forms, which give customers the ability to electronically complete and print customs forms when printing postage for all applicable military addresses and U.S. territories.

And we added support for printing postage on the Avery 5160 address labels, which are the most popular mailing labels sold in office supply super stores and are a common choice for customers who print mailing addresses on their printers.

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 visibility into individual and employee activity that isn’t available with a postage meter.

During the second quarter, we continued to make progress in the Enterprise area as we continued to build our customer base and grew enterprise revenue by 37% year-over-year. During the second quarter, we also acquired a record number of new Enterprise locations, up 186% versus the same quarter last year.

We continue to see churn rates in Enterprise that are meaningfully lower than in our SOHO business. And we’re also seeing higher RPU as our monthly service fees are higher in Enterprise than in our SOHO area.

Overall, we are excited about the continued progress in Enterprise. And feel that we are seeing returns on the investments we have been making in this area.

Starting in 2010 and continuing into this year, 2011, Enterprise has begun to modestly contribute to the bottom line of our overall business. We’re expecting to see continued strong growth out of this business line going forward. And we expect that it will be a great area for us.

In our high volume shipper area, we are continuing to scale up our efforts in this area during 2011. Our goal 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 in 2008, we began a more aggressive push into this area. And we’ve continued that push through the current year.

We’re continuing to invest in our shipping technology and our sales and marketing efforts including investing in improvements in our software and features to further improve scalability of the product to the largest high volume customers, adding e-commerce integrations for easier data export and import 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, scaling and driving our scales efforts using international sales force.

Our business in this area is doing great as evidenced by the 111% year-over-year growth rate in total postage printed we saw during the second quarter.

Overall, we’re very excited about the progress we’re making in the high volume shipping area. And we think it will a strong contributor to our business in the future.

We feel that our 2011 PC postage plan is very solid. And that we have already made strong progress against the plan so far this year as evidenced by our solid second quarter and year-to-date results. And we feel that our long term opportunities to grow this business are very attractive.

Now with that, we’ll go to Kyle who will discuss more detail financial results and give our business outlook.

Kyle Huebner

Thanks, Ken.

We will now review our second quarter financial results. We will discuss our second quarter financials on a non-GAAP basis, which excludes $802,000 of stocked-based compensation expense. A reconciliation of non-GAAP to GAAP is contained in the earnings release posted on our website.

Total revenue was $26.6 million in Q2, which was up 26% compared to Q2 in 2010. The second quarter marked a continued trend of accelerating growth in total revenue driven by strong results in our core PC postage business.

Year-over-year growth in quarterly revenue has accelerated from 2% to 5% to 9% and now 26% over the past four quarters.

Core PC postage revenue was $22.3 million in Q2, up 23% compared with Q2 in 2010. The year-over-year increase in core PC postage revenue was driven by both increased paid customers and increased RPU as discussed by Ken in the metrics section.

Core PC postage revenue has also demonstrated an accelerated growth trend with 5% growth in 2009, 10% growth in 2010, 14% growth in Q1 of 2011, and now 23% growth in Q2 of 2011.

Non-core PC postage revenue from the enhanced promotion channel was $802,000 in Q2, down 33% compared with Q2 of 2010. The declined in enhanced promotion revenue was primarily attributable to a lower marketing spend as we continue to reduce our investment in this segment of the business. While we continue to experience year-over-year declines in enhanced promotion revenue, we did see Q2 of 2011 revenues sequentially flat with Q2 of 2011.

PhotoStamps revenue was $3.5 million in Q2 up 95% compared with Q2 of 2010. PhotoStamps revenue growth was attributable to the application of breakage accounting for our PhotoStamps boxes sold through retail channels, which contributed $2.2 million in revenue.

PC postage gross margin was 78.0% in Q2 compared with 77.3% in Q2, 2010. Cost of sales includes promotional expenses related to customer acquisition, which were $868,000 in Q2 compared to $589,000 in Q2, 2010. The increase in promotional expenses was driven by the increase levels of customer acquisition. PC postage gross margins excluding promotional expenses was 81.8% in Q2 compared with 80.4% in Q2, 2010. The improvement in gross margins excluding promotional expenses was due to the strong revenue growth in the core PC postage business.

