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Stamps.com Inc. (NASDAQ:STMP)

Q3 2012 Earnings Call

October 25, 2012 5:00 pm ET

Executives

Jeff Carberry – Investor Relations

Kenneth McBride – Chairman and Chief Executive Officer

Kyle Huebner – Co-President and Chief Financial Officer

Analysts

Kevin Liu – B. Riley & Co.

Jason Kreyer – Craig-Hallum Capital Group LLC

Jared Schramm – Roth Capital Partners

William Sutherland – Northland Capital Markets

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Stamps.com Third Quarter 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

At this time, I would like to turn the conference call over to Mr. Jeff Carberry, Director of Finance. Sir, you may begin.

Jeff Carberry

Thanks very much, and good afternoon, everyone. Thanks for joining us. On the call today is Ken McBride, CEO, and Kyle Huebner, CFO. The agenda for today’s call is as follows. We will review the results of our third quarter 2012, and then we'll discuss financial results and talk about our business outlook, but first the Safe Harbor statement. The Safe Harbor statement under the Private Securities Litigation Reform Act of 1995, this release contains forward-looking statements, such as our expectations and financial guidance, that involve risks and uncertainties. Important factors, including the Company's ability to complete and ship its products, maintain desirable economics for its products and obtain or maintain regulatory approval which could cause our results to differ materially from those in the forward 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, 2011. Quarter 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. And now let me hand the call to Ken.

Kenneth McBride

Thank you Jeff, and thank you for joining us today. Today we announced another record quarter. We achieved an all time record level of paid customers at 419,000. We achieved an all time record high average monthly subscriber revenue per paid customer, or RPU at $21.62. We achieved the highest growth rate for enterprise paid customers in five years. We continued our strong momentum in our high-volume shipping area with 96% growth in total high-volume postage printers.

We achieved a record growth rate for total postage printer by our customer base which was up 78% to new record level of $293 million, and we achieved record core PC postage revenue of $27.2 million, which represents 20% year-over-year growth. We achieve record non-GAAP financial performance with operating income of $8.4 million, net income of $8.3 million, and earnings per share of $0.50, which were up 54%, 49%, and 35% respectively.

We are very pleased that the business continued strong growth trends particular in light of the fact that all indicators point to a continued recessionary environment in the small business area. On the call today, we will talk in more detail about the PC postage metrics in the business, our financial results and our business outlook.

Now, let’s begin with a more detailed discussion of the PC postage business. 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 calculate each of our metrics, you may refer to our quarterly investment metric spreadsheet at investor.stamps.com.

Core PC postage revenue including small business enterprise and high volume shipping customer segments was $27.2 million in the third quarter which was up 20% versus the third quarter of 2011. This was the eight consecutive quarter in which we have generated strong double-digit year-over-year growth rates in our core PC postage revenue. The increase in our core PC postage revenue was attributable to continued solid performance at our small business area coupled with very strong performance from our newer enterprise and high volume shipping customer segments.

During the third quarter, we acquired 69,000 gross small business customers, that was up 8% versus the third quarter of 2011. Our costs per new small business customer acquired, or CPA decreased to a $115 in the third quarter that was down 3% versus the $119 in the third quarter of 2011. We were able to increase our small business customer acquisition spend investment by 4% versus last year, while simultaneously reducing the CPA by 3%.

We would note that the third quarter is usually our seasonally slowest quarter, and this year we experienced seasonality on par with historical norms, and as a result, we scaled back our acquisition investment as we typically do during the third quarter. Last year in Q3, the seasonal slowdown was up less pronounced. During 2011, as a result of our initial investment in some new marketing channels which began in Q2 last year.

As a result, this quarter we faced a tough compare on gross new customers acquired as the third quarter of last year showed strong 29% growth in this area. So we view the 4% growth rate in marketing acquisition spend as reasonable given the strong growth in Q3 last year.

Our average monthly churn during the third quarter was 3.5%, which was up 0.2% from the 3.3% churn in the third quarter of 2011 and down 0.2% from the 3.7% churn in the second quarter of 2012.

Year-over-year increase in churn is partly reflective of our strong customer acquisition trends over the past year, where more paid customers are in the earlier part of churn curve which has higher churn rates. We also believe that the economic environment may have played a role on the increased year-over-year churn as the NFIB, the National Federation of Independent Business survey of small business optimism during the third quarter continued to register reading that are both recessionary and amongst the lowest level seen during 2002. We continue to have a long tough time focused on driving down churn and our goal continues to be achieving churn in the 3.0% to 3.5% range.

