Stamps.com Inc.
Q3 2017 Earnings Call Transcript

Published: 3 Nov 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Third 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, Suzanne Park. Please go ahead.

[Suzanne Park:]

Thank you. On the call today is Ken McBride, CEO; Kyle Huebner, President; and Jeff Carberry, CFO. The agenda for today’s call is as follows. We will review the results of our third quarter 2017. We’ll provide an update on elements of our business model and partnerships. We’ll discuss our financial results and talk about our business outlook. And finally, we’ll provide some comments on our long-term 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 invoke 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 its 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 the call today include non-GAAP financial measures. In the third quarter of 2017, GAAP net income was 46.2 million and GAAP net income for fully diluted share was $2.49. Our non-GAAP financial measures exclude the following third quarter items

[Ken McBride:]

Thanks, Suzanne, and thanks for joining us today. Today we announced strong third quarter financial results which included total revenue which was 115.1 million, that was up 24% year-over-year, non-GAAP adjusted EBITDA which was 56.6 million that was up 24% year-over-year, and non-GAAP earnings per share of $2.68 which was up 73% year-over-year. I am pleased with our overall financial performance during the third quarter. Let me turn to a little bit more detailed discussion of the mailing and shipping business, as a reminder the mailing and shipping numbers we discuss include service fees, partner rev shares, product sales in our online store, and the package insurance we offer to our customers. Mailing and shipping revenue was $106.5 million in the third quarter that was up 21% year-over-year. The growth in mailing and shipping revenue is driven by both growth in paid customers and growth in the average revenue per unit or ARPU. Our total paid customer metric was 736,000 and that was up 13% versus the third quarter of 2016. We're pleased to see solid growth in our seasonally weakest quarter. We're now seeing double-digit year-over-year growth in our paid customers each quarter of 2017; the first quarter up 11%, second quarter up 14%, and now the third quarter up 13%. The average monthly churn rate during the third quarter was 3%, just flat versus the third quarter of 2016. The churn continues to benefit from our focus on shipping customers who tend to have lower churn rates compared to our traditional small business customers. Note that three years ago our third quarter churn metric was 3.4% so we've continued to see a nice long-term downturn in that metric. The average monthly revenue for paid customer or ARPU was $48.23 in the third quarter and that was up 7% versus the third quarter of 2016. Growth in ARPU benefitted from the continued growth in our shipping business because those customers pay higher subscription fees and we collect additional partnership revenue share in that area. Total postage printed through all our solutions was 1.4 billion in the third quarter and that was up 8% versus the third quarter of 2016. We would note that the total postage growth includes slower growth traditional mail postage, as well as the higher growth shipping postage. Our management team and all of our employees are very proud of the continued financial and business success we’ve generated for our shareholders. With that, let me provide an update based on a subset on some of the initiatives we're working in 2017 we're continuing to work on. First, we’re continuing to leverage the product portfolio of mailing and shipping solutions to drive continued strong growth. The acquisitions we’ve made coupled with our traditional solutions, we now have a full suite of diverse solutions across our five brands, ShipStation, ShipWorks, ShippingEasy, Endicia and Stamps.com. Our product solutions meet the need of a broad array of target customers that include ecommerce merchants, warehouse fulfillment houses, larger retailers and other types of shippers. While we believe we're already successfully meeting the majority of needs of our target customers, we plan to continue innovating, adding more and more features and 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, and customer relationship management as those complement the shipping process for many customers. The second initiative for 2017, we plan to continue to invest heavily in the sales and marketing with the focus on acquiring shipping customers, and in particular e-commerce shippers. Our return on investment continues to be strong and we plan to continue to increase our total sales from marketing expense in 2017 versus 2016. We're planning to continue increasing investment in direct sales, direct mail, traditional media, radio, television, and search engine marketing. We also intend to continue to direct an increasing amount of our customer acquisition budget into the e-commerce segment. Finally, we're going to continue capitalizing on the synergy opportunities with our acquired companies. Across all the products and services, we’re realizing in synergies in sales and marketing, operations, customer service, and in product development from all of the acquisitions we've done over the past three years. In the marketing area, Stamps.com and our acquired companies have historically targeted many of the same customers. We plan to continue utilizing our marketing expertise to accelerate the growth in all of our brands. We have also leveraged technology expertise across the companies including web-based and client-based expertise, various operating system expertise, various methodologies and paradigms for product development and other things. We're also able to eliminate duplicate operations in several areas across our various acquired companies. For example, we have been able to streamline several areas of our backend datacenter. We have been able to combine several areas of operations and we have unified our customer support operations. As one last point on synergy, we brought significant financial resources to our acquired brands, and have used those resources to expand their marketing and their product development activities. Today we're announcing the retirement of our Chief Legal Officer, Seth Weisberg. Seth has been at Stamps.com for more than 18 years and over that period has made significant contributions to the company. Seth is planning to transition to retirement in January of next year in order to spend more time with his family. Seth will continue to serve the company on an ongoing part-time role and will hold the title of Chief Legal Officer. We're pleased that we will be able to continue to benefit we won't be able to continue to benefit from Seth's extraordinary legal expertise and the deep knowledge of our industry. With the transition of Seth, we promoted [Matt Lipstein] to Chief Legal Officer effective following Seth's retirement. Matt has been an integral member of Stamps.com legal team since joining the company in 2002 and has served as Senior Council, Associate General Counsel and Deputy General Counsel for the past 15 years. Matt has a very deep knowledge of our industry and has over 20 years of experience as an attorney. We wish Seth the best and thank him for his long and valuable service to the company. And with that, let me hand the call over to Jeff for a detailed discussion of our financial results.

