Stamps.com Inc.
Q2 2015 Earnings Call Transcript

Published: 8 Aug 2015

[Operator:]

Welcome to Stamps.com Second Quarter 2015 Financial Results Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Jeff Carberry. Sir, you may begin.

[Jeff Carberry:]

Thanks very much. Good afternoon, everyone and thanks for joining us today. On the call today is Ken McBride, CEO and Kyle Huebner, CFO. The agenda for today's call is as follows. We'll review the results of our second quarter 2015. Then we'll discuss financial results and talk about our business outlook. But first, 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 that involve risks and uncertainties. Important factors, including the company's ability to complete and ship its products, maintain desirable economics for its products and obtain and 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 31st, 2014; 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. As a reminder for today, the income and adjusted EBITDA results we discuss on the call are on a non-GAAP basis and exclude the following items -- $3.4 million of noncash stock-based compensation expense, $0.7 million of noncash amortization expense from acquired intangibles, $4.2 million of nonrecurring expenses, $13.6 million of noncash contingent consideration charges, $10 million of nonrecurring legal settlement expense and finally, a $4.8 million noncash income tax benefit. Please see our press release for a reconciliation between GAAP and non-GAAP. Core mailing and shipping is comprised of our small business, enterprise and shipping customer segments and excludes noncore enhanced promotion and PhotoStamps. Core mailing and shipping metrics exclude all enhanced promotion channel activities. And beginning in Q4 2014, all metrics include ShipStation and ShipWorks. 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. Finally, as a part of our ongoing program to reserve future use of our NOL asset, we request that any shareholder contemplating owning more than 800,000 shares contact the company before doing so. Now, with all that, let me hand the call over to Ken McBride.

[Ken McBride:]

