Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
þ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
For
the quarterly period ended June 30, 2008
OR
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from ____________ to ____________
Commission
file number: 000-26427
Stamps.com
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
77-0454966
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
12959
Coral Tree Place
Los
Angeles, California 90066
(Address
of principal executive offices)
(310)
482-5800
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated
filer o |
Accelerated filer þ |
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No
þ
As
of
July 31, 2008, there were approximately 19,397,484 shares of the Registrant’s
Common Stock issued and outstanding.
STAMPS.COM
INC.
FORM
10-Q QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 2008
TABLE
OF CONTENTS
|
|
Page
|
PART
I - FINANCIAL INFORMATION
|
2
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
2
|
|
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
|
|
|
AND
RESULTS OF OPERATIONS
|
10
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
18
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
18
|
|
|
|
PART
II - OTHER INFORMATION
|
19
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
20
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
20
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
20
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
20
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
20
|
|
|
|
ITEM
6.
|
EXHIBITS
|
21
|
SPECIAL
NOTICE REGARDING PURCHASES OF MORE THAN 5% OF OUR STOCK
We
currently have significant federal and state net operating loss carry-forwards
(NOL). Under applicable law, our NOL assets could be adversely affected by
the
acquisition by any person, company or investment firm of more than 5% of our
outstanding stock or the acquisition of any additional shares by 5% holders.
Our
articles of incorporation have provisions (the “NOL Protective Measures”) which
prohibit transfers of our stock that would create new 5% shareholders or
increase the ownership of existing 5% shareholders. Accordingly,
any person, company or investment firm that wishes to become a 5% shareholder
must first obtain a waiver of the NOL Protective Measures from our board of
directors.
In
addition, any person, company or investment firm which is a 5% shareholder
can
not make any additional purchases of our stock without a waiver from our board
of directors. Failure
to do so can mean loss of the shares and responsibility for any damages to
the
Company, which could be substantial. Details
of the NOL Protective Measures are contained in our definitive Proxy filed
on
April 2, 2008.
Accordingly,
we strongly urge you to contact us prior to allowing your ownership interest
in
our stock to exceed 775,000 shares.
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
STAMPS.COM
INC.
BALANCE
SHEETS
(In
thousands, except per share data)
|
|
June
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
55,413
|
|
$
|
43,667
|
|
Restricted
cash
|
|
|
554
|
|
|
554
|
|
Short-term
investments
|
|
|
24,215
|
|
|
22,084
|
|
Trade
accounts receivable, net
|
|
|
2,954
|
|
|
2,519
|
|
Other
accounts receivable
|
|
|
501
|
|
|
1,209
|
|
Other
current assets
|
|
|
3,051
|
|
|
2,489
|
|
Total
current assets
|
|
|
86,688
|
|
|
72,522
|
|
Property
and equipment, net
|
|
|
3,271
|
|
|
3,790
|
|
Intangible
assets, net
|
|
|
510
|
|
|
871
|
|
Long-term
investments
|
|
|
11,197
|
|
|
24,518
|
|
Deferred
income taxes.
|
|
|
3,671
|
|
|
—
|
|
Other
assets
|
|
|
4,058
|
|
|
3,252
|
|
Total
assets
|
|
$
|
109,395
|
|
$
|
104,953
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
11,067
|
|
$
|
9,935
|
|
Deferred
revenue
|
|
|
2,366
|
|
|
2,576
|
|
Total
current liabilities
|
|
|
13,433
|
|
|
12,511
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $.001 par value
|
|
|
|
|
|
|
|
Authorized
shares 47,500 in 2008 and 2007
|
|
|
|
|
|
|
|
Issued
shares: 24,329 in
2008 and 24,258 in 2007
|
|
|
|
|
|
|
|
Outstanding
shares: 19,398 in 2008 and 19,813 in 2007
|
|
|
47
|
|
|
47
|
|
Additional
paid-in capital
|
|
|
624,802
|
|
|
622,781
|
|
Accumulated
deficit
|
|
|
(460,051
|
)
|
|
(466,555
|
)
|
Treasury
stock, at cost, 4,931 shares in 2008 and 4,445 shares in 2007
|
|
|
(68,237
|
)
|
|
(63,737
|
)
|
Accumulated
other comprehensive loss
|
|
|
(599
|
)
|
|
(94
|
)
|
Total
stockholders’ equity
|
|
|
95,962
|
|
|
92,442
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
109,395
|
|
$
|
104,953
|
|
The
accompanying notes are an integral part of these financial
statements.
STAMPS.COM
INC.
STATEMENTS
OF INCOME
(In
thousands, except per share data)
(Unaudited)
|
|
Three
Months ended
June
30,
|
|
Six
Months ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
15,577
|
|
$
|
13,506
|
|
$
|
30,774
|
|
$
|
27,167
|
|
Product
|
|
|
2,583
|
|
|
2,457
|
|
|
5,066
|
|
|
4,815
|
|
Insurance
|
|
|
377
|
|
|
356
|
|
|
765
|
|
|
730
|
|
PhotoStamps
|
|
|
2,873
|
|
|
4,635
|
|
|
5,877
|
|
|
7,811
|
|
Other
|
|
|
—
|
|
|
453
|
|
|
—
|
|
|
906
|
|
Total
revenues
|
|
|
21,410
|
|
|
21,407
|
|
|
42,482
|
|
|
41,429
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
2,262
|
|
|
2,411
|
|
|
5,004
|
|
|
4,754
|
|
Product
|
|
|
948
|
|
|
839
|
|
|
1,828
|
|
|
1,638
|
|
Insurance
|
|
|
119
|
|
|
111
|
|
|
239
|
|
|
226
|
|
PhotoStamps
|
|
|
2,092
|
|
|
3,058
|
|
|
4,219
|
|
|
5,141
|
|
Other
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
52
|
|
Total
cost of revenues
|
|
|
5,421
|
|
|
6,445
|
|
|
11,290
|
|
|
11,811
|
|
Gross
profit
|
|
|
15,989
|
|
|
14,962
|
|
|
31,192
|
|
|
29,618
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
8,780
|
|
|
7,926
|
|
|
17,403
|
|
|
15,757
|
|
Research
and development
|
|
|
2,102
|
|
|
2,077
|
|
|
4,045
|
|
|
4,222
|
|
General
and administrative
|
|
|
4,457
|
|
|
3,218
|
|
|
8,400
|
|
|
5,965
|
|
Total
operating expenses
|
|
|
15,339
|
|
|
13,221
|
|
|
29,848
|
|
|
25,944
|
|
Income
from operations
|
|
|
650
|
|
|
1,741
|
|
|
1,344
|
|
|
3,674
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
736
|
|
|
1,174
|
|
|
1,653
|
|
|
2,387
|
|
Other
income
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Total
other income
|
|
|
736
|
|
|
1,174
|
|
|
1,674
|
|
|
2,387
|
|
Income
before income taxes
|
|
|
1,386
|
|
|
2,915
|
|
|
3,018
|
|
|
6,061
|
|
Income
tax expense (benefit)
|
|
|
80
|
|
|
115
|
|
|
(3,486
|
)
|
|
207
|
|
Net
income
|
|
$
|
1,306
|
|
$
|
2,800
|
|
$
|
6,504
|
|
$
|
5,854
|
|
Net
income per share (see Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Basic
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.33
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.33
|
|
$
|
0.27
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Basic
|
|
|
19,382
|
|
|
21,352
|
|
|
19,553
|
|
|
21,610
|
|
Diluted
|
|
|
19,712
|
|
|
21,742
|
|
|
19,831
|
|
|
22,034
|
|
The
accompanying notes are an integral part of these financial
statements.
STAMPS.COM
INC.
