Stamps.com Inc.
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Greetings, and welcome to the Stamps.com’s First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. This conference is being recorded. I would now like to turn the conference over to your host, Suzanne Park, Vice President of Finance. Thank you, Suzanne. You may begin.

[Suzanne Park:]

Thank you. On the call today are CEO, Ken McBride; and CFO, Jeff Carberry. The agenda for today's call is as follows

[Ken McBride:]

Thanks, Suzanne, and thank you for joining us today. The first quarter of 2021 we saw continued strength in our financial and business metrics. The results we announced today included many highlights, including total first quarter revenue of $189.1 million, which was up 25% compared to the first quarter of 2020, and up 28%, when excluding the discounted customized postage business. Non-GAAP adjusted EBITDA was $59.5 million that was up 43%, compared to the first quarter of 2020. We're very pleased with our financial performance and it continues to demonstrate the strength and relevance of our best-in-class global multicarrier e-commerce solutions. Last quarter we provided some additional visibility regarding general e-commerce trends, as well as our strong overall position in the e-commerce ecosystem. Today, I will provide some updates on those points. As we've discussed, our customers have largely been strong beneficiaries of increased e-commerce consumption, which is driven by their own end customers, generally consumers that have moved more of their purchasing online versus traditional retail locations. Some estimates have been published by various marketing research firms that e-commerce spending has been pulled forward by two years or more. During the first quarter, we continued to see the results of those trends in our metrics and financials. For example, total first quarter, total volume, total dollar value of domestic shipping labels printed by all of our customers in the US was up more than 40% year-over-year. More broadly, our customers worldwide printed $5 billion in total first quarter package volume, which was up 40% year-over-year. For the first quarter of 2021, we estimate that the gross merchandise value or GMV shipped by our collective customer base was over $50 billion, increasing by more than 50% year-over-year. When you look at our total GMV processed, as a percent of worldwide e-commerce, our position in the global e-commerce ecosystem continues to be significant. In the US, we estimate that the total GMV shipped by our solutions was over 15% of all US e-commerce. In aggregate the GMV that is collectively shipped by our US customers is second, only to the GMV that is generated by Amazon and its platforms. Worldwide, we estimate that our customers reflected 5% of e-commerce GMV. The strong performance in our package volume and the growth in the total GMV shipped using our solutions continue to demonstrate the value proposition of all of our software solutions.

[Jeff Carberry:]

Thanks, Ken. We’ll now review our first quarter of 2021 financial results. The discussion of our financial results today, include non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the corresponding gap measures can be found in our earnings release and in metrics on our investor websites. Total revenue was $189.1 million in Q1 and that was up 25% year-over-year versus Q1 of 2020. Growth in revenue in the first quarter was primarily driven by strong shipping growth attributable to the continued shift online e-commerce purchasing that has been driven by COVID-19. The year-over-year revenue growth in the first quarter was negatively impacted by the termination of the customized postage program in June of last year, resulting in no revenue from that area in the first quarter of 2021. Excluding the effects of the customized postage termination our mailing and shipping revenue was for $1 million in Q1 up 28% year-over-year versus Q1 of last year. We estimate that total revenue derived from our shipping customers grew approximately 30% year-over-year and was in the mid-80% range as a percentage of total Q1 revenue. We also estimate their total revenues derived from mailing customers, as a percentage of total revenue was in the mid-teens, and grew year-over-year in the mid-teens as well.

[Ken McBride:]

Thank you, Jeff. We remain extremely excited about the future of our company and the enormous value proposition of our e-commerce technology and service offerings. The events of 2020 catapulted e-commerce into a period of incredibly rapid change. We successfully navigated those changes and set ourselves up for long-term growth. We've achieved a significant position as the shipping solution of choice in e-commerce, with an estimated more than 15% of total US commerce and more than 5% of worldwide e-commerce being shipped using our software solutions. Value proposition we provide is very strong, the strength of our multi-carrier properties, the breadth and depth of our partnerships and integrations, the size and strength of our US and international sales forces, the scale and success of our marketing program. We have a significant number of opportunities in 2021 to continue to accelerate innovation, we plan to reinvest back into our business aggressively. Our goal is to continue to position this company for the best long-term outcome is a myriad of e-commerce worldwide trends play out in 2021 and beyond. We believe we're in a great position to continue to execute our business plans to continue to be the global leader in multi-carrier e-commerce shipping. And with that, let me open it up to questions.

[Operator:]

At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of George Sutton with Craig-Hallum. Please proceed with your question.

