STMP
#Good day, ladies and gentlemen, and welcome to your first quarter 2016 Stamps.com financial results 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).
As a reminder this conference may be recorded.
I would like to introduce your host for today's conference, <UNK> <UNK>, Vice President of Finance.
Thanks very much and good afternoon, everyone.
On the call today is <UNK> <UNK>, CEO; and <UNK> <UNK>, CFO.
The agenda for today's call is as follows.
We will read the results of our first quarter 2016, then we will discuss financial results and talk about our business outlook, but first the Safe Harbor statements.
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, all of which involve risks and uncertainties.
Important factors, including the Company's ability to successfully integrate and to realize the benefits of its past or future strategic acquisitions or investments, including the Company's ability to complete and ship its products, maintain viable economics for its products, and obtain or 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 31, 2015, Quarterly Reports on Form 10-Q, and the 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, the financial results including income and adjusted EBITDA measures we discuss on the call are on a non-GAAP basis, and exclude the following first quarter 2016 items.
$7.5 million of non-cash stock based compensation expense, $3.3 million of non-cash amortization expense from acquired intangibles, $0.6 million of nonrecurring expenses, $93,000 of non-cash amortization of debt issuance cost included in interest expense, and $7.3 million of non-cash income tax expense.
Also, when we refer to our mailing and shipping business, we are referring to our mailing and shipping products and services including our integrations, supply store insurance offerings and multicarrier services.
This does not include our customized postage business when we refer to our mailing and shipping business.
Please see our first quarter 2016 earnings release and past 8-K filings for a reconciliation between GAAP and non-GAAP financial measures.
With that let me hand the call over to <UNK> <UNK>.
Thanks, <UNK>.
Thank you for joining us.
Today we announced record quarterly financial results and metrics.
Record total revenue was $81.8 million that was up 86% year-over-year.
The non-GAAP adjusted EBITDA was $34.8 million, that was up 161% year-over-year.
The non-GAAP earnings per share was $1.72, and that was up 139% year-over-year.
Paid customers hit a record level as well at 649,000, that was up 17% year-over-year.
ARPU, average revenue per customer of $40.65 and that was up 58% year-over-year.
And we hit a record total postage printed of $1.2 billion, and that was up 122% year-over-year.
We are extremely pleased with the results of the quarter.
As a result of the strong first quarter performance and our current outlook for the business we increased our revenues and our earnings guidance today, so let me begin with a more detailed discussion of the mailing and shipping business.
Mailing and shipping revenue was $79.2 million in the quarter that was up 84% compared to the first quarter of 2015.
Mailing and shipping revenue includes the service, the product, and the insurance revenue.
Mailing and shipping revenue growth is driven by both growth in the paid customers and also growth in the ARPU, the average revenue per customer.
Paid customers in the first quarter were 649,000, and that was up 17% versus the first quarter of 2015.
Growth in the paid customers was driven by continued success in our sales and our marketing, and success in our customer retention across all of our businesses.
Also we began including Endicia's pay customers during the fourth quarter last year, so those are now part of our overall paid customers going forward.
Total USPS postage printed through our solutions was $1.2 billion, in the third quarter, first quarter, which was up 122% versus the first quarter of 2015.
Last year Stamps.com, along with all of it's subsidiaries, represented an estimated one third of all USPS domestic priority mail which is the primary package service of the U.S. postal service.
Additionally during 2015, the combined companies processed over one billion packages.
Average monthly revenue per paid customer, or ARPU, was $40.65 in the first quarter and that was up 58%, versus the first quarter of 2015.
The growth in ARPU benefited from continued growth in the shipping business, including positive contributions from the traditional high volume shipping area as well as from all of our acquisitions Endicia, ShipStation and ShipWorks.
Specifically the growth in ARPU has been driven by the higher ARPU typically associated with higher volume shippers.
All three of our acquisitions ShipStation, ShipWorks and Endicia have higher ARPU then our historical average.