STATEMENTS
OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
Six
Months ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
Net
income
|
|
$
|
6,504
|
|
$
|
5,854
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,208
|
|
|
1,542
|
|
Stock-based
compensation expense
|
|
|
1,682
|
|
|
1,088
|
|
Deferred
income tax
|
|
|
(3,671
|
)
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(435
|
)
|
|
(15
|
)
|
Other
accounts receivable
|
|
|
708
|
|
|
220
|
|
Prepaid
expenses
|
|
|
(562
|
)
|
|
(195
|
)
|
Other
assets
|
|
|
(806
|
)
|
|
(380
|
)
|
Deferred
revenue
|
|
|
(210
|
)
|
|
98
|
|
Accounts
payable and accrued expenses
|
|
|
1,132
|
|
|
(1,518
|
)
|
Net
cash provided by operating activities
|
|
|
5,550
|
|
|
6,694
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Sale
of short-term investments
|
|
|
19,125
|
|
|
24,768
|
|
Purchase
of short-term investments
|
|
|
(21,536
|
)
|
|
(21,186
|
)
|
Sale
of long-term investments
|
|
|
19,541
|
|
|
18,918
|
|
Purchase
of long-term investments
|
|
|
(6,445
|
)
|
|
(6,421
|
)
|
Acquisition
of property and equipment
|
|
|
(328
|
)
|
|
(453
|
)
|
Net
cash provided by investing activities
|
|
|
10,357
|
|
|
15,626
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
171
|
|
|
785
|
|
Issuance
of common stock under ESPP
|
|
|
168
|
|
|
268
|
|
Repurchase
of common stock
|
|
|
(4,500
|
)
|
|
(19,308
|
)
|
Net
cash used in financing activities
|
|
|
(4,161
|
)
|
|
(18,255
|
)
|
Net
increase in cash and cash equivalents
|
|
|
11,746
|
|
|
4,065
|
|
Cash
and cash equivalents at beginning of period
|
|
|
43,667
|
|
|
11,740
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
55,413
|
|
$
|
15,805
|
|
The
accompanying notes are an integral part of these financial
statements.
STAMPS.COM
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION WITH RESPECT TO JUNE 30, 2008 AND 2007 IS
UNAUDITED)
1. |
Summary
of Significant Accounting
Policies
|
Basis
of Presentation
We
prepared the financial statements included herein without audit pursuant to
the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States (US) generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. We believe that the disclosures are adequate to make the
information presented not misleading. We recommend that these financial
statements be read in conjunction with the financial statements and the notes
thereto included in our latest annual report on Form 10-K.
In
our
opinion, these unaudited financial statements contain all adjustments
(consisting of normal recurring adjustments) necessary to present fairly our
financial position as of June 30, 2008, the results of operations for the three
and six months ended June 30, 2008 and cash flows for the six months ended
June
30, 2008. The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2008.
Use
of Estimates and Risk Management
The
preparation of financial statements in conformity with US generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates and such differences may be
material to the financial statements. Examples include estimates of loss
contingencies, promotional coupon redemptions, deferred income taxes and
estimates regarding the useful lives of patents and other amortizable
intangibles.
We
are
involved in various litigation matters as a claimant and a defendant. We record
any amounts recovered in these matters when received. We record liabilities
for
claims against us when the loss is probable and estimable. Amounts recorded
are
based on reviews by outside counsel, in-house counsel and management. Actual
results could differ from estimates.
Revenue
Recognition
We
recognize revenue from product sales or services rendered, as well as from
licensing the use of our software and intellectual property, when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the selling price
is fixed or determinable, and collectability is reasonably assured.
Service
revenue is based on monthly convenience fees and is recognized in the period
that services are provided. Product sales, net of return allowances, are
recorded when the products are shipped and title passes to customers. Sales
of
our products, including PhotoStamps, to customers are made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon our
delivery to the carrier. Return allowances for expected product returns, which
reduce product revenue by our best estimate of expected product returns, are
estimated using historical experience. We recognize licensing revenue ratably
over the contract period. Commissions from the advertising or sale of products
by a third party vendor to our customer base are recognized when the revenue
is
earned and collection is deemed probable.
Customers
who purchase postage for use through our NetStamps, shipping label or mailing
features, pay face value, and the funds are transferred directly from the
customers to the United States Postal Service (USPS). We do not recognize
revenue for this postage as it is purchased by our customers directly from
the
USPS. PhotoStamps revenue includes the price of postage.
On
a
limited basis, we allow third parties to offer products and promotions to the
Stamps.com customer base. These arrangements generally provide payment in the
form of a flat fee or revenue sharing arrangements where we receive payment
upon
customers accessing third party products and services. Total revenue from such
advertising arrangements is currently immaterial.
STAMPS.COM
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION WITH RESPECT TO JUNE 30, 2008 AND 2007 IS
UNAUDITED)
We
provide our customers with the opportunity to purchase parcel insurance directly
through our software. Insurance revenue represents the gross amount charged
to
the customer for purchasing insurance and the related cost represents the amount
paid to the insurance broker, Parcel Insurance Plan. We recognize revenue on
insurance purchases upon the ship date of the insured package.
Revenue
from gift cards, which is recognized at the time of redemption, is currently
immaterial to our financial statements. Because we do not yet have meaningful
historical data upon which to base estimates for gift cards that will never
be
redeemed (“breakage”), we have not recorded any breakage income related to our
gift card program.
Please
refer to "Part II - Other Information - Item 1 - Legal Proceedings" of this
report for a discussion of our current legal proceedings.
Net
income per share represents net income attributable to common stockholders
divided by the weighted average number of common shares outstanding during
a
reported period. The diluted net income per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, including convertible preferred stock and stock options and warrants
(commonly and hereafter referred to as “common stock equivalents”), were
exercised or converted into common stock. Diluted net income per share is
calculated by dividing net income during a reported period by the sum of the
weighted average number of common shares outstanding plus common stock
equivalents for the period. The following table reconciles share amounts
utilized to calculate basic and diluted net income per share (in thousands,
except per share data):
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
1,306
|
|
$
|
2,800
|
|
$
|
6,504
|
|
$
|
5,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
- weighted average common shares
|
|
|
19,382
|
|
|
21,352
|
|
|
19,553
|
|
|
21,610
|
|
Diluted
effect of common stock equivalents
|
|
|
330
|
|
|
390
|
|
|
278
|
|
|
424
|
|
Diluted
- weighted average common shares
|
|
|
19,712
|
|
|
21,742
|
|
|
19,831
|
|
|
22,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.33
|
|
$
|
0.27
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.13
|
|
$
|
0.33
|
|
$
|
0.27
|
|
The
calculation of dilutive shares excludes the effect of the following options
that
are considered anti-dilutive (in thousands):
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Anti-dilutive
stock options shares
|
|
|
2,200
|
|
|
1,276
|
|
|
2,226
|
|
|
1,273
|
|
STAMPS.COM
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION WITH RESPECT TO JUNE 30, 2008 AND 2007 IS
UNAUDITED)
4. |
Stock-Based
Employee Compensation
|
We
account for stock-based awards to employees and directors pursuant to Statement
of Financial Accounting Standards (SFAS) No. 123 (revised 2004),
“Share-Based Payment” (SFAS 123R), and related SEC rules included in Staff
Accounting Bulletin No. 107 (SAB 107). SFAS 123R requires us to estimate
the fair value of share-based payment awards on the date of grant using an
option-pricing model and to recognize stock-based compensation expense during
each period based on the value of that portion of share-based payment awards
that is ultimately expected to vest during the period, reduced for estimated
forfeitures. SFAS 123R requires forfeitures to be estimated at the time of
grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. Compensation expense recognized for all employee stock
options granted is recognized using the straight-line single method over their
respective vesting periods of three to four years.
