Stamps.com Inc.
Q4 2015 Earnings Call Transcript

Published: 26 Feb 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Stamps.com Inc. Fourth Quarter 2015 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Jeff Carberry, Vice President, Finance. Please go ahead sir.

[Jeffrey Carberry:]

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'll review the results of our fourth quarter 2015. Then we'll discuss financial results and talk about the outlook, but first, the Safe Harbor statement. The Safe Harbor Statement under Private Securities Litigation Reform Act of 1995. This release includes forward-looking statements about our anticipated financial metrics and results, all of which involve risks and uncertainties. Important factors including the Company's ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments, including the Company's abilities 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 the filings with the Securities and Exchange Commission made from time to time by Stamps.com, including its annual report on Form 10-K for the fiscal year ended December 31, 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 today, the financial results including income and adjusted EBITDA measures we discuss on the call are on a non-GAAP basis and exclude the following fourth quarter 2015 items. $8.1 million of noncash stock-based compensation expense in Q4 and $17.2 million in 2015. $1.5 million of non-cash amortization expense from acquired intangibles in Q4 and $3.6 million for 2015. $0.5 million of nonrecurring expenses in Q4 and $7.2 million for 2015. $20.1 million of noncash contingent consideration charges in Q4 and $46.1 million for 2015. $31,000 of noncash amortization of debt issuance costs including the interest expense in Q4 and 2015. $10.0 million of nonrecurring legal settlement expense in 2015 and a $1.9 million noncash income tax benefit in Q4, which was $2.8 million for 2015. Please see our fourth quarter 2015 earnings release and past 8-K filings for a reconciliation between GAAP and non-GAAP measures. Financial results and metrics including Endicia’s results for the period November 18, 2015, through December 31, 2015. We're now reporting on our business broken out between our mailing and shipping and customized postage businesses as opposed to our previous breakout of core mailing and shipping and non-core enhanced promotion and PhotoStamps. The mailing and shipping business is comprised of all customers on our mailing and shipping solutions and excludes customized postage. Customized postage includes Stamps.com's PhotoStamps offering and Endicia’s Picture It Postage offering. Mailing and shipping metrics for the fourth quarter include Stamps.com, ShipStation, ShipWorks and Endicia. For a more detailed definition of how we calculate each of our metrics, you may refer to our quarterly investor metric at investor.stamps.com. Now with that, let me hand the call over to Ken.

[Ken McBride:]

