Analyst Conference Summary


conference date: February 15, 2007 @ 2 PM Pacific Time
for quarter ending: December 31, 2006 (4th quarter)

Overview: Good seasonally driven Q4 revenue and earnings.

Basic data:

Revenue was $25 million, up 32% sequentially from $18.9 million and up 21% from Q4 2005.

GAAP net income was $4.7 million. Excluding stock-based comp was $5.1 million.

GAAP EPS was $0.20 per share. Excluding stock-based comp was $0.22.

Cash and equivalents ended at $106.1 million, up about $2 million from year-earlier.


Full 2007: revenue between $90 to $100 million. GAAP EPS $0.70 to $0.80, including $2.4 million of stock-based compensation expense. Non-GAAP 2007 EPS expected at $0.80 to $0.90.

Conference Highlights:

PC Postage business revenue was $13.7 million, up 15% year-over-year. Online store revenue was $2.4 million, up 27% year-over-year. Other revenue was $0.8 million.

PhotoStamps revenue was $8 million, up 35% year-over year.

Non-GAAP EPS was $0.22 per share; it excluded $0.43 million in stock based compensation.

Total GAAP expenses were 421.53 million, comprising: Cost of sales $8.24 million, R&D $2.1 millon, Sales & Marketing $8.55 million, General and Admin $2.65 million.

Gross margin was 67% (down from 70% year-earlier).

Some changes in metrics given. Payed customers used to refered to as successfully billed customers.

57,000 new paid PC postage customers, lost 48,000; up net 9000. $57 per customer acquisition cost; increased from direct mail costs.

27% year-over-year growth in store due to new design.

Enterprise postage progress was good; have 80% of market. No specific number.

PC Postage 2007 plan: 1. Increase marketing investments. Lifetime value of direct mail customers is twice the acquisition costs. This will depress 2007 earnings, but be good for long run. Will increase other marketing channels. Enhanced promotion channel still attractive, but will lower spend in 2007. 2. Will test several new acquisition strategies. 3. Will optimize conversion rate. 4. Customer experience improvements. 5. Multiuser capability; will charge more for that. 6. Enterprise ramp.

Photostamps: 15% business related. Now 3 competitors, but one is a Fuji partnership with Pitney, which already had a photo-product. Data indicates Photostamps had 79% of market in Q4. Ratio between acquisition and lifetime value not as good as PC stamps. 2007 goal is to improve ration while making reasonable increases in lifetime value. Will add more licensed products. Will increase marketing and partnerships.

Billing and collections: lost many customers in Q3 from one large bank reissuing cards. Beginning to get back those customers. Had some false fraud detection based declines, which has been fixed. In Q4 changed internal systems to help with these problems.

Subscriber metrics: 319,200 paid customers. Subscriber revenue per paid customer per month was $17.20. Customer acquisition spend was $4.9 million. Cost per gross new customer was $57. 4.4% paid customer cancel rate.

Photostamps revenue is not really equivalent to PC Postage revenue, because it includes the entire cost of postage, not just the fees.

$5.5 million free cash flow (a non-GAAP measure).

Repurchased 1.2 million shares for $19 million, or $15.83 per share.

Guidance assumes Post Office continues the test that allows for PhotoStamp sales. Effective tax rate to be 1% due to NOLs, which ended 2006 at $270 million.

Q1 2007 will face a tough comparison because of postage rate changes in Q1 2006.


Indicia lawsuit? No competitive results they have seen. They have about 4000 signups per quarter.

Enterprise Edition still in beta? We are out of beta. 400% year-over-year seat growth.

PhotoStamps was a drag on EPS? Yes, but does break out impact on EPS. Going forward not expecting material contribution in 2007.

Marketing expense increase for 2007? Direct mail spend will be less than 2006.

Sub growth due to fixing billing? Growth of 8,600 paid customers was a mix, mayber half and half, of fixing billing and new growth.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but its possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers