Stamps.com (STMP) Q2 2018 Earnings Conference Call Transcript

Stamps.com (STMP)
Q2 2018 Earnings Conference Call
Aug. 1, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Stamps.com Inc., second-quarter 2018 financial results call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions]. As a reminder, this call may be recorded. I would now like to turn the call over to Lynn Um, director of finance. Ma'am, you may begin.

Lynn Um -- Director of Finance

Thank you, Victor. On the call today is Ken McBride, CEO; Kyle Huebner, president; and Jeff Carberry, CFO.

The agenda for today's call is as follows. We will review the results of our second quarter 2018. We'll discuss our acquisition of MetaPack and how it fits into our long-term strategy. We'll provide an update on elements of our business model and partnership.

We'll discuss our financial results and talk about our business outlook. And finally, we'll provide some comments on our long-term outlook but first, the safe harbor statement.

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This release includes forward-looking statements about our anticipated financial metrics and results, all of which involve risks and uncertainties. Important factors, including the company's ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments, including the company's ability to and ship its products, maintain desirable economics for its products, the timing of when the company will utilize its deferred-tax assets and obtain or maintain regulatory approval, which could cause actual results to differ materially from those in the forward-looking statements, are detailed in filings with the Securities and Exchange Commission made from time-to-time by Stamps.com, including its annual report on Form 10-K for the fiscal year ended December 31, 2017, quarterly reports on Form 10-Q and current reports on Form 8-K.

Stamps.com undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The financial results we will discuss on the call today include non-GAAP financial measures. In the first quarter of 2018, GAAP net income was $45.5 million and GAAP net income per fully diluted share was $2.41.

Our non-GAAP financial measures exclude the following second-quarter items: $9.9 million of non-cash stock-based compensation expense, $4.1 million of non-cash amortization expense of acquired intangibles and debt-issuance costs, and $1.6 million of transaction expenses related to the MetaPack acquisition and litigation-settlement expense. Our non-GAAP financial measures also include $9.5 million of additional non-GAAP income tax expense in the second quarter. Additionally, the mailing and shipping numbers we will discuss today include service revenue, product revenue, and insurance revenue and do not include any revenue from customized postage.

Please see our second-quarter 2018 earnings release and 2018 metrics posted on our investor website for reconciliations of our non-GAAP financial measures to the corresponding GAAP measures.

Now, let me hand the call over to Ken.

Ken McBride -- Chief Executive Officer

Thank you, Lynn. Thank you for joining us today. Today we announced our second-quarter financial results, which included GAAP revenue of $139.6 million -- that was up 20% year over year; non-GAAP adjusted income per fully diluted share of $2.75 -- that was up 32% year over year; and non-GAAP adjusted EBITDA of $63.6 million, which was up 10% year over year. We are very pleased with our second-quarter financial performance.

On July 25, we entered into a definitive agreement to acquire MetaPack Limited for an aggregate purchase price of GBP 175 million in cash, which is approximately $230 million. We will fund the transaction entirely from the current cash balances. MetaPack is the London-based e-commerce software company that was founded in 1999 and employees approximately 350 employees in seven countries around the world.

MetaPack provides the world's leading multicarrier enterprise-level e-commerce shipping solution with powerful features and functionality. Their core software is an application programming interface or API that supports over 450 parcel carriers that operate in more than 200 countries around the world.

MetaPack's customers integrate their internal software to the single MetaPack API once. And then the customers are able to utilize any of the over 450 carriers in their operations. MetaPack's API is highly available, secure, and reliable and they processed more than 550 million packages last year. In addition to their core multicarrier API, they offer a significant number of very sophisticated software capabilities, such as the carrier optimization engine that helps customers select the best carrier option based on cost service or operational optimization.

Tracking trade system that provides unified and standardized tracking of a parcels journey, a return system which integrates with the retailers' website to enable the retailers and customers to manage their returns via an online interface, a delivery analysis engine which provides reporting and analytics to track an individual carrier performance, a cross-border shipping solution which manages international shipping, customs declaration and duty payments, and a dynamic delivery solution which offers packaged delivery options based on package factors, such as size, weight, stock availability, location, and customer preference right at the point of purchase in the shopping cart.

MetaPack has over 500 customers, including many of the world's leading e-commerce, retailers and brands, such as Adidas, ASICS, Fossil, John Lewis, L'Occitane, Marks & Spencer, Speedo, Ted Baker London, The North Face, Timberland, Urban Outfitters, WH Smith, Zulily and many, many more. Their business model is software-as-a-service, SaaS, and the majority of that revenue is recurring revenue where they charge a subscription fee and a volume-based transaction fee for use of their software.

