Stamps.com Inc.
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Financial Results 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] I would now like to introduce your host for today's conference turn the call over to Ms. Suzanne Park. Madam, you may begin.

[Suzanne Park:]

Hello everyone. On the call today is Ken McBride, CEO and Jeff Carberry, VP of Finance, who will be filling in for our CFO, Kyle Huebner, who unfortunately came down with flu. The agenda for today's call is as follows. We will review the results of our first quarter 2017. We'll provide a progress update on our recent acquisitions. We'll provide an update on elements of our business model and partnership agreements. We'll discuss our financial results and talk about our business outlook. And finally, we'll provide an update on our long-term business model. But first, the Safe Harbor statements. 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 include 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 ship it's products, maintain desirable economics for its products, the timing of when the Company will utilize its deferred tax assets and obtain or maintain regulatory approval which could cause actual results to differ materially from those in the forward-looking statements, are detailed in filings with the Securities and Exchange Commission made from time to time by Stamps.com, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 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 today's call include non-GAAP financial measures. In the first quarter of 2017, GAAP net income was $33.1 million and GAAP net income for fully diluted share was $1.82. Our non-GAAP financial measures exclude the following first quarter items, 11.4 million of non-cash stock-based compensation expense; 4.1 million of non-cash amortization expense of acquired intangibles and debt issuance costs; 15.3 million of non-GAAP income tax expense. Please see our first quarter 2017 earnings release and metrics posted on our Investors website for reconciliations of our non-GAAP financial measures to the corresponding GAAP measures. Now, let me hand the call over to Ken.

[Kenneth McBride:]