Thanks, Jeff. Thank you for joining us. Today we announced fourth quarter record results and metrics. The results included total revenue which was up 67% to $69.9 million, record non-GAAP adjusted EBITDA of $30.2 million, which was up 136% year-over-year, record non-GAAP net income of $28.1 million, which was up 140% year-over-year, record non-GAAP earnings per share of $1.57, which was up 119% year-over-year. Record paid customers of 633,000 now was up 21% year-over-year and record ARPU, which was $35.35 now was up 38% year-over-year. In addition, our total postage printed for Q4 was $1 billion and that was up 71% year-over-year. For the year as a whole total postage printed was $2.7 billion that was up 52% year-over-year. Overall we're extremely pleased with the results of this quarter and for the entire fiscal 2015. Before we begin, discussing business today I’d like to discuss change in our approach on the non-financial metrics that we typically report on our business. Today we released the new set of metrics which we think will be more accurate in terms of reflecting the underlying drivers of our business and which will give investors a better insight into the metrics we focus on as a management team. The business has transformed fairly dramatically over the past few years with our continued focus on growing our high volume shipping business and with our acquisitions of Endicia, ShipStation and ShipWorks. As a result of those changes we now have a very wide range of customers and business models including very small businesses or individuals who pay only transaction fees [indiscernible] $3 a month, small offices and home offices that pay our traditional recurring monthly subscription fee, large mailing houses that purchase software for a one-time upfront fee and very large shippers who are doing millions of dollars in postage per year. Such a wide range of characteristics between these different types of customers and the different types of business models that we feel that the metrics we’ve reported in the past no longer really make a ton of sense for the business. The traditional metrics such as cost per acquisitions and churn are really more appropriate for pure SaaS subscription business with a more homogeneous customer base. Thus we no longer plan to report our cost per acquisition and our churn rates from this point forward, but will continue to report paid customers and average revenue per unit or ARPU and will continue to report total postage printed as those metrics continue to give investor helpful insight into the underlying factors that drive our financial results. With that, let’s move on to a more detailed discussion in mailing and shipping business. Mailing and shipping revenue was up 67% to $67.2 million in the fourth quarter. Mailing and shipping revenue includes revenue from service mailing and shipping supplies and package insurance from all our mailing and shipping solutions. Revenue growth was driven by both growth in paid customers and by growth in ARPU and the inclusion of Endicia after the close. Paid customers in the fourth quarter were 633,000 that were up 21% versus the fourth quarter of 2014. Growth in paid customers benefited from the inclusion of Endicia’s paid customers. Average monthly revenue per pay customer or ARPU was $35.35 in the fourth quarter that was up 38% versus the fourth quarter of 2014. Year-over-year ARPU growth this quarter benefited from continued growth in the shipping business including positive contributions from our acquisitions. We’re very pleased with our metrics across the board and we’re pleased with the benefits we continue to see from the acquisitions. Now let me provide an update on Endicia. Now that the Endicia acquisition is closed, we're actively working on integrating the companies and beginning the process of capitalizing on the synergies. We expect that the integration and the synergy benefits will be a continuous process throughout the next several years and while we're only a few months into the process, we feel that we've already made some good progress on several of our initiatives. We've combined our sales team and are aligning the combined team around our combined corporate goals including selling all of our brands Stamps.com, Endicia, ShipStation and ShipWorks into the various customer segments to which we target them. We've centralized our marketing efforts to gain scale economies, and efficiencies in spending the marketing dollars for each of our brands, with a focus on scaling up and optimizing the program that achieve the highest possible return on investment. We've begun to look at ways to optimize the support that we provide to customers with our increased scale and the broader geographic diversity across the combined organizations; taken the first steps in the process of combining our datacenter operations for reduced cost and greater efficiency, and we’ve already begun to cross utilize the expertise we have in our respected development teams to enhance our combined innovation. As an indication of the scale of our operations now, for the full year 2015, Stamps Endicia, ShipStation and ShipWorks together generated over $4.5 billion in total USPS postage. Furthermore, together our companies now represent an estimated 30% of all USPS domestic priority mail and that's the main product that USPS offers. Now let's discuss some of the broad initiatives we're working on in our mailing and shipping business. First, we plan to continue to increase and optimize the marketing spend. We're continuing to achieve the strong return on investment and marketing that we've traditionally seen. We continue to focus the marketing spend towards the mailing and shipping segment where the customers have a high expected lifetime value. The main channels we continue to utilize are the same as we have historically, including direct mail, traditional media and radio, television and online advertising. We also continue to acquire customers through our affiliates and our partners. Second, we plan to enhance our shipping solutions, increase and optimize our sales efforts around those solutions. We continue to attract high volume shippers such as warehouses, fulfillment house, eCommerce shippers, large retailers and other types of high volume shippers. We plan to continue to optimize our business in this area [indiscernible] initiatives, plan to leverage the combined Stamps.com and Endicia sales force to sell our suite of high volume shipping solutions. Plan to continue enhancing our technology and software to further improve the scalability of our solutions for our large high volume shipping customers. Plan to continue to introduce shipping related features and functionality that will include the value proposition of our solutions and we plan to continue adding new integrations for easier data export and import from the [indiscernible]. Third, we plan to enhance our multicarrier solutions, ShipStation and ShipWorks and continue capitalizing on our synergy opportunities with those businesses. ShipStation and ShipWorks platforms offer effective solutions for high volume shippers such as warehouses, fulfillment houses and eCommerce shippers, large retailers and other types of high volume shippers that may need more than just the U.S. postal service for their business. We plan to continue increasing volume through our multicarrier solutions by leveraging both the breadth and financial scale of our marketing efforts, including our expanded national sales team. We also plan to continue improving our upgrade path from the traditional Stamps.com and Endicia single carrier solutions to our ShipStation and ShipWorks multi carrier solutions. Likewise Stamps.com and Endicia single carrier solutions are potential dropdown solution for those customers whose needs may have decreased over time or who no longer need a full multicarrier solution. We also believe that technology expertise in various companies is synergistic and ShipStation's web based expertise is complementary to the client based expertise we have at Stamps.com, Endicia and ShipWorks. Finally in our plan, we plan to continue to enhance our enterprise sales and marketing efforts. Our enterprise solution continues to present a strong customer value proposition compared to a postage meter including lower total cost of ownership, greater visibility into individual employee activity, web based financial and administrative controls. We plan to continue increasing and optimizing and refining our enterprise customer lead generation and sales and marketing efforts to continue working on improving their efficiency of our sales team in that area. With that, let me hand the call over to Kyle for more detailed discussion of our financial results.