The strategic rationale for this acquisition is multifold. First, we expected to accelerate our efforts to expand our business internationally. MetaPack provides access to the world's largest carrier library, with support for over 450 parcel carriers. Our current solutions support only about 40 total carriers.

So we will immediately see a tenfold increase in the number of carriers we can support in our products.

Unlike the U.S., international markets and especially European markets require a much broader carrier footprint in order to provide a competitive service offering and it's challenging to quickly negotiate with and integrate to a large number of carriers necessary to be considered a complete solution in those markets. We expect MetaPack will provide a significant acceleration and time to market for our current e-commerce solutions given MetaPack's large carrier library and their international expertise.

Second, we expect we'll be able to accelerate MetaPack's efforts to expand in the U.S. MetaPack currently has limited penetration in the U.S. As you know, we have a large national sales force and network that will provide MetaPack with a turnkey sales solution with which to pursue the U.S. market.

We also have significant expertise in marketing in the U.S.

Third, we believe our businesses are very complementary with little overlap. Stamps.com has traditionally focused on smaller businesses, while MetaPack has focused on very large retailers and enterprises. MetaPack also had significant business in Europe, complementing Stamps.com's strong position in the U.S.

Fourth, MetaPack's preeminent customer list will allow us to strengthen our position with parcel carriers. The types of customers that MetaPack serves are very desirable for the parcel carriers. When negotiating with carriers for product or financial support, the MetaPack customer list will be a very valuable asset.

And finally, we believe it could be an opportunity to further strengthen our value proposition with the U.S. Postal Service. The USPS has historically under-penetrated in large and branded retail customers, where MetaPack is concentrated. We believe that MetaPack will have an opportunity to help the USPS to gain share in this important customer segment.

We anticipate the transaction will close in August of this year. However, we have not formally incorporated MetaPack into our guidance. As the timing for closing is not certain and we have extensive post-signing work around U.K. to U.S.

GAAP conversion and consolidated tax projections. That said, Jeff and I will provide some of our perspectives on how we would encourage investors to consider the potential financial impact of MetaPack.

With that, now let me turn to a more detailed discussion of our mailing and shipping business. Mailing and shipping revenue was $134.4 million in the second quarter. That was up 20% year over year.

Growth was driven by growth in ARPU or average revenue per paid customer, which exceeded $60 for the first time in the company's history. Our total paid customer metric was $737,000. Paid customers were flat versus the second quarter of 2017, and the more modest growth of paid customers in recent quarters is consistent with our strategic shift to focusing on the acquisition of shippers, which are numerically fewer in number but where each customer has a much higher lifetime value.

With this shift in focus, our revenue has been more driven by growth in ARPU, than has been driven by growth in paid customers. Our average monthly churn rate during the second quarter was 3.2%, which is in line with the churn rates we've seen over the past several quarters.

Average monthly revenue per paid customer or ARPU was $60.79 in the second quarter that was up 20% versus the second quarter of 2017. The growth in ARPU benefited from continued growth in the shipping focused areas of our business.

Shipping customers generally pay higher subscription fees than small business mailers. We're typically also collecting additional partner revenue share payments in commissions tied to the dollar volume of packages that we process on behalf of our shippers.

Second-quarter postage printed was $1.6 billion. That was up 6% versus the second quarter of 2017. Total postage printed metric includes both higher growth shipping volume and traditional non-packaged mail volume, which continues to see a steady decline. Our management team and all our employees are very proud of the continued financial and business success, we generate for our shareholders.

With that, let me now update everyone on some of the initiatives we're continuing to focus on in 2018. First, we plan to continue to scale our sales and marketing with a focus on acquiring shipping customers.

With our focus on shipping, over the past several years, we have seen a significant increase in the average lifetime value of a customer that we acquired. With a great return on investment, we plan to continue to scale our total sales and marketing expense in 2018 versus 2017. A significant focus of our investment is on the acquisition of e-commerce and other high volume shippers.

Second, we plan to continue to expand the core features and functionality of our shipping solutions. One of the key value propositions of our solutions is the number of integrations that we support including sales channels, third-party fulfillment providers, marketplaces and e-commerce tools. And during the second quarter, we added several additional new integrations.

We also continue to see success with our ship engine API, which offers all the capabilities of our market-leading ShipStation solution in the form of an API available to third parties such as marketplaces and e-commerce tools that are integrating our shipping solution into their own user interfaces.

During 2018, we'll continue to develop new integrations with selling channels, marketplaces and e-commerce tools. We will continue developing and marketing our ship engine API.