[George Sutton:]

Hi, guys. I will perhaps sound like a broken record from Q1. But, I was challenged -- I'm sorry, from the Q4 earnings call -- I was challenged by the lack of guidance, then the stock did I think come in as a result of the lack of guidance and clarity and your credit, you doubled your share buyback program? I believe in response to that. So, I'm curious the thought process sitting here today, again, without guidance, but a very optimistic attitude in terms of where the business should go. Is there something that we're missing relative to partnerships or relationship changes or anything that would suggest a discomfort other than just a tough comparison year-over-year?

[Jeff Carberry:]

Hey, George. Thanks for the question. So, there is truly, honestly, nothing there that we're concerned about. There's simply a lot of uncertainty that makes the potential range of outcomes very wide and such as to make and, honestly, reasonable potential outcomes based on those myriad of factors. And this makes the guidance range so wide to encompass those potential outcomes, but it becomes a little less relevant. So, at the end of the day, we are incredibly excited about the business. We think the fundamental aspects of the business we've developed through many, many years in terms of technology and marketing and our position in the marketplace has positioned us to be truly an exceptional company with e-commerce and really a dominant e-commerce software provider. We're incredibly excited about that opportunity going forward; we think it's going to pay huge dividends for us in the long run. In the short run for 2021 there's just too much uncertainty can really provide a confidence guidance range, just given the myriad of factors. So, at the end of the day, we're super excited. Where 2021 ends really is anyone's guess given the impact of those factors and how the impact of e-commerce, but for the long run we are very, very excited about the business and their long-term secular trends we're going to be able to capitalize on.

[Ken McBride:]

Yes, George, I'll just add, so I think we've talked a little bit now more in the last couple quarters about our position in e-commerce and I think perhaps it was a little surprising to people to hear that we are over 15%. Our customers collectively process over 15% of US e-commerce. So, clearly, our trends are very much correlated with trends in e-commerce. And I think that -- I think what we really do is point you to the various third-party reports, which I'm sure you've generated several, as well as other analysts, to really try to understand where it's going. I think we're not in a position to be able to forecast macro trends. And I think that those macro trends are going to be heavily correlated with the outcome of our business.

[George Sutton:]

Just as an adjunct to that, you talked about 20% operating expense growth. I don't think you give the corollary go-to-market benefits that you should see from that kind of expansion and expenses, can you just talk to that and further as what impact that might have on 2022 and beyond where comparisons extensively will be easier?

[Jeff Carberry:]

Sure. So, especially now, George, we make investment on the sales marketing side to acquire customers. And those customers then deliver financial benefits to us and our shareholders over their expect lifetime. So, you have really kind of a frontal unit costs and then the revenues associate with those in the out years. As we mentioned with commentary on our metrics, we've done very well, obviously, in 2020 and 2021 with acquisition trends. And those customers that we've acquired based on our analysis of cohorts -- plus COVID, is looking very similar. So, you've given the empirical experience of pre-COVID cohorts and the value they derive for us and the customers are requiring now, we've accepted some benefits. So, we're confident as to the impact they're going to have in the out years. In the short-term, though, again, you spend the money, they want to acquire the customer, and they deliver the benefits over the longer run. So, they expected the investments we're making and acquisition and the customers requiring to continue to drive benefits throughout 2021 as we acquire them throughout the year, and then have really hit the financial performance for us in 2022 as are fully ramped, and we realize the full benefit of those customers.

[George Sutton:]

One other question, if I could, can you mention the number of features and functions that were going to be added to the platform? Historically, you've built some of the functionality through ShippingEasy as your way to go-to-market at least that was sort of the test. And then I think he deployed at ShipStation, I noticed the focus was ShipStation, which honestly makes sense to me. I just want to make sure I understood the development platform and sort of where you see that heading. Thank you.

[Ken McBride:]

Yeah, sure. So we actually really kind of combined our operations in Austin. So we talked about ShipStation and ShippingEasy. The development teams are largely one team now. And so we're working on features together, we will roll those features out within the various brands as appropriate. But I think what we're really doing is we're positioning ShipStation as the brand for the more complicated user case. And ShippingEasy is really kind of more of the on ramp for the simpler, get up and running solution. So as we develop these features, they're available through our ShipEngine API really on the backend to all of our products. And it's just a matter of choosing the features across the different product sets in order to meet the needs of the target customers in those in those areas.

[Jeff Carberry:]

So, let me add, George, is that. Throughout the organization, we have hotbeds of development and welcome every idea. What Ken is really speaking to is the fact that we are kind of coordinating that across the brands as part of a brand strategy in terms of offering those products to other platform. So there's greater coordination of the development, but in terms of The Hobbit development, it's really throughout the entire company that we're just reporting that strategically, angry enough to ShipEngine to deploy to the brands and then deploy it through the brand strategy around half.

