Stamps.com 2004 Annual Report Download - page 22

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We ended the fiscal year 2004 with approximately 358,000 registered customers, up from approximately
294,000 at the end of the fiscal 2003 and up from approximately 285,000 customers at the end of the fiscal year
2002. Each of our registered customers has a Stamps.com postal meter license which is issued by the USPS. The
increase in customers during the year was primarily due to a continued increase in customer acquisition through our
marketing efforts. During the first, second, third and fourth quarters of 2004, we successfully billed approximately
249,000, 258,000, 264,000 and 286,000, respectively, unique registered customers for their monthly convenience
fees, up from approximately 210,000, 208,000, 216,000 and 235,000 during the first, second, third and fourth
quarters of 2003, respectively.
Critical Accounting Policies
General. The discussion and analysis of our financial condition and results of operations are based on the
Company’ s financial statements which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to patents,
restructuring, contingencies and litigation. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates
used in the preparation of our financial statements.
Revenue Recognition. We recognize revenue from product sales or services rendered when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured.
Service revenue is based on monthly convenience fees. Service revenue is recognized in the period that
services are provided. Product sales, net of return allowances, are recorded when the products are shipped and title
passes to customers. Retail items, including PhotoStamps™, sold to customers are made pursuant to a sales contract
that provides for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which
reduce product revenue by our best estimate of expected product returns, are estimated using historical experience.
Licensing revenue is recognized ratably over the contract period. Commissions from the advertising or sale of
products by a third party vendor to our customer base are recognized when the revenue is earned and collection is
deemed probable.
Customers who purchase postage for use through our NetStamps™, shipping label or traditional postage
features, pay face value, and the funds are transferred directly from the customers to the US Postal Service. As this
postage is purchased directly from the US Postal Service, no revenue is recognized.
PhotoStamps™ revenue recorded during our market test included the price of postage and was made
pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier.
On a limited basis, we allow third parties to offer products and promotions to the Stamps.com customer
base. These arrangements generally provide payment in the form of a flat fee or revenue sharing arrangements
where we receive payment upon customers accessing third party products and services. Total revenue from such
advertising arrangements is currently immaterial.
We provide our customers the opportunity to purchase parcel insurance directly through the Stamps.com
software. The insurance information is communicated directly to Parcel Insurance Plan for processing and the
insurance is underwritten by Fireman’ s Fund. We recognize revenue from the insurance offerings based on the
shipment date of the item insured.
Licensing revenue for the use of our software and intellectual property are recognized when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured.