Stamps.com Inc.
Q4 2008 Earnings Call Transcript

Published: 14 Feb 2009

[Operator:]

Good day everyone and welcome to the Stamps.com fourth quarter 2008 financial results conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Jeff Carvari. Please go ahead, sir.

[Jeff Carvari:]

Thanks very much and good afternoon everyone. On the call today is Ken McBride, CEO and Kyle Huebner, CFO. The agenda of today’s call is as follows

[Kenneth McBride:]

Thanks Jeff and thank you for joining us today. During the fourth quarter, we did $22.3 million in total revenue. Total PC Postage subscriber-related revenue which includes service fees, store revenue and insurance revenue was $18.3 million which was up 4% versus subscriber-related revenue in the fourth quarter of 2007. Excluding the enhanced promotion channels, subscriber-related revenue was $16.2 million which was up 8% in the fourth quarter of 2007 and specifically service fees were up 10% versus the fourth quarter of 2007. PhotoStamps revenue was $4.0 million for the quarter, down 39% versus the fourth quarter of 2007. We reduced the PhotoStamps sales and marketing by approximately 64% versus the fourth quarter of 2007 as part of our continuing program to increase profitability in the PhotoStamps business and that resulted in the decrease of revenue. Our non-GAAP income from operations for the fourth quarter was $2.4 million which was up 4% versus the fourth quarter of 2007. Non-GAAP earnings per fully diluted share came in at $0.16 which was inline with the fourth quarter of 2007. In the current, tough macroeconomic environment, we were happy with the reasonably good performance in our PC Postage business this quarter. On the call today, we will talk about PC Postage business in detail and we will talk about PhotoStamps, and we’ll discuss financial results and our business outlook. Now, let’s begin with a more detailed discussion of the PC Postage business and then we’ll talk about our 2009 plan for that business. As a reminder, the customer metrics we discuss on this call exclude all enhanced promotion channel activity. During the third quarter conference call, we discussed our reduced customer acquisition spending target for the year of 25%-30% growth versus our prior target of 35%-40% growth versus the prior year. We reduced our target for the year previously owing to the weak economy. Our final investment in 2008 customer acquisition spend was up by 26% in 2008. Our acquisition spend for the fourth quarter grew at 9% year-over-year. Last year, during the fourth quarter, we increased spend by a large amount, 74% versus the same quarter in 2006. So this year’s fourth quarter increase was much stronger only to the large increase last year and in order to hit our lower overall spending target for the year. During the fourth quarter, we acquired 66,000 gross customers which were up 1% versus the fourth quarter last year. The fourth quarter was typically our seasonally strongest quarter and we did see a rebound from the third quarter acquisition levels. We believe that the weak economy continues to have a negative impact on our acquisition trends as small business may be less willing to take on new monthly expenses when they are struggling but we were nevertheless happy to see the slight increase in customer acquisition versus last year. We would also note that the USPS did some additional marketing in PC Postage during the quarter which helped our Q4 customer acquisitions. With the high customer acquisitions during Q4, we experienced a decrease in our cost per registered customer acquisition or CPA to $94 compared with $115 in the third quarter of this year. Our CPA for total acquisition spend in 2008 was $100 which we feel continues to provide very good expected return on marketing investment. Our 2008 CPA increased only 11% versus 2007 which we viewed as very positive in light of the 26% increase in spend and in light of the poor economy. Our monthly churn during the fourth quarter was 3.8% versus 3.7% in the third quarter and 3.4% in the fourth quarter of 2007. We believe the weak economy and its impact on small business was the primary cause of this increase in churn. We’ve also seen a general trend upward in churn as more customers are in the early part of their lifetime with our increased investment in new customer acquisition since the beginning of 2007 and this is the natural result of our standard trend pattern. The combined impact of the weak economy, lower marketing spend and incrementally higher churn resulted in slower year-over-year growth of all paid customers with