Stamps.com (STMP) Q3 2020 Earnings Call Transcript

Stamps.com (STMP)
Q3 2020 Earnings Call
Nov 05, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Stamps.com third-quarter 2020 financial results call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Suzanne Park, vice president of finance. Thank you.

Ms. Park, you may begin.

Suzanne Park -- Vice President of Finance

Thank you, Victor. On the call today are CEO Ken McBride and CFO Jeff Carberry. The agenda for today's call is as follows: We'll review the results of our third-quarter 2020. We'll provide an update on elements of our business model and partnerships.

And finally, we'll discuss our financial results and talk about our business 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, which can cause actual results to differ materially from those in the forward-looking statements include the significant and unprecedented uncertainties regarding the business and economic impact of the ongoing COVID-19 pandemic, as well as the impact of efforts of governments, businesses and individuals to mitigate the effects of such pandemics on the company, its customers, its carrier, integration partners and the global economy, which makes it particularly difficult to predict the nature and extent of impacts on demand for products and services making our business outlook subject to considerable uncertainty; the company's ability to successfully integrate and realize the benefits of its past or future strategic acquisitions or investments; the company's ability to diversify its relationship with carriers and the impact of foreign exchange fluctuation and geopolitical risks, and other important factors that are detailed in filing with the Securities and Exchange Commission made from time to time by Stamps.com, including its Annual Report on Form 10-K for the year ended December 31, 2019, quarterly reports on Form 10-Q particularly the Risk Factor sections of those reports 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 third quarter of 2020, GAAP net income was $64 million and GAAP net income per fully diluted share was $3.30. Our non-GAAP financial measures exclude the following third-quarter items: $10.2 million of non-cash stock-based compensation and $5.6 million of non-cash amortization expense of acquired intangibles and debt issuance costs.

Our non-GAAP financial measures include $5.4 million of additional non-GAAP income tax expense in the third quarter. Our mailing and shipping numbers include, service revenue, product revenue and insurance revenue and do not include any revenue from customized postage. Please see our third-quarter 2020 earnings release and 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

Thanks, Suzanne, and thank you for joining us. On today's call, we'll cover several topics. We'll discuss the continuing impact COVID-19 is having on our business. We will discuss the progress and plans in our various business initiatives in the U.S.

We will discuss our progress and our plans on various initiatives internationally and then Jeff will discuss our metrics our Q3 financial results and our updated guidance for the remainder of 2020. So let me begin by discussing the continuing impact that COVID-19 pandemic is having on our business. COVID-19 continues to have significant net positive impact to our business with significant growth in both customers and shipping volume. U.S.

e-commerce activity remained significantly elevated throughout the quarter and we clearly benefited. For the third quarter as a whole, our customer acquisition was up approximately 90% year over year. We saw strength in our acquisition channels with our total cost per acquisition dropping by approximately 30% year over year, while acquisition while understandably continuing to moderate from the extraordinary levels in the second and the third quarter remained exceptionally strong in October up more than 80% year over year. Continued strength in acquisition has driven us to the highest number of paid customers in the history of the company.

By the end of the third quarter, paid customers increased by 31,000 sequentially to reach an all-time high of 987,000. We continue to see a large number of people looking for an alternative to go into the post office or carry a retail location in order to do their mail and their packages. Incredible brand awareness that we have built across all of our properties, meant we were a big beneficiary of that shift in behavior. Significant financial savings we offer customers also is viewed as a big additional benefit.

For example, Postal Service customer saved $0.05 off every first-class letter and up to 40% of USPS retail prices for packages and with our UPS partnership, we were also able to offer up to 62% off UPS's standard daily rates. One of the questions we expect to be asked is whether these new customers are just using our solution as a short-term measure or they will stick with our solutions longer term? While we expect that there is certainly a mix of both types of behavior, our continued analysis of customers acquired during the COVID-19 pandemic to date is encouraging. The conversion rates from acquired to paid customers status remain consistent with the pre-COVID conversion rates. We were also seeing a favorable mix of new shipping customers.

We would note that during the third quarter, customer churn did increase by approximately a 100 basis points year over year to 4.2% versus 3.2% in the third quarter of 2019. The increase was primarily driven by churn in the mailing segment of the stamps.com customer base. The churn uptick was entirely expected given the very large magnitude of acquired customers during the second quarter that resulted in a higher churn during the third quarter. The normal pattern of customer churn is that it is meaningfully higher in the first six to nine months, especially for mailing customers and nothing within the churn uptick appeared to be anything other than ordinary customer behavior and we continue to believe that customers we're acquiring now are of equal quality to those that we acquired before COVID.