The
following table sets forth the stock-based compensation expense that we
recognized under SFAS 123R for the periods indicated (in thousands):
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock-based
compensation expense relating to:
|
|
|
|
|
|
|
|
|
|
Employee
and director stock options
|
|
$
|
903
|
|
$
|
627
|
|
$
|
1,652
|
|
$
|
1,041
|
|
Employee
stock purchases
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
47
|
|
Total
stock-based compensation expense
|
|
$
|
903
|
|
$
|
627
|
|
$
|
1,682
|
|
$
|
1,088
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense relating to:
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
$
|
69
|
|
$
|
69
|
|
$
|
144
|
|
$
|
144
|
|
Sales
and marketing
|
|
|
172
|
|
|
83
|
|
|
348
|
|
|
156
|
|
Research
and development
|
|
|
146
|
|
|
123
|
|
|
298
|
|
|
274
|
|
General
and administrative
|
|
|
516
|
|
|
352
|
|
|
892
|
|
|
514
|
|
Total
stock-based compensation expense
|
|
$
|
903
|
|
$
|
627
|
|
$
|
1,682
|
|
$
|
1,088
|
|
In
our
SFAS 123R calculations, we use the Black-Scholes option valuation model, which
requires us to make a number of highly complex and subjective assumptions,
including stock price volatility, expected term, risk-free interest rates and
actual and projected employee stock option exercise behaviors. In the case
of
options we grant, our assumption of expected volatility was based on the
historical volatility of our stock price for the period January 1, 2002
through the date of the option grant. We base the risk-free interest rate on
U.S. Treasury zero-coupon issues with a remaining term equal to the expected
life assumed at the date of grant. The estimated expected life represents the
weighted-average period the stock options are expected to remain outstanding
determined based on an analysis of historical exercise behavior.
The
following are the weighted average assumptions used in the Black-Scholes
valuation model for the periods indicated:
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Expected
dividend yield
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Risk-free
interest rate
|
|
|
3.06
|
%
|
|
4.70
|
%
|
|
2.93
|
%
|
|
4.69
|
%
|
Expected
volatility
|
|
|
51
|
%
|
|
48
|
%
|
|
51
|
%
|
|
48
|
%
|
Expected
life (in years)
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
Expected
forfeiture rate
|
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
STAMPS.COM
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION WITH RESPECT TO JUNE 30, 2008 AND 2007 IS
UNAUDITED)
Our
intangible assets consist of patents, trademarks and other intellectual property
with a gross carrying value of $8.3 million as of June 30, 2008 and December
31,
2007 and accumulated amortization of approximately $7.8 million as of June
30,
2008 and $7.4 million as of December 31, 2007. The expected useful lives of
our
amortizable intangible assets range from 4 to 17 years. During
2007, we assessed whether events or changes in circumstances occurred that
could
potentially indicate that the carrying amount of our intangible assets may
not
be recoverable. We concluded that there were no such events or changes in
circumstances during the year ended December 31, 2007 and determined that the
fair value of our intangible assets were in excess of their carrying value
as of
December 31, 2007. Aggregate amortization expense on patents and trademarks
was
approximately $92 thousand and $362 thousand for the three and six months ended
June 30, 2008, respectively and $270 thousand and $544 thousand for the three
and six months ended June 30, 2007, respectively.
The
following table provides the data required to calculate comprehensive income
(in
thousands):
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
income
|
|
$
|
1,306
|
|
$
|
2,800
|
|
$
|
6,504
|
|
$
|
5,854
|
|
Unrealized
(loss) income on investments
|
|
|
(187
|
)
|
|
(6
|
)
|
|
(505
|
)
|
|
84
|
|
Comprehensive
income
|
|
$
|
1,119
|
|
$
|
2,794
|
|
$
|
5,999
|
|
$
|
5,938
|
|
During
the six months ended June 30, 2008, our income tax benefit consists of
alternative minimum federal and state taxes and a tax benefit relating to the
release of a portion of our deferred tax asset valuation allowance. Our
effective income tax rate differs from the statutory income tax rate primarily
as a result of the partial release of our valuation allowance for the future
benefits to be received from our deferred tax assets as well as our use of
net
operating losses to offset current tax expense. A valuation allowance was
originally recorded against our deferred tax assets as we determined the
realization of these assets did not meet the more likely than not criteria
in
accordance with SFAS No. 109, “Accounting for Income Taxes.” During the first
quarter of 2008, we determined that a full valuation allowance against our
deferred tax assets was not necessary. In making such determination we
considered all available positive and negative evidence including our recent
earnings trend and expected continued future taxable income. During the first
quarter of 2008, we recorded a partial reversal of deferred tax valuation
allowance of $3.7 million primarily consisting of net operating loss
carryforwards, research tax credits carryforwards and current tax provision
of
$106 thousand for corporate alternative minimum federal and state taxes,
resulting in an overall tax benefit of $3.6 million. We continue to maintain
a
valuation allowance for the remainder of our deferred tax assets. During the
three and six months ended June 30, 2008, we recorded a current tax provision
for corporate alternative minimum federal and state taxes of approximately
$80
thousand and $186 thousand, respectively.
We
adopted the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. Under FIN
48, we are required to determine whether it is more likely than not that a
tax
position will be sustained upon examination based on the technical merits of
the
position. A tax position that meets the more likely than not recognition
threshold is measured to determine the amount of benefit to recognize in the
financial statements. The adoption of FIN 48 did not have a material effect
on
our financial statements. We have concluded that there are no significant
uncertain tax positions requiring recognition in our financial
statements.
STAMPS.COM
NOTES
TO FINANCIAL STATEMENTS
(ALL
INFORMATION WITH RESPECT TO JUNE 30, 2008 AND 2007 IS
UNAUDITED)
Our
policy is to recognize interest and penalties expense, if any, related to
unrecognized tax benefits as a component of income tax expense. As of June
30, 2008, we have not recorded any interest and penalty expense.
Our
determination on the analysis of uncertain tax positions are related to tax
years that remain subject to examination by the relevant tax authorities. These
include the 2004 through 2006 tax years for federal purposes and the 2003
through 2006 tax years for California purposes.
8. |
Fair
Value Measurements
|
We
adopted SFAS No. 157, “Fair Value Measurement” (SFAS 157) on January 1, 2008.
SFAS 157 defines fair value, establishes a framework for measuring fair value
and expands disclosure for each major asset and liability category measured
at
fair value on either a recurring or nonrecurring basis. The fair value hierarchy
for disclosure of fair value measurements under SFAS 157 is as
follows:
Level
1 - |
Valuations
based on unadjusted quoted prices for identical assets in an active
market
|
Level
2 - |
Valuations
based on quoted prices in markets where trading occurs infrequently
or
whose values are based on quoted prices of instruments with similar
attributes in active markets
|
Level
3 - |
Valuations
based on inputs that are unobservable and involve management judgment
and
our own assumptions about market participants and pricing
|
The
following table summarizes our financial assets measured at fair value on a
recurring basis in accordance with SFAS 157 (in thousands):
|
|
|
|
Fair
Value Measurement at Reporting Date Using
|
|
Description
|
|
June
30, 2008
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
55,413
|
|
$
|
55,413
|
|
|
|
|
|
|
|
Available-for-sale
debt securities
|
|
|
35,966
|
|
|
—
|
|
$
|
35,966
|
|
|
—
|
|
Total
|
|
$
|
91,379
|
|
$
|
55,413
|
|
$
|
35,966
|
|
|
—
|
|
The
fair
value of our available-for-sale debt securities included in the Level 2 category
is based on the market values obtained from an independent pricing service
that
were evaluated using pricing models that vary by asset class and may incorporate
available trade, bid and other market information and price quotes from well
established independent pricing vendors and broker-dealers.
