Stamps.com 2008 Annual Report Download - page 23

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TABLE OF CONTENTS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
the “Selected Financial Data” and our financial statements and the related notes thereto. This discussion contains forward-
looking statements that involve risks and uncertainties that could cause actual results to differ materially from historical results
or anticipated results including those set forth in the “Risk Factors” section of this report.
Overview
Stamps.com® is the leading provider of Internet-based postage solutions. Customers use our service to mail and ship a
variety of mail pieces, including postcards, envelopes, flats and packages, using a wide range of USPS mail classes including
First Class Mail®, Priority Mail®, Express Mail®, Media Mail®, Parcel Post®, and others. Our customers include home
businesses, small businesses, corporations and individuals. We were the first ever USPS-licensed vendor to offer PC Postage®
in a software-only business model in 1999. During 2004, we publicly launched a market test of PhotoStamps®, a new form of
postage that allows consumers to turn digital photos, designs or images into valid US postage. Any reference in this document to
the PC Postage business excludes our PhotoStamps business.
Section 382 Update
We currently have federal and state net operating loss (“NOL”) carry-forwards of approximately $240 million and $150
million, respectively, with potential value of up to $95 million in tax savings over the next 15 years. Under Internal Revenue
Code Section 382 rules, if a “change of ownership” is triggered, our NOL asset may be impaired. A change in ownership can
occur whenever there is a shift in ownership by more than 50 percentage points by one or more “5% shareholders” within a
three-year period. We estimate that as of December 31, 2008 we were at approximately a 34% level compared with the 50%
level that would trigger impairment of our NOL asset.
During the second quarter of 2008, we received shareholder approval to amend our articles of incorporation in order to
protect our NOL asset (the “NOL Protective Measures”) and those measures are now in effect. Under the NOL Protective
Measures there is no change to the way that existing Stamps.com shares are held or traded, but any person, company or
investment firm which wishes to become a “5% shareholder” of Stamps.com must first obtain a waiver from our board of
directors. In addition, any person, company or investment firm which is already a “5% shareholder” of Stamps.com cannot make
any additional purchases of Stamps.com stock without a waiver from our board of directors.
As of February 27, 2009, we had 16,653,144 shares outstanding, and therefore ownership of approximately 833,000 shares or
more would currently constitute a “5% shareholder”. We strongly urge that any stockholder contemplating owning more
than 675,000 shares contact us before doing so.
Results of Operations
Years Ended December 31, 2008 and 2007
Total revenue in 2008 was $84.9 million, a decrease of 1% from $85.8 million in 2007. PC Postage subscriber related
revenue, including service revenue, product revenue and insurance revenue, in 2008 was $73.0 million, an increase of 9%
compared to $67.0 million in 2007. PhotoStamps revenue in 2008 was $11.9 million, a decrease of 34% compared to $17.9
million in 2007.
The PC Postage marketing channels we use to acquire customers include partnerships, online advertising, affiliate channel,
direct mail, traditional media advertising, enhanced promotion online channel and others. We look at our enhanced promotion
channel separately from our non-enhanced promotion channels. In the enhanced promotion channel, we work with various
companies to advertise our service in a variety of sites on the Internet. These companies typically offer an additional promotion
directly to the customer in order to get the customer to try our service. Although our enhanced promotion channel is
characterized by lower customer acquisition costs than our other channels, its customer attrition rates are higher. In recent
periods, we have decided to decrease our marketing investment in that channel and increase investments in our other non-
enhanced promotion marketing channels.
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