And also, ARPU is now directly correlated with the postage growth owing to the various ways we are now able to monetize the postage volume.
We are pleased with our financial performance and the strength of our business metrics during the first quarter.
With that let me provide some updates on Endicia.
Even though we are only six months or less than six months into the integration process we are very pleased with the progress we have made so far and we feel that we're already starting to see the benefits of the acquisition in our first quarter financial results.
We have centralized our marketing efforts and [gained skill] economies and efficiencies in the marketing spend we do against each of our brands.
We have combined our sales teams, and are aligning the combined team around the corporate goal.
Including selling all of our brands into the various customer segments to which we target them.
We have achieved cost reductions by eliminating duplicate efforts across the organizations.
We're cross utilizing the expertise we have in our respective development teams to enhance our combined innovation.
We've taken steps to optimize our customer service, to increase scale in the broader geographic diversity across the divide organizations.
We have realized cost savings by centralizing the purchasing of products and services from various vendors.
Very happy with the progress we have made to date, and we are excited about continuing with our efforts to integrate Endicia with all of our other businesses.
Now let's discuss some of the broad initiatives we are working on in our mailing and shipping business.
First, with the strong returns we continue to see from our marketing programs we are continuing to increase and optimize our overall marketing spend.
We continue to see a great return on investment in all of our channels that we have used historically including direct mail, and traditional media, radio, television, affiliates, partners, search engine marketing and other online advertising.
We have also now expanded the focus of our marketing efforts to encompass our other brands, ShipWorks, ShipStation, and Endicia.
The results in our efforts have been very positive so far.
Second, we plan to continue to ramp and optimize our sales efforts across all of our brands.
We have combined our two national sales teams and are leveraging the newly aligned team to drive all the solutions we now offer across our brands.
Previously, the separate sales teams had a single brand and a single set of products.
Each customer is unique, and many a particular feature or set of features that only one or a few of the products may have.
This makes the sales process more efficient when there are more products in their portfolio solutions.
Third, we plan to enhance our multicarrier solutions, ShipStation and ShipWorks.
These platforms offer great solutions for high volume shippers such as warehouses, fulfillment houses, eCommerce shippers, larger retailers and other types of high volume shippers that may need more than just the US postal service solution.
ShipStation and ShipWorks solutions together now have well over 100 integrations.
With marketplaces, eCommerce tools, shopping carts, and other solutions that customers want and need.
Additionally we have continued to built out new features in those products such as inventory support, mobile solutions, support for additional USPS features and new carriers and new partners.
As mentioned before, we also continue to grow our multicarrier solutions by leveraging our marketing efforts.
Fourth, we plan to continue to enhance our shipping solutions.
We continue to track the high volume shippers such as warehouses, fulfillment houses, eCommerce, large retailers and other types of high volume shippers and we plan to continue to optimize the business in this area, plan to continue enhancing the technology and the software to further improve the scalability of the solutions, plan to continue introducing new features.
And functionality that will improve the value proposition and the solutions.
We plan to continue adding new integrations for easier data, export, and import from the tools that customers like to use.
And then finally we plan to continue to enhance the enterprise sales and marketing efforts.
The solution continues to present a strong customer value proposition compared to postage meters including the lower total cost of ownership, greater visibility into individual employee activity, and our web based financial and administrative controls.
Plan to continue increasing, optimizing and refining our enterprise customer lead generation, and our sales and marketing efforts, and to continue working on improving the efficiency of our sales team in that area.
With that, let me hand the call over to <UNK> for a more detailed discussion of the financial results.
Thanks, <UNK>.
We will now review our first quarter financial results.
As <UNK> described, we will discuss our results on the non-GAAP basis and reconciliation of non-GAAP to GAAP can be found in our earnings released in past 8-K filings.
Total revenue was $81.8 million in Q1, up 86% versus the first quarter of 2015.
We achieved strong growth in both our mailing and shipping and our customized postage businesses.
Mailing and shipping revenue was $79.2 million, up 84% versus the first quarter of 2015.
