Stamps.com Inc.
Q4 2019 Earnings Call Transcript

Published: 20 Feb 2020

[Operator:]

Greetings, and welcome to the Stamps.com Fourth Quarter 2019 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded.I would now turn the conference over to your host, Suzanne Park. 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. We'll review the results of our fourth quarter and fiscal year 2019. We'll provide an update on elements of our business model and partnerships. And finally, we'll discuss our financial results and talk about our business outlook. But first, the Safe Harbor statement. Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This release includes forward-looking statements about our anticipated financial metrics and results, all of which involve risks and uncertainties.Important factors, including the company's ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments, including the company's ability to complete and deliver its products and services, maintain desirable economics for its products and services and monetize its customers' transactions with carriers, the timing of when the company will utilize its deferred tax assets and obtain or maintain regulatory approvals, which could cause actual results to differ materially from those in the forward-looking statements are detailed in filings with the Securities and Exchange Commission made from time to time by Stamps.com, including its annual report on Form 10-K for the fiscal year ended December 31, 2018, quarterly reports on Form 10-Q and current reports on Form 8-K.Stamps.com undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The financial results we will discuss on the call today include non-GAAP financial measures.Our fourth quarter and fiscal year 2019 financial results include; GAAP net income of 20.3 million in the fourth quarter and 59.2 million in the fiscal year 2019, and GAAP net income per fully diluted share of $1.13 in the fourth quarter and $3.33 in the fiscal year 2019.Our non-GAAP financial measures exclude the following fourth quarter and fiscal year 2019 items. 12.5 million of non-cash stock-based compensation in the fourth quarter and 42.9 million in fiscal year 2019, and 5.6 million of non-cash amortization expense of acquired intangibles and debt issuance costs in the fourth quarter and 22.6 million in fiscal year 2019.Our non-GAAP financial measures include the following fourth quarter and fiscal year 2019 items. 0.5 million of additional non-GAAP income tax expense in the fourth quarter and 22.8 million in fiscal year 2019. Our mailing and shipping numbers include service revenue, product revenue and insurance revenue and do not include any revenue from customized postage. Please see our fourth quarter 2019 earnings release and metrics posted on our Investor Web site for reconciliations of our non-GAAP financial measures to the corresponding GAAP measures.Now, let me hand the call over to Ken.

[Ken McBride:]

