☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
77-0454966
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer ☑
|
Accelerated filer ☐
|
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
|
Smaller reporting company ☐
|
Emerging growth company ☐
|
· |
As of July 31, 2017, there were 16,908,987 shares of the Registrant’s Common Stock issued and outstanding.
|
Page
|
|||
PART I - FINANCIAL INFORMATION |
1
|
||
ITEM 1.
|
1
|
||
ITEM 2.
|
19
|
||
ITEM 3.
|
34
|
||
ITEM 4.
|
34
|
||
PART II – OTHER INFORMATION |
34
|
||
ITEM 1.
|
34
|
||
ITEM 1A.
|
34
|
||
ITEM 2.
|
35
|
||
ITEM 3.
|
35
|
||
ITEM 4.
|
35
|
||
ITEM 5.
|
35
|
||
ITEM 6.
|
35
|
June 30,
2017
|
December 31,
2016
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
110,343
|
$
|
106,932
|
||||
Short-term investments
|
—
|
1,511
|
||||||
Accounts receivable, net
|
65,897
|
62,756
|
||||||
Other current assets
|
23,188
|
13,081
|
||||||
Total current assets
|
199,428
|
184,280
|
||||||
Property and equipment, net
|
38,199
|
36,829
|
||||||
Goodwill
|
239,705
|
239,705
|
||||||
Intangible assets, net
|
89,009
|
97,027
|
||||||
Deferred income taxes, net.
|
45,044
|
48,782
|
||||||
Other assets
|
5,127
|
3,506
|
||||||
Total assets
|
$
|
616,512
|
$
|
610,129
|
||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued expenses
|
$
|
75,503
|
$
|
86,205
|
||||
Deferred revenue
|
3,851
|
3,858
|
||||||
Current portion of debt, net of debt issuance costs
|
7,360
|
6,329
|
||||||
Total current liabilities
|
86,714
|
96,392
|
||||||
Long-term debt, net of debt issuance costs
|
127,087
|
141,025
|
||||||
Total liabilities
|
213,801
|
237,417
|
||||||
Commitments and contingencies (Note 3)
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock, $.001 par value per share
|
||||||||
Authorized shares: 47,500 in 2017 and 2016
|
||||||||
Issued shares: 31,278 in 2017 and 30,507 in 2016
|
||||||||
Outstanding shares: 16,932 in 2017 and 16,897 in 2016
|
54
|
53
|
||||||
Additional paid-in capital
|
907,787
|
855,344
|
||||||
Treasury stock, at cost, 14,346 shares in 2017 and 13,610 in 2016
|
(341,699
|
)
|
(252,981
|
)
|
||||
Accumulated deficit
|
(163,438
|
)
|
(229,715
|
)
|
||||
Accumulated other comprehensive income
|
7
|
11
|
||||||
Total stockholders’ equity
|
402,711
|
372,712
|
||||||
Total liabilities and stockholders’ equity
|
$
|
616,512
|
$
|
610,129
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Revenues:
|
||||||||||||||||
Service
|
$
|
102,685
|
$
|
72,590
|
$
|
195,105
|
$
|
141,696
|
||||||||
Product
|
4,763
|
4,851
|
10,477
|
10,406
|
||||||||||||
Insurance
|
4,393
|
4,082
|
8,833
|
8,593
|
||||||||||||
Customized postage
|
4,276
|
2,467
|
6,718
|
5,104
|
||||||||||||
Other
|
23
|
23
|
47
|
51
|
||||||||||||
Total revenues
|
116,140
|
84,013
|
221,180
|
165,850
|
||||||||||||
Cost of revenues (exclusive of amortization of intangible assets, which is included in general and administrative expense):
|
||||||||||||||||
Service
|
12,726
|
8,857
|
25,402
|
18,151
|
||||||||||||
Product
|
1,593
|
1,642
|
3,395
|
3,440
|
||||||||||||
Insurance
|
1,213
|
1,266
|
2,581
|
2,629
|
||||||||||||
Customized postage
|
3,557
|
1,955
|
5,449
|
4,122
|
||||||||||||
Total cost of revenues
|
19,089
|
13,720
|
36,827
|
28,342
|
||||||||||||
Gross profit
|
97,051
|
70,293
|
184,353
|
137,508
|
||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
22,280
|
20,082
|
45,430
|
41,479
|
||||||||||||
Research and development
|
11,628
|
8,131
|
22,150
|
16,468
|
||||||||||||
General and administrative
|
21,451
|
17,113
|
40,433
|
32,375
|
||||||||||||
Total operating expenses
|
55,359
|
45,326
|
108,013
|
90,322
|
||||||||||||
Income from operations
|
41,692
|
24,967
|
76,340
|
47,186
|
||||||||||||
Interest expense
|
(932
|
)
|
(905
|
)
|
(1,812
|
)
|
(1,820
|
)
|
||||||||
Interest and other income
|
159
|
31
|
189
|
74
|
||||||||||||
Income before income taxes
|
40,919
|
24,093
|
74,717
|
45,440
|
||||||||||||
Income tax expense
|
9,879
|
9,802
|
10,539
|
17,911
|
||||||||||||
Net income
|
$
|
31,040
|
$
|
14,291
|
$
|
64,178
|
$
|
27,529
|
||||||||
Net income per share
|
||||||||||||||||
Basic
|
$
|
1.83
|
$
|
0.82
|
$
|
3.79
|
$
|
1.58
|
||||||||
Diluted
|
$
|
1.71
|
$
|
0.79
|
$
|
3.54
|
$
|
1.49
|
||||||||
Weighted average shares outstanding
|
||||||||||||||||
Basic
|
16,930
|
17,384
|
16,916
|
17,370
|
||||||||||||
Diluted
|
18,125
|
18,192
|
18,147
|
18,428
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Net income
|
$
|
31,040
|
$
|
14,291
|
$
|
64,178
|
$
|
27,529
|
||||||||
Other comprehensive income, net of tax:
|
||||||||||||||||
Unrealized (loss) gain on investments
|
(2
|
)
|
(8
|
)
|
(4
|
)
|
4
|
|||||||||
Comprehensive income
|
$
|
31,038
|
$
|
14,283
|
$
|
64,174
|
$
|
27,533
|
Six Months Ended
June 30,
|
||||||||
2017
|
2016
|
|||||||
Operating activities:
|
||||||||
Net income
|
$
|
64,178
|
$
|
27,529
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
10,626
|
8,778
|
||||||
Stock-based compensation expense
|
22,335
|
15,933
|
||||||
Deferred income tax expense
|
5,838
|
16,055
|
||||||
Stock option windfall tax expense (benefit)
|
—
|
(307
|
)
|
|||||
Accretion of debt issuance costs
|
186
|
186
|
||||||
Changes in operating assets and liabilities, net of assets and liabilities acquired:
|
||||||||
Accounts receivable
|
(3,140
|
)
|
8,971
|
|||||
Other current assets, net of excess tax benefit from stock-based award activity
|
(10,107
|
)
|
(2,233
|
)
|
||||
Other assets
|
(1,621
|
)
|
741
|
|||||
Deferred revenue
|
(7
|
)
|
1,405
|
|||||
Accounts payable and accrued expenses
|
(9,799
|
)
|
4,784
|
|||||
Net cash provided by operating activities
|
78,489
|
81,842
|
||||||
Investing activities:
|
||||||||
Sale of short-term investments
|
1,502
|
3,632
|
||||||
Sale of long-term investments
|
10
|
66
|
||||||
Purchase of long-term investments
|
(4
|
)
|
(15
|
)
|
||||
Acquisition of Endicia
|
—
|
(573
|
)
|
|||||
Acquisition of property and equipment
|
(4,360
|
)
|
(701
|
)
|
||||
Net cash (used in) provided by investing activities
|
(2,852
|
)
|
2,409
|
|||||
Financing activities:
|
||||||||
Proceeds from short term financing obligation, net of repayments
|
(524
|
)
|
510
|
|||||
Principal payments on term loan
|
(3,094
|
)
|
(2,061
|
)
|
||||
Payment on revolving credit facility
|