Mailing and shipping revenue growth was driven by a 17% year-over-year increase in paid customers and a 58% year-over-year increase in ARPU.
Mailing and shipping gross margin was 84.8% in Q1, versus 80.0% in the first quarter of 2015.
The increase in gross margin was primarily attributable to economies to scale associated with our strong revenue growth.
Customized postage revenue was up ---+ was $2.6 million in Q1 up 167% versus the first quarter of 2015.
Customized postage revenue growth benefited from the inclusion of Endicia's picture of postage revenue, as well as growth in high volume photo stamps business orders.
Customized postage gross margin was 17.9% in Q1, versus 16.2% in the first quarter of 2015.
The increase in gross margin was primarily attributable to picture of postage which has a higher mix of higher gross margin consumer waters as compared to photo stamps which has a higher mix of lower gross margin high volume business orders.
We experienced year-over-year increases in our first quarter costs of sales and marketing, R&D, and G&A primarily related to our acquisitions, and our investments to support the growth in all of our mailing and shipping business.
However, these costs as a percentage of revenue have all declined or remained flat as we have scaled our business.
Sales and marketing spend was $19.7 million in Q1, up 48% versus the first quarter of 2015.
Sales and marketing as a percent of revenue was 24.0% in Q1 compared to 30.2% in Q1 2015.
R&D spend was $7.0 million, up 87% versus the first quarter of 2015.
R&D as a percent of revenue was 8.5% in Q1 compared to 8.5% in Q1 2015.
G&A spend was $7.4 million in Q1, up 45% versus the first quarter of 2015.
G&A as a percent of revenue was 9.0% in Q1, compared to 11.6% in Q1, 2015.
This non-GAAP operating income was $33.6 million in Q1, up 170% versus the first quarter of 2015.
Non-GAAP operating margin was 41.1% in Q1, compared to 28.3% in Q1 2015.
Adjusted EBITDA was $34.8 million in Q1 up161% versus the first quarter of 2015.
Adjusted EBITDA margin was 42.5% in Q1 compared to 30.3% in Q1 2015.
Our non-GAAP cash tax expense was $0.8 million in Q1.
We have a $50 million deferred tax asset on the balance sheet as of March 31 that we expect to be able to use to reduce our cash taxes in future periods.
Non-GAAP net income was $32.0 million, up 163% versus the first quarter of 2015.
Non-GAAP net margin was 39.1% in Q1 compared to 27.7% in Q1 2015.
Non-GAAP net income per fully diluted share was $1.72 in Q1, up 139% versus $0.72 per share in the first quarter of 2015.
Fully diluted shares used in the EPS calculation was 18.7 million for Q1.
Capital expenditures for the business was approximately $0.2 million in Q1.
Our primary capital expenditures or investments in our technology platform to ensure the reliability and scalability of our solutions, to hand over large postage volumes we are processing.
Cash debt and uses of cash.
We ended Q1 with $121 million in cash and investments which was up $46 million compared with $75 million at the end of Q4 2015.
Free cash flow generated by the business was approximately $32.8 million in Q1.
Free cash flow is calculated as non-GAAP net income plus D&A contained in operating expenses, less capital expenditures related to the business.
We made a required debt payment of $1 million in Q1, resulting in debt outstanding under our credit agreement of $162.4 million as of March 31, 2016.
Total debt on our balance sheet net of $1.75 million unamortized debt issuance cost was $160.7 million at the end of Q1.
The interest rate on the debt at the end of Q1 was approximately 2.1%.
As a result of our strong free cash flow, and significant increase in our cash balance during the first quarter, on May 6, 2016, the board of directors elected to make an optional principle repayment of $10 million against the debt under the credit agreement.
On February 22, 2016, the board of directors had approved a share repurchase program that authorized the Company to repurchase up to $20 million of shares of stock through August 2016.
During the first quarter of 2016, the Company repurchased approximately 30,000 shares at a total cost of approximately $3.4 million.