Thanks, Suzanne, and thank you for joining us today. During the fourth quarter, we continue to execute on our strategy to transform the business into a global multicarrier and e-commerce solutions company. On today’s call, we’re going to cover several topics. First, we’re going to give you an update on our great new partnership with UPS and the progress we've made so far in rolling out that new customer solution.Second, we’re going to provide you an update on the new long-term agreement that the USPS signed with its major shipping reseller partners. Third, we’re going to discuss the progress in our go-forward plans on our various business initiatives in the U.S. Fourth, we’ll discuss our progress and plans on our various initiatives internationally. And finally, Jeff will discuss our metrics, our Q4 and our 2019 financial outcome and our guidance for 2020.So let’s begin by spending a few minutes refreshing everyone on some key elements of our UPS partnership and discussing our progress with that great new relationship. As you know, late last year, we signed a new partnership with UPS which allows us to offer attractive UPS package discounts to our customers. Through the new partnership, we will be working very closely with UPS in multiple ways across our organizations.Within our e-commerce multicarrier properties, including ShipStation, ShippingEasy and ShipWorks, we’ve always provided the UPS shipping capability. However, the new UPS partnership allows us to more actively and effectively drive customers in shipping volume to UPS. The new partnership will make accessing UPS within those products much more convenient for the customers.For example, the new UPS account will be set up by default for all new and existing customers. And the new discounted UPS rates will be available by default in that new account, so customer can get up and start shipping with UPS immediately versus the process that previously required some time and effort.The new solution with live in ShipStation with a subset of customers in the fourth quarter and we’re now rolling it out more broadly to the entire ShipStation base. We also expect to begin rolling the UPS solution out to ShippingEasy and ShipWorks customers during this current quarter.Within the Stamps.com and Endicia branded products, offering UPS shipping will be an entirely new capability that will broadly go live soon. Within these products, we previously had exclusivity arrangements with the USPS that are now no longer in place. So we’re now able to offer the Stamps.com and Endicia customers a UPS shipping solution side by side with the USPS services. Accessing UPS will also be very convenient with a default account and discounted rates available immediately when a customer first begins to use the product.As a result of our broad marketing of the Stamps.com brand, many up and coming e-commerce shippers start with us in the Stamps.com product and this will allow us to teach those customers about UPS and their great solutions early in the customer shipping lifecycle. We recently began a small beta test of UPS in our Stamps.com web version and we expect to begin rolling out the UPS capability across all Stamps.com and Endicia branded products during this current quarter.The UPS package discounts we're able to offer to customers under our new partnership are very attractive. The discounts are as much as 55% off UPS’ standard daily rates and the discounts include various waived surcharges. And we expect that those waived surcharges will reduce customer confusion. The waived surcharges are also particularly relevant to the types of shipping that our customers typically do and the discounts are available through our products without any necessary existing customer shipping volume that is frequently required to qualify for discounts when working directly with UPS.We always strive to bring the best solutions to our customers and UPS is the global leader in shipping and logistics. They've been a leader in evolving their business model to continue to address the rapid changes in e-commerce. For example, they began doing seven-day delivery in 2020 to meet the market expectations in e-commerce.They recently announced a new partnership with Square. They also announced new partnerships with WooCommerce, PrestaShop, OpenCart and Magento. We would note that as we move forward with the new UPS strategic partnership, we continue to be good partners with the USPS and to work very productively with them. USPS still provides a great solution for our customers in many areas and we’re going to continue to work very closely with USPS across our organization.The strategic relationship with UPS further drives the value proposition of our service offerings and empowers our customers by offering them more choice and control over their shipping needs. I’m very excited about our new UPS relationship. We see them as one of the winners in e-commerce and a great long-term partner for Stamps.com and all of our company products and solutions.So with that, let’s now spend a few minutes discussing the latest developments in the USPS reseller area. First, let me provide a quick refresher on the reseller industry and its importance to e-commerce. The resellers have what are called negotiated service agreements or NSAs, which are customized negotiated contracts between the postal service and an individual customer or a reseller which provide discounted rates that vary based on each agreement.Each reseller's NSA allows a reseller partner to buy postage for shipping a package at one rate from the USPS and then resell that postage to customers at a higher rate. Since the beginning of its reseller partnerships nine years ago, USPS shipping has seen significant growth and the resellers have played a large role in that success. Over the past 10 years, USPS has seen a 20% compound growth rate for their total shipping volume through their PC postage and their reseller partnerships.One of the most successful areas of growth for the USPS has been in e-commerce where USPS has become the market leader in e-commerce package shipping for small and medium businesses. In