paid customers in the fourth quarter 2008 ending at 311,000, an increase of 6% versus the fourth quarter of 2007. We did see a 2,000 customer decrease in paid customers versus the third quarter. Although we were not happy to see that outcome, we do feel good in light of what is going on in the world; we were able to maintain our customer base at a relatively consistent level quarter to quarter. Again, all the numbers we just gave excluded all enhanced promotion channel activity. Our mailing and shipping supply store revenue was flat versus the same quarter last year. We believe that customers continue to purchase fewer supplies as the business activity slowed in the fourth quarter. In the Enterprise PC Postage area, we continue to make good progress during the fourth quarter. Although it is a very small part of our overall business, we continue to be excited about our opportunity in Enterprise. Our new seat data for the fourth quarter was at its highest level ever as we believe our cost savings message continues to resonate well with potential customers, especially in this poor economy. We grew Enterprise revenue for fiscal 2008 by 80% versus 2007 and we believe that we had very good progress during 2008 in our understanding of this business area. Now, let’s turn to the plan for 2009 for PC Postage. At a high level, our plan for PC Postage includes three major items. First, we plan to modestly increase our investment small business customer acquisition spend. We continue to estimate that the lifetime value of the non-enhanced promotion customer is more than 2x higher than the current cost of acquisition. We feel the expected ROI on our marketing spend is still attractive and that’s why we feel it is important to invest for the long-term growth of the business. We will however spend at a more modest rate in 2009 reflecting the current state of the economy. We will continue to evaluate our customer acquisition send throughout the year and make any necessary adjustments based on the results we see and we will continue to test new and scalable acquisition channels throughout the year. In total, we expect to increase our PC Postage small business acquisition spend outside the enhanced promotion channel by approximately 10%-15% in 2009 versus the 26% growth we did in 2008. Our goal is to maintain very strong investment in our customer base during the economic downturn and be well-positioned when the economy improves and return to higher investment levels. Second in our 2009 plan, we’re going to continue optimizing our business model and our overall customer experience in several ways. We plan to continue optimizing our website, our registration process, our software installation process, our initial product experience, our initial customer communication, and the customer welcome kit to make the initial experience the customer has with us as good as it can be. We plan to focus on improving the customer experience for our store by reducing delivery time and improving returns’ experience which will make it more attractive for customers to purchase non-proprietary skus from us. We’re adding the ability for customers to order about 20 different free USPS supplies from our store such as boxes and envelopes that will improve the convenience of our overall service for our customers. We plan to test and optimize our next stamps label sheet pricing to maximize our customer lifetime value. We are continuing to add new proprietary skus to our store to improve overall customer experience such as a new, more convenient line of certified mail envelopes and labels. We’re launching a new combination scale/label printer which will make our overall service easier to use for a segment of our customer base. We are also planning to add significant new features to our product in 2009 such as enhanced reporting with online reporting capabilities, new web-based postage tools that will improve our user experience, improved ability to integrate with third-party applications, and new shipping features. Third in our 2009 plan, we’re going to continue ramping up our effort around the Enterprise area. Customers continue to be attracted to us for a simple postage meter base on our dramatically lower cost of ownership and based on the great visibility until individual employee activity that isn’t available with the postage meter. In this economic environment, we believe the desire to save costs has become a much bigger focus on businesses than it was a year ago. We plan to continue scaling up our Enterprise sales and marketing efforts in a cost-effective manner. We also plan to continue enhancing our Enterprise product in 2009 and that will help our sales efforts. During 2008, you’ll recall we added multi-user capability, more flexible payment methods, and we completed and launched our Enterprise Version 1.0 system which added financial control for Enterprise users managing multiple locations. During 2009, we plan to launch Enterprise Version 2.0 which will include a dramatically improved web-based Enterprise reporting system and a sophisticated front-end reporting tool with real-time data, improved web-based postage management tools and enhanced web-based financial administrative controls for central decision makers. We feel that our 2009 PC Postage plan is a very solid one. We feel that our long-term opportunity to grow this business is very attractive despite the challenging short-term economic environment and we plan to take advantage of them for the benefit of our long-term shareholders. Now, let’s turn to a more detailed discussion of PhotoStamps. During the fourth quarter, we continued our program to increase profitability in the PhotoStamps area with a smaller and more focused marketing plan and we decreased our total sales and marketing for PhotoStamps by 64% versus the fourth quarter of 2007. For the results of our decreased spend, total revenue was $4.0 million for the fourth quarter which was down 39% versus the fourth quarter of 2007. The decrease in revenue during the fourth quarter was expected given the magnitude of our decrease in sales and marketing activity. Hard volume business revenue was up year-over-year but consumer revenue was down significantly through the year. We also believe the broader economic slowdown negatively impacted PhotoStamps as it is more of a luxury item than a necessity. Although we experienced a significant decline in PhotoStamps revenue in Q4 and in 2008 as a whole, we were successful in meeting our original goals of dramatically improving the bottom-line impact for PhotoStamps in 2008 compared to 2007. For the PhotoStamps go-forward plan, we’re planning to continue our program with a more focused, direct-to-flight PhotoStamps marketing spend with a goal of keeping overall cost per acquisition at a level that provides a good financial return. We plan to continue to drive fewer but profitable orders to our website through our own consumer marketing activity and through our existing distribution partnerships like HP/Snapfish, Picassa.com, and Walgreens. Partnerships provide a great cost-effective way to manage acquisition through a revenue share arrangement that combines the interests of the partnership. We also plan to continue to evolve the PhotoStamps retail business model. The model we are currently pursuing in retail is a box product that is about the size of a DVD case. Each box contains a CD-ROM with design software for the PC or Mac and contains credit for one sheet of PhotoStamps redeemable at our website. We felt we were successful in penetrating retail in 2008. Retailers that carried PhotoStamps in Q4 include Costco, Walgreens and the USPS retail post office. However, with Q4 being the worst holiday shopping season in 40 years, it was a tough time for us to begin moving into retail and sales of boxes did struggle like many other retail products. Despite this, we remain optimistic about the long-term outlook for PhotoStamps at retail and we plan to continue pursuing it. While the majority of our corporate focus is on the PC Postage business, we plan to continue to pursue PhotoStamps in a modest fashion during the weak economy and continue to look for ways to optimize the PhotoStamps business. Now finally, something about Kevin Douglas. We announced today that Kevin Douglas, a company director since July 2003, provided notice to the company of his resignation of service from the company’s Board of Directors on February 6, 2009 to be effective following the Board’s next regularly scheduled meeting on March 13, 2009. Kevin told us he decided to resign to focus on other activities as the Stamps.com Board requires significant time commitment. His notice of resignation was not related to any disagreement with company management, with other board members or with Stamps.com’s accounting or operating policies. Kevin has told us that he believes in our strategy and approaches to the business and he believes in the future of the company. We plan to remain in close contact with Kevin going forward as he remains a good friend of the company. Now, with that, let me turn it over to Kyle to discuss more detailed financial results and our business outlook.