We did see a continued decrease in the mix of charter customers coming from shipping, which highlights the underlying strength in the business driven by shippers and our primary focus on acquiring these types of high-quality customers. We'll continue to analyze and monitor the customer trends given the unusual circumstances we're in right now. In addition to the strong third-quarter new customer acquisition, we also saw continued strength in total dollar value of shipping labels. We saw year-over-year dollar value growth of shipping labels printed of our U.S.

carriers as a whole in the second quarter of more than 50% and then in the third quarter, we again saw growth of more than 45%. In addition we saw year-over-year dollar value growth of shipping labels for the U.S. Postal Service in the second quarter of approximately 50% and in the third quarter of approximately 40%. We also saw exceptional performance in the dollar value of UPS shipping labels that we'll discuss shortly.

The customers have been strong beneficiaries of increased e-commerce consumption as end customers have shifted to purchasing online versus at retail locations during the pandemic. The strong performance in package volume that we have seen indicates that our solutions are working very well to address the need of our customers. Let me now give a quick update on the UPS partnership. Late last year, we started a long-term partnership with UPS, which allows us to offer attractive UPS package discounts to our customers.

Discounts are as much as 62% off UPS's standard daily rates. The discounts are available through our products without any necessary existing customer shipping volume that is frequently required to qualify for discounts when you work directly with UPS. The new UPS solution went live in ShipStation with a subset of customers in Q4 of last year, and we've now rolled it out to the majority of our customers across all of our brands. Accessing UPS is very simple for our customers with an automatic account and discounted rates available immediately when the customer first begin to use the product.

We're continuing to see rapid adoption of the UPS solutions and very positive growth in the dollar value of shipping labels that we process. After we increased by over 600% sequentially during the second quarter, the dollar value of UPS labels increased again by more than 45% sequentially in the third quarter. we're expecting continuing strong growth in UPS during the fourth quarter. The surcharges that the USPS is charging during the fourth quarter will make UPS solution more cost-effective throughout the quarter, and we expect to see strong customer adoption of UPS in the fourth quarter.

We're very excited about our UPS relationship. They've become a great partner for stamps.com and all of our company products and solutions. Let me remind everybody now about some of the initiatives we're focused on in 2020 in the U.S. market.

First, we plan to invest heavily on growth in the shipping part of our business. In August, ShipStation launched it's go-to-market collaboration with SAP in which ShipStation will support e-commerce sellers via the integration of enterprise resource planning software from SAP. In October, ShipStation also deepened its partnership with Ali Baba by enabling B-2-B merchants in the U.S. who sell on AliBaba.com to more efficiently process, fulfill and ship orders from AliBaba.com.

This development make ShipStation the first U.S. shipping solution to officially integrate with AliBaba.com. In addition, the partnership with Google shopping has recently launched. ShipStation was also named Oracle's NetSuite Partner of The Year for 2020.

In 2020 and beyond, we expect to continue making large investments to attract shippers to our solutions. Second, we plan to expand the features and functionality of our solutions, particularly in the multicarrier shipping part of the business. the e-commerce shipping industry is very dynamic and we invest a significant amount of our development resources in continuing to innovate in the market. For 2020, we're focused on delivering new capabilities such as more sophisticated third-party logistics support, delivery options provided in the shopping cart, drop shipping, branded tracking returns, pickup, drop off and continuing to enhance our capabilities in our mobile apps.

Third, we plan to continue bringing innovative and cost effective solutions to U.S. customers that are sending packages to other countries. We've continued to see growth in our GlobalPost solution where we offer customers access to discounted international shipping rates through our private label carrier partnerships. In August, we announced significant upgrades to GlobalPost standard service including an increased package weight limit from 4.4 pounds up to 70 pounds and we expanded door-to-door tracking capabilities from 36 countries to over 200 countries.

In September, we launched the USPS Canada delivered duties paid service for our shipping customers, which allows customers to prepay duties and taxes so that the packages can be delivered directly to the buyer store without having to pay required customs fees upon delivery and without having to travel to the customer's office to pick up their package. We expect to continue to drive these and other international package solutions targeted at our domestic customers during 2020. Now let me discuss some of the plans for expansion outside the U.S. During 2020, we're ramping up our marketing business development and product development efforts in significant ways.

First, for ShipStation and ShipEngine, we're developing partnerships, carrier relationships, product enhancements and marketing our solutions in our target countries. We continue to see strong adoption of ShipStation in Canada, the U.K. and Australia. In particular, ShipStation's international third-quarter shipments increased over 140% year over year versus the third quarter of 2019.

For the remainder of 2020, we expect to improve our capabilities to support further international expansion. Our French version of ShipStation is live in Canada and we expect to launch in France during the fourth quarter. We're also working on our Spanish language version of ShipStation that is currently in beta. ShipStation also recently launched a new partnership with MercadoLibre which will open up the sizable Latin American market to ShipStation sellers and further enhances the advantages sellers have working with ShipStation.

Second, in our MetaPack business we continue to make progress in both customer acquisition and technology including rearchitecting the technology platform and driving new innovations. In MetaPack Europe, we had a strong Q3 with five significant new customer additions including one of the largest German supermarket chains. During the quarter, we also continued to develop a strong U.S. pipeline of potential deals with companies that are prominent household names.

We signed a notable new deal with a very large footwear company. We also saw encouraging adoption rates for new products such as our returns portal and our delivery tracker. Both features will significantly enhance e-commerce operations and the consumer's shopping experience for our large Omni channel customers. In summary, we remain extremely excited about the future of our company and the enormous value proposition of our e-commerce technology and service offerings.

Our goal is to position this company for the best long-term outcome as the myriad of worldwide trends play out. The value proposition we provide is very strong driven by the strength of our multicarrier properties, the level and number of our partnerships and integrations, the size and strength of our U.S. and international sales forces and the scale and success of our marketing programs. We've always managed our company cost structure very aggressively and as a result, we have a very healthy cash flow and a very strong balance sheet with approximately $390 million in cash and investments and no debt currently.

As we're experiencing a large acceleration in our business, this reinforces the significant brand awareness we have created for our market-leading solutions. We're in a great position to continue to execute our business plans and to be the global leader in multicarrier e-commerce shipping in 2020 and beyond. With that, now I'll turn the call over to Jeff.

Jeff Carberry -- Chief Financial Officer

Thanks, Ken. We'll now review our third-quarter 2020 financial results. The discussion over financial results today includes non-GAAP financial measures. As Suzanne described, a reconciliation of non-GAAP financial measures to the corresponding GAAP measures found in our earnings release and in our metrics on our Investor website.

Total revenue was $193.9 million in Q3 and that was up 42% year over year versus Q3 of '19. Total revenue excluding MetaPack was $177.1 million in Q3 and that was up 43% year over year versus Q3 of '19. The growth in revenue in the third quarter was primarily driven by strong growth in our mailing and shipping business, which in the United States continue to benefit from strong domestic shipping growth albeit at moderate levels growth and was offset by international shipping performance both of which we believe are attributable to the ongoing COVID-19 pandemic. The year-over-year revenue growth was negatively impacted by the customer's postage resulting in zero revenue in Q3.

The mailing and shipping revenue was $193.9 million in Q3 and that was up 46% year over year versus Q3 of '19. Mailing and shipping revenue excluding MetaPack was $177.1 million in Q3 and that was up 47% year over year versus Q3 of '19. The growth in mailing and shipping revenue was driven by increases in paid customers, as well as increases in ARPU. We estimate that total revenue derived from our shipping customers was approximately 50% year over year and as a percentage of total revenue in Q2 was approximately 80% range.

We estimate that revenue derived from our shipping customers in Q2 excluding MetaPack grew year over year in excess of 50% and as a percentage of total revenue was in the low 70% range. We also estimate that our revenue derived from our SOHO mailers as a percentage of total revenue was in the teens and grew year over year in the mid 20%. Mailing and shipping gross margin was 77.8% in Q3 versus 73.8% in Q3 of '19. Mailing and shipping gross margin was positively impacted by growth and revenue associated with our traditional carrier business including USPS and UPS, which was offset by strong growth in our MetaPack business, which has a gross margin of 57% in Q3.

We had year-over-year increases in our Q3 operating costs, primarily driven by growth in sales and marketing and R&D related customer acquisition and strategic investments to support innovation and long-term growth. As Ken mentioned, we continue to aggressively scale our operational investments to drive our international business strategy. Non-GAAP operating income was $70.3 million in Q3 and that was up 113% year over year versus Q3 of '19. Adjusted EBITDA was $71.2 million in Q3 and that was up 107% year over year versus Q3 of '19.