[Jeff Carberry:]

Thanks, Ken. We’ll now review our third 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 $116.1 million in Q3 and that was up 24% year-over-year versus Q3 of 2016. The strong growth in Q2 revenue was driven by strong growth both in mailing and shipping and customize postal businesses. Mailing and shipping revenue was $106.5 million up 21% year-over-year versus Q3 of 2016. The growth in mailing and shipping revenue was driven by increases in paid customers and ARPU, as Ken described earlier. We would also note that the anniversary of our ShippingEasy acquisition was a meaningful headwind in Q3. With the year-over-year growth rate in Q2 of '17 excluding ShippingEasy being 28% Mailing and shipping gross margin was 86.9% in Q3 versus 86.0% in Q3 of 2016. The increase in gross margins was attributable to growth and service revenue which has a higher gross margin and accounted for a higher percentage of revenue. We experienced year-over-year increases in our Q3 costs of sales and marketing, R&D and G&A, primarily related to our continued investments to support the strong growth in our mailing and shipping business. Sales and marketing and G&A costs as a percent of revenue are all approximately flat to down year-over-year, while R&D is somewhat higher year-over-year as we've recently increased our hiring material to continue driving innovations. Non-GAAP operating income was $55.1 million in Q3 and that was up 24% year-over-year versus Q3 of 2016. Adjusted EBITDA was $56.6 million in Q3 and that was up 24% year-over-year versus Q3 of 2016. Non-GAAP adjusted income per fully diluted share was $2.68 in Q3 and that was up 73% year-over-year versus our Q3 of 2016 non-GAAP adjusted income per fully diluted share of $1.55. Fully diluted shares in the EPS calculation was 18.5 million for Q3 of 2017. Q3 of 2016 was recast using our 2016 effective tax rate of 35.7% to conform to our current methodology and for year-over-year comparability purposes. We would also note that Q3 of 2017 benefitted from the reduction of our expected tax rate for 2017 from 32.5% for full-year 2017 to 20% for fiscal year 2017 and which was primarily driven by option exercise in the third quarter which created a GAAP income tax benefit of 11.4 million this quarter. We ended Q3 with $184 million in cash and investments which was up $73 million to a $110 million at the end of Q2, '17. The increase in cash and investments was primarily driven by strong operating free cash flows, option exercises and changes in net working capital which is partially offset by share repurchases. During Q3 we made a required principle repayment of 1.5 million resulting in total debt under the credit agreement excluding debt issuance costs of approximately $134 million. During Q3, the Company repurchased approximately 89,000 shares at a total cost of approximately 15 million and for the first three quarters of '17 the Company repurchased approximately 818,000 shares at a total cost of approximately $103 million. On October 24th of 2017 the Board of Directors approved a new share repurchase program that will take us back upon the expiration of the current plan on November 10th of '17. And that plan offers us company repurchases up to $90 million of stock over the six months following its respective dates. Now, turning to guidance. We continue to expect fiscal 2017 revenue to be in a range between 435 million to 460 million. We expect 2017 revenue to continue to be driven by continued focus on growing our e-commerce-driven shipping business. We expect sales and marketing, R&D and G&A to increase in 2017, generally 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 could see increases in any given quarter higher than revenue growth rates. We continue to expect fiscal 2017 adjusted EBITDA to be in the range between 220 million to 240 million. We expect non-GAAP tax expense to be approximately 20% of non-GAAP pre-tax income for 2017, and that compares to our previous estimate of 33.5% for 2017. As we discussed earlier the reduction of our expected rate for 2017 was driven by the level of our option exercises in the third quarter of this year. Our full year 2017 effective tax rate continued differ from our current estimates based on the number of factors including the level of option exercises. We expect fully diluted shares to be between 18 million and 19 million in 2017. We expect fiscal 2017 non-GAAP adjusted income per diluted share to be in the range between $9 and $10 which compares to previous guidance of $7.50 to $8.50. The increase in our non-GAAP adjusted income for fully diluted share guidance was primarily driven by our revised non-GAAP tax rates. Our 2017 non-GAAP adjusted income per diluted shares items compares to our 2016 non-GAAP adjusted income per diluted share of $5.88 which was recast to conform to the current tax [method talked earlier]. With our increased focus on shipping, we expect our revenue and financial results to exhibit seasonality reflective of customers shipping usage during the year. In particular, we expect the fourth quarter to be higher than the other three quarters due to seasonally strong Q4 holiday shipping period. And finally, we expect capital expenditures to be in a range between 3 million and 5 million in 2017. Now with that, let me hand the call back to Kyle for some comments on our long-term outlook.