ITEM
2. |
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
Quarterly Report on Form 10-Q contains "forward-looking statements" within
the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). These statements relate to expectations concerning
matters that are not historical facts. You can find many (but not all) of these
statements by looking for words such as “approximates,” “believes,” “expects,”
“anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar
expressions in this report. We claim the protection of the safe harbor contained
in the Private Securities Litigation Reform Act of 1995. We caution investors
that any forward-looking statements presented in this report, or which we may
make orally or in writing from time to time, are based on beliefs and
assumptions made by, and information currently available to us . Such statements
are based on assumptions and the actual outcome will be affected by known and
unknown risks, trends, uncertainties and factors that are beyond our control
or
ability to predict. Although we believe that our assumptions are reasonable,
they are not guarantees of future performance and some will inevitably prove
to
be incorrect. As a result, our actual future results may differ from our
expectations, and those differences may be material. We are not undertaking
any
obligation to update any forward-looking statements. Accordingly, investors
should use caution in relying on past forward-looking statements, which are
based on known results and trends at the time they are made, to anticipate
future results or trends.
Please
refer to the risk factors under “Item 1A. Risk Factors” as well as those
described elsewhere in our public filings. The risks included are not
exhaustive, and additional factors could adversely affect our business and
financial performance. We operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors, nor can it assess the impact
of
all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those
contained in any forward-looking statements.
Stamps.com,
NetStamps, PhotoStamps, Hidden Postage, Stamps.com Internet postage and the
Stamps.com logo are our trademarks. This report also references trademarks
of
other entities.
SPECIAL
NOTICE REGARDING PURCHASES OF MORE THAN 5% OF OUR STOCK
We
currently have significant federal and state net operating loss carry-forwards
(NOL). Under applicable law, our NOL assets could be adversely affected by
the
acquisition by any person, company or investment firm of more than 5% of our
outstanding stock or the acquisition of any additional shares by 5% holders.
Our
articles of incorporation have provisions (the “NOL Protective Measures”) which
prohibit transfers of our stock that would create new 5% shareholders or
increase the ownership of existing 5% shareholders. Accordingly,
any person, company or investment firm that wishes to become a 5% shareholder
must first obtain a waiver of the NOL Protective Measures from our board of
directors.
In
addition, any person, company or investment firm which is a 5% shareholder
can
not make any additional purchases of our stock without a waiver from our board
of directors. Failure
to do so can mean loss of the shares and responsibility for any damages to
the
Company, which could be substantial. Details
of the NOL Protective Measures are contained in our definitive Proxy filed
on
April 2, 2008.
Accordingly,
we strongly urge you to contact us prior to allowing your ownership interest
in
our stock to exceed 775,000 shares.
We
estimate that as of June 30, 2008, we were approximately at 35% compared with
the 50% level that would trigger impairment of our NOL asset.
Overview
Stamps.comÒ
is the
leading provider of Internet-based postage solutions. Our customers use our
service to mail and ship a variety of mail pieces including postcards,
envelopes, flats and packages using a wide range of United States Postal Service
(USPS) mail classes including First Class Mail(R), Priority Mail(R), Express
Mail(R), Media Mail(R), Parcel Post(R), and others. Our customers include home
businesses, small businesses, corporations and individuals. We were the first
ever USPS-licensed vendor to offer PC Postage(R) in a software-only business
model in 1999. On August 10, 2004, we publicly launched a market test of
PhotoStamps(R),
a new
form of postage that allows consumers to turn digital photos, designs or images
into valid US postage. Any reference in this document to our PC Postage business
does not include our PhotoStamps business.
We
were
founded in September 1996 to investigate the feasibility of entering into the
USPS Information-Based Indicia Program and to initiate the certification process
for our PC Postage service. In January 1998, we were incorporated in Delaware
as
StampMaster, Inc., thereafter changing our name to Stamps.com Inc. in
December 1998. We completed our initial public offering in June 1999. Our
common stock is listed on the NASDAQ Stock Market under the symbol
“STMP.”
Our
principal executive office is located at 12959 Coral Tree Place, Los Angeles,
California, 90066, and our telephone number is (310) 482-5800.
Our
Services and Products
We
offer
the following products and services to our customers:
PC
Postage Service
Our
USPS-approved PC Postage service enables users to print information-based
indicia, or electronic stamps, directly onto envelopes, plain paper, or labels
using ordinary laser or inkjet printers. Our service currently supports a
variety of USPS classes including First-Class MailÒ,
Priority MailÒ,
Express
MailÒ,
Parcel
PostÔ,
Media
MailÔ,
Bound
Printed Matter, and international mail. Customers can also add USPS Special
Services such as Delivery Confirmation(TM), Signature Confirmation(TM),
Registered Mail, Certified Mail, Insured Mail, Return Receipt, Collect on
Delivery and Restricted Delivery to their mail pieces. Our service requires
only
a standard PC, printer and Internet connection. Our free software can be
downloaded from the Internet or installed from a CD-ROM. After installing the
software and completing the registration process, customers can purchase and
print postage 24 hours a day, seven days a week. When a customer purchases
postage for use through our service, the customer pays face value, and the
funds
are transferred directly from the customer’s account to the USPS’s account. The
majority of new customers currently signing up for our service pay a monthly
convenience fee ranging from $15.99 to 49.99 based on individual product,
pricing and promotions.
We
offer
our customers three primary ways to print PC Postage. First, our NetStamps(R)
feature and Photo NetStamps(R) feature enable customers to print postage for
any
value and for most classes of mail on NetStamps or Photo NetStamps labels.
Photo
NetStamps allow customers to use digital photos, designs or images with
NetStamps as compared to the standard designs available with regular NetStamps.
After they are printed, NetStamps and Photo NetStamps can be used just like
regular stamps. Second, our shipping feature tab allows customers to print
postage for packages on plain 8.5” x 11” paper or on special labels, and to add
electronic Delivery or Signature Confirmation at discounted prices. Third,
our
mailing feature tab is typically used to print the postage and address directly
on envelopes or on other types of mail or labels, in a single-step process
that
saves time and provides a professional look. Our PC Postage services also
incorporate address verification technology that verifies each destination
address for mail sent using our service against a database of all known
addresses in the United States. As an added convenience, our PC Postage services
have been designed to integrate into common small business and productivity
software applications such as word processing, contact and address management,
and accounting and financial applications.
PhotoStamps(R)
In
May
2007, we launched our fourth market test of PhotoStamps, a patented form of
postage that allows consumers to turn digital photos, designs or images into
valid US postage. With this product, individuals or businesses can now create
customized US postage using pictures of their children, pets, vacations,
celebrations, business logos and more. PhotoStamps is used as regular postage
to
send letters, postcards or packages. The product is available via our
separately-marketed website at www.photostamps.com.
Customers upload a digital photograph or image file, customize the look and
feel
by choosing a border color to complement the photo, select the value of postage,
and place the order online. Each sheet includes 20 individual PhotoStamps,
and
orders arrive via US Mail in a few business days. PhotoStamps is currently
available under authorization of the USPS for its fourth phase market test,
with
an authorization for one year through May 2009.
Mailing
& Shipping Supplies Store
Our
Mailing & Shipping Supplies Store (our “Supplies Store”) is available to our
customers from within our PC Postage software, and sells NetStamps labels,
shipping labels, other mailing labels, dedicated postage printers, OEM and
private label inkjet and laser toner cartridges, scales, and other mailing
and
shipping-focused office supplies. Our Supplies Store features a store catalog,
same day shipping capabilities, strong messaging of our free or discounted
shipping promotions, strong cross sell during checkout, product search
capabilities, and new expedited and rush shipping options. We plan to continue
to increase the breadth of products offered in our Supplies Store.
Branded
Insurance
We
offer
Stamps.com branded insurance to our customers so that they may insure their
mail
or packages in a fully integrated, online process that eliminates any trips
to
the post office or the need to complete any special forms. We also offer
official USPS insurance alongside our branded insurance product. Our insurance
is provided in partnership with Parcel Insurance Plan and is underwritten by
Fireman's Fund.
Critical
Accounting Policies
General
Our
discussion and analysis of our financial condition and results of operations
are
based upon our financial statements which have been prepared in accordance
with
US
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to patents, contingencies and litigation.
We
base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial statements.