[Kyle Huebner:]

Thanks, Ken. Q4 financial results. We will now review our fourth quarter and 2015 financial results. As Jeff described, we will discuss our results on a non-GAAP basis and reconciliation of non-GAAP to GAAP can be found in our earnings release and past 8-K filings. Total revenue was $69.9 million in Q4, up 67% versus the fourth quarter of 2014 in which $214 million in 2015, up 45% versus 2014. We achieved strong growth in both our mailing and shipping and our customized postage businesses. Mailing and shipping revenue was $67.2 million, up 67% versus the fourth quarter of 2014 and was $206.7 million, up 46% versus 2014. For the fourth quarter, mailing and shipping revenue was up 67% driven by a 21% increase in paid customers and a 38% increase in ARPU. For fiscal 2015, mailing and shipping revenue was up 46% driven by year-over-year customer growth of 14% and a 28% increase in ARPU. Mailing and shipping gross margin was 84.2% in Q4 versus 80.3% in the fourth quarter of 2014 and was 82.1% in 2015 versus 80.3% in 2014. The increase in gross margin was primarily attributable to economies of scale associated with our strong revenue growth. Customized postage revenue which includes both PhotoStamps and Picture Postage was $2.7 million in Q4 up 78% versus the fourth quarter of 2014 and was $7.2 million in 2015 up 33% versus 2014. PhotoStamps and Picture It Postage are similar products both sold on a transaction base business model. Customized postage revenue benefited from increased high volume business orders which can fluctuate from quarter-to-quarter and from the addition of Endicia’s Picture It Postage to our financial results. Customized postage gross margin was 18.8% in Q4 versus 20.9% in the fourth quarter of 2014 and was 16.9% in 2015 versus 17.6% in 2014. The decrease in gross margin was primarily attributable to higher mix of the high volume business orders, which have a lower gross margin compared to website orders. We experienced year-over-year increases in our fourth quarter and 2015 cost of sales and marketing, R&D and G&A, primarily related to our acquisitions and our investment to support the strong growth in our mailing and shipping business. However, these costs as a percentage of revenue have all declined as we've scaled our business. Sales and marketing spend was $16.0 million in Q4 up 39% versus the fourth quarter of 2014 and was $51.6 million in 2015 up 21% versus 2014. Sales and marketing as a percent of revenue was 23% in Q4 compared to 27.6% in Q4 '14 and was 24.1% in 2015 versus 29.0% in 2014. R&D spend was $5.6 million in Q4 up 61% versus the fourth quarter of 2014 and was $17.6 million in 2015 up 43% versus 2014. R&D as a percent of revenue was 8.1% in Q4 compared to 8.4% in Q4 of '14 and was 8.2% of revenue in 2015 versus 8.4% of revenue in 2014. G&A spend was $6.3 million in Q4 up 10% versus the fourth quarter of 2014 and was $23.0 million in 2015 up 23% versus 2014. G&A as a percent of revenue was 9.0% in Q4 compared to 13.6% in Q4 of '14 and was 10.8% of revenue in 2015 versus 12.7% in 2014. Non-GAAP operating income was $29.1 million in Q4 up 144% versus Q4 of last year and was $78.8 million in 2015 up 92% versus 2014. Non-GAAP operating margin was 41.7% in Q4 compared to 28.5% in Q4 '14 and was 36.8% in 2015 up from 27.9% in 2014. Adjusted EBITDA was $30.2 million in Q4, up a 136% versus the fourth quarter of 2014 and was $82.6 million in 2015 up 87% versus 2014. Adjusted EBITDA margin was 43.2% in Q4 compared to 30.5% in Q4 of '14 and was 38.6% in 2015 versus 30.0% in 2014. Our non-GAAP cash tax expense was $0.7 million in Q4. We have a $57 million deferred tax asset on the balance sheet as of December 31 that we expect to be able to use to reduce our cash taxes in future periods. Non-GAAP net income was $28.1 million up 140% versus fourth quarter of 2014 and was $77.2 million in 2015 up 90% versus 2014. Non-GAAP net margin was 40.3% in Q4 compared to 28.1% in Q4 '14 with 36.1% in 2015 versus 27.6% in 2014. Non-GAAP net income per fully diluted share was $1.57 in Q4 up 119% versus $0.72 per share in the fourth quarter of 2014 and was $4.43 in 2015 up 79% versus $2.47 in 2014. Fully diluted shares used in the EPS calculation was $17.9 million for Q4 and $17.4 million for 2015. Capital expenditures for the business were $0.6 million in Q4 and $2.1 million in 2015. Our primary capital expenditures and