Also as the result of our strong free cash flow, and significant increase in our cash balance, on the same May 6, 2016 board meeting the board of directors approved an amendment to the existing share repurchase program that authorized the Company to repurchase up to $30 million, representing an increase of $10 million compared to the original authorization of stock through August 2016.
Now turning to guidance.
We expect fiscal 2016 revenue to be in a range between $310 million to $330 million.
This compares to previous guidance of $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 accounts for less than 5% of revenue.
We expect fiscal 2016 non-GAAP EPS, to be in a range between $6 to $6.50 per diluted share.
This compares to previous guidance of $5 to $5.50 per diluted share.
Non-GAAP EPS excludes certain non-cash items such as stock based compensation expense, amortization of acquired intangibles and capitalized debt issuance costs and non-cash income tax adjustments and certain nonrecurring experiences such as acquisition and integration related expenses.
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 we will have a full year of Endicia results.
We expect interest rate on our debt to be approximately 2% to 3% in 2016.
Interest rate is based on LIBOR and certain financial measures, and this could fluctuate from quarter to quarter.
We are including interest expense incurred under the credit agreement in our non-GAAP EPS guidance, butt are excluding our non-cash amortization of the debt issuance costs.
We expect cash taxes will be approximately 3% of non-GAAP pretax income for 2016.
It is difficult to predict how long our deferred tax asset will last in terms of shielding us from becoming a full cash taxpayer.
However, based on Q1 federal taxable income, and our remaining NOLs and tax credits, as of March 31, 2016, we expect that we will not have to pay full cash taxes for at least one to two years from now.
We expect fully diluted shares will be approximately 19 million to 19.5 million in 2016.
We expect capital expenditures for the business in 2016 to be approximately $5 million.
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 second and third quarters to be meaningfully slower than the fourth and first quarters due to shipping seasonality patterns.
As such, we would not expect the second quarter 2016 to achieve the same results as the first quarter of 2016.
Summary, we have achieved a significant transformation of our business over the past few years, with our acquisitions and our 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 are experiencing accelerating revenue and income growth, and significant margin expansion, demonstrating the strength of our financial model.
We are very well positioned to capitalize on the growth in the eCommerce and high volume shipping segments.
Ecommerce driven packages are the fastest growing segment of the mailing and shipping market.
We have already realized significant benefits of our ShipStation and ShipWorks acquisition, in combination with our Stamps.com shipping efforts.
Our Endicia acquisition is helping us further capitalize on our success in these opportunities.
We have a strong return on investment in our mailing and shipping business, where the customers have high expected lifetime values relative to the cost of acquiring them.
We have strong free cash flow generated by the business.
We look forward to continuing to deliver great results.
With that we will open up the call for questions.
Hi, good afternoon.
You talked a lot (inaudible) operations of Endicia today.
Have we have already seen a full quarters worth of cost synergies or should we see further improvement in the second quarter.
And then what else do you hope to accomplish integration wise over the course of the year that will contribute to better numbers in the quarters ahead.
We are having a little problem hearing you but I think you are asking about Endicia and the progress so far.
So yes, I think we are a little bit more than five months is all into the integration process, and obviously a very large organization, and it is going to take some time to realize the benefits and I think we are really pleased with how well it's gone so far.
And I think you see some reflection in our first quarter financial results.
A lot of the efficiencies we gained through like the marketing and the sales, the cost reductions and the being able to have our development teams work closely together.
The customer service organizations and the ---+ really the ability to centralize all the purchases that we are doing from a lot of the same vendors.
So I mean I think we just have begun the process.
Like I said, it is really early in the process I think we are excited, to continue the efforts with Endicia and the integration with them and with us as well as all our businesses.
Got it.
And sorry for the background noise.
My next question was just on the competitive landscape there's been a lot of noise since you last reported.
Obviously your guidance suggest you don't have any real concerns there.
