Jefferies 2013 TMT Conference
Safe Harbor
This presentation contains forward-looking statements that involve risks and
uncertainties, including discussions of our products, business plans and
financial projections. Important risk factors, including the Company's ability
to complete and ship its products, maintain desirable economics for its
products and obtain or maintain regulatory approval, which could cause
actual results to differ materially from those 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, 2012, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K. We encourage you
to review the risk factors disclosed in these filings.
2
Agenda
• PC Postage Service Overview
• PC Postage Industry and Marketing
• PhotoStamps
• Metrics and Financials
• Appendix
3
PC Postage Service Overview
•
Software-based Internet service that lets customers buy and print their own
U.S. Postal Service approved postage
− Requires only your existing PC, printer & Internet (no special hardware)
− Monthly subscription service fee (+ the cost of postage)
•
•
Easy process to become a customer and print postage
−
−
−
Customer uses software to purchase postage for their account
−
Customer purchases additional postage for their account as needed
Customer registers account from our website and downloads our software
Customer prints postage and the postage amount is deducted from their pre-paid
account balance
Three ways to print postage based on mailing and shipping needs
− Print your own stamps (NetStamps)
− Print directly on envelopes
− Print shipping labels
4
Print Postage via Microsoft Integration
•
Stamps.com has an integration
with Microsoft
− Enhances the value of our
solution for existing customers
− Is a marketing channel for
acquiring new customers
•
Customers print postage from
directly within Microsoft Word
− Many small businesses use
Microsoft Word to print
addresses on their envelopes
− Can print addresses and postage
in a 1-step process
− Print from Word’s Envelopes and
Labels for single envelopes
− Print from Word’s Mail Merge for
multiple envelopes
5
Print Postage via Amazon Integration
•
Stamps.com has an integration
partnership with Amazon’s
Merchant Marketplace
− Merchants who sell in Amazon’s
Marketplace and ship the packages
themselves can print postage for the
packages via Stamps.com's
integration or Amazon's in-house
solution
− Merchants utilizing Stamps.com's
integration solution print shipping
labels as part of a seamless
integrated process flow
− Merchants can opt for a transaction
based pricing model or become
Stamps.com subscription customers
6
Customer Benefits
•
Customer benefits based on their previous mail solution
− ~80% of customers previously used retail post office (time savings)
− ~20% of customers previously used traditional meters (cost savings)
•
Customers save time so they can focus on growing their business
− Mail or ship from home or office
− Avoid trips to the post office
− Available 24 hours a day x 7 days a week
•
Customers can save money by reducing their postage spend
− Discounted postal rates (domestic and international packages for First Class,
Priority and Express Mail classes)
− Discounted package tracking (Delivery and Signature Confirmation)
− Discounted package insurance compared to USPS
− Avoid costly returned mail with address verification
− Avoid wasted postage by calculating exact postage amount
− Access to cost effective mail classes (media mail, parcel post, etc.)
7
Customer Benefits
•
Advanced Reporting
− Technology based postage solution provides sophisticated reporting
− Customers gain greater visibility into postage activity vs. traditional solutions
− Customers can better track, control and reduce postage expenditures
•
Enhanced Productivity and Image
− Produces more professional looking mail
− Two-step process becomes one-step by printing address & postage together
•
Optimize Shipping Operations
− Customers utilize hidden postage feature to reduce customer contacts
− Online package tracking capabilities with e-mail notifications
− Adding integrated package insurance eliminates separate operational process
− Customers can aggregate orders and print all shipping labels at one time in an
automated batch process
− Customers can import order data into our software from across multiple
marketplaces seamlessly
8
Agenda
• PC Postage Service Overview
• PC Postage Industry and Marketing
• PhotoStamps
• Metrics and Financials
• Appendix
9
Industry Overview
•
Large market opportunity1
− ~$46B U.S. Postage Market
− ~8M Small Businesses + 14M Home Businesses
− Growing e-commerce shipping segment
•
Significant barriers to entry exist
− Long and complex U.S. Postal Service regulatory approval process
o ~2 ½ years for original approval
o Multiple years for NetStamps approval
− Last PC Postage vendor approved by the USPS was in the year 2000
− Stamps.com has a very strong patent portfolio (over 150 patents issued)
•
Stamps.com is the category leader
− 3 approved PC Postage vendors (Stamps, Pitney Bowes, Endicia.com)
− Stamps.com has the largest number of PC Postage customers2
1
2
Source: International Data Corporation Reports and USPS 2012 Annual Report (excludes Standard Mail, Periodicals, PO Box Rent, Money Orders)
Source: USPS PC Postage Data
10
Service Offerings
The majority of subscription customers pay monthly service fees from
$15.99 – $39.99 depending on the features of the particular service:
•
Pro
− Basic mailing and shipping features with single-user capability
•
Premier
− Pro features plus multi-user functionality, automated Certified Mail forms, and
additional reference codes
•
Professional Shipper
− Targeted to higher volume shippers (e.g. fulfillment houses, e-commerce merchants,
retailers, etc.)