Revenue
Recognition
We
recognize revenue from product sales or services rendered, as well as from
licensing the use of our software and intellectual property, when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the selling price
is fixed or determinable, and collectibility is reasonably assured.
Our
service revenue is based on monthly convenience fees and is recognized in the
period that services are provided. Product sales, net of return allowances,
are
recorded when the products are shipped and title passes to customers. Sales
of
our products, including PhotoStamps, to customers are made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon our
delivery to the carrier. Return allowances for expected product returns, which
reduce product revenue, are estimated using historical experience. We recognize
licensing revenue ratably over the contract period. Commissions from the
advertising or sale of products by a third party vendor to our customers are
recognized when the revenue is earned and collection is deemed probable. We
recognize revenue on insurance purchases upon the ship date of the insured
package.
Intangibles
We
make
an assessment of the estimated useful lives of our patents and other amortizable
intangibles. These estimates are made using various assumptions that are
subjective in nature and could change as economic and competitive conditions
change. If events were to occur that would cause our assumptions to change,
the
amounts recorded as amortization would be adjusted.
Contingencies
and Litigation
We
are
involved in various litigation matters as a claimant and as a defendant. We
record any amounts recovered in these matters when collection is certain. We
record liabilities for claims against us when the losses are probable and
estimable. Any amounts recorded would be based on reviews by outside counsel,
in-house counsel and management. Actual results may differ from estimates.
Promotional
Expense
New
PC
Postage customers are typically offered promotional items that are redeemed
using coupons that are qualified for redemption after a customer is successfully
billed beyond an initial trial period. This includes free postage and a free
digital scale and is expensed in the period in which a customer qualifies using
estimated redemption rates based on historical data. Promotional expense that
is
included in the cost of service is incurred as customers qualify and thereby
may
not correlate directly with changes in revenue as the revenue associated with
the acquired customer is earned over the customer's lifetime.
Recent
Accounting Pronouncements
In
April
2008, the FASB issued Financial Statement Position No. SFAS 142-3,
“Determination of the Useful Life of Intangible Assets” (FSP SFAS 142-3). FSP
SFAS 142-3 amends the factors that should be considered in developing renewal
or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”
(SFAS 142). The intent of FSP SFAS 142-3 is to improve the consistency between
the useful life of a recognized intangible asset under SFAS 142 and the period
of expected cash flows used to measure the fair value of the asset under SFAS
No. 141(R) and other applicable accounting literature. FSP SFAS 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and must be applied prospectively to intangible assets
acquired after the effective date.
Recent
Development
On
July
16, 2008, our Board of Directors approved a new share repurchase program, which
will replace the current share repurchase plan effective August 4, 2008,
authorizing us to purchase up to 2 million shares of our common stock over
the
next seven months. We have no commitments to make any purchases, and the timing
of purchases, if any, and the number of shares to be bought at any one time
will
depend on market conditions and our assessment of risk that our NOL asset could
be impaired if such repurchases were under taken. Share purchase may be made
from time to time on the open market or in negotiated transactions at our
discretion in compliance with Rule 10b-18 under the Securities Exchange Act
of
1934. Our purchase of any of our shares is subject to limitations that may
be
imposed on such purchases by applicable laws and regulations and the rules
of
the Nasdaq Stock Market.
Results
of Operations
Total
revenue was $21.4 million during both the second quarter of 2008 and 2007.
Total
revenue during the six months ended June 30, 2008 was $42.5 million, an increase
of 3% from $41.4 million during the six months ended June 30, 2007. PC Postage
subscriber related revenue, including service revenue, product revenue and
insurance revenue in the second quarter of 2008 was $18.5 million, an increase
of 14% from $16.3 million in the second quarter of 2007, and was $36.6 million
in the six months ended June 30, 2008, an increase of 12% from $32.7 million
in
the six months ended June 30, 2007. PhotoStamps revenue in the second quarter
of
2008 was $2.9 million, a decrease of 38% from $4.6 million in the second quarter
of 2007, and was $5.9 million in the six months ended June 30, 2008, a decrease
of 25% from $7.8 million in the six months ended June 30, 2007.
The
PC
Postage marketing channels we use to acquire customers include partnerships,
online advertising, affiliate channel, direct mail, traditional media
advertising, enhanced promotion online channel, and others. In the enhanced
promotion channel, we work with various companies to advertise our service
in a
variety of sites on the Internet. These companies typically offer an additional
promotion directly to the customer in order to get the customer to try our
service. Because our enhanced promotion channel is characterized by higher
customer attrition rates and lower customer acquisition costs than our other
channels, we believe it is more instructive to look at our enhanced promotion
channel separately from our non-enhanced promotion channels.
We
estimate that subscriber related revenue for customers acquired through our
enhanced promotion channel in the second quarter of 2008 was $2.4 million,
an
increase of 11% from $2.2 million in the second quarter of 2007, and was $4.9
million in the six months ended June 30, 2008, an increase of 8% from $4.5
million in the six months ended June 30, 2007. We estimate that subscriber
related revenue for customers acquired through our non-enhanced promotion
channels in the second quarter of 2008 was $16.1 million, an increase of 14%
from $14.1 million in the second quarter of 2007, and was $31.7 million in
the
six months ended June 30, 2008, an increase of 13% from $28.2 million in the
six
months ended June 30, 2007. The smaller increase in enhanced promotion
subscriber revenue in relation to the increase in non-enhanced promotion revenue
was attributable to our decision to shift our marketing strategy and customer
acquisition spending to focus on our non-enhanced promotion
channels.
We
define
paid customers as ones from whom we successfully collected service fees at
least
once during the quarter. Total number of paid customers originally acquired
through our non-enhanced promotion channels in the second quarter of 2008 was
314 thousand, an increase of 16% from 270 thousand in the second quarter of
2007.
We
believe that the increase in paid customers in the second quarter of 2008 was
attributable to our increased customer acquisition spending. For customers
originally acquired through our non-enhanced promotion channels, our average
subscriber related monthly revenue per paid customer in the second quarter
of
2008 was $17.14, a decrease of 2% from $17.44 in the second quarter of 2007.
This decrease is primarily attributable to lower store and insurance revenue
per
paid customer.
The
following table sets forth our results of operations as a percentage of total
revenue for the periods indicated:
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Total
Revenues
|
|
|
|
|
|
|
|
Service
|
|
|
72.8
|
%
|
|
63.1
|
%
|
|
72.5
|
%
|
|
65.6
|
%
|
Product
|
|
|
12.0
|
%
|
|
11.5
|
%
|
|
11.9
|
%
|
|
11.6
|
%
|
Insurance
|
|
|
1.8
|
%
|
|
1.7
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
PhotoStamps
|
|
|
13.4
|
%
|
|
21.7
|
%
|
|
13.8
|
%
|
|
18.9
|
%
|
Other
|
|
|
0.0
|
%
|
|
2.0
|
%
|
|
0.0
|
%
|
|
2.1
|
%
|
Total
revenues
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
10.6
|
%
|
|
11.3
|
%
|
|
11.8
|
%
|
|
11.5
|
%
|
Product
|
|
|
4.4
|
%
|
|
3.9
|
%
|
|
4.3
|
%
|
|
4.0
|
%
|
Insurance
|
|
|
0.6
|
%
|
|
0.5
|
%
|
|
0.6
|
%
|
|
0.6
|
%
|
PhotoStamps
|
|
|
9.8
|
%
|
|
14.3
|
%
|
|
9.9
|
%
|
|
12.4
|
%
|
Other
|
|
|
0.0
|
%
|
|
0.1
|
%
|
|
0.0
|
%
|
|
0.1
|
%
|
Total
cost of revenues
|
|
|
25.4
|
%
|
|
30.1
|
%
|
|
26.6
|
%
|
|
28.6
|
%
|
Gross
profit
|
|
|
74.6
|
%
|
|
69.9
|
%
|
|
73.4
|
%
|
|
71.4
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
41.0
|
%
|
|
37.0
|
%
|
|
41.0
|
%
|
|
38.0
|
%
|
Research
and development
|
|
|
9.8
|
%
|
|
9.7
|
%
|
|
9.5
|
%
|
|
10.1
|
%
|
General
and administrative
|
|
|
20.8
|
%
|
|
15.0
|
%
|
|
19.8
|
%
|
|
14.4
|
%
|
Total
operating expenses
|
|
|
71.6
|
%
|
|
61.7
|
%
|
|
70.3
|
%
|
|
62.5
|
%
|
Income
from operations
|
|
|
3.0
|
%
|
|
8.2
|
%
|
|
3.1
|
%
|
|
8.9
|
%
|
Other
income (expense), net
|
|
|
3.4
|
%
|
|
5.5
|
%
|
|
3.9
|
%
|
|
5.8
|
%
|
Income
before income taxes
|
|
|
6.4
|
%
|
|
13.7
|
%
|
|
7.0
|
%
|
|
14.7
|
%
|
Income
tax expense (benefit)
|
|
|
0.4
|
%
|
|
0.5
|
%
|
|
(8.2
|
%)
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
6.0
|
%
|
|
13.2
|
%
|
|
15.2
|
%
|
|
14.2
|
%
|
Revenue
Our
revenue is derived primarily from five sources: (1) service fees charged to
customers for use of our PC Postage service; (2) product revenue from the direct
sale of consumables and supplies through our Supplies Store (3) insurance
revenue from our branded insurance offering; (4) PhotoStamps revenue from our
PhotoStamps business; and (5) other revenue, consisting of licensing revenue
and
advertising revenue derived from advertising programs with our existing
customers.
