SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See ~~the~~ definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b‑2 of the Exchange Act. (Check one):



~~Large accelerated filer~~	Large accelerated filer þ Accelerated filer o þ	~~Accelerated filer~~	☐

~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐

~~Emerging growth company~~	☐

Non-accelerated filer o Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

As of October 31, ~~2019,~~2020, there were ~~17,073,665~~18,235,902 shares of the Registrant's Common Stock outstanding.

STAMPS.COM INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 30, ~~2019~~2020

TABLE OF CONTENTS



			Page
PART I - FINANCIAL INFORMATION			1

	ITEM 1.	FINANCIAL STATEMENTS	1

	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2426

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39

	ITEM 4.	CONTROLS AND PROCEDURES	39

PART II - OTHER INFORMATION			40

	ITEM 1.	LEGAL PROCEEDINGS	40

	ITEM1A.	RISK FACTORS	40

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41

	ITEM 4.	MINE SAFETY DISCLOSURES	41

	ITEM 5.	OTHER INFORMATION	42

	ITEM 6.	EXHIBITS	43

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
Assets	(Unaudited)						Assets	(Unaudited)
Current assets:							Current assets:
Cash and cash equivalents	$	143,487		$	113,757		Cash and cash equivalents	$	389,618	$	156,307
Accounts receivable, net	66,306			83,595			Accounts receivable, net	60,220		74,898
Current income taxes	—			8,465			Current income taxes	17,696		300
Prepaid expenses	18,164			13,072			Prepaid expenses	17,582		20,447
Other current assets	16,996			10,722			Other current assets	52,695		22,731
Total current assets	244,953			229,611			Total current assets	537,811		274,683
Property and equipment, net	33,684			36,337			Property and equipment, net	33,008		32,983
Goodwill	374,090			381,710			Goodwill	380,708		384,540
Intangible assets, net	143,998			163,859			Intangible assets, net	126,008		145,063
Deferred income taxes, net	29,874			29,874			Deferred income taxes, net	27,056		27,056
Lease right-of-use assets	18,247			—			Lease right-of-use assets	60,159		17,697
Other assets	18,954			11,383			Other assets	45,636		20,474
Total assets	$	863,800		$	852,774		Total assets	$	1,210,386	$	902,496
Liabilities and Stockholders' Equity							Liabilities and Stockholders' Equity
Current liabilities:							Current liabilities:
Accounts payable and accrued expenses	$	125,465		$	133,626
Accounts payable and other current liabilities							Accounts payable and other current liabilities	$	190,274	$	121,853
Deferred revenue	7,665			7,159			Deferred revenue	9,895		8,015
Current portion of debt, net of debt issuance costs	12,001			10,454			Current portion of debt, net of debt issuance costs	0		50,188
Current portion of lease right-of-use liabilities	4,313			—			Current portion of lease right-of-use liabilities	5,942		4,612
Total current liabilities	149,444			151,239			Total current liabilities	206,111		184,668
Long-term debt, net of debt issuance costs	41,188			50,189

Deferred income taxes, net	14,781			18,665			Deferred income taxes, net	11,159		11,455
Long-term portion of lease right-of-use liabilities	15,132			—			Long-term portion of lease right-of-use liabilities	54,858		14,191
Other liabilities	21,009			19,016			Other liabilities	29,619		26,557
Total liabilities	241,554			239,109			Total liabilities	301,747		236,871
Commitments and contingencies (Note 3)							Commitments and contingencies (Note 3)
Stockholders' equity:							Stockholders' equity:
Common stock, $.001 par value per share; Authorized shares: 47,500 in 2019 and 2018; Issued shares: 33,128 in 2019 and 33,042 in 2018; Outstanding shares: 17,103 in 2019 and 17,662 in 2018	56			56
Common stock, $0.001 par value per share; Authorized shares: 47,500 in 2020 and 2019; Issued shares: 34,507 in 2020 and 33,130 in 2019; Outstanding shares: 18,203 in 2020 and 17,029 in 2019							Common stock, $0.001 par value per share; Authorized shares: 47,500 in 2020 and 2019; Issued shares: 34,507 in 2020 and 33,130 in 2019; Outstanding shares: 18,203 in 2020 and 17,029 in 2019	57		56
Additional paid-in capital	1,085,829			1,049,669			Additional paid-in capital	1,249,420		1,098,426
Treasury stock, at cost, 16,025 shares in 2019 and 15,380 in 2018	(587,193		)	(528,529		)
Treasury stock, at cost, 16,305 shares in 2020 and 16,101 shares in 2019							Treasury stock, at cost, 16,305 shares in 2020 and 16,101 shares in 2019	(627,360)		(593,511)
Retained earnings	130,607			91,712			Retained earnings	283,132		150,941
Accumulated other comprehensive income (loss)	(7,053		)	757			Accumulated other comprehensive income (loss)	3,390		9,713
Total stockholders' equity	622,246			613,665			Total stockholders' equity	908,639		665,625
Total liabilities and stockholders' equity	$	863,800		$	852,774		Total liabilities and stockholders' equity	$	1,210,386	$	902,496

The accompanying notes are an integral part of these consolidated financial statements.

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(In thousands, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Revenues:
Service $ 124,643
$ 127,810
$ 375,979
$ 373,932
Product 5,116
4,705
15,306
15,276
Insurance 3,106
4,023
9,871
12,684
Customized postage 3,307
6,957
9,792
14,755
Other —
12
—
52
Total revenues 136,172
143,507
410,948
416,699
Cost of revenues (exclusive of amortization of intangible assets, which is included in general and administrative expense):

Service 34,040
25,102
98,727
68,361
Product 1,602
1,383
4,824
4,614
Insurance —
933
—
2,945
Customized postage 2,560
5,706
7,431
12,173
Total cost of revenues 38,202
33,124
110,982
88,093
Gross profit 97,970
110,383
299,966
328,606
Operating expenses:

Sales and marketing 33,058
26,743
99,181
78,280
Research and development 20,281
14,432
56,725
38,845
General and administrative 28,980
24,916
82,743
71,119
Total operating expenses 82,319
66,091
238,649
188,244
Income from operations 15,651
44,292
61,317
140,362
Foreign currency exchange gain (loss), net (38 ) (957 ) (285 ) (957 )
Interest expense (589 ) (668 ) (1,948 ) (1,908 )
Interest income and other income, net 53
83
170
175
Income before income taxes 15,077
42,750
59,254
137,672
Income tax expense 5,929
9,337
20,359
11,691
Net income $ 9,148
$ 33,413
$ 38,895
$ 125,981
Net income per share:

Basic $ 0.53
$ 1.84
$ 2.24
$ 7.02
Diluted $ 0.52
$ 1.75
$ 2.19
$ 6.69
Weighted average shares outstanding:

Basic 17,144
18,161
17,326
17,942
Diluted 17,441
19,046
17,753
18,822

The accompanying notes are an integral part of these consolidated financial statements.

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The accompanying notes are an integral part of these consolidated financial statements.

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Other Comprehensive Income (Loss)

The accompanying notes are an integral part of these consolidated financial statements.

~~STAMPS.COM~~STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ~~(CONTINUED)~~

Other Comprehensive Income (Loss)

The accompanying notes are an integral part of these consolidated financial statements.

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

We prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States ~~(U.S.)~~(US) generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading. We recommend that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~1, 2019.~~2, 2020.

In our opinion, these unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly our financial position as of September 30, ~~2019,~~2020, our results of operations for the three and nine months ended September 30, ~~2019,~~2020, and our cash flows for the nine months ended September 30, ~~2019.~~2020. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2019.~~2020.

Basis of Consolidation

The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of Stamps.com Inc. and the entities in which we have 100% voting and/or economic control, which includes Auctane LLC (ShipStation), Interapptive, Inc. (ShipWorks), MetaPack Limited (MetaPack), PhotoStamps Inc., PSI Systems, Inc. (Endicia), and ShippingEasy Group, Inc. (ShippingEasy).control. In August 2018, we completed our acquisition of 100% of the outstanding shares of MetaPack. Please see Note 2 - “Acquisitions” in our Notes to Consolidated Financial Statements for further description. References in this Report to "we" "us" "our" or "Company" are references to Stamps.com Inc. and its subsidiaries.

Intercompany accounts and transactions between consolidated entities have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with ~~U.S.~~US GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. There are significant estimates and judgments inherent in the preparation of the consolidated financial statements including those related to the fair value of intangible assets and ~~liabilities~~goodwill and the allowance for ~~allocation~~credit losses.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the consolidated financial statements for the period ended September 30, 2020. As events continue to evolve and additional information becomes available, our assumptions and estimates may change materially in future periods.

Accounts Receivable

Our accounts receivable relate to mailing and shipping services, postage purchasing and invoicing, customized postage sales, branded insurance provided to customers prior to billing, and other receivables.

We maintain an allowance for credit losses for expected uncollectible accounts which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We evaluate collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers with known collectability issues. The evaluation is based on a combination of factors. If we become aware of a customer’s inability to meet its financial obligations, an allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible. Beginning January 1, 2020, as part of the ~~purchase price~~adoption of ~~companies acquired.~~ASU 2016-13 as described below in Accounting Guidance Adopted in 2020, we recognize allowances for credit losses for all other customers based on either the age of the receivable or applying a loss rate method which incorporates historical experience and an evaluation of macroeconomic factors. As a result of the adoption, we recorded an immaterial increase to our allowance for credit losses which included the estimated impact of COVID-19 on the collectability of our accounts receivable.

~~Prior Period Reclassifications~~As additional information becomes available to us, our future assessment of our allowance for credit losses could materially and adversely impact our consolidated financial statements in future reporting periods.

~~Certain amounts in prior periods have been reclassified to conform with current period presentation.~~The allowance for credit losses on accounts receivable was approximately $10.5 million and $6.9 million as of September 30, 2020 and December 31, 2019, respectively.

Business Combinations

The acquisition method of accounting is used for business combinations. The results of operations of acquired businesses are included in our consolidated financial statements prospectively from the date of acquisition. The fair value of purchase consideration is allocated to the assets acquired and liabilities assumed from the acquired entity and is generally based on their fair value at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. Historically, the primary items that have generated goodwill include anticipated synergies between the acquired business and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related expenses are recognized in our consolidated financial statements as incurred.

~~Table of Contents~~

~~STAMPS.COM INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Contingencies and Litigation

In the ordinary course of business, we are subject to various litigation matters as a claimant and a defendant. We record any amounts recovered in these matters when received. We establish loss provisions for claims against us when the loss is both probable and can be reasonably estimated. If either or both of the criteria are not met, we assess whether there is at least a reasonable possibility that a loss, or additional losses, may have been incurred. If there is a reasonable possibility that a loss or additional loss may have been incurred for such proceedings, we disclose the estimate of the amount of loss or possible range of loss, or disclose that an estimate of loss cannot be made, as applicable.

Deferred Revenue

Our deferred revenue relates mainly to service revenue, which generally arises due to the timing of payment versus the provision of services for certain customers billed in advance. Approximately $7.8 million of revenue recognized in the nine months ended September 30, 2020 was included in the deferred revenue balance at December 31, 2019. Approximately $6.0 million of revenue recognized in the nine months ended September 30, 2019 was included in the deferred revenue balance at December 31, 2018. ~~Approximately $2.6 million of revenue recognized in the nine months ended September 30, 2018 was included in the deferred revenue balance at December 31, 2017.~~

Fair Value of Financial Instruments

Carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities. ~~The Company’s~~Prior to June 30, 2020, the Company had outstanding debt held by ~~third-party~~third party financial institutions isand this was carried at cost, adjusted for debt issuance costs. The Company’s debt iswas not publicly traded and the carrying amount typically ~~approximates~~approximated fair value for debt that ~~accrues~~accrued interest at a variable rate for companies with similar financial characteristics as the Company, which ~~are~~were considered Level 2 fair value inputs as defined in Note 8 in our Consolidated Financial Statements.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Foreign Currency Translation

The functional currency of the Company’s major foreign subsidiaries is generally the local currency. Adjustments resulting from translating foreign functional currency financial statements into ~~U.S.~~US dollars are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in foreign currency exchange gain (loss), net. All assets and liabilities denominated in a foreign currency are translated into ~~U.S.~~US dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business ~~combination.~~combinations. We are required to test goodwill for impairment annually and whenever events or circumstances indicate the fair value of a reporting unit may be below its carrying value. A reporting unit is the operating segment or a business that is one level below that operating segment. Reporting units are aggregated as a single reporting unit if they have similar economic characteristics.