− Features direct integration into customers’ order databases, faster label printing and
integrations with shipping management systems
•
Enterprise
− Targeted to organizations with multiple geographic locations
− Features enhanced reporting and administrative controls
11
Marketing Channels
•
In our Core PC Postage Business1, Stamps.com utilizes a diversified set of
marketing programs to acquire customers:
−
−
−
−
−
−
−
−
−
•
In our Non-Core PC Postage Business2, Stamps.com utilizes a consumer oriented
online program3 to acquire customers:
−
−
−
1
2
3
Affiliate program
Direct mail
Direct sales
Online media
Shipping integrations (Online marketplaces, Shopping carts, Shipping mgmt.)
Stamps.com web site and referral program
Strategic partnerships (Avery, Microsoft, HP, USPS)
Telemarketing
Traditional media
Online program offers an incremental promotion to try our service
Made a strategic decision in 2007 to de-emphasize this part of the business
Significant reduction in marketing spend in this channel (2007 - 2012)
Core PC Postage is the portion of our PC Postage business targeted to small businesses, enterprises and high volume shippers
Non-Core PC Postage is the portion of our PC Postage business targeted more to consumers
The consumer oriented online program, also referred to as the "Enhanced Promotion Channel," includes partners that advertise our service on the
Internet in which the partner typically offers an incremental promotion (in addition to any promotion offered by us) in order to get the customer to
try our service.
12
2013 PC Postage Plan
•
Increase our Small Business marketing investment
− Increase small business customer acquisition spend by 5 - 15% in 2013
•
Optimize our business model and improve our customer experience
− Optimize our website, registration process and post-registration customer interactions
to improve the customer experience
− Improve software usability by adding new product features including new shipping
capabilities and various other features to make mailing easier
− Increase investment in our technology platform and data centers for optimal reliability
and scalability of our solutions
•
Enhance our distributed enterprise solution marketing efforts
− Continue to build our sales pipeline of new accounts and increase penetration of our
existing accounts
− Continue to add new features to our software
•
Enhance our high volume shipper solution and marketing efforts
− Scale our high volume shipping sales and marketing efforts
− Continue to add new features to our software and add new software integration
partners
13
Agenda
• PC Postage Service Overview
• PC Postage Industry and Marketing
• PhotoStamps
• Metrics and Financials
• Appendix
14
PhotoStamps Offering
•
PhotoStamps allows customers to order valid US postage with customized
photos or images from www.photostamps.com (separate offering from PC
Postage)
− Customer uploads photo or graphic and customizes look & feel
− Customer places order online
− Stamps.com approves the image and prints the PhotoStamps sheets
− Customer receives PhotoStamps sheets in the mail within a few days
− Pricing is ~$5 to $18 per sheet plus the cost of postage1
1
Actual pricing depends on the number of sheets ordered and postage value per sheet (high volume discounts are available)
15
Agenda
• PC Postage Service Overview
• PC Postage Industry and Marketing
• PhotoStamps
• Metrics and Financials
• Appendix
16
Financial Overview
• The PC Postage business has a recurring revenue based model