Adjusted EBITDA margin was 36.7% in Q3 versus 25.3% in Q3 of last year. The increase in adjusted EBITDA margin was driven by strong revenue growth and a more favorable mix of higher margin service revenue. Non-GAAP adjusted income per fully diluted share was $3.83 in Q3 based on a non-GAAP tax benefit rate of 6% and was up 243% year over year versus $1.12 per share in Q3 of '19 and based on a non-GAAP tax expense rate of 40%. Fully diluted shares used in the EPS calculation was $19.4 million in Q3 versus $17.4 million in Q3 of last year.

Let's now discuss our customer metrics. Total paid customer metric was 987,000, which was up 33% versus Q3 of '19 and was our highest number of paid customers in our company's history. This was driven by strong new customer acquisition and partially offset by an increase in customer churn. Our third-quarter churn rate was 4.2%.

Churn was up 100% basis points year over year. As Ken discussed earlier, the increase was primarily driven by churn in the Mailing segment of Stamps.com surveys and was expected given the large magnitude of customers and the normal churn in which churn especially in the Mailing segment is meaningfully higher versus nine months. Our third-quarter ARPU was $65.47. ARPU was up 10% year over year driven primarily by growth in the shipping focused area of our business.

Total third-quarter EPS was a record $2.2 million, and that was up 41% versus the third quarter of '19. This U.S. metric included both higher growth in shipping volume and traditional non-GAAP mail volume, which was also up this quarter as opposed to a steady client base driven by lot of the trend of declining mail usage in the U.S. Of note is our cash, debt and uses of cash.

We ended Q3 with $390 million in cash and investments, which was up $115 million from $275 million at the end of Q2 of '20. The increase in cash and investments was primarily driven by strong operating cash flow and cash from segments and was partially offset by changes in net working capital and share repurchases. During the third quarter, the company repurchased approximately 67,000 shares of total cost of approximately $15.9 million. Our current $40 million repurchase plan as approved by our board of directors in August of 2020 remains in effect to February of 2021 with the remaining optimization for approximately $20 million.

Now turning to guidance. As we discussed last quarter, our guidance reflects the new multi-year USPS reseller agreements, our USPS partnership, which we ruled out throughout the first quarter of this year to our customer base across all of our properties, the termination of the customized postage program effective mid-June effective mid June of this year and expected increases in operating cost related to our continued investments in the U.S. and abroad. Our updated guidance also reflects the following; first, the moderation in growth relative to extraordinary strength in the second and third quarter, which potentially reflects the discretionary and holiday purchases brought into the third quarter by the COVID-19 reflecting a generally outlook on COVID-19 impacts to our customer acquisition, churn and shipping volume growth.

As Ken discussed, although recent trends have been strong, we're seeing that and won't expect given the strength of the quarters and modest relapse in the [Inaudible]. And now on to our specific quantitative guidance. We expect fiscal 2020 revenue to be in the range of $705 million to $73 million, which compares to our previous guidance of $250 million to $225 million. We expect growth in our shipping revenue will be in a range of approximately high 20% range to low 30% range year over year.

We expect growth in our mailing and shipping revenue of our SOHO mailers will be in the low to mid teens year over year. And as previously discussed, our customized postage revenue was eliminated effective June 15 of this year as a result of the termination of the program by USPS. We expect operating expenses to increase in 2020 reflecting the annual effects of the strategic investments we made throughout 2019 and additional strategic investments we anticipate making in 2020 for both our U.S. and international efforts.

We expect fiscal 2020 adjusted EBITDA to be in the range of $230 million to $250 million, which compares to our previous guidance of $280 million to $240 million. Our guidance implies a full-year adjusted EBITDA margin in the low to mid 30% range. We expect non-GAAP tax expense will be approximately 12% of non-GAAP pre-tax income for 2020, which compares to our previous estimates of 28%. Our full-year 2020 effective tax rate could differ from our current estimates based on a number of factors.