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~~STAMPS.COM INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Goodwill is reviewed for impairment annually on October 1 utilizing either a qualitative ~~assessment~~ or ~~a two-step process.~~quantitative assessment. We have an option to make a qualitative assessment of a reporting unit's goodwill for impairment. If we choose to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When we perform the ~~two-step process, the first step requires us to~~quantitative assessment, we compare the fair value of the reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is required. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of the reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. As of September 30, ~~2019,~~2020, we are not aware of any indicators of impairment that would require an impairment analysis other than our annual goodwill impairment analysis.

Indefinite-lived intangible assets are reviewed for impairment annually on October 1 and whenever events or circumstances indicate that the fair value of an indefinite-lived intangible asset may be below its carrying value. In assessing other intangible assets not subject to amortization for impairment, the Company also has the option to perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of such an intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of such an intangible asset is less than its carrying amount, then the Company is not required to perform any additional tests for assessing those intangible assets for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative impairment test that involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. As of September 30, ~~2019,~~2020, we are not aware of any indicators of impairment that would require an impairment analysis other than our annual indefinite-lived intangible assets impairment analysis.

Long-Lived Assets and Finite-Lived Intangible Assets

Long-lived assets including intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

We account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful life of the asset, generally three to five years for furniture, fixtures, and equipment and ten to forty years for building and building improvements. Leasehold improvements are capitalized and amortized over the shorter of the useful life of the asset or the remaining term of the lease. We have a policy of capitalizing expenditures that materially increase assets' useful lives and charging ordinary maintenance and repairs to operations as incurred. When property or equipment is disposed of, the cost and related accumulated depreciation and amortization are removed, and any gain or loss is included in income from operations.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We are subject to income taxes in the US and ~~Foreign~~foreign jurisdictions. We provide for income taxes at the current and future enacted tax rate and consistent with the laws applicable in each jurisdiction. We account for income taxes in accordance with Financial Accounting Standards Board (FASB) ~~ASC~~Accounting Standards Codification (ASC) Topic No. 740, Income Taxes (Income Taxes), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Income Taxes also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation allowance to reduce our gross deferred tax assets to the amount that is more likely than not (a likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with Income Taxes based on all available positive and negative evidence.

~~On January 1, 2019, we adopted a new lease accounting standard (ASC Topic No. 842,~~ ~~Leases) (Leases) that sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. For information regarding the impact of adoption, see “Summary of Significant Accounting Policies - Accounting Guidance Adopted in 2019~~.”

~~Under~~ ~~Leases, we~~We determine if an arrangement is a lease at inception. Right-of-use (ROU) assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. For this purpose, we consider only payments that are fixed and determinable at the time of commencement. As most of our leases do not provide an implicit rate, the interest rate used to determine the present value of future lease payments is an estimated incremental borrowing rate. Many of our leases include one or more options to renew. These options are factored into the determination of the lease term and lease payments when their exercise is considered to be reasonably certain.

Our lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. We elected the practical expedient to combine fixed payments for non-lease components with our lease payments and account for them together as a single lease component which increases the amount of the ROU assets and liabilities.

We also elected to ~~keep~~recognize the associated lease payments for leases with an initial term of 12 months or less ~~off the balance sheet and recognize the associated lease payments~~ in the consolidated statements of ~~income~~operations on a straight-line basis ~~over the lease term.~~without recognizing a ROU asset or liability.

Operating leases are included in lease right-of-use assets, current portion of lease right-of-use liabilities, and long-term portion of lease right-of-use liabilities on our consolidated balance sheets. Operating lease expense is recognized on a straight-line basis over the lease term in income from operations on our consolidated statements of ~~income.~~operations.

Other Current Assets

Other current assets principally consist of prepayments for postage and shipping labels and inventory. Prepayments for postage and shipping labels totaled $48.7 million at September 30, 2020 and $17.4 million at December 31, 2019.

Other liabilities principally consist of long-term unrecognized income tax benefits, as well as indirect tax liabilities and other liabilities.

We recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Our payment terms vary by the products and services offered. The term between billings and when payment is due is not significant.

Revenues are presented on a disaggregated basis on the consolidated statements of operations.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Service revenue is recognized over time for each month that customers have access to our platform or at a point in time when assets are transferred to the customer. We earn service revenue from our mailing and shipping operations in several different ways: (1) customers may pay us a monthly fee, based on a subscription plan which may be waived or refunded for certain customers, for which we provide them access to our platform, in which case revenue is earned over the period of time that the customers have access to the platform which is typically month-to-month; (2) we ~~have been, and in the future potentially could~~may be compensated directly by ~~the USPS and/or other~~our carriers for shipping labels printed that meet certain requirements, in which case revenue is earned over time, which is typically in the same month that the relevant labels are printed; (3) we may earn revenue from customers ~~that have access to our platform~~ when they purchase postage, or print shipping labels or perform other transactions using our solutions, in which case revenue is earned at the point in time we transfer an asset to the customer and have a present right of payment for the asset transferred; (4) we may earn revenue that may take the form of some or all of the spread between the rate a customer pays and the rate the carrier or integration partner receives, either charged directly or paid by our partners, in which case revenue is earned at a point in time, which is typically when the customer purchases postage or prints a shipping label; and (5) we may earn other types of revenue shares or other compensation from specific customers that have access to our platform or through integration partners, in which case revenue is recognized at a point in time, which is when we have fulfilled our performance obligations.

In the case of monthly fees based on subscription plans, the Company recognizes a reduction of revenue in the period for which a waiver is granted or when a refund is processed, which is typically the same period in which the associated subscription revenue is recognized or, in the case of refunds, could be a later period. Waivers and refunds were not material to the consolidated financial statements during the nine months ended September 30, 2020 or September 30, 2019.

Customers may purchase ~~postage and other~~ delivery services from ~~the USPS and other~~ carriers through our mailing and shipping solutions. When funds are transferred directly from customers to the carrier, these funds are not recognized as revenue. We also provide mailing and shipping services for which the cost of postage or delivery is included in the cost of the service and, therefore, is recognized as service revenue.

During the second quarter of 2019, we became aware of potential adverse amendments, renegotiations, changes, or termination of certain contracts between the USPS and certain of our strategic partners who are part of the USPS’s reseller program, and through which we derive material revenues and profits (such potential events, collectively the "Reseller Restructuring"); however there is significant uncertainty as to whether, how and when any Reseller Restructuring may be implemented. As such, an estimate of any future financial impact for accounting purposes cannot be made at this time.

Product revenue consists of products sold through the mailing and shipping supplies stores which are available to our customers from within some of our mailing and shipping solutions. Products sold include mailing labels, shipping labels, ~~mailing labels, dedicated postage~~thermal printers, scales, and other mailing and shipping-focused office supplies. We recognize product revenue on product purchases upon ~~delivery~~shipment of ~~the order~~orders to ~~the customer.~~customers.

We provide our customers with the opportunity to purchase parcel insurance directly through our solutions. ~~Beginning on October 1, 2018, insurance~~Insurance revenue represents the amount we receive from customers net of the costs paid to our insurance providers. For the periods presented prior to October 1, 2018, insurance revenue represented the gross amount charged to the customer for purchasing insurance and the insurance cost of revenues represented the amount paid to our insurance providers. We recognize insurance revenue on insurance purchases upon the ship date of the insured package, which is the point in time when we have fulfilled our performance obligations.

Customized postage revenue, which includes the face value of postage, from the sale of customized postage sheets and rolls is recognized upon transfer of control of the product to the customer, which occurs upon our delivery to the carrier. In the second quarter of 2020, we received notification from the US Postal Service (USPS) that it was eliminating its customized postage program and also revoking our authorization to offer products pursuant to that program effective June 16, 2020. As a result, we do not expect material customized postage revenue or cost of revenue after June 2020.

On a limited basis, we allow third parties to offer products and promotions to our customer base. These arrangements generally provide payment in the form of a flat fee or revenue sharing arrangements where we receive payment upon customers accessing third party products and services. Total revenue from such advertising arrangements was not significant during the nine months ended September 30, ~~2019~~2020 or September 30, ~~2018,~~2019, respectively.

~~We have organized our~~Our operations ~~into~~consist of 2 segments: Stamps.com and MetaPack. Please see Note 10 - “Segment and Geographical Information” in our Notes to Consolidated Financial Statements for further description.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Short-Term Financing Obligations

We utilize short-term financing, which is separate from our debt and revolving credit facility, to fund certain Company operations. Short-term financing obligations are included in accounts payable and ~~accrued expenses~~other current liabilities in the accompanying consolidated balance sheets. As of September 30, ~~2019,~~2020, we had ~~$15.3~~$26.2 million in short-term financing obligations and ~~$52.7~~$41.9 million of unused credit. As of December 31, ~~2018,~~2019, we had ~~$23.8~~$1.0 million in short-term financing obligations and ~~$96.7~~$69.5 million of unused credit.

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~~STAMPS.COM INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Stock-Based Compensation

We use the Black-Scholes-Merton option valuation model to estimate the fair value of ~~share-based payment~~option awards on the date of grant, which requires us to use a number of estimates and subjective assumptions, including stock price volatility, expected term, and risk-free interest rates. In the case of options we grant, our assumption of expected volatility is based on the historical volatility of our stock price over the term equal to the expected life of the options. We base the risk-free interest rate on ~~U.S.~~US Treasury zero-coupon issues with a remaining term equal to the expected life of the options assumed at the date of grant. The estimated expected life represents the weighted average period the stock options are expected to remain outstanding, determined based on an analysis of historical exercise behavior.

Trademarks, Trade Names, and Other Intangible Assets (excluding Goodwill)

Acquired trademarks, trade names, and other intangibles (excluding goodwill) include both amortizable and non-amortizable assets and are included in intangible assets, net in the accompanying consolidated balance sheets. Intangible assets are carried at cost less accumulated amortization. Cost associated with internally developed intangible assets is typically expensed as incurred as research and development costs. Amortization of amortizable intangible assets is calculated on a straight-line basis, which is consistent with the expected future cash flows.

During the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, we repurchased approximately 203,000 shares and 644,000 shares ~~and 223,000 shares~~ for ~~$58.6~~$33.8 million and ~~$48.3~~$58.6 million, respectively. Also, in the first quarter of 2019, ~~and the first quarter of 2018,~~ we withheld 1,039 ~~and 21,076 of~~ shares, ~~respectively,~~ to satisfy income tax obligations related to performance-based inducement equity awards issued to the General Manager ~~and the then Chief Technology Officer~~ of ShippingEasy.

Accounting Guidance Adopted in ~~2019~~2020

~~Disclosure Update and Simplification~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the ~~SEC adopted~~FASB issued ASU 2018-15, a standard which aligns the ~~final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure~~capitalization requirements ~~that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity~~ for ~~interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided~~implementation costs incurred in a ~~note~~hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or ~~separate statement.~~obtain internal-use software. The ~~analysis should present~~service element of a ~~reconciliation of the beginning balance to the ending balance of each period for which~~hosting arrangement that is a ~~statement of comprehensive income~~service contract is ~~required~~not affected by this update, meaning service costs will continue to be ~~filed.~~expensed as incurred. The ~~Company adopted~~guidance became effective on a prospective basis for the ~~new presentation for its consolidated statements of stockholders' equity in the first quarter of 2019.~~

~~In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02,~~ ~~Leases~~, a new accounting standard for leases. The new standard generally requires the recognition of financing and operating lease liabilities and corresponding ROU assets on the balance sheet. For financing leases, a lessee recognizes amortization of the ROU asset as an operating expense over the lease term separately from interest on the lease liability. For operating leases, a lessee recognizes its total lease expense as an operating expense over the lease term.

~~We adopted the new guidance~~Company on January 1, ~~2019 using~~2020. The adoption of the ~~modified retrospective transition approach. We elected~~guidance did not have a material impact on the practical expedient to apply the new standard to all leases existing at the date of initial application and not restating comparative periods. We also elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification of finance or operating lease, our assessment on whether a contract was or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019.Company's consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The adoption of the new standard on January 1, 2019 resulted in recording operating lease ROU assets and operating lease liabilities of approximately $11.8 million and $13.6 million, respectively. The adoption did not impact our beginning retained earnings, or our prior year consolidated statements of income and statements of cash flows.

~~For information regarding the accounting policy and required disclosures under the new standard, see~~ ~~“Summary of Significant Accounting Policies - Leases”~~ ~~and~~ ~~Note 11 - “Leases,”~~ ~~respectively~~.

~~Accounting Guidance Not Yet Adopted~~

In January 2017, the FASB issued ASU 2017-04, a standard which simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance ~~will become~~became effective on a prospective basis for the Company on January 1, ~~2020 and is~~2020. The adoption of the guidance did not ~~expected to~~ have a material impact on the Company's consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, a standard which modifies the disclosure requirements on fair value measurements. The guidance became effective for the Company on January 1, 2020. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, a standard that replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We ~~will be~~are required to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. The guidance ~~will become~~became effective for the Company on January 1, 2020 using a modified retrospective ~~approach with early~~approach. The adoption ~~permitted. We are evaluating the impact~~ of ~~adopting~~ this guidance did not have a material impact on the Company's consolidated financial statements.

Accounting Guidance Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, a standard which eliminates certain exceptions to the general principles of ASC Topic 740 Income Taxes. The guidance is effective for reporting periods after December 15, 2020; however, early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued 2020-04, optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The new standard provides expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as the London Interbank Offered Rate (LIBOR), to alternative reference rates, if certain criteria are met. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact of the transition from LIBOR to alternative reference interest rates on our Amended Credit Agreement, as described in Note 13 - "Debt", but do not expect a significant impact to our operating results, financial position or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We have accounted for all of our acquisitions under the acquisition method of accounting in accordance with the provisions of FASB ASC Topic No. 805, Business Combinations.

MetaPack Acquisition

On August 15, 2018, we, through our wholly owned subsidiary Pacific Shelf 1855 Limited (Pacific Shelf), completed the acquisition of MetaPack Limited, a private limited company incorporated in England and Wales, pursuant to a share purchase agreement dated July 24, 2018, as amended (the “Agreement”), by and among certain key sellers named in the Agreement (the “Key Sellers”), MetaPack, Pacific Shelf, and Stamps.com Inc. as Pacific Shelf’s guarantor. MetaPack provides multi-carrier enterprise-level solutions to many of the world’s preeminent e-commerce retailers and brands.

Pursuant to the Agreement and a related agreement to purchase Minority Shares (as defined below), Pacific Shelf acquired 100% of MetaPack’s issued and to be issued share capital by purchasing (i) all of the Key Sellers’ shares of MetaPack, representing approximately 80% of the total outstanding shares and (ii) all other issued and to be issued shares of MetaPack (Minority Shares), for a final adjusted purchase price, for all such shares, of approximately £171 million, or $217.7 million using the August 15, 2018 GBP to USD exchange rate. Total cash paid for the acquisition was funded from cash and investment balances.

Stamps.com granted inducement stock options for an aggregate of 320,250 shares of Stamps.com common stock to 72 new employees after completion of its acquisition of MetaPack. The stock options were granted as inducements material to the new employees entering into employment with Stamps.com, pursuant to the Stamps.com 2018 MetaPack Equity Inducement Plan, which was approved by Stamps.com’s Compensation Committee. The awards were granted without stockholder approval in accordance with Nasdaq Listing Rule 5635(c)(4). Each option vests 25% on the one year anniversary of the grant date with the remaining 75% vesting in approximately equal monthly increments over the succeeding thirty-six months, provided that the option holder is still employed by Stamps.com or one of its subsidiaries on the vesting dates. The stock options have a ten year term and an exercise price equal to closing price of Stamps.com common stock on the grant date of August 15, 2018.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Under the acquisition method of accounting under ASC 805, the total purchase price of the acquired company is allocated to the assets acquired and the liabilities assumed based on their fair values. We have made significant estimates and assumptions in determining the allocation of the purchase price.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The final purchase price of MetaPack has been allocated as follows to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values based on the August 15, 2018 GBP to USD exchange rate (in thousands, except years):

Fair Value Fair Value
Useful Life
(In Years)

Weighted
Average
Estimated
Useful Life
(In Years)
Cash and cash equivalents $ 9,186

Trade accounts receivable 9,767

Other current assets 2,776

Property and equipment 1,039

Goodwill 138,956

Identifiable intangible assets:

Trade names
$ 10,936
12
Developed technology
40,691
16
Customer relationships
49,211
16
Total identifiable intangible assets 100,838

16
Accounts payable and accrued expenses (13,519 )

Deferred revenue (1,145 )

Revolving credit facility (12,716 )
Deferred income tax liability (15,963 )
Other liabilities (1,533 )

Total purchase consideration $ 217,686

The fair value of the assets acquired and liabilities assumed were determined using income, cost and market participant approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820. The identified intangible assets consist of trade names, developed technology, and customer relationships. The estimated fair values of the trade names and developed technology were determined using the “relief from royalty” method. The estimated fair value of customer relationships was determined using the “excess earnings” method. The rate utilized to discount net cash flows to their present values was approximately 15% and was determined after consideration of the overall enterprise rate of return and the relative risk and importance of the assets to the generation of future cash flows. Intangible assets are being amortized on a straight-line basis over their estimated useful lives. Based on the August 15, 2018 exchange rate, we expect the amortization of acquired intangibles will be approximately $1.6 million per quarter for the remaining estimated useful lives.

Goodwill represents the excess of the consideration given over the sum of the fair values assigned to identifiable assets acquired less liabilities assumed in a business combination. The goodwill balance is primarily attributable to the expanded market opportunities for the Company internationally and MetaPack in the United States and the Company's ability to generate future technology. NaN of the goodwill recognized is expected to be deductible for income tax purposes. The goodwill recorded as part of this acquisition is included in the MetaPack segment (see Note 6 - “Goodwill and Intangible Assets” in our Notes to Consolidated Financial Statements).

Immediately following the acquisition, we repaid in full MetaPack's existing revolving credit facility balance of approximately $12.7 million.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

We incurred approximately $2.5 million in transaction costs included in general and administrative expense and $1.0 million of nonrecurring foreign currency exchange loss directly related to the acquisition during the year ended December 31, 2018.

MetaPack revenues and net income included in the Consolidated Statements of Operations for the year ended December 31, 2018 were $20.3 million and $1.5 million, respectively, reflecting activity since the acquisition date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the quarter ended September 30, 2019, the Company identified additional information about facts and circumstances that existed as of the date of the acquisition. As a result, the Company adjusted the value of current and deferred income taxes and other income tax related liabilities. The net effect of these changes, in addition to other immaterial adjustments, resulted in a corresponding decrease to goodwill of $2.5 million based on the August 15, 2018 exchange rate. These adjustments are reflected in the table above.

3. Commitments and Contingencies

We are subject to various routine legal proceedings and claims incidental to our business, and we do not believe that these proceedings and claims would reasonably be expected to have a material adverse effect on our financial position, results of operations, or cash flows.

~~On February 8, 2018, a putative class action complaint was filed against us in a case entitled~~ ~~Juan Lopez and Nicholas Dixon v. Stamps.com, Inc.~~, Case No. 2:18-cv-01101, in the United States District Court for the Central District of California, Western Division, alleging wage and hour claims on behalf of our current and former “non-exempt” hourly call center employees. The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs. On July 24, 2018, we entered into a preliminary settlement that would resolve this matter for a non-material payment to be distributed to the participating class members. On May 20, 2019, the court granted final approval of the settlement.

On February 28, 2019 and March 13, 2019, 2 putative class action complaints were filed against us in the United States District Court for the Central District of California, Western Division. Both cases alleged violations of the Securities Exchange Act of 1934 purportedly on behalf of all those who purchased, or otherwise acquired, Stamps.com common stock between May 3, 2017 and February 21, 2019, and seek class certification, unspecified damages, attorneys' fees and costs. NaN of the 2 putative class actions was dismissed without prejudice, and in the other case, styled as Karinski v. Stamps.com, Inc. et al, Case 2:19-cv-01828 (the “Securities Class Action”), the Court appointed a lead plaintiff and approved lead plaintiff’s selection of lead counsel. Lead plaintiff filed a consolidated complaint in August 2019, purportedly on behalf of all those who purchased, or otherwise acquired, Stamps.com common stock between May 3, 2017 and weMay 8, 2019, alleging violations of the Securities Exchange Act of 1934 based on public disclosures that were purportedly rendered misleading based on certain uses of reseller rates. We filed a motion to dismiss in October ~~2019.~~2019, and our motion to dismiss was granted in part and denied in part in January 2020. We believe that the case is without merit and intend to defend it vigorously. Due to the early stage of the case, neither the likelihood that a loss, if any, will be realized, nor an estimate of the possible loss or range of loss, if any, can be determined.

On May 16, 2019 and May 21, 2019, 2 purported shareholder derivative suits were filed in the United States District Court for the Central District of California, Western Division, alleging breaches of fiduciary duties by officers and/or directors, unjust enrichment, abuse of control, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seeking unspecified damages, attorneys' fees and costs. The 2 cases have been consolidated as In re Stamps.com Stockholder Derivative Litigation, Case 2:19-cv-04272 and co-lead plaintiffs and co-lead counsel have been appointed. ~~The Court has entered a stipulation~~On July 8, 2020, the court granted our motion to ~~stay~~transfer the consolidated ~~derivative case pending~~suits to the ~~outcome~~United States District Court for the District of ~~our anticipated motion to dismiss the Securities Class Action.~~Delaware. We believe that the case is without merit and intend to defend it vigorously. Due to the early stage of the case, neither the likelihood that a loss, if any, will be realized, nor an estimate of the possible loss or range of loss, if any, can be determined.

On August 19, 2019, a purported shareholder derivative suit was filed against us in a case titled City of Cambridge Retirement System v. Kenneth T. McBride, et al, Case No. 2019-0658-AGB, in the Delaware Court of Chancery, alleging breaches of fiduciary duties by officers and/or directors, insider trading, waste of corporate assets, and unjust enrichment. We filed a motion to dismiss in October 2019. We believe that the case is without merit and intend to defend this case vigorously. Due to the ~~recent filing date~~early stage of the case, neither the likelihood that a loss, if any, will be realized, nor an estimate of the possible loss or range of loss, if any, can be determined.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

On October 3, 2019, a purported shareholder derivative suit was filed against us in a case titled Harvey v. Kenneth T. McBride, et al, Case No. 1:19-cv-01861-CFC, in the United States District Court for the District of Delaware, alleging breaches of fiduciary duties by officers and/or directors, unjust enrichment, waste of corporate assets, and violations of the Securities Exchange Act of 1934. The Court has entered a stipulation to stay the derivative case pending the outcome of the derivative lawsuit pending in the Delaware Court of Chancery. We believe that the case is without merit and intend to defend this case vigorously. Due to the ~~recent filing date~~early stage of the case, neither the likelihood that a loss, if any, will be realized, nor an estimate of the possible loss or range of loss, if any, can be determined.

The Company had ~~not~~0t accrued any material amounts related to any of the Company’s legal proceedings as of September 30, ~~2019~~2020 or December 31, ~~2018.~~2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Although management at present believes that the ultimate outcome of the various proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations, cash flows, or overall trends, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or other events could occur. An unfavorable outcome for an amount in excess of management's present expectations may result in a material adverse impact on our business, results of operations, financial position, and overall trends.

Our significant contractual obligations and commercial commitments (other than debt commitments) consist of operating lease obligations as of September 30, ~~2019.~~2020. Please see Note 11 - “Leases” for additional information.

4. Net Income per Share

The following table reconciles share amounts utilized to calculate basic and diluted net income per share (in thousands, except per share data):

The calculation of dilutive shares excludes the effect of the following options that are considered anti-dilutive (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Anti-dilutive stock options	123	2,254	776	1,905

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Stock-Based Compensation

We account for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options and RSUs, to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award. Starting in the third quarter of fiscal 2016 through the fourth quarter of fiscalIn 2018, our stock-based compensation expense included performance-based inducement equity awards relating to the ShippingEasy acquisition. Starting in the third quarter of fiscal 2018, our stock-based compensation expense included inducement equity awards relating to the MetaPack acquisition as described in Note 2 - "Acquisitions."

The following table sets forth the stock-based compensation expense that we recognized for the periods indicated (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Stock-based compensation expense relating to:
Stock options	$	9,610	$	11,184	$	32,682	$	29,128
Employee stock purchases	550		569		1,424		1,339
Total stock-based compensation expense	$	10,160	$	11,753	$	34,106	$	30,467
Stock-based compensation expense relating to:
Cost of revenues	$	933	$	856	$	2,777	$	2,057
Sales and marketing	2,466		2,692		7,135		7,031
Research and development	3,110		2,874		8,935		7,668
General and administrative	3,651		5,331		15,259		13,711
Total stock-based compensation expense	$	10,160	$	11,753	$	34,106	$	30,467

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Stock-based compensation expense relating to:
Stock options $ 11,184
$ 8,500
$ 29,128
$ 25,198
Employee stock purchases 569
411
1,339
1,151
Total stock-based compensation expense $ 11,753
$ 8,911
$ 30,467
$ 26,349
Stock-based compensation expense relating to:

Cost of revenues $ 856
$ 785
$ 2,057
$ 1,998
Sales and marketing 2,692
1,816
7,031
4,818
Research and development 2,874
2,001
7,668
5,593
General and administrative 5,331
4,309
13,711
13,940
Total stock-based compensation expense $ 11,753
$ 8,911
$ 30,467
$ 26,349

The following are the weighted average assumptions used in the Black-Scholes-Merton option valuation model for stock options granted in the periods indicated:

6. Goodwill and Intangible Assets

~~Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in business combinations.~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table summarizes goodwill as of December 31, ~~2018~~2019 and September 30, ~~2019~~2020 (in thousands):

We have amortizable and non-amortizable intangible assets consisting of trademarks, trade names, developed technology, non-compete agreements, customer relationships, and other. The gross carrying amount of amortizable and non-amortizable intangible assets was ~~$223.1~~$226.8 million at September 30, ~~2019~~2020 and ~~$226.5~~$229.4 million at December 31, ~~2018.~~2019. Non-amortizable assets of $11.4 million as of both September 30, ~~2019~~2020 and December 31, ~~2018~~2019 consist primarily of the trade name relating to the Endicia acquisition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes our amortizable intangible assets as of September 30, ~~2019~~2020 (in thousands, except years):

The following table summarizes our amortizable intangible assets as of December 31, ~~2018~~2019 (in thousands, except years):

We recorded amortization of intangible assets totaling approximately $5.5 million and $16.5 million for the three and nine months ended September 30, 2020, respectively. We recorded amortization of intangible assets totaling approximately $5.5 million and $16.7 million for the three and nine months ended September 30, 2019, respectively. ~~We recorded amortization of intangible assets totaling approximately $4.8 million and $12.8 million for the three and nine months ended September 30, 2018, respectively.~~ Amortization of intangible assets is included in general and administrative expense in the accompanying consolidated statements of ~~income.~~operations.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Our estimated amortization expense for the next five years and thereafter is as follows (in thousands):


Twelve Month Period Ending September 30,	Estimated Amortization Expense
2021	$	21,002
2022	12,185
2023	9,654
2024	9,613
2025	7,074
Thereafter	55,091
Total	$	114,619

Twelve Month Period Ending September 30,
Estimated
Amortization
Expense
2020 $ 21,853
2021 20,730
2022 11,807
2023 9,372
2024 9,331
Thereafter 59,516
Total $ 132,609

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our income tax benefit was $9.5 million and our income tax expense was $6.6 million for the three and nine months ended September 30, 2020, respectively. Our income tax expense was $5.9 million and $20.4 million for the three and nine months ended September 30, 2019, respectively. ~~Our income tax expense was $9.3 million and $11.7 million for the three and nine months ended September 30, 2018, respectively.~~ Income taxes expected at the ~~U.S.~~US federal statutory income tax rate of 21 percent differ from the reported income tax expense primarily as a result of permanent tax adjustments for non-deductible expenses, state taxes, and tax benefits from research and development tax credits and exercises of stock awards.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we have recorded a valuation allowance of ~~$1.4~~$2.1 million and ~~$1.2~~$1.7 million, respectively, against certain state research and development credits for which we believe it is more likely than not that these deferred tax assets will not be realized. ~~We also~~

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in the US to provide certain relief as a result of the COVID-19 pandemic. The CARES Act is not expected to have ~~recorded~~ a ~~valuation allowance against the activity of certain foreign jurisdictions.~~material impact on our consolidated financial statements.

8. Fair Value Measurements

Financial assets measured at fair value on a recurring basis are classified in one of the three categories described below:

Level 1 - Valuations based on unadjusted quoted prices for identical assets in an active market

Level 2 - Valuations based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets

Level 3 - Valuations based on inputs that are unobservable and involve management judgment and our own assumptions about market participants and pricing

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following tables summarize our financial assets measured at fair value on a recurring basis as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


			Fair Value Measurement at Reporting Date Using
Description	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	389,618	$	389,618	$	0	$	0
Total	$	389,618	$	389,618	$	0	$	0

Fair Value Measurement at Reporting Date Using

Description
September 30, 2019
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents $ 143,487
$ 143,487
—
—
Total $ 143,487
$ 143,487
—
—

Fair Value Measurement at Reporting Date Using

Description
December 31, 2018
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents $ 113,757
$ 113,757
—
—
Total $ 113,757
$ 113,757
$ —
—


			Fair Value Measurement at Reporting Date Using
Description	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	156,307	$	156,307	$	0	$	0
Total	$	156,307	$	156,307	$	0	$	0

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Cash and Cash Equivalents

Our cash equivalents consisted of money market funds at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. We consider all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had no material investments.

The following tables summarize our cash and cash equivalents as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	December 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Cash and cash equivalents:
Cash	$	149,508	$	0	$	0	$	149,508
Money market	6,799		0		0		6,799
Cash and cash equivalents	$	156,307	$	0	$	0	$	156,307

December 31, 2018

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value
Cash and cash equivalents:
Cash $ 107,118
—
—
$ 107,118
Money market 6,639
—
—
6,639
Cash and cash equivalents $ 113,757
—
—
$ 113,757

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~~STAMPS.COM INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

10. Segment Information and Geographic Data

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (CODM) for purposes of allocating resources and evaluating financial performance. The Company's Chairman and Chief Executive Officer has been identified as the CODM as defined by guidance regarding segment disclosures.

The Company’s reportable segments have been determined based on the distinct nature of their operations and customer bases, and the financial information that is evaluated regularly by the CODM. ~~Following the MetaPack acquisition (see Note 2) in 2018, the Company added a new segment for the MetaPack business. Previously, the Company had a single reportable segment.~~

The Stamps.com segment derives revenue from external customers from offering mailing and multi-carrier shipping labels online and shipping software solutions to consumers, small businesses, e-commerce shippers, enterprise mailers, and high volume shippers. The Stamps.com reportable segment includes the results of brand names Stamps.com, Endicia, ShippingEasy, ShipEngine, ShipStation, and ShipWorks. Stamps.com's customers are primarily located in the US.

The MetaPack segment consists of the operations of MetaPack which derives revenues from external customers from offering multi-carrier enterprise-level shipping software solutions to large e-commerce retailers and brands. MetaPack's customers are primarily located ~~outside the US.~~in Europe.

Revenues, cost of revenues, and operating expenses are generally directly attributed to our segments. Inter-segment revenues are not presented separately, as these amounts are immaterial. Our CODM does not evaluate operating segments using asset ~~information.~~information, and therefore total segment assets are not presented.

In 2019, the Company allocated share-based compensation expense to the Stamps.com and MetaPack segments. Previously, share-based compensation expense was allocated to the Stamps.com segment only. Amounts in prior periods have been reclassified to conform with current period presentation.

~~Information about segments during the periods presented were as follows (in thousands):~~

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents our segment information and includes a reconciliation of income from operations to income before income taxes (in thousands):

No sales to an individual customer or country other than the US accounted for more than 10% of revenue for the ~~three and~~ nine months ended September 30, ~~2019~~2020 or September 30, ~~2018.~~ 2019.

The following table presents our revenues by geography, based on the billing addresses of our customers (in ~~thousands, unaudited)~~thousands):

The Company's material lease contracts are generally for corporate office space. The Company leases facilities pursuant to noncancelable operating lease agreements expiring through ~~2029.~~2032.

Operating lease cost for the three and nine months ended September 30, 2020 was approximately $1.3 million and $3.8 million, respectively. Operating lease cost for the three and nine months ended September 30, 2019 was approximately $1.2 million and $3.6 million, respectively. ~~Operating lease cost for the three and nine months ended September 30, 2018 was approximately $1.2 million and $3.0 million, respectively.~~

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table is a schedule of maturities of operating lease liabilities as of September 30, ~~2019~~2020 (in thousands):


Twelve Month Period Ending September 30,	Operating Lease Obligations
2021	$	(606)
2022	9,714
2023	9,486
2024	7,325
2025	7,119
Thereafter	47,348
Total undiscounted cash flows	80,386
Less amount representing interest	(19,586)
Present value of lease liabilities	$	60,800

The table above reflects payments for noncancelable operating leases with initial or remaining terms of one year or more, net of cash reimbursements for tenant improvements which the Company reasonably expects to receive, as of September 30, ~~2019.~~2020. The table above does not include obligations for leases that have not yet commenced and does not include lease payments that were not fixed at commencement or modification.

As of September 30, ~~2019,~~2020, the weighted-average remaining lease term (in years) and discount rate related to the operating leases were as follows:

12. Accounts Payable and Other Current Liabilities

The following table summarizes our accounts payable and other current liabilities as of September 30, 2020 and December 31, 2019 (in thousands):

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~12.~~

13. Debt

During the second quarter of 2020, the Company repaid the existing term loan balance outstanding under the Credit Agreement dated November 18, 2015. The optional prepayment satisfied the $47.5 million term loan balance, gross of debt issuance costs, in full.

Revolving Credit Facility

On June 29, 2020, we entered into a $130 million revolving credit facility (the “Amended Credit Agreement”) with a group of banks. Our Amended Credit Agreement matures on June 29, 2022 (the “Maturity Date”). The Amended Credit Agreement contains an option, subject to certain conditions, to arrange with existing lenders and/or new lenders to provide up to an aggregate of an additional $75 million in revolving loans. The Amended Credit Agreement is secured by substantially all of our assets.

In connection with entering into the Amended Credit Agreement, we incurred approximately $762,000 in creditor and third-party fees which were recorded as deferred expense and is being amortized as interest expense over the two year life of the Amended Credit Agreement.

There were 0 amounts drawn on the revolving credit facility as of September 30, 2020. Because we have a letter of credit outstanding totaling approximately $60,000 relating to a facility lease, we have approximately $129.9 million of available and unused borrowings under the revolving credit facility as of September 30, 2020.

Borrowings under the Amended Credit Agreement are payable on the Maturity Date. The borrowings bear interest, at our option, at the base rate, as defined, plus an applicable margin or a LIBOR plus an applicable margin, in each case such margin will be between 1.25% and 3.00% and is determined by certain financial measures. We will also pay commitment fees on the average daily unused portion of the revolving credit facility, as defined, based upon certain financial measures through the Maturity Date in addition to other fees customary to a credit facility of this size and type.

We are subject to certain customary affirmative and negative covenants under our Amended Credit Agreement, including quarterly financial covenants such as a maximum Consolidated Total Leverage Ratio and a minimum Consolidated Interest Coverage Ratio, as defined therein. As of September 30, 2020, we were in compliance with the covenants of the Amended Credit Agreement.

The Amended Credit Agreement also includes negative covenants, subject to exceptions, restricting or limiting our ability to among other things, incur additional indebtedness, grant liens, repurchase stock, pay dividends and engage in certain investment, acquisition and disposition transactions. The Amended Credit Agreement imposes certain requirements in order for us to make any dividend payments. As of September 30, 2020, we were in compliance with these financial covenants.

Potential Impact of LIBOR Transition

The Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. That announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Moreover, it is possible that LIBOR will be discontinued or modified prior to 2021.

Under the terms of the Company's Amended Credit Agreement, in the event of the discontinuance of the LIBOR Rate, a mutually agreed-upon alternate benchmark rate will be established to replace the LIBOR Rate. The Company and the Administrative Agent (as defined in the Amended Credit Agreement) shall, in good faith, endeavor to establish an alternate benchmark rate that gives due consideration to prevailing market convention for determining a rate of interest for similar credit arrangements in the US at such time. The Company does not anticipate that the discontinuance or modification of the LIBOR Rate will materially impact its liquidity or financial position.

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STAMPS.COM INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Subsequent Events

We are not aware of any material subsequent events or transactions that have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial ~~statements,~~ statements.

~~except as described in~~ ~~Note 3 - “Commitments and Contingencies”~~ ~~in our Notes to Consolidated Financial Statements.~~

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (this "Report") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You can find many (but not all) of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "projects," "seeks," "intends," "plans," "could," "would," "may" or other similar expressions in this Report. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, any statements that refer to future responses to and effects of COVID-19,statements concerning our business strategy, future commercial revenues, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this Report that are not historical facts are also forward-looking statements.

We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this Report, or that we may make orally or in writing from time to time, are based on beliefs and assumptions made by us and information available to us at the time made. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on forward-looking statements to anticipate future results or trends.

Please refer to the risk factors under "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, ~~2018,~~2019 and under "Item 1A. Risk Factors" within “Part II - Other Information” of our Form 10-Q for the quarterly period ended March 31, 2020, as well as those ~~(if any)~~ described elsewhere in this Report (if any) and in our other public filings. The risks included are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Without limiting the foregoing, the significant and unprecedented uncertainty 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 pandemic) on us, our customers, our carrier and integration partners and the global economy, makes it particularly difficult to predict the nature and extent of impacts on demand for our products and services, making our business outlook subject to considerable uncertainty. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic amplify many of the other risks we face. This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Report.

Our ~~trade names and~~ registered trademarks include Stamps.com, Auctane, Endicia, MetaPack, NetStamps, PhotoStamps, ShipEngine, ShippingEasy, ShipStation, ShipWorks, and the Stamps.com logo. This Report also references trade names and trademarks of other entities. References in this Report to "we" "us" "our" or "Company" are references to Stamps.com Inc. and its subsidiaries.