Pay customers in the third quarter was 419,000 that was up 12% versus the third quarter of 2011 and up 1,000 sequentially versus the second quarter of 2012. The 12% year-over-year paid customer growth rate in Q3 was at the highest year-over-year growth rate for the third quarter since before 2008. Typically we see a decline in paid customer sequentially during our seasonally slowest Q3, so we are pleased with the sequential growth this quarter.

Average revenue per unit or ARPU was $21.62 in the third quarter and that was up 7% versus $20.25 we saw in the third quarter of 2011. The year-over-year increase in our ARPU was driven by higher per customer fees and high-volume shipping in enterprise and higher insurance purchases per paid customer driven by our focus on shipping and by new insurance features that we have added. We were pleased with the ARPU growth this quarter in light of the tough comparison with third quarter 2011, which demonstrated strong 13% ARPU growth.

Total postage used by customers was $293 million in the third quarter of 2012, that was up 78% versus the third quarter of 2011. This is the highest growth rate we have ever seen for total postage printed and is now the sixth consecutive quarter where year-over-year growth in our quarterly postage usage has exceeded 50%. Total postage printed in our high-volume shipping segment was up 9.6%, continuing the high level of growth in that segment.

We carefully monitor total postage usage as an indicator of the value customers drive from our service and its growth has been correlated with the strength in our other business metrics. We continue to believe that the economic environment with respect to small business remain challenging, relative to previous recession levels and continues to effect our small business customer acquisition and churn.

However, we believe that sustained improvements in a small business economic environment from current levels could provide further lift to our small-business efforts over the long-term.

Now, let's turn to some detailed initiatives we are working on in the PC postage area. Again the discussion is about the core PC postage business excluding the enhanced promotion channel. In the small-business area, we’re continuing to scale and optimize our customer acquisition spend. We continue to experience a strong return on investment on our market and an estimated lifetime value that exceeds our current cost per acquisition by at least two times.

We continue to grow our customer acquisition spend while decreasing our CPA demonstrating continued efficiencies in scaling our marketing spend. We expected our total 2012 small-business customer acquisition spend will increase by 10 to 20% year-over-year.

We continue to utilize a variety of marketing channels including direct mail, traditional media, online marketing and other areas. Across each of our marketing channels, we plan to continue to focus on scaling the total spent while keeping cost per acquisition at a reasonable level.

Also in the small-business area, we’re continuing to optimize our business model and our overall customer experience in many ways, including – we’re continuing to optimize our website, our registration process and post registration customer interactions. We also continue to launch new features in our client product that make mailing and shipping easier for our customers.

We are particularly focused on e-commerce users in our recent releases and with added functionality such as a batch shipping tool bar with a redesigned user interface in the batch shipping section, the ability to combine multiple orders from a buyer into a single order to save on shipping costs, support for two default printers in order to print separate types of label or packing slips on separate printers, support for automatic insertion of product data from an external source directly into custom forms, which allows for easier batch printing of custom forms. And many other features specifically targeted to our e-commerce users.

In the enterprise area, we are continuing to scale up our sales and marketing efforts. Customers continue to choose our services as a great alternate to a postage meter based on the dramatically lower total cost of ownerships of our service versus a postage meter.

Customers also like the visibility available from our centralized reporting tool where they can monitor postage spent across their entire network of users, a feature that is not available with postage meters.

During the third quarter, we continue to make strong progress in the enterprise area with growth in the third quarter revenue of 46% year-over-year. We also saw our third-quarter growth in enterprise paid customers at the highest it has been for five years. Our pipeline of opportunities continues to grow nicely as well. We continue to lower churn and higher ARPU in enterprise compared to our SOHO business.

Overall, we’re excited about the continued progress in enterprise and we feel that we’re seeing returns on investments we’ve been making in the area. We’re expecting to see continued strong growth out of this business line going forward.

In our high volume shipper area, we’re continuing to scale up our efforts in this area. We continue to attract high volume shippers, such as warehouses, fulfillment houses, e-commerce shippers, large retailers and other types of high volume shippers to our service through our efforts in this area.

Our business in this area is doing very well as evidenced by the 96% year-over-year growth rate in our high volume shipping postage printed we saw during the third quarter. For 2012, we will continue to focus on scaling this business area. We will continue to introduce improvements in the software and features to further improve scalability of the product to the largest high volume customers.