[Kyle Huebner:]

Thanks, Ken. Q4 customer metrics

[Operator:]

(Operator Instructions) We’ll go first to George Sutton with Craig-Hallum.

[D.J. Collins:]

This is D.J. Collins for George. I would like to ask about both the $15.99 and the $17.99 price points. Can you give us any specifics on the Enterprise business with the market strategy, like number of sales people or number of partners and in this difficult time, are you having those discussions?

[Kenneth McBride:]

On your first question, yes, we continue to task various price points on our website. As you know, we’ve been testing $17.99 as well as our status quo price of $15.99 for some time. As we go back to look at the price points, we continue to go back and make sure they’re the right price points as the economies turn down. At this point, we’re continuing to kind of remain as we said before; we are considering the best ROI price point at this time.

[Kyle Huebner:]

I would just like to add, it’s possible that the long-term price point is a different answer than the short-term price point. It can certainly continue to touch a range of prices to $15.99 up to $19.99 and continue to evaluate those results to see the answer that would be accommodating in the short-term and if it would be any different from what the long-term expectation might be.

[Kenneth McBride:]

As far as Enterprise goes, we can tell you, like we mentioned in the prepared remarks, the revenue growth was up 80% in ’08 after being up 115% in 2007. We continue to believe it is an attractive opportunity for us over the next five years but it’s not material today, less than a few percent of our revenue. The number of customers and seats and revenue has been growing pretty rapidly. The base is still pretty small so to the extent that the business becomes more material at the time, we would break out the relevant metrics but at this point, it’s too small to really kind of break out much. Finally, you asked about the trial with Indesha. We’ve completed the discovery phase and we’re currently in the marketing phase in the Indesha trial, the one Indesha trial which is the one where we asserted eight patents against Indesha. The trial date is set for May of ’09. We do expect there’s a reasonable probability that they will slip past, potentially past ’09 into 2010.

[Kyle Huebner:]

I would note that with the Indesha trial, it is scheduled for 2009. So looking at our guidance ranges, we can incorporate the scenario where we would incur the trial costs in 2009 but as we’ve seen historically, the scheduling with the courts, there’s a high degree of variability in that. So there are certainly a number of different scenarios that may play out in the timing when it will actually come to trial.

[D.J. Collins:]

Are you planning to go into retail for Avery postage services?

[Kenneth McBride:]

Yes, we are still working with Avery. We still have plans with Avery to market our service through using Avery’s retail relationships and inside existing Avery skus wherever it makes sense. Avery is also planning to market our service to its existing customer base. We’re working with Avery and they’re working with several office supply super stores to move things forward. We currently expect at least one office supply super store to get to selling our Stamps.com/Avery skus sometime in 2009. Avery’s already begun doing some insertions into their retail skus and we’ve started to see some limited acquisition from that effort. So we’re real excited about all of the opportunities that the partnership with Avery is going to mean to us.

[D.J. Collins:]

Can we still expect that you are more focused to 5-day leads from 6-days? How would that affect you?

[Kenneth McBride:]

I think it will probably be neutral and maybe slightly positive. I haven’t really thought about it but it seems that one of our core value propositions is to avoid the post office to the extent that the post office becomes less convenient, our service needs to become more convenient. But I don’t think it’s probably going to have a big impact. Certainly, we encourage things with the postal service that reduce cost because we really like to see their business doing well in the long run and they need to right-size their business for the tough economy and we’re supporting everything we need to do on that.

[D.J. Collins:]

How do you estimate that you benefitted from the shutdown of the United States postal site during a few days in December?

[Kenneth McBride:]

The post office, as we did mention, the USPS did add some additional marketing of our service during the quarter partly as a result of the shutdown that happened in December for their service, for Click and Ship service. We don’t really have a tracking mechanism so it is hard to really quantify the exact impact that it had on acquisition. We certainly believe that it was helpful. We would say though that in reality the acquisition we get from the USPS website, it happens on a continual basis and usually we get the highest new customers from the USPS in Q4 of each year and last year, also in Q4, we had a meaningful acquisition that came from the USPS marketing effort. I think we benefitted more in Q4 of this year than we did in Q4 of last year but we do get acquisition from them on an ongoing basis.

[Operator:]

Next we have Kevin Liu with B. Riley & Company.

[Kevin Liu:]

First a question on the PhotoStamps business. What type of visibility do you guys have at this time into the higher volume customer orders? Do you have visibility out beyond a quarter or two or do you not even have that today?

[Kenneth McBride:]

I wouldn’t say we have a ton of visibility into the high volume business orders. They tend to be lumpy. They tend to be somewhat unpredictable so we’ve seen quite a few ups and downs. We did see an increase year-over-year in Q4 of this year but I don’t think we really have a ton of visibility in exactly what we may be looking at for this year.

