Stamps.com Inc.
Q1 2010 Earnings Call Transcript

Published: 30 Apr 2010

[Operator:]

Good day, ladies and gentlemen, and welcome to the Stamps.com Inc. first quarter 2010 financial results. (Operator Instructions) Now I would like to introduce your host for today, Jeff Carvari.

[Jeff Carvari:]

Thanks and good afternoon everyone. On the call today is Ken McBride, CEO, and Kyle Huebner, CFO. The agenda for today's call is as follows. We will review the results of our first quarter 2010. Then we will discuss financial results and talk about our business outlook. First, the safe harbor statement, the safe harbor statement under the Private Securities Litigation Reform Act of 1995. This release contains forward-looking statements such as our expectations and financial guidance that involves risks and uncertainties. Important factors including the company's ability to compete, complete, and ship its products, maintain desirable economics for its products, and obtain or maintain regulatory approval, which could cause actual results to differ materially from those forward-looking statements. Our details are in filings with the Securities and Exchange Commission from time to time by stamps.com, including its annual report on form 10-K for the fiscal year ended December 31, 2009; quarterly results 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 [inaudible]. Now let me hand the call over to Ken.

[Kenneth McBride:]

Thank you, Jeff. Thank you for joining us today. We were very pleased with our first quarter performance. During the first quarter we generated our highest non-GAAP earnings per share in the past three years at $0.19 per share. We returned to double-digit year-over-year revenue growth rates for our core PC Postage business, which excludes the enhanced promotion channel. We saw our churn improve with a reduction in monthly churn to 3.4%. We generated a sequential increase of over 15,000 in our paid customer metric, the largest sequential increase since we began tracking this metric. We continued to see strong results from our Enterprise business, with the first quarter revenue increasing by 106% versus the same quarter last year. And our high volume shipper segment also continued to show good progress with first quarter postage printed by high volume shippers growing 30% over the first quarter last year. On the call today we will talk about the PC Postage business in detail, and then we will talk about PhotoStamps. Then we will discuss financial results and our business outlook. Now, let me begin with a more detailed discussion of the PC Postage business. The customer metrics we discuss on this call exclude all enhanced promotion channel activity. In the first quarter we acquired approximately 64,000 gross small business customers, which is up 23% versus the same [inaudible] last year. The increase we saw in customer acquisition in the fourth quarter of 2009 continued during the first quarter of this year. Our cost per new customer acquired or CPA for the first quarter was $112, which was down 8% from the $122 we saw in the first quarter of 2009. We're happy with the decrease in CPA, especially in light of the fact that we increased our acquisition spend by 13% versus the first quarter of 2009. Monthly churn during the first quarter was 3.4% versus 3.7% in the fourth quarter of 2009. We were encouraged to see our churn metric continue to come down, as improvements in the economy and small business optimism during the past six months have helped our churn rates. Paid customers in the first quarter were 336,000, which was up more than 15,000 sequentially versus the 320,000 paid customers we saw in the fourth quarter of 2009. We were pleased with the growth in the paid customers this quarter, which was driven by both stronger acquisition and reduced churn over the past two quarters. Now let's turn to the 2010 plan for PC Postage and talk about our progress we've made against the plan to date. In the SOHO area, it continued to modestly increase our customer acquisition spend outside the enhanced promotion channel. We continue to believe that the lifetime value of a non-enhanced promotion customer is at least two times higher than our current cost of acquisition. Based on improving trends in our customer metrics, we expect to increase our PC Postage small business acquisition spend, excluding the enhanced promotion channel, by approximately 10% to 15% in 2010 as a whole. We continue to experience positive performance in direct mail, traditional media, online marketing, and other areas. Also, in the SOHO