We expect fully diluted shares to be between 19.3 million and 19.1 million in 2020, which compares to our previous estimate of 18.3 million to 20.2 million. We expect fiscal 2020 non-GAAP adjusted income per diluted share to be in the range of $10.35 to $11.35, which compares to our previous estimate of $6.25 to $9.25. And finally we continue to expect capital expenditures to be approximately $4 million in 2020. And with that, we'll open up for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from George Sutton with Craig-Hallum. Please proceed with your question.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you. Jeff, one of the things you mentioned was that you believe there may have been some pull forward from Q4 into Q3 retail purchases relatively I think you're assuming relative to the holidays. Generically, around e-commerce universe, I think there is a very significant amount of enthusiasm relative to this upcoming retail season. Amazon Prime Day obviously as a start to that season saw significant growth.

So I'm just curious, are you seeing anything different than the generic world that we are tracking and do you see any impacts or benefits relative to the surcharges and everything that the carriers are doing to try to limit volume during specific periods.

Jeff Carberry -- Chief Financial Officer

Sure it's a good question. I guess let's say we're not seeing anything generally different in terms of the broader trends in our broader e-commerce economy we're experiencing. We are seeing moderation from extraordinary levels in Q2 and Q3. So that growth, we would expect to moderate as the economy generally opens up and we have from a wide recession as things open up.

So we expect to see continued moderation in growth rates. So we are seeing that moderation continue. We would expect a seasonal bump all else equal. However, the question becomes really what is the effects.

The first effect is going to be the moderation pulled into Q2 and Q3 or is the first order effect going to be the seasonal bump going to settle that. I think both factors are happening. However, as things from our perspective, we like to be conservative. We don't like to overestimate things that are beyond our estimate and that being the impact of COVID.

So I guess a big difference we're seeing in the board marketplace, but we're certainly seeing moderation and the question becomes what level of seasonality do you experience in Q4 relative to Q3 given the enormous strength of Q3 and Q2. So those are kind of the qualitative factors to consider in looking at our guidance. There are certainly things could be better, but we're not necessarily our keys on things that are very difficult to estimate given the volatility in post COVID.

Ken McBride -- Chief Executive Officer

George, you mentioned the surcharges, I just wanted to comment on that really quickly. The UPS surcharges are not being applied to our customers. So we are not seeing those come through. Of course the USPS surcharges are across the board to all their customers.

So there is a little bit of increase there, but generally speaking, I don't think we're expecting to see a big impact from the surcharges coming Q4.

George Sutton -- Craig-Hallum Capital Group -- Analyst

I don't know if this is helpful, but I know my wife was an extremely aggressive e-commerce buyer in Q2 and Q3 and has absolutely no plans to let up for Q4. So I don't know if that's helpful. Relative to -- just here to help, so there was a very interesting webinar that Ali Baba did with ShipStation and they brought up a couple of things that I don't think you brought up and I just want to confirm that, one was that you plan to expand was an additional five countries internationally in 2021 and also that there was some pretty significant work you're doing it sounds like with Ali Baba on the B2B functionality and traditional it's been a B2C players. So I am curious if you can give your perspective there.

Ken McBride -- Chief Executive Officer

Yeah. I think you're accurate in both of those statements. I think that we talked about Ali Baba back in July and it was an initial integration an initial integration and so what we've done as time goes on, we gotten a better and better relationship going at Ali Baba and most recently in October, we announced that we're broadening our partnership and deepening our partnership with Ali Baba. So we're now able to offer solutions for the B2B merchants in the U.S., the one selling on Ali Baba.com so that they're able to you ShipStation to process and fulfill their ship orders more directly from Ali Baba.

So we are the very first one in the U.S. every to integrate with Obama.com, and we're extreme excited about the relationship.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Lastly, if I could ask about the cash level, which is significant and obviously up quite a bit to $390 million. Jeff, could you just give us an operating cash flow number? I am curious how much came from operating cash flow versus the option exercise?

Jeff Carberry -- Chief Financial Officer

Yeah. So in terms of the option interest drivers, it was significant -- that was the primary driver for the decrease in the tax rate. So from an option exercise amounts, let me pull that for you.

Ken McBride -- Chief Executive Officer

So while we're pulling that, do you have any more questions?

George Sutton -- Craig-Hallum Capital Group -- Analyst

No, that's it. Thank you.

Ken McBride -- Chief Executive Officer

We'll circle that by the end.

Operator

Our next question comes from Allen Klee with National Securities. Please proceed with your question.

Allen Klee -- National Securities -- Analyst

Yes. Hi. Could you kick in a little on international in terms of what you think the key drivers were on the growth rate there and how your view is of how that -- why that's any different from the in the U.S. and in your outlook, how you think about that compared to the U.S.?