Overview

Stamps.com® is a leading provider of Internet-based mailing and shipping solutions in the United States ~~(U.S.)~~(US) and Europe. ~~Under~~Our portfolio of solutions is marketed under the ~~Stamps.com and~~brand names Stamps.com®, Endicia® brands, we offer United States Postal Service (USPS) solutions to mail and ship a variety of mail pieces and packages through the USPS and are in the process of preparing to offer non-USPS carrier shipping solutions. Customers using our solutions can receive discounted postage rates compared to USPS.com and USPS retail locations on certain mail pieces such as First Class letters and domestic and international Priority Mail® and Priority Mail Express® packages. Stamps.com was the first ever USPS-approved PC Postage vendor to offer a software only mailing and shipping solution in 1999. Endicia became a USPS-approved PC Postage vendor in 2000. Under the MetaPack^TM, MetaPack®, ShippingEasy®, ShipEngine®, ShipStation®, and ShipWorks® ~~brands,~~. Our software solutions allow customers ~~use our multi-carrier solutions~~ to ~~ship packages through~~print mailing and shipping labels for multiple carriers ~~such as Canada Post, DHL, FedEx, Royal Mail, UPS, USPS,~~around the world through downloadable software, web-based user interfaces (UIs) and ~~others.~~application programming interfaces (APIs). Our solutions provide our customers with access to discounted carrier rates for select carriers, including USPS® and UPS® and advanced functionality users can leverage for both improved operational efficiency and financial savings. Our customers primarily include ~~individuals,~~ small businesses, home offices, medium-size businesses, large enterprises, e-commerce merchants, large retailers and ~~warehouse shippers.~~high volume shippers including warehouses, fulfillment houses and omni-channel retailers.

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Segment Information and Geographic Data

Our operations consist of two segments: Stamps.com and MetaPack. The Stamps.com segment includes the results of brand names Stamps.com, Endicia, ShippingEasy, ShipEngine, ShipStation and ShipWorks. Stamps.com's customers are primarily located in the US. The MetaPack segment offers multi-carrier enterprise-level shipping software solutions to large e-commerce retailers and brands who are primarily located in Europe.

Mailing and Shipping Business References

When we refer to our "mailing and shipping business," we are referring to our mailing and shipping products and services ~~for both~~including our ~~Stamps.com~~USPS and ~~MetaPack segments, including our~~multi-carrier mailing and shipping ~~technology~~ solutions, consolidation services, mailing and shipping integrations, mailing and shipping supplies stores, and branded insurance offerings. We do not include our customized postage business when we refer to our ~~"mailing~~mailing and shipping business." When we refer to our "mailing and shipping revenue," we are referring to our service, product and insurance revenue generated by our mailing and shipping ~~business.~~customers. We do not include our customized postage revenue generated by our customized postage business in our "mailing and shipping revenue."

Services and Products

Mailing and Shipping Business

We offer the following mailing and shipping ~~products and~~ services to our customers under the Stamps.com, Endicia, MetaPack, ShipEngine, ShippingEasy, ShipStation and ShipWorks brands:

~~USPS~~ Mailing ~~and Shipping~~ Solutions

~~Under the Stamps.com and Endicia brands, customers use~~As part of our ~~USPS-approved~~ mailing and shipping business, we offer our USPS-approved solutions to mail and ship a variety of domestic and international mail pieces and packages through the USPS. ~~Customers can purchase and print postage 24 hours a day, seven days a week, through our software or web interfaces. Typically, customers fund an account balance prior to using our service.~~

Our USPS mailing ~~and shipping~~ solutions enable ~~users~~our customers to print "electronic postage" ~~directly onto envelopes, plain paper, or labels~~ using only a ~~standard~~ personal ~~computer,~~computing device, printer and Internet connection. Our solutions support a variety of USPS mail classes including First Class Mail®, Media Mail®, Parcel Select®, Priority ~~Mail,~~Mail®, Priority Mail Express, and others. Customers can also add USPS Special Services to their mail pieces, such as Certified Mail®, Collect on Delivery, Insured Mail, Registered Mail®, Restricted Delivery, Return Receipt, Signature Confirmation™, and USPS Tracking®. Our customers can print postage on (1) on NetStamps® labels, which can be used just like regular stamps, (2) on envelopes and postcards or on labels in a single step process that saves time and provides a professional look, (3) on plain 8.5" x 11" paper, ~~or on~~(4) special labels for packages, and ~~(4) on~~(5) integrated customs forms for international mail and packages.

Our USPS mailing ~~and shipping~~ solutions ~~incorporate address verification technology that verifies each destination address for mail or packages sent using~~also provide our ~~solutions against a database of all known addresses in the United States. Our mailing and shipping solutions are also integrated~~customers with common small business and productivity software applications such as word processing, contact and address management, and accounting and financial applications. Our shipping solutions feature integrations with hundreds of partners including popular shipping management products, shopping carts, online marketplaces, and other e-commerce solutions.

We target different customer categories with service plans that provide various features and capabilities. We target smaller offices, home offices, and smaller online sellers that need a more basic set of mailing and shipping features. We target larger enterprises that need a richer set of mailing capabilities such as multiple-user functionality, automated Certified Mail forms, additional reference codes and higher allowable postage balances. We target shippers such as e-commerce merchants, online retailers, fulfillment houses, warehouses, and large retailers that need shipping specific features such as direct integration into the customer's order databases, faster label printing speed, and the ability to customize and save shipping profiles. We target large corporations with multiple geographic locations that need enhanced reporting and the ability for a central location, such as a corporate headquarters, to have greater visibility and control over postage expenditures across their distributed network of locations. We target large volume mailers that need features designed for presort mail, Certified Mail, and bulk address updating.

~~Customers may pay us a monthly fee, based on a subscription plan which may be waived or refunded for certain customers, for which we provide them~~ access to ~~our platform. We have been, and in the future potentially could be, compensated directly by the USPS and/or other carriers for shipping labels printed that meet~~discounted postage rates on certain requirements. We may earn revenue from customers that have access to our platform when they purchase postage or print shipping labels. We may earn revenue that may take the form of some or all of the spread between the rate a customer pays and the rate the carrier or integration partner receives, either charged directly or paid by our partners. We may earn other types of revenue shares or other compensation from specific customers that have access to our platform or through integration partners.

~~For a description of some of the recent and potential future changes to our shipping and mailing business and related risks, see "~~Risk Factors--Risks Related to our Industry--The discontinuation of certain financial compensation arrangements with the USPS will have an adverse effect on our revenues and operating results, unless we are successful in replacing the lost revenue and profit with similar compensation from the USPS or other potential partners, of which there is no assurance~~," "~~Risk Factors--Risks Related to our Industry--The USPS could modify, discontinue or terminate agreements and other financial compensation arrangements, which would have an adverse effect on our revenue and operating results~~," "~~Risk Factors--Risks Related to our Industry--The USPS or our integration partners could cause discounts our customers receive to be diminished or terminated, which would have an adverse effect on our results of operations, reputation and competitiveness~~," and "~~Risk Factors--Risks Related to our Industry--Strategic business Partners or carriers could modify or terminate agreements and other financial compensation arrangements, which could materially adversely affect our results of operations and prospects~~," in our Annual Report on Form 10-K for the fiscal year ended December 1, 2018, filed with the SEC on March 1, 2019.~~

~~See also “Business Outlook and Forward-Looking Statements,” below, in this Management's Discussion and Analysis of Financial Condition and Results of Operations.~~

mail classes.

Multi-Carrier Shipping Solutions

WeAs part of our mailing and shipping business, we offer our industry leading domestic and international multi-carrier e-commerce shipping solutions through our MetaPack, ShippingEasy, ShipStation, and ShipWorks brands and are in the process of preparing to offer non-USPS carrier shipping solutions through our Stamps.com and Endicia brands. MetaPack, ShippingEasy, ShipStation, and ShipWorks offer leadingsolutions. Our multi-carrier solutions collectively enable our customers to print approved shipping labels for ~~shippers~~more than 450 regional, national and international carriers and integrate with more than 300 partners including shopping carts, marketplaces, e-commerce ~~merchants, online retailers, warehouses, fulfillment houses, large retailers,~~tools and various other ~~types of shippers that use multiple carriers such as Canada Post, DHL, FedEx, Royal Mail, UPS,~~software products. Our multi-carrier solutions also provide our customers with access to discounted carrier rates, including with USPS and ~~many others.~~

MetaPack, which we acquired on August 15, 2018, provides multi-carrier enterprise-level solutions to many of the world’s preeminent e-commerce retailers and brands. MetaPack provides its customers access to a carrier library with support for over 450 parcel carriers. MetaPack's platform also provides sophisticated solutions including carrier management, a carrier optimization engine, a track and trace system, a parcel returns system, a delivery analysis and carrier service-level agreement (SLA) monitoring system, a sophisticated cross-border solution, and a system that provides dynamic delivery options right in the shopping cart. From a single integration, Metapack’s customers are able to offer delivery choice and convenience in all major e-commerce markets around the world. Metapack’s software also improves its customers’ shopping cart order conversion rates and order delivery satisfaction ratings.

ShippingEasy, which we acquired on July 1, 2016, offers web-based multi-carrier shipping solutions that allow online retailers and e-commerce merchants to organize, process, fulfill, and ship their orders quickly and easily. ShippingEasy's solutions feature over 50 integrations with partners and carriers, including marketplaces, shopping carts, and e-commerce platforms, allowing its customers to import and export fulfillment and tracking data in real time across all of their selling channels. ShippingEasy's solutions download orders from all selling channels and automatically map custom shipping preferences, rates, and delivery options across all of its supported carriers. ShippingEasy's easy-to-use solutions also include complimentary access to ShippingEasy customer service shipping specialists helping merchants to streamline workflow and save on shipping costs.

ShipStation, which we acquired on June 10, 2014, offers web-based multi-carrier shipping solutions that target e-commerce merchants, online retailers, fulfillment houses, and warehouses. ShipStation's solutions feature over 325 integrations with partners and carriers, including marketplaces, shopping carts, and e-commerce platforms. ShipStation offers multi-carrier shipping options and automation features like custom hierarchical rules and product profiles that allow customers to easily and automatically optimize their shipping. Using ShipStation, an online retailer or e-commerce merchant can ship their orders from wherever they sell and however they ship.

ShipWorks, which we acquired on August 29, 2014, offers software-based multi-carrier shipping solutions that target e-commerce merchants, online retailers, fulfillment houses, and warehouses. ShipWorks offers simple, powerful, and easy to use solutions for shippers. ShipWorks' solutions feature over 100 integrations with partners and carriers, including marketplaces, shopping carts and e-commerce platforms. ShipWorks offers multi-carrier shipping options and features including importing orders from any marketplace or shopping cart, easily comparing shipping rates and services, sending email notifications to buyers, updating online order status, generating reports, and many more.

UPS.

Consolidation Services

As part of our mailing and shipping business, we offer domestic and international shipping services through ~~consolidators,~~our consolidator partners, who group packages by destination and ship the packages directly or through partners. These services seek to take advantage of economies of scale, with the goal of yielding lower shipping costs for our customers.

~~Mailing and Shipping~~

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Back-End Integrations

As part of our mailing and shipping services, we offer our back-end integration solutions where we provide the ~~technology to print mailing and shipping labels~~electronic postage for transactions to partners who manage the front-end users. Our solutions integrate directly into ~~many~~the most popular e-commerce platforms, allowing web store managers to completely automate their order fulfillment process by processing, managing and shipping orders from virtually any e-commerce source through a single interface without manual data entry. Managers can retrieve order data and print complete shipping labels for all types of packages.

We have integration partnerships with the USPS where we provide electronic postage for mailing and shipping transactions generated by certain USPS-branded programs. For example, we provide the electronic postage for Click-N-Ship®, a web-based service available at USPS.com that allows USPS customers to purchase and print shipping labels for certain domestic and international mail classes or packages at no additional mark-up over the cost of postage.

In addition, we have hundreds of integrations through our various brands with partners and carriers, including marketplaces, shopping carts, and e-commerce platforms as part of their multi-carrier shipping solutions. Integrations with partners include Amazon, BigCommerce, ChannelAdvisor, eBay, Magento, PayPal, Shopify, Volusion, Yahoo! Stores, and many others. Carrier integrations include Canada Post, DHL, FedEx, Royal Mail, UPS, USPS, and many others.