Thank you, Jeff. And thank you for joining us today. Today, we announced our second quarter and full results. And during the second quarter, we once again achieved record results, including record revenue, total revenue of $48.4 million which was up 41% year over year; record core mailing and shipping revenue of $46.8 million which was up 45% year over year; record non-GAAP adjusted EBITDA of $17.7 million which is up 80% year over year, record non-GAAP net income of $16.8 million which is up 86% year over year and record non-GAAP earnings per share of $0.97 which was up 76% year over year. Overall, we're extremely pleased with the results for the quarter. And as a result of the second quarter performance in our current business outlook, we increased our revenue and our earnings guidance today. So with that, let me begin with a more detailed discussion of the core mailing and shipping business. Core revenue was up 45%, to $46.8 million in the second quarter. And during the second quarter, we acquired 101,000 gross small business customers at a cost per new small business customer acquired or CPA, of $109. Customers acquired were up 41% compared to Q2 last year and CPA was down 19% compared to Q2 last year. We're pleased that we achieved continued acceleration in the year-over-year growth rate for customers acquired, while also simultaneously achieving a significant decrease in CPA. Our small business customer acquisition spend was $11 million, up 14% compared to Q2 last year. Note that the customer acquisition spend now includes costs related to ShipStation and to ShipWorks personnel and marketing spend. Average monthly churn during the second quarter was 3.5% which was down versus 3.6% in the second quarter of 2014. Positive trend on year-over-year decreases in churn is a result of multiple factors, including continued improvement in the value proposition of our products and services. Recall that the second quarter has historically shown the highest churn rate of the four quarters each year owing to seasonality. So the sequential increase in churn from the first to the second quarter was expected. The paid customers in the second quarter were $554,000. That was up 13% versus the second quarter of 2014 and up $9,000 sequentially versus the first quarter of 2015. The sequential increase in paid customers was driven by a strong performance across all the core product offerings. The average subscriber revenue per paid customer or ARPU, was $28.17 in the second quarter. That was up 28% versus the second quarter of 2014. Year-over-year ARPU growth this quarter benefitted from growth in the shipping segment, including positive contributions from ShipStation and ShipWorks. Total USPS postage printed through our solutions was $548 million in the second quarter and that was up 48% versus the second quarter of 2014. We're now over a $2 billion annualized run rate in total USPS postage printed. We're pleased with the strong growth in the seasonally slower second quarter. Overall, we were very pleased with the metrics across the board and pleased with the benefits we continue to see from our recent acquisitions. With that, let me turn to some initiatives we're working on in the core mailing and shipping business. In the small business area, we're continuing to build and optimize customer acquisition activity. Through the continued optimization, we're able to achieve continued acceleration in the year-over-year growth rate for customers acquired this quarter. And we also optimize across our channels to achieve a significant decrease in cost per acquisition or CPA. The business continues to show very strong ROI of at least two times the CPA. Given the continually improving economics in this area, we plan to continue to increase our small business customer acquisition with the goal of increasing the total acquisition spend for the year by 10% to 20%. As we just mentioned, the spend goal includes marketing costs in our subsidiaries. The channels we use for small business customer acquisition continue to include direct mail, traditional media, online marketing and other areas. And we continue to optimize among the various channels in order to achieve the best return on investment. The goal we have is to continue to scale the marketing spend while balancing the ROI of each of the channels. In the enterprise area, we continue to scale up our sales and marketing efforts. Business continues to grow consistently, with second quarter revenue growth of 17% year over year. It also continues to make meaningful contributions to our bottom-line performance. Value proposition in this area continues to support our efforts. Our service has a lower total cost of ownership, better user visibility, better financial controls; versus postage meters. In the shipping area, we continue to experience success. In this area of our business, we have Stamps.com branded single-carrier USPS products and we have the ShipStation and ShipWorks branded platforms which offer multicarrier solutions. Both the single-carrier and the multicarrier type products target the ecommerce shippers and also target high-volume shippers. Ecommerce shippers are individuals or SOHOs or small office and home office, that sell online and ship products in moderate volumes. And then, high-volume shippers are warehouses, fulfillment houses, large-volume retailers; whose business centers around shipping products in large-production shipping environments. Second quarter USPS postage printed in the shipping area was up 64% year over year. Primary factor in our growth in the shipping area was our ShipStation and ShipWorks businesses. Those subsidiaries contributed nicely to overall postage printed growth and to our Q2 revenue growth. Both subsidiaries also made a meaningful impact to the bottom-line performance in Q2. In addition, the synergy opportunities we've been discussing since we made the two acquisitions began to materialize in a more meaningful way during Q2 as well. The synergies we have discussed include Stamps.com broad marketing expertise, capital, applied to the targeting of ecommerce small businesses for ShipStation and ShipWorks; our national sales team selling ShipStation and ShipWorks, the creation of upgrade paths from the Stamps.com single-carrier products to a ShipWorks or ShipStation solution for multicarrier needs, increasing customer use of Stamps.com as a USPS solution within the ShipStation and ShipWorks solutions, offering dropdowns from the multicarrier ShipStation and ShipWorks to a single-carrier Stamps.com solution for customers whose needs may have decreased and the sharing of technology expertise among the companies -- for example, web expertise in ShipStation which may be utilized in other areas of the business. Overall, we're very pleased with the performance in the shipping area which resulted from those two acquisitions. We're excited about the opportunities in our small business, enterprise and shipping areas. With that, let me turn to Endicia. On March 22nd, 2015, we announced that we had entered into a definitive agreement to acquire Endicia which is a wholly owned subsidiary of Newell Rubbermaid, for an aggregate purchase price of $215 million in cash. The transaction is subject to satisfaction of customary closing conditions, including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. We're currently in the regulatory review process with the Department of Justice. And the timing of that process remains uncertain. During the second quarter, both Stamps.com and Newell Rubbermaid each received a request for additional information or a second request, from the DOJ in connection with their review of the proposed acquisition. Second request from the DOJ is a standard part of the full regulatory process. Both Stamps.com and Newell Rubbermaid are in the process of responding to the second request and are cooperating with the DOJ in connection with its review. We continue to expect the transaction to close in 2015 and intend to fund the transaction with cash on hand and with the committed financing of up to $165 million which we have secured from three leading banks. With that, let me hand the call over to Kyle for more detailed discussion of our financial results.