(10,000
|
)
|
(10,000
|
)
|
||||
Proceeds from exercise of stock options
|
28,641
|
7,042
|
||||||
Issuance of common stock under Employee Stock Purchase Plan
|
1,469
|
1,108
|
||||||
Repurchase of common stock
|
(87,919
|
)
|
(30,010
|
)
|
||||
Shares withheld to satisfy statutory income tax withholding obligations
|
(799
|
)
|
—
|
|||||
Stock option windfall tax benefit
|
—
|
307
|
||||||
Net cash used in financing activities
|
(72,226
|
)
|
(33,104
|
)
|
||||
Net increase in cash and cash equivalents
|
3,411
|
51,147
|
||||||
Cash and cash equivalents at beginning of period
|
106,932
|
65,126
|
||||||
Cash and cash equivalents at end of period
|
$
|
110,343
|
$
|
116,273
|
||||
Supplemental information:
|
||||||||
Capital expenditures accrued but not paid at period end
|
$
|
376
|
$
|
867
|
||||
Issuance of 2015 and 2014 earn-out shares
|
$
|
—
|
$
|
63,209
|
||||
Noncash adjustment of purchase price for Endicia acquisition
|
$
|
—
|
$
|
372
|
||||
Tenant improvement allowance
|
$
|
848
|
$
|
676
|
1. |
Summary of Significant Accounting Policies
|
2. |
Acquisitions
|
Fair Value
|
Fair Value
|
Useful Life
(In Years)
|
Weighted
Average
Estimated
Useful Life
(In Years)
|
|||||||||||||
Trade accounts receivable
|
$
|
1,194
|
||||||||||||||
Other assets
|
76
|
|||||||||||||||
Property and equipment
|
40
|
|||||||||||||||
Goodwill
|
40,953
|
|||||||||||||||
Identifiable intangible assets:
|
||||||||||||||||
Trade name
|
$
|
1,304
|
8
|
|||||||||||||
Developed technology
|
6,948
|
5
|
||||||||||||||
Customer relationships
|
6,316
|
5
|
||||||||||||||
Non-compete agreements
|
1,111
|
3 to 5
|
||||||||||||||
Total identifiable intangible assets
|
15,679
|
5
|
||||||||||||||
Accrued expenses and other liabilities
|
(707
|
)
|
||||||||||||||
Deferred revenue
|
(185
|
)
|
||||||||||||||
Deferred tax liability
|
(1,603
|
)
|
||||||||||||||
Total purchase price
|
55,447
|
|||||||||||||||
Less: settlement of preexisting relationship (accounts receivable)
|
1,194
|
|||||||||||||||
Purchase price, net of settlement
|
$
|
54, 253
|
3. |
Commitments and Contingencies
|
Twelve Month Period Ending June 30,
|
Operating
Lease Obligations
|
|||
2018
|
$
|
3,931
|
||
2019
|
2,257
|
|||
2020
|
1,386
|
|||
2021
|
1,333
|
|||
2022
|
232
|
|||
Thereafter
|
—
|
|||
Total
|
$
|
9,139
|
4. |
Net Income per Share
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Net income
|
$
|
31,040
|
$
|
14,291
|
$
|
64,178
|
$
|
27,529
|
||||||||
Basic - weighted average common shares
|
16,930
|
17,384
|
16,916
|
17,370
|
||||||||||||
Diluted effect of common stock equivalents
|
1,195
|
808
|
1,231
|
1,058
|
||||||||||||
Diluted - weighted average common shares
|
18,125
|
18,192
|
18,147
|
18,428
|
||||||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$
|
1.83
|
$
|
0.82
|
$
|
3.79
|
$
|
1.58
|
||||||||
Diluted
|
$
|
1.71
|
$
|
0.79
|
$
|
3.54
|
$
|
1.49
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Anti-dilutive stock option shares
|
42
|
287
|
42
|
147
|
5. |
Stock-Based Compensation
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Stock-based compensation expense relating to:
|
||||||||||||||||
Employee and director stock options
|
$
|
10,723
|
$
|
8,154
|
$
|
21,858
|
$
|
15,435
|
||||||||
Employee stock purchases
|
245
|
263
|
477
|
498
|
||||||||||||
Total stock-based compensation expense
|
$
|
10,968
|
$
|
8,417
|
$
|
22,335
|
$
|
15,933
|
||||||||
Stock-based compensation expense relating to:
|
||||||||||||||||
Cost of revenues
|
$
|
445
|
$
|
450
|
$
|
993
|
$
|
875
|
||||||||
Sales and marketing
|
1,975
|
1,857
|
4,282
|
3,588
|
||||||||||||
Research and development
|
2,221
|
1,425
|
4,717
|
2,780
|
||||||||||||
General and administrative
|
6,327
|
4,685
|
12,343
|
8,690
|
||||||||||||
Total stock-based compensation expense
|
$
|
10,968
|
$
|
8,417
|
$
|
22,335
|
$
|
15,933
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Expected dividend yield
|
—
|
—
|
—
|
—
|
||||||||||||
Risk-free interest rate
|
1.5
|
%
|
1.0
|
%
|
1.5
|
%
|
1.0
|
%
|
||||||||
Expected volatility
|
46.1
|
%
|
48.6
|
%
|
46.4
|
%
|
48.4
|
%
|
||||||||
Expected life (in years)
|
3.4
|
3.4
|
3.4
|
3.4
|
||||||||||||
Forfeiture rate
|
—
|
6.0
|
%
|
—
|
6.0
|
%
|
6. |
Goodwill and Intangible Assets
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
||||||||||
Patents and Others
|
$
|
8,889
|
$
|
8,797
|
$
|
92
|
||||||
Customer Relationships
|
60,816
|
17,185
|
43,631
|
|||||||||
Technology
|
40,048
|
8,699
|
31,349
|
|||||||||
Non-Compete
|
2,211
|
1,029
|
1,182
|
|||||||||
Trademark
|
2,004
|
639
|
1,365
|
|||||||||
Total amortizable intangible assets at June 30, 2017
|
$
|
113,968
|
$
|
36,349
|
$
|
77,619
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
||||||||||
Patents and Others
|
$
|
8,889
|
$
|
8,774
|
$
|
115
|
||||||
Customer Relationships
|
60,816
|
12,199
|
48,617
|
|||||||||
Technology
|
40,048
|
6,100
|
33,948
|
|||||||||
Non-Compete
|
2,211
|
777
|
1,434
|
|||||||||
Trademark
|
2,004
|
479
|
1,525
|
|||||||||
Total amortizable intangible assets at December 31, 2016
|
$
|
113,968
|
$
|
28,329
|
$
|
85,639
|
Twelve Month Period Ending June 30,
|
Estimated
Amortization
Expense
|
|||
2018
|
$
|
16,025
|
||
2019
|
15,667
|
|||
2020
|
15,579
|
|||
2021
|
15,231
|
|||
2022
|
7,783
|
|||
Thereafter
|
7,334
|
|||
Total
|
$
|
77,619
|
7. |
Income Taxes
|
8. |
Fair Value Measurements
|
Fair Value Measurement at Reporting Date Using
|
||||||||||||||||
Description
|
June 30,
2017
|
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
|
$
|
110,343
|
$
|
110,343
|
$
|
—
|
$
|
—
|
||||||||
Available-for-sale debt securities
|
—
|
—
|
—
|
—
|
||||||||||||
Total
|
$
|
110,343
|
$
|
110,343
|
$
|
—
|
$
|
—
|
Fair Value Measurement at Reporting Date Using
|
||||||||||||||||
Description
|
December 31,
2016
|
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
|
$
|
106,932
|
$
|
106,932
|
$
|
—
|
$
|
—
|
||||||||
Available-for-sale debt securities
|
1,511
|
—
|
1,511
|
—
|
||||||||||||
Total
|
$
|
108,443
|
$
|
106,932
|
$
|
1,511
|
$
|
—
|
9. |
Cash, Cash Equivalents and Investments
|
June 30, 2017
|
||||||||||||||||
Cost or
Amortized |
Gross
Unrealized |
Gross
Unrealized |
Estimated
Fair Value |
|||||||||||||
Cash and cash equivalents:
|
||||||||||||||||
Cash
|
$
|
103,859
|
—
|
—
|
$
|
103,859
|