investments in our technology platform to ensure the reliability and scalability of our solutions to handle the large postage volumes we are experiencing. We ended Q4 with $75 million in cash and investments which was down $27 million compared to Q3 of '15. The decrease in cash resulted primarily from cash used for the Endicia acquisition partially offset by free cash flow generated by the business. Free cash flow generated by the business was approximately $28.5 million in Q4 and $79 million in 2015. Free cash flow is calculated as non-GAAP net income plus DNA contained in operating expenses less capital expenditure related to the business. We funded the purchase in Endicia during the fourth quarter with existing cash of approximately $50 million and debt issuance of approximately a $164.5 million. We made a required debt payment of $1 million in Q4 resulting in debt outstanding under the credit agreement of $163.5 million at year end. We also incurred approximately$1.8 million in debt issuance cost, which were capitalized to the balance sheet and are being amortized as interest expense over the life of the credit agreement. As a result we have net debt of $161.5 million on the balance sheet. The interest rate on the debt in Q4 was 1.86%. On February 22, 2016, the Board of Directors approved a new share repurchase program that authorizes the company to repurchase up to $20 million of shares -- or stock during the next six months. Now turning to guidance, we expect fiscal 2016 revenue to be in a range between $290 million to $310 million. We expect 2016 revenue to continue to be driven by growth in our mailing and shipping business as customized postage now accounts for less than 5% of our revenue. We expect fiscal 2016 non-GAAP EPS to be in the range between $5.50 per diluted share. We expect sales and marketing, R&D and G&A to be up in 2016 compared to 2015 as we continue to invest in the business and will have a full year of Endicia. We expect interest rates on our debts to be approximately 2% to 3% in 2016. The interest rate is based on LIBOR and certain financial measures and thus could fluctuate from quarter-to-quarter. We are including interest expense incurred under the credit agreement in our non-GAAP EPS guidance, but are not excluding the non-cash amortization of the already incurred data issuance cost. We expect cash taxes will be approximately 3% of non-GAAP pre-tax income. We expect fully diluted shares will be approximately 19.5 million in 2016. The increase in diluted shares versus 2015 reflects the expected issuance of 560,000 shares under the ShipStation earn out and the higher current stock price. We expect capital expenditures for the business to be approximately $5 million in 2016. These investments are a function of the timing of ongoing projects throughout the year. So we would expect to see fluctuations in our quarter-to-quarter spending. With our increased focus on shipping, we expect our revenue and financial results to exhibit more pronounced seasonality as compared to past years. In particular we expect the fourth quarter to be meaningfully higher than the other three quarters due to the seasonally strong Q4 holiday shipping period as we saw in 2015. As such we would not necessarily expect the first quarter of 2016 to achieve the same results as the fourth quarter of 2015. Summary, we've achieved a significant transformation of our business over the past few years with our acquisitions and focus on shipping. Our mailing and shipping business model with recurring revenue and high gross margins is a very attractive and sustainable business model. We're experiencing strong revenue growth and significant margin expansion demonstrating the strength of our financial model. There is still significant opportunities in the fast growing eCommerce driven package market. We're already realizing the benefits of our ShipStation and ShipWorks acquisition and the Endicia acquisition will help us further capitalize on these opportunities. We've a strong return on investment in our mailing and shipping business where the customers have a high expected lifetime value relative to the cost to acquire them and we also have strong free cash flow generated by the business. We look forward to continuing to deliver great results. With that, we'll open it up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Kevin Liu of B. Riley. Your line is open.