area, we are continuing to work on optimizing our business model and our overall customer experience in several ways such as making our software installation process easier and more seamless, expanding our presence on social networking sites, expanding our customer web portal, expanding content and multimedia on our website, adding an improved and more straightforward selection and delivery method for our customer promotional items, and several planned product releases in 2010 including improvements to our batch capability, expansion of our e-commerce integrations, and other general enhancements. In the Enterprise area for 2010 we are going to continue scaling up our sales and marketing efforts. During the first quarter we continued to make great progress in the Enterprise area with year-over-year revenue growth of 106%. We continue to gain traction with new accounts and to increase penetration in existing accounts. We continue to see lower churn rates and higher ARPU in Enterprise than in our SOHO business. And we continued building our sales team, improving our sales efficiency in the Enterprise area. For 2010, we plan to continue enhancing our Enterprise efforts while working on scaling our sales team head count; and our goal is to increase the team size by at least 25% during 2010. We plan to continue improving the efficiency and quality of our sales team with continued investment in hiring and training top personnel. We have completed and plan to launch Enterprise version 2.0 in the next few weeks. It will include a dramatically improved web-based Enterprise reporting system with a sophisticated front-end reporting tool that features real time data. It will also include improved web-based postage management tools and enhanced web-based financial and administrative controls for central decision makers. Overall, we are excited about the continued progress in Enterprise and we feel that we are beginning to see returns on the investments we have been making in this area. In our high-volume shipper area, we plan to continue scaling up our efforts in this area in 2010 as well. Our goal in this area is to attract high-volume shippers such as fulfillment houses, e-commerce shippers, large retailers, and other types of high-volume shippers. During the first quarter, we continued to see acceleration in our growth in this area. For instance, our Q1 postage printed in the high-volume shipper segment grew by 30% versus the first quarter of last year. During 2010, we will continue to invest in our shipping technology and our sales and marketing efforts. We will continue to improve our batch capability with easier order management and order flow. We will add additional shopping cart integrations for easier data export/import from the tools the customers like to use. We will continue to drive new software integrations with sophisticated high-volume shipping solutions such as multiple-carrier shipping software products. And we will continue to scale and drive our sales efforts using our national sales force. Attracting high-volume shippers is a strategic focus for our company, and it's also one of the most important strategic initiatives of the U.S. Postal Service. As our most important partner, we are focused on making them as successful as we can in this area. We feel that our 2010 key postage plan is a very solid one. We feel that our long-term opportunities to grow this business are very attractive. Now, let's turn to a more detailed discussion of PhotoStamps. During the first quarter, we continued our program to increase profitability in the PhotoStamps area with a smaller, more focused marketing plan. We decreased our total sales and marketing for PhotoStamps by 69% versus the first quarter of 2009. As a result of the decreased spend, total revenue was $1.5 million for the first quarter, which was down 12% versus the first quarter of 2009. The decrease in revenue during the first quarter was expected given the magnitude of our decrease in sales and marketing activity. During the first quarter, we estimate that the PhotoStamps business was profitable. During 2010, we plan to continue keeping a tight rein on our marketing spend; and we expect that the PhotoStamps business will again be profitable for 2010 as a whole. Longer-term, we do not expect to invest heavily in the PhotoStamps area until the economy improves; but we do continue to believe that there are opportunities to grow the business in a better economic environment. Now, with that Kyle will discuss our more detailed financial results and our business outlook.

[Kyle Huebner:]

Thanks, Ken. Q1 customer metrics – the PC postage metrics we will discuss in this section exclude all enhanced promotion activity. For a more detailed definition of how we calculate each of our metrics, you may refer to our quarterly investor metrics spreadsheet at investor.stamps.com. We will now review the PC postage metrics for the first quarter. Paid customers – paid customers in Q1 were 336,000, up over 15,000 from the 320,000 paid customers in Q4 2009 and up over 14,000 versus the 321,000 paid customers in Q1 '09. The change in paid customers from Q4 '09 to Q1 2010 was composed of 53,000 new paid customers who were successfully billed for the first time during the quarter, offset by 38,000 lost paid customers. The growth in paid customers was driven by stronger customer acquisition and lower churn. Customer acquisition – PC Postage small business customer acquisition spend, which includes both sales and marketing spend as well as promotional spend which is included in cost of sales, was $7.2 million in Q1 which was up 13% versus $6.4 million in Q1 '09. Small business customers acquired were 64,000 in Q1, which was up 23% from the 52,000 in Q1 '09. Small business costs per new registered customer was $112 in Q1, which was down 8% versus $122 in Q1 '09. Average revenue per customer, ARPU – ARPU was $18.03 in Q1, which was up 5% versus $17.18 for Q1 2009. The increase in ARPU was partially attributable to an increase in the average store revenue per paid customer driven by increased usage of our service and partially attributable to having a larger number of customers on higher-priced plans. We do see some normal quarter-to-quarter fluctuations in our ARPU metric based on factors such as pricing plan tests, store promotions, and seasonality. Paid customer cancel rate was 3.4% in Q1, compared to 3.7% in Q4 '09 and 3.6% in Q1 '09. We were pleased to see our third straight sequential quarterly decline in this metric from a peak of 4.4% in Q2 '09. We believe the reduced churn has resulted from improvements in economy, from increased usage of our service, and from our retention program. Customer usage – total postage printed by all customers was $101 million in Q1, up 18% versus Q1 '09. Postage usage continues to grow at a faster rate than our paid customers resulting in an increased average usage per customer, which demonstrates the value customers derive from our service. The increase is also the result of our increased focus on the high-volume shipping segment where postage printed in Q1 by that segment grew by 30% year-over-year. Now we will review our first quarter financial results. Today, we are going to discuss our financials on a non-GAAP basis. A detailed reconciliation of non-GAAP to GAAP measures is contained in the earnings release posted on our website. Total revenue was $21.0 million in Q1, which was up 5% compared with Q1 '09. Q1 was our first year-over-year growth in total revenue in two years where the growth in our non-enhanced promotion PC Postage revenue in Q1 outweighed the declines in the enhanced promotion and PhotoStamps revenues. Non-enhanced promotion PC Postage revenue was $18.2 million in Q1, up 10% compared with Q1 '09. The increase in non-enhanced promotion revenue was driven by increased paid customers as well as increased ARPU as discussed in the customer metric section. The non-enhanced promotion PC Postage revenue represented our highest ever quarterly revenue for six consecutive quarters of sequential revenue growth and our strongest year-over year revenue growth since Q3 '08 in that segment. Enhanced promotion PC Postage revenue was $1.3 million in Q1, down 25% compared with Q1 '09. The decline in enhanced promotion revenue is primarily attributable to lower marketing spend, which was down 39% compared with Q1 '09 as we continued to reduce our investment in this segment of the business. PhotoStamps revenue was $1.5 million in Q1 which was down 12% compared with Q1 '09, largely as a result of a pullback in marketing spend which was down 69% year-over-year. Gross margin was 62.6%, sorry, 72.6% in Q1 compared with 73.5% in Q1 '09. PC Postage gross margin was 76.0% in Q1, compared with 78.1% in Q1 '09. Cost of sales includes promotional expenses related to customer acquisition of $743,000 in Q1, compared with $361,000 in Q1 '09. The increase in promotional expenses was driven by increased customer acquisition and higher redemption rates of our free scale and free postage offers. The year-over-year decrease in PC Postage gross margin was thus primarily due to the increased promotional expenses, as the PC Postage gross margin excluding promotional expenses would have been 79.8% in Q1 compared with 80.1% in Q1 2009. For the PhotoStamps business, gross margin was 28.3% in Q1, compared with 24.3% in Q1 '09. The year-over-year increase in PhotoStamps gross margin was primarily attributable to lower postage costs as a percent of revenue. Total sales and marketing was $7.8 million in Q1, which was down 1% compared with $7.9 million in Q1 '09. PC Postage sales and marketing spend increased by 4% compared with Q1 '09, while PhotoStamps sales and marketing decreased by 69% compared with Q1 '09. R&D spend was $2.0 million in Q1, which was down 2% compared with Q1 '09. G&A spend was $2.7 million in Q1, which was down 8% compared with Q1 '09. The decrease was primarily attributable to lower legal spend during the quarter. Non-GAAP operating income was $2.8 million in Q1, which was up 45% compared with $1.9 million in Q1 '09. We were pleased to see this growth in operating income for the quarter, which was primarily attributable to growth in our non-enhanced promotion PC Postage revenue, strong expense control, and lower legal expenses. Interest and other income was $171,000 in Q1, which was down 52% versus $357,000 in Q1 '09. The lower interest income compared with last year is attributable to lower interest rates and lower cash balances resulting from our stock repurchase program. Our taxes for Q1 reflect the use of our NOLs for both federal and California state income taxes as California has not suspended use of NOLs for 2010 at this point in time. However, it is still possible that California does suspend use of the NOLs for 2010 at some point during the remainder of the year. Non-GAAP net income was $2.9 million or $0.19 per fully diluted share based on 15.3 million fully diluted shares compared with $2.2 million or $0.13 per fully diluted share based on 17.0 million fully diluted shares in Q1 '09. Free cash flow, defined as non-GAAP net income plus D&A less CapEx, was positive $3.0 million in Q1. For the quarter, D&A was approximately $250,000 and CapEx was approximately $150,000. We ended Q1 with $63 million in cash and investments, equivalent to $4.44 per ending balance sheet share. This is the lowest level of cash and investments since before we went public in 1999. Share repurchase – during the quarter the company repurchased 1.4 million shares for a cost of $12.8 million, including a repurchase of 1.3 million shares in a private transaction in February. The private transaction was authorized by the board and independent of our existing share repurchase plan. Our current repurchase plan remains in effect through August of 2010 with the remaining authorization of 1.9 million shares. For the past nine quarters, the company has repurchased a total of 5.7 million shares at an average price of $9.34 per share for total of $53 million. Net operating loss shareholder update – we estimate that as of March 31, 2010, our Section 382 ownership shift was at an approximately 34% level compared with the 50% level that would trigger an impairment of our NOL asset. Per our NOL protected measures, any person, company, or investment firm which is to become a 5% shareholder of the company must first obtain a waiver from the NOL protective measures from the company's board of directors. We currently have 14.3 million shares outstanding, so ownership of approximately 714,000 shares or greater would currently constitute a 5% shareholder. Now turning to guidance. We expect fiscal 2010 revenue to be between $80 million to $90 million. We expect fiscal 2010 GAAP EPS to be between $0.50 to $0.70 per fully diluted share. GAAP numbers assume an estimated $3.5 million of stock-based compensation expense and $3.7 million of noncash tax benefit resulting from the potential additional partial release of our valuation allowance against our deferred tax asset. Excluding the stock-based compensation expense and the noncash tax benefit, we expect 2010 non-GAAP EPS will also be between $0.50 to $0.70 per fully diluted share. We expect to see upper single-digit growth in PC Postage revenue excluding the enhanced promotion channel for 2010. We expect the enhanced promotion revenue and marketing spend to be down in 2010 compared to 2009 as we continue to reduce our investment in this area. While we expect full year enhanced promotion revenue to be down versus 2009, we are hopeful that we may start to see a stabilization in this part of the business during 2010. We expect PhotoStamps revenue and marketing spend to be flat to down in 2010 compared with 2009, depending on the state of the economy and the seasonally strongest fourth quarter of 2010. We expect PC Postage customer acquisition spend to be in 2010 to be up 10% to 15% compared to 2009 as we continue to invest in this core part of our business. Legal spend continues to be a material expense for us, and there's still a high degree of uncertainty in terms of the timing of legal expenses in 2010 across our primary litigations with Kara and Endicia. While legal expenses are lighter in Q1, we do expect legal expenses to ramp up to higher levels in Q2 and during the remainder of the year. The second quarter is usually a seasonally slower quarter compared with Q4 and Q1, so we would expect our customer metrics and store and insurance revenue to reflect this pattern. For example, we have historically seen an increase from Q1 to Q2 in our churn metric. In addition, the USPS rate increase usually drives increased customer acquisition and increased net stamps label sales. However, this year the USPS will not be raising the price of a first-class stamp, so we will have a tougher comparison to Q2 '09 when the USPS raised those rates. In summary, we were very pleased with Q1 with our customer metric improvements, growth in our non-enhanced promotion revenue, and year-over-year increases in non-GAAP operating income and EPS. Our non-enhanced promotion PC Postage business with recurring revenue and high gross margin continues to grow despite the economic headwinds of the past year. We are excited about the long-term prospects for the Enterprise and shipping opportunities. Our business generates strong free cash flow which has funded our share repurchase programs. We have a strong balance sheet with cash and investments of $4.44 per share, no debt, and a large deferred tax asset in excess of $90 million. With that, we will open it up for questions.

[Operator:]

Thank you, ladies and gentlemen. (Operator Instructions) I am showing questions coming into the queue. Your first question comes from George Sutton – Craig Hallum Capital Group.

[George Sutton:]

Nice results. So, I'm curious if we were to break apart the contributions from the Enterprise and the high-volume shipper areas. If we were to look at excluding those two, are you starting to see some form of a SOHO market macro-pickup or to you really attribute what you are seeing to just specific to your marketing spend?

[Kenneth McBride:]

I think that we have seen improvements specifically in the SOHO area in our business in the last six months which manifested themselves in the improved acquisition as well as the lower churn that we've seen. So I think, excluding Enterprise and shipping, the SOHO area specifically has improved.

[Kyle Huebner:]

And we do, in the Enterprise and shipping, those still are in the investment phase. At this point, we continue to invest in those and so, you know, I think those are still overall acting as a drag on the bottom line, you know, as we continue to invest over the three-year time horizon.

[George Sutton:]

Now one of the encouraging statistics is the increase in the store volume or store revenue. Again, I just wonder how much of that is driven by the success with the high-volume shippers versus your smaller customers?

[Kyle Huebner:]

I think we've seen generally an increase in usage. Certainly the high volume shipping segment, as Ken and I mentioned, was up 30%. Enterprise customers tend to be higher-volume users as well. If you look at our overall postage printed, we were up about 18%. The store revenue was up about 17%. Paid customers was up about 4.5%. I think it's certainly the Enterprise and shipping segments are helping in the store area, but I think we're seeing generally some increased usage in the small business segment as well.

[George Sutton:]

Lastly, with respect to your retention initiatives that you've had at periodic times in the past, how much influence has that had on the improved churn versus just a natural improvement in the customer base now that you're doing less enhanced promotion?

[Kenneth McBride:]

I don't think that the specific effect, say in the last couple quarters, has been related to specifically retention. I think we kind of have been running for maybe about a year in a steady state mode on retention. So, I think we really saw improvements in the churn over the last several quarters, you know, I think we feel largely related to just improvements in the overall small business environment.

[Kyle Huebner:]

The other thing I would add, our retention program, we kind of launched and ramped right about the same time the economy started to, you know, turn down. We really felt the effects. It's, we've been running that program, you know, consistently, you know, since that time. We don't really have a clean benchmark for what the churn would be with the retention program kind of in the stronger economy. So, I think our general feeling is that the retention program, you know, has helped and that without that program we would have seen a more negative impact from the economic challenges over the last year and a half.

[George Sutton:]

Understand. Thanks, guys.

[Operator:]

Your next question comes from Sarkis Sherbetchyan – B. Riley & Company.

[Sarkis Sherbetchyan:]

Hi, gentlemen, how are you? Can you hear me well? Question about the partnership with Avery for the PC Postage business. Can you give some color on how that's going?

[Kenneth McBride:]

Sure. So last quarter during the fourth quarter we launched a co-branded solution which was really designed for retail distribution with Avery. It's being sold in the office supply superstores, office supply catalogers, primarily right now in the online channels and some of the direct-selling channels of these retailers – so folks like staples.com, United Stationers, and stuff on Amazon. You know, Avery is doing some marketing on their website as well and marketing the co-branded service and the newsletters to its customer base, doing some inserts into their own SKU, so we've started to see some initial effect from all the activity, but getting into the retail channels and kind of getting the opportunity going is definitely a, you know, has been a long-term initiative; and we're continuing to kind of work on it with Avery.

[Sarkis Sherbetchyan:]

Great. I do notice that the ARPUs have been trending nicely here. I suppose, is this mainly due to the corporate Enterprise solution and the high volume shipper activity, and maybe if you can give some color on the trend essentially going forward?

[Kyle Huebner:]

There's really two drivers that we've seen. One is related to increased average store revenue per customer; and that's really driven by the usage growth that we've seen and, as I mentioned before. Postage printed and store revenue were in a similar range of 17%-18%, while paid customers was up about 4.5%. So I think the increased usage, consistent with what I was saying earlier is certainly helped by the higher volume shippers and the Enterprise segment, but we've also seen increases in our core SOHO business. The other part of the ARPU driver is around the service fees and the fact that we have more customers on higher-priced plans compared to last year, you know, Q1 of last year. Again, some of that is things like the professional ship plan, it's $34.99. Enterprise tend to have higher price points. Then there's also, we have our premier version, which is at $24.99. So we've increased kind of some of our marketing behind trying to get our SOHO customers to upgrade to the higher-priced premier points. I'd say it's really been driven by a number of factors.

[Operator:]

Thank you. Your next question comes from Rob Grote – Bares Capital.

[Rob Grote:]

I was wondering with regard to your Enterprise customer pricing, if you could discuss any changes you have been able to make here and especially with regards to the [inaudible] upgrades you are going to release in a couple months? [inaudible]

[Kenneth McBride:]

I cannot hear you.

[Kyle Huebner:]

We had a little trouble hearing you. It wasn't clear coming through. Were you essentially asking about the Enterprise pricing and if there's been any changes in that area?

[Rob Grote:]

Yes. That's correct.

[Kenneth McBride:]

Largely, no. We certainly are charging a higher price point than SOHO in the Enterprise area. There's been, I would say, incremental increases in that over time, but nothing dramatic in the last year or year and a half.

[Rob Grote:]

You mentioned you were going to release an upgrade to your Enterprise customers, is that going to influence pricing at all?