We will continue to add new shopping card integrations through easier data export and import from the tools that the customers like to use. And we will continue to scale our marketing efforts and our sales efforts using our national sales force. Overall, we’re very excited about the progress we’re making in the high volume shipping area and we feel it will continue to be a strong contributor to our overall business.

In the high volume shipping area we have noted in the past that our direct integration in the Amazon’s marketplace has been a good partnership for us. Earlier this month the Amazon launched an additional marketplace. USPS shipping solution based on a permit mail system, which we expect will have some impact on our revenue from this partnership.

We remain in option for Amazon marketplace shippers particularly the higher volume users and we also continue to provide the integrated Amazon marketplace push into our existing Stamps.com subscription customers. We believe that our PC Postage based solution provide the superior customer experience versus permit mail. And so we expect we will continue to acquire new users to our Amazon marketplace partnership. We will note that all this information is incorporated in the increase guidance we provided today.

Now let me take a second to talk about Postal Reform. The postal service has continued to make headlines with its financial challenges, so wanted to take a minute to provide an update. Postal Reform as stalled in Congress prior to the November elections.

During the third quarter the postal services defaulted on two payments of $5.5 billion and $5.6 billion to the U.S. Treasury, which was widely expected. Also during the third quarter the postal service hit its $15 billion borrowing limit from the U.S. Treasury for the first time in history.

The postal service has stated the customers can be confident in the continued regular operations of the postal services and they will continue to deliver the mail and pay suppliers and employees through at least March of next year. The postal service additionally remains focused on implementing significant cost reduction strategies that it currently has the authority to pursue. Postal service continues to encourage comprehensive legislation action in this Congress in order to further postal service to fully implement its five year business plan and return to long-term financial stability.

Stamps.com is focuses on insuring that we do everything possible to help create value for the USPS. And we saw that we’re doing this as evidenced by our 78% growth in postage printed in the first quarter and our 96% growth in high volume shipping postage printed in the third quarter. The growth in our customer, customers postage printed directly translates into growth in the USPS revenue in each areas and that’s results are not helping create one of the fastest growing revenue streams for the USPS.

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

Kyle Huebner

Thanks Ken. We will now review our third quarter financial results. We will discuss our third quarter financials on a non-GAAP basis, which excludes the following, $884,000 of stock-based compensation expense and $407,000 in one-time move related expenses associated with the relocation to our new corporate headquarters. A reconciliation of all non-GAAP to GAAP numbers is contained in the earnings release posted on our website.

Total revenue was $29.1 million in Q3, up 17% compared with the third quarter of 2011. The third quarter continued our trend of growth and total revenue driven by strong results in our core PC Postage business. Core PC Postage revenue was $27.2 million in Q3, up 20% compared with the third quarter of 2011. The year-over-year increase in core PC Postage revenue was the result of increased paid customers and increased ARPU as discussed by Ken in the metrics section.

Non-core PC postage revenue from the enhanced promotion channel was $738,000 in Q3, down 6% compared with the third quarter of 2011. PhotoStamps revenue was $1.2 million in Q3, down 18% compared with the third quarter of 2011. PC Postage gross margins were 80.3% in Q3 compared with 78.1% in the third quarter of 2011. Cost of sales included promotional expenses related to customer acquisition of $732,000 in Q3 compared with $897,000 in the third quarter of 2011.

PC Postage gross margins excluding these promotional expenses was 82.9% in Q3, compared with 81.9% in the third quarter of 2011. The improvement in gross margins excluding promotional expenses was primarily due to our strong core business revenue growth and the resulting leverage we gained at a largest scale in the business. PhotoStamps gross margin was 20.6% in Q3 compared with 23.1% in the third quarter of 2011. PhotoStamps gross margins declined primarily because of the reverse leverage we see from our fixed cost with a decrease in revenue.

Total sales and marketing spend was $8.7 million in Q3, which was up 7% compared with the third quarter of 2011. The increase was primarily due to increased sales and marketing expenditures to acquire new customers in our core PC Postage business.

R&D spend was $2.4 million in Q3, which was up 11% compared with third quarter of 2011. The increase was primarily related to increased head count related expenses, to support our expanded product offerings. G&A was $3.1 million in Q3, which was up 6% compared with the third quarter of 2011. Non-GAAP operating income was $8.4 million in Q3, which was up 54% with the third quarter of 2011 and non-GAAP operating margin was 28.8% compared with 21.8% in the third quarter of 2011.