[Kyle Huebner:]

Thanks, Ken. We will now review our second quarter financial results. Total revenue was $48.4 million in Q2, up 41% versus the second quarter of 2014. Growth in total revenue in the quarter was driven by core mailing and shipping revenue growth, where we're benefitting from our multicarrier acquisitions and stronger small business customer acquisition metrics. For the second quarter, core mailing and shipping revenue was up 45% year over year, driven by a 13% year-over-year increase in paid customers and a 28% year-over-year increase in ARPU. Noncore revenue from the enhanced promotion channel was down 19% in Q2 versus the second quarter of 2014 as a direct result of our continued decreased marketing spend in this area. PhotoStamps revenue was $1.1 million in Q2, down 21% versus the second quarter of 2014 as a result of decreased website orders and decreased high-volume business orders which can fluctuate from quarter to quarter. Mailing and shipping gross margin was 81.3% in Q2 versus 80.6% in the second quarter of 2014. Cost of sales includes promotional expenses related to customer acquisition which was an expense of approximately $900,000 in Q2, compared to an expense of approximately $700,000 in the second quarter of 2014. In our reported investor metrics, our customer acquisition spend includes both promotional expenses and sales and marketing spend, as we feel they are both costs directly related to acquiring customers. As such, we feel it is more informative to look at mailing and shipping gross margins excluding promotional expenses as a better indicator of the ongoing gross profits of that business. On that basis, mailing and shipping gross margin excluding promotional expenses was 83.2% in Q2 versus 82.9% in the second quarter of 2014. PhotoStamps gross margin was 17.8% in Q2 versus 14.8% in the second quarter of 2014. The increase in gross margin was primarily attributable to a lower mix of high-volume business orders which have a lower gross margin compared to website orders. We experienced year-over-year increases in our cost in sales and marketing, R&D and G&A, primarily related to ShipStation and ShipWorks costs in the second quarter of 2015 as compared to the second quarter of 2014. The year-over-year increases also related to investments we'd made to support the strong growth in our business we've experienced. Sales and marketing spend was $11.7 million in Q2, up 11% versus the second quarter of 2014. Sales and marketing as a percent of revenue was 24.2% in Q2 which was lower compared to 30.7% in Q2 of 2014. R&D spend was $4.1 million in Q2, up 41% versus the second quarter of 2014. R&D as a percent of revenue was 8.4% in Q2 which was comparable to 8.4% in Q2 2014. G&A spend was $6.1 million in Q2, up 42% versus the second quarter of 2014. G&A as a percent of revenue was 12.6% in Q2 which was comparable to the 12.5% in Q2 of 2014. Non-GAAP operating income was $16.8 million in Q2, up 85% versus the second quarter of 2014. Non-GAAP operating margin was 34.7% in Q2 versus 26.5% in Q2 2014. We would note that we expect to see quarter-to-quarter fluctuations in our operating margins depending on the level of customer acquisition spend and curve. Non-GAAP adjusted EBITDA was $17.7 million in Q2, up 80% versus the second quarter of 2014. Non-GAAP adjusted EBITDA margin was 36.6% in Q2 versus 28.7% in Q2 2014. This metric is calculated as non-GAAP operating income plus D&A contained in operating expenses of $915,000 in Q2. Non-GAAP net income was $16.8 million, up 86% versus the second quarter of 2014. Non-GAAP net income per fully diluted share was $0.97 in Q2, up 76% versus $0.55 per share in the second quarter of 2014. Diluted shares used in the EPS calculation were $17.3 million for Q2. Capital expenditures for the business, excluding investments in our corporate headquarters, was $1.0 million in Q2. Our primary capital expenditures are investments in our technology platform to ensure the reliability and scalability of our solutions to handle the large postage volumes we're experiencing. These investments are a function of the timing of ongoing projects throughout the year. So we expect to see some fluctuations on a quarter-to-quarter basis. Non-GAAP free cash flow generated by the business was $16.7 million in Q2. This metric is calculated as non-GAAP net income plus D&A contained in operating expenses less capital expenditures related to the business. This calculation excludes capital investments in our corporate headquarters as well as tenant-related D&A. We ended Q2 with $90.6 million in cash and investments or $5.51 per ending balance sheet