Jeff Carberry -- Chief Financial Officer

Sure. I think that we've seen -- I think we've -- I mentioned that we saw 140% year-over-year growth in shipments and as you know, we've been really focused to date on the English-speaking areas of the world; Canada, the U.K. and Australia and so I think it's more just going in and doing partnerships and carry relationships in those markets and beginning to market our solution in those markets. So we've seen great success albeit or early -- very early in the process in those countries and learning a lot about where it takes to market the solution.

And so we're particularly excited now about our first non-English version that we just launched. It's the French version of ShipStation. We're starting out with the French-speaking portions of Canada to get some experience with that solution first and then we expect to as we gain some perspective on any issues that we might encounter with the new language, we expect to start to launch that in France during the fourth quarter, and then we're wrapping up some final beta testing on that Spanish-language version of ShipStation. So that's particularly exciting as well with some of the partnerships like MercadoLibre that we mentioned allows us to go after Latin American market.

So I think it's just continuing to build our capabilities development wise, do the partnerships we need to do in those countries, add the carriers we need to add in those countries and then just starting to do the marketing.

Allen Klee -- National Securities -- Analyst

Thank you. And my other question is how do you think about how your mix is going to be impacting your gross margin going forward compared to where it's running now?

Jeff Carberry -- Chief Financial Officer

So I think as it relates to gross margin, as we continue to see growth in shipping and as we actually ship more toward shipping revenue as opposed to mailing revenue, you're going to see some natural lift in gross margin. We're certainly not going to forecast, we're ultimately not sure where it ultimately comes out that still obviously moving in the directly from shipping, but certainly I'd expect to see gross margins move up as the shipping come out of our business relative to the non-shipping partners.

Allen Klee -- National Securities -- Analyst

Thank you so much. Good job on the quarter.

Jeff Carberry -- Chief Financial Officer

And then an answer to the previous question and I want to make sure we got precise numbers. So in terms of operating free flow ex pro forma expenses, $79.8 million for the quarter in terms of cash generated from option interest levels that was $76.4 million for the quarter.

Operator

Thank you. Our next question comes from Kevin Liu with K. Liu & Company. Please proceed with your question.

Kevin Liu -- K. Liu & Company

Hi. Good afternoon, and congrats on the strong results as well. I wanted to circle back on your guidance for the year, obviously you're being conservative in light of COVID, you did mention you expect to see the normal seasonal bump, but in that contact, you guidance right now suggest Q4 is actually lower from a revenue perspective than in current quarters. So I just wanted to clarify that there was no sort of change within your relationships with other integration partners or carrier partner and that this is purely just you guys being conservative as usual?

Ken McBride -- Chief Executive Officer

Yeah. It's a good question. So if you look year over year, obviously, there is growth there, obviously. On a relative basis, relative to Q3, sequentially it does imply a down Q4 relative to Q3, which obviously differs from circle patterns.

So again, it's really a function of what we potentially expect to see a seasonal bump around the holidays. There is a factor there which is moderation amounting to extremely high Q2 and Q3 levels. So based on the guidance, we expect to see the back half of the year higher than the front half of the year but you do you have this artifact given that the level of moderation that certainly very well could happen in Q4 relative to Q3 a sequential decline in Q4. Again I'd be very happy to be wrong, but certainly we do.

In fact we see moderation in shipping levels, so the question becomes how high is Q4 going to be? Do you still have that same level of seasonality given how much consumption is possibly been brought forward from Q4 into Q2 and Q3. So it is certainly conservative, but entirely potentially realistic, a potential outcome that's very U.S. as well in terms of anticipated guidance range that's high end at least.

Jeff Carberry -- Chief Financial Officer

To add an additional comment you asked about whether there is anything specific to our business internally? The answer is no. Everything is continuing to move forward positively. We're not seeing any internal changes in partnership or carrier relationships or anything like that that's driving us to give the guidance. I think it's more just wanting to be conservative and predicting the macro factors is challenging for any company at this point, and we just want to make sure we're conservative as we move into Q4.

Kevin Liu -- K. Liu & Company

Certainly appreciate that color. The other question I had was on just the ramp up of this EPS relationship. I know early on the focus was on your multicarrier platforms. Maybe talk about what penetration you got from an account perspective there in terms of who is actually contributing to that EPS growth if you can? And then beyond that, I think I just saw Stamps.com formally announce that with that platform just a week ago.