our view, the reseller industry has been a big factor in that success. We’re aware of more than 150 platforms such as e-commerce marketplaces, shipping software solutions, multicarrier software solutions and other e-commerce platforms that in some way participate in a portion of the economics created via these USPS reseller NSAs.When you look at the behavior of these various e-commerce platforms, you see a large focus on USPS shipping; on their homepages, in their products, in their technology, in their marketing and in their sales. In many ways, the reseller industry acts as an incubator for the e-commerce space where the resellers promote USPS to various e-commerce solutions.In some, the USPS is offering a revenue share through what has been characterized as a wholesale network of resellers and then those resellers have done partnerships and shared some of those economics with various e-commerce platforms, and then those organizations have as a result aggressively pushed USPS as their primary carrier. This ecosystem, which is incentivized by the USPS resellers, has been extremely successful in making the USPS the market leader in small and medium business e-commerce.With that understanding of the significant importance of the reseller industry and its contribution to the USPS success, USPS has now astutely signed new long-term agreements with their reseller partners. The new multiyear agreements provide both relative stability and predictability for the resellers and for their various partners.We were not a party in the negotiation of these new agreements, and are thus unable to comment on the specific structure and economics. However, certain details are available via the un-redacted sections of the filings that were made by the postal service to the Postal Regulatory Commission in December of 2019.For example, the new agreements go for an initial term of four years until December 31, 2023 with an option to extend for two additional years. The new agreements were signed and implemented such that there was no interruption in the reseller program from 2019 to 2020. There's a baseline discount below commercial plus pricing for the reseller for all customers of the reseller.There is a new tiered structure that provides additional discounts for larger customers, if approved in writing by the postal service. There is a concept of a particular type of larger merchant called a platform. The contract applies to Priority Mail Express, Priority Mail and other classes of packages.Stamps.com and all of our subsidiaries are part of the e-commerce ecosystem generated as a result of the USPS reseller program, and thus new and existing shipping customers on our platforms will continue to have easy access to discounted USPS rates within our superior service platforms through these new reseller agreements.Our commercial relationships with the resellers remain largely unchanged. So we will continue to partner with our reseller partners and USPS to promote the benefits of USPS as a shipping services provider. Like their innovation in 2010 and first creating the reseller industry, USPS again made, in our opinion, a very smart business move and we expect to continue to see the USPS be very successful in e-commerce as a result of it. We look forward to continuing to promote the USPS’ services under our partnerships with the resellers where appropriate for our customers.With that, now let me update everyone on some of the initiatives we're focusing on in 2020 for the U.S. market. First, we’re planning to continue to invest heavily on growth in the shipping part of our business. We devote a large percentage of our company's resources to target e-commerce shippers.For 2020 and beyond, we expect to continue making these large investments in order to attract these types of shippers to our solutions. Shipping customers are more expensive to acquire than small business customers. However, they yield higher long-term returns on investment with their typical characteristics including higher average revenue per customer, lower churn and a higher usage when compared to other small businesses that predominantly use our service to send mail.On the marketing front, we plan to continue increasing our investment in direct sales, correct mail, traditional media, radio, television, search engine marketing, search engine optimization, as well as refining our customer acquisition process through our affiliates, partners, our telemarketing and other areas.We also expect to continue to expand our partnerships and integrations. During 2019, we added several new partners including Alibaba, Overstock [ph], Shopware, Vix, NetSuite, Acumatica, SPS Commerce, Snapchat, Salesforce Essentials and others. We also recently announced a collaboration with ChannelAdvisor to bring a simplified version of ShipStation to its e-commerce platform that targets the small and medium business markets.Second, in our 2020 U.S. plan, we plan to expand the features and functionality of our solutions, particularly in the multicarrier shipping part of our business. The e-commerce shipping industry is very dynamic and we invest a significant amount of development resources in continuing to innovate in the market.Our goal is to be able to meet the needs of as many customers as possible so that we can maximize our customer acquisition, maximize our average annual revenue prepaid customer or ARPU, reduce our monthly customer cancellation rates and increase our overall customer usage.For example, during 2019, we made several enhancements to the ShipStation product, including we expanded our split shipping and multi-warehouse functionality to support more complex shipping workflows and higher volume shippers. We released what’s called a scan-based workflow which allows shippers to run their shipping operations more automatically using a scanner.We also added inventory functionality to the ShipStation mobile app. During 2020, we plan to continue to enhance and add new features and functionality that will improve the value proposition of our solutions for shippers.Third, we plan to continue bringing innovative and cost-effective