[Kevin Liu:]

I guess as a follow-up to that, do you have insight as to whether you can grow that business this year or given that the environment that we’re in, are you looking at any area to cut back on costs?

[Kenneth McBride:]

Our strategy is to continue to be very focused on very high ROI programs. So I think we are likely to spend even less on marketing this year than we did last year, with this year being ’09. With that, I think we’re expecting to see a decline in PhotoStamps for the year. With PhotoStamps, it’s clearly a luxury item. It’s something that people don’t really need. It’s something they want and as the economy has turned down, it’s certainly taken more of a hit than the PC Postage business. So we’re hoping that the business will for the short-term will be something that’s a little bit more difficult to grow. We continue to believe in the business for the long-term particularly the retail aspect of the business. We’ve seen enough evidence that we believe that will work in the long run once we’re not facing the worst holiday/Christmas holiday period in 40 years. We have some expectations that the business will do better in the long run.

[Kyle Huebner:]

I would just say, specific to the business, as Ken said, it tends to be fairly concentrated so it’s really hard to predict this year whether it will be up, flat or down. I think when orders materialize during the year then it can be something that is up. If those orders don’t materialize given the economy, then it’s certainly possible that business PhotoStamps are down as well.

[Kevin Liu:]

You made a comment earlier in the script that you guys hadn’t raised prices when postage rates increased. Now that postage rates are increasing, do you expect that, that it is a fair assumption that you guys will still hold the line on pricing?

[Kenneth McBride:]

Without having tested it yet, my gut says probably so. In the economy and the state of descend, we don’t know. We certainly don’t feel like charging more for the product than we are charging right now. So we tend to test these things rather than just a guess but my estimate at this point would be yes, we would likely just hold the price steady.

[Kevin Liu:]

Turning to the PC Postage business, in terms of the churn rate, I am just wondering what you’ve seen from the customers that you acquired via direct mail, what their increased spend has been through 2008? Has that played out in the sense that you do have a higher lifetime value with them there that the churn rate has been lower? Can we get some more details on the churn?

[Kenneth McBride:]

Yes, we continue to believe that the lifetime value for direct mail customers is higher than all of our other channels and that continues to be true with more recent data as well as with the older customers. It’s our best channel so it’s why we focus on it so much and why we continue to increase the spend in that area.

[Kevin Liu:]

Is there anything you guys feel like you could do differently to either increase investments with pricing adjustments that would improve that churn rate or is the increase rate over the early part of the year is just a part of the economy?

[Kenneth McBride:]

I think that we will continue to focus on our retention program. We really reached more of a steady state with the program now and we’re running it at full scale but we do believe that it’s working well. It’s helping to have a positive impact on our churn rates. We do think that the economy is really, it has been an impact on the churn over this quarter certainly and maybe the last few quarters as we’ve seen in general with small businesses that are going out of business. So it’s certainly something that we believed would happen. We’re pleased that the churn really hasn’t gone up that much relative to what we saw in the last couple quarters. It’s certainly does seem to have some impact on the economy.

[Kyle Huebner:]

The other thing that I would add is, you know, in terms of opportunity, it’s really improving the initial customer experience while in the early part of the churn of their life cycle. So it’s kind of that one to six-month time frame when they’re learning the service and making decisions about whether they’re going to stay long-term. Ken outlined several things in the plan that we do continue to focus on improving the initial customer experience to try to improve their retention in the early part of their life cycle.

[Operator:]

We’ll go next to Kar Kwong with Needham and Company.

[Kar Kwong:]

I just wanted to talk about price increases for a sec. On previous calls, you had mentioned that the new customers would be under the $17.99 price point. I was wondering if that has changed under this policy.