[Kevin Liu:]

Good afternoon. First question was just wondering if you could quantify the contribution from Endicia within Q4 and also to your fiscal '16 guidance?

[Kyle Huebner:]

Yes, Kevin, we're not breaking it out separately. As Ken was talking about and describing the synergies, there is a lot of areas where the combined companies together are going to gain economies of scale and leverage and synergies and so we're really looking at Stamps.com as one entity where we can leverage all the different brands together. So in that context trying to break out Endicia separately isn’t really the way we're looking at how we're going to capitalize on the synergies going forward.

[Kevin Liu:]

Understood, and maybe just with respect to some of the synergies you do anticipate seeing whether it's on the revenue side or more so on the cost side, what's currently reflected within your fiscal '16 guidance? Is it assumed that you do identify most of those leverage opportunities over the course of this year or is it on a part way of what you might expect over the next couple of years? Just any indication you can give would be helpful.

[Kyle Huebner:]

Yes, as Ken mentioned, it's an ongoing process that I think we expect it will take several years to kind of fully capitalize on all the synergy opportunities and as we saw with ShipStation and ShipWorks we are very disciplined in our execution and making sure that we're getting the right answers in terms of the synergies and ShipStation and ShipWorks it really took us about three or four quarters before we started to meaningfully see the synergies. So I think we're going to -- it's a continuous process and we will achieve some of those in this year, but it's certainly I think something that's going to be a multiyear period to fully capitalize on all of them.

[Kevin Liu:]

All right and then just lastly, you mentioned during the call that just because of the nature of how the business looks today, some of the old metrics like CPA weren’t as relevant, could you just expand upon how the go-to-market strategy or the associated customer acquisition spend changes now that you have Endicia in the fold. In other words, while the channels look similar, do you still need a continuously increase that CPA at a fairly rapid clip each year in order to sustain these high levels of organic growth?

[Kyle Huebner:]

Well, I think one thing to point out is the -- with Stamps prior to Endicia, the disproportionate amount of our sales and marketing spend was the program based marketing, as a combined company now the sales investment through the sales channel is meaningfully higher with the addition of Endicia and so we feel like there is spend across sales and marketing where the mix looks different -- will look different going forward than historically. And I think that the key point is that in terms of us managing the business we're looking at the economics of specific customers, customer segments, the programs that we're executing on and making sure that we were getting the sufficient return on investment but as Ken was saying, there is now such a wide variety of those metrics that really it’s the paid customers and the ARPU that are the growth drivers for the mailing and shipping revenue.

[Kevin Liu:]

Okay. Thank you for taking the questions and congrats on a really strong quarter.

[Kyle Huebner:]

Thanks Kevin.

[Ken McBride:]

Thanks Kevin.

[Operator:]

Thank you. Our next question is from George Sutton of Craig-Hallum. Your line is open.

[George Sutton:]

Yeah, guys superb results. So I wanted to focus on the sales and marketing line in particular that came in quite attractive in this Q4 quarter, I understand Q4 is now representative of more efficiencies than normal, but as I look at you becoming more focused on selling the Endicia brand to the high volume market and the Stamps brand to the SMB market as an example, when do we start to see those kinds of leverage points? Has that started to occur yet?

[Ken McBride:]

I think we’re pretty early in the process. I think I mentioned in the remarks we've just now combined the sales teams. We're aligning the teams around the goals of the companies, starting to put the various brands into the sales team’s hands, ShipStation, ShipWorks, Endicia Stamps and so I think we’re only a couple months into this process. We've centralized the sales, centralized the marketing efforts and we do expect to have economies of scale and efficiency gains, but we don’t really feel like that’s been reflected in the numbers yet.

[George Sutton:]

Okay. Great. You gave an interesting statistic that I certainly haven’t heard and that’s the combination of the two of you did 30% of all U.S. priority mail and I wanted to put that in the context of the ultimate penetration rate or a current penetration rate if you will of your market opportunity. Could you help with that?