solutions to U.S. customers that are sending packages to other countries. During 2017, we launched a new international shipping initiative called GlobalPost where we offered customers access to discounted USPS international shipping rates through our private label carrier partnerships that utilized the USPS’ share program, which is a program whereby companies can do a portion of the work for the USPS and receive a discount on their postage rates.During 2018, we added the Global Advantage Program which is a great bundled customer solution built on top of GlobalPost, and that includes customer benefits such as free package pickup, free insurance, upgraded delivery speeds, enhanced tracking, simpler customs procedures and other benefits.During 2019, our total revenue under the GlobalPost and Global Advantage Program grew 45%. We expect to continue to drive these solutions in 2020. We also now offer DHL Express as an international shipping solution. And under our new partnership with UPS, we have a great new solution for international packages as well.Now, let me discuss some of our plans for expansion outside of the U.S. Starting with our acquisition of MetaPack in 2018, we began a path of expanding our business from a domestic-only USPS-focused business model toward a global multicarrier e-commerce shipping solutions company.Over the past several years, we have entered into a significant number of partnerships for the international market and during 2018 and 2019, we undertook efforts to begin to test market our ShipStation product in the UK, Canada and Australia. During 2020, we expect to ramp up our marketing, our business development and our product development efforts aggressively.First, for ShipStation and ShipEngine, we plan to continue to develop partnerships, carrier relationships, product enhancements and to continue to market our solutions in our target countries. ShipStation’s 2019 shipments by international customers grew by 87%. During 2019, we launched 11 new partnerships focused on the international market, including Miracle, Sage UK, Visualsoft, [indiscernible], Canpar Express, DPD Local and Australia Post.Using the Miracle marketplace platform, we integrated the Best Buy Canada marketplace opening the door to other 200 Miracle marketplace customers. We also added three new Australian carriers; Fastway, Couriers Please and Sendle. We also added some significant major accounts internationally with the addition of Jaguar Land Rover and [indiscernible] as new major accounts in 2019.During 2020, we expect to improve our capabilities to support further international expansion, such as language and currency translation systems and we expect to launch in France as our first non-English speaking market. In 2020, we also expect to further enhance cross-border capabilities with features such as duties and taxes added to ShipEngine.Second, in our MetaPack business, we continue to make progress in both customer acquisition and technology, including re-architecting the technology platform and driving new innovations. On the customer side, in the U.S. we signed our first two major U.S. customers during 2019 utilizing our U.S.-based sales team. We also developed a very strong U.S. pipeline of deals that are household names.MetaPack really had no presence in the U.S. before we acquired them. Bringing MetaPack to the U.S. with our U.S. sales team was one of the synergies we identified when we acquired MetaPack. In MetaPack, we also continue to win a large number of new customers in Europe and we expanded several of our existing customers into new countries and added new carriers to their solutions.From the technology side, we launched an exciting new product called Delivery Tracker which we expect enhance the e-commerce shopping experience of users and drive value for our customers. The new tracking portal that includes retailer branding, tracking for 470 carriers, 5,500 services and 350,000 pickup and drop-off locations, translating to 17 languages and many other features. We've also continued to do the development work that will allow us to connect the 450 MetaPack carrier services to the ShipStation international platform.Finally, in the international front during 2020, we’ll also invest development resources into building a simpler international e-commerce, multicarrier shipping solution based on the Stamps.com branded web solution. Internationally, we’re now planning to replicate our U.S. strategy where we go to market with two main brands; a simpler Stamps.com like web solution for up and coming e-commerce customers and a more powerful and complex ShipStation solution for more sophisticated e-commerce customers.We expect to build a UK version of the Stamps.com web solution during 2020 with a small set of the important carriers in that market, for example, Hermes, DPD and Royal Mail. Once that is in place, we expect to begin some test marketing of the Stamps.com solution in the UK.So we remain very excited about the future of our company in the enormous value proposition of our e-commerce technology and our service offerings. Our goal is to position the company for the best long-term outcome as the myriad of e-commerce trends play out and to continue to diversify our business.Following the business model changes that we announced early last year, we continue to have very productive discussions with traditional and non-traditional carriers both domestically and internationally regarding new and enhanced relationships.All of these discussions have been very positive, recognizing the strong value proposition we provide driven by the strength of our multicarrier properties, the level and number of our partnerships and integrations, size and strength of our national sales force, the scale and success of our marketing programs.Overall, we built an extraordinary company with incredible assets, an amazing workforce and we are exceptionally well positioned to continue to drive our organization in this new direction. We’re confident we will become the global leader in multicarrier e-commerce shipping.With that, I’ll now turn the call over to Jeff.