[Kyle Huebner:]

Thanks, Jeff. We've achieved the significant transformation of our business over the past few years with our acquisition and focus on shipping. The significant majority of our investment in the business and focus has been on shipping and we expect that to continue over the next five years. We're well positioned to capitalize on the shipping opportunities in our business; we expect the long-term growth rates to naturally benefit from the growth in ecommerce sales which have been growing at 15% year-over-year in 2016 and 2017. In addition, we believe there're opportunities to grow in excess of ecommerce growth rates through increased adoption of our multicarrier and other technology solutions. Shipping related revenue in Q3 grew approximately 30% year-over-year. This growth was all organic as we anniversary the ShippingEasy acquisition. So, we are still growing much faster than the overall ecommerce market. In addition, we believe there are opportunities to expand and grow outside of our existing shipping businesses today. ShippingEasy continues to make progress on customer management and inventory management solutions. ShippingEasy recently launched automated email marketing as part of their customer management module that help ecommerce merchants increased sales from their existing customers. ShipStation continues to invest in international shipping solutions for countries including Canada, the UK and Australia. Our five-year revenue growth rate target is 20%, while we continue to execute on our non-shipping businesses we expect that our revenue going forward will be driven more by the shipping business. Our current revenue growth reflects the slower growth in non-shipping businesses, which we expect to grow in the low to mid-single digit range. Thus, we would expect their long-term revenue growth rate to approximate our growth in the shipping part of the business as it becomes a larger and larger percent of our total revenue over the next five years. We expect our five year adjusted EBITDA margins will be in a range similar to up modestly compared to our current margins. While there may be the potential to expand our merchants overtime we are more focused on investing for revenue growth as opposed to expanding margins at the expense of growth. In summary, we are excited by our continued and strong performance and look forward to delivering great results in the future. And with that we will open it up for questions.

[Operator:]

[Operator Instructions] And our first question comes from George Sutton from Craig-Hallum. Your line is now open.

[George Sutton:]

There is just fair amount of confusion I sense because of the seasonal factors that are going on relative to Q3 and the better shipping seasons that we're about to go into. So, when we look at the postage growth of 1.4 billion in the quarter that was showing a slower growth rate but that also is -- that quarter has driven a lot by the smaller players not the larger shippers that you see in the holiday season for example. Can you just kind of clarify that relative to sort of what we might see in terms of postage growth in that other things that go with that in the fourth quarter and first quarters.