Mailing & Shipping Supplies ~~Stores~~

~~Stamps.com~~As part of our mailing and ~~Endicia's~~shipping services, we offer mailing ~~& shipping~~and shipping-focused office supplies ~~stores (our "Supplies Stores") are available~~ to our customers ~~from~~through our online supplies stores. Our supplies stores are available within our mailing and shipping solutions and sell a variety of products including NetStamps labels, shipping labels, ~~other~~ mailing labels, ~~dedicated~~ postage printers ~~scales,~~ and other mailing and shipping-focused office supplies. Our Supplies Stores feature store catalogs, messaging regarding free or discounted shipping promotions, cross-selling product recommendations during the checkout process, product search capabilities, and same-day shippingscales.

Branded Insurance

As part of ~~orders with expedited shipping options. Our multi-carrier solutions do not have~~our mailing and shipping ~~supplies stores as part of their solutions.~~

~~Branded Insurance~~

Weservices, we offer branded ~~package~~ insurance for packages to our customers so that they may insure their mail or packages in a fully integrated, online process that eliminates any trips to ~~the post office~~retail carrier locations or the need to complete any special forms. Our branded insurance is offered by certain brands including Stamps.com, Endicia, ShippingEasy, ShipStation and ShipWorks as part of their ~~USPS and multi-carrier~~ solutions. Our branded insurance is provided by our insurance providers.

~~International~~

We offer international mailing and shipping solutions for both our US domestic customers mailing and shipping to destinations outside the US and, primarily through our subsidiaries, mailing and shipping solutions for customers outside the US directly from international posts and carriers. International carriers include Australia Post, Canada Post, French Post, Royal Mail, and many others.

Customized Postage

We ~~offer~~offered customized postage under the PhotoStamps® brand name. Customized postage iswas a patented form of USPS postage that ~~allows~~allowed consumers to turn digital photos, designs or images into valid USPS-approved postage. With this product, individuals or businesses ~~can~~could create customized USPS-approved postage using pictures of their children, pets, vacations, celebrations, business logos and more. Customized postage can be used as regular postage to send letters, postcards or packages. PhotoStamps iswere available from our www.photostamps.com website.

The USPS eliminated its customized postage program and also revoked our authorization to offer products pursuant to that program effective June 16, 2020. See "Business Outlook and Forward-Looking Statements," below in this Item 2.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) to be a pandemic. The pandemic is having widespread, rapidly evolving impacts on economies, financial markets, and business practices. We are closely monitoring the impact of COVID-19 on all aspects of our business.

Since the first quarter of 2020, we have taken a number of precautionary measures to help minimize the risk of exposure to our employees, including significantly revising travel policies and implementing temporary office closures as all employees are advised to work remotely where possible.

We experienced a net financial benefit in the third quarter resulting from continued increased domestic shipping volume compared to prior years which we believe is related to shelter in place orders and requirements to work from home. We cannot predict how long these circumstances will continue, and it should not be assumed that they will yield any net financial benefit to us beyond the third quarter of 2020. Further, it is not possible to determine the duration and scope of the pandemic, including any recurrence, the actions taken in response to the pandemic, the scale and rate of economic change from the pandemic, any ongoing effects on consumer demand and spending patterns, or other impacts of the pandemic, and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations. See “Item 1A. Risk Factors” within “Part II - Other Information” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 8, 2020, for additional discussion of the risks posed, among other things, by the COVID-19 pandemic, and uncertainties we, our customers, business partners, and the national and global economies face as a result.

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Acquisitions

MetaPack

On August 15, 2018, we, through our wholly owned subsidiary Pacific Shelf 1855 Limited, completed our acquisition of MetaPack Limited. The net purchase price totaled approximately £171 million, or $218 million using the August 15, 2018 GBP to USD exchange rate, and was funded from current cash and investment balances.

In connection with the acquisition, we granted inducement stock options for an aggregate of 320,250 shares of Stamps.com common stock to 72 MetaPack employees.

Please see Note 2 - "Acquisitions" in our Notes to Consolidated Financial Statements for further description.

Results of Operations

The results of our operations during the three and nine months ended September 30, 2019 include MetaPack’s operations. The results of our operations during the three and nine months ended September 30, 2018 include MetaPack’s operations beginning on the August 15, 2018 acquisition date. Please see ~~Note 2 – “Acquisitions”~~ in our Notes to Consolidated Financial Statements for further description. Accordingly, care should be used in comparing periods that include the operations of MetaPack with those that do not include such operations.

The results of our operations during the three and nine months ended September 30, 2018 include service revenues paid directly to us by the USPS for certain classes of shipping labels ("Package Incentive Payments") under an agreement that terminated on December 31, 2018. The results of our operations during the three and nine months ended September 30, 2019 do not include any Package Incentive Payments. Accordingly, care should be used in comparing periods that include Package Incentive Payments with those that do not include Package Incentive Payments.

Three and Nine Months Ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019

Total revenue ~~decreased 5%~~increased 42% to $193.9 million in the three months ended September 30, 2020 from $136.2 million in the three months ended September 30, ~~2019 from $143.5~~2019. Total revenue increased 34% to $552.0 million in the ~~three~~nine months ended September 30, ~~2018. Total revenue decreased 1% to~~2020 from $410.9 million in the nine months ended September 30, ~~2019 from $416.7 million in the nine months ended September 30, 2018.~~2019. Mailing and shipping revenue, which includes service revenue, product revenue, and insurance revenue, was $193.9 million in the three months ended September 30, 2020, an increase of 46% from $132.9 million in the three months ended September 30, ~~2019, a decrease of 3% from $136.5~~2019. Mailing and shipping revenue was $540.1 million in the ~~three~~nine months ended September 30, ~~2018. Mailing and shipping revenue was~~2020, an increase of 35% from $401.2 million in the nine months ended September 30, ~~2019, a decrease of 0% from $401.9 million~~2019. The USPS eliminated its customized postage program and also revoked our authorization to offer products pursuant to that program effective June 16, 2020. Therefore, customized postage revenue decreased 100% to $0 in the ~~nine~~three months ended September 30, ~~2018. Customized postage revenue decreased 52% to~~2020 from $3.3 million in the three months ended September 30, ~~2019 from $7.0~~2019. Customized postage revenue increased 21% to $11.9 million in the ~~three~~nine months ended September 30, ~~2018. Customized postage revenue decreased 34% to~~2020 from $9.8 million in the nine months ended September 30, ~~2019 from $14.8 million in~~2019.

Revenue by Segment

The following table sets forth the revenue by segment for the three and nine months ended September 30, ~~2018.~~2020 and September 30, 2019 and the resulting percentage change (revenue in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		% Change		2020		2019		% Change
Segment revenues
Stamps.com	$	177,072	$	123,494	43.4	%	$	505,664	$	372,678	35.7	%
MetaPack	16,845		12,678		32.9	%	46,329		38,270		21.1	%
Total revenues	$	193,917	$	136,172	42.4	%	$	551,993	$	410,948	34.3	%

The majority of the 42% increase in total revenue is due to a 43% increase in total revenue from the Stamps.com operating segment as discussed below.

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Consolidated Revenue

The following table sets forth the breakdown of revenue for the three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 and the resulting percentage change (revenue in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		% Change		2019		2018		% Change			2020		2019		% Change		2020		2019		% Change
Revenues													Revenues
Service	$	124,643	$	127,810	(2.5	)%	$	375,979	$	373,932	0.5	%	Service	$	183,779	$	124,643	47.4	%	$	509,905	$	375,979	35.6	%
Product	5,116		4,705		8.7	%	15,306		15,276		0.2	%	Product	5,816		5,116		13.7	%	18,599		15,306		21.5	%
Insurance	3,106		4,023		(22.8	)%	9,871		12,684		(22.2	)%	Insurance	4,322		3,106		39.2	%	11,598		9,871		17.5	%
Mailing and shipping revenue	132,865		136,538		(2.7	)%	401,156		401,892		(0.2	)%	Mailing and shipping revenue	193,917		132,865		46.0	%	540,102		401,156		34.6	%
Customized postage	3,307		6,957		(52.5	)%	9,792		14,755		(33.6	)%	Customized postage	—		3,307		(100.0)	%	11,891		9,792		21.4	%
Other	—		12		(100.0	)%	—		52		(100.0	)%

Total revenues	$	136,172	$	143,507	(5.1	)%	$	410,948	$	416,699	(1.4	)%	Total revenues	$	193,917	$	136,172	42.4	%	$	551,993	$	410,948	34.3	%

We define “paid customers” for the quarter as ones from whom we successfully collected service fees or otherwise earned revenue at least once during that quarter, and we define average monthly revenue per paid customer (ARPU) as one-third of quarterly mailing and shipping revenue divided by paid customers.

The following table sets forth the number of paid customers in the period for our mailing and shipping business (in thousands):

The following table sets forth the change in paid customers and ~~average monthly revenue per paid customer~~ARPU for our mailing and shipping business (in thousands except ~~average monthly revenue per paid customer~~ARPU and percentage):


	Three Months Ended September 30,
	2020		2019		% Change
Paid customers for the quarter	987		743		32.8	%
ARPU	$	65.47	$	59.60	9.9	%
Mailing and shipping revenue	$	193,917	$	132,865	46.0	%

Three Months Ended September 30,
2019 2018 % Change
Paid customers for the quarter 743
732
1.5 %
Average monthly revenue per paid customer $ 59.60
$ 62.14
(4.1 )%
Mailing and shipping revenue $ 132,865
$ 136,538
(2.7 )%

The number of paid customers increased by ~~1.5%~~32.8% in the three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018~~2019 primarily as a result of our customer acquisition ~~efforts.~~efforts which we believe were positively impacted by shelter in place orders.

Our ~~average monthly revenue per paid customer decreased~~ARPU increased by ~~4.1%~~9.9% in the three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018. This~~2019. The increase was primarily attributable to the ~~termination~~growth in our shipping business where we have the ability to better monetize shipping volume as compared to monthly flat rate subscription fees, a portion of ~~our agreement with~~which we believe is due to the ~~USPS which provided for Package Incentive Payments~~impact of increased shipping volumes related to shelter in ~~the 2018 period, partially offset by~~place orders and an increase in requirements to work from home, in addition to increased recurring monthly subscription revenues from ~~MetaPack which did not have a full quarter~~newly acquired customers.

Table of ~~revenue in the comparable period of 2018 and a year-over-year increase in consolidation services revenues.~~Contents

Revenue by Product

The following table shows ~~our~~the components of ~~revenue~~our revenues and their respective percentages of our total revenue for the periods indicated (in thousands except percentage):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues
Service	$	183,779		$	124,643		$	509,905		$	375,979
Product	5,816			5,116			18,599			15,306
Insurance	4,322			3,106			11,598			9,871
Customized postage	—			3,307			11,891			9,792

Total revenues	$	193,917		$	136,172		$	551,993		$	410,948
Revenue as a percentage of total revenues
Service	94.8		%	91.5		%	92.4		%	91.5		%
Product	3.0		%	3.8		%	3.4		%	3.7		%
Insurance	2.2		%	2.3		%	2.1		%	2.4		%
Customized postage	—		%	2.4		%	2.1		%	2.4		%

Total revenue	100.0		%	100.0		%	100.0		%	100.0		%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Revenues ��
Service $ 124,643
$ 127,810
$ 375,979
$ 373,932
Product 5,116
4,705
15,306
15,276
Insurance 3,106
4,023
9,871
12,684
Customized postage 3,307
6,957
9,792
14,755
Other —
12
—
52
Total revenues $ 136,172
$ 143,507
$ 410,948
$ 416,699
Revenue as a percentage of total revenues

Service 91.5 % 89.1 % 91.5 % 89.7 %
Product 3.8 % 3.3 % 3.7 % 3.7 %
Insurance 2.3 % 2.8 % 2.4 % 3.1 %
Customized postage 2.4 % 4.8 % 2.4 % 3.5 %
Other 0.0 % 0.0 % 0.0 % 0.0 %
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %

Our revenue is derived primarily from five sources: (1) service and transaction related revenues from our ~~USPS~~ mailing ~~and shipping~~ services, our multi-carrier shipping services, and our mailing and shipping integrations; (2) product revenue from the direct sale of consumables and supplies through our ~~Supplies Stores;~~supplies stores; (3) package insurance revenue from our branded insurance offerings; (4) customized postage revenue from the sale of customized postage labels; and (5) other revenue, consisting of advertising revenue derived from advertising programs with our existing customers. Other revenue was not material to our consolidated financial statements in the three and nine months ended September 30, 2020 and September 30, 2019.

In the case of monthly fees based on subscription plans, we recognize a reduction of revenue in the period for which a waiver is granted or when a refund is processed, which is typically the same period in which the associated subscription revenue is recognized or, in the case of refunds, could be a later period. Waivers and refunds were not material to the consolidated financial statements in the three months ended September 30, 2020 or September 30, 2019.

Customers may purchase delivery services from carriers through our mailing and shipping solutions. When funds are transferred directly from customers to the carrier, these funds are not recognized as revenue. We also provide mailing and shipping services for which the cost of postage or delivery is included in the cost of the service and, therefore, is recognized as service revenue.

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Service revenue ~~decreased 2%~~increased 47% to $183.8 million in the three months ended September 30, 2020 from $124.6 million in the three months ended September 30, ~~2019 from $127.8~~2019. Service revenue increased 36% to $509.9 million in the ~~three~~nine months ended September 30, ~~2018. Service revenue increased 1% to~~2020 from $376.0 million in the nine months ended September 30, ~~2019 from $373.9 million in the nine months ended September 30, 2018.~~2019. The ~~decrease~~increase in service revenue during the three months ended September 30, ~~2019~~2020 was driven by a ~~3.9% decrease~~11.0% increase in our average monthly service revenue per paid customer (Service Revenue ARPU)~~, partially offset by~~ and a ~~1.5%~~32.8% increase in paid customers.

The ~~decrease~~increase in our Service Revenue ARPU during the three months ended September 30, ~~2019~~2020 was primarily attributable to the ~~termination~~growth in our shipping business where we have the ability to better monetize shipping volume as compared to monthly flat rate subscription fees, a portion of ~~our agreement with~~which we believe is due to the ~~USPS which provided for Package Incentive Payments~~impact of increased shipping volumes related to shelter in ~~the 2018 period, partially offset by~~place orders and an increase in requirements to work from home, in addition to increased recurring monthly subscription revenues from ~~MetaPack which did not have a full quarter of revenue in the comparable period of 2018 and a year-over-year increase in consolidation services revenues.~~newly acquired customers.

Product revenue increased 9%14% to $5.8 million in the three months ended September 30, 2020 from $5.1 million in the three months ended September 30, ~~2019 from $4.7~~2019. Product revenue increased 22% to $18.6 million in the ~~three~~nine months ended September 30, ~~2018. Product revenue was~~2020 from $15.3 million in the nine ~~month periods~~months ended September 30, ~~2019 and September 30, 2018.~~2019. Product revenue is primarily driven by label sales, such as NetStamps, which are used for mailing. The ~~increases~~increase in product revenue in the three and nine ~~month periods~~months ended September 30, ~~2019 were~~2020 was not material to the consolidated financial statements.

Beginning on October 1, 2018, insurance revenue represents the amount we receive from customers net of the costs paid to our insurance providers. For the periods presented prior to October 1, 2018, insurance revenue represented the gross amount charged to the customer for purchasing insurance and the insurance cost of revenue represented the amount paid to our insurance providers. Insurance revenue ~~decreased 23%~~increased 39% to $4.3 million in the three months ended September 30, 2020 from $3.1 million in the three months ended September 30, ~~2019 from $4.0~~2019. Insurance revenue increased 17% to $11.6 million in the ~~three~~nine months ended September 30, ~~2018. Insurance revenue decreased 22% to~~2020 from $9.9 million in the nine months ended September 30, ~~2019 from $12.7 million~~2019. The increase in insurance revenue in the three and nine months ended September 30, ~~2018. Our insurance revenue decreased year-over-year primarily due~~2020 was not material to the ~~change to recognizing revenue on the net basis of accounting beginning October 1, 2018 as described above.~~consolidated financial statements.

Customized postage revenue decreased ~~52%~~100% to $0 in the three months ended September 30, 2020 from $3.3 million in the three months ended September 30, ~~2019 from $7.0~~2019. Customized postage revenue increased 21% to $11.9 million in the ~~three~~nine months ended September 30, ~~2018. Customized postage revenue decreased 34% to~~2020 from $9.8 million in the nine months ended September 30, ~~2019 from $14.8 million~~2019. The decrease in customized postage revenue in the three months ended September 30, 2020 was due to the elimination of the program by the United States Postage Service effective June 16, 2020. The increase in customized postage revenue in the nine months ended September 30, ~~2018.~~2020 was primarily attributable to a particular television marketing campaign for which we committed to donate the associated profits to charity which occurred prior to the elimination of the program. The ~~decreases in~~Company does not expect material customized postage revenue ~~during the three and nine months ended September 30, 2019 were primarily attributable to decreases in high volume customer orders.~~or cost of revenue after June 2020.

Cost of Revenue

The following table shows cost of revenues and cost of revenues as a percentage of associated revenue for the periods indicated (in thousands except percentage):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Cost of revenues
Service	$	41,998		$	34,040		$	115,990		$	98,727
Product	1,954			1,602			6,103			4,824
Customized postage	—			2,560			10,000			7,431
Total cost of revenues	$	43,952		$	38,202		$	132,093		$	110,982
Cost as percentage of associated revenue
Service	22.9		%	27.3		%	22.7		%	26.3		%
Product	33.6		%	31.3		%	32.8		%	31.5		%
Customized postage	—		%	77.4		%	84.1		%	75.9		%
Total cost as a percentage of total revenues	22.7		%	28.1		%	23.9		%	27.0		%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Cost of revenues
Service $ 34,040
$ 25,102
$ 98,727
$ 68,361
Product 1,602
1,383
4,824
4,614
Insurance —
933
—
2,945
Customized postage 2,560
5,706
7,431
12,173
Total cost of revenues $ 38,202
$ 33,124
$ 110,982
$ 88,093
Cost as percentage of associated revenue

Service 27.3 % 19.6 % 26.3 % 18.3 %
Product 31.3 % 29.4 % 31.5 % 30.2 %
Insurance — % 23.2 % — % 23.2 %
Customized postage 77.4 % 82.0 % 75.9 % 82.5 %
Total cost as a percentage of total revenues 28.1 % 23.1 % 27.0 % 21.1 %

Cost of service revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs, credit card processing fees, vendor costs and expenses, and customer misprints that do not qualify for reimbursement from the USPS. Cost of product revenue principally consists of the cost of products sold through our ~~Supplies Stores~~supplies stores and the related costs of shipping and handling. For the periods presented prior to October 1, 2018, the cost of insurance revenue principally consists of parcel insurance offering costs through our third party insurance providers as described in the previous section. Cost of customized postage revenue principally ~~consists~~consisted of the face value of postage, customer service, image review costs, and printing and fulfillment costs.

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Cost of service revenue increased ~~36%~~23% to $42.0 million in the three months ended September 30, 2020 from $34.0 million in the three months ended September 30, ~~2019 from $25.1 million in the three months ended September 30, 2018.~~2019. Cost of service revenue increased ~~44%~~17% to $116.0 million in the nine months ended September 30, 2020 from $98.7 million in the nine months ended September 30, ~~2019 from $68.4 million in the nine months ended September 30, 2018. Our acquisition of MetaPack resulted~~2019. The increase in cost of service revenue ~~increasing by $2.4 million and $11.5 million~~ in the three and nine months ended September 30, ~~2019 compared to the 2018 periods. The remaining increase for the three and nine months ended September 30, 2019~~2020 was primarily attributable to ~~the growth of~~higher system operating and customer service costs to support our growing business in addition to vendor costs associated with our consolidation ~~services. Promotional expenses were not material in the three and nine months ended September 30, 2019 and September 30, 2018.~~services revenues.

Cost of service revenue as a percent of service revenue ~~increased~~decreased to 23% in the three months ended September 30, 2020 from 27% in the three months ended September 30, ~~2019 from 20% in the three months ended September 30, 2018.~~2019. Cost of service revenue as a percent of service revenue ~~increased~~decreased to 23% in the nine months ended September 30, 2020 from 26% in the nine months ended September 30, ~~2019 from 18%~~2019. The decrease in cost of service revenue as a percent of service revenue in the three and nine months ended September 30, ~~2018. The~~2020 was due to the increase ~~is primarily attributable to: (i) the relative increase in consolidation services revenue, which has a lower margin; (ii) the decrease~~ in service revenue ~~attributable to the termination of our agreement with the USPS that provided for Package Incentive Payments; and (iii) the acquisition of MetaPack, which has a lower margin.~~as described above.

Cost of product revenue increased ~~16%~~22% to $2.0 million in the three months ended September 30, 2020 from $1.6 million in the three months ended September 30, ~~2019 from $1.4 million in the three months ended September 30, 2018.~~2019. Cost of product revenue increased 5%27% to $6.1 million in the nine months ended September 30, 2020 from $4.8 million in the nine months ended September 30, ~~2019 from $4.6 million in the nine months ended September 30, 2018.~~2019. The ~~increases~~increase in cost of product revenue in the three and nine ~~month periods~~months ended September 30, ~~2019 were~~2020 was not material to the consolidated financial statements.

Cost of product revenue as a percent of product revenue ~~was~~increased to 34% in the three months ended September 30, 2020 from 31% in the three months ended September 30, ~~2019 and 29% in the three months ended September 30, 2018.~~2019. Cost of product revenue as a percent of product revenue was 33% in the nine months ended September 30, 2020 and 32% in the nine months ended September 30, ~~2019 and 30% in the nine months ended September 30, 2018.~~2019. The ~~increases~~increase in cost of product revenue ~~in the three and nine month periods ended September 30, 2019 were not material to the consolidated financial statements.~~

~~The decrease in cost~~as a percent of ~~insurance~~product revenue ~~to zero in both the three and nine months ended September 30, 2019 from $933,000 and $2.9 million~~ in the three and nine months ended September 30, ~~2018, respectively,~~2020 was ~~due~~not material to the ~~change to recognizing revenue on a net basis of accounting beginning October 1, 2018 as described in the previous section.~~ consolidated financial statements.

Cost of ~~insurance~~customized postage revenue ~~as a percent of insurance revenue was 23%~~decreased 100% to $0 in the three months ended September 30, ~~2018 and 23% in the nine months ended September 30, 2018.~~

~~Cost of customized postage revenue decreased 55% to~~2020 from $2.6 million in the three months ended September 30, ~~2019 from $5.7 million in the three months ended September 30, 2018.~~2019. Cost of customized postage revenue ~~decreased 39%~~increased 35% to $10.0 million in the nine months ended September 30, 2020 from $7.4 million in the nine months ended September 30, ~~2019 from $12.2 million in the nine months ended September 30, 2018.~~2019. The ~~decreases~~decrease in cost of customized postage revenue during the three ~~and~~months ended September 30, 2020 was directly related to the decrease in customized postage revenue as described above. The increase in cost of customized postage revenue during the nine months ended September 30, ~~2019 were primarily attributable~~2020 was directly related to the ~~decreases~~increase in ~~our~~ customized postage ~~volume~~revenue as ~~a result~~described above.

For the three months ended September 30, 2020, we had no customized postage revenue and no cost of ~~decreases in high volume customer orders.~~

customized postage revenue for the reason described above. Cost of customized postage revenue as a percent of customized postage revenue ~~was 77%~~increased to 84% in the ~~three~~nine months ended September 30, ~~2019 and 82% in the three months ended September 30, 2018. Cost of customized postage revenue as a percent of customized postage revenue was~~2020 from 76% in the nine months ended September 30, ~~2019 and 83% in the nine months ended September 30, 2018.~~2019. The ~~decreases~~increase in cost of customized postage revenue as a percent of customized postage revenue ~~during~~in the nine months ended September 30, 2020 was primarily attributable to a particular television marketing campaign, resulting in lower margins.

Income (Loss) from Operations by Segment

The following table sets forth income (loss) from operations and the resulting percentage change by segment for the three and nine months ended September 30, 2020 and September 30, 2019 ~~were~~(in thousands, except percentage):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		% Change		2020		2019		% Change
Segment income (loss) from operations
Stamps.com	$	55,363	$	19,000	191.4	%	$	146,491	$	70,226	108.6	%
MetaPack	(741)		(3,349)		77.9	%	(6,512)		(8,909)		26.9	%
Total income from operations	$	54,622	$	15,651	249.0	%	$	139,979	$	61,317	128.3	%

Our Stamps.com segment income from operations increased by 191% to $55.4 million in the three months ended September 30, 2020 from $19.0 million in the three months ended September 30, 2019. Our Stamps.com segment income from operations increased by 109% to $146.5 million in the nine months ended September 30, 2020 from $70.2 million in the nine months ended September 30, 2019. The increase in our segment income from operations for the three and nine months ended September 30, 2020 was primarily due to the ~~relative decreases~~43% and 36% increase in ~~high volume~~total revenue from the Stamps.com operating segment for the three and nine months ended September 30, 2020, respectively, partially offset by the following items described further in the preceding or following sections: (a) the increase in cost of service revenue primarily attributable to higher system operating and customer ~~orders.~~service costs to support our growing business; (b) the increase in discretionary and sales volume-based partner marketing spend; (c) the increase in research and development headcount-related expenses including stock-based compensation; and (d) the increase in sales and marketing headcount-related expenses including stock-based compensation.