[Jeff Carberry:]

Thanks, Ken. We'll now review our fourth quarter and fiscal year 2019 financial results. The discussion of our financial results today includes non-GAAP financial measures. As Suzanne described, a reconciliation of the non-GAAP financial measures to the corresponding GAAP measures can be found in our earnings release and in our metrics on our Investor Web site.Total revenue was 160.9 million in Q4 and that was down 5% year-over-year versus Q4 of '18, and was 571.9 million in 2019 and that was down 3% versus 2018. Total revenue, excluding MetaPack, was 146.4 million in Q4 and was down 6% year-over-year versus Q4 of '18, and was 519.1 million in 2019 and that was down 8% versus 2018.The decline in revenue in the fourth quarter and for the year was the result of our decision to discontinue our exclusive relationship with USPS at the beginning of 2019 and thus we received no commission revenue in 2019.Revenue was positively impacted by strong growth in our GlobalPost and Global Advantage Program. Additionally, we had our first full year contribution of MetaPack revenue in 2019 versus a partial year contribution in 2018.Mailing and shipping revenue was 156.0 million in Q4 and that was down 6% year-over-year versus Q4 of '18, and was 557.1 million in 2019 and that was down 2% versus 2018. Mailing and shipping revenue, excluding MetaPack, was 141.5 million in Q4 and that down 6% year-over-year versus Q4 of '18, and was 504.4 million in 2019 and that was down 8% versus 2018.The decline in total mailing and shipping revenue, including revenue that we received from our shipping customers, was also a direct result of our 2019 decision to discontinue our exclusive relationship with USPS, and it was likewise offset by growth in our GlobalPost and Global Advantage Program and also offset by a full year contribution of MetaPack revenue.We estimate that total revenue derived from our shipping customers declined at a higher single-digit rate year-over-year and as a percentage of total revenue in Q4 was approximately 80%. We estimate that revenue derived from our shipping customers in Q4, excluding MetaPack, declined year-over-year at a high-single digit rate and as a percentage of total revenue was in the low 70% range.We also estimate that our revenue derived from our SOHO mailers as a percentage of total revenue was in the high teens and grew year-over-year at a mid-single digit rate. Mailing and shipping gross margin was 74.7% in Q4 versus 79.4% in Q4 '18, and was 74.7% in 2019 versus 81.0% in 2018. The decrease in year-over-year gross margins was again primarily attributable to the 2019 decision to discontinue our exclusive relationship with USPS.Gross margins were also negatively impacted by the increase in our GlobalPost and Global Advantage Program offerings and by the full year contribution of MetaPack, both of which have lower margins. MetaPack’s gross margin under U.S. GAAP was approximately 65% in Q4 and also 65% for full year 2019.We had a year-over-year increase in our Q4 operating costs, including sales and marketing, R&D and G&A, primarily related to strategic investments to support innovation and long-term growth, and due to the full year contribution of MetaPack in 2019. As Ken mentioned, we are aggressively scaling our investment in R&D and sales and marketing related to our international business strategy.Non-GAAP operating income was 50.3 million in Q4 and that was down 28% year-over-year versus Q4 of '18, and was 158.7 million in 2019 down 37% versus 2018. Adjusted EBITDA was 51.4 million in Q4 and that was down 28% year-over-year versus Q4 of '18, and was 164.4 million in 2019 and that was down 36% versus 2018.Adjusted EBITDA margin was 32.0% in Q4 versus 41.9% in Q4 of '18, and 28.7% in 2019 versus 44.0% in 2018. The decreases in adjusted non-GAAP operating income, adjusted EBITDA and adjusted EBITDA margin were again primarily attributable to the same aforementioned factors that affected revenue.Non-GAAP adjusted income per fully diluted share was $2.12 in Q4 based on non-GAAP tax expense rate of 23.4% and that was down 43% year-over-year versus $3.73 per share in Q4 of '18, based on a non-GAAP tax benefit of 0.7%.Non-GAAP adjusted income per fully diluted share was $5.73 in 2019 based on a non-GAAP tax expense rate of 34.7%, and was down 1% versus $11.78 in 2018 based on the non-GAAP tax expense rate of 11.7%. Fully diluted shares used in the EPS calculation was 17.9 million for Q4 and 17.8 million for 2019.Let's now discuss our customer metrics. Our total paid customer metric was 750,000, which was our highest number of paid customers in our company’s history. This was driven by the strongest quarterly and annual new customer acquisition we have ever had as a company. This result is particularly impressive since we experienced a headwind in the growth of total paid customers as a result of our decision to discontinue our USPS exclusive agreement in 2019 and associated [ph] impact on our paid customer calculation.As a reminder, a segment of our higher volume customers continue to receive our technology solutions without our customary monthly service fee, and thus once we no longer received a commission from the USPS for those customers, they were eliminated from our paid customer calculation. We continue to offer this solution without service fees because these customers are very high volume and we expect to be able to potentially monetize those customers in the future by locking in solutions such as our new UPS rates to them.Our fourth quarter churn was 3.2%. Churn was up 0.3% year-over-year but was in line with the churn we’ve seen over the past several quarters. Our fourth quarter ARPU was $69.33. ARPU was down 7% year-over-year, again, directly related to the aforementioned factors that negatively affected revenue.Total fourth quarter USPS postage printed was $1.8 billion and that was up 1% versus the fourth quarter of 2018. The total USPS postage printed metric includes both higher growth shipping volume and traditional non-package mail volume. Mail volume of course continues to see a steady decline consistent with the long-term trend of declining mail usage in the U.S.Let's now discuss our cash, debt and uses of cash. We ended Q4 with 156 million in cash and investments, which was up $13 million from 143 million at the end of Q3 of '19. The increase in cash and investments was primarily driven by the following. Strong operating cash flow and that was partially offset by changes in net working capital, share repurchases and a scheduled debt repayment.During Q4, we made a required principal repayment of $3.1 million, resulting in total debt under the credit agreement, excluding debt issuance costs, of $50.5 million. During Q4, the company repurchased approximately 76,000 shares at a total cost of approximately $6 million. And for 2019, the company repurchased approximately 720,000 shares at a total cost of approximately 65 million.On February 13 of this year, our Board of Directors approved a new share repurchase plan which will commence on February 24 of this year and will replace the current 60 million plan that was scheduled to expire in May of this year.As of February 18 of this year, we have repurchased approximately 43.2 million of the current plan. The new plan authorizes the company to repurchase up to 40 million of stock over the next six months following its effective date.With that, let's now turn to guidance. Some of the major trends that were factored into our guidance include the following. The new multiyear reseller agreements, our new UPS partnership and our plan to roll that out in the first quarter and our increase in operating cost related to our continued investment in the U.S. and a significant investment in our international strategy.We also took into account all of the specifics of the new USPS reseller agreement to the extent it was available to us, such as the new agreements are for an initial term of four years until December 31, 2023 with an option to extend for two additional years.The new agreements were signed and implemented such that there was no interruption in the reseller program. And there was a net tiered structure for enhanced discounts for larger customers and for e-commerce platforms.Additionally, we began offering UPS rates to a small number of ShipStation customers in the fourth quarter of 2019 and expect to offer them to all of our customers by the end of the first quarter of 2020.And now onto our specific contemplated guidance. We expect fiscal 2020 revenue to be in the range of 570 million to 600 million. We expect our shipping revenue will be in the range of approximately flat to up in the mid-single digit range, reflecting both the aforementioned factors affecting 2020 and the anniversary of the elimination of our USPS commission revenue.We expect our mailing revenue derived from our SOHO mailers will be approximately flat year-over-year. And we expect our customized postage revenue will be down between 5% and 40% year-over-year, with that wide range reflecting our inability to accurately predict the trends and this highly customer discretionary part of our business.We expect operating expenses to increase in 2020 reflecting the annual effect of the strategic investments we made throughout 2019 and additional strategic investments we anticipate making in 2020 around both our U.S. and international efforts.We expect fiscal 2020 adjusted EBITDA in a range of 135 million to 155 million. Our guidance implies a full year adjusted EBITDA margin in the low to mid 20% range based on all of the aforementioned factors affecting our business.We expect non-GAAP tax expense will be approximately 40% of non-GAAP pre-tax income for 2020. Our full year 2020 effective tax rate could differ from our current estimates based on a number of factors.We expect fully diluted shares to be between 18.0 million and 19.5 million in 2020. We expect fiscal 2020 non-GAAP adjusted income per diluted share to be in the range of $4 to $5. And finally, we continue to expect capital expenditures to be approximately 2 million to 4 million in 2020.And with that, we’ll open up for questions.