[Jeff Carberry:]

Yes, so George one thing to bear in mind with the postage number the metric we provide is that a metric is total postage that includes mailers as well as shippers. So, you are absolutely right to point to the seasonality with shippers and then the other thing I point to you is the fact that our mailers they are seeing the secular trends that we see with USPS. So broader mailing volumes non-shipping related volumes maybe in a secular decline but they are still great customers with us because of the diversity of postage that they print so you don’t see that reflection in our churn rates. But you do have this artifact of our postage metric that we give and that total postage metric reflecting both what you could potentially assume to be secular declines in mailing combined with broader increases in shipping.

[Ken McBride:]

The other thing I would mention George is that with large shippers none of them are going to adopt new solutions in Q4 with the holiday season and so it's possible to have we're shipping customers that are implementing and testing a solution in Q3 that aren't going to show up in those numbers but then you get the benefit of the shipping volume in the holiday period, and I also think as with the shipping the business days are dramatically higher than weekends or holidays and so you're going to see based on the mix of business days, and weekends and holidays kind of fluctuations and quarterly year-over-year growth rates, so we don't think anything has fundamentally changed in the business and are excited for Q4.

[George Sutton:]

Now in your prepared comments you talked about investing in sales and marketing a bit more aggressively focusing on acquiring ecommerce shippers, can you talk a little bit more about what you mean by investing in the sales and marketing or are we talking direct sales force, I just want a little more clarity?

[Ken McBride:]

I think as everything we've talked about in the past just kind of ramping it up more, so we're talking about the direct selling effort which we expanded over the last couple of years including when we acquired Endicia, and then it's traditional channels like direct mail and television, radio, SEM and so I think it's more of just as we look into our mix of marketing and sales there's an increasing amount of that going into targeting specific ecommerce areas of the internet, targeting specific ecommerce users, buying direct mail that are heavy in ecommerce and so I think it's just -- over time we've really shifted our focus of our overall sales and marketing budget more into ecommerce focused areas of our marketing programs.

[George Sutton:]

Lastly if I could, both FedEx and EPS have raised prices for the holiday season have some surcharges in place. I'm curious your thoughts on that relative to your focus with the postal service in terms of volume potential?

[Ken McBride:]

I think that generally speaking we track the percentage increases of USPS versus other carriers and so the most recent announcement were for the shipping services products for the USPS the average is about 3.9% increase and UPS their plans that they’ve announced are to increase an average of 4.9% and then FedEx also about 4.9%, so you're seeing USPS come out with a lower increase which is good I think from a competitive perspective, we continue to see USPS as very competitive particularly in the segments where they're strong, they're very strong in ecommerce, very strong in residential delivery and then very strong in smaller packages, so, and I think we're pleased to see the continued trend on the USPS as you know we succeed when they succeed. So, we were happy with the percentages we saw and I think also you've seen some from UPS in particular some rate changes that increased their rates around high peak periods, and so to the extent that that also played out in Q4 that's effectively another price increase that they're implementing, so in the case USPS they're even more competitive in those peak periods.

[Operator:]

Thank you. And our next question comes from Kevin Liu from B. Riley. Your line is now open.

[Kevin Liu:]

Just a couple of questions in terms of the competitive landscape and first off just kind of curious as to whether you have seen the shipping APIs start to gain any sort of attraction with some of your existing customers. And then more broadly you are seeing then you go out and acquire and [indiscernible] which is more of an asset heavy operation and with news like Amazon looking to expand their Seller Flex program just curious how you guys think about competition from these types of fulfillment services and whether or not you guys would have or have an interest in moving in that direction?

[Ken McBride:]