PhotoStamps gross margin was 56.0% in Q2, which was up compared to 24.5% in Q2, 2010. PhotoStamps gross margin improvement was also attributable to the application of breakage accounting for our PhotoStamps retail boxes.

Total sales in marketing was $8.3 million in Q2, which was up 11% compared with Q2, 2010. PC postage sales and marketing spend increased by 12% with Q2 versus Q2, 2010, as a result of increased marketing spend in the small business, enterprise and shipping segments partially offset by a decrease in the non-core enhanced promotion marketing spend.

Photo stamp sales and marketing spend decreased by 40% compared with Q2 of 2010.

R&D spend was $2.2 million in Q4, which was up 4% compared to Q2 of 2010. The increase was primarily related to head count expenses.

G&A spend was $3.1 million in Q2, which was down 2% compared with Q2, 2010. The decrease in G&A spend was primarily attributable to a decrease in legal spend versus Q2, 2010. Legal spend was lower than expected due the Indicia schedule trial date being moved from 2011 to 2012.

Non-GAAP operating income was $6.4 million in Q2, which was up 137% compared to Q2, 2010. The growth was primarily attributable to strong revenue growth in our core PC postage revenue and PhotoStamps breakage revenue.

Non-GAAP net income was $6.5 million or $0.45 per fully diluted share compared with $2.9 million or $0.20 per fully diluted share in Q2, 2010, which represents 124% year-over-year growth in both metrics.

Both GAAP and non-GAAP operating income, net income, and EPS were all record highs by significant amounts.

Free cash flow defined as non-GAAP net income and excluding breakage plus D&A less CapEx was positive 4.8 million in Q2. For the second quarter, DNA was approximately $220,000. And CapEx was approximately $180,000.

PhotoStamps retail box breakage account: When we originally launched PhotoStamps in 2005 as a direct to site model where we focused on marketing programs to grind to drive customers directly to our website. When the direct to site model did not meet our expectations, we also pursued a retail-based model where we sold through various third party retail partners PhotoStamps boxes that are redeemable for PhotoStamps at our website. The sale of the PhotoStamps retail boxes is booked as deferred revenue. And prior to the second quarter, revenue was recognized only on boxes that were actually redeemed. As a result, deferred revenue from PhotoStamps retail boxes sold since 2007 was significantly higher than the actual revenue recognized during that period.

During the second quarter, we concluded that we had sufficient historical data to allow for the recognition of revenue for PhotoStamps retail boxes that we do not expect to be redeemed under retail box breakage accounting. As a result, $2.2 million of revenue is recognized in the second quarter relating to previously sold and unredeemed PhotoStamps retail boxes, which were originally recorded as deferred revenue.

We will continue to recognize breakage revenue related to unredeemed PhotoStamps retail boxes in the future quarters, but we expect the impact in any given quarter will be lower than it was this quarter.

Share repurchase: During the second quarter, we repurchased 232,000 shares at a total cost of $2.9 million. And for the first and second quarter of 2011 combined, we repurchased 408,000 shares at a total cost of $5.0 million.

The company’s current repurchase plan remains in effect through August 2011 with remaining authorization of approximately 600,000 shares. We have now returned more than $257 million in excess cash to our shareholders since 2002 through approximately $107 million in special dividends. And approximately $151 million in share repurchases. The adjusted average repurchase price of the 14.4 million shares repurchased since 2002 is $7.61. So our share repurchase program has created significant shareholder value when compared to our current stock price today.

NOL shareholder update: As of June 30th of 2011, we had approximately $220 million in federal NOLs and $150 million in state NOLs. We estimate that as of June 30th, our Section 382 ownership shift was at an approximately 16% level compared with a 50% level that would trigger an impairment of our NOL asset.