− Service fees are charged on a recurring monthly subscription basis
− Supplies store and package insurance purchases are recurring with usage
• Stamps.com has an attractive financial model
− High gross margins (PC Postage = 80%) with leverageable fixed costs
− Low working capital and capital expenditure requirements
− Results in very strong free cash flow1 ($31.4M for the trailing 4 qtrs., $142M since Q2-04)
• Stamps.com has a history of returning excess cash to shareholders
− Stamps.com has returned $291M to shareholders since 2002 ($107M via special dividends
and $184M via share repurchases with $32M in 2012)
•
Stamps.com has a very strong balance sheet
− $57M in cash and investments and no debt as of March 31, 2013
− ~$205M Federal and ~$100M State NOL’s ($70M Def Tax Asset2)
• The PC Postage business generates very attractive expected returns
− Customer lifetime values in excess of two times the cost to acquire the customer
1
Free Cash Flow = Pro-Forma Net Inc – Net Rental Income + Business D&A – Business Capital Expenditures; Company turned FCF positive in Q2-04
Gross DTA with a (~$40M) valuation allowance (reserve) resulting in ~$30M Net DTA on the balance sheet
2 ~$70M
17
Revenue and Adjusted EBITDA
Strong revenue growth combined with margin expansion has led to a significant
increase in our adjusted EBITDA over the past three years
Adjusted EBITDA1
Total Revenue
($ Millions)
($ Millions)
$120
$115.7
$110
$30
$25
$21.5
$101.6
$100
$90
$20
$13.8
$15
$85.5
$80
$10
$70
$5
YoY
Growth
$29.8
2010
2011
2012
4%
19%
14%
YoY
Growth
1
2010
2011
2012
32%
55%
38%
Adjusted EBITDA is pro forma operating income + Business D&A
(excludes tenant related D&A)
18
Annual Revenue Breakdown
Revenue trends reflect a strategic change in 2006 to shift investment from
PhotoStamps and Enhanced Promotion to our Core PC Postage Business
PhotoStamps2 and
Enhanced Promotion Revenue3
Core PC Postage Revenue1
($ Millions)
$110
$107.0
$35
$30
$100
$90.2
$90
$25
($ Millions)
$29.1
PhotoStamps Retail Breakage
Revenue
$27.4
Enhanced Promotion Revenue
$10.3
$9.5
$21.0
$20
PhotoStamps Revenue
$80
$73.8
$70
$63.9
$67.4
$10
$57.5
$60
$50
2
3
$11.7
$11.4
$18.8 $17.9
$4.5
$2.2
$3.2
$8.7
$11.9
$8.5
$7.2
$6.1
$5.7
$3.0
$0
2006 2007 2008 2009 2010 2011 2012
1
$14.7
$6.3
$5
$53.7
YoY
Growth
$9.1
$15
N/A
7%
11%
5%
10%
22%
19%
YoY
Change
2006
2007
2008
2009
2010
2011
2012
N/A
(6%)
(23%)
(30%)
(21%)
(2%) /
(21%)2
(24%) /
(6%)2
Core PC Postage revenue includes service fee, store and insurance revenue from the small business, enterprise and high volume shipping customer segments.
Total Enhanced Promotion and PhotoStamps revenue in 2011 included $2.2M of one-time PhotoStamps retail breakage revenue in Q2-11. Excluding Q2-11 retail
breakage revenue, total Enhanced Promotion and PhotoStamps revenue was $9.3M (-21%)
Non-core PC Postage revenue from service fee, store and insurance revenue for customers originally acquired through the enhanced promotion channel
19
Quarterly Revenue Trends
Total Company revenue growth has been driven by accelerating
Core PC Postage revenue growth
Total Revenue 1
$34
Core PC Postage Revenue 2
($ Millions)
$32.1
$32
$29.1
$26.6 (1)
$26
$27.2
$26
$24.9
$22.3
$22
$22.7 $22.8
$22 $21.2
$18
$18
$16
Total Company Revenue (x PS Breakage)
1
(1)
2%
5%
9%
26%
20%
/ 15%
20%
24%
$19.3
$18.2 $18.2
PS Breakage
6%/
17% 10%
15%(1)
Q2-11 total revenue included $2.2M of one-time PhotoStamps retail
breakage revenue; Q2-11 revenue was $26.6M (+26%) including the
breakage and was $24.5M (+15% YoY) excluding the breakage.