Sure. So, like five different questions, so let me try to go it down through them. So, in terms of API I think obviously we take Pitney Bowes seriously as the competitor but really, I would say we haven't seen a major impact from that in the marketplace. In fact, we've seen some partners who've actually switched some of the business over and then came back to us complaining about slower performance and bugs and issues. So, I think in general the API is something that's pretty complicated to build we've been doing it for a very, very long time. We have more than a dozen years invested and there is a really sophisticated set of features that we offer that nobody else does and so I think speed, reliability, breadth of mail classes you support and ability to do things like customization for your solution are really important and API is not an API and so as we look out and we are competing against the likes of Pitney Bowes in a market where we are not really seeing a big impact from that. I think specific to the logistics acquisition I think we saw the acquisition and we really it's primarily a logistics company they have warehouse space 1.2 million square feet of warehouse space they have trucks and so it's not the kind of business we really ever been interested in. They are really a company that picks up and drops packages off and utilizes USPS for their first and last mile and they are really competing with the likes of FedEx, Smart Post and USPS Sure Post and DHL eCommerce, and that acquisition was very consistent with Pitney Bowes and they are focused historically on logistics. They already do a lot of logistics around sharing some of the work with the USPS and in some of their [presold] businesses and so I think it made sense for Pitney to some degree -- we do work with [Indiscernible] as a partner, we see Pitney Bowes as -- that's the logical acquirer but it's not really something that we really been interested historically primarily, we focus on software and we focus on high margin business and that's not really a high margin business. In terms of Amazon you mentioned the new Seller Flex that they came out with. When you really boil that down to what it is, it's really an extension of something they've been doing for very long time which is Fulfillment by Amazon or FBA as we call it. The only difference is that where the inventory has held and in the case of FDA the inventory is actually shipped to an Amazon warehouse and in the case of Seller Flex the merchandise continue to be held at the sellers facility and then Amazon is still the carrier and picks up and delivers the merchandize and we really view Fulfillment by Amazon is just another one of the carriers that we support, we support over the 35 carriers they are one of them and they are often used as part of the mix for a small business when they are looking at optimizing their operations across carriers, fulfillment by Amazon is one of them and as we go forward, Seller Flex will be something we would view as an enhancement to our solutions, something we would support and something would give customers more options for fulfilling their products.

[Kyle Huebner:]

I would just say more broadly in terms of fulfillment as Ken said is very operationally intensive, tends to be low margin, low return on assets and so that's not really our core confidence though I think we would look to more partner with companies where that is their core confidence if it creates value for the customers as opposed to acquiring or getting into the business or so.

[Kevin Liu:]

And then just one quick one, can you talk about what sort of traction you have started to seen from some of the adjacent offerings for shipping you see, so things like CRM and email, just kind of curious if you feel like that's contributed much to results yet?

[Ken McBride:]

I think at this point I would say it hasn't contributed really to the overall results but I think we've made a lot of progress in terms of building the solutions and functionality and we -- and move from kind of a free trial, free service offer to charging customers for it, we have seen adoption within shipping easy to customer base, but it's something that I think more in terms of three to five year picture with some areas that we think we can create a lot of value for customers and it could become more relevant and significant to our results as opposed to where we are today.

[Operator:]

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

[Allen Klee:]

Can you just explain a little more the change in the tax rate assumption and has something changed that we can maybe think it'll be a lower tax rate going past '17?

[Jeff Carberry:]

So, in terms of the tax rates, as you would recall, we adopted [ASU 2016 09] this year that requires the tax attributes of option exercises to flow through P&L and what you saw in the third quarter and what you saw and really the first [indiscernible] as well to a lesser degree is option exercises creating a tax-deductible item for us in our P&L that reduces our effective tax rate; so, you saw in Q3 actually it's benefitted result of the option exercises. So, what you do is as you look at what that effective rates likely be for the full year, and that's why we saw historically -- what we saw earlier this year was an effective rate expectation of [37.5%] with the tax benefit we got in Q3 that forces us to revise our estimate for the full year and that new revised estimate is 20%, but the primary driver of option exercises so, if you look at 2018 there're lot of variables that are very difficult to forecast as they look all of equal expect a marginal tax rate in 2018. But obviously there're a lot of variables there in terms of booked tax differences, timing differences, option exercise behavior, pending tax legislations, so, to be safe for 2018 given current knowledge and assumptions I would assume 40% tax rate but obviously things could change that could cause us to revise that rate.

[Jeff Carberry:]

I would just add, at this point we've used the majority of our NOL and tax assets so really the tax rate is going to be driven by option exercise reductions which are very volatile and fluctuate quarter-to-quarter, so I think you are just going to have a situation where the tax rate is going to fluctuate a lot more going forward and almost to some extent makes the EPS numbers or what all less relevant relative to adjusted EBITDA and pretax income.

[Allen Klee:]

Can you give us some impact in the quarter of Amazon taking in some of their business in-house?