[Kenneth McBride:]

I don't think it probably will. I think it will just improve our ability to sell the product. What it really is is improving the reporting capabilities of the product. So, you know, taking version 1 up to version 2. It's going to just be a far better, you know, Web 2.0 experience for customers when they go to look at data and information that's available across their, you know, their different locations. Currently, on 1.0 there's definitely some limitations that we're addressing with version 2.0. The data is typically 24 hours delayed with version 1.0, so the data will be real-time. Just a cleaner overall, better visual experience, better reporting, better analysis tools for customers. We think it will improve our ability to sell the solution, but, you know, we don't typically feel like we're going to be able to charge an additional premium for that.

[Rob Grote:]

Great. Then with regard to cash on the balance sheet, can you discuss sort of what you see as the best uses of cash in the next couple of quarters and any considerations for a special dividend?

[Kyle Huebner:]

Yea. Our cash, we were very happy in Q1. We were able to utilize, you know, a decent amount of the cash to do the share repurchase. You know, we feel like the cash we've brought down from, I think, you know a peak somewhere around $110 million, $120 million two years ago, down to $63 million. Our, you know, for the current situation, the share repurchase, you know, especially with the market turmoil that we've had over the last two years, you know, has been our focus in terms of use of the cash. You know, with that said, the board and management are continuously evaluating what the different options for the cash are. You know, we will consider things like a dividend; but at this point, especially with the cash having come down, again, there's no immediate plans to do a special dividend.

[Rob Grote:]

Then lastly, could you discuss the eBay promotion you announced this past quarter and if it's going to have any, what the response has been and what sort of influence?

[Kenneth McBride:]

Sure. We began operating a promotion that tried to help us penetrate into the higher volume shipping segment. Basically, you know, the goal was to match what is available on eBay PayPal, available there without service fees, to match that solution. But then add just a couple of extra features to make it a little bit compelling like the ability to ship first class international. So the goal was really to try to attract those customers into our platform with the solution that's, you know, a little better than what they're using now and then try to convince those to move up into our full service capabilities where we have integrations with a much broader set of separate forms like Yahoo! and Google Checkout, you know, the ability to pull data in from their own website. So we have been successful with that strategy so far and so we're continuing to kind of move forward on that strategy and we announced an extension of our offer through Q3 recently.

[Rob Grote:]

Thanks. Congrats on a great quarter.

[Operator:]

Thank you. (Operator Instructions) We do have one more question at the moment in the queue from William Myers – Miller Assets.

[William Myers:]

Thanks. If you could give me a little bit more color on, you mentioned that the post office is very interested in the high volume business. What is their interest? Why is that important to them? And also maybe just distinguish, what distinguishes a high volume customer from a SOHO customer who uses a lot of postage and from an Enterprise customer? Thanks.

[Kenneth McBride:]

I mean the Postal Service is interested in growing their presence in shipping, generally speaking. So, you know, into revenue. That's why the Postal Service focuses on, you know, growth in the overall package market. So it's really in competition with UPS and FedEx, trying to provide more shipping solutions, getting a larger share of the market from those private carriers. That's really what the goal of the Postal Service is. What distinguishes a, what we call a high volume shipper, and then we typically look at customers that are doing at least $1,500 a month in postage volume. We've been using that as our metric internally to characterize, you know, the difference between high and high volume or SOHO.

[Kyle Huebner:]

I would just add on to that, you know, in the shipping space, the growth in e-commerce has been a subsegment of the market that has been growing and capitalizes on the Internet. So whereas, you know, traditional first-class type mail volume is declining, you know, there are segments of growth in the shipping market that I think makes it attractive both, you know, for us as well as the USPS. Then, on the high volume shipping, some of it is the customer target. So the high volume shipping segment we're specifically targeting things like a fulfillment house or high volume e-commerce merchant whereas a small business targets a more generic office space business such as a small law firm, small accounting firm, things of that nature.

[Kenneth McBride:]

The third question you asked was what's the difference between Enterprise and high volume. Typically in Enterprise what we're targeting is more of a balanced mailing, shipping customer that has lots of different locations so each of those locations is typically just a few employees. So it's a lot like a small business, but there are a large network of offices within a single corporate umbrella. Whereas in the high volume space the customer target, like the ones that Kyle mentioned, all tend to be much heavier users of just the shipping portion of our solution. They mostly tend to be single location opportunities.

[William Myers:]

Thanks. That's helpful

[Operator:]

I am showing no further questions in the queue at the moment.

[Kenneth McBride:]

Thank you for joining us. If you have any follow-up questions, you can reach us at investor.stamps.com or call us at [phone]. Thank you.

[Operator:]

Okay, ladies and gentlemen, this does conclude your conference. You may now disconnect. Have a great day.