[Operator:]

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. And our first question is from George Sutton from Craig-Hallum.

[George Sutton:]

Thank you. Great stuff, guys. Can you discuss the role you expect to play in the reseller program now relative to your old role in that program? Our understanding is that there’s a focus on value-added components in the structure which we assume would benefit you.

[Ken McBride:]

Yes, our relationship – our partnerships with the resellers really haven’t changed. It’s really their contracts with the USPS that changed. So I think we don’t really expect to see any difference in terms of our strategy and how we work with the resellers in the market.

[George Sutton:]

Now you mentioned that you continue to plan to try to monetize some of the former commission base from the postal service. Our belief had been much of that had been done through the Endicia business. And separately we’ve seen fairly significant hiring at Endicia specifically. I’m curious if that all intersects and if you can just give us a sense of what you’re hoping to achieve with the UPS relationship with the former USPS accounts.

[Ken McBride:]

Sure. I think generally speaking our UPS relationship, we continue to work very closely with the USPS and we’ve always offered UPS to our multicarrier solutions. So with the new UPS relationship, the major change is that we’re bringing UPS into our Stamps.com and Endicia brand solutions. And of course the other one is that we’re going to offer the discounted rates up to 50% to the customers and automatically set up an account so that accessing UPS is very simple and easy for a new customer who just signed up or an existing customer. And so we see perhaps some volume may move over from USPS to UPS, but we also see additive volume. So USPS, as you know, is very strong in the 2 pounds – residential delivery up to 2 pounds, whereas UPS tends to be – had much higher market share of the 3 pounds plus market. And so traditionally we really haven’t attracted – given our 10-year relationship with USPS, we really haven’t focused on or attracted a lot of the customers that do the 3 pounds plus and the business-to-business type packages. So we expect that we’ll be able to broaden our marketing, broaden our sales to go after some of those larger customers who ship larger packages. So we see the relationship as optimizing our solutions for our customers bringing a new solution with very attractive rates to the customers that may just be shipping with the regular list price with UPS right now and not using UPS at all and being able to access this larger heavier package market with our UPS solution.

[George Sutton:]

Got you. Finally, Ken, you read through a great list of new partners and I wrote them down as fast as I could, but there were some biggies there; Alibaba, SPS Commerce, Snapchat, Salesforce Essentials. Can you just give us a general sense on what sorts of roles these partnerships will be playing? How much that influences the guidance which was better than we had anticipated?