Third, we plan to continue developing new feature supporting e-commerce customers. During the second quarter, we continued to develop our inventory management and customer marketing solutions with new value-added features for our customers.

For example with customer marketing, we added new automated campaigns, including the ability to automatically generate a coupon if a customer has not made a purchase in a long time.

We continue to see good traction with both solutions within our shipping easy customer base. We plan to continue to enhance the features in our inventory management and customer marketing solutions that will continue to market those solutions to new as well as existing customers.

Fourth, we're going to continue focusing on expanding our international solutions in our international marketing. We've already begun discussions with MetaPack's management team to drive the anticipated strategic benefit we just discussed. MetaPack is part of a long-term strategic investment in both e-commerce shipping and international markets we will be looking to leverage this asset for the long-term benefit of our shareholders.

We will also continue to drive our other international shipping initiative called the Global Advantage Program. As you may recall through this program we offer customers access to discounted USPS international shipping rates, through our private label carrier partnerships. The Global Advantage Program allows us to earn incremental revenue on international packages.

Also in the international area, we continue to develop partnerships and market our solutions in international markets. We've done integrations in the U.K. including Magento, BigCommerce, WooCommerce, Square Space, Open Card and Press the Shop in order to support the e-commerce customers there. We've done integration with Amazon in multiple countries to support that selling channel as well.

During the second quarter, we continued to gain new customers in the U.K., Canada, and Australia. We'll continue to ramp up our business, development and marketing efforts in those countries throughout 2018. With the MetaPack acquisition and its broad carrier library, we will begin to look at expansion in two additional countries.

With that, now let me hand the call over to Jeff for more detailed discussion of our financial results.

Jeff Carberry -- Chief Financial Officer

Thank you, Ken. We'll now review our second-quarter 2018 financial results. The discussion of our financial results today includes non-GAAP financial measures. As Lynn described, a reconciliation of non-GAAP financial measures to the corresponding GAAP measures can be found in our earnings release and in our 2018 metrics on our Investors website.

Total revenue was $139.6 million in Q2 and that was up 20% year over year versus Q2 2017. The strong growth in revenue in the second quarter was primarily driven by strong growth in our mailing and shipping business.

The mailing and shipping revenue was $134.4 million, and that was up 20% year over year versus Q2 of 2017. The growth in mailing and shipping revenue was driven by increases in ARPU, as Ken discussed earlier. We estimate that revenue derived from our shipping customers as a percentage of our total revenue was in the mid-70s, and grew year over year in the mid-20s.

We also estimate that our mailing and shipping revenue derived from our server mailers as a percentage of total revenue was in the high-teens, and grew year over year in the low single-digits. Mailing and shipping gross margin was 81.9% in Q2 versus 86.5% in Q2 of last year. The decrease in gross margins was primarily attributable to the scaling of our international offerings including the Global Advantage Program which can have a lower gross margin profile than our other services fee revenue components.

We experienced year-over-year increases in our Q2 costs of sales and marketing, R&D and G&A, primarily related to the continued investments to support the strong growth and in innovation in our mailing and shipping businesses. As Ken discussed earlier, we have a number of new initiatives planned for 2018 and we expect to continue to invest in those initiatives at elevated levels throughout 2018.

In particular, we would expect to see the absolute dollars invested in sales and marketing, R&D and G&A to be higher each quarter for the balance of the year relative to the Q1 2018 and Q2 2018 in order to drive our growth and innovation. Non-GAAP operating income was $62.3 million in Q2, and that was up 10% year over year versus Q2 of last year. Adjusted EBITDA was $63.6 million in Q2, and that was up 10% year over year versus Q2 of 2017.

Adjusted EBITDA margin was 45.6% in Q2 versus 50% in Q2 of 2017. The decrease in adjusted EBITDA margin was attributable to lower gross margins associated with the scaling of international offerings, higher operating expenses associated with our 2018 initiatives as previously discussed, and the ongoing accrual of sales taxes and was partially offset by lower than anticipated headcount expenses associated with lower than anticipated pace of hiring in the first half of the year.

Non-GAAP adjusted income per fully diluted share was $2.75 in Q2 and that was up 32% year over year versus $2.08 per share in Q2 of 2017. Fully diluted shares used in the EPS calculation was $18.9 million for Q2.

Q2 2018 benefited from a reduction of our expected tax rate for 2018 from our previously estimated 22% to a reduced estimated tax rate of 18% for the full year, which was primarily driven by option exercises in the second quarter of this year.

We ended Q2 with $283 million in cash and investments, which was up $87 million from $196 million at the end of Q1. The increase in cash and investments was primarily driven by strong operating cash flow, cash from option exercises, and changes in net working capital, which was partially offset by share repurchases and mandatory debt repayments.

During Q2 we made a required principal repayment of $2.1 million, resulting in total debt under the credit agreement excluding debt issuance costs of $66 million. During Q2, the company repurchased approximately 54,000 shares at a total cost of approximately $13 million. The company's $90 million repurchase program approved by the board of directors on April 25 of 2018 remains in effect through November 2018 with the remaining authorization of approximately $80 million.

Now turning to guidance. As Ken mentioned, our operating guidance excludes the expected financial results from MetaPack from the expected close in August 2018 through December 31 of 2018 but it does include the associated acquisition-related expenses and our GAAP guidance found in our release.

We continue to expect fiscal 2018 revenue to be in the range of $530 million to $560 million. We expect 2018 revenue to continue to be driven by our continued focus on our e-commerce-driven shipping business. In particular, we would expect our shipping revenue growth to be in the low to mid-20s range year over year. We would also expect growth in our mailing and shipping revenue to derive from our server mailers to continue to grow in the flat to low-single-digits range year over year.

Finally, we would expect our customized postage revenue to be down year over year, as we saw a higher-than-expected contribution from high-volume orders in 2017 that we would not necessarily expect to repeat in 2018. We expect operating expenses to increase in 2018 greater than the rate of revenue growth and we would expect to see the absolute dollars invested in sales and marketing, R&D and G&A to be higher in each quarter for the balance of the year relative to Q1 and Q2 in order to bring the initiatives we discussed earlier to fruition.

As we previously discussed, we would expect to see G&A particularly impacted given the sales tax expense we would expect to continue to incur. We continue to expect fiscal 2018 adjusted EBITDA to be in the range of $245 million to $265 million. This implies a full-year adjusted EBITDA margin in the mid-40s, reflecting both our headcount investment and our sales tax expenses.

We would expect sequentially higher operating expenses associated with our headcount investments in the third and fourth quarters combined with traditionally seasonal slowness in the third quarter to lead to EBITDA margin pressure in the third quarter, with sequential EBITDA margin increases in the fourth quarter associated with the seasonal strength in revenue due to the Q4 holiday shipping period.

We expect non-GAAP tax expense will be approximately 18% of non-GAAP pre-tax income for the full-year 2018 which compares to our previous estimate of 22%. The reduction in our expected rate for 2018 was driven by the level of option exercises in the second quarter as we discussed. As our estimated non-GAAP tax rate was 22% in the first quarter, our non-GAAP tax rate in Q2 is 16%, and our expected non-GAAP tax rate in Q3 and Q4 is also 16% yielding a net effective rate for 2018 of 18%.

Our full-year 2018 effective tax rate could differ from our current estimates based on a number of factors including the level of option exercises in the future.

We expect fully diluted shares to be between 19.0 million and 19.2 million in 2018. We expect fiscal 2018 non-GAAP adjusted income per fully diluted share to be in a range between $10.15 to $11.15 which compares to previous guidance of $9.60 and $10.60. And finally, we expect capital expenditures to be approximately $2 million to $4 million in 2018.

While we've excluded MetaPack from our formal guidance for the reasons Ken mentioned, we did want to provide some thoughts on potential customer contributions from MetaPack assuming the acquisition closes in mid-August and also assuming the foreign exchange rates remain consistent with current rates. We would expect revenue contributions between US$15 million and US$20 million. We would expect adjusted EBITDA contributions between US$1 million and US$2 million. We would expect tax rates between 25% and 32%.

We would expect approximately 75% of the financial contribution to be in the fourth quarter.

And while we have not provided expectations for MetaPack's potential financial contributions beyond 2018, we would note that MetaPack's revenue growth for the most recent fiscal year-end and quarter year-end is estimated to be in the mid- to low teens.

With that, let me hand the call over to Kyle for some additional comments on our long-term outlook.

Kyle Huebner -- President

Thanks, Jeff. With our increased focus on shipping, and e-commerce shipping focus acquisitions, we've achieved a significant transformation in our business over the past five years.

Our pending acquisition of MetaPack, not only deepens our focus on e-commerce shipping but also broadened to that focus to include significant global opportunities. We expect our focus to continue to be on shipping for the foreseeable future and believe we are well-positioned to capitalize and what we believe to be attractive global e-commerce shipping trends.