Thanks Suzanne and thank you everyone for joining us today. Today we announced the very strong first quarter financial results which included total revenue of 105.0 million which was up 28% year-over-year. Non-GAAP adjusted EBITDA we reported of 51.2 million that was up 47% year-over-year, the non-GAAP earnings per share of $1.83, which was up 62 % year-over-year. Detailed discussion of our mailing and shipping business, as a remainder the mailing and shipping business numbers we discussed include service fees and partner rev shares, product sales in our online store and the package insurance we offer the customers. Mailing and shipping revenue was 102.6 million in the first quarter that was up 30% year-over-year. Mailing and shipping revenue growth was driven by both growth in paid customers and growth in the average revenue per paid customer or ARPU. Our average monthly churn rate during the first quarter was 2.4% that was down compared to the 2.7% in the first quarter of 2016. The reduction in churn was primarily a result of our continued focus on acquiring shipping customers that tend to have lower churn versus traditional small business office users because shippers use our product more in their core operations. Total paid customer metric was 722,000 that was up 11% versus the first quarter of 2016. Paid customer growth was the result of our continued success and our customer acquisition efforts, particularly in the shipping area. Paid customer growth was also driven by the reduction in the churn rates that I just mentioned. The average monthly revenue or ARPU was $47.36 in the first quarter and that was up 17% versus the first quarter of 2016. Growth in ARPU is likewise benefiting from the continued growth in the shipping business. For the shipping area, we're able to increase ARPU above the baseline monthly service fee with partnership rev share agreements that allow us to monetize the customer's package volume. Traditional small business office users do a minimal amount of shipping, so we don't have that component in our ARPU when our focus was more on that segment historically. Postage dollars printed through all our various products and services was 1.5 billion in the first quarter that was up 10% versus the first quarter of 2016. Additionally, the volume of transactions that we have processed through our solutions has been very significant. Our customers printed shipping labels for over 1 billion packages during the last 12 months. Our customers printed almost 2 billion mail pieces or packages in the last 12 months. The infrastructure investment in technology required to support these types of volume to substantial. We believe our solutions significantly outpaced our competitors. The management team and all the employees are very proud of the continued financial business success we generate for our shareholders. So with that let me discuss some of the initiatives we're working on for 2017. First, we're continuing to leverage the product portfolio of mailing and shipping solutions to drive this continued strong growth. With the acquisitions we made coupled with our traditional solutions; we now have a full and diverse suite of solutions across five brands, which are ShipStation, ShipWorks, ShippingEasy, Endicia and Stamps.com. Our product solutions meet the needs of a broad array of target customers; those include e-commerce merchants, warehouses, fulfillment houses, large retailers and other types of shippers. Customers' needs vary based on their specific situation and we have the ability to guide them into a particular solution depending on the unique needs they may have. Their needs may include things like specific technology or specific operating system support, breadth and depth of product features, ease of use, ease of use is often traded off versus product capability and product complexity, speed of processing large volumes of packages in the fewest number of steps, the breadth and the depth of integrations with partner solutions such as e-commerce tools, shopping cards and online marketplaces. Across our suite of solutions, we have integrations with over 400 different partners in these areas. Finally, customers may need support across a variety of domestic, regional and international package carriers and we currently support 32 different regional, domestic and international carriers across our suite of solutions. The number of third party solutions that we support is far beyond any of our competitors and this means we likely can meet the customer's needs through one or more of our five brands. We would note that our solutions have a lot of common capabilities, but also each solution has specific features that might make it the appropriate choice for a customer. For example, a customer may prefer to have a client based product with deep automation capabilities and what supports the particular set of say six package carriers, we would likely recommend that customer to use ShipWorks. A customer may want a web based solution that supports 15 different package carriers, five different e-commerce market places and 10 different e-commerce tools, that customer would likely use ShipStation as that solution has the broadest set of e-commerce integrations. Another example, the customer may want a high priority inventory management solution to use in conjunction with their shipping solution, that customer would likely use ShippingEasy. And the final example, a customer might want a USPS only solution with great batch label processing and great ease of use, in that situation we would recommend the Stamps.com client or Stamps.com web solution. While we believe we're already successful and meet the majority of needs of our target customers, we plan to continue innovating and adding more and more capabilities to further differentiate our products and services from those of our competitors. We also plan to continue to build out support for other related areas such as inventory management, customer relationship management as those complement the shipping process for many customers. Second initiative for 2017, we plan to continue to invest heavily