[George Sutton:]

Understand. Very clear. Thanks, guys.

[Operator:]

Our next question comes from the line of Kevin Liu with K. Liu & Company. Please proceed with your question.

[Kevin Liu:]

Hey. Good afternoon, guys. And congrats on a strong start to year.

[Ken McBride:]

Hi, Kevin.

[Kevin Liu:]

First question, I have for you -- I was wondering if you could offer us any sort of color on how April turned up for you just in terms of volume growth on a year-over-year basis relative to what you start -- saw at the start of the year?

[Jeff Carberry:]

Sure, Kevin. So we didn't give any specific April metrics. But what you see with our metrics that we've provided, as you see this general trended of moderation. Now, the numbers are still obviously very good through Q1 and you see that moderation. It's, it's very early, obviously, but you can see the moderation, but still, obviously strong performance. So, and that's part of what leaves us with some uncertainty as to the balance of the year. We're coming from really, really tough comps. So the numbers will certainly reflect those tough comps that expect going forward. But as you see entirety with the business, now for several quarters, you're seeing some moderation from just extraordinarily high growth rates to very, very good growth rates, but certainly some moderation on those growth rates. And again, we're early on in the year, but expect to see continued moderation. But also work thinks that '21 again, this is a lot of uncertainty.

[Kevin Liu:]

Yes. I mean, just in terms of difficult concepts. Certainly, moderation, I think, has been kind of the trend over the past few quarters and would have seen that continues to happen. But have you actually started to see declines in overall volumes there or is it still holding positive -- lower levels, obviously?

[Jeff Carberry:]

We're still seeing very good growth. Obviously, the on the mail side, obviously, we started as we're on the call, we are seeing declines now in mail related volume. On the shipping side, we're still seeing very strong growth rates as one would expect, right. I think mail is very likely reverts back to kind of a longer-term secular trend of declines for mail users. But as we know, obviously, this was more on the mail side of the businesses is purely a monthly subscription. The volumes are not particularly relevant as it relates to our business model on the revenue side. On the shipping side, obviously that’s where the revenue, the volumes really matter in terms of the impact on the financials. And we're still seeing strong growth there, moderate – moderating growth levels growth, but still very strong growth rates.

[Ken McBride:]

Yes, Kevin, I mean, I would add that April is our single toughest month year-over-year comparison of the entire year. That's the month where last year, everything just kind of spiked, like crazy I think we had triple-digit growth in almost every metric across the board. So I think that, you know, generally speaking out there in the world, the numbers that we've seen published by some of the analysts are moderating quite a bit, given that that's kind of the trend overall in e-commerce. But I think overall, we're happy with the performance that we're seeing so far in the business. We're certainly happy with Q1 and we're optimistic about the rest of the year in terms of growth of e-commerce and therefore growth of our business.

[Kevin Liu:]

Yeah. Understood. Most analysts asked a couple of questions on MetaPack as well, one kind of more housekeeping, do you guys have the revenue and kind of gross margin for the segment breakout? And then Ken, I know you talked a little bit on the call about some of the non-label related business, where you guys are getting some traction. Any insight you can give us in terms of what you know, typical annual contract you might look like. I assume these are all subscriptions. And how big of an opportunity you feel this represents over the next couple of years?

[Jeff Carberry:]

I didn’t hear the first part of the question, Kevin. What housekeeping items do you want to go through?

[Kevin Liu:]

Just MetaPack revenue and gross profit numbers to segment breakouts, as you guys.

[Jeff Carberry:]

Got you. So MetaPack, in terms of their gross margin, it was 73% for the quarter. And in terms of their revenue – their revenue was 16.5.

[Ken McBride:]

Yeah, and Kevin, I guess I would say, the MetaPack solutions that we've launched, no, really like, above and beyond the label solutions that we provide. And so it's really the a lot of the post ship capabilities like the delivery tracker, delivery intelligence products. And so we generally offer those on a similar model per transaction. But it varies by customer size, and by opportunity. But generally speaking, I think we've just seen a nice win and it's really in some ways, it's just completing the product. So we're able to offer these retailers more of a Amazon like opportunity to make their solutions more akin to what the kind of post order experience that you see on Amazon with, you know, some of the delivery tracking the returns and all of the posts shipment capabilities.

[Kevin Liu:]

Got it. And just one last one. I know it's still kind of early days in terms of this USPS 10 year plan, and they just talked about the US connect program, where they're going to give small and large shippers direct access to their network. As you kind of look through some of the initial details that have been put out, do you guys see any sort of opportunities for you to partner more directly or closely to benefit from any of these types of programs, or do you think this is kind of a non-event for your business?