||||||||||
Money market
|
6,477
|
9
|
(2
|
)
|
6,484
|
|||||||||||
Total cash and cash equivalents
|
110,336
|
9
|
(2
|
)
|
110,343
|
|||||||||||
Short-term investments:
|
||||||||||||||||
Corporate bonds and asset backed securities
|
—
|
—
|
—
|
—
|
||||||||||||
Total short-term investments
|
—
|
—
|
—
|
—
|
||||||||||||
Cash and cash equivalents and short-term investments
|
$
|
110,336
|
9
|
(2
|
)
|
$
|
110,343
|
December 31, 2016
|
||||||||||||||||
Cost or
Amortized |
Gross
Unrealized |
Gross
Unrealized |
Estimated
Fair Value |
|||||||||||||
Cash and cash equivalents:
|
||||||||||||||||
Cash
|
$
|
101,987
|
—
|
—
|
$
|
101,987
|
||||||||||
Money market
|
4,945
|
—
|
—
|
4,945
|
||||||||||||
Total cash and cash equivalents
|
106,932
|
—
|
—
|
106,932
|
||||||||||||
Short-term investments:
|
||||||||||||||||
Corporate bonds and asset backed securities
|
1,500
|
13
|
(2
|
)
|
1,511
|
|||||||||||
Total short-term investments
|
1,500
|
13
|
(2
|
)
|
1,511
|
|||||||||||
Cash and cash equivalents and short-term investments
|
$
|
108,432
|
13
|
(2
|
)
|
$
|
108,443
|
Three months ended June 30,
|
Six months ended June 30,
|
|||||||||||||||||||||||
2017
|
2016
|
% Change
|
2017
|
2016
|
% Change
|
|||||||||||||||||||
Revenues
|
||||||||||||||||||||||||
Service
|
$
|
102,685
|
$
|
72,590
|
41.5
|
%
|
$
|
195,105
|
$
|
141,696
|
37.7
|
%
|
||||||||||||
Product
|
4,763
|
4,851
|
(1.8
|
)%
|
10,477
|
10,406
|
0.7
|
%
|
||||||||||||||||
Insurance
|
4,393
|
4,082
|
7.6
|
%
|
8,833
|
8,593
|
2.8
|
%
|
||||||||||||||||
Mailing and shipping revenue
|
$
|
111,841
|
$
|
81,523
|
37.2
|
%
|
$
|
214,415
|
$
|
160,695
|
33.4
|
%
|
||||||||||||
Customized postage
|
$
|
4,276
|
$
|
2,467
|
73.3
|
%
|
$
|
6,718
|
$
|
5,104
|
31.6
|
%
|
||||||||||||
Other
|
23
|
23
|
0.0
|
%
|
47
|
51
|
(7.8
|
)%
|
||||||||||||||||
Total revenues
|
$
|
116,140
|
$
|
84,013
|
38.2
|
%
|
$
|
221,180
|
$
|
165,850
|
33.4
|
%
|
Year
|
First
Quarter
|
Second
Quarter
|
||
2017
|
722
|
738
|
||
2016
|
649
|
646
|
Three months ended June 30,
|
||||||||||||
2017
|
2016
|
% Change
|
||||||||||
Paid customers for the quarter
|
738
|
646
|
14.2
|
%
|
||||||||
Average monthly revenue per paid customer
|
$
|
50.51
|
$
|
42.06
|
20.1
|
%
|
||||||
Mailing and shipping revenue
|
$
|
111,841
|
$
|
81,523
|
37.2
|
%
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Revenues
|
||||||||||||||||
Service
|
$
|
102,685
|
$
|
72,590
|
$
|
195,105
|
$
|
141,696
|
||||||||
Product
|
4,763
|
4,851
|
10,477
|
10,406
|
||||||||||||
Insurance
|
4,393
|
4,082
|
8,833
|
8,593
|
||||||||||||
Customized postage
|
4,276
|
2,467
|
6,718
|
5,104
|
||||||||||||
Other
|
23
|
23
|
47
|
51
|
||||||||||||
Total revenues
|
$
|
116,140
|
$
|
84,013
|
$
|
221,180
|
$
|
165,850
|
||||||||
Revenue as a percentage of total revenues
|
||||||||||||||||
Service
|
88.4
|
%
|
86.4
|
%
|
88.2
|
%
|
85.4
|
%
|
||||||||
Product
|
4.1
|
%
|
5.8
|
%
|
4.8
|
%
|
6.3
|
%
|
||||||||
Insurance
|
3.8
|
%
|
4.9
|
%
|
4.0
|
%
|
5.2
|
%
|
||||||||
Customized postage
|
3.7
|
%
|
2.9
|
%
|
3.0
|
%
|
3.1
|
%
|
||||||||
Other
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||||
Total revenue
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Cost of revenues
|
||||||||||||||||
Service
|
$
|
12,726
|
$
|
8,857
|
$
|
25,402
|
$
|
18,151
|
||||||||
Product
|
1,593
|
1,642
|
3,395
|
3,440
|
||||||||||||
Insurance
|
1,213
|
1,266
|
2,581
|
2,629
|
||||||||||||
Customized postage
|
3,557
|
1,955
|
5,449
|
4,122
|
||||||||||||
Total cost of revenues
|
$
|
19,089
|
$
|
13,720
|
$
|
36,827
|
$
|
28,342
|
||||||||
Cost as percentage of associated revenue
|
||||||||||||||||
Service
|
12.4
|
%
|
12.2
|
%
|
13.0
|
%
|
12.8
|
%
|
||||||||
Product
|
33.4
|
%
|
33.8
|
%
|
32.4
|
%
|
33.1
|
%
|
||||||||
Insurance
|
27.6
|
%
|
31.0
|
%
|
29.2
|
%
|
30.6
|
%
|
||||||||
Customized postage
|
83.2
|
%
|
79.2
|
%
|
81.1
|
%
|
80.8
|
%
|
||||||||
Total cost as a percentage of total revenues
|
16.4
|
%
|
16.3
|
%
|
16.7
|
%
|
17.1
|
%
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2017
|
2016
|
2017
|
2016
|
|||||||||||||
Operating expenses:
|
||||||||||||||||
Sales and marketing
|
$
|
22,280
|
$
|
20,082
|
$
|
45,430
|
$
|
41,479
|
||||||||
Research and development
|
11,628
|
8,131
|
22,150
|
16,468
|
||||||||||||
General and administrative
|
21,451
|
17,113
|
40,433
|
32,375
|
||||||||||||
Total operating expenses
|
$
|
55,359
|
$
|
45,326
|
$
|
108,013
|
$
|
90,322
|
||||||||
Operating expenses as a percent of total revenues:
|
||||||||||||||||
Sales and marketing
|
19.2
|
%
|
23.9
|
%
|
20.5
|
%
|
25.0
|
%
|
||||||||
Research and development
|
10.0
|
%
|
9.7
|
%
|
10.0
|
%
|
9.9
|
%
|
||||||||
General and administrative
|
18.5
|
%
|
20.4
|
%
|
18.3
|
%
|
19.5
|
%
|
||||||||
Total operating expenses as a percentage of total revenues
|
47.7
|
%
|
54.0
|
%
|
48.8
|
%
|
54.5
|
%
|
Twelve Month Period Ending June 30,
|
Operating
Lease Obligations
|
|||
2018
|
$
|
3,931
|
||
2019
|
2,257
|
|||
2020
|
1,386
|
|||
2021
|
1,333
|
|||
2022
|
232
|
|||
Thereafter
|
—
|
|||
Total
|
$
|
9,139
|
Year ending June 30,
|
Amount
|
|||
2018
|
$
|
7,734
|
||
2019
|
9,797
|
|||
2020
|
11,859
|
|||
2021
|
106,334
|
|||
Thereafter
|
—
|
|||
Total debt
|
135,724
|
|||
Less: debt issuance costs
|
1,277
|
|||
Total debt, net of debt issuance costs
|
$
|
134,447
|
Year ending June 30,
|
Amount
|
|||
2018
|
$
|
3,419
|
||
2019
|
3,206
|
|||
2020
|
2,948
|
|||
2021
|
1,270
|
|||
Thereafter
|
—
|
|||
Total
|
$
|
10,843
|
Period
|
Total Number of
Shares Purchased
|
Average Price Paid
per Share
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
Approximate Dollar
Value of Shares That
May Yet be
Purchased Under the
Plans or Programs
(in 000’s)
|
||||||||||||
April 1, 2017 –
April 30, 2017
|
156,566
|
$
|
109.19
|
156,566
|
$
|
5,845
|
||||||||||
May 1, 2017 –
May 31, 2017
|
163,195
|
$
|
116.81
|
163,195
|
$
|
76,335
|
||||||||||
June 1, 2017 –
June 30, 2017
|
54,000
|
$
|
145.44
|
54,000
|
$
|
68,481
|
10.1
|
Consulting Agreement, dated as of July 31, 2017, between James Bortnak and Stamps.com Inc. (1)
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
* |
Furnished, not filed.
|
(1)
|
Incorporated herein by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 2, 2017 (File No. 000-26427).
|
STAMPS.COM INC.
|
|||
(Registrant)
|
|||
August 8, 2017
|
By:
|
/s/ KEN MCBRIDE
|
|
Ken McBride
|
|||
Chairman and Chief Executive Officer
|
August 8, 2017
|
By:
|
/s/ JEFF CARBERRY
|
|
Jeff Carberry
|
|||
Chief Financial Officer
|
Date: August 8, 2017
|
/s/ KEN MCBRIDE
|
|
Ken McBride
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
Date: August 8, 2017
|
/s/ JEFF CARBERRY
|
|
Jeff Carberry
Chief Financial Officer
(Principal Financial Officer)
|
Date: August 8, 2017
|
/s/ KEN MCBRIDE
|
||
Ken McBride
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
Date: August 8, 2017
|
/s/ JEFF CARBERRY
|
||
Jeff Carberry
Chief Financial Officer
(Principal Financial Officer)
|
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 31, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | STAMPS.COM INC | |
Entity Central Index Key | 0001082923 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 16,908,987 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares shares in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Stockholders' equity: | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized (in shares) | 47,500 | 47,500 |
Common stock, shares issued (in shares) | 31,278 | 30,507 |
Common stock, shares outstanding (in shares) | 16,932 | 16,897 |
Treasury stock, shares (in shares) | 14,346 | 13,610 |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Revenues: | ||||
Service | $ 102,685 | $ 72,590 | $ 195,105 | $ 141,696 |
Product | 4,763 | 4,851 | 10,477 | 10,406 |
Insurance | 4,393 | 4,082 | 8,833 | 8,593 |
Customized postage | 4,276 | 2,467 | 6,718 | 5,104 |
Other | 23 | 23 | 47 | 51 |
Total revenues | 116,140 | 84,013 | 221,180 | 165,850 |
Cost of revenues (exclusive of amortization of intangible assets, which is included in general and administrative expense): | ||||
Service | 12,726 | 8,857 | 25,402 | 18,151 |
Product | 1,593 | 1,642 | 3,395 | 3,440 |
Insurance | 1,213 | 1,266 | 2,581 | 2,629 |
Customized postage | 3,557 | 1,955 | 5,449 | 4,122 |
Total cost of revenues | 19,089 | 13,720 | 36,827 | 28,342 |
Gross profit | 97,051 | 70,293 | 184,353 | 137,508 |
Operating expenses: | ||||
Sales and marketing | 22,280 | 20,082 | 45,430 | 41,479 |
Research and development | 11,628 | 8,131 | 22,150 | 16,468 |
General and administrative | 21,451 | 17,113 | 40,433 | 32,375 |
Total operating expenses | 55,359 | 45,326 | 108,013 | 90,322 |
Income from operations | 41,692 | 24,967 | 76,340 | 47,186 |
Interest expense | (932) | (905) | (1,812) | (1,820) |
Interest and other income | 159 | 31 | 189 | 74 |
Income before income taxes | 40,919 | 24,093 | 74,717 | 45,440 |
Income tax expense | 9,879 | 9,802 | 10,539 | 17,911 |
Net income | $ 31,040 | $ 14,291 | $ 64,178 | $ 27,529 |
Net income per share | ||||
Basic (in dollars per share) | $ 1.83 | $ 0.82 | $ 3.79 | $ 1.58 |
Diluted (in dollars per share) | $ 1.71 | $ 0.79 | $ 3.54 | $ 1.49 |
Weighted average shares outstanding | ||||
Basic (in shares) | 16,930 | 17,384 | 16,916 | 17,370 |
Diluted (in shares) | 18,125 | 18,192 | 18,147 | 18,428 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract] | ||||
Net income | $ 31,040 | $ 14,291 | $ 64,178 | $ 27,529 |
Other comprehensive income, net of tax: | ||||
Unrealized (loss) gain on investments | (2) | (8) | (4) | 4 |
Comprehensive income | $ 31,038 | $ 14,283 | $ 64,174 | $ 27,533 |
Summary of Significant Accounting Policies |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2017 | |||
Summary of Significant Accounting Policies [Abstract] | |||
Summary of Significant Accounting Policies |
Basis of Presentation We prepared the consolidated financial statements included herein 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 (U.S.) generally accepted accounting principles (GAAP) 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 consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 1, 2017. In our opinion, these unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly our financial position as of June 30, 2017, our results of operations for the three and six months ended June 30, 2017, and our cash flows for the six months ended June 30, 2017. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. Principles of Consolidation The consolidated financial statements include the accounts of Stamps.com Inc., Auctane LLC (ShipStation), Interapptive, Inc. (ShipWorks), PSI Systems Inc. (Endicia), ShippingEasy Group, Inc. (ShippingEasy) and PhotoStamps Inc. In July 2016, we completed our acquisition of 100% of the outstanding shares of ShippingEasy. Because 100% of the voting control of ShipStation, ShipWorks, Endicia and ShippingEasy is held by us, we have consolidated the results of operations of ShipStation, ShipWorks, Endicia and ShippingEasy from the date we obtained control in the accompanying consolidated financial statements. Similarly, due to our 100% control of PhotoStamps, Inc., PhotoStamps, Inc. is also consolidated in the accompanying consolidated financial statements from the date of its inception. Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Examples include estimates of loss contingencies, realizability of deferred income taxes, the estimates and assumptions used to calculate stock-based compensation, the estimates and assumptions used to calculate the allocation of the purchase price related to our acquisitions, and estimates regarding the useful lives of our building, amortizable intangible assets, and goodwill. Business Combinations The acquisition method of accounting is used for business combinations. The results of operations of acquired businesses are included in our consolidated financial statements prospectively from the date of acquisition. The fair value of purchase consideration is allocated to the assets acquired and liabilities assumed from the acquired entity and is generally based on their fair value at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Historically, the primary items that have generated goodwill include anticipated synergies between the acquired business and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related expenses are recognized in our consolidated financial statements as incurred. Contingencies and Litigation In the ordinary course of business, we are subject to various routine litigation matters as a claimant and a defendant. We record any amounts recovered in these matters when received. We establish loss provisions for claims against us when the loss is both probable and can be reasonably estimated. If either or both of the criteria are not met, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such proceedings, we disclose the estimate of the amount of loss or possible range of loss, or disclose that an estimate of loss cannot be made, as applicable. Deferred Revenue Our deferred revenue relates mainly to service revenue, which generally arises due to the timing of payment versus the provision of services for certain customers billed in advance. Fair Value of Financial Instruments Carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities. The fair values of investments are determined using quoted market prices for those securities or similar financial instruments. The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for debt issuance costs. The Company’s debt is not publicly traded and the carrying amount typically approximates fair value for debt that accrues interest at a variable rate for companies with similar financial characteristics as the Company, which are considered Level 2 inputs. Goodwill Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business combination. We are required to test goodwill for impairment annually and whenever events or circumstances indicate the fair value of a reporting unit may be below its carrying value. Goodwill is reviewed for impairment annually on October 1. A reporting unit is the operating segment or a business that is one level below that operating segment. Reporting units are aggregated as a single reporting unit if they have similar economic characteristics. We aggregated our reporting units into a single reporting unit because we determined they have similar economic characteristics. Goodwill is reviewed for impairment annually on October 1 utilizing either a qualitative assessment or a two-step process. We have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. As of June 30, 2017, we are not aware of any indicators of impairment that would require an impairment analysis other than our annual impairment analysis. Impairment of Long-Lived Assets and Intangible Assets Long-lived assets including intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Intangible assets that have indefinite useful lives are not amortized but, instead, are tested at least annually for impairment while intangible assets that have finite useful lives are amortized over their respective useful lives. Income Taxes We account for income taxes in accordance with Financial Accounting Standards Board (FASB) ASC Topic No. 740, Income Taxes (Income Taxes), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Income Taxes also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation allowance to reduce our gross deferred tax assets to the amount that is more likely than not (a likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with Income Taxes based on all available positive and negative evidence. As of June 30, 2017 and December 31, 2016, we do not have any valuation allowance recorded to reduce our gross deferred tax assets as we believe we have met the more likely than not threshold and we will realize our tax loss carry-forwards in the foreseeable future. Property and Equipment We account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful life of the asset, generally three to five years for furniture, fixtures and equipment and ten to forty years for building and building improvements. Leasehold improvements are capitalized and amortized over the shorter of the useful life of the asset or the remaining term of the lease. We have a policy of capitalizing expenditures that materially increase assets’ useful lives and charging ordinary maintenance and repairs to operations as incurred. When property or equipment is disposed of, the cost and related accumulated depreciation and amortization are removed, and any gain or loss is included in operations. Revenue Recognition We recognize revenue from product sales or services rendered, as well as commissions from advertising or sale of products by third party vendors to our customer base 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. We earn service revenue in several different ways: (1) customers may pay us a monthly fee based on a subscription plan; (2) we may be compensated directly by the United States Postal Service (USPS) for certain qualifying customers under our USPS partnership; (3) we may earn transaction related revenue based on customers purchasing postage or printing shipping labels; (4) we may earn compensation by offering customers a discounted postage rate that is provided to the customers by our integration partners; and (5) we may earn other types of revenue shares or other compensation from specific customers or integration partners. Revenue is recognized in the period that services are provided. Customers purchase postage from the USPS through our mailing and shipping solutions. Postage purchase funds that are transferred directly from the customers to the USPS are not recognized as revenue for this postage, as it is purchased by our customers directly from the USPS. Customized postage revenue, which includes the face value of postage, from the sale of PhotoStamps and PictureItPostage sheets and rolls is made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier and revenue is recognized at that time. On a limited basis, we allow third parties to offer products and promotions to our 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 was not significant during the six months ended June 30, 2017 and June 30, 2016, respectively. We provide our customers with the opportunity to purchase parcel insurance directly through our solutions. Insurance revenue represents the gross amount charged to the customer for purchasing insurance and the related cost represents the amount paid to our insurance providers. We recognize insurance revenue on insurance purchases upon the ship date of the insured package. Short-Term Financing Obligations We utilize short-term financing, which is separate from our debt, to fund certain Company operations. Short-term financing obligations are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. As of June 30, 2017, we had $15.2 million in short-term financing obligations and $90.3 million of unused short-term financing obligations credit. As of December 31, 2016, we had $15.6 million in short-term financing obligations and $90.0 million of unused credit. Trademarks and Intangible Assets Acquired trademarks and intangibles include both amortizable and non-amortizable assets and are included in intangible assets, net in the accompanying consolidated balance sheets. Intangible assets are carried at cost less accumulated amortization. Cost associated with internally developed intangible assets is typically expensed as incurred as research and development costs. Amortization of amortizable intangible assets is calculated on a straight-line basis, which is consistent with the expected future cash flows. Treasury Stock During the six-months ended June 30, 2017 and June 30, 2016, we repurchased approximately 730,000 shares and 335,000 shares for $87.9 million and $30.0 million, respectively. Also, 6,670 shares were withheld to satisfy income tax obligations related to performance-based inducement equity awards issued to the General Manager and Chief Technology Officer of ShippingEasy on March 31, 2017. Accounting Guidance Adopted in 2017 Share-based Payment Transactions to Employees On January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) issued by the FASB on a prospective basis that changes the reporting for certain aspects of share-based payments. One aspect of the guidance requires that the income tax effects of share-based awards be recognized in the income tax provision in the consolidated statement of operations when the awards vest or are settled. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets when the awards vested or were settled. For the six months ended June 30, 2017, the amount of excess tax benefits recognized in the income tax provision was approximately $18.3 million. For the six months ended June 30, 2016, the amount of excess tax benefits recognized in additional paid-in capital was not material. In addition, because excess tax benefits are no longer recognized in additional paid-in capital under the new guidance, such amounts are no longer included in the determination of assumed proceeds in applying the treasury stock method when computing earnings per share. A net cumulative-effect adjustment of $2.1 million, which was an increase to retained earnings and the deferred tax asset balance as of January 1, 2017, was recorded to reflect the recognition of the previously unrecognized excess tax benefits using the modified retrospective method. Another aspect of the new guidance requires that excess tax benefits be classified as a cash flow from operating activities, rather than a cash flow from financing activities, in the consolidated statement of cash flows. For the six months ended June 30, 2017, the amount of excess tax benefits presented as a cash flow from operating activities was $18.3 million; this amount is included within the change of other current assets, net of excess tax benefit from stock-based award activity line item in the consolidated statement of cash flows. For the six months ended June 30, 2016, the amount of excess tax benefits presented as a cash flow from financing was not material. The presentation requirements for cash flows related to excess tax benefits were adopted prospectively. Accordingly, the operating activity cash flows were not adjusted for the year ended December 31, 2016. The new standard also provides an accounting policy election to account for forfeitures as they occur. We elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The impact of this was not material. Another aspect of the new guidance clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on our consolidated statements of cash flows. The presentation requirements for cash flows related to employee taxes paid for withheld shares were adopted retrospectively. The Company did not withhold shares for employee taxes in fiscal 2016; as such, there was no change to the December 31, 2016 consolidated statement of cash flows related to employee taxes. The Company accrued $0.8 million of employee taxes in the first quarter of 2017, which were classified as a financing activity on our consolidated statements of cash flows when paid in the second quarter of 2017. The other aspects of the new guidance did not have any material effect on the Company’s consolidated financial statements. Inventory Measurement Principle In July 2015, the FASB issued ASU 2015-11, a new accounting standard which changed the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value for entities that do not use the last-in, first-out (LIFO) or retail inventory method. The changes also eliminate the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory for entities that do not use the LIFO or retail inventory method. The changes were effective for the Company in the first quarter of 2017 using a prospective transition approach. The adoption of the new guidance did not have a material effect on the Company’s consolidated financial statements. Accounting Guidance Not Yet Adopted Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) an updated standard on revenue recognition. This ASU will supersede the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using U.S. GAAP and International Financial Reporting Standards. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, the companies may be required to use more judgment and make more estimates than under current authoritative guidance. ASU 2014-09 will be effective for the Company in the first quarter of fiscal 2018 and may be applied on a full retrospective or modified retrospective approach. The Company is currently in the process of reviewing its material contracts to assess the impact of the new standard. While the Company has performed a review of the impact on certain contracts, it has not completed a review of all material contracts. As a result, the Company is currently still in the process of evaluating the adoption method and the impact the adoption of this standard will have on its consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016-02, a new accounting standard for leases. The new standard generally requires the recognition of financing and operating lease liabilities and corresponding right-of-use assets on the balance sheet. For financing leases, a lessee recognizes amortization of the right-of-use asset as an operating expense over the lease term separately from interest on the lease liability. For operating leases, a lessee recognizes its total lease expense as an operating expense over the lease term. The amendments are effective for the Company in the first quarter of 2019 using a modified retrospective approach with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. Goodwill Impairment In January 2017, the FASB issued ASU 2017-04, a standard which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will become effective on a prospective basis for the Company on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements. Definition of a Business In January 2017, the FASB issued ASU 2013-12, guidance that changes the definition of a business for accounting purposes. Under the new guidance, an entity first determines whether substantially all of the fair value of a set of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of assets is not deemed to be a business. If this threshold is not met, the entity then evaluates whether the set of assets meets the requirement to be deemed a business, which at minimum, requires there to be an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance will become effective on a prospective basis for the Company on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements. Subsequent Events We are not aware of any material subsequent events or transactions that have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements, except those described in the following paragraph. Effective July 31, 2017, we entered an agreement with our co-president and corporate & business development officer, pursuant to which he will transition out of such position and will be available to provide services to us for the term of the agreement. We expect to record a charge of approximately $6 million in the third quarter of 2017 in connection with the execution of this agreement. |
Acquisitions |
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Acquisitions |
We have accounted for all of our acquisitions under the acquisition method of accounting in accordance with the provisions of FASB ASC Topic No. 805 Business Combinations. ShippingEasy Acquisition On July 1, 2016, we completed our acquisition of ShippingEasy Group, Inc. (ShippingEasy) when our wholly owned subsidiary was merged with and into ShippingEasy, resulting in our 100% ownership of ShippingEasy. The merger agreement provided for us to pay $55.0 million in aggregate merger consideration to the former owners of ShippingEasy, payable in cash. The purchase price was subject to adjustments for changes in ShippingEasy’s net working capital. The net purchase price including adjustments for net working capital totaled approximately $55.4 million and was funded from current cash and investment balances. In connection with the acquisition, we issued performance-based inducement equity awards to each of the General Manager and Chief Technology Officer of ShippingEasy. These inducement awards cover an aggregate of up to 43,567 common shares each if earnings targets for ShippingEasy are achieved over a two and one-half year period beginning July 1, 2016. The two and one-half year period is divided into three phases consisting of the six months ended December 31, 2016 and each of the twelve months ending December 31, 2017 and 2018. The awards are subject to proration if at least 75% of the applicable target is achieved and are subject to forfeiture or acceleration based on changes in employment circumstances over the performance period. We recognize stock-based compensation expense associated with the performance-based inducement equity award ratably over each phase based on the estimated probable achievement of each financial target. The awards were a material inducement to the General Manager and Chief Technology Officer entering into employment agreements with Stamps.com in connection with the acquisition of ShippingEasy. In fiscal 2016, we determined the achievement of 100% of the earnings target for the six months ended December 31, 2016 was probable, therefore, we recognized approximately $1.9 million of stock-based compensation expense, representing 21,783 shares, for these inducement equity awards during the six months ended December 31, 2016. The $1.9 million of stock-based compensation expense recognized represents 100% of the total performance-based inducement equity award for the first phase. The equity award for the first phase was issued in the first quarter of 2017 with 15,113 shares distributed and 6,670 shares withheld to satisfy income tax obligations. In the first and second quarters of 2017, we determined the achievement of 100% of the earnings target for the twelve months ended December 31, 2017 is probable, therefore, we recognized approximately $1.2 million and $2.5 million of stock-based compensation expense for these inducement equity awards during the three and six months ended June 30, 2017, respectively. The $2.5 million of stock-based compensation expense recognized in the six months ended June 30, 2017 represents 50% of the total performance-based inducement equity award for the second phase. We also issued inducement stock option grants for an aggregate of approximately 62,000 shares of Stamps.com common stock to 48 new employees in connection with our acquisition of ShippingEasy. Each option vests 25% on the one year anniversary of the July 1, 2016 grant date with the remaining 75% vesting in approximately equal monthly increments over the immediately succeeding thirty-six months provided that the option holder is still employed by the Company on the vesting dates. The stock options have a ten year term and an exercise price equal to the closing price of Stamps.com common stock on the grant date of July 1, 2016. The stock options were granted as inducements material to the new employees entering into employment with Stamps.com in connection with the acquisition of ShippingEasy. The related stock-based compensation expense we recognized in fiscal 2016 and for the three and six months ended June 30, 2017 was not material. The total net purchase price for the ShippingEasy acquisition was allocated to the assets acquired and the liabilities assumed based on their fair values. The following table is the final allocation of the purchase price (in thousands, except years):