$22.7
$20.6
$20
$20.7
$20
YoY
5%
Growth
$24.5
$24
$24.5
$24
$27.2 $27.4
$26.2 $26.2
$28
$28.3 $28.2
$28
$30.3
$30
$30.1
$30
($ Millions)
$32
Core PC Postage Revenue
13%
YoY
9%
Growth
2
8%
11% 14% 23% 25% 27% 27% 18% 20% 12% 16%
Core PC Postage revenue includes service fee, store and insurance revenue
from the small business, enterprise and high volume shipping customer
segments.
20
PC Postage Customer Metrics
Core PC Postage revenue growth has been driven by both increasing
paid customers and increasing ARPU trends
Average Monthly Revenue
per Paid Customer (ARPU)2
Paid Customers1
(Core PC Postage Business)
480
(Thousands)
(Core PC Postage Business)
465
460
435
440
413
420
400
$21.6
$21.2 $21.2
418 419
$20.9
$21
360
368
374
360
$18
320
$21.0
$20
$18.9
$19
338 334 340
$21.7
$20.2 $20.2
385
380
340
$22
$17.9
$19.1
$18.1
$17
300
YoY
7%
Growth
1
6%
6%
7%
9% 12% 13% 15% 14% 12% 13% 13%
Unique customers successfully billed at least once during the quarter
excluding customers acquired through the enhanced promotional
channel
YoY
2%
Growth
2
2%
4%
6% 13% 12% 12% 11% 3%
7% (1%) 3%
Calculated as [ (Quarterly Service Fee Revenue + Store Revenue +
Insurance Revenue) / (Current Quarter Paid Customers)] / 3 Months
excluding customers acquired through the enhanced promotion
channel
21
PC Postage Customer Metrics
New customers acquired is showing year-over-year growth while
CPA’s remain in a consistent range
Gross New Customers Acquired1
Cost per Gross New
Customer Acquired2
(Small Business Customers)
(Thousands)
(Small Business Customers)
$140
100
82.7
88.6
85.7
91.5
$120
66.9 66.9
$119
$115
$108 $110
$109
$104
62.9 63.9
$106
$100
52.4
49.4
40
YoY
Growth
$115
70.5 69.1
$125
$124
$123
80
60
$128
$80
(2%) (6%)
1
1%
4%
20% 29% 24% 28% 12%
Gross new registered small business customers
8%
7%
7%
YoY
2%
Change
2
8%
2%
3%
(3%) (4%) (1%) (5%)
1%
(3%) (4%) (3%)
PC Postage small business sales and marketing expense
(excluding 123R expenses) plus promotional expenses / gross
new small business customers acquired
22
PC Postage Customer Metrics
Quarterly churn rates remain flat-to-down year-over-year with average
annual churn rates returning to pre-recession levels
Quarterly Paid Customer Churn Rate1
Annual Average Paid Customer Churn Rate1
(Core PC Postage Business)
(Core PC Postage Business)
4.0%
4.0%
3.6% 3.6%
3.8%
3.5%
3.5%
3.9%
3.7%
3.4%
3.5%
3.3%
3.0%
3.6%
3.4%
3.6%
3.0%
3.5%
3.1%
3.0% 3.4%
3.0%
3.3%
3.3%
3.3%
3.2%
2.5%
3.0%
2007
YoY
YoY
(0.8%) (0.2%) (0.3%) (0.4%) (0.1%) (0.3%) 0.0% 0.0% 0.2% 0.2% (0.3%) 0.0%
Change
Change
1
(0.5%)
2008
2009
2010
2011
2012
0.3%
0.3%
(0.4%)
(0.2%)
0.0%
Calculated as [ (Lost Paid Customers) / (Prior Quarter Paid Customers + Current Quarter New Paid Customers) ] / 3 months
23
NFIB Optimism Index1
Our Core PC Postage business metrics including acquisition and churn have been very
strong despite a challenging small business economic environment
Monthly Optimism Index
Average Annual Optimism Index
105.0
94.5
95
101.6
100.0
94.4
94
93
98.9
96.7
92
95.0
91.2
90.8
92.2
90
91.4
90.0
91.4
Recessionary
Level
91
Recessionary
Level
89.9
89.8
92.9 92.8 93.1
92.5
89.5
88.9
89
88.0
86.7
88
85.0
87.5
87
86
80.0
85
2005
1
2006
2007
2008
2009
2010
2011
2012
The NFIB (National Federation of Independent Business) is one of the leading sources of information about small business in the United States. They
conduct monthly surveys from NFIB’s members to compile its Small Business Economic Trends report summarized through the small business
optimism index.
Source: Small Business Economic Trends report (Apr 2013) © NFIB Research Foundation
24
PC Postage Customer Metrics
Postage printed shows strong and accelerating growth as we add
SOHO, Enterprise and High Volume Shipping customers
Quarterly Postage Printed1
Annual Postage Printed1
($ Millions)
$500
($ Millions)
$1,200
$401
$400
$378
$293
$300
$1,000
$800
$233
$211 $222
$200
$672
$600
$152 $165
$139 $145
$447
$99 $108
$100
$400
$272
$0
$319
$354
$200
YoY
18%
Growth
1
$1,148
20%
26%
39%
44% 53%
52%
52% 53%
53%
78% 71%
YoY
Growth
2007
2008
2009
2010
2011
2012
19%
17%
11%
26%
50%
71%
Total postage printed by all customers
25
Non-GAAP Operating Income
Non-GAAP Operating Income has accelerated as a result of strong
Core PC Postage growth and operating leverage
$9.0
Quarterly Non-GAAP Operating
Income1,2
$8.4
$8.0
($ Millions)
$10.0
$7.6
$35.00
Annual Non-GAAP Operating
Income1,2
$28.6
($ Millions)
$30.00
$6.8
$7.0
$6.4
$6.0
$25.00
$5.4 $5.4
$20.6
$5.7
$20.00
$4.7
$5.0
$4.1
$3.4
$4.0
$3.0
$9.0
$13.0
$15.00
$3.4
$10.00
$2.7
$2.0
$5.00
$1.0
$0.00
$9.3
2009
Non-GAAP Op Inc (x PS Breakage)
2010
2011
2012
Non-GAAP Op Inc (x PS Breakage)
PS Breakage
YoY
30% 34% 49%
Growth
22%
137%/
6%/
62% 31% 70%
54% 42% 56%
74%(2)
44%(2)
YoY
Growth
0%
40%
59%
38%
Op
13% 16% 18%
Margin
15%
24%/
22% 20% 20%
18%(2)
Op
Margin
11%
15%
20%
25%
24%
29% 25% 28%
1
Excludes stock-based compensation, asset write-offs, litigation charges and relocation expenses (see the Company’s 8-K filings for reconciliations to GAAP)
2
Q2-11 and FY-11 included $1.7M of one-time PhotoStamps retail breakage income; excluding the retail breakage, Q2-11 Non-GAAP operating income was $4.7M
(+74% YoY) and FY-11 Non-GAAP operating income was $18.9M (+46%)
26
Non-GAAP EPS
Non-GAAP EPS has accelerated with our strong operating income results
and our share repurchase activities
Quarterly Non-GAAP EPS1,2
$2.00
($ Millions)
$0.60
Annual Non-GAAP EPS1,2
$0.57
$0.50
$0.45
$0.47
$1.70
$1.40
$1.50
$0.40
$0.40
$0.33
$0.30
$0.20
$0.24
$0.20
$0.37
$0.35 $0.34
$0.93
$1.00
$0.24
$0.62
$0.50
$0.00
$0.00
2009
PF EPS (x PS Breakage)
YoY
43% 44%
Growth
69% 27%
124%/
52%
65%(2)
14% 41%
2010
PS Breakage
(11%)/
35% 36% 68%
21%(2)
2011
2012
Non-GAAP EPS
YoY
Growth
49%
22%
54%
42%
1
Excludes stock-based compensation, non-cash deferred tax benefit, asset write-off, litigation charges and relocation expenses (see the Company’s 8-K filings for
reconciliations to GAAP)
2
Q2-11 and FY11 included $1.7M of one-time PhotoStamps retail breakage income; excluding the retail breakage, Q2-11 Non-GAAP EPS was $0.33 (+65% YoY) and
FY-11 Non-GAAP EPS was $1.29 (+38%)
27
Key Investment Takeaways
•
Large market opportunity (~$46B US postage, 22M SOHOs)
•
Significant barriers to entry (USPS approval, Intellectual Property)
•
Superior customer benefits at prices up to 60% less than meters
•
Category leader in PC Postage and Customized Postage
•
Attractive expected return on PC Postage marketing spend
•
PC Postage revenue growth with high gross margins
•
Attractive strategic opportunities with enterprise and shipping
•
Strong cash flow and balance sheet
•
Demonstrated history of returning capital to shareholders
28
Agenda
• PC Postage Service Overview
• PC Postage Industry and Marketing
• PhotoStamps
• Metrics and Financials
• Appendix
29
Investor Metrics
30
31
32
33
Print NetStamps
•
Print your own stamps
− Buy blank label stock (NetStamps)
from Stamps.com
− Use Stamps.com’s software to print
postage on the blank labels
•
Increased flexibility
− Use for any stamp value
− Use for any class of postage
− No expiration date
− Not tied to an address
•
Choose from a variety of images