[Ken McBride:]

Sure, we were third of the priority mail that is the main product, this is a domestic priority mail and while we are gaining percentage of that market I think we continue as you look at the market you're continuing to see growth. USPS is continuing to grow. Last year I think it was up 7% or 8% and I think they probably will grow faster this year and we continue to find opportunities to grow as well. So additional areas where we think our market share could climb. Our postage last year was up much faster than USPS overall, up 52% and so I think we expect to continue to grow. We expect them to continue to grow. I think on top of that as we look into our business overall, we the multicarrier solutions give us access to the much larger market in the private carriers as well. And if you look say FedEx and UPS they represent I think about $33 billion and $44 billion when you look at just their USPS or the U.S. originated shipments. So I think that continued growth in the USPS market accessing the private carrier market and then I just think in general overall continued growth driven by eCommerce growth is obviously the fastest growing segment of the package market scenario where we really are playing squarely in with our shipping solutions. So I think overall while we are 33% or third already, we expect to continue to grow.

[George Sutton:]

On the note you mentioned all the different shipping channels that during fourth quarter it really seemed like in our view an ideal season because you had UPS and FedEx and USPS all at various times having their own issues and therefore making a multicarrier solution that was more practical. Can you talk about how that might have impacted interest from customers in ShipWorks and ShipStation?

[Ken McBride:]

Yeah, I think we definitely find in that customer segment the customers are optimizing across all the different carriers and one of those optimization -- these optimization include cost, they include delivery times and so I think when you look at issues or delays from carriers I think those customers can switch packages that day and rapidly move between the different carriers they use in order to get the deliveries out. So I think it’s -- for that segment of customer, it’s the solution they want. They want to be able to optimize across all the different ways to deliver the packages.

[George Sutton:]

Okay. Perfect. That’s all for me. Thanks guys.

[Operator:]

Thank you. Our next question is from [Tim Klasell] [ph] of Northland Securities. Your line is open.

[Tim Klasell:]

…little bit on what you've been seeing on the cross-sell of ShipStation, ShipWorks into your installed base, your historic SOHO installed base and now that you had those guys for a few quarters what are you seeing and are there any channels or marketing activities that have been proven rather successful there.

[Ken McBride:]

I think overall we continue to push in that direction. I think some of the results you saw this quarter and really for 2015 as a whole are a result of us being able to realize the synergies that we model that are expected when we made those acquisitions, it’s really all the things we mentioned in the past being able to offer the solutions. When we see a customer is at a point in their growth where it could make sense for them to move up into a broader platform like a ShipStation or ShipWorks, we may make that offer to them at that point in time. We have been utilizing our marketing, our overall marketing scale and efficiency and expertise to drive those solutions out in the market and as we go forward, we’re also really excited about the national sales team that we put together with the our Endicia acquisition and the ability of that team to go out there and sell those products as well into those segments of the market that make sense.

[Tim Klasell:]

Okay. Great and now that you've had Endicia under your belt for a while a few months now or a couple of months, you look at their product set and if you look at your traditional high volume shipping product, where do you see the product synergies? Do they have any specific features or functionalities that you've been pleasantly surprised with that you could share with us that you could introduce to your organic customer base?

[Ken McBride:]

We knew them pretty well going into the process. I don’t think there have been a lot of surprises per se, but we did take, we did have different focuses in different areas and I think together the two of us have complementary products. So as we go into customer situation there may be -- the customer may be better served by Endicia product may be better served by our Stamps product just depending on the features that they may need or they may be better served by ShipStation or ShipWorks product. And so I think it's great for our sales team to be able to go into those situations and have a broad set of whole suite of products to be able to offer to those customers versus previously our sales team only offering Stamps and ShipStation, ShipWorks and their sales team only offering Endicia. So we do see that there is enough differences in the products even though they're mostly more similar than different. There are things that are really important to certain customers that they make those offerings more important or a better solution.

[Tim Klasell:]

Okay. And then final question, the acquisition of Endicia took a while just speaking to the historic Endicia sales forces were there a bit of pull back from customers they got concerns throughout the process of the direction may be Endicia was going to go and once the deal closed was there a snap back if you will just want to get an idea did we see a seasonally usually strong end of the year for the Endicia contribution just given the uncertainty cloud was removed.

[Ken McBride:]

No I don’t think we really saw that. I think that perhaps and this just me surmising possibility, but perhaps from the time that they were announced for sales by Rubber Mate at the time that we announced that we were the acquirer there might have been some customers that were waiting, taking a wait and see approach. But I don’t think once it become clear that we were the company that was going to acquire them that I think that made customers comfortable that made the Postal service comfortable because they know us well and I think that for most of the year from that point forward we saw -- we haven’t seen a big change. We just I think prior to that there might have been some uptick.