Service
revenue increased 15% to $15.6 million in the second quarter of 2008 from
$13.5 million in the second quarter of 2007 and increased 13% to $30.8
million in the six months ended June 30, 2008 from $27.2 million in the six
months ended June 30, 2007. These increases in service revenue were primarily
due to the increase in our successfully billed customers as a result of the
growth in our customer base. As a percentage of total revenue, service revenue
increased ten percentage points to 73% in the second quarter of 2008 from 63%
in
the second quarter of 2007 and increased six percentage points to 72% in the
six
months ended June 30, 2008 from 66% in the six months ended June 30, 2007,
primarily as a result of the increase in service revenue and the decrease in
revenue from our PhotoStamps product. As a percentage of revenue, service
revenue may continue to increase over future periods as we expect to experience
a lower total volume of PhotoStamps sales as a result of our reduction in
consumer PhotoStamps marketing spending. Further, we plan to continue to
increase our level of spending on PC Postage customer acquisition in order
to
grow our service revenue in future periods.
Product
revenue increased 5% to $2.6 million in the second quarter of 2008 from $2.5
million in the second quarter of 2007 and increased 5% to $5.1 million in the
six months ended June 30, 2008 from $4.8 million in the six months ended June
30, 2007. The increase was primarily attributable to the following: (1) growth
in our paid customer base; (2) marketing the store to our existing customer
base; (3) the additional SKUs we added to our store; and (4) growth in postage
printed, which helps drive sales of consumable supplies such as labels. Total
postage printed by customers using our service during the second quarter of
2008
was $77 million, a 20% increase from the $65 million printed during the second
quarter of 2007. As a percentage of total revenue, product revenue remained
at
approximately 12% during each of the second quarter of 2008 and 2007 and six
months ended June 30, 2008 and 2007. We expect product revenue to increase
in
future periods as we expect continued growth in paid customers and in the volume
of postage printed.
Insurance
revenue increased 6% to $377 thousand in the second quarter of 2008 from $356
thousand in the second quarter of 2007 and increased 5% to $765 thousand in
the
six months ended June 30, 2008 from $730 thousand in the six months ended June
30, 2007, primarily as a result of an increase in the average of dollar value
insured per transaction. As a percentage of total revenue, insurance revenue
remained at 2% during each of the second quarter of 2008 and 2007 and six months
ended June 30, 2008 and 2007. We expect insurance revenue to increase in future
periods as we expect continued growth in our paid customer base.
PhotoStamps
revenue decreased 38% to $2.9 million in the second quarter of 2008 from
$4.6 million in the second quarter of 2007 and decreased 25% to $5.9
million in the six months ended June 30, 2008 from $7.8 million in the six
months ended June 30, 2007. As a percentage of total revenue, PhotoStamps
revenue decreased nine percentage points to 13% in the second quarter of 2008
from 22% in the second quarter of 2007 and decreased five percentage points
to
14% in the six months ended June 30, 2008 from 19% in the six months ended
June
30, 2007. Total PhotoStamps sheets shipped during the second quarter of 2008
was
approximately 171 thousand, a 41% decrease compared to 291 thousand in the
second quarter of 2007. Average revenue per sheet shipped in the second quarter
of 2008 was $16.8 compared to $15.9 in the second quarter of 2007. The decrease
in sheets shipped was primarily attributable to a decrease in both consumer
and
business PhotoStamps orders. We reduced our PhotoStamps sales and marketing
spending in the second quarter of 2008 compared with the second quarter of
2007
and plan to continue to reduce our sales and marketing spending on PhotoStamps
in future periods to improve profitability in that business. We expect that
the
reduction will result in lower PhotoStamps revenue in future periods.
Because
of the expiration of a licensing agreement in June 2007, we did not have any
other revenue in the second quarter of 2008 and six months ended June 30, 2008,
compared to $453 thousand in the second quarter of 2007 and $906 thousand in
the
six months ended June 30, 2007. .
Cost
of Revenue
Cost
of
revenue principally consists of the cost of customer service, certain
promotional expenses, system operating costs, credit card processing fees,
the
cost of postage for PhotoStamps, image review, printing and fulfillment costs
for PhotoStamps, parcel insurance offering costs, customer misprints and
products sold through our Supplies Store and the related costs of shipping
and
handling. Cost of revenue decreased 16% to $5.4 million in the second quarter
of
2008 from $6.4 million in the second quarter of 2007 and decreased 4% to $11.3
million in the six months ended June 30, 2008 from $11.8 million in the six
months ended June 30, 2007. As a percentage of total revenue, cost of revenue
decreased five percentage points to 25% in the second quarter of 2008 from
30%
in the second quarter of 2007 and decreased two percentage points to 27% in
the
six months ended June 30, 2008 from 29% in the six months ended June 30,
2007.
Cost
of
service revenue decreased 6% to $2.3 million in the second quarter of 2008
from
$2.4 million in the second quarter 2007. The decrease during the quarter is
primarily attributable to a change in our assumption of future coupon
redemptions relating to our promotional expense, which provided a one time
benefit during the second quarter of 2008 of approximately $266 thousand
compared to an expense of $384 thousand in the second quarter of 2007.
Promotional expense includes free postage and a free digital scale offered
to
new customers. Cost of service revenue increased 5% to $5.0 million in the
six
months ended June 30, 2008 from $4.8 million in the six months ended June 30,
2007. The increase during the six months ended June 30, 2008 is primarily
attributable to higher customer support related expenses resulting from
expanding our support personnel and efforts to improve the overall customer
experience. Promotional expense was $199 thousand and $792 thousand in the
six
months ended June 30, 2008 and 2007, respectively. As a percentage of total
revenue, cost of service revenue was 11% in each of the second quarter of 2008
and 2007 and was 12% in each of the six months ended June 30, 2008 and 2007.
Cost
of
product revenue increased 13% to $948 thousand in the second quarter of 2008
from $839 thousand in the second quarter 2007 and increased 12% to $1.8 million
in the six months ended June 30, 2008 from $1.6 million in the six months ended
June 30, 2007. As a percentage of total revenue, cost of product revenue was
approximately 4% in each of the second quarter of 2008 and 2007 and six months
ended June 30, 2008 and 2007. The increase, on an absolute basis, is mainly
attributable to the increase in product sales. See “Product Revenue” in Results
of Operation above for further discussion. We expect the cost of product sales
to increase in future periods if we continue to increase product
sales.