As part of our ongoing program to preserve future use of our NOL asset, requests that any shareholder contemplating becoming a 5% shareholder contact the company before doing so.

Now turning to guidance for fiscal 2011; we expect total 2011 revenue to be in the range between $90 to $100 million. This compares to our previous expectations of $85 to $95 million in revenue and our original expectation in February 2011 of $82.5 and $92.5 million.

We expect fiscal 2011 GAAP EPS to be in the range between $0.87 to $1.07 per fully diluted share. GAAP numbers assume an estimated $3.3 million of stock-based compensation expense.

Excluding the stock-based compensation expense, we expect 2011 non-GAAP EPS to be in the range between $1.10 to $1.30 per fully diluted share. This compares to previous expectations of $0.90 to $1.10 per share and our original expectations in February 2011 of $0.85 to $1.05 per share.

We expect core PC postage revenue to be up 15% to 20% in 2011. We expect SOHO PC postage customer acquisitions spend to be up 15% to 20% in 2011. 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 year-over-year trends we have seen.

We expect total 2011 PhotoStamps revenue to be up 5% to 10%. And we expect PhotoStamps marketing spend to continue to decline on a year-over-year basis for the remainder of 2011.

We expect to continue to incur legal expenses related to our patent infringement lawsuits for the remainder of 2011. However, we expect 2011 spend to be lower compared to our previous expectations due to the change in the trial date in our Indicia litigation from 2011 to March of 2012. We note there’s still a high degree of uncertainty regarding the timing of litigation expenses as these expenses are often driven by court-ordered schedules and can be hard to predict.

In terms of our outlook on our business relative to the economic environment, we believe that small business economic environment continues to negatively impact our business and metrics relative to historical levels. We are pleased with recent trends in our customer metrics. And hope these trends will continue throughout the remainder of 2011.

We also believe there’s upside potential to our SOHO business if the small business economic environment can return to pre-recession levels.

In summary, our core PC postage business model with recurring revenue and high gross margins is demonstrating accelerating growth. And we’re starting to realize the benefits of our investments in our enterprise and high volume shipping areas.

We had record level performance during the second quarter across almost every area of our business including total revenue, core PC postage revenue, GAAP and non-GAAP earnings in most of our key customer metrics.

We have a strong balance sheet, attractive return on equity, strong pre-cash flow generation, and a large deferred tax asset in excess of $90 million. We have demonstrated our commitment to enhancing shareholder value including our returning over $255 million in excess cash to shareholders via special dividends in our share re-purchase program.

With that, we will open up for questions.

Question-and-Answer Session


(Operator Instructions). Our first question comes from George Sutton from Craig Hallum Capital. Your line is open.

George Sutton [Jason]– Craig-Hallum Capital Group LLC

Hey, guys, this is Jason on for George.

Ken McBride


George Sutton [Jason]– Craig-Hallum Capital Group LLC

First of all, great quarter. A couple questions around churn. So last quarter you talked about some investment that you were making that were leading to lower churn year over year. And I was just wondering if you could elaborate that – elaborate on that, and as well as maybe a little bit of color on why churn was up this quarter and if that was in line with your expectations or if it was a little bit higher?

Kyle Huebner

We historically see churn increase from Q1 to Q2. I think we’ve seen that every year since we’ve started tracking the metrics; Q2 being up versus Q1 was consistent with that seasonal pattern. You know, I think we continue to see the year-over-year improvements in the churn metric versus last year.

If you look at our pre-recession churn rates, and you go back to 2007, they range from 3% to 3 ½%. So in 2011, you know, our churn rate seemed to be consistent with this range, you know, despite the fact that we’re in a – the small business economic environment is registering recessionary read-in in the surveys. So I think we look at it as we’ve achieved our pre-recession churn rates even though we’re in a recessionary small business economic environment and we’re very pleased about that.

You know, in terms of some of the things that we mentioned that are helping the churn, we find that our enterprise and high volume customers have lower churn rates. We find that the new – some of the new product features that we’ve introduced are driving more usage of our service, and the more customers use the service, the more likely they are to stay with us, as well as our ongoing customer retention efforts.