[Tim Klasell:]

Okay. Great very helpful. Thank you.

[Operator:]

Thank you. Our next question is from Allen Klee of Sidoti. Your line is open.

[Allen Klee:]

Good afternoon. First question what impact if any do you expect from the U.S. post office stamp price increases that have -- how that might impact the small home office customers or for digital stamp versus traditional Stamps and for your high volume shipping customers also?

[Ken McBride:]

So I think if you look at the rates that went up recently in January at almost 10% while that was a big increase I think if you look historically for the several year period before that, you will actually -- we actually made very few increases. In fact in one of the rate cases that actually decreased some of the rates. And you look at UPS and FedEx and they typically increase their rates consistently. So if anything that postal service increase was a bit of a catch up with the prior few years. And so I think it really brought their rates into alignment with the market and so I don’t think we expect to see a big impact from that and I can’t say that we've seen anything at this point.

[Allen Klee:]

Okay. And then just have you in terms of Amazon there were some talk during the quarter that they didn’t take the same rate increase. It look like it just happened today with priority email, but did you notice at all that that had any impact on your business or do you think that didn't and that might reverse.

[Ken McBride:]

Well it was something Amazon did for I think right on January 17 they announced their customer base that for the time being they were going to maintain rates in the 2015 rate. They were going to maintain 2015 rates instead of going up the 10%, but it was short lived, it’s already been discontinued. I think it was just kind of a temporary promotion that they did.

[Allen Klee:]

So you don’t think that had an impact on stamps.com customers?

[Ken McBride:]

Well, it was only for a month and we didn't really see.

[Allen Klee:]

Okay. Do you have sense of where you NOL is now?

[Kyle Huebner:]

Yeah, we have about $125 million on the Federal NOLs and the California State one they're almost fully used but we have a very significant California R&D tax credit position that we'll begin to use. So the $57 million DTA on the balance sheet is tax effected. So, we feel like that’s still a very significant tax asset that in that for 2016 as I mentioned will continue to pay taxes that the cash AMT rates consistent with past years.

[Allen Klee:]

Okay, great. Do you have a sense of what stock-based comp would be in 2016?

[Kyle Huebner:]

Yeah, we did see a higher number in Q4. The stock comp expense changes over time based on growth of employees the timing of option grants, vesting schedules, the performance of the stock prices. So to see the stock comp increase in light of the growth of the employee, the business, the stock prices is not unexpected. I think looking at the Q4 exit rate is a reasonable proxy for going forward.

[Allen Klee:]

Thank you. Okay. That’s it. Thank you so much.

[Kyle Huebner:]

Thanks.

[Operator:]

Thank you. Our next question is from Bill Sutherland of Emerging Growth Equities. Your line is open.

[Bill Sutherland:]

Thanks, I just have one or two at this point. One is I’m curious if with the mix of business now and the seasonal impact of it whether you’re going to see the seasonality in ARPU as well?

[Ken McBride:]

Yeah, I think that’s kind of would you see it more in the ARPU versus the paid customers and as we've talked about in the shipping business you have a better ability to monetize the volume and so as you see a $1 billion of postage in Q4 that improves your ARPU metric and your ability to get the higher revenue per single customer. So I think when we look at the seasonality and the Q4 seasonality I talked about, you see it in paid customers, but I think you see it to a much greater degree in ARPU number.

[Bill Sutherland:]

That’s what I was thinking because it’s not linear your pricing and then the other one just, I understand your not wanting to try to take a part in the business too much in an effort to give a sense of how much impact Endicia is having and because all their numbers. But maybe you could speak to what would be a reasonable level of growth on a combined basis that you guys believe is still achievable on a go-forward basis, understanding that the next three quarters fairly are going to be impacted by Endicia incrementally and also I want to add on how many weeks, just I want to make sure that described the number of weeks Endicia in the fourth quarter. Thanks.

[Ken McBride:]

I will answer the first one. So acquisition closed on November 18. So from November 18 to December 31 is in the numbers so 43 days out of 90, 92 days and so it just a shade under of a half of a quarter. In terms of revenue we gave our 2016 guidance and we're in such a dynamic market right now and transforming the company for the shipping, the shipping more focused on the shipping. So at this point, we haven’t given a longer term outlook. Our focus is really on making sure we execute and capitalize on the opportunities and if we do that revenue growth all demonstrate itself, over the course of time.