share which was up $9 million compared with Q1 of 2015 and up $33 million compared with year-end 2014. Taxes, we have approximately $60 million deferred tax asset with no valuation allowance on the balance sheet as of June 30th, 2015. In the second quarter 2015, we reported a GAAP tax benefit of $4.7 million, of which $4.8 million was a noncash tax benefit based on our GAAP net loss position and $15,000 was the expected cash taxes. On a cash tax basis, we will continue to use our net operating losses and other tax credits and thus we expect to pay the alternative minimum cash tax for 2015 consistent with prior years which we expect will be approximately 2% to 3% of pretax income. Now, turning to guidance, we expect fiscal 2015 revenue to be in a range between $170 million to $190 million. This compares to previous guidance of $165 million to $185 million. We expect fiscal 2015 non-GAAP EPS to be in a range between $3.10 to $3.50 per fully diluted share. This compares to previous guidance of $2.55 to $2.95. Non-GAAP net income per fully diluted share excludes a noncash stock-based compensation, noncash amortization of acquired intangibles, noncash change and contingent consideration charges, noncash tax expenses or benefits and nonrecurring expenses including litigation settlements and acquisition and corporate development-related expenses. We're not providing GAAP EPS guidance because of the difficulty of forecasting some of the non-GAAP items, such as change and contingent consideration which is driven in part by future changes in our stock price. We expect core mailing and shipping revenue to be up between 20% to 30% in 2014. This compares to our previous guidance of 15% to 25%. The increase in our growth expectations primarily reflects the accelerating benefits of our multicarrier acquisitions and our stronger small business customer acquisition metrics. We expect noncore revenue from the enhanced promotion channel to continue to be down in 2015 compared with 2014, consistent with the historical trends we've seen as we continue to minimize our investments in this area. We expect noncore PhotoStamps revenue to be down in 2015 compared with 2014, possibly by as much as 25%, as we expect it may be challenging to repeat the same level of high-volume business orders in 2015 as we saw in 2014. We're targeting small business customer acquisition spend, including ShipWorks and ShipStation, to be up 10% to 20% in 2015 compared with 2014. We expect capital expenditures for the business for 2015 will be between $3 million to $3.5 million. We expect fully diluted shares will be approximately $17.5 million for 2015. While we don't provide quarterly guidance, we would note the following. The third quarter has historically been our seasonally slowest quarter in our business as reflected in our customer metrics. We anniversaried the acquisition of ShipStation in the second quarter and will anniversary the acquisition of ShipWorks in the third quarter which will make for a little tougher year-over-year comparisons going forward. Given the strong customer acquisition metrics in Q2, we plan to try to maintain or grow our customer acquisition spend in Q3 and the seasonally strong Q4, as that is our primary reinvestment in the business which negatively impacts quarterly EPS but results in expected benefits in the future quarters. Our guidance also reflects that we intend to maximize our investments in the business, including customer acquisition spend, for the long term to the extent possible. Finally, we would note the above guidance does not include any impact from the proposed acquisition of Endicia, as we're still in the regulatory review process. So in summary, our core mailing and shipping business model with recurring revenue and high gross margins is a very attractive and sustainable business model. There are significant opportunities in the fast-growing ecommerce-driven package market and we expect our ShipStation and ShipWorks acquisitions to help us capitalize on those opportunities. We're seeing better small business customer acquisition metrics, where we continue to see a very attractive ROI on our customer acquisition spend. And we expect to continue to ramp that investment. We have strong free cash flow generation. We have a strong balance sheet and attractive return on equity. We have demonstrated our commitment to enhancing shareholder value, including $307 million of excess cash returned to shareholders via special dividends and our share repurchase programs. We're looking forward to delivering continued great results going forward. With that, we will open it up for questions.