I am wondering if you can speak to what advantages you have over newer entrants like Shippo and Pitney and what you feel your ---+ and how confident you feel about your ability to sustain the growth you have seen today.
Sure.
So, I guess like to start just to start with, the first one which is Pitney, obviously we have known Pitney for 17 years we have been competing and I think we understand them extremely well.
They have been, I think what they are really doing is trying to compete more effectively in the market, we have been successful in for several years now.
The product they announced, specifically SendPro, it is really when you take a look at it, it is targeted at really low volume customers and in the press release, and you look at on the website it appears to really be targeted primarily to office mailers who need shipping incidentally.
But the product lacks a lot of features that you would expect in any high volume user, that's processing is a key for higher volume eCommerce users.
Being able to pull up all your packages in a single interface and process with one click, thousands or hundreds or thousands of labels all at one time is a key feature for these larger volume like eCommerce.
It doesn't have that, you basically have to do one package at a time.
Integrations we have with over 350 partnerships, marketplaces, eCommerce tools like shopping carts.
Those things are critical for the customers we serve, and that product doesn't have any of that.
And so I think never discount your competitors but we definitely viewed that product as not something that we see as highly competitive at this point.
I think if you look at that announcement date where they announced that product as well as a bunch of others, they put out seven press releases the same day and they re-branded a bunch of existing products under a new umbrella.
I think they called it commerce cloud.
And you look at what's underneath that umbrella, a vast majority of those products are things that have been around for some time.
So I think that we are ---+ like I said, we don't underestimate competitors like Pitney Bowes but we do know them pretty well, and the particular announcements they made weren't really viewed as something that's very competitive with what we have now.
The second thing I guess you asked was about the newer entrance, like the Shippo announcement, and I think also in the case of Shippo, they have been a partner of ours since 2014, so Endicia has been providing their solutions since 2014 so we understand them very well.
We understand their business, and their strategies and their weaknesses.
So it is basically a multicarrier API, so like an ability for a customer to write really code.
So its not a AUI to speak of, it is an API so you have to write code around it in order to use it.
They do have some limited AUIs but they are really kind of very early.
And so when you look at their solutions it is not something most of our customers would be interested in.
Our customers need a far more sophisticated solution.
Most of them don't want to spend the time doing all the programming around that solution, and so I think that when you look at the size of that business, they have talked about shipping millions of packages, for thousands of customers and you can take a look at last year we did one billion packages so I think it's again, don't ever underestimate (inaudible) but you know at this point we didn't really see it as a competitive threat.
Okay.
Thank you for taking the questions and congrats on another strong quarter.
Thanks, <UNK>.
Our next question comes from the line of <UNK> <UNK> with Craig-Hallum.
Your line is now open.
I like that, <UNK> Suitton.
Tremendous results guys.
I wanted to focus on the areas that were well different than our model, and probably the most significant would be ARPU.
Can you talk about what is driving that ARPU so significantly this quarter, how much of that is driven by the correlation with postage growth as you talked about.
Yes, so we have talked about in the past, <UNK>, that in the ARPU world our traditional small business, office space business, is more of the flat rate subscription monthly costs so as volume increases in that space you really don't get the benefit as opposed to the shipping world, and the shipping business where the increase in volume translates to a higher ARPU because you have the ability to monetize the volume.
And so I think there's a couple of factors, one, is that we have the first full quarter of Endicia customers and Endicia customers have significantly higher ARPUs in the shipping world than Stamps shipping customers.
So we definitely benefited from Endicia's high volume shipping customers.
I think we also just are seeing significant growth in the postage printed from all our shipping, ShipStation, ShipWorks, Stamps shipping solutions.
So when you look at it, we now have four companies with shipping focus solutions where we are seeing significant postage printed growth, it was up 122%.
And so that translates to growth in the ARPU, year-over-year growth in the ARPU to a greater degree than we have seen historically when we had less of a shipping focus.
Okay, I appreciate that.
And the significant delta relative to expenses for us was on the marketing line and you mentioned centralizing the efforts with Endicia.