[Ken McBride:]

Sure. I think generally speaking we have now at this point I think we have something like 350 different partnerships through ShipStation, over 500 partnerships companywide. And so partnerships are a huge part of our strategy and always have been. And so I mentioned a bunch of them. We did a lot of new partnerships in 2019. We talked about integrations with marketplace just like we’ve done in the past with the likes of eBay, Etsy and Amazon. We added Overstock this year. Salesforce Essentials is a product that we can now integrate with and it’s a co-marketing agreement and also an integration with Salesforce that we can pull directly from Salesforce into ShipStation. And then we did the ChannelAdvisor thing that we most recently announced where we’re really offering ShipStation to their customers in a new what’s called a ChannelAdvisor starter addition. So that’s really providing some channel expansion access to new consumers through the integration with the web store and global marketplaces. And so the starter addition can integrate with ShipStation to allow the – commend the benefits of the multicarrier inventory and order management we have with ShipStation and their new product efforts. And I think we’ve talked about Alibaba in the past. Alibaba really decided to open up their business model for small business sellers in 2019 and one of the first partnerships they did was with ShipStation. And so it’s really just similar to other marketplace sellers, like Amazon, Alibaba is adding that type of solution to their market and we are integrated with Alibaba and the first shipping solution that offers that capability. So I think just generally speaking we’re very active on the partner front both domestically and internationally and it’s a huge part of our strategy, and it’s going to continue to be a huge part of our strategy going forward.

[George Sutton:]

All right, great stuff. Thanks, guys.

[Ken McBride:]

Thanks, George.

[Operator:]

Our next question is from Darren Aftahi from ROTH Capital Partners.

[Darren Aftahi:]

Hi, guys. Thanks for taking my questions, three if I may. Somewhere on the reseller agreement, can you kind of compare and contrast the rate card you’re seeing on an apples-and-apples basis and would you characterize that as better, worse or the same? Two, when you look at kind of the high and low end of let’s say revenue guidance, what are kind of the puts and takes from the reseller, MetaPack and UPS relationships? And then third, on MetaPack, you guys talked about your two U.S. clients signed and you’re pipeline [indiscernible] it sounded very positive. I’m just kind of curious if you can kind of characterize this type of pipeline signs you’re seeing with MetaPack in the U.S.? Thanks.

[Ken McBride:]

Sure. There’s three questions there. The first question on the reseller kind of comparing before and after, there’s – we kind of went and pulled everything that was publicly available that we can talk about. And so there are three publicly available agreements that you can see when you look into the Postal Regulatory Commission filing system the way that postal service always have to get anything approved is they file them and they redact portions of the agreements. But the agreements are there. And so we what we’re able to tell you is what’s in the agreements. The specific rate card is not in the agreement. Clearly for competitive reasons that would not be disclosed, but there is a lot of details there about the agreements. As we mentioned, they were long-term agreements for potentially six-year new agreements. There were no interruptions, so they went live on January 1st, and this new concept of a tiered structure that enhances discount for the larger customers and for e-commerce platforms. And so there’s a lot more detail there, but I think that what we’re able to disclose is kind of what we’ve done so far. And then I’ll take the last question too and I’ll ask Jeff do the guidance. In terms of the MetaPack efforts in the U.S., I think as you know back when we bought MetaPack we identified a lot of synergies and one of the main ones was that MetaPack really hasn’t done a lot in the U.S. market yet. They really haven’t come over to the U.S. And so with our sales team of over 100 people, one of the first things we did is started to bring MetaPack over and offer them as a solution and start to sell them into different customers. And while it’s early, we’ve already had two real big successes there. We can’t disclose who they are, but they’re household names. And our pipeline as well has grown and again these are names you would – walking through any shopping mall you would probably see them. So they’re big retailers, big multinational retailers that are offering shipping solutions across multiple countries using multiple carriers. And so the MetaPack solution really resonates with them. And now that MetaPack has a presence in the U.S. through our sales team, we’re really starting to see a lot of traction there.

[Jeff Carberry:]

Darren, for guidance, our philosophical approach for the guidance really hasn’t changed. It represents a range of potential outcomes both contemplating some upside as well as some downside risk. What I will say though is obviously the guidance incorporates everything we know thus far about the reseller structures. It also contemplates the expected relative mix between USPS, UPS and another carrier volume. With MetaPack integrated, as it relates to your question, obviously MetaPack continues to see some overhang, vis-à-vis Brexit as well as the broader European continent. We see some of that risk as well. So we see that in our numbers with MetaPack and we’ve incorporated that into our guidance as well. So I think at the end of the day our guidance again philosophically is much like it always has been. It contemplates a range that we’re comfortable with, contemplating both some upside as well as some downside risk.

[Darren Aftahi:]

Great. Thank you.

[Operator:]

[Operator Instructions]. And our next question is from Kevin Liu from K. Liu & Co.