in sales and marketing with the focus on acquiring shipping customers, in particular e-commerce shippers. They're more expensive to acquire than small business customers, but they yield a higher long term revenue, return on investment with their typical characteristics including higher average revenue per unit, lower churn rates and higher posted usage when compared to other small businesses that predominantly use our service to send mail. Based on our recent analysis and recent trends, we expect to get strong return on our investment from our mailing and shipping customers as they have high expect to life time value relative to the expected cost to acquire them. Accordingly, we plan to continue to increase our total sales and marketing spends in 2017 versus 2016. We plan to continue increasing our investment in all of our areas including direct sales, direct mail, traditional media, radio, television, search engine marketing, search engine optimization as well as refining our customer acquisition process through the affiliates, partners, telemarketing and other areas. We would note that e-commerce shipping is the fastest growing part of the mailing and shipping industry and according to some recent data from the US commerce department; e-commerce sales grew approximately 15% in 2016. Therefore, we intend to continue to directing increasing amount of our customer acquisition budget into the e-commerce segment. For our third 2017 initiative, we plan to continue to capitalize on the synergy of opportunities we acquired with our acquired companies. We continue to see the benefits from our 2014 acquisitions of ShipStation and ShipWorks. We now successfully integrated and realized many of the expected synergies from our 2015 acquisition of Endicia. And during 2016, we completed our acquisition of ShippingEasy and we've been working closely with the team in Austin at ShippingEasy to utilize the synergies with them as well. Across all of our products and services, we're realizing synergies in sales and marketing, in operations, in customer service and in product development. For example, in the marketing area Stamps.com and the acquired companies have historically targeted many of the same customers. So we plan to utilize our marketing expertise to accelerate the growth in all of the brands. We have also leveraged technology expertise across our companies including web based and client based experience, expertise, the operating system expertise, methodologies and paradigms for product development and other things. We've been gun sharing some backend and frontend technology systems in order to streamline our development process. The knowledge sharing across the technology as a result has accelerated our development at the same time lowered our cost of product innovation. We were also able to eliminate duplicate operations in several areas across our various acquired companies. And as a last point on synergies, we brought significant financial resources to our acquired brands and have used those resources to expand their marketing and development activities. Finally, for 2017, we plan to continue enhance our enterprise solutions and continue to grow the sales and marketing efforts we make in that area. Solutions targeted enterprise customers continue to have stronger customer value proposition compared to the postage meters. Our customers continue to be attractive to the enterprise solution versus their traditional meter. Customer's preference is based on our lower total cost of ownership to greater visibility in the individual employee activity that's available from our centralized frontend, reporting tool that has the capabilities that are not available with the postage meter. For example, real time data, improved web based postage management tools, enhanced web based financial administrative controls for central decision makers and other things. In 2017, we plan to increase, optimize and refine our enterprise customer lead generation in sales and marketing efforts. Let me talk a little bit about the USPS. The USPS has always been one of our most important partners. We both have the common goal of growing USPS package volume and serving and retaining USPS customers. We made significant investments in creating, developing and growing the online mailing and shipping categories since 1999. To date we've invested more than 1.5 billion in customer service and support, research and development, sales and marketing, technology, infrastructure, product development and other areas in support of helping the USPS grow their business and retain customers. We have generated over 30 billion in cumulative postage printed through all of our brands since the industry first began in 1999, including over 5.5 billion last year in 2016. Last year the USPS reported 16% growth in its shipping and package revenue for 2016. The overall package industry on the other hand grew by 8% domestically. When adding together the domestic shipping revenue of the big three carriers which are the vast majority of the industry. So the USPS is growing two times faster than the overall industry. They're gaining significant market share versus other private carriers. They're generating their extraordinary growth in market share gains by growing in e-commerce, which of course is the key battle ground in shipping right now, sets them up well for the future. We continue to enjoy a great partnership with the USPS and feel that we've created a sustainable win-win model for both of us, which will result in a continued growth of USPS packages in e-commerce and more generally. As you would expect, given the extraordinary growth they're generating, USPS is very happy with their overall strategies, their partnerships and the business models they're pursuing in shipping. In particular, the USPS is very happy with the very successful partnership Stamps.com has together with the postal service and that's based on very recent ongoing conversations we have with the most senior executives there. With that, let me hand the call over to Jeff, who'll provide a detailed discussion of our financial results.