Can you give us a sense of how much of that was driven by the centralized marketing versus any other changes that you made on that line item.
I think we just ---+ we continue to find ways to bring in ---+ I mean this is really the first quarter where we have begun to bring two marketing efforts together and find several areas where we are doing parallel activities.
And thus by combining the activities, we can gain efficiencies.
And so I think that that is a significant factor in terms of our initial synergies that we have already been able to realize with the two brands coming together.
I think that when we originally talked about the deal, we talked about the significant sales efforts and size of the team that Endicia had and then the significant spend and the approach we took to marketing.
And so we've really already honed those and gotten a lot of benefits out of the centralizing the marketing, centralizing the sales under a single team.
And so I think the growth in the paid customers combined with the reduced sales and marketing line were both factors in that.
And I would add that, I think we are seeing the dynamic whereby having a sales and marketing spend that you can then leverage across four different offerings, ShipStation, ShipWorks, Stamps and Endicia, for the same amount of spend, you get an enhanced ROI.
And so it enables you to leverage that spend and maybe not have to spend as much as you otherwise would have if you are just offering one product or solution in the market.
Okay, great.
Last thing for me, you, I believe <UNK>, in your prepared remarks you mentioned one of the big benefits this quarter was improvement in retention and you are not giving churn anymore, but I wondered if you could talk quantitatively or qualitatively about what you were seeing from a retention perspective.
Sure.
Yes.
I think we ---+ last quarter we talked about how with such a broad swath of businesses we now have very tiny customers that are just paying transaction fees to gigantic shippers that are shipping millions of dollars a month.
So it's just hard to talk about churn across a base that where you have that much diversity.
It's just kind of a misleading number.
So we just really didn't feel it was a number that continued to make sense.
That being said, we do look at different areas of the business and we haven't really seen a change in our retention of customers and continuing to see growth as you have seen.
I think you see that reflected in the numbers on the growth in the revenue, the growth in the paid customers.
So I think we are happy with the success we have seen in the sales and marketing area across all the brands.
And I think you can't grow customers 17% year-over-year without being able to retain them as well.
Absolutely, thanks a lot guys.
Thanks.
Our next question comes from the line of <UNK> <UNK> with Sidoti.
Your line is now open.
Yes.
Hi, can you help us understand simplistically, kind of the difference between what you do and ePostage and if you see like, if more ePostage type companies come up, if that matters.
Sure.
I mean, so first thing I should mention is this is not really a new thing.
E-postage is just a e-branding ---+ a re-branding of something that the postal service has had since 2005, which is called electronic verification system and that's really a solution they developed for what I would call, bulk shippers.
And so it's something we have been around for more than a decade.
So historically, what you have really seen is this is a solution that it's targeted at really large enterprises, it requires significant amount of capital to do the initial and the ongoing development.
So you see as companies like Amazon.com, or eBay or Etsy have adopted that, it's something that they can adopt given the scale of those operations.
But for smaller businesses, it's really an API that you have to build a lot of software around.
Things that we provide in more of a turnkey fashion, a significant amount of effort has to go into building all the extra pieces in order to make that solution work.
So there is things like cleansing the address, rating the rates, generating the labels, doing the account management, processing the payments.
So there is just a lot of work that you have to do around that.
So when we look at our customer base, the over 600,000 customers we have, we just don't see that as an applicable solution because those customers really need, they need a much more feature-rich UI that's more plug and play.
They don't want to spend the time to spend $1 million or several million dollars in six months developing software just so that they can have something that works but doesn't work better than our solution.
So I think ePostage is, it's really just a re-branded bulk shipping solution really designed for the very high volume customers.
Okay.
And my last question is if we went back a few years we used to focus on kind of how the small home office was doing with the small business consumer optimism index.
And I don't know, does that matter anymore or how would you prioritize that and kind of what you are thinking about.
Yes.
I mean I think all the businesses matter.
They are all significant businesses and contributing to the growth across the board.
I think that we continue to have a significant ---+ a huge number of those customers.
We still have a huge value proposition for those when we look at the small office, home office, they are more primarily mailers, but they still see all the same value propositions we've always talked about.
And we are still doing a lot of the same programs to acquire those customers and it still generates a lot of profit for us.
So it's a very significant business.
And I think as the focus has shifted more and more into shipping, we have talked about that more just because it's more a newer part of the story, but the SOHO business is still there and very much a critical part of the company.
Our next question comes from the line of Robert Maltbie with Singular Research.
Your line is now open.
I wouldn't say there's anything meaningful there, no.
Okay, very good.
So ---+ would you say that it's ---+ I am sorry, go ahead.
No, go ahead.
That's the short answer is no.
Okay, very good.
And I just wondered are you attributing your retention success to say, some of your new sales and marketing efforts, I mean what would you hang your hat on in terms of why the retention has improved.
I think, when you look at retention, it's really differs by the different types of customers.
And so this is one of the reasons that an aggregate churn number doesn't really make sense because, take a small business office, it's not a critical part of their operations.
They are really driven by how much they mail and ship, their trips to the post office, but it's not a critical function, whereas wherein you look at shipping, that's a critical, mission critical part of their operation.
And so when you have a company, an eCommerce merchant that is shipping everyday and it's a critical part of their business, then you see lower churn rates compared to a small business where it's an occasional usage that they can substitute for the post office.
So I think the improvement in the churn is really a function of the customer type.
And as we have grown and focused on the shipping customers, it's ---+ we just see lower churn rates in that segment because of the critical nature in the everyday usage of the solutions.
Okay, are you seeing your customers moving from one solution to the next.
As there's some dynamic changing within their business.
Or is it too soon really in this new portfolio of solutions that you've got now to have seen that dynamic.
No, we have seen it already.
I mean, that was part of the theory going into these acquisitions is that we would.
As the customer goes through their lifecycle, they start off largely typically with the postal service and then they are talking more about a shipper.
They began with shipping a few packages, they started as an eBay seller or some other type of business.
And as they continue to get larger and larger, if they are successful, they start to look at other carriers and other ---+ their business gets more complicated, they start to have to process not just 10, but 100 packages a day.
And so then they need a lot more sophisticated capabilities, they start to bring in a second or even a third carrier in order to optimize their costs and they start to need a rules engine to do some automatic application to set different things like mail class.
So, we have seen customers, that was part of the theory as customers come in.
They start with the Stamps.com or Endicia USPS-only solution.
And then as they grow, we are able to retain them with an up-sell into a ShipStation or ShipWorks solution whereas before we may have lost that customer as we have already seen that happen.
Okay, excellent.
And then I wanted to return to comments that you made during your opening remarks about things that you are doing to grow the company and one of them was that you want to continue to enhance your solutions and your technologies, including and I thought I heard the words, enhance scalability.
And I wondered if perhaps you could describe a little bit more about what that means.
Is it a matter of bringing out new versions or improvements in the existing products or do you think that you still need additional solutions in your portfolio.
And then if you could just comment on what kind of customer these enhanced solutions might be targeting.
Sure.
I think I was commenting broadly about the high volume shipping customers.
And so as we continue to attract those customers, like I mentioned, we are talking about customers that are doing millions of transactions.
And so these customers need faster and faster speeds, more and more solutions.
They are trying to optimize, because they have a giant warehouse and they are trying to process as many packages as they possibly can, as quickly as they can to try to increase their throughput.
So, we have lots and lots of those customers.
So, we are successfully meeting the needs of those customers, but we continue to, like any company, we continue to strive to improve and to have our solutions go faster so that they can improve their operations.
And that's really what I was talking about in terms of further improving the scalability of the solutions.
It's just a continuous improvement process.
All right, thank you.
(Operator Instructions).
At this time I am showing no further questions I would like to turn the call back over to <UNK> <UNK> for any closing remarks.
Thank you.