[Operator:]

[Operator Instructions]. The question comes from Kevin Liu with B. Riley. Your line is open.

[Kevin Liu:]

First question I wanted to ask, just in terms of the Endicia process and the current regulatory approval you're going through, could you just talk a little bit about what areas, if any, that the DOJ has wanted to look more into? And in particular, I'm wondering how you feel they're kind of defining the competitive landscape in terms of the number of folks out there that you might be benchmarked against?

[Ken McBride:]

Sure. I mean, the second request is really a standard part of the full regulatory review process. And we're in the process of complying with second request and providing the information for their review. I would say it's a very comprehensive review and there's really no indication as to what specific area they're focused on. As the process unfolds, we potentially get that insight. But at this point, it's very early in the process. And so it's not really anything we could answer with any certainty.

[Kevin Liu:]

And maybe switching gears a bit, certainly, the service revenues were particularly strong in the quarter. As you now have the acquisitions under your umbrella for close to a year now, is there any reason to expect that the service fee revenues or the ARPU line in particular would dip going forward? Or would you consider the vast majority of these fairly recurring in nature, given the subscription-based pricing you have?

[Kyle Huebner:]

Yes, Kevin. So in terms of the ARPU metric, Ken reviewed a number of the synergies that are opportunities for us. And in Q2, I think we were able to realize the benefits of the acquisitions to a greater degree. And I think that really manifests itself in the ARPU metric, where these shipping and multi-shipping customers -- we just have a better ability to monetize volume in that segment. So on a year-over-year basis, we're going to start to anniversary the two acquisitions. So that'll make for tougher comps. But at the same time, we had accelerated the ability to -- or we realized more of the synergy benefits in Q2 compared to the prior quarters.

[Kevin Liu:]

And just as a follow-on in terms of those synergy benefits that you're seeing -- is that from customers of ShipStation or ShipWorks adopting the Stamps postage solution or maybe vice-versa? Or are there other areas where you are deriving synergies right now?

[Ken McBride:]

Yes. I mean, it's all those areas that I really touched on in the call. So we identified these areas right up front. I think we've been talking about them for several quarters. And this is kind of really the first quarter where I think the synergies that we've been talking about really began to materialize. And I think that really made an impact in terms of the growth rates on revenue and impact to the bottom line. And it's many of the things you mentioned. It's increasing customers' use of our service as part of the ShipStation and ShipWorks solutions. It's our sales team selling the ShipStation, ShipWorks solutions; beginning to apply our marketing expertise and our capital to target the small businesses that are in ecommerce, so candidates for the ShipStation/ShipWorks. And it's beginning to cross-utilize technology expertise and do upsell and down-sell. So it's kind of all of those above. And we really started to get the -- crank up the synergies in terms of what we had identified, really, the benefits we're starting to see.

[Operator:]

Our next question comes from George Sutton with Craig-Hallum. Your line is open.

[George Sutton:]

As we look at Q2, was there anything unusually good from your perspective that wouldn't necessarily recur in future quarters? And was there anything suboptimal in the quarter that you would point to that you didn't necessarily get to recognize?

[Kyle Huebner:]

I would say the results were -- two of the factors that we mentioned were the benefits from the acquisitions and then the stronger customer acquisition metrics we've seen. So those are things that continue going forward. In terms of the customer acquisition spend, we've seen historically that can fluctuate quarter to quarter. And so right now, it's kind of particularly strong. But that can go the other direction quarter to quarter, we've seen in the past. So I would characterize that there wasn't necessarily any one-time event that drove it. It was really the better-than-expected outcomes and the multicarrier acquisitions, customer acquisition. And our focus is on having that continue to the best degree possible.

[George Sutton:]

Specifically, when you broke out the details of the benefit from the acquisitions, one of the things you mentioned were the upgrade paths for customers -- traditional Stamps.com customers. How significant is that piece specifically?

[Ken McBride:]

I think that it's becoming more significant. I think the customers -- one of the early things that we really focused on in this acquisition was -- as customers come in, we like to grow with them. And they start off with just USPS. It's an easy way to get an ecommerce business kind of off the ground in shipping. And the idea is, as they get larger, they begin to look at optimizing. They do a lot more packages, they start looking at -- wow, if I do other carriers in certain weights or zones, then I can actually optimize it. And they start to grow up, if you will. And when you look at that customer, we can see their volumes growing. We can see that they're using the portion of our product called batch, where they're really bringing in a lot of orders. And we can see the volumes and kind of say -- hey, this other product may be more suitable for your needs and try to offer them a path to upgrade to that solution. So I think we're starting to see an impact from that and it's going to become more meaningful over time.

[George Sutton:]

And you mentioned, Ken, in response to the question on the acquisition side or the Endicia process side that we're still very early in the process and I wondered if you can put that up against the context of the expected close by year end. Despite still being early in the review process, you're still comfortable with that year-end timeframe.

[Ken McBride:]

Yes. I think year end is four months away. And as we went into this process, I think looking at kind of standard outcomes, I think we felt like it was reasonable to expect the kind of timeline we're on right now. So I think this is largely what was predicted as a standard regulatory review process. And I think we said we expect it to close by the end of 2015 from the beginning, back in March when we announced it. So I think it's largely what we had expected and largely marching along the timeframe that we had predicted.

[Kyle Huebner:]

The other thing is it's also kind of -- from the perspective of getting feedback from the DOJ, it's kind of early in the process where we haven't -- you know, we're not at a point where we really have insight into their perspective.

[Operator:]

Our next question comes from Tim Klasell with Northland Securities. Your line is open.