[Kevin Liu:]

Hi. Good afternoon. First question, I guess I’ll ask this kind of differently since you can’t talk about specific reseller rates. But within your guidance, are you guys not only in some discussion in terms of reseller-related revenues or any sort of growth, would be curious about that? And then one thing I wanted to clarify is when you first started talking about these new programs about a year ago, you mentioned that there was some talk that maybe the margins would compress over the three-year timeframe before stabilizing. So is that still the case or do you expect these rates to remain relatively stable throughout?

[Jeff Carberry:]

Yes, in terms of guidance and margins, again, we unfortunately just as a matter of public policy do not comment on things that have been redacted or about original agreements in general. So I really can’t unfortunately get into the details of whether we expect margins to either compress or expand. It’s simply not something that as a matter of public policy we’re going to do. We did talk about in 2019 the expectation that rates would compress over a period of time and that risk in the short run that causes us to expand our range as those risks came off the table throughout the year, we narrowed our range. Our current guidance range now is back to our historical range. So I will say that our 2020 guidance obviously contemplates everything we know thus far, incorporates all the structures, incorporates things that have been approved by the USPS both in terms of the very structures that are obvious on the un-redacted sections of the agreement. But if a tiered structure isn’t platform [indiscernible] guidance currently contemplates that right now.

[Kevin Liu:]

Understood. And then just for UPS, can you share what that contribution was to your revenue stream in the fourth quarter and kind of what expectations you’re thinking for that to have this year?

[Ken McBride:]

Yes, so for UPS there was a very small contribution in Q4. As we mentioned, we started to roll it out to be subsets, i.e. a small portion of our ShipStation customers in Q4. As you’d expect with a very fast rollout from the point of signing the contract through Q4, the contribution you’d expect necessarily to be quite small for 2020. We don’t comment on the relative contributions and splits between the different carriers, but our guidance does contemplate that relative splits as well as migration volume between carriers based off of rolling out those rates to our customer base. But I can’t comment on what portion of our revenue derives from USPS versus UPS versus other carriers.

[Kevin Liu:]

Understood. And as you guys kind of make this transition to being more of the multicarrier platform side, with respect to the various metrics you provided, will you start to provide kind of the non-USPS related postage credit metric so we can kind of gauge that progress? And then anything you can speak to qualitatively just for those initial ShipStation customers that access UPS and what sort of uptake you sell relative to what they may have done historically?

[Jeff Carberry:]

Yes, so I’ll take the comment on the metrics. So I can’t address really kind of the empirical behavior of the customers on UPS initially. So on the metrics, obviously we’re going to – our metrics are really kind of living documents and obviously with the strategic shift in the business towards multicarrier and really the evolution of the business on a longer-term basis towards shipping. USPS over the year probably look at and we examine our metrics and look to finding additional metrics or finer current metrics that give investors real insight into the business that we think is appropriate to understanding fundamentally what is driving the business. Right now, obviously the metrics are USPS centric with our shift to becoming a true multicarrier across all of our platforms. That is arguably a little less relevant for investors. So I think you’re going to see us over the course of year really take a look at our metrics and augment, refine our metrics to reflect really the fundamentals of the business going forward.

[Ken McBride:]

Kevin, in terms of learning so far and the launch of UPS, I would say it’s so early. It’s hard to comment. And really like what we did in Q4 with the beta test and effectively a very small group of customers, we rolled it out to the customers. We watched their behavior and I think we’re extremely encouraged by it. I think we’re very happy. As I mentioned we’re going to roll it out companywide now and we’re going to really throw our full weight behind it. But we actually just kind of got the whole thing running very late in Q4 and it’s not a time when customers want to change their carriers, it’s not a time when customers want to really modify anything in their business. So while we did see some good feedback from customers, we really didn’t see a lot of changes because it just doesn’t make sense. But going forward I think we see, like I mentioned before, a lot of potentially additive new volume that could come from UPS and simply just optimization of your business being able to bring in like Stamps.com solution, bringing in a second carrier could make a ton of sense for some of these customers early in the lifecycle not moving up to ShipStation with 50 carriers, but just moving to a second carrier within the Stamps.com solution could be a great solution, great value-add to those customers. So we’re really excited to see the adoption of UPS starting in this quarter and I think we’ll have a lot more to say next quarter about it.

[Kevin Liu:]

All right, great. Thank you for taking the questions and good luck here in 2020.

[Ken McBride:]

Thanks, Kevin.

[Jeff Carberry:]

Thank you, Kevin.

[Operator:]

I’ve reached the end of the question-and-answer session. I will now turn the call back over to Ken McBride for closing remarks.

[Ken McBride:]

Thank you for joining us and appreciate it. Like I mentioned, we’re very excited about the opportunities going forward. If you have any more questions, you can follow up through our Investor Web site or our Investor hotline at 310-482-5830. Thanks so much.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.