George Sutton [Jason]– Craig-Hallum Capital Group LLC

Okay. And then how important is Post Office closings to your story? There were recent announcements yesterday about possible shutdowns of more post offices. I was just wondering if you could quantify that or what you see the opportunity is.

Ken McBride

Sure. Yeah, you know, the – there seems to be a periodic announcement of post office closures, and we’re always a bit skeptical that it will actually make it across the finish line in any kind of meaningful way.

But you know, if it were to happen, we do think that it potentially could be very positive on our business, really if you look at it – and there’s alternative ways to access the post office, if they removed 10% of the post offices, that leaves quite a few potential customers for us that don’t have as convenient access, they may have to drive further or may not have a post office in their home all. And our solution really is an alternative way to access the – everything you can get at the post office from your own PC.

So you know, it could be a nice lift to our business, but you know, I think the – the steps from here to get across the finish line, in particular, the approval by congress has always been a big hurdle and so we’re fairly skeptical that any number of that magnitude will actually be closed.

George Sutton [Jason]– Craig-Hallum Capital Group LLC

Okay. And then last question here. You guys talked in the past that you’ve had success with some shopping cart vendors that have helped the high-volume shipping segment. And then, can you provide any metrics around that?

Ken McBride

Well, I think the metric we give for the high volume shipping segment is the growth in postage printed by that customer segment. You know, we feel that highlights kind of the overall usage of our solutions by this segment. And so, you know, there’s a number of different ways that we reach that target segment of which the integrations and partnerships are one of the mechanisms, but we don’t break out any specific metrics around specific integrations, it’s more of the total postage printed by that segment that really reflects the progress that we’ve made.

Kyle Huebner

The e-commerce integrations that we’ve added has been very popular. As you know, we’ve added several of the major integrations of Google, Amazon, eBay, PayPal, Yahoo Stores. And then we’ve also added several additional shopping cart solutions that may not be as readily recognizable; companies like Magenta and Volusion, ExCart, ZenCart, OS Commerce. So it’s really just a matter of, you know, if you happen to do be an e-commerce shipper that uses one of these platforms to run your website, or runs your website on a shopping cart platform and then also sells on Amazon or eBay, or other areas, then our solution, our batch capability and our product makes it very simple for you to complete your orders at the end of the day. Basically, you pull all the data in automatically, print out all your shipping labels in one process and then it automatically posts all the tracking information and data back into all the various web and shopping cart solutions.

So it’s a very – it’s a great solution for an e-commerce customer. Like I said, it’s been an extremely popular feature we added about a year and a half ago.

George Sutton [Jason]– Craig-Hallum Capital Group LLC

Thank you.


Thank you. Our next question comes from Kevin Liu from B. Riley and Company. Your line is open.

Kevin Liu – B. Riley & Co.

Hi. Good afternoon, guys and congrats on a strong quarter.

Ken McBride

Thanks, Kevin.

Kevin Liu – B. Riley & Co.

I guess, first question, just on the breakage accounting, were there any cons associated with the 2.2 million revenues that got recognized?

Kyle Huebner

Yeah, there’s – so in the second quarter there were about 400,000 of costs that primarily related to the physical retail boxes that were capitalized at the time they were created and then matched to the revenue when we took the breakage. You know, on a more broader level, I would not that, you know, there are a lot of costs such as marketing and development costs related to the development of the retail program and the past retail sales. And those were expensed in prior periods, so you know, I think the true profitability of the retail kind of breakage, you know, is lower than Q2 indications when you look at it in conjunction with kind of the past expenses.

Kevin Liu – B. Riley & Co.

Got it. And with respect to some of the new sales and marketing programs, I think you alluded to the fact that the old programs are still working well, you found some new sources that seem to be adding new subscribers at a nice clip. So I’m just curious if you could talk a little bit about what’s working for you guys right now, and maybe where you’re – if you’re reallocating any sort of expenses at all.