The income and operating margin expansion were primarily attributable to strong revenue growth in our core PC Postage revenue and leverage in our operating expense line items, which increased rates less than our revenue increase. This was a company record high for both non-GAAP operating income and non-GAAP operating margin. Non-GAAP net income was $8.3 million or $0.50 per share based on $16.7 million fully diluted shares compared with $5.5 million or $0.37 per share based on $15.1 million fully diluted shares in Q3 2011, which represented 49% and 35% year-over-year growth respectively. This was also a company record high for both non-GAAP net income and non-GAAP EPS.

Non-GAAP adjusted EBITDA was a record high $8.7 million in Q3, which is up 54% compared with the third quarter of 2011. This metrics is calculated as non-GAAP operating income plus $328,000 of D&A contained in operating expenses. Non-GAAP free cash flow generated by the business was a record high $8.3 million for the third quarter. This metrics is calculated as non-GAAP operating income plus the $328,000 of D&A contained in operating expenses plus $343,000 of capital expenditures related to the business. Note this calculation excludes capital investments related to our new corporate headquarters as well as tenant related income and D&A.

We ended Q3 with $51 million in cash and investments $3.28 per ending balance sheet share, which was down $15 million from the $66 million in cash and investments at the end of the quarter. The decrease was primarily result of our share repurchase program which used approximately $20 million in cash during the quarter. In addition, the renovation of our new corporate headquarters utilized $3 million in cash during the quarter.

Share repurchase, during the third quarter we repurchased 961,000 shares at a total cost of $19.9 million. On October 17, 2012 the Board of Directors approved the new share repurchase plan authorizing the company to repurchase up to 1 million shares of Stamps.com stock during the next six months. We’ve now returned more than 278 million in excess cash to our shareholders since 2002 through special dividends and share repurchases.

As of now, September 30, 2012 we had approximately $218 million in federal NOLs and a $113 million in state NOLs, resulting in a gross deferred tax asset or DTA of approximately $79 million. We have an approximately $51 million valuation allowance against the gross DTA resulting in a net DTA of $28 million on the balance sheet.

Our federal NOLs do not begin to expire until 2021, so at our current annual profit level we would not expect to pay regular cash federal taxes for approximately the next 10 years. We estimate that as of 9/30/12 through Section 382 ownership was at an approximately 21% level compared with the 50% level that would trigger an impairment of our NOL assets.

As part of our ongoing programs to preserve future use of our NOL asset, we request that any shareholder contemplating owning 725,000 shares or more contact the company before doing so.

Now turning to guidance, we expect total 2012 revenue to be in the range between $110 million to $120 million. This compares to our previous expectation for 2012 revenue of $107.5 million to $117.5 million. We expect fiscal 2012 GAAP EPS to be in a range between $2 to $2.20 per fully diluted share. GAAP numbers assume approximately $4 million of stock-based compensation expense. The third quarter $0.4 million one time relocation expenses and the first quarter $11.9 million non-cash tax benefit.

Excluding the stock-based compensation expense, one time relocation expenses, and non-cash tax benefit, we expect 2012 non-GAAP EPS to be in the range between $1.55 to $1.75 per fully diluted share. This compares to our previous expectation for 2012 non-GAAP EPS $1.35 to $1.55 per share.

We expect 15% to 20% growth in 2012 core PC postage revenue. We expect the enhanced promotion revenue and PhotoStamps revenue will both continue to be down in 2012 compared with 2011as we continue to minimize our investment in those areas. We expect 2012 small business, PC postage customer acquisition spend to be up 10% to 20% compared with 2011.

We expect non-GAAP G&A expenses to be down flat to down 5% in 2012 compared to 2011, for purposes of comparing annual guidance growth rate excluding the initial recognition of PhotoStamps breakage that was recognized in the second quarter of 2011.

Fiscal 2011 results without the second quarter breakage would have been total revenue of $99.4 million and non-GAAP diluted earnings per share of $1.29. We expect approximately $4 million of additional cash investment in our corporate headquarters renovation to be spent during the fourth quarter of 2012, as we complete our renovation project.

Well we don’t provide quarterly guidance, we would note that we expect to increase our customer acquisition spend in Q4 compared with Q3 levels consistent with the seasonally stronger fourth quarter which negatively impacts Q4 EPS for results and expected revenue benefits for 2013.