Goodwill represented the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in the business combination and the potential acquisition related synergies. Such synergies include leveraging Stamps.com’s resources, personnel, expertise and capital to grow ShippingEasy’s revenue faster than it otherwise would have as a standalone company. The identified intangible assets consisted of trade names, developed technology, non-compete agreements and customer relationships. The estimated fair values of the trademark and developed technology were determined using the “relief from royalty” method. The estimated fair value of the non-compete agreements was determined using the “with and without” method. The estimated fair value of customer relationships was determined using the “excess earnings” method. The rate utilized to discount net cash flows to their present values was approximately 23% and was determined after consideration of the overall enterprise rate of return and the relative risk and importance of the assets to the generation of future cash flows. Trademark, developed technology, non-compete and customer relationships are each amortized on a straight-line basis over their estimated useful lives. The amortization of acquired intangibles is approximately $761,000 per quarter for the remaining estimated useful lives. The goodwill recorded in this acquisition was not deductible for tax purposes. |
Commitments and Contingencies |
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Commitments and Contingencies |
Legal Proceedings In the ordinary course of business, we are subject to various routine legal proceedings and claims incidental to our business, and we do not believe that these proceedings and claims would reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows. Although management at present believes that the ultimate outcome of the various routine proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. An unfavorable outcome for an amount in excess of management’s present expectations may result in a material adverse impact on our business, results of operations, financial position, and overall trends. Commitments The Company leases facilities pursuant to noncancelable operating lease agreements expiring through fiscal 2021. Rent expense is recognized on a straight-line basis over the lease term. Lease incentives are amortized over the lease term on a straight-line basis. Leasehold improvements are capitalized and amortized over the shorter of the useful life of the asset or the remaining term of the lease. Rent expense for the three and six months ended June 30, 2017 was approximately $900,000 and $1.9 million, respectively. Rent expense for the three and six months ended June 30, 2016 was approximately $800,000 and $1.3 million, respectively. The following table is a schedule of our significant future contractual obligations and commercial commitments (other than debt commitments), which consist of future minimum lease payment under operating leases as of June 30, 2017 (in thousands):
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Net Income per Share |
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Net Income per Share |
The following table reconciles share amounts utilized to calculate basic and diluted net income per share (in thousands, except per share data):
The calculation of dilutive shares excludes the effect of the following options that are considered anti-dilutive (in thousands):
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Stock-Based Compensation |
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Stock-Based Compensation |
We account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and restricted stock units (RSUs), to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award. As described in Note 1 – “Summary of Significant Accounting Policies,” we adopted ASU 2016-09, which among other items, provides an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. We elected to account for forfeitures as they occur and therefore, share-based compensation expense for the three and six months ended June 30, 2017 has been calculated based on actual forfeitures in our consolidated statements of income, rather than our previous approach which was net of estimated forfeitures. The net cumulative effect of this change did not have a material impact on the consolidated financial statements. Share-based compensation expense for the year ended December 31, 2016 was recorded net of estimated forfeitures, which were based on historical forfeitures and adjusted to reflect changes in facts and circumstances, if any. We use the Black-Scholes-Merton option valuation model to estimate the fair value of share-based payment awards on the date of grant, which requires us to use a number of complex estimates and subjective assumptions, including stock price volatility, expected term, risk-free interest rates and projected employee stock option exercise behaviors. In the case of options we grant, our assumption of expected volatility is based on the historical volatility of our stock price over the term equal to the expected life of the options. We base the risk-free interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the options 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. Compensation expense for employee stock options granted is generally recognized using the straight-line method over their respective vesting periods of up to five years. Starting in the third quarter of fiscal 2016, our stock-based compensation expense included performance-based inducement equity awards relating to the ShippingEasy acquisition as described in Note 2 - “Acquisitions.” Stock-based compensation expense related to the ShippingEasy performance-based inducement equity awards is equal to the grant date fair value of the common stock and is recognized over the required performance period. Total compensation expense related to ShippingEasy’s performance-based equity awards during the three and six months ended June 30, 2017 was approximately $1.2 million and $2.5 million, respectively. The following table sets forth the stock-based compensation expense that we recognized for the periods indicated (in thousands):
The following are the weighted average assumptions used in the Black-Scholes valuation model for the periods indicated:
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Goodwill and Intangible Assets |
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Goodwill and Intangible Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets |
Goodwill was approximately $239.7 million as of June 30, 2017 and December 31, 2016, respectively. We have amortizable and non-amortizable intangible assets consisting of trademarks, trade names, developed technology, non-compete agreements, customer relationships and other totaling approximately $125.4 million in gross carrying amount as of both June 30, 2017 and December 31, 2016. Non-amortizable assets of $11.4 million as of both June 30, 2017 and December 31, 2016 consist primarily of the trade name relating to the Endicia acquisition. The following table summarizes our amortizable intangible assets as of June 30, 2017 (in thousands):
The following table summarizes our amortizable intangible assets as of December 31, 2016 (in thousands):
We recorded amortization of intangible assets totaling approximately $4.0 million and $8.0 million for the three and six months ended June 30, 2017, respectively. We recorded amortization of intangible assets totaling approximately $3.2 million and $6.6 million for the three and six months ended June 30, 2016, respectively. Amortization of intangible assets is included in general and administrative expense in the accompanying consolidated statements of income. As of June 30, 2017, the remaining weighted average amortization period for our amortizable intangible assets is approximately 5.1 years. Our estimated amortization expense for the next five years and thereafter is as follows (in thousands):
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Income Taxes |
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Income Taxes [Abstract] | |||
Income Taxes |
Our income tax expense was $9.9 million and $10.5 million for the three and six months ended June 30, 2017, respectively, which is primarily attributable to our pre-tax book income multiplied by an estimated annual effective tax rate and discrete tax benefits relating to exercises of options. Our income tax expense was $9.8 million and $17.9 million for the three and six months ended June 30, 2016, respectively, which is primarily attributable to our pre-tax income including our current tax expense consisting of federal alternative minimum tax and various state taxes and our deferred income tax expense consisting of temporary tax items including stock compensation and differences in the book and tax lives of amortizable intangibles. As described in Note 1- “Summary of Significant Accounting Policies” we adopted the new accounting guidance that changes the reporting for certain aspects of share-based payments. One aspect of the guidance requires that the income tax effects of share-based awards be recognized in the income tax provision in the consolidated statements of income when the awards vest or are settled. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets when the awards vested or were settled. For the three and six months ended June 30, 2017, the amount of excess tax benefits recognized in the income tax provision was approximately $5.7 million and $18.3 million, respectively. For the three and six months ended June 30, 2016, respectively, the amount of excess tax benefits recognized in additional paid-in capital was not material. Our effective income tax rate differs from the statutory income tax rate primarily as a result of permanent tax adjustments for tax benefits from stock options exercised and research and development tax credits, as well as permanent tax adjustments for nondeductible items, such as stock-based compensation and state taxes. We evaluated the appropriateness of our deferred tax assets and related valuation allowance in accordance with Income Taxes based on all available positive and negative evidence. As of June 30, 2017 and December 31, 2016, we do not have any valuation allowance against our deferred tax assets. |
Fair Value Measurements |
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Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
Financial assets measured at fair value on a recurring basis are classified in one of the three following categories, which are described below: 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 tables summarize our financial assets measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, respectively (in thousands):
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. |
Cash, Cash Equivalents and Investments |
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Cash, Cash Equivalents and Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash, Cash Equivalents and Investments |
Our cash equivalents and investments consist of money market, asset-backed securities and public corporate debt securities at June 30, 2017 and December 31, 2016. We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. All of our short-term investments are classified as available for sale and are recorded at fair value using the specific identification method. Realized gains and losses are reflected in other income, net using the specific identification method. There was no material unrealized or realized gain or loss with respect to our short-term investments during the six months ended June 30, 2017. Unrealized gains and losses are included as a separate component of stockholders' equity. We do not intend to sell investments with an amortized cost basis exceeding fair value and it is not likely that we will be required to sell the investments before recovery of their amortized cost bases. The following tables summarize our cash and cash equivalents and investments as of June 30, 2017 and December 31, 2016 (in thousands):
As of June 30, 2017, the amortized cost and estimated fair value of our marketable fixed-income securities due within one year and due after one year was immaterial. |
Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation We prepared the consolidated financial statements included herein 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 (U.S.) generally accepted accounting principles (GAAP) 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 consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 1, 2017. In our opinion, these unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly our financial position as of June 30, 2017, our results of operations for the three and six months ended June 30, 2017, and our cash flows for the six months ended June 30, 2017. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Stamps.com Inc., Auctane LLC (ShipStation), Interapptive, Inc. (ShipWorks), PSI Systems Inc. (Endicia), ShippingEasy Group, Inc. (ShippingEasy) and PhotoStamps Inc. In July 2016, we completed our acquisition of 100% of the outstanding shares of ShippingEasy. Because 100% of the voting control of ShipStation, ShipWorks, Endicia and ShippingEasy is held by us, we have consolidated the results of operations of ShipStation, ShipWorks, Endicia and ShippingEasy from the date we obtained control in the accompanying consolidated financial statements. Similarly, due to our 100% control of PhotoStamps, Inc., PhotoStamps, Inc. is also consolidated in the accompanying consolidated financial statements from the date of its inception. Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Examples include estimates of loss contingencies, realizability of deferred income taxes, the estimates and assumptions used to calculate stock-based compensation, the estimates and assumptions used to calculate the allocation of the purchase price related to our acquisitions, and estimates regarding the useful lives of our building, amortizable intangible assets, and goodwill. |
Business Combinations | Business Combinations The acquisition method of accounting is used for business combinations. The results of operations of acquired businesses are included in our consolidated financial statements prospectively from the date of acquisition. The fair value of purchase consideration is allocated to the assets acquired and liabilities assumed from the acquired entity and is generally based on their fair value at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Historically, the primary items that have generated goodwill include anticipated synergies between the acquired business and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related expenses are recognized in our consolidated financial statements as incurred. |
Contingencies and Litigation | Contingencies and Litigation In the ordinary course of business, we are subject to various routine litigation matters as a claimant and a defendant. We record any amounts recovered in these matters when received. We establish loss provisions for claims against us when the loss is both probable and can be reasonably estimated. If either or both of the criteria are not met, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such proceedings, we disclose the estimate of the amount of loss or possible range of loss, or disclose that an estimate of loss cannot be made, as applicable. |
Deferred Revenue | Deferred Revenue Our deferred revenue relates mainly to service revenue, which generally arises due to the timing of payment versus the provision of services for certain customers billed in advance. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities. The fair values of investments are determined using quoted market prices for those securities or similar financial instruments. The Company’s outstanding debt held by third-party financial institutions is carried at cost, adjusted for debt issuance costs. The Company’s debt is not publicly traded and the carrying amount typically approximates fair value for debt that accrues interest at a variable rate for companies with similar financial characteristics as the Company, which are considered Level 2 inputs. |
Goodwill | Goodwill Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business combination. We are required to test goodwill for impairment annually and whenever events or circumstances indicate the fair value of a reporting unit may be below its carrying value. Goodwill is reviewed for impairment annually on October 1. A reporting unit is the operating segment or a business that is one level below that operating segment. Reporting units are aggregated as a single reporting unit if they have similar economic characteristics. We aggregated our reporting units into a single reporting unit because we determined they have similar economic characteristics. Goodwill is reviewed for impairment annually on October 1 utilizing either a qualitative assessment or a two-step process. We have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. As of June 30, 2017, we are not aware of any indicators of impairment that would require an impairment analysis other than our annual impairment analysis. |
Impairment of Long-Lived Assets and Intangible Assets | Impairment of Long-Lived Assets and Intangible Assets Long-lived assets including intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Intangible assets that have indefinite useful lives are not amortized but, instead, are tested at least annually for impairment while intangible assets that have finite useful lives are amortized over their respective useful lives. |
Income Taxes | Income Taxes We account for income taxes in accordance with Financial Accounting Standards Board (FASB) ASC Topic No. 740, Income Taxes (Income Taxes), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Income Taxes also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation allowance to reduce our gross deferred tax assets to the amount that is more likely than not (a likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with Income Taxes based on all available positive and negative evidence. As of June 30, 2017 and December 31, 2016, we do not have any valuation allowance recorded to reduce our gross deferred tax assets as we believe we have met the more likely than not threshold and we will realize our tax loss carry-forwards in the foreseeable future. |
Property and Equipment | Property and Equipment We account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful life of the asset, generally three to five years for furniture, fixtures and equipment and ten to forty years for building and building improvements. Leasehold improvements are capitalized and amortized over the shorter of the useful life of the asset or the remaining term of the lease. We have a policy of capitalizing expenditures that materially increase assets’ useful lives and charging ordinary maintenance and repairs to operations as incurred. When property or equipment is disposed of, the cost and related accumulated depreciation and amortization are removed, and any gain or loss is included in operations. |
Revenue Recognition | Revenue Recognition We recognize revenue from product sales or services rendered, as well as commissions from advertising or sale of products by third party vendors to our customer base 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. We earn service revenue in several different ways: (1) customers may pay us a monthly fee based on a subscription plan; (2) we may be compensated directly by the United States Postal Service (USPS) for certain qualifying customers under our USPS partnership; (3) we may earn transaction related revenue based on customers purchasing postage or printing shipping labels; (4) we may earn compensation by offering customers a discounted postage rate that is provided to the customers by our integration partners; and (5) we may earn other types of revenue shares or other compensation from specific customers or integration partners. Revenue is recognized in the period that services are provided. Customers purchase postage from the USPS through our mailing and shipping solutions. Postage purchase funds that are transferred directly from the customers to the USPS are not recognized as revenue for this postage, as it is purchased by our customers directly from the USPS. Customized postage revenue, which includes the face value of postage, from the sale of PhotoStamps and PictureItPostage sheets and rolls is made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier and revenue is recognized at that time. On a limited basis, we allow third parties to offer products and promotions to our 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 was not significant during the six months ended June 30, 2017 and June 30, 2016, respectively. We provide our customers with the opportunity to purchase parcel insurance directly through our solutions. Insurance revenue represents the gross amount charged to the customer for purchasing insurance and the related cost represents the amount paid to our insurance providers. We recognize insurance revenue on insurance purchases upon the ship date of the insured package. |
Short-Term Financing Obligations | Short-Term Financing Obligations We utilize short-term financing, which is separate from our debt, to fund certain Company operations. Short-term financing obligations are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. As of June 30, 2017, we had $15.2 million in short-term financing obligations and $90.3 million of unused short-term financing obligations credit. As of December 31, 2016, we had $15.6 million in short-term financing obligations and $90.0 million of unused credit. |
Trademarks and Intangible Assets | Trademarks and Intangible Assets Acquired trademarks and intangibles include both amortizable and non-amortizable assets and are included in intangible assets, net in the accompanying consolidated balance sheets. Intangible assets are carried at cost less accumulated amortization. Cost associated with internally developed intangible assets is typically expensed as incurred as research and development costs. Amortization of amortizable intangible assets is calculated on a straight-line basis, which is consistent with the expected future cash flows. |
Treasury Stock | Treasury Stock During the six-months ended June 30, 2017 and June 30, 2016, we repurchased approximately 730,000 shares and 335,000 shares for $87.9 million and $30.0 million, respectively. Also, 6,670 shares were withheld to satisfy income tax obligations related to performance-based inducement equity awards issued to the General Manager and Chief Technology Officer of ShippingEasy on March 31, 2017. |
Accounting Guidance Adopted in 2017 | Accounting Guidance Adopted in 2017 Share-based Payment Transactions to Employees On January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) issued by the FASB on a prospective basis that changes the reporting for certain aspects of share-based payments. One aspect of the guidance requires that the income tax effects of share-based awards be recognized in the income tax provision in the consolidated statement of operations when the awards vest or are settled. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets when the awards vested or were settled. For the six months ended June 30, 2017, the amount of excess tax benefits recognized in the income tax provision was approximately $18.3 million. For the six months ended June 30, 2016, the amount of excess tax benefits recognized in additional paid-in capital was not material. In addition, because excess tax benefits are no longer recognized in additional paid-in capital under the new guidance, such amounts are no longer included in the determination of assumed proceeds in applying the treasury stock method when computing earnings per share. A net cumulative-effect adjustment of $2.1 million, which was an increase to retained earnings and the deferred tax asset balance as of January 1, 2017, was recorded to reflect the recognition of the previously unrecognized excess tax benefits using the modified retrospective method. Another aspect of the new guidance requires that excess tax benefits be classified as a cash flow from operating activities, rather than a cash flow from financing activities, in the consolidated statement of cash flows. For the six months ended June 30, 2017, the amount of excess tax benefits presented as a cash flow from operating activities was $18.3 million; this amount is included within the change of other current assets, net of excess tax benefit from stock-based award activity line item in the consolidated statement of cash flows. For the six months ended June 30, 2016, the amount of excess tax benefits presented as a cash flow from financing was not material. The presentation requirements for cash flows related to excess tax benefits were adopted prospectively. Accordingly, the operating activity cash flows were not adjusted for the year ended December 31, 2016. The new standard also provides an accounting policy election to account for forfeitures as they occur. We elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The impact of this was not material. Another aspect of the new guidance clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on our consolidated statements of cash flows. The presentation requirements for cash flows related to employee taxes paid for withheld shares were adopted retrospectively. The Company did not withhold shares for employee taxes in fiscal 2016; as such, there was no change to the December 31, 2016 consolidated statement of cash flows related to employee taxes. The Company accrued $0.8 million of employee taxes in the first quarter of 2017, which were classified as a financing activity on our consolidated statements of cash flows when paid in the second quarter of 2017. The other aspects of the new guidance did not have any material effect on the Company’s consolidated financial statements. Inventory Measurement Principle In July 2015, the FASB issued ASU 2015-11, a new accounting standard which changed the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value for entities that do not use the last-in, first-out (LIFO) or retail inventory method. The changes also eliminate the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory for entities that do not use the LIFO or retail inventory method. The changes were effective for the Company in the first quarter of 2017 using a prospective transition approach. The adoption of the new guidance did not have a material effect on the Company’s consolidated financial statements. |