So wondering how you expect kind of the pacing of those accounts coming in the program to be given that it looks like there has to be some on your customer's part?

Ken McBride -- Chief Executive Officer

Well, in terms of your first question, in terms of UPS partnership, I think we're just starting to build that partnership and reviewing it as a very long-term, very strategic partnership for us. We're excited about the adoption we've seen so far albeit on a small base. I think our volumes have grown very rapidly. We saw a 6x increase in the second quarter, and then it almost doubled again, sorry up 50% nearly 50% in the third quarter.

And I think in the fourth quarter, it's an interesting environment for adoption because we're looking at the situation where UPS is less expensive than USPS even down to the really smaller packages, not first class but for the priority mail packages and so that'll be something that we highlight as customers go into print. USPS labels, we'll certainly point out that they can save money by switching to UPS from USPS and making sure that we always deliver the best solution for our customers. I am not sure if that's going to continue longer term. The USPS surcharges really just during the fourth quarter at this point, but I think we're seeing adoption continuing.

We're pushing the solution in ShipStation. Initially, we've now rolled it out across all of our products and so additional marketing, pushing it out there with emails and webinars and additional marketing as we do pop-ups and other things. So we thought we're just getting started with UPS relationship and we're reviewing it as a very real great long-term multiyear partnership at this point. Go ahead.

Kevin Liu -- K. Liu & Company

Sorry. I think you pretty much answered in terms of how you expect things to turn out, the other part of that question and spin around as you build it up stamps.com customers, it looks like they might have to whereas early on you guys kind of turned it on gradually. So just curious how that affects adoption rate UPS during the holiday period?

Ken McBride -- Chief Executive Officer

Yeah, no, we're taking the same approach with everybody at this point. We did have maybe some slight differences as we initially rolled it out, but now when the customer comes in, when they sign up, all they have to do is click agree basically. The solution is there, the rates are in their, the capabilities in there. It's being run to the same what we call the wallet, which is kind of our single balance.

So when a customer puts her credit card in and buys funds, you're able to use those funds for either USPS or UPS. So it doesn't take anything other than a click to accept the terms and conditions and that's it. It's as simple as a guess, which is why we're so excited about it. It's -- we're up front in centers, customers come in and like I mentioned, with more attractive rates that UPS is providing for the customers, we expect to see some good adoption this quarter and ongoing.

Kevin Liu -- K. Liu & Company

And just lastly for me, more of a housekeeping item, on the balance sheet, the other assets seem to jump up quite a bit from Q2 to Q3, just wondering what that was attributed to?

Jeff Carberry -- Chief Financial Officer

It's really going to be a new lease that we signed and we'll quite capitalize for weeks. So no cash flow impact we see increase in assets and liabilities for weeks. So that's the primary driver.

Operator

[Operator instructions] Our next question comes from Allen Klee with National Securities. Please proceed with your question.

Allen Klee -- National Securities -- Analyst

Yeah. Hi. Last quarter, you said that your customer acquisition costs was down around 50%. You were kind of taking advantage of that.

I'm not sure if you had a metric like that if I heard something for this quarter. If you did and then what is that doing in terms of how you're thinking about your spin rate on sales and marketing? Thank you.

Jeff Carberry -- Chief Financial Officer

Yeah. We did say that our customer acquisition cost was down 30% year over year for the third quarter, and so we're seeing good strength across all the channels from TV to online marketing, direct mail is doing great, radio, particularly online -- online podcast and another online streaming have all done extremely well. So we're seeing record growth in acquisition, and likewise, we're seeing record low cost per acquisition. So lifetime value is several multiples higher than the acquisition cost and we're seeing great ROI on those dollars that we're spending and I think we're continuing to ramp that up aggressively in terms of the spend.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call back over to management for any closing remarks you may have.

Ken McBride -- Chief Executive Officer

Thanks for joining us. And as always, if you have any questions, you can contact us through our Investor Relations hotline is investor.stamps.com. Thank you.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Suzanne Park -- Vice President of Finance

Ken McBride -- Chief Executive Officer

Jeff Carberry -- Chief Financial Officer

George Sutton -- Craig-Hallum Capital Group -- Analyst

Allen Klee -- National Securities -- Analyst

Kevin Liu -- K. Liu & Company

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