[Jeff Carberry:]

Thanks very much Ken and good afternoon everyone. Let's first review our first quarter 2017 financial results. The discussion of our financial results today includes non-GAAP financial measures. As Suzanne described, a reconciliation of non-GAAP financial measures to the corresponding GAAP measures can be found in our earnings release and in our 2017 metrics on our Investors website. Total revenue was 105.0 million in Q1 and that was up 28% year-over-year versus Q1 '16. For Q1, we estimate that revenue from shipping customers accounted for over 70% of our total revenue and grew over 40% year-over-year. Mailing and shipping revenue was 102.6 million and that was up 30% year-over-year versus Q1 '16. The revenue growth was driven by increases in paid customers and ARPU as Ken discussed earlier. Mailing and shipping gross margin was 85.1% in Q1 versus 84.8% in Q1 '16. The increase in gross margin was attributable to service revenue which has a higher gross margin and accounted for a higher percentage of our total revenue. We experienced year-over-year increases in our Q1 costs of sales and marketing, R&D and G&A primarily related to our acquisitions and our investments to support the strong growth in our mailing and shipping business. However, these costs as a percentage of revenue have declined as we scale our business. Non-GAAP operating income was 50.0 million in Q1 and that was up 49% year-over-year versus Q1 of '16. Adjusted EBITDA was 51.2 million in Q1 and that was up 47% year-over-year versus Q1 of '16. Non-GAAP adjusted income per fully diluted share was $1.83 in Q1 and that was up 62% year-over-year versus our Q1 '16 non-GAAP adjusted income per fully diluted share of $1.13, which was adjusted for taxes as we'll discuss later with the tax section on this call. Fully diluted shares used in the EPS calculation was 18.2 million for Q1. Next let's talk about our taxes. Our GAAP income tax expense for the quarter was 660,000, representing an effective tax rate of 1.9%, which was significantly lower than our effective tax rate of 35.7% for 2016. This lower effective tax rate was primarily related to the tax benefits resulting from the employee option exercises in the first quarter of 2017 that we saw and the associated change in accounting treatment under ASU 2016-09 which we adopted in the first quarter of '17. Under this standard, the tax benefit related to the difference between the exercise price and the grant price of share based compensation such as stock options is now reflected in our income tax provision whereas before it was reflected as an adjustment to equity. In an effort to provide greater consistency across interim reporting periods by eliminating the effects of nonrecurring and specific events, we projected non-GAAP income tax rate for fiscal year 2017, which incorporates the impact of the mentioned ASU 2016-09 adoption. This non-GAAP income tax rate of 32.5% resulted in an additional non-GAAP income tax adjustment of 15.3 million for the quarter. In order to providing the appropriate comparable to our prior period results, we adjusted our first quarter 2016 financial results to conform to the tax methodology used in the first quarter 2017. The adjusted non-GAAP tax expense is 11.7 million using the 2016 effective tax rate of 35.7%. As so result, first quarter adjusted 2016 non-GAAP adjusted income was 21.1 million or $1.13 per share based on 18.7 million fully diluted shares outstanding. Next we'll talk about our cash, debt, uses of cash. We ended Q1 with 118 million in cash and investments and that was up 10 million from approximately 108 million in Q4 '16. The increase in cash and investment was primarily driven by operating cash flow which was partially offset by principally share repurchases during the quarter. During Q1, we made the required principal payment of $1.5 million and optional repayments of $10.0 million, resulting in total debt under the credit facility, excluding debt issuance cost of $137 million. During Q1, the company repurchased approximately 356,000 shares at a total cost of approximately $44 million under the Company's current share repurchase program. As of May 3, 2017, the Company has repurchased a total of 739,000 shares at a total cost of approximately $86 million under this plan. On April 25, 2017, the Board of Directors approved a new share repurchase program that replaces the prior share repurchase program and authorizes the Company to repurchase up to $90 million of stock over six months following the programs effective date. Now, let's talk about our guidance for '17. We expect fiscal 2017 revenue to be in the range of 405 million to 430 million and that compares to our previous guidance of 400 million to 425 million. We expect 2017 revenue to continue to be driven by growth in our mailing and shipping business, as customized postage now accounts for less than 5% of total revenue. We expect sales and marketing, R&D and G&A to increase in 2017 more in line with revenue growth as we continue to invest in the business. Given the importance of investing in R&D and sales and marketing to grow the business, we expect to increase as many given quarter higher than revenue growth rates. In particular, we have to invest in the first three quarters of the year ahead of the seasonally strong fourth quarter in order to realize more success of those investments. We expect fiscal 2017 adjusted EBITDA to be in the range of 205 million to 225 million and that compares to our previous guidance of 200 million to 220 million. We expect non-GAAP tax expense will be approximately 32.5% of non-GAAP pretax income for 2017, reflecting our expectation that we'll be a regular cash tax payer in 2017. We expect fully diluted shares to be between 18 million and 19 million shares in 2017. We expect fiscal 2017 non-GAAP EPS to be in the range of $7 to $8 per fully diluted share and that compares to our previous guidance of $6 to $7 per fully diluted share. As a result of the expected change in our non-GAAP tax expense to reflect our status as a regular tax payer and our adoption of ASU 2016-09, our 2017 guidance for non-GAAP EPS is not comparable to our 2016 reported non-GAAP EPS. To help our investors better understand the impact of the tax change, our 2016 non-GAAP EPS would have been approximately $5.88 per fully diluted share had we been a regular cash tax payer in 2016. This number can be calculated by applying a 2016 GAAP effective tax rate of 35.5% to our 2016 non-GAAP pretax income of 167 million, which yield a non-GAAP tax expense of 60 million and a non-GAAP net income of 107 million, which is approximately $5.88 per shares on 18.3 million fully diluted shares. With our increased focus on shipping, we expect our revenue and financial results to exhibit seasonality reflective of our customer's shipping visits during the year. In particular, we expect the fourth quarter to be higher than the other three quarters due to the seasonally strong Q4 holiday shipping period and we would expect the second and third quarters to be lower than the first quarter. We expect capital expenditures to be approximately $5 million to $8 million in 2017. Now, I'd like to talk about our long-term outlook. We've achieved a significant contribution over the past few years, through our acquisitions and focus on shipping. Our mailing and shipping business [indiscernible]. We are very well positioned to capitalize each of the opportunities in our business. We expect our long-term growth rates to naturally benefit from the growth in e-commerce sales, which have been growing at approximately 15% year-over-year in '16. In addition, we believe there are opportunities grow in excess of e-commerce growth rates with adoption of our multicarrier and other technology solutions. As a result our five year revenue growth rate target is approximately 20%. While we continue to execute non-trading visitors, we expect our revenue going forward driven primarily by our shipping area. We expect our long-term revenue growth rate to approximate our growth in the shipping part of our business as it becomes a larger percentage of our total revenue overtime. We expect our five year adjusted EBITDA will be in the range similar to up slightly compared tour current margins. While there may be opportunities to potentially expand our margins over the next five years, we're more focused on investing for revenue growth as opposed to expecting margins of expense of that growth. In summary, we're very excited by our strong performance over the past few years and look forward to continue to deliver great results. And with that we'll open up for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Kevin Liu with B. Riley. Your line is now open.