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Our MetaPack segment loss from operations decreased to $0.7 million in the three months ended September 30, 2020 from $3.3 million in the three months ended September 30, 2019. Our MetaPack segment loss from operations decreased to $6.5 million in the nine months ended September 30, 2020 from $8.9 million in the nine months ended September 30, 2019. The changes in MetaPack segment loss from operations in the three and nine months ended September 30, 2020 were not material to the consolidated financial statements.

Consolidated Operating Expenses

The following table outlines the components of our operating expense and their respective percentages of total revenues for the periods indicated (in thousands except percentages):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Operating expenses:
Sales and marketing	$	41,748		$	33,058		$	120,636		$	99,181
Research and development	24,739			20,281			68,946			56,725
General and administrative	28,856			28,980			90,339			82,743
Total operating expenses	$	95,343		$	82,319		$	279,921		$	238,649
Operating expenses as a percent of total revenues:
Sales and marketing	21.5		%	24.3		%	21.9		%	24.1		%
Research and development	12.8		%	14.9		%	12.5		%	13.8		%
General and administrative	14.9		%	21.3		%	16.4		%	20.1		%
Total operating expenses as a percentage of total revenues	49.2		%	60.5		%	50.7		%	58.1		%

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Operating expenses:
Sales and marketing $ 33,058
$ 26,743
$ 99,181
$ 78,280
Research and development 20,281
14,432
56,725
38,845
General and administrative 28,980
24,916
82,743
71,119
Total operating expenses $ 82,319
$ 66,091
$ 238,649
$ 188,244
Operating expenses as a percent of total revenues:

Sales and marketing 24.3 % 18.6 % 24.1 % 18.8 %
Research and development 14.9 % 10.1 % 13.8 % 9.3 %
General and administrative 21.3 % 17.4 % 20.1 % 17.1 %
Total operating expenses as a percentage of total revenues 60.5 % 46.1 % 58.1 % 45.2 %

Sales and Marketing

Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel engaged in sales, marketing, and business development activities. Our sales and marketing programs include direct sales, customer referral programs, customer re-marketing efforts, direct mail, online advertising, partnerships, telemarketing, and traditional advertising.

Sales and marketing expense increased ~~24%~~26% to $41.7 million in the three months ended September 30, 2020 from $33.1 million in the three months ended September 30, ~~2019 from $26.7 million in the three months ended September 30, 2018.~~2019. Sales and marketing expense increased ~~27%~~22% to $120.6 million in the nine months ended September 30, 2020 from $99.2 million in the nine months ended September 30, ~~2019 from $78.3 million in the nine months ended September 30, 2018.~~2019. The increase during the three months ended September 30, ~~2019~~2020 was primarily attributable to ~~a $2.8 million increase in headcount-related expenses including stock-based compensation and~~ an increase in discretionary and sales volume-based partner marketing spend of ~~$2.9~~$6.9 million and a net increase in headcount-related expenses including stock-based compensation of $2.6 million. These increases were partially offset by a $0.7 million decrease in travel expenses. The increase during the nine months ended September 30, ~~2019~~2020 was primarily attributable to ~~a $10.6 million increase in headcount-related expenses including stock-based compensation and~~ an increase in discretionary and sales volume-based partner marketing spend of ~~$7.9~~$17.3 million and a net increase in headcount-related expenses including stock-based compensation of $5.8 million. ~~Headcount-related expenses increased primarily due to the acquisition of Metapack and to hiring outside of MetaPack.~~These increases were partially offset by a $1.6 million decrease in travel expenses.

Sales and marketing expense as a percent of total revenue ~~increased~~decreased to 22% in the three months ended September 30, 2020 from 24% in the three months ended September 30, ~~2019 from 19% in the three months ended September 30, 2018.~~2019. Sales and marketing expense as a percent of total revenue ~~increased~~decreased to 22% in the nine months ended September 30, 2020 from 24% in the nine months ended September 30, ~~2019 from 19%~~2019. The decrease in ~~the nine months ended September 30, 2018. Sales~~sales and marketing expense as a ~~percentage~~percent of total revenue ~~increased~~was primarily ~~due to the decrease in revenue~~ attributable to ~~the termination~~increased total revenue in excess of ~~our agreement with the USPS which provided for Package Incentive Payments, the increase in non-MetaPack discretionary~~increased sales and ~~sales volume-based partner~~ marketing ~~spend, and the increase in non-MetaPack headcount-related expenses including stock-based compensation, partially offset by the increase in consolidation services revenue.~~expense.

Research and Development

Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation of equipment and software, and expenditures for consulting services and third party software.

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Research and development expense increased ~~41%~~22% to $24.7 million in the three months ended September 30, 2020 from $20.3 million in the three months ended September 30, ~~2019 from $14.4 million in the three months ended September 30, 2018.~~2019. Research and development expense increased ~~46%~~22% to $68.9 million in the nine months ended September 30, 2020 from $56.7 million in the nine months ended September 30, ~~2019 from $38.8 million in the nine months ended September 30, 2018.~~2019. The increase during the three months ended September 30, ~~2019~~2020 was primarily attributable to a ~~$3.9 million~~net increase in headcount-related expense including stock-based compensation ~~and a $0.7 million increase in allocated information technology expenses.~~of $4.0 million. The increase during the nine months ended September 30, ~~2019~~2020 was primarily attributable to a ~~$12.0 million~~net increase in headcount-related expense including stock-based compensation ~~and a $2.6 million increase~~of $11.0 million. The increases in ~~allocated information technology expenses. Headcount-related~~headcount-related expenses ~~increased primarily due to the acquisition of MetaPack and to hiring~~were incurred to support our expanded product offerings and technology infrastructure investments.

Research and development expense as a percent of total revenue ~~increased~~decreased to 13% in the three months ended September 30, 2020 from 15% in the three months ended September 30, ~~2019 from 10% in the three months ended September 30, 2018.~~2019. Research and development expense as a percent of total revenue ~~increased~~decreased to 12% in the nine months ended September 30, 2020 from 14% in the nine months ended September 30, ~~2019 from 9% in the nine months ended September 30, 2018. Research and development expense as a percentage of total revenue increased primarily due to the~~2019. The decrease in ~~revenue attributable to the termination of our agreement with the USPS which provided for Package Incentive Payments, the acquisition of MetaPack which had higher~~ research and development expense as a percent of total revenue ~~and increases~~was primarily attributable to increased total revenue in ~~the following non-MetaPack~~excess of increased research and development ~~expenses: headcount-related expenses including stock-based compensation and allocated information technology expenses, partially offset by the increase in consolidation services revenue.~~expense.

General and Administrative

General and administrative expense principally consists of compensation and related costs for executive and administrative personnel; fees for legal and other professional services; depreciation of equipment, software, and building used for general corporate purposes; and amortization of intangible assets.

General and administrative expense ~~increased 16% to~~was at $28.9 million in the three months ended September 30, 2020 and $29.0 million in the three months ended September 30, ~~2019 from $24.9 million in the three months ended September 30, 2018.~~2019. General and administrative expense increased ~~16%~~9% to $90.3 million in the nine months ended September 30, 2020 from $82.7 million in the nine months ended September 30, ~~2019 from $71.1 million in the nine months ended September 30, 2018.~~2019. The ~~increase~~change during the three months ended September 30, ~~2019~~2020 was primarily attributable to a ~~$2.7~~decrease in facilities expense of $0.6 million ~~increase in MetaPack general~~ and ~~administrative expense and the following non-MetaPack general and administrative expenses: (a)~~ a ~~$1.8 million increase in USPS related expenses, (b) a $1.3 million increase~~decrease in headcount-related expense including stock-based compensation ~~(c) a $0.4~~of $0.5 million ~~increase in legal fees primarily related to class action lawsuits, and (d) other general~~offset by increases in general operating expenses, partially offset by (1) a decrease in indirect tax liabilities of $1.2 million and (2) professional service expenses related to corporate development activities of $1.6 million recorded in the three months ended September 30, 2018 with no comparable amounts incurred in the three months ended September 30, 2019.expenses. The increase during the nine months ended September 30, ~~2019~~2020 was primarily attributable to an ~~$11.5 million~~ increase in MetaPack general and administrative expense and the following non-MetaPack general and administrative expenses: (a) a $6.2 million increase in USPS related expenses, (b) a $1.0 million increase in legal fees primarily related to class action lawsuits, and (c) other general increases in operating expenses, partially offset by (1) a decrease in indirect tax liabilities of $4.9 million, (2) a $1.3 million decrease in headcount-related expense including stock-based compensation of $2.9 million, an increase in indirect tax accrual of $1.4 million and ~~(3)~~other increases in general operating expenses offset by a decrease of $1.0 million in professional service and settlement expenses related to corporate development and litigation activities of $3.1 million recorded in the nine months ended September 30, 2018 with no comparable amounts incurred in the nine months ended September 30, 2019.fees.

General and administrative expense as a percent of total revenue ~~increased~~decreased to 15% in the three months ended September 30, 2020 from 21% in the three months ended September 30, ~~2019 from 17% in the three months ended September 30, 2018.~~2019. General and administrative expense as a percent of total revenue ~~increased~~decreased to 16% in the nine months ended September 30, 2020 from 20% in the nine months ended September 30, 2019 from 17% in the nine months ended September 30, 2018. General and administrative expense as a percentage of total revenue increased primarily due to the net increases in general and administrative expense described in the paragraph above as well as the2019. The decrease in ~~revenue attributable to the termination of our agreement with the USPS which provided for Package Incentive Payments, and the acquisition of MetaPack which had higher~~ general and administrative expense as a percent of total revenue ~~partially offset by the increase~~was primarily attributable to increased revenue in ~~consolidation services revenue.~~excess of increased general and administrative expense.

Foreign Currency Exchange Gain (Loss), Net

Foreign currency transaction gains and losses are included in foreign currency exchange gain (loss), net. The foreign currency exchange losses, net of ~~$38,000~~$67,000 in the three months ended September 30, ~~2019, $957,000 in the three months ended September 30, 2018, $285,000~~2020 and $238,000 in the nine months ended September 30, ~~2019, and $957,000 in the nine months ended September 30, 2018~~2020 were not material to the consolidated financial statements.

Interest Income and Other Income

Interest income and other income primarily consists of interest income from cash and cash ~~equivalents, and investments.~~equivalents. Interest income and other income decreased to $27,000 in the three months ended September 30, 2020 from $53,000 in the three months ended September 30, ~~2019 from $83,000~~2019. Interest income and other income decreased to $59,000 in the ~~three~~nine months ended September 30, ~~2018. Interest and other income decreased to~~2020 from $170,000 in the nine months ended September 30, ~~2019 from $175,000 in the nine months ended September 30, 2018.~~2019. Interest and other income is not material to the consolidated financial statements.

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Interest Expense

~~Interest~~Through June 30, 2020, interest expense consists of interest expense from the debt under our credit facility dated November 18, 2015 and the associated accretion of debt issuance costs. During the second quarter of 2020, the Company repaid the existing debt. See Note 13 - "Debt" in our Notes to Consolidated Financial Statements and Liquidity and Capital Resources below for further description. Interest expense decreased to $96,000 in the three months ended September 30, 2020 from $589,000 in the three months ended September 30, 2019 ~~from $668,000~~as it reflects only accretion of creditor and third-party fees associated with the Amended Credit Agreement. Interest expense decreased to $1.0 million in the ~~three~~nine months ended September 30, ~~2018. Interest expense was~~2020 from $1.9 million in the nine ~~month periods~~months ended September 30, ~~2019 and September 30, 2018. The interest~~2019. Interest expense in the ~~2019 periods were~~2020 period was affected primarily by ~~higher~~lower interest rates and lower outstanding debt balances under our credit ~~facility.~~facility dated November 18, 2015 until it was repaid in June 2020.

Provision for Income Taxes

See Note 7 — “Income Taxes” in our Notes to Consolidated Financial Statements for further discussion.

Liquidity and Capital Resources

Changes in cash and cash equivalents for the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 were as follows (in thousands):


	Nine Months Ended September 30,
	2020		2019		Change
Net cash provided by operating activities	$	179,466	$	100,624	$	78,842
Net cash used in investing activities	(3,164)		(1,749)		(1,415)
Net cash provided by (used in) financing activities	56,977		(69,119)		126,096
Effect of exchange rate changes	32		(26)		58
Net increase (decrease) in cash and cash equivalents	$	233,311	$	29,730	$	203,581

Nine Months Ended
September 30,
2019 2018 Change
Net cash provided by operating activities $ 100,624
$ 160,064
$ (59,440 )
Net cash used in investing activities (1,749 ) (210,087 ) 208,338
Net cash used in financing activities (69,119 ) (25,413 ) (43,706 )
Effect of exchange rate changes (26 ) (203 ) 177
Net increase (decrease) in cash and