[Jeff Carberry:]

Yeah, I think it’s a 10 year plan, generally speaking. Overall, we were happy to see that it really had a big focus on growing packages. Certainly, as they get better at packages, we'd benefit, given the, you know, the fact that we're more than a third of all priority mail being processed through our solution, and almost half of first class packages go through us, so that to the extent that they get better and better in their operations, they start to offer, you know, seven day package delivery, some same day solutions and additional higher service level of on packages. We will be the beneficiary. So I think we were optimistic on the plan. I think it has a lot of challenges. Certainly, there's going to be some congressional action required for some portions of it, like the pre-funding requirements and waiving those. But I think overall, we're optimistic. We're confident in the new leadership there. And we're excited to see what they can do.

[Kevin Liu:]

Okay. Great, I appreciate all the insight.

[Jeff Carberry:]

Thanks, Kevin.

[Ken McBride:]

Thanks Kevin.

[Operator:]

Our next question comes from the line of Allen Klee with Maxim Group. Please proceed with your question.

[Allen Klee:]

Good afternoon. What stood out to me, on the quarter was the degree that the bottom-line grew faster than the top line. I think your revenue up 25% year-over-year or adjusted EBITDA up 43%. And I noted, operating expenses were up 16%, but you're guiding to 20% plus for the year. So you got a little bit of benefit there. But in general, it seems like the bottom-line outperformance, could you comment a little on kind of what do you think the key drivers are behind that, and to the extent that, they're sustainable? Thank you.

[Jeff Carberry:]

Sure Allen, great question. So really, what you're seeing is really the inherent leverage of the shipping side of the business. That's really why we've done the activities we have and have really positioned the company that we have is to really capitalize on e-commerce, the secular transcribing e-commerce and the fundamental economics that underlie the e-commerce business. So you're really seeing the benefits of that and actually growth for us of the shipping side of the business, obviously, growing faster than the mailing side of the business is usually an attribution as well. On the OpEx side, it's a good observation, we always try to -- we have ambitious plans with hiring. And, like a lot of companies with experience in the COVID economy, finding people is tough. So we'd expect over the year to see OpEx increase at 20% or better. But obviously, a big portion of our OpEx is in the form of headcount expense. And, obviously, with things improving in the economy and lighting up, hopefully we can, accelerate the hiring plans that we have in place, with people be able to go out and interview more freely. So, I would expect, as we mentioned, the OpEx increased 20% or better, but a big variable, not as just our ability to source talent, and get them in the door.

[Allen Klee:]

Thank you. I'm not asking for an exact number. But can you just give me a sense of offer international growth versus the company overall? How, if you -- how you're thinking about, how international can be in 2021?

[Jeff Carberry:]

Yeah, I mean, international breaks out, you look at MetaPack's growth rates. Kevin asked the question of what was the number for MetaPack. We mentioned 16.5, growth of 19%, year-over-year. And then volume of ShipStation and or other products that we're launching around the world, they're much, much higher growth rates for the smaller basis. So, look, International, I think, at the end of the day is, a huge opportunity for us, both for our customers in the U.S. to Ship abroad as well as for our international customers, shipping internationally as well as into the U.S. and bringing data back in the U.S. So I think International, obviously, while the U.S. remains incredibly attractive. And we continue to invest aggressively in the US, by virtue of how attractive that market is. Internationally is also very attractive. And it is a huge opportunity for us. And we think with our technology solutions and our position in the marketplace in the US, we have a very good opportunity in front of us to tackle, not just the US, but really the entire world and bringing our ecommerce solutions to merchants around the world. So it's a very attractive market. The TAM is rather large. Our growth rates now are principally being driven by MetaPack at our ShipStation scales internationally, they'll be a larger contributor and we'd expect to see even higher growth rates internationally.

[Allen Klee:]

That's great. It's nice to see MetaPack doing so well. Last quarter, you gave a comment on and the quarter before that of the cost of acquiring customers being down a certain percent year over year, is there any commentary you can talk about of the effectiveness of your sales and marketing to get a customer?

[Jeff Carberry:]

And I think -- we didn’t think about a specific metric. And I think obviously on top comms and with the economy opening up, you'd expect from moderation and those CPAs. In terms of the ROI, though, the ROI remains very, very attractive. So I think with a lot of things now with the economy opening up, with people deploying marketing dollars into various marketing channels, things will get more expensive. As we've seen with our companies for many, many, many years, we find a lot of really innovative ways to deploy marketing dollars. And as you know, we also deploy them with a strict set of economics in mind. We calculate our LTVs on our customers by channel and by program and they remain very, very attractive. So you, I think we've -- we've highlighted the fact that CPAs were coming down dramatically, historically. We saw an increase in marketing dollars and we're able to capitalize on that, given the strength of ecommerce. Having CPAs moderation declines or even increase is not surprising. And I'd expect that to continue on throughout the year. But in terms of the ROI, the ROI has remain fundamentally very, very attractive. And I don't think that is going to squeeze out of material amounts of marketing spend.