[Kevin Liu:]

Hi, good afternoon. First question, just wanted you to talk a little bit more about your guidance. Obviously you're a little bit more shipping and historically may be some of the volumes might have been down in Q2 and Q3, but looking back across your numbers and considering kind of the net ads and customers that you've had during this quarter, I mean it's been pretty rare that you guys have ever seen that kind of a sequential down tick. So annualizing your guidance out for the full year and knowing that you got a big ramp in Q4, just how to envision why you would come in anywhere south of where you're currently guiding to, at least at the high end, so from that perspective, just kind of curious as to what sort of scenarios you're envisioning, why you would be lower than the high end of your guidance.

[Kenneth McBride:]

Yeah, I mean Kevin we always like to think about all the different scenarios when we provide the guidance and certainly this quarter's no different. As you point out the seasonality in the business has increased overtime and Q4 and Q1 tend to be the seasons strongest quarters that's been exacerbate as we move more and more into e-commerce and multicarrier. So traditionally we've seen a much lower shipping fee than in Q2 as we move into summer time, I think that effect will be likely exacerbated this year, the more we're in shipping and this is really kind of the first full year where we have full - all of the different acquired companies which will largely fall in shipping. So I think we're just looking at different scenarios and of course trying to remain conservative in our guidance.

[Kevin Liu:]

Understood and is there anything that's changing in terms of kind of the economics of the relationships you have whether it's with the USPS or other partners that would prompt some conservatives on guidance or is it really just kind of the form you're going about guidance the same way you always have.

[Kenneth McBride:]

Yeah, there's nothing that points you specifically and of course we wouldn't be disclosing specifics of the partnerships, but it's just the same approach we've taken in years past and we don't really expect any material changes to any kind of the underlying economics or the revenue share agreements that we have.

[Kevin Liu:]

Great and just a quick question on ShippingEasy, what was their revenue contribution for the quarter and then looking at their website, they do have modules in place for inventory management and accounting integration, so I'm curious what sort of color you can provide on the attached rates that you see for those products?

[Kenneth McBride:]

Sure, we don't break out the specific revenue for any of the sides actually and in terms of the inventory management, it is a solution that they really have - they really kind of launched it late last year and it's rolling out to the customer base this year. I think it's a great solution that they built and it's still version 1, so they're going to continue to enhance it. But it's a natural solution when you look at the shipping profits of the customer and as these customers scale up and they move from a lower volume to a higher volume product like ShippingEasy and that will be one of the big pain points they have is trying to manage their inventory. Particularly , they start to look - they get larger and larger and they start having different channels as well as different locations. So for instance a customer could be fulfilling out of their own house, they may be using fulfillment by Amazon, they may even have their own fulfillment house or even two. And so as you start to look at managing inventory across all those locations and having a real time update, have to go back to like an Amazon for instance where your stock levels have to go back. You're not selling the products you don't actually have on hand. And then generating the kind of the profits of the ordering, the purchase order. So it's really a key solution, really big pain point for these customers as they get larger and it also is something that could be bolted on to the shipping features very easily and it makes a ton of sense to naturally experience in that direction. So they launched version 1 and it's getting great feedback from the customers, they're learning a lot and they 're continuing to enhance that product and we have a lot of optimism that's going to be a really good product going forward.

[Kevin Liu:]

Alright, sounds good. Congratulations on another strong quarter.

[Kenneth McBride:]

Thanks Kevin.

[Operator:]

Thank you. And our next question comes from the line of George Sutton with Craig-Hallum. Your line is now open.