Overall we are very pleased with our third quarter results and while we face continued tough year-over-year comparisons, we still expect to deliver solid growth and results going forward. With that we’ll open up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Kevin Liu with B. Riley. Your line is open, go ahead please.

Kevin Liu – B. Riley & Co.

Hi, good afternoon, guys, and congrats on the strong results.

Kenneth McBride

Thanks, Kevin.

Kevin Liu – B. Riley & Co.

First question here just wanted to get some more clarity around this USPS-Amazon partnership option. Are there advantages or disadvantages for potential customer to be using them as opposed to you guys? And then I know it's kind of reflected in the guidance already, but I just wanted to make sure that you didn’t see this as any sort of big impediment to you guys achieving your 15% to 20% PC Postage growth target over the longer-term.

Kenneth McBride

Sure. So well basically Amazon's, this solution is based on a permit mail system, so in terms of advantages, disadvantages, I think there are several disadvantages. In general, we compete, as PC Postage, we compete against permit mail all the time, and there are several things about permit mails that are shortfalls of PC Postage.

For example, permit mail doesn’t support international shipping. So it’s domestic only, while PC Postage supports both international and domestic. Permit mail tends to be a little bit less flexible in terms of where you deposit it. So you have take it to a specific acceptance facility, they are far less common than a retail post office, and that's if you do take it to a retail post office, the typical postal worker won't be very familiar with it. And then, security of the labels is pretty low, because permit mails basically don't have a unique TD barcode that we have in the upper right-hand corner of our label.

So there’s several things there in terms of disadvantages, and but I do think the Amazon kind of focused on providing as many options as possible to its users, and permit mail is another way to access USPS shipping. And Amazon itself on its fulfillment docks is a permit solution user, so it's effectively bringing their own internal fulfillment solution to the marketplace. So in terms of the guidance?

Kyle Huebner

Yeah, Kevin. So, the first thing is, as Ken said, we still are an option on Amazon. The second thing, I would point out as if you look at our shipping area, our growth over the last several years has come from all our investments in our technology platform, our product features, all our integrations, our sales and marketing. So Amazon is certainly one part of that, but not, not the only part of the shipping investment and growth that we've seen. So I think at this point, we still see the shipping is a very strong opportunity and at this point, I don’t think we change our 15% to 20% long-term five year revenue growth target.

Kevin Liu – B. Riley & Co.

Got it, and then just turning to customer acquisition spend in the quarter, one of the things we’ve heard from other companies are certainly with the political campaigns going on, obviously, traditional media buys are perhaps rising in costs. Did that play into your decision to limit some of that customer acquisition spend in this quarter or was it purely just kind of based on normal seasonality and perhaps some of the returns you've been seeing on that spend in recent quarters?

Kenneth McBride

Well, I would say it's probably based more on normal seasonality. I don't think we've really seen any impact from the political ad spending certainly in the Q3 period, we may see some more in Q4, but I think most of what the limitation in spending on a year-over-year basis was really the result of growing a lot higher last year in Q3, and then also just seeing kind of more of the normal seasonal slowdown in Q3 this year.

Kevin Liu – B. Riley & Co.

All right. And then one housekeeping question. I missed the promotional expense number. Kyle, if you would mind providing that again?

Kyle Huebner

Sure, no problem. So for this quarter, it was $732,000, and in Q3 last year, it was $897,000.

Kevin Liu – B. Riley & Co.

All right, thanks a lot.

Kyle Huebner

Okay, thanks.

Kenneth McBride

Kevin.

Operator

Thank you. Our next question comes from George Sutton with Craig-Hallum. Your line is open.

Jason Kreyer – Craig-Hallum Capital Group LLC

Hey, guys, Jason in for George.

Kyle Huebner

Hi, Jason.

Kenneth McBride

Hi, Jason.

Jason Kreyer – Craig-Hallum Capital Group LLC

You commented on the macroenvironment, but I was just wondering if you could talk a little bit about what you saw in the macro this quarter relative to last quarter?

Kyle Huebner

In terms of small business economic environment?

Jason Kreyer – Craig-Hallum Capital Group LLC

Yeah, correct. Churn went down modestly this quarter, but there wasn’t a whole lot of net add, so I’m just wondering, if you are still seeing a similar macro impact like you saw last quarter if there was some improvement.

Kyle Huebner

Yeah, I guess the first thing I’d point out is, we talk about NFIB small business optimism index. If you go back the small business economic environment has really been weak since 2008. The index has fluctuated kind of up and down, but as the third quarter it was still below the 93 index, which is kind of the recessionary reading level. So I think really the big picture is we continued the kind of operating in a sluggish kind of small business economic environment. The index in Q3 this year was kind of down a bit from the Q2 index. And I think that combined with kind of the seasonality where Q2 and Q3 are also the seasonally slower quarters was really where the acquisition was potentially impacted as we move into Q4 and Q1 that is our seasonally stronger quarters and we historically the NFIB has shown an increase in Q4 and Q1. So I think we are hoping that we see kind of a rebound in the NFIB index in the seasonally stronger quarters.

Jason Kreyer – Craig-Hallum Capital Group LLC

Have you seen any of that I know that we’re really only a month into Q4 here, but have you seen any of that pick up yet?

Kyle Huebner

Yeah we don’t comment on intra-quarter trends. We are still on October so we can’t really comment on that.

Jason Kreyer – Craig-Hallum Capital Group LLC

Sure, okay I understand. And then just second question here we were talking more in the beginning of the year about some government wins and some of the options that you have there. Just wondering if you could give any update since we haven’t talked about in a couple of quarters on how you’ve done attracting some new government clients and if you had any key wins there?

Kyle Huebner

Sure yeah I know we continue to work hard in a government area. I think we continue to see that it’s a real natural fit with our customer profile, I mean it’s exactly what we like to look for a centralized organization with a large number of distributor locations. In the case of federal agencies they tend to have multiple locations in states through and counties throughout the country. So it’s a perfect fit for our solution. They also really love the ability the Federal Government loves the ability of our solution to provide the visibility through our central dashboard into the postage spending.

So it’s kind of it’s really kind of a perfect solution for them. And we have done a lot other things over the last several years as well. That is kind of put all the pieces in place to be able to go after the sector, the features and the capabilities making sure we support all the payment methods, gaining all the necessary approvals, going through all the regulatory and some of the bureaucratic things you have to go through in order to sell into the Federal Government. And so we’ve continued to see strong winds in Q3, nothing we can specifically mention, but we are seeing continued traction and makes departments like the Department of Agriculture and Commerce and Defense, and Homeland Security and Department of Transportation. So we’ve seen at least 13 major departments across the Federal Government where we’ve seen continued wins and continued momentum building in that area.

Jason Kreyer – Craig-Hallum Capital Group LLC

Okay, great, thank you very much. Congrats on the quarter.

Kenneth McBride

Thank you.

Operator

Thank you. (Operator Instructions) And our next question comes from Jared Schramm with Roth Capital. Your line is open.

Jared Schramm – Roth Capital Partners

Thank you and congrats on the results.

Kenneth McBride

Thanks Jared.

Jared Schramm – Roth Capital Partners

Turning to insurance for a minute here. You are on pace north of $7 million in that segment. What is the growth outlook looking like there for looking at 2013 and beyond. And additionally what percentage your current users have purchased insurance at some point in time. And is that a nice market you can possibly sell into as you look down the road.

Kyle Huebner

Our insurance revenue was really directly tied to our package, package volume and the postage printed for packages by our shippers. As you know when a Stamps.com customer prints out a shipping label, they have an option to add the package insurance. So some of our shippers utilize that option and others don’t. So I think really it’s the insurance revenue growth is really tied to our investment and our efforts and our growth in the high volume postage printed and in the package market.

Jared Schramm – Roth Capital Partners

So overall you say product awareness is pretty high for the insurance segment?

Kyle Huebner

Yeah I would say I mean those who are shipping packages it’s an option and the client are those our shipping solution that they can opt them to or not.

Jared Schramm – Roth Capital Partners

Okay and I wonder I go back to Enterprise revenue. Was I correct when you said there was up 46% year-over-year.

Kyle Huebner

That’s correct.

Jared Schramm – Roth Capital Partners

Okay and as far as the sales process was like there. Are you ramping up the sales force that you have in existence right now, are you tucked down with the sales aspect you have in the moment.

Kyle Huebner

I think we are just continuing to improve our processes with existing sales team. We really kind of scaled it up several years ago and kind of continuing to improve and modify and hone in on better techniques and better solution in a better ways of approaching these enterprises and better verticals, it worked better for us. But we haven’t really grown our besides of the sales force because we don’t really feel a big need to do that. In order to support the growth we have been seeing.