E-commerce growth in both the U.S. and Europe has been driven by strong secular trends toward greater e-commerce consumption with growth rates running in the mid-teens in both the U.S. and Europe but with European rates exhibiting some greater regional variability. These attractive e-commerce growth rates provide a natural fundamental driver to our growth that we've seen in Stamps.com's business over the past several years.

As demonstrated by our organic growth in shipping revenue to the second quarter and the mid 20% range year over year. We have shown an ability to grow stamp shipping related revenue above typical e-commerce growth rates for several reasons.

First, our solutions are suitable for the largest and most sophisticated e-commerce sellers. So we generally attract higher growth e-commerce companies. Second, we are expanding the scope of our offering and thereby increasing our customer monetization. Third, our multi-carrier platforms allow us to expand outside our traditional core USPS-focused business.

MetaPack's recent growth rate has been in the low to mid-teens. As we outlined in the strategic rationale that Ken discuss. We expect that MetaPack acquisition will accelerate our international initiatives and we expect that we will be able to enhance their growth rate as we realize various synergies over the course of time.

As shipping revenue as a percent of total revenue increases from its current mid 70% level, total revenue will continue to be more directly correlated with our strong performance and fundamentals and shipping.

We believe that global e-commerce trends provide exceptionally attractive fundamental drivers to our domestic and international businesses and we believe we will be able to drive strong top-line and bottom-line performance for the foreseeable future with our portfolio of exceptional shipping platforms and technologies.

With that, we'll open it up for questions.

Questions and Answers:

Operator

[Operator instructions]. And our first question comes from a line of George Sutton from Craig-Hallum. You may begin.

George Sutton -- Craig-Hallum -- Analyst

Thank you. I wondered if you could discuss this MetaPack acquisition in the following context, we saw when you entered the enterprise in the shipping market. You made some very ... in hindsight looks like great acquisitions of folks like ShipStation and ShipWorks to really accelerate that ultimately making three multi-carrier acquisitions. As we look at your international opportunity or are you thinking of the same way? Is this the first beachhead of potentially making additional acquisitions like this over time?

Ken McBride -- Chief Executive Officer

Well, I mean as you know, we don't comment on acquisitions that we may be considering but I think as you look at our efforts around international, we've been talking about approaching the market with a ShipStation and we started as you know to market that product in the U.K. and Australia and Canada.

And as you look at those markets, particularly in Europe, the number of carriers you need to support in order to really effectively address that market is far more than you see in the U.S. where you really have USPS and UPS and FedEx dominating those.

So we really view MetaPack as an API that we can plug into the back of ShipStation and immediately gives us a tenfold increase and the number of carriers that we can and that we need in order to go after that market. So we really see it as a great accelerant and allowing us to get to that market potential to get more of a first-mover advantage in the market. And so the rationale for the acquisition, I think that's the primary reason why we decided to acquire MetaPack.

Kyle Huebner -- President

I would just add to that that getting, establishing a presence over in Europe with customers and carriers was a strategically important goal for us. Now that we have MetaPack and ShipStation's efforts, I would say that we're in a great position to move forward and execute. If there are other acquisitions over the course of time that make sense and are strategic fits and synergistic will take a look at those, but I think we feel really good about the position we've established to execute on, going forward from here without being dependent on future acquisitions.

George Sutton -- Craig-Hallum -- Analyst

Just to be real clear on the cross-sell opportunity, if I'm a current ShipStation customer today, and I want to ship a package to Amsterdam, for example, there is no real capability within the ShipStation platform. With this API plug and I will now have access to the network of carriers via this MetaPack API. Is that a correct statement?

Ken McBride -- Chief Executive Officer

Well, you're kind of mixing a couple concepts there...

George Sutton -- Craig-Hallum -- Analyst

I often do.

Ken McBride -- Chief Executive Officer

It's OK. In order to ship a package from the U.S. to Amsterdam, we already support that capability which will be -- we could call cross-border shipping, and MetaPack has great solutions in that area as well. And what we're really talking about is being able to go and market to a customer who resides in Amsterdam.

Where you may need 10 carriers because there are so many carriers in that local market and so MetaPack having already built the solution to support those 10 carriers as we take that API and plug ShipStation into it we can then go after that market whereas if we were going after that market without MetaPack we would have to go negotiate with 10 separate carriers and do 10 separate integrations and it would take a lot longer in order to be able to even to begin to market in that in Amsterdam for customer.

George Sutton -- Craig-Hallum -- Analyst

Perfect. Last question, I was very impressed with the carrier optimization engine that MetaPack has built? Is that something that ultimately you could see applying to your offerings in the U.S.?

Ken McBride -- Chief Executive Officer

Yes, I think the carrier optimization engine is a great solution, the carriers are one of the key value propositions for MetaPack is having the carriers optimize across having the customers optimize across all the carriers to reduce their costs and improve their service and as they look at serving customers in multiple different countries a mix of carriers and they can move in and out of those different carriers.

So it makes there it allows them to really optimize their business. We do have carrier optimization capabilities in our existing e-commerce products as well but they're different and we may be able to leverage some of the capabilities of MetaPack in our existing ShipStations, Shipworks and shipping easy capabilities.

George Sutton -- Craig-Hallum -- Analyst

Super. Thanks, guys.

Ken McBride -- Chief Executive Officer

Thanks, George.

Operator

And our next question comes from the line of Kevin Liu from B. Riley FBR. You may begin.

Kevin Liu -- B. Riley FBR -- Analyst

Hi, good afternoon. Just one follow-up on MetaPack with respect to the transaction volumes that you talked about their business having access, is that pay by their direct customers or by carrier relationships that they have. And if it's the latter do you feel ShipStation would be able to leverage the same types of economics and once they have the API implementing?

Ken McBride -- Chief Executive Officer

So their business model is to charge their customers a subscription fee and volume-based transaction fees. So their 550 million transactions are being monetized through their customer base, not through their carriers.

Kevin Liu -- B. Riley FBR -- Analyst

Got it. That's helpful. Switching gears a little bit with the Trump task force on the USPS set to release a report sometime in the near future, was wondering if you guys participated in any sort of conversations with the task force and if so, is there anything you would infer from either those conversations or maybe the USPS OIG's report last month on kind of the postal partner ecosystem that would suggest any significant changes are coming?

Ken McBride -- Chief Executive Officer

Yes. So the task force was formed and it's doing lots of interviews with all the various constituents out there. We have spoken to the members of the task force several times. The final report is expected to be issued August 10.

We don't know the specifics in the report but we do think that based on our conversations the report will come out strongly in favor of partnerships between the USPS and private industry like the partnerships we've had with the USPS. So we'll be interested to see what comes out on the report on August 10.

Kevin Liu -- B. Riley FBR -- Analyst

OK. And then just lastly, you talked a little bit about the kind of the trends within your paid customer account and how that's shifting over to the shipping side of things. Any update you can give us just in terms of what the mix between shipping and SOHO customers looks like today? And as it relates to investing on the SOHO side, just how should we think about the overall growth in that customer base over the longer term? Would you expect it to kind of steadily trickle down? Or do you actually expect to be able to continue to drive at least low single-digit growth there?

Jeff Carberry -- Chief Financial Officer

Yes. I think in terms of the customer attribution, we don't give a breakdown of customers, Kevin, but we do give a breakdown of revenue. And as we mentioned about mid-70% range for revenue contribution from shipping customers. Given the size of the customers and given our historical focus for many, many, many years on small business, there's still more customers in mailing as opposed to shipping.

When you look at the customer projections, we're projecting SOHO revenue to be in kind of flat to low single-digits. Because we don't monetize volume with SOHO customers -- there is no monetization there other than the monthly subscription fee -- we're effectively saying by forecasting flat to low single-digit growth for revenue and SOHO mailers, that implies basically flat customers as well.

So certainly we're not abandoning in the SOHO market, still a very attractive market for us, but you see us really pivoting our focus to shipping, where there is much more attractive financial propositions for those customers. So I'd expect those trends to continue for the foreseeable future.

Kevin Liu -- B. Riley FBR -- Analyst

Understood. Thanks for taking my questions.

Jeff Carberry -- Chief Financial Officer

Thanks, Kevin.

Operator

And our next question comes from the line of Tim Klasell from Northland Securities. You may begin.

Tim Klasell -- Northland Securities -- Analyst

Hey guys. Congrats on the good quarter. My question's also around MetaPack. You mentioned about bringing them and their services over here to the U.S.

and integrating that. But going after the mid and smaller shippers over in the U.K. and in Europe, is that interesting, or is there some products that you would like to maybe bring over there and maybe get some leverage from that standpoint? Thank you.

Ken McBride -- Chief Executive Officer

Yes. I mean I think that's one of the key reasons why we did the acquisition. We're looking at the expansion of ShipStation into the U.K. market, which as you know we've already started.

We have several thousand customers already in the combined international markets that we've gone after but when you look at the U.K. market, there are dozens and dozens of carriers there that you need to support in order to really have a complete solution in that market.

So one of the goals with MetaPack was to integrate with ShipStation to be able to support those carriers much more quickly and then with that, ShipStation is really a product that designed for more for small business e-commerce users. So that was one of the key value propositions and strategic reasons why we probably did the MetaPack acquisition.

Kyle Huebner -- President

Yes. I would add just that I think we see them as very complementary. Whereas MetaPack is traditionally going after the larger customers, ShipStation in the U.S. has gone after that small and mid-sized e-commerce merchant.

So as we look to Europe, we see a very complementary synergy between the two companies, one having gone after the larger customers and ShipStation being enabled to go after the sweet spot of the e-commerce merchant.

Tim Klasell -- Northland Securities -- Analyst

OK, good. So for this year, we're modeling the 18% tax rate. Is that something you think is valid going forward in our modeling? Should we sort of have our minds around that 22% for the out years?

Ken McBride -- Chief Executive Officer

I think for the out years, I would assume I mean, obviously, it's subject to variability and tax rates around the country and federal tax rates which hopefully would remain stable. The other variable for us is obviously in the consolidated basis only to incorporate the associated taxes for MetaPack after that deal closes.

So we'll have to kind of revisit what our consolidated tax rate forecast is likely to be the primary driver of that. It's going to be the impact of MetaPack on a consolidated tax rate. So in isolation, the 22% is probably a reasonable baseline but, to be fair with you, we have a fair amount of work to do on consolidated tax projections and tax rates given the MetaPack acquisition. So I'd hold off on any material changes to the rates for the out years until we give some guidance on that.

Tim Klasell -- Northland Securities -- Analyst

OK. And then one follow-up quickly, you mentioned that the lifetime value of the customers goes up with shippers. That makes obvious sense, but wonder if you can give us any metrics around that, what you think the lifetime value is or the time to recover your marketing expenses, that sort of thing to give us maybe a little bit better color about what happens to your business model as you go after the shippers? Thank you.

Jeff Carberry -- Chief Financial Officer

Yes, I think in terms of lifetime value and ROIs, when we were really kind of a homogeneous customer base, as small business customers, we gave the metrics to [Inaudible] that. And our lifetime value relative to the cost of acquisition was in excess of twice the cost of acquisition.

Shipping customers are certainly more expensive to acquire but the ARPUs of those customers and lifetime values are also very, very attractive. So I would say we haven't given specific numerical quantifications of the ROIs and lifetime values, but I think it's certainly fair to say we've given kind of color commentary in the past around, this, that those values are in excess of the small business and are obviously very, very attractive.

In terms of specific metrics, because the customers are a mix of SOHO and shippers, we don't give specific quantifications, especially also given the fact that the business is shifting, so the relative portion of shipping versus mailers is shifting as well. So I think in light of that, I'd look at kind of SOHO as the floor and understanding that mailers are fundamentally more attractive on a lifetime-value basis, and ROI basis.

Ken McBride -- Chief Executive Officer

The other thing I would add to that is, with the small business customer as Jeff mentioned, you're really just getting the $15.99 or the subscription fee, so the lifetime values tend to be very predictable in a much tighter range of outcomes, whereas because shipping a big part of your lifetime value is the volume-based transaction fees and monetization, you get a much wider range of lifetime values with shippers than you do on the mailing side. So it becomes an exercise of more ... a shipping customer might cost a lot more but their lifetime value could be orders of magnitude higher than a small business. And so it's really, you have get down into the customers, the shippers you're acquiring. It's really the volume you're acquiring as opposed to an individual shipper.

Tim Klasell -- Northland Securities -- Analyst

OK. Thank you. That's very helpful.

Operator

And our next question comes from the line of Darren Aftahi from Roth Capital Partners. You may begin.

Darren Aftahi -- Roth Capital Partners -- Analyst

Thanks for taking my questions. Just a few more on MetaPack. I'm just kind of curious, as you're closing the acquisition, you think about prioritizing things strategically, like how do you kind of rank in the international initiatives versus the expanding domestically among retailers and enterprise as it pertains to the retailer side within the U.S.? I'm just kind of curious how large upstream are you going to go and can you talk about costs associated with that go-to-market strategy?

Ken McBride -- Chief Executive Officer

Yes. I think as you look at our priorities, we're going to be pursuing all of the synergies that we mentioned in parallel. I think that in general some of the synergies will happen more immediately others will take more time to be realized I think that there are international expertise and their presence will be something that we can utilize immediately as we're working already to go after the markets in the U.K., Canada, and Australia.

They've been in those markets for a very long time. So we'll be able to utilize their expertise immediately and I think as you look at some of the other synergies, that's going to take longer. There's going to be some development work in terms of integrating our e-commerce solutions like ShipStation and MetaPack carrier API. So that's going to take some time.