[Jeff Carberry:]

We don’t quantify the impacts generally speaking of an any given partner, it certainly was headwinds in the quarter but we don’t really provide to relative sizing but to be fair it was certainly a headwind for us for the quarter with the balance of the Amazon business going in-house to Amazon.

[Operator:]

Thank you. And our next question comes from Tim Klasell from Northland Securities. Your line is now open.

[Tyler Wood:]

Yes, this is Tyler Wood on for Tim. Quick one, given like globalization we are seeing with ecommerce, are you seeing some opportunities for Stamps selling those shipping services from nations with ecommerce volumes coming into the U.S. and then how are you approaching filling into that market?

[Ken McBride:]

Yes, so I think there is if you look at Stamps our traditional model we were an approved PCs postage vendor of the full service and so for the past 18 years we didn’t really pursued the international market because of the complexity of being regulated by the individual markets overseas and so I think as we look at it now what we see is more of the ShipStation model where the value to the ecommerce merchant has been a multi carrier, solution that can optimize shipping for ecommerce merchants across different carriers whatever the carriers happen to be in a particular country but where you are not a regulated entity actually producing the shipping label so that's kind of as we look internationally we see more of that business model as opposed to the traditional PC postage business model.

[Tyler Wood:]

And then one more in terms of integrating those acquisitions and getting all those kind on a single backend, how are you seeing that progressing particularly with the datacenters?

[Ken McBride:]

Yes, I think we're continuing to march forward on that effort, it's not simple but I think we've seen really positive results in a lot of the operations areas in terms of combining not just the datacenters but also the customer support organizations putting together the R&D development teams and I think we're pretty far down the path now in terms of realizing the benefit of the really primarily with the [Indiscernible] acquisition and seeing the resulting cost savings there.

[Operator:]

Thank you. And our next question comes from Darren Aftahi from Roth Capital Partners. Your line is now open.

[Darren Aftahi:]

Just if you can talk a little bit about the implied 4Q guidance, do we see seasonality uptick here, keeping your revenue and EBITDA unchanged, is it the low end [indiscernible] on a negative rate, I'm just kind of curious if there's any kind of noise assumed in that competitively or what not and then why this [indiscernible] kept where it is?

[Jeff Carberry:]

So, in our guidance range, our methodology and really kind of conceptual frameworks [indiscernible] range that provides both upside and downside, we generally don't kind of decrease the range as we move through the year although certainly we expect to see greater precision. So that the downside assumes, a number of downside scenarios which may or may not be very likely to happen. I think the key to understand in terms of our results when you look at Q3 obviously you can see the volatility that you have on customized postage, that business we talk about quite of a bit in the past is highly volatile, there're business orders there so becomes very difficult to predict. So, I think that's something you need to control for in terms of the volatility. The other thing I think is key to understanding really the core of the business, as Kyle mentioned on the shipping side of the business saw 30% growth year-over-year, and that's a number that reflects really a clean number where [indiscernible] we anniversaryed all the acquisitions. So, I think when you look at the fundamentals of the business 30% shipping growth, volatility with customized postage and with the 30% growth that would imply low single-digit numbers for non -shipping, non-customized postage, you can see how certain aspects of the business really add to the drag on the core of the business which is shipping, so that helps but I think in some of the context around what you see with Q4 numbers in terms of the guidance implied.

[Darren Aftahi:]

Just as a follow-up with the customized postage in the quarter, I mean you had a substantial jump and I get that kind of moves around but was there anything kind of driving that specifically in 3Q?

[Jeff Carberry:]

[indiscernible] I could point to, you simply have at the end of the day quite a bit of ramp in this in terms of customized postage, the primary driver of that number and especially in terms of volatility are business orders, and that's a function of individual business to decide at any point in time they want to run a marketing campaign where they brand it with the postage, those are highly unpredictable and they really isn’t any natural seasonality to that, it's really a function of kind of a decision to individual companies at any point in time and there's no predictability there, so that's why that part of the business is very hard to forecast and that's why we discount it heavily in terms of our expectations for guidance.

[Operator:]

Thank you and I would now like to turn the call back to Ken McBride for any further remarks.

[Ken McBride:]

Thank you everyone and as always if you have any follow-up questions you can contact us through our website, investors.stamps.com or on investor line at 310-482-5830. 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 wonderful day.