Cost
of
insurance revenue increased 7% to $119 thousand in the second quarter of 2008
from $111 thousand in the second quarter of 2007 and increased 6% to $239
thousand in the six months ended June 30, 2008 from $226 thousand in the six
months ended June 30, 2007. The increase is mainly attributable to the higher
average insurance sales price as a result of the increase in the dollar value
insured per transaction. As a percentage of total revenue, cost of insurance
revenue was approximately 1% in each of the second quarter of 2008 and 2007
and
six months ended June 30, 2008 and 2007. We expect the cost of insurance to
increase in future periods if we continue to increase insurance
revenue.
Cost
of
PhotoStamps revenue decreased 32% to $2.1 million in the second quarter of
2008 from $3.1 million in the second quarter of 2007 and decreased 18% to $4.2
million in the six months ended June 30, 2008 from $5.1 million in the six
months ended June 30, 2007, primarily due to the decrease in PhotoStamps revenue
during those periods. As a percentage of total revenue, cost of PhotoStamps
revenue decreased four percentage points to 10% in the second quarter of 2008
from 14% in second quarter of 2007 and decreased two percentage points to 10%
in
the six months ended June 30, 2008 from 12% in the six months ended June 30,
2007. The gross margin from PhotoStamps revenue is significantly lower than
that
of our other sources of revenue because we include the stated value of USPS
postage as part of our cost of PhotoStamps revenue. As a result, future
increases in PhotoStamps sales would further increase the overall cost of
PhotoStamps revenue as a percentage of total revenue. While we expect
PhotoStamps revenue to decrease in future periods, cost of PhotoStamps revenue
may grow in future periods if high volume business PhotoStamps orders, which
carry a lower gross margin compared with PhotoStamps website orders, compose
a
higher percentage of total orders.
Cost
of
other revenue decreased 100% from $26 thousand in the second quarter of 2007
and
$52 thousand in the six months ended June 30, 2007, primarily due to the
expiration of one of our licensing agreements in June 2007.
Sales
and Marketing
Sales
and
marketing expense principally consists of spending to acquire new customers
and
compensation and related expenses for personnel engaged in sales, marketing
and
business development activities. Sales and marketing expense increased 11%
to
$8.8 million in the second quarter of 2008 from $7.9 million in the second
quarter 2007 and increased 10% to $17.4 million in the six months ended June
30,
2008 from $15.8 million in the six months ended June 30, 2007. As a percentage
of total revenue, sales and marketing expenses increased four percentage points
to 41% in the second quarter of 2008 from 37% in the second quarter of 2007
and
increased three percentage points to 41% in the six months ended June 30, 2008
from 38% in the six months ended June 30, 2007. The increase, both on an
absolute basis and as a percentage of total revenue, is primarily due to our
decision to increase various marketing program expenditures relating to the
acquisition of customers for our PC Postage business, partially offset by a
decrease in marketing expenditures related to our PhotoStamps business. Ongoing
marketing programs include the following: traditional media advertising,
partnerships, customer referral programs, customer re-marketing efforts,
telemarketing, direct mail and online advertising. We expect to increase our
sales and marketing expenses in our PC Postage business throughout 2008, and
to
decrease sales and marketing expenses in our PhotoStamps business as we focus
on
profitability in that business.
Research
and Development
Research
and development expense principally consists of compensation for personnel
involved in the development of our services, depreciation of equipment and
software and expenditures for consulting services and third party software.
Research and development expense was $2.1 million in each of the second quarter
of 2008 and 2007 and decreased 4% to 4.0 million in the six months ended June
30, 2008 from $4.2 million in the six months ended June 30, 2007. The decrease
during the six months ended June 30, 2008 is primarily due to lower headcount
related expenses. As a percentage of total revenue, research and development
expense was approximately 10% in each of the second quarter of 2008 and 2007
and
six months ended June 30, 2008 and 2007. We expect research and development
expense to increase in future periods due to our plan to increase in headcount
related expenses.
General
and Administrative
General
and administrative expense principally consists of compensation and related
costs for executive and administrative personnel, fees for legal and other
professional services, depreciation of equipment and software used for general
corporate purposes and amortization of intangible assets. General and
administrative expense increased 39% to $4.5 million in the second quarter
of
2008 from $3.2 million in the second quarter of 2007 and increased 41% to $8.4
million in the six months ended June 30, 2008 from $6.0 million in the six
months ended June 30, 2007. As a percentage of total revenue, general and
administrative expense increased six percentage points to 21% in the second
quarter of 2008 from 15% in the second quarter of 2007 and to 20% in the six
months ended June 30, 2008 from 14% in the six months ended June 30, 2007.
The
increase, both on an absolute basis and as a percentage of total revenue, is
primarily due to the increase in legal expenses from litigation of the Kara
Technologies lawsuit. Additionally, we incurred a one time litigation charge
of
$710 thousand during the second quarter of 2008 relating to a lawsuit by
Sterling Reality Organization Co. stemming from our iShip business which we
divested in 2001. We currently expect general and administrative expenses to
continue to increase in future periods as we continue to experience increased
activity in existing litigation matters, although unpredictable changes in
timing of litigation matters may result in periods of declining expenses.
Other
Income, Net
Other
income, net consists of interest income from cash equivalents and short-term
and
long-term investments. Other income, net decreased 37% to $736 thousand in
the
second quarter of 2008 from $1.2 million in the second quarter of 2007 and
decreased 30% to $1.7 million in the six months ended June 30, 2008 from $2.4
million in the six months ended June 30, 2007. As a percentage of total revenue,
other income, net decreased three percentage points to 3% in the second quarter
of 2008 from 6% in the second quarter of 2007 and decreased two percentage
points to approximately 4% in the six months ended June 30, 2008 from 6% in
the
six months ended June 30, 2007. The decrease, both on an absolute basis and
as a
percentage of total revenue, is primarily due to lower rates and lower
investment balances as we sold certain investments and used the cash to
repurchase shares of our common stock. We expect other income to decrease in
future periods as a result of lower invested cash balance and lower interest
rates.
Liquidity
and Capital Resources
As
of
June 30, 2008 and December 31, 2007 we had approximately $91.4 million and
$90.8
million, respectively, in cash, restricted cash and short-term and long-term
investments. We invest available funds in short and long-term securities
including money market funds, corporate bonds, asset backed securities, and
government and agency bonds, and do not engage in hedging or speculative
activities.
In
November 2003, we entered into a facility lease agreement commencing in March
2004 for our new corporate headquarters with aggregate lease payments of
approximately $4 million through February 2010.
The
following table is a schedule of our contractual obligations and commercial
commitments, which is comprised of the future minimum lease payments under
operating leases at June 30, 2008 (in thousands):
|
|
Operating
|
|
Six
months ending December 31, 2008
|
|
$
|
379
|
|
Years
ending December 31:
|
|
|
|
|
2009
|
|
|
794
|
|
2010
|
|
|
134
|
|
|
|
$
|
1,307
|
|
Net
cash
provided by operating activities was $5.6 million and $6.7 million
during the six months ended June 30, 2008 and 2007, respectively. The decrease
in net cash provided by operating activities resulted primarily from the
decrease in PhotoStamps and licensing revenue.
Net
cash
provided by investing activities was $10.4 million and $15.6 million during
the
six months ended June 30, 2008 and 2007, respectively. The decrease in net
cash
provided by investing activities is mainly due to the sale of investments in
the
first quarter of 2008 to fund the repurchase of stock. We did not repurchase
any
stock in the second quarter of 2008.
Net
cash
used in financing activities was $4.2 million
and $18.3 million during the six months ended June 30, 2008 and 2007,
respectively. The decrease is mainly due to the reduction of our stock
repurchase program.
We
believe our available cash and marketable securities, together with the cash
flow from operations, will be sufficient to fund our business for the
foreseeable future.