Ken McBride

Sure. Yeah, you know, the traditional areas that we do, like direct mail, have continued to perform well and were continuing to drove those areas forward. But some of the new things we’ve added in the last couple of years, or even in the last year, like some of the traditional media areas, like radio and TV have been performing nicely. And so we have been scaling up those areas over the past few quarters and really for the past few years. And so, you know, part of when we talk about increasing our overall spend for the year, it’s a reflection of our view of how those channels are performing and also, you know, just the desire to continue to be aggressive in terms of growing the overall business topline.

Kevin Liu – B. Riley & Co.

And have you seen any change in terms of kind of the lifetime value of the customers you’re requiring through some of these traditional media channels?

Ken McBride

Yeah, I mean, I think it’s, you know, the natural outcome of a higher RPU that [inaudible] is as we believe the lifetime value has increased overall, the business. You know, I think some of the – sometimes particular channels attract customers that have a higher lifetime value than others. But overall, I think we’ve seen, you know, we feel that our lifetime value has continued to improve. So the – keeping the CPA in check, or actually having it decrease year over year while seeing an increase in lifetime value has been one of the factors that’s been driving our financial performance up.

Kevin Liu – B. Riley & Co.

And then just in terms of the Enterprise business, you mentioned Record Enterprise location’s one. Was that a combination of a couple of customers? Was it just one big customer? Just any sort of insight on that would be appreciated.

Ken McBride

Dispersed among multiple customers. So we see, you know, we saw across the board strength and, you know, I think it was really just a reflection of, you know, as you know in the Enterprise business, the sales cycle is very, very long. So it’s really just maybe a reflect of starting to see light at the end of the tunnel in terms of some of the investment we’ve been making over the past few years in all these customer accounts and seeing momentum build in that business relative to the actual signups from customers.

Kevin Liu – B. Riley & Co.

And as you look at kind of the pipeline current, you know, is there still multiple opportunities out there that could start to hit in the next couple quarter, maybe any sort of insight you could provide in terms of your ability to sustain kind of these 37% type growth rates on the Enterprise business?

Ken McBride

Yeah. You know, it’s a bit unpredictable but you know, we do feel optimistic that we’re seeing a building of strength in that business in terms of the overall pipeline and the activity, the sale of activity and it feels like we’re gaining momentum and I feel like the second quarter performance was not anomaly or a one-time thing, it was more just the beginning of hopefully a more positive trend in terms of the whole business growth going forward.

Kevin Liu – B. Riley & Co.

Sounds good. Thanks.


(Operator instructions). The next question comes from Graham Ryan from Baer Capital. Your line if open.

Graham Ryan – Baer Capital

Good afternoon. Most of mine has been answered, actually, but congrats on the quarter.

Ken McBride

Thank you.

Graham Ryan – Baer Capital

I just had a question about the Enterprise disclosure as you guys had talked in the past about it at some point breaking some information out related to the Enterprise business. Are you close to that or is that still, you know, [inaudible]?

Kyle Huebner

Yeah, you know, it’s – we’re – the business is building and we’re seeing a nice trend in terms of overall growth and size, and so we may begin to add some more color the business as we go forward. You know, we always face the double-edged sword, which is wanting to provide more information but the having, you know, all of our competitors tuning in on the call, which of course, you know, we don’t want to give them a roadmap. So you know, and we’re going to do our best to try and give insight into the Enterprise business going forward and we probably will try to, over time, provide additional color, like the number we mentioned this quarter, not promising that’s the number we’re going to give every quarter, but just trying to give you some insight into revenue growth, but also there’s a brisk customer acquisition, new location acquisition that happened during the second quarter.

Graham Ryan – Baer Capital

Right. Okay, thank you very much.


Thank you. I’ll now turn it over to Ken McBride for closing remarks.

Ken McBride

Thank you for joining us today, and if you have follow-up questions, as always you can contact our investor relations website, or call our IR hotline at 310-482-5830. Thanks.


Ladies and gentlemen, than you for participating in today’s program. This concludes the program. You may all disconnect.

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