Call End:

Stamps.com ( STMP)

Q3 2011 Earnings Call

October 27, 2011 05:00 pm ET

Executives

Ken McBride – President and Chief Executive Officer

Kyle Huebner – Chief Financial Officer

Jeff Carvari – Senior Director of Finance and Investor Relations

Analysts

[Sarkeesh Kervechian] – B. Riley & Co.

George Sutton – Craig-Hallum Capital Group

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Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Stamps.com Q3 2011 Financial Results Conference Call. (Operator instructions.) As a reminder this conference is being recorded. I would like to introduce your host for today’s conference, Mr. Jeff Carvari, Senior Director of Finance and Investor Relations. Sir, you may begin.

Jeff Car vari

Thanks very much 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 for our Q3 2011, then we’ll discuss finance results and talk about our business outlook, but first the Safe Harbor statements.

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 and involve risks and uncertainties. Important factors including the company’s ability to complete and ship its products, maintain desirable economics for its products, obtain or maintain (inaudible) may cause actual results to differ materially from those in the forward-looking statements. Our detailed filings with the Securities and Exchange Commission made from time to time are available at www.stamps.com including its annual report on Form 10(k) for the fiscal year ended December 31 st, 2010; quarterly reports on Form 10(q) and current reports on Form 8(k). Stamps.com undertakes no obligation to release publically any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

With that let me hand the call over to Ken McBride, our CEO.

Ken McBride

Thank you, Jeff, and thank you for joining us today. Today we announced another great quarter where we saw a record performance in many areas of the business. We achieved a new record high growth rate in the core PC postage revenue at 25% year-over-year growth. We achieved a new record high for paid customers at 374,000. We achieved a new record for RPU at $20.25. We achieved a new record for Q3 total new customer acquisition which was up 29% year-over-year.

We achieved a new record for customer acquisition in our enterprise business with total new enterprise locations added up 199% year-over-year. We achieved a new record for total postage printed by our customer base which was up 52% year-over-year. We achieved a new record for total postage printed in our high-volume shipping area and that was up 101% year-over-year, and the strength across our business lines drove strong earnings growth with a 52% growth rate in our non-GAAP earnings per share.

All of our record highs in our business were particularly significant in light of the fact that Q3 is usually our seasonally slowest quarter each year, and also in light of the continued weak small business economic backdrop that we’re seeing. On the call today we’ll talk in more detail about our key postage metrics and business, our financial results and our business outlook.

Now we’ll begin with a more detailed discussion of the PC postage business. Customer metrics we’re going to discuss on the call are only for the core PC postage business which excludes all enhanced promotion channel activity. For a more detailed definition on how we calculate each of our metrics you may refer to our quarterly investor metrics spreadsheet at www.investor.stamps.com.

Core PC postage revenue was $22.7 million in Q3 which was up 25% versus Q3 2010. Over the past five quarters our core PC postage revenue year-over-year growth rates have accelerated from 8% to 11% to 14% to 23% and now to 25%. This is the highest growth rate we have ever experienced in our core PC postage business since we began tracking this core area separately five years ago. The increase in our core PC postage revenue was attributable to continued strength in our small business area and also helped by our enterprise and high-volume shipping customer segments which are now contributing to our core business revenue growth in a more material way.

We acquired 64,000 gross small business customers in Q3 which was up 29% versus Q3 2010; and our cost per new small business customer acquired, or CPA, was $119 in Q3, and that was down 4% versus Q3 2010. This was our highest quarterly customer acquisition for any Q3 in the history of the company. We were able to increase our customer acquisition spend versus Q3 last year and still achieve the lower CPA, which is a great result and showed that our marketing spend is scaling efficiently. We’ve seen strong results in our core marketing initiatives and continue to ramp our investment in some newer programs which have been doing very well.

Our monthly churn during Q3 was 3.3% and that was down versus 3.6% in Q3 2010. We saw a nice decrease in year-over-year churn again this quarter, and this is our eight straight quarter of year-over-year decreases in our churn metric. Overall we believe churn rates are down due to lower turn rates in our enterprise and high-volume shipping customer segments, new product features which are driving increased usage of our service, and continued success in our ongoing customer retention efforts.

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