[Ken McBride:]

Hey Allen, I'll just add, like that for more than a decade, our cost of acquisition has been tracking in a really small band between probably about $80 and $120. So it fluctuates, depending on the different programs and the different availability of, you know, advertising opportunities out there. So with the -- with the COVID, there's been some distortion. Clearly, we had a big surge of mailers that were looking for solutions that subsequently turned out and those obviously drove the acquisition numbers down. So I think you got to really like, you know, go one level under the covers to understand the economics and I think Jeff said, the ROI is terrific. And we're really excited about particularly the acquisition of the shippers that we see and overall the economics are continuing to be really, really good

[Allen Klee:]

Thank you. My last question is following up. I have a question on -- Kevin asked clearly as it makes sense that the percentage changes year over year are going -- are moderating with tougher comps. But in -- just in terms of how do we think about it from an absolute basis? Are you -- maybe if you've looked at the months in the quarter or something you've seen an April, are you seeing absolute moderation?

[Ken McBride:]

Everything in moderation and growth rates in this kind of mentioned. When you look at just the – when things really started spiking dramatically, it was also April of last year. So I think what we're trying to say at the end of the day, is that what you'd expect to see the moderation, the macro factors that impact the business, make it really tough to forecast often we arrange for guidance that – that really is instructive for people. And then in terms of – of April itself, given just the dramatic explosion of the business in April last year, extrapolating too much out of the April numbers, given the magnitude of the spike was a last year, I think is further challenging. So moderation, for sure, ultimately, that will manifest itself and raw numbers ultimately, obviously, where they ended up, I think we're just a little bit too early now just given on how – how tough April is table is and given moderation we're seeing combined with just the macro factors of the balance of the year, but that's it makes a little tough for me to forecast the business. But again, in terms of the long run, we are very confident with the long run business and secular trends in e-commerce. And we're fundamentally really excited about that. 2021 is just, there's a lot of uncertainty in 2021. But, again, the fundamental structure to the business, the drivers of long term shareholder value. Those are incredibly attractive. And we're incredibly excited about our ability to capitalize on those in the long run.

[Allen Klee:]

Yeah. I apologize. I think I asked the question the wrong way. I was kind of thinking sequentially absolute, like on an absolute basis sequentially, are you like April versus March or 1Q? What you're seeing on an absolute basis?

[Ken McBride:]

Well, we don't give the numbers, my guess that is point two months out of one month, I think is challenging. But the numbers on the shipping side the business obviously are still seeing growth. That's very exciting for us. So I think – I'll leave it at that, and not get too far in front of what the balance year is going to look like.

[Jeff Carberry:]

I think Allen is generally – generally speaking, if you look at, the – we – everybody knows the main driver of our business overall financially is the volume growth in both USPS are now increasingly UPS. And if you look at our growth versus a graph of e-commerce growth that comes from a third-party, like, say, a Bank of America, or something like that. You can see the lines are very parallel, and they are squared between them, if you do statistics would – would be very, very high. So as you look at our growth, and e-commerce they're heavily correlated. And so as we've seen e-commerce, I think go from, 50%, 60%, 70%, year-over-year, months-by-months down to I think in this past month, 24% is the number if I remember correctly, then, you know, likewise, we've seen kind of our growth track those numbers. And so I think, we're very much following the trends in e-commerce. And so as you think about the year, I think it really is a macro question on our business, and being able to handicap what may or may not happen in the world in terms of the various activities that are going on related to vaccines and reopening the economy, shifts back to offline purchases by consumers, it's generally speaking, whatever e commerce says we're going to follow. And so, that's likewise, what's happened in April. And I think we saw incredible growth in April of last year, so we didn't expect to see another up year-over-year, but we're happy with the trends we've seen and generally speaking, and e-commerce will do, what happens, they're going to have our business as well.

[Allen Klee:]

Great. Thank you so much.

[Operator:]

We have reached the end of our question-and-answer session. And I will now like to turn the call over back to CEO, Ken McBride for closing remarks.

[Ken McBride:]

Thanks for joining us today. And as always, if you have any follow up questions, you can contact us through our investor website at investor.stamps.com or you can call our investor hotline at 310-482-5830. Thanks for tuning in.

[Operator:]

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.