I think when you look at the sales force in the U.S., we already come across types of leads in these large retailers that would be suitable for MetaPack, but I think we've been unable to address those in the past. So clearly, as we come across a lead, we'll be able to pass that along to MetaPack immediately but when you look at their sales cycle it is relatively long.

So the revenue from those leads will take some time to flow through in our P&L. So I think across all the synergies the answers is will pursue all of them immediately but they'll have various different impacts in terms of the actual financial impact of the business.

Darren Aftahi -- Roth Capital Partners -- Analyst

That's helpful. Thanks. And then two more. One, I think you said 350 employees from MetaPack -- what's their sales force size? And then the acquisition, was this a competitive bidding process?

Ken McBride -- Chief Executive Officer

Yes. So the sales force is relatively small because the number of customers that they need to go after their universe of customer they're going after a very, very large customer. So the universe of their addressable market in terms of customers is much more manageable with a smaller sales team.

In terms of the process for the company I think we know MetaPack for many years and we started conversations around potential combination they felt their business would really be better in combination with us and it was stand-alone and I think like all companies once the deal was being contemplated the board of directors had fiduciary duty to go out and look for other buyers. So we did have competition in terms of the acquisition.

Darren Aftahi -- Roth Capital Partners -- Analyst

Great. Thanks.

Operator

Thank you. And our next question comes from the line of Allen Klee from Maxim Group. You may begin.

Allen Klee -- Maxim Group -- Analyst

Yes. Hi, you've disclosed on MetaPack, it's historically had high gross margins 87% and operating margin below you with around 10%. I know it's kind of a new market for you. So I'm trying to think about potential expense synergies to the extent that could happen and how you think about maybe what that could be or where that could come from?

Jeff Carberry -- Chief Financial Officer

Hi Allen. So when you look at the business, obviously we're going to spend a fair amount of time looking at the business. When you look at the future of that business, I think there's a lot of leverage there in terms of what could be done with that asset. And Ken talked about some of the synergies that we contemplate.

I think some of those synergies certainly ... it's pretty clear that there is potentially some nice leverage in the business going forward.

So I think that together we can drive strong results for the company. By virtue of that, we see margins improve. There are businesses that, to be honest with you, we don't manage directly. So we have to learn a lot about that business as we finish the deal and close the deal.

I wouldn't expect to see the kind of synergies we contemplated within DHL. The business is running very well. I think the potential is really in driving different top lines as opposed to reductions to expenses, to be honest with you. So I think it's really about top-line synergies as opposed to cost synergies in the deal.

Kyle Huebner -- President

The other thing I would add is I think that synergy on the expense side is future-avoided expenses that had we not done this, ShipStation would have incurred to expand internationally. They would have opened a London office, hire people to develop carrier relations, so I think to some degree acquiring MetaPack allows us to go international without ShipStation let's say having to incur some of those expenses that are in their operating structure already.

Allen Klee -- Maxim Group -- Analyst

OK, and then, lastly following up on a question on the Trump task force. Do you envision, or how do you think that that can potentially play out in terms of how it can impact your business?

Ken McBride -- Chief Executive Officer

Well, I think in general, we'll be interested to see what the task force recommends. I mean, at the end of the day, it's just a report that's going to be published and in order to have some actual changes there needs to be an act in Congress, and I think postal reform has been making its way through Congress for many years with really few real results or changes to the USPS operation in the structure or their mandate. Really the last major change to postal was 12 years ago in 2006. So I think while the report will be interesting, the actual effect historically for these types of task force has been more limited given that it actually requires an act of Congress in order to have material changes.

Allen Klee -- Maxim Group -- Analyst

OK, thank you very much.

Operator

And I'm showing no further questions at this time. I'd now like to turn the call back to Mr. Ken McBride, chief executive officer, for closing remarks.

Ken McBride -- Chief Executive Officer

Thanks for joining us and for follow-up questions, you can contact us at our website at investor.stamps.com or call our investor hotline at 310-482-5830. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.

Duration: 51 minutes

Call Participants:

Lynn Um -- Director of Finance

Ken McBride -- Chief Executive Officer

Jeff Carberry -- Chief Financial Officer

Kyle Huebner -- President

George Sutton -- Craig-Hallum -- Analyst

Kevin Liu -- B. Riley FBR -- Analyst

Tim Klasell -- Northland Securities -- Analyst

Darren Aftahi -- Roth Capital Partners -- Analyst

Allen Klee -- Maxim Group -- Analyst

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