[George Sutton:]

Thank you. When we look at the organic growth which by my math is in the mid 20% for Q1, can you give us a sense, was there anything unusual in the quarter, one time in nature that we shouldn't expect to continue going forward.

[Kenneth McBride:]

No, nothing really unusual, I mean we didn't - as you know we really didn't break up the organic growth, but the quarter is pretty much business as usual.

[George Sutton:]

One thing that is very encouraging from my perspective is, you had 41,000 net new customers in the quarter. If I look back to last year, that number was 12,000 and we were expecting 16, so you obviously have a lot more customers going forward. Could you talk about the composition, you did mention you're so focused on shipping customers. Obviously that would be a lot of shipping customers, so just wanted some clarity there if we could.

[Kenneth McBride:]

Yeah, sure, I mean we had a great quarter in terms of acquisition. We saw really good results from all of our different channels and so that acquisition was both our traditional small businesses, but increasingly we're acquiring a whole lot more shippers, e-commerce shippers, there's just more of them as they come into being and as e-commerce continues to grow nicely. So we've seen - I think we saw a great success in the quarter on acquisition, new customer acquisition. And then also naturally our churn rate has come down over time, so those two obviously work together. So the churn rate in the first quarter at 2.4% was down versus 2.7% in the same quarter last year. So it is continued focus on acquiring the shipping customers continuing to meet their needs and continuing to retain those customers, which allows us to grow the total customers faster and then as we ramp up the acquisition that adds as well. So I think kind of across the board we had all the levers correctly and that was where the growth came from.

[Jeff Carberry:]

The only thing I want to add George. When you look at year-over-year, I would want to remind you though that ShippingEasy is not anniversary yet, so that is if you were to incorporating the analysis as well.

[George Sutton:]

Good point and relative to the CRM and inventory management opportunities and that's currently coming from ShippingEasy, can you talk about over the next few years is that something you would envision being offered by all the different brands.

[Kenneth McBride:]

Yeah, I think it's - the approach that we're taking in different brands is really different and we like the fact that - in the case of some of our brands were kind of going. I mean, I mentioned all the different features and as you look across the different solutions out there, they really have a lot of things in common, but a lot of things that are different. And so as we go into customer with our sales team or what we do in marketing, it's nice to have instead of one product and one brand that we had three years ago, we have five and each of those solution has a different set of capabilities that meets the particular customers need. So you walk in the door and they want a particular integration with an e-commerce tool and say ShippingEasy supports that or ShipStation and perhaps the other ones don't, then we would offer that solution. In case of the inventory management, we do have some inventory management capabilities in ShipStation. However, the ShipEasy is really kind of going deeper in that area and we do - we like the fact that they're building out that product because in case of ShipStation, they really do have a ton of integrations and a ton of carriers, there's 32 carriers, there's 150 total integrations there. So pretty much no matter what you do with an e-commerce tools or marketplaces or carriers, ShipStation covers you. ShippingEasy is really kind of spending more effort going into the solution, the parts of the solution that we don't really do as much in other areas. So like the inventory management and the customer relationship management, so we're excited about those efforts. They make a ton of sense for shipper, their pain points, the inventory management I just discussed, same thing with the customer relationship management. These are pain points that we're hearing directly from customers and so it's just meeting the pain points and solving those problems. So to the extent a customer would want a CRM solution and they're using one of our products. We may say, well you should try ShippingEasy because it's got that covered and they may switch over. So we like the kind of diverse approach between the different brands that we're taking.

[George Sutton:]

We see these as very logical pivot, so makes sense. One last question for Jeff, can you just give us cash from operations and/or free cash flow?

[Jeff Carberry:]

Yeah, that should be - so cash from operations for the first quarter was approximately 49 million.

[George Sutton:]

Okay, perfect. Thank you.

[Jeff Carberry:]

Yeah, that's free cash flow from the business.

[Kenneth McBride:]

Thanks George.

[Operator:]

Thank you. And our next question comes from the line of Allen Klee with Sidoti. Your line is now open.

[Allen Klee:]

Yes, hi. What would you say your biggest technology challenges are as you're going to be focused on this year?

[Kenneth McBride:]

I think it's - obviously we continue to just add more features and capabilities. I think we're still in the process of pulling together all the parts from all the acquisitions and really trying to centralize a lot of those, so we can remove all the redundancy. I think we've made a lot of progress so far, but trying to get to a platform where we have a single set of backend and kind of a single set of frontend solution. So that process I'll say, consolidating our data centers, we have four data centers, we actually have five total, but consolidating down the two data centers that we acquired with Endicia where we're finding the servers along with the two data centers we're running with Stamps and consolidating that down into only two is a pretty major process and we're working on that this year, also consolidating down the backend capabilities of having largely two sets of servers from Endicia and Stamps that are doing the same thing side by side. Really trying to consolidate that down, so there's a pretty major effort technology wise to kind of move everything on to a single backend and a single frontend solution in two data centers, one for the main solution and one for the backup. So that's what's keeping us busy right now.

[Allen Klee:]

Okay and you guys used to provide for the whole company, when you were mostly a subscription business, the kind of the ratio of lifetime value of a customer divided by the acquisition cost. Is there something you could tell us of how - when you look at a shipping customer, how that number compares to the numbers that you used to put out?

[Kenneth McBride:]

Yeah, sure, I mean I think we used to make comments, sort of generic comments about our lifetime value of our customers gain more than two times the customer acquisition cost and as you know that's sort of tacks in the low 100 and so that implies 200 something of lifetime value. When you look at a shipper, you oftentimes receive at least the same monthly subscription fee, but in many cases a lot more. So shipping solutions we have anywhere from 29 to 99 to even 149, so it depends on the volumes. So to start off those customers have a much higher average subscription fee they pay us versus the base line of $16 that you get with the small business. And then as we've mentioned many times, shippers have additional revenue shares that we have with various partners, where they're based on volume, so that's not something we really get in the small business, traditional business and they also buy insurance. And so in general their life time value was several factors higher and so we also feel that it's okay for us to spend a little bit more money to acquire those because we're really looking at the ratio of the two and I think we feel that our allies in the shipping space is great. In fact, it's better than it has been traditionally in the small business.

[Jeff Carberry:]

The other thing to bear in mind Allen is the churn rates for the shipping customers that we talked about more holistically in the past, those are lower. I mean you're seeing that manifest itself in the company level churn rate, so they kind of dry down the average churn. So I think both factors are important when we look at the lifetime value relative to CPA.

[Allen Klee:]

Okay, thank you. And then a competitive question, Pitney Bowes has mentioned they're making efforts into shipping APIs, so I'm just wondering if you can comment, if you've seen any kind of change in the competitive environment for hard volume shippers?

[Kenneth McBride:]

Yeah, I mean I think Pitney has made a lot of announcements recently in the last year in terms of all the different things they're working on and obviously we never underestimate anything that Pitney Bowes says, as we've been competing with them for 18 years. And so I think when you look at the APIs specifically side by side, APIs are very, very complicated to build and we first launched our API back in 2004 and so - and over those times - over the time since we launched there's been continued enhancement. So while in the outside looking in it may seem like an API and API there's actually a significant amount of technology behind it such as the capabilities you offer, the ability to inference some broader set of mail classes you may support, things like return labels, customization labels, their reliability. The solution is critical and our solutions are typically 39s or higher in terms of reliability and that's something when a partner is looking at an integration and they're talking about their customers. Their customers feel every outage that happens on our solution or our partner's solution, so having high reliability is critical and then speed is very important too, as you're looking at the solutions there. The shipping solutions and these customers are doing, in many cases hundreds of labels all at once when they hit the print button, so the speed of reaction time of the API is critical too. And so I think as a company who's launching say a multicarrier solution in the market, there's a huge risk of basing your solution and your entire - really betting your entire business on a API that has been bettered where when you look at our API and the 2 billion transactions a year that we process is more than 39s of uptime. If you want to bet your company on a solution that's going to be there, that's going to be us. And so I think we've seen some small success in the market where we've gone up against technique. We've actually seen some companies that have moved over and come back and told us very specifically that their having issues and that they have problems with the bugs and the solution and the uptime. And so net-in- net we haven't really seen a whole lot of impact from it.