[Tim Klasell:]

Just sort of going how we should think about seasonality going forward. Because traditionally, we haven't seen such a nice sequential jump in the core business. And the customer acquisition costs actually normally do jump Q1 to Q2. And here, they barely did. Is that a pattern we should think about going forward? Has the ShipStation/ShipWorks acquisitions fundamentally changed how your business flows through the year? Or was this just sort of a good quarter but not something we should expect this pattern going forward?

[Kyle Huebner:]

Yes, I think the seasonality in the business still exists, in terms of Q2 and Q3 being the seasonally slower quarters and Q4 and Q1 being the reasonably stronger quarters. I think what you saw in Q2 is that the benefits of some of the acquisition synergies that we talked about outweighed the seasonal factors. So the net of the two was a trend that was not the same as we've seen historically. So as you move forward, we'll start anniversarying stuff over the course of time and seasonality will probably manifest itself more apparently. But in this quarter in particular, I would say that the benefits of the acquisitions outweighed the seasonality, but the seasonality still exists in the business.

[Tim Klasell:]

And then, did you guys do anything different maybe over the last quarter or two with the two acquisitions that helped accelerate them? Because they did close like over a year ago. And now, we suddenly saw, like you mentioned, the benefits. Did you do anything different? Or did it just take a year for the process to flow through?

[Ken McBride:]

Yes, I think we made sure we were doing everything from a customer perspective. We had to build technology, we had to optimize and make sure we're testing. So I think it's just the typical Stamps.com. We like to be very cautious and make sure we're being customer-friendly. We didn't want to move people down a path that we didn't think was the right way. And so it's really just making sure, as we begin this process of optimizing the synergies, that we have ferreted out all the possible paths and making sure we're on the right path.

[Kyle Huebner:]

Yes and I would say it's really -- Q4 was the first full quarter with all three -- or the two acquisitions under the Stamps umbrella. So Q4 and Q1 we spent doing what Ken said. And then, as we moved into the Q2 period, we felt comfortable trying to accelerate or enhance the benefits.

[Tim Klasell:]

Okay. And then, one final question on the share count took a little bit of a bigger jump and you didn't buy back any shares this quarter. Would it be safe for us to model maybe similar patterns while you guys try to husband cash in front of the potential Endicia acquisition?

[Kyle Huebner:]

Yes. So on the shares, just the mechanics of accounting, the higher the stock price goes, it translates into higher fully diluted shares with your common stock equivalents. So as you do better and the share price goes up, your fully diluted shares also go up. So that's why we kind of guided to the 17.5% number for the year. In terms of the share repurchase we don't comment on kind of that specifically in terms of future expectations.

[Operator:]

Your next question comes from Allen Klee with Sidoti. Your line is open.

[Allen Klee:]

My questions have pretty much been answered. But I don't know if I fully heard this -- when you were talking about what factors are affecting Q3 seasonality and I think you said it's normally a little bit lower, but there could be, just from some of the synergies, where do you think you stand in terms of getting these synergies, in terms of, I guess, how much more opportunity there is there? It seems like it's kind of early days. But any thoughts on that?

[Ken McBride:]

Yes, I mean, I think we do feel like we've moved the ball forward quite a bit this quarter in terms of synergies. But we still have opportunities to continue to optimize and build on what we've done in Q2. So I think that our expectations are that we can continue to gain more synergies with those businesses going forward.

[Allen Klee:]

If you looked at your customer adds, can you give us some color of what percent of them came from existing Stamps.com customers, that maybe went to ShipStation and ShipWorks?

[Ken McBride:]

Yes. I don't think we have that specific number in front of us. But like I said, we've really been trying to focus on moving the customers up the chain when it makes sense from a customer value prop. As they get bigger, as they need more of solution, we really like to move them up. So I think it would be the difference between losing a customer through churn and maintaining that customer in our paid customer base by moving them up into the ShipStation or ShipWorks solution.

[Kyle Huebner:]

And just to clarify, the customer adds include Stamps and the subsidiaries. So to the extent an existing customer upgrades, then that actually wouldn't count as a new customer add. It would be more again reflected in the potentially higher ARPU you get through that path.

[Operator:]

I'm not showing any further questions.

[Ken McBride:]

Okay. Great. Well, thank you, everyone, for joining us. And as always, we're available for follow-ups. Contact us at 310-482-5830. Thank you.

[Kyle Huebner:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.