Jared Schramm – Roth Capital Partners

And I know this is touched on quarter ago perhaps two quarters ago. What would the potential impact of the elimination of Saturday delivery from the USPS have on your business?

Kyle Huebner

We don’t really think it would have a huge impact, it’s not something that we find that our customers our small-business customers typically value, and it is same thing with the enterprise. So it’s not really something that we see a lot of demand for from our particular customer segment. So from a shipping space, in some cases, I think e-commerce may like to seek, the packages arrive on Saturday, but most FedEx and UPS don’t deliver on Saturdays either. so in that case and it’s not necessarily a big loss, if the postal service is no longer a Saturday option. So I think we’ve sort of seen – we’ve been supportive of that move in orders that reduced the cost of postal service. we’d like to see them make that move and we don’t really think it will be a huge impact.

On the flipside, kind of anything that limits the hours of the postal service. so if they were related to the Saturday hours. If there are few hours that retail post offices that improve the value proposition of our service, to the extent that somebody doesn’t want to kind of work on their postage shipments on a Saturday. we would be more of a solution for that versus if they were to shut down retail locations on Saturdays.

Jared Schramm – Roth Capital Partners

Okay that’s very helpful. thank you very much.

Kenneth McBride

Thanks.

Operator

Thank you. (Operator Instructions) and our next question comes from Bill Sutherland with Northland Capital.

William Sutherland – Northland Capital Markets

Thanks, good afternoon guys.

Kenneth McBride

Hey, Bill.

William Sutherland – Northland Capital Markets

I’m curious if you guys have – well, first of all, I missed one step on high-volume shippers, did you give out the revenue growth on them as well as they have large scale?

Kenneth McBride

It’s actually that the growth and high volume postage printed is the metric we give and that was 96% year-over-year growth. so in the postage printed by the high-volume shipping segment.

William Sutherland – Northland Capital Markets

Right, and then but for enterprise you actually do a revenue growth number right?

Kenneth McBride

Yes, and that was 46%.

William Sutherland – Northland Capital Markets

Okay, you called out a very large enterprise – I guess large shipper we had last quarter, any more color on how that's developing and whether you are starting to see other large ones in the pipeline?

Kenneth McBride

Yeah, we're happy to get that big win last quarter. We saw another large win this quarter, and I think we’re seeing some momentum growth like – some momentum building and like for instance the federal government sector where we delayed a lot of the ground work over the last several years in terms of penetrating these organizations, getting in there and familiarizing ourselves with the folks to make the decisions, getting in there as a solution, getting the test, getting the trials and ultimately getting the win. So yeah, I think we continue to see big momentum, with we saw another new large account this quarter come in.

William Sutherland – Northland Capital Markets

Great. And then Kyle, I think from your comments it sounds like you guys are sort gearing up for the normal seasonal pattern, is there anything this quarter that is slightly different or is it pretty much as you look out playing out the way you would expect it to for the fourth quarter.

Kyle Huebner

Yeah, I mean, I think it's consistent with our historical views and the way we approach the acquisition and that, we try and allocate more of the marketing dollars to the seasonally stronger quarters, which are Q4 and Q1 and a little bit less on the seasonally slower quarters being Q2 and Q3. So you know we're planning, as I mentioned in the comments on increasing our customer acquisition spend, as we head into the seasonally strong Q4, and as I said we're hopeful that small business economic environment kind of picks up a little in the seasonally strong quarter, but that remains to be seen.

William Sutherland – Northland Capital Markets

Right. And you didn’t change your full-year customer acquisition spend growth range to this…?

Kyle Huebner

No its still – yes it's still it's consistent with the last quarter, which was in the 10% to 20% range. So we feel like that the full-year outcome is still going to fall within that range and that range gives us some flexibility as we head into Q4, depending on how the environment looks.

William Sutherland – Northland Capital Markets

Sure, great. Okay thanks everybody.

Kyle Huebner

Thanks.

Kenneth McBride

Thanks, Bill.

Operator

Thank you. At this time I am showing no further questions, I would like to turn the call back over to Ms. Ken McBride for closing remarks.

Kenneth McBride

I appreciate you joining us today. If you have follow-up questions you can contact us through our investor relations hotline at 310-482-5830 or from our website at investor.stamps.com. Thank you so much.

Operator

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program, you may now disconnect. Have a wonderful day.

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