ITEM
3. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Our
exposure to market rate risk for changes in interest rates relates primarily
to
our investment portfolio. We have not used derivative financial instruments
in
our investment portfolio. Our cash equivalents and investments are comprised
of
money market, U.S. government obligations and public corporate debt securities
with weighted average maturities of 153 days
at
June 30, 2008. Our cash equivalents and investments, net of restricted cash,
approximated $90.8 million
and had a related weighted average interest rate of approximately
3.2%.
Interest
rate fluctuations can impact the carrying value of our portfolio. We do not
believe that the future market risks related to the above securities will have
a
material adverse impact on our financial position, results of operations or
liquidity.
As
we do
not have any operations outside of the United States, we are not exposed to
foreign currency risks.
ITEM
4. |
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act), designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms.
As
of the
end of the period covered by this Report, our management evaluated, with the
participation of our Principal Executive Officer and Principal Financial
Officer, the effectiveness of our disclosure controls and procedures as of
the
end of the period covered by this report. Based on that evaluation, our
Principal Executive Officer and Principal Financial Officer have concluded,
as
of that time, that our disclosure controls and procedures were effective in
ensuring that information required to be disclosed by us in reports filed or
submitted under the Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and
(ii) is accumulated and communicated to our management including our
Principal Executive Officer and our Principal Financial Officer, to allow timely
decisions regarding required disclosure.
Changes
in Internal Controls
During
the second quarter ended June 30, 2008, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. |
LEGAL
PROCEEDINGS
|
On
October 22, 2004, Kara Technology Incorporated filed suit against us in the
United States District Court for the Southern District of New York, alleging,
among other claims, that we infringed certain Kara Technology patents and that
we misappropriated trade secrets owned by Kara Technology, most particularly
with respect to our NetStamps feature. Kara Technology seeks an injunction,
unspecified damages, and attorneys’ fees. On February 9, 2005, the court granted
our motion to transfer this suit to the United States District Court for the
Central District of California. On August 23, 2006, the court granted our
summary judgment motions on the trade secret and other non-patent claims. On
April 3, 2008, the court granted our summary judgment motion that PhotoStamps
does not infringe and denied our summary judgment motions that NetStamps does
not infringe and the patents are invalid. On June 27, 2008, at the conclusion
of
trial, the jury issued its verdict in our favor, finding that NetStamps does
not
infringe the Kara Technology patents.
On
November 22, 2006, we filed a lawsuit against Endicia, Inc. and PSI Systems,
Inc. in the United States District Court for the Central District of California
for infringement of eleven of our patents covering, among other things, Internet
postage technology. On January 8, 2007, Endicia, Inc. and PSI Systems, Inc.
filed counterclaims asking for a declaratory judgment that all eleven patents
are invalid, unenforceable and not infringed. The Court has scheduled a trial
commencement date of May 12, 2009.
In
May
and June 2001, we were named, together with certain of our current and former
board members and/or officers, as a defendant in 11 purported class-action
lawsuits, filed in the U.S. District Court for the Southern District of New
York. The lawsuits allege violations of the Securities Act and the Exchange
Act
in connection with our initial public offering and a secondary offering of
our
common stock. The lawsuits also name as defendants the principal underwriters
in
connection with our public offerings, and allege that the underwriters engaged
in improper commission practices and stock price manipulations in connection
with the sale of our common stock. The lawsuits allege that we and/or certain
of
our officers or directors knew of or recklessly disregarded these practices
by
the underwriter defendants, and failed to disclose them in our public filings.
Plaintiffs seek damages and statutory compensation, including interest, costs
and expenses (including attorneys’ fees). All of these lawsuits have been
consolidated for pretrial purposes before U.S. District Court Judge Shira
Scheindlin.
In
October 2002, pursuant to a stipulation and tolling agreement with plaintiffs,
our current and former board members and/or officers were dismissed without
prejudice. That agreement was extended as to those individuals by an addendum
dated as of September 2007. In June 2003, we approved a proposed Memorandum
of
Understanding among the plaintiffs, issuers and insurers as to terms for a
settlement of the litigation against us, which was further documented in a
Stipulation and Agreement of Settlement filed with the court. The proposed
settlement, which would not have required us to make any payments, was
preliminarily approved by the court in February 2005 and was the subject of
a
fairness hearing in April 2006.
In
October 2004, however, the court issued an order regarding class certification
in certain related matters. In December 2006, the U.S. Court of Appeals for
the
Second Circuit vacated that order, and determined that the related matters
could
not be certified as a class as currently defined. That appellate decision
rendered uncertain whether our proposed settlement could be finally approved
and
consummated, and, in June 2007, the proposed settlement was terminated. As
a
result, plaintiffs have filed an amended complaint and proposed an alternative
class definition in related litigation. If such a class definition does not
receive final court approval and/or a later settlement is not consummated for
any reason, we intend to defend the lawsuits vigorously.
On
August
30, 2007, Sterling Realty Organization Co. filed suit against us in the Superior
Court for the State of Washington for King County, alleging they are entitled
under the doctrine of equitable subrogation to recover a $575,929 sales tax
related payment for improvements under a lease related to our discontinued
iShip
business, which we sold in 2001. The lawsuit also seeks pre-judgment interest
and costs. On June 27, 2008, the Court granted summary judgment to the plaintiff
in the amount of $575,413.66 plus prejudgment interest of $94,210. We have
recorded these litigation charges in our financial statements as of June 30,
2008.
We
are
subject to various other routine legal proceedings and claims incidental to
our
business, or which involve primarily a claim for damages that does not exceed
10% of our consolidated assets. We believe that the ultimate results from these
actions will not have a material adverse effect on our financial position,
results of operations or cash flows.
There
have been no material changes from the risk factors disclosed in Part 1, Item
1A, of our 2007 Annual Report on Form 10-K.
ITEM
2. |
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
We
did
not have any unregistered sales of common stock during the quarter ended June
30, 2008.
Issuer
Purchases of Equity Securities
We
did
not have any purchases of our equity securities during the quarter ended June
30, 2008.
ITEM
3. |
DEFAULTS
UPON SENIOR SECURITIES
|
Not
applicable.
ITEM
4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
At
the
close of business on the record date for the meeting (which was April 11,
2008), there were 24,304,445 shares of common stock outstanding and entitled
to
be voted at the meeting. Holders of 17,424,375 shares of common stock
(representing a like number of votes) were present at the annual meeting, either
in person or by proxy. The following table sets forth the results of the voting:
Proposal
1
|
|
|
|
|
|
|
|
|
|
For
|
|
Withheld
|
|
|
|
Election
of a Director:
|
|
16,656,130
|
|
768,245
|
|
|
|
Ken
McBride
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal
2
|
|
For
|
|
Against
|
|
Abstain
|
|
Amendment
to Preserve Tax Treatment of our
|
|
17,042,157
|
|
344,087
|
|
38,131
|
|
tax
net operating losses
|
|
|
|
|
|
|
|
Proposal
3
|
|
For
|
|
Against
|
|
Abstain
|
|
Appointment
of Ernst & Young LLP (auditors)
|
|
17,105,012
|
|
313,726
|
|
5,637
|
|
Each
of
the proposals set forth above received more than the required number of votes
for approval and were therefore duly and validly approved by the
stockholders.
ITEM
5. |
OTHER
INFORMATION
|
None.
3.1 |
Amended
and Restated Certificate of Incorporation of Stamps.com Inc.
|
31.1 |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2 |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of
the Sarbanes-Oxley Act of 2002.
|
32.2 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
906 of
the Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
STAMPS.COM
INC.
(Registrant)
|
|
|
|
August
8, 2008 |
By: |
/s/ KEN
MCBRIDE |
|
Ken
McBride
Chief
Executive Officer
|
|
|
|
|
|
|
August
8, 2008 |
By: |
/s/ KYLE
HUEBNER |
|
Kyle
Huebner
Chief
Financial Officer
|