− Standard labels
− Themed labels
− Customized labels
34
Print on Envelopes
•
Print postage on envelopes
− Print postage directly on envelopes or onto labels applied to the envelopes
− Supports a wide variety of envelopes including odd-shaped and flats
•
Ideal for business and high volume mailings
− Typically used when a customer already needs to print the addresses
− Our software automatically verifies and corrects destination addresses
− Our software integrates with most contact management systems (e.g. Office, ACT)
avoiding the need to maintain two different address books
− Customers like the professional looking appearance of the envelope
35
Print Shipping Labels
•
Print postage labels for use with packages
− Print all-in-one shipping labels on either plain
printer paper or on adhesive labels
− Supports all classes of packages (e.g. Priority Mail,
Express Mail, Media Mail, Parcel Post)
•
Electronic solution offers unique benefits
− Ability to hide postage amount
− E-mail tracking notifications
− Avoid 1lb package security restrictions
•
Receive discounts on postal rates1
− Customers receive discounted rates on domestic and international packages for First
Class, Priority and Express Mail classes
− Higher package volume customers can qualify for even larger postal rate discounts
1
All PC Postage customers automatically receive discounts of up to 63% discount on Express Mail, up to 20% on Priority Mail, up to 10% on Express
Mail International, up to 9% on Priority Mail International, up to 18% on First Class Package Service, and up to 10% on First Class Package
International Service. In addition, “Commercial Plus” customers who meet certain higher volume requirements receive discounts of up to 63% on
Express Mail , up to 35% on Priority Mail, up to 16% on Express Mail International and up to 16% on Priority Mail International. All PC Postage
customer also receive free delivery confirmation for Priority Mail and First Class Package Service.
36
Stamps.com vs. Postage Meter
•
1
2
Stamps.com is up to 60% less than the total cost of an entry-level postage
meter
Category
Entry Level Meter
Stamps.com
Max. Print Speed
18 letters/minute
At speed of printer
Monthly Fee
(rental plus 5 lbs. scale)
$24.99/month 1
(1-Year Auto Renew Lease)
$15.99 / month
(No Lease)
Proprietary Ink &
Labels
$8 to $13 2
None
Estimated Monthly Total
Cost of Ownership
~$33 to $38
$16
Entry level small business meter with an integrated scale
Assumes monthly prints 60 letters and 20 packages; proprietary ink fees of $.06 - $.12 per print; proprietary label fees of $.14 per label
(source: Competitor pricing and STMP estimates).
37
PhotoStamps Overview
•
The customized postage program is regulated by the USPS
− Only approved PC Postage vendors can provide the postage for customized
postage products
− 3 approved vendors: Stamps, Endicia, Pitney Bowes (via Zazzle)
•
PhotoStamps is marketed to consumer and business segments
− Consumers typically use PhotoStamps for special occasions and as gifts
− Business orders in higher volumes for branding and marketing purposes
•
Continued focus on profitability in the PhotoStamps business
− Made strategic decision in 2007 to shift investment from PhotoStamps to PC
Postage which has resulted in a smaller but more profitable business
− Pursuing PhotoStamps in a modest way during the challenging economy and
continue to look for ways to optimize the business
− Marketing channels focus on cost-effective, high ROI channels including online and
partnerships (Snapfish)
− Majority of corporate focus still on the PC Postage business
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