[Bill Sutherland:]

Okay, so I just -- we want to sort of unspecified for now. Okay, thank you.

[Ken McBride:]

Thank you

[Operator:]

Thank you. Our last question is from Robert Maltbie of Singular Research. Your line is open.

[Debra Fiakas:]

Thank you and this was Debra in for Robert. Thank you for taking my questions. I wanted to ask also about the seasonality comment that you made during your opening remarks. Can we anticipate that there is a low quarter as well is March a low quarter or would we see now each of the other three quarters March, June and September being relatively even in at least in terms of seasonality.

[Ken McBride:]

Yeah, I think from a seasonal perspective Q2 and Q3 are typically the slowest the slower seasonal quarters and then Q1 is stronger and Q4 is very strong and as you move forward as you get the Q2 and Q3 you’re experiencing growth in the business. So, I think in Q1 it’s only one quarter removed from Q4 and then as you move into Q2 and Q3, you're facing little bit tougher seasonality patterns, but continuing to grow the business.

[Debra Fiakas:]

All right. Thank you. And also I noted your comments in your opening remarks about sales and marketing and advertising and I wondered where do you anticipate that you'll find efficiencies in advertising say with supporting essentially four different brand names now and also with the efficiency in marketing simply a matter of putting additional arrows into the quivers of the set of marketing people. Where do you find efficiencies there in the marketing effort?

[Ken McBride:]

Well, I think that it’s specifically in the marketing effort I think as you look at the four companies ShipStation, ShipWorks, Stamps and Endicia, really for all practical purposes, 90% of the marketing was being done by Stamps. Historically been a very large marketing organization whereas I think Endicia was really sales oriented more. So as we look at bringing our marketing into the mix of these overall properties, I think it's really applying techniques and the channels and the optimization we've done in the past across those brands and starting and inject more marketing dollars into those brands historically haven’t had as much. So we’re looking at generating growth in the brands and some really had as much marketing in the past ShipStation and ShipWorks being the same. And so -- and then I think as you look across those properties and you have larger more revenue across the different properties you have more really ability to market continue to try to find additional channels that bringing in the customer. Also I think that there is -- as we mentioned there is a very different lifetime value model across all the different solutions we offer and so to the extent that perhaps the program didn’t work in the past for a lower lifetime value customer it could now potentially work and deliver a good ROI for higher lifetime valued customer. So I think there is just a lot of different opportunities for us to optimize in that area

[Debra Fiakas:]

Okay. So you're anticipating that your marketing effort or your sales effort is going to be able to capture sales that your customers might have missed otherwise because you didn’t have as larger portfolio or as mix the portfolio?

[Ken McBride:]

Well, I think that in the sales front I wasn’t addressing that before. You have a national sales team out there that’s much larger than the team that we had previously. And that team now has the ability to offer four different products and as they come across customers, each customer has a little different need and they can decide which product makes the most sense and after that, up to the customer whereas in the past that sales team was more constrained because they just had a certain set of features and if there was a feature missing they may have lost that sale.

[Debra Fiakas:]

I see, got it. Thank you and then the third and final question is in regard to just the budget. I appreciate your guidance that you gave during your opening remarks, does that guidance include any increase in spend on marketing and advertising and then your sales effort do you plan on adding sales personal?

[Ken McBride:]

Yeah, in terms of the guidance, that the sales and marketing spend is we do plan for it to be higher this year than last year and it's really a dynamic process of monitoring the different types of spend, the efficiency, the results we're seeing, the expected ROI and optimizing that mix, may be increasing some channels and cutting other channels that aren’t working as efficiently and so it's really a dynamic ongoing process to optimize the sales and marketing investment in the customer base.

[Debra Fiakas:]

Thank you.

[Operator:]

Thank you. And that does conclude our Q&A session for today. I would now like to turn the call back over to CEO, Ken McBride, for any further remarks.

[Ken McBride:]

Thank you. Everyone. As always if you have follow-on question you can contact us through our website at investor.stamps.com or you can call our Investor Hotline [phone]. Thanks so much.

[Operator:]

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