Accounting Guidance Not Yet Adopted | Accounting Guidance Not Yet Adopted Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) an updated standard on revenue recognition. This ASU will supersede the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using U.S. GAAP and International Financial Reporting Standards. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, the companies may be required to use more judgment and make more estimates than under current authoritative guidance. ASU 2014-09 will be effective for the Company in the first quarter of fiscal 2018 and may be applied on a full retrospective or modified retrospective approach. The Company is currently in the process of reviewing its material contracts to assess the impact of the new standard. While the Company has performed a review of the impact on certain contracts, it has not completed a review of all material contracts. As a result, the Company is currently still in the process of evaluating the adoption method and the impact the adoption of this standard will have on its consolidated financial statements. Leases In February 2016, the FASB issued ASU 2016-02, a new accounting standard for leases. The new standard generally requires the recognition of financing and operating lease liabilities and corresponding right-of-use assets on the balance sheet. For financing leases, a lessee recognizes amortization of the right-of-use asset as an operating expense over the lease term separately from interest on the lease liability. For operating leases, a lessee recognizes its total lease expense as an operating expense over the lease term. The amendments are effective for the Company in the first quarter of 2019 using a modified retrospective approach with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. Goodwill Impairment In January 2017, the FASB issued ASU 2017-04, a standard which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will become effective on a prospective basis for the Company on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements. Definition of a Business In January 2017, the FASB issued ASU 2013-12, guidance that changes the definition of a business for accounting purposes. Under the new guidance, an entity first determines whether substantially all of the fair value of a set of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of assets is not deemed to be a business. If this threshold is not met, the entity then evaluates whether the set of assets meets the requirement to be deemed a business, which at minimum, requires there to be an input and a substantive process that together significantly contribute to the ability to create outputs. The guidance will become effective on a prospective basis for the Company on January 1, 2020 and is not expected to have a material impact on the Company’s consolidated financial statements. |
Subsequent Events | Subsequent Events We are not aware of any material subsequent events or transactions that have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements, except those described in the following paragraph. Effective July 31, 2017, we entered an agreement with our co-president and corporate & business development officer, pursuant to which he will transition out of such position and will be available to provide services to us for the term of the agreement. We expect to record a charge of approximately $6 million in the third quarter of 2017 in connection with the execution of this agreement. |
Acquisitions (Tables) |
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ShippingEasy [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Allocation of the Purchase Price | The total net purchase price for the ShippingEasy acquisition was allocated to the assets acquired and the liabilities assumed based on their fair values. The following table is the final allocation of the purchase price (in thousands, except years):
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Commitments and Contingencies (Tables) |
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Future Minimum Lease Payment under Operating Leases | The following table is a schedule of our significant future contractual obligations and commercial commitments (other than debt commitments), which consist of future minimum lease payment under operating leases as of June 30, 2017 (in thousands):
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Net Income per Share (Tables) |
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Calculation of Basic and Diluted Net Income Per Share | The following table reconciles share amounts utilized to calculate basic and diluted net income per share (in thousands, except per share data):
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Anti-dilutive Securities Excluded from Computation of Earnings Per Share | The calculation of dilutive shares excludes the effect of the following options that are considered anti-dilutive (in thousands):
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Stock-Based Compensation (Tables) |
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Stock-Based Compensation Expense | The following table sets forth the stock-based compensation expense that we recognized for the periods indicated (in thousands):
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Weighted Average Assumptions Used in Black-Scholes Valuation Model | The following are the weighted average assumptions used in the Black-Scholes valuation model for the periods indicated:
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Goodwill and Intangible Assets (Tables) |
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Schedule of Acquired Intangible Assets | The following table summarizes our amortizable intangible assets as of June 30, 2017 (in thousands):
The following table summarizes our amortizable intangible assets as of December 31, 2016 (in thousands):
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Schedule of Future Amortization Expense | Our estimated amortization expense for the next five years and thereafter is as follows (in thousands):
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Fair Value Measurements (Tables) |
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Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets Measured at Fair Value on a Recurring Basis | The following tables summarize our financial assets measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, respectively (in thousands):
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Cash, Cash Equivalents and Investments (Tables) |
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Summary of Cash and Cash Equivalents and Investments | The following tables summarize our cash and cash equivalents and investments as of June 30, 2017 and December 31, 2016 (in thousands):
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Summary of Significant Accounting Policies, Principles of Consolidation (Details) |
Jun. 30, 2017 |
Jul. 02, 2016 |
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ShippingEasy [Member] | ||
Principles of Consolidation [Abstract] | ||
Percentage of outstanding equity purchased | 100.00% | |
ShipStation [Member] | ||
Principles of Consolidation [Abstract] | ||
Percentage of voting control | 100.00% | |
PhotoStamps Inc [Member] | ||
Principles of Consolidation [Abstract] | ||
Percentage of voting control | 100.00% |
Summary of Significant Accounting Policies, Property, Plant and Equipment (Details) |
6 Months Ended |
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Jun. 30, 2017 | |
Furniture, Fixtures and Equipment [Member] | Minimum [Member] | |
Property and Equipment [Abstract] | |
Estimated useful life | 3 years |
Furniture, Fixtures and Equipment [Member] | Maximum [Member] | |
Property and Equipment [Abstract] | |
Estimated useful life | 5 years |
Building and Building Improvements [Member] | Minimum [Member] | |
Property and Equipment [Abstract] | |
Estimated useful life | 10 years |
Building and Building Improvements [Member] | Maximum [Member] | |
Property and Equipment [Abstract] | |
Estimated useful life | 40 years |
Commitments and Contingencies (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
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Commitments and Contingencies [Abstract] | ||||
Rent expense | $ 900 | $ 800 | $ 1,900 | $ 1,300 |
Future Minimum Lease Payment Under Operating Leases [Abstract] | ||||
2018 | 3,931 | 3,931 | ||
2019 | 2,257 | 2,257 | ||
2020 | 1,386 | 1,386 | ||
2021 | 1,333 | 1,333 | ||
2022 | 232 | 232 | ||
Thereafter | 0 | 0 | ||
Total | $ 9,139 | $ 9,139 |
Net Income per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
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Computation of Basic and Diluted Net Income per Share [Abstract] | ||||
Net income | $ 31,040 | $ 14,291 | $ 64,178 | $ 27,529 |
Basic - weighted average common shares (in shares) | 16,930 | 17,384 | 16,916 | 17,370 |
Diluted effect of common stock equivalents (in shares) | 1,195 | 808 | 1,231 | 1,058 |
Diluted - weighted average common shares (in shares) | 18,125 | 18,192 | 18,147 | 18,428 |
Earnings per share [Abstract] | ||||
Basic (in dollars per share) | $ 1.83 | $ 0.82 | $ 3.79 | $ 1.58 |
Diluted (in dollars per share) | $ 1.71 | $ 0.79 | $ 3.54 | $ 1.49 |
Stock Options [Member] | ||||
Anti-dilutive Shares Excluded from Computation of Diluted Shares [Abstract] | ||||
Anti-dilutive stock option shares (in shares) | 42 | 287 | 42 | 147 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
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Income Taxes [Abstract] | |||||
Income tax expense | $ 9,879 | $ 9,802 | $ 10,539 | $ 17,911 | |
Excess tax benefits recognized in income tax provision | 5,700 | 18,300 | |||
Valuation allowance | $ 0 | $ 0 | $ 0 |
Fair Value Measurements (Details) - Recurring [Member] - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Financial assets measured at fair value on a recurring basis [Abstract] | ||
Cash and cash equivalents | $ 110,343 | $ 106,932 |
Available-for-sale debt securities | 0 | 1,511 |
Total | 110,343 | 108,443 |
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | ||
Financial assets measured at fair value on a recurring basis [Abstract] | ||
Cash and cash equivalents | 110,343 | 106,932 |
Available-for-sale debt securities | 0 | 0 |
Total | 110,343 | 106,932 |
Significant Other Observable Inputs (Level 2) [Member] | ||
Financial assets measured at fair value on a recurring basis [Abstract] | ||
Cash and cash equivalents | 0 | 0 |
Available-for-sale debt securities | 0 | 1,511 |
Total | 0 | 1,511 |
Significant Unobservable Inputs (Level 3) [Member] | ||
Financial assets measured at fair value on a recurring basis [Abstract] | ||
Cash and cash equivalents | 0 | 0 |
Available-for-sale debt securities | 0 | 0 |
Total | $ 0 | $ 0 |
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