[Kenneth McBride:]

We are continuing to acquire customers from the time we talked about it originally all the way through the year, we continued to bring customers in at the $17.99 price point, but in light of the economy, we decided to go back and retest once again to see what the right price point might be between $15.99-$17.99 and actually $19.99, a higher price point, just to make sure we are doing the right things since the circumstances continue to change with the economy. At this point, we really haven’t made a conclusion as to what the right price point may be, but certainly in a tougher economy, it might make sense to consider a lower price point but we haven’t yet made that decision. We do believe that longer-term are price point will be close to $15.99 almost certainly.

[Kyle Huebner:]

This is the default price plan for customers today, $17.99, so we’re testing other price points but the majority of customers as of today, are still coming in under $17.99.

[Kar Kwong:]

I just wondered if some of the new initiatives you mentioned are pre-packing materials, will those cause more use to the client.

[Kenneth McBride:]

No, actually those are subsidized by the Postal Service in order to encourage shipping usage so that’s convenience we‘re bringing to our customers in conjunction with our partnership with the Postal Service.

[Kar Kwong:]

In terms of your R&D spend; it’s kind of held steady the past two quarters. I wonder what your plans are going forward for that.

[Kyle Huebner:]

I think if you look at it for 2009, I would say that we probably expect a modest increase in the R&D spend. We do have, we are continuing to work on the Enterprise product as well as improvements to the PC Postage, and we’re essentially funding products for two different customer segments. I would say that we should probably expect it to be up modestly in ’09 versus ’08.

[Kar Kwong:]

In terms of guidance, how much litigation are you assuming in the guidance?

[Kyle Huebner:]

We don’t break out specific numbers in the guidance. I can say that there is a wide range of scenarios that can play out. If we experience the waves in the court schedules, we can hit periods of time where there’s really not much activity and you’re waiting for the court to make a ruling. So it’s possible on one end of the spectrum that it can be lighter and actually down from last year. On the other end of the spectrum according to current schedules, things are moving fairly quickly so there is the possibility that in the first initial lawsuit, go all the way through the trial. We also have the costs related to the Icara P also. We don’t break out specific numbers but with our reduced share count of 17 million, smaller fluctuations and costs have a bigger impact on our EPS. So we have to consider the range in areas of our guidance.

[Operator:]

We’ll go next to Inaudible Analyst with GFI Council.

[Inaudible Analyst:]

I don’t mean to beat a dead horse but you mentioned that you were learning a lot regarding what your Enterprise customers are looking for. Can you expand on the type of things they are mentioning to you?

[Kenneth McBride:]

I think we’re learning across the business in terms of understanding how to generate leads with marketing and understanding how to cost-effectively approach sales, understanding things that we need to add to the product, understanding what customers want on fronts. So it’s just us getting better and better and understanding how this business is going to work moving forward and how we’re going to grow it cost effectively in the future.

[Inaudible Analyst:]

Two other quick questions. One is, there are two categories in the balance sheet, current assets and other assets and I noticed that year-over-year, the combined outlook is $6 million. If you could speak a bit to, what that comprises. The second question is do you keep a metric of the number of actual stamps printed? The reason I ask is we’re up in Canada and I don’t know if there is inflation in stamp prices but I do show the dollar value of stamps and I am curious of the actual volume of stamps themselves.

[Kyle Huebner:]

On the balance sheet side, the current assets, I think, a lot of them are your traditional accounts receivable type accounting in certain of our businesses like in high-volume PhotoStamps, we may invoice the customer and have receivables. There’s certain pre-paid expenses. There’s also some of our store inventory that is included in those line items. The other area is when customers leave the service, when they have postage in their account, we will typically give the customers the postage refund and then get reimbursement from the USPS. So we typically carry the receivable in terms of getting reimbursed from the post office for things like the postage refund to customers as well as postage misprints, we may provide the customers with a credit to their accounts and submit that to the USPS for reimbursement. So I think a lot of the other current assets tend to be kind of USPS receivables and then the other accounts tend to be your more traditional AR inventory, pre-paid, things like that.

[Kenneth McBride:]

On your second question, in terms of the total number of prints, you can take the number which is disclosed which we did $319 million in total postage printed by our customers last year and we run about approximately $0.80 per print. So I would say there’s about approximately 90 million transactions that we processed last year.

[Inaudible Analyst:]

Do you know how that compares to a year ago? I guess what I’m trying to get at is I’d love to see customers getting for lack of a better term addicted to using your service. So if I saw for example that the amount of total customers was the same and if the volume was up, I’d be happy too. I would just say that the people were enjoying the service more and more. Do you keep any kind of a metric like that?

[Kenneth McBride:]

The total postage printed for the year was up 17% and last year, the dollars per print was comparable to this year’s, so the transactions also grew 17% and you may note that the paid customer numbers grew about 6%. So there was an increase in transactions per customer for the year.

[Operator:]

We’ll go next to Graham Ryan with Bears Capital.

[Graham Ryan:]

I just wanted to follow up a little bit on the Enterprise question that was just asked. How are you identifying your ideal Enterprise customer? How are you getting in front of them and once you get in front of them, what are their hurdles to making the purchase? Is it pricing? Is it functionality to the site? Is it locked into another solution? Can you just talk a little bit more specifically about that part of the business?

[Kenneth McBride:]

Sure. We’re doing lots of things and we’re testing lots of things, just like as you know we do all the time in small business. We’re testing multiple different ways to market Enterprise from the tried and true direct mail approach to other approaches like traditional media and some other channels. So what we’re really focused on there is trying to generate marketing-driven leads that we can then set up of a demo and have our sales team kind of take over the process and do a demo to somebody typically in the finance organization, the purchasing group or the controller or the director of finance. Sometimes the operations group, it just depends on who’s responsible for making those types of decisions. We try to get a demo and then we try to get a trial, and then ultimately try to get a conversion and a contract and a rollout. What we find, I think, is certainly in most of these cases that these customers have existing postage meters and those meters tend to be under lease though there is always an issue of if they decide to work with us, they will have to work through their lease period. That does slow down our overall business in terms of rolling out to the customers even after they decide to go ahead with us. I think with customers where particularly when they have a lot of small offices in a network corporation, our solution makes a ton of sense. We have lots of customers that do the math and are just astounded at how much they can save by switching to our service because we are so much more cost-effective than a postage meter. We’re just continuing to learn how to market, how to sell, how to get in front of the customers, how to position the product, how to get past the challenges as the business starts to move.

[Graham Ryan:]

How many people within that sales and marketing team are dedicated towards kind of exclusively to Enterprise customers and how has that changed in the past year?

[Kenneth McBride:]

We haven’t really been talking about those numbers specifically but we have grown our Enterprise team fairly dramatically over the past year. Like we said in the prepared remarks, it’s in investment phase right now. There is a drag on the net income on the bottom line but we think over the next five years, it’s going to be a great business for us.

[Graham Ryan:]

The last thing, Kyle, the cash that’s all lumped into cash and investments, can you walk through any sort of long-term investments or anything else that might be sort of connected to write-downs? Is there anything in that line item that is not liquid cash?

[Kyle Huebner:]

Yes, in terms of our cash and investments, over about 75% of that is in bank cash, government money market, or government guarantees investment vehicles. I think we had a small portion of the portfolio where we’ve seen some unrealized losses, an increased minimized loss on those securities. It’s part of the audit process. You look at this for whether it’s an other than temporary impairment. We’ve evaluated those securities and deem that there’s no other than temporary impairment. At this point, we do have some securities with unrealized losses but we plan to continue to hold those so we at this point, don’t expect any write-downs that would flow through the P&L.

[Operator:]

That concludes our question and answer session. I would like to turn things back to our speakers for any closing remarks.

[Kenneth McBride:]

We appreciate you joining us this afternoon. If you have any follow-up questions, you can contact us at 310-482-5830. Thank you. Copyright policy