[Allen Klee:]

Great thanks. And then lastly I just had two modeling related questions. I missed what you said for guidance for CapEx and then on the tax rate, I might have understand that we should be modeling 32.5% for each of the next three quarters. And is the reason that 32.5% is different from the 40% that you had previously said, mostly just attributable to the stock based comp issue. Thank you.

[Jeff Carberry:]

Yeah, so the 29% is the projected rate for the full year. So the actual rate one might expect in the subsequent quarters would certainly be definitely higher. So reason for the rate being loser than 40% is really large number of option exercises we had in Q1 and that lowered our tax rate, our non-GAAP tax rate and GAAP tax rate. And then secondarily, with the adoption of ASU 2016-09, that now requires us to incorporate the effects of that in terms of adjusting to our tax expense as it now represents the financials. Whereas in the past it floats with equity, so it's really those two effects. So if you're modeling quarterly, the rate could be higher than 32.5, but if you're modeling for the full year, we recommend at 32.5% tax rate on a Performa basis.

[Allen Klee:]

And CapEx?

[Jeff Carberry:]

CapEx, 5 million to 8 million.

[Allen Klee:]

Thank you.

[Operator:]

Thank you. And our final question comes from the line of Darren Aftahi with Roth Capital Partners. Your line is now open.

[Darren Aftahi:]

Hi guys, thanks for taking my questions. There's two if I may. First, when you look at sharing on your businesses, you shift more towards shipping customers, what do you think is the realistic long-term churn rate, I mean is it something sub 2, is that realistic and I have a follow up.

[Kenneth McBride:]

Yeah, I mean as time goes on and I think we said 70% of our business is shipping. Now, we expect that to obviously continue to grow. The non-shipping business is growing in the single digit, so over time shipping continues to outgrow that and so the shippers are - we do have customer segments in shipping that are sub 2s in terms of churn, so that's not an unreasonable expectation in the long term that we could get down to that level.

[Darren Aftahi:]

Got it and then just one more, we've heard some chatter that the USPS is kind of let around the participants in the reseller program with some potential changes. I'm just wondering if you any commentary around that and what are the Stamps kind of receive that letter. Thanks

[Kenneth McBride:]

There was no letter. The rumor is false. I mean think I tried to point out some of the broad global understanding of what the USPS and the partnerships they've done and the revenue share they've offered out to us in the reseller and the e-commerce industry in general. I think that one of the key things to focus on is, are they being successful or not and therefore are they going to make changes or not. And when you look at the big numbers, I mentioned they're growing at 16 % last year. They're outgrowing the industry by 2X and so USPS is having a ton of success in e-commerce particularly and so in their shoes you got to ask yourself would you make a major change when you're growing twice the industry rate. There are very happy with how things have gone. The revenue shares they've offered to the industry to e-commerce have generated a lot of activity focused on them. They're winning the e-commerce marketplace and they're being very successful doing it. USPS is very happy with the approach they've taken in business model and they're very happy with the relationship with Stamps.com. We talk to them constantly, to the more senior folks there, so we're happy and they're happy. The letter information has been propagated we believe is part of the strategy with our stock, so it's not true.

[Darren Aftahi:]

Great, thanks for the clarification.

[Operator:]

Thank you. We have a follow up question from the line of Allen Klee with Sidoti. Your line is now open.

[Allen Klee:]

Yes, I was just curious. I hadn't heard anything, but have you heard anything from the Trump administration in terms of their view towards the US post office and how they view it as something to support. Thank you.

[Kenneth McBride:]

Yeah, I think it's got a lot on their plate and there hasn't been a whole lot of focus on - in this area by the Trump administration. I think currently there's no Board of Governors except for the Postmaster General and the Deputy Postmaster General. So that's an important task that needs to take place. He needs to appoint a Board of Governors, which is effectively the Board of Directors. So I think that will be a key thing for them to get done and there's been certainly some discussion around the ageing fleet of the post office, 200,000 vehicles that are out there. So I'm sure that with Trump at the helm they'll buying American, but there hasn't really been a whole lot of activity.

[Allen Klee:]

Okay, thank you again.

[Operator:]

Thank you. And this concludes today's Q&A session. I'd now like to turn the call back over to Mr. Ken McBride.

[Kenneth McBride:]

Thanks. We appreciate you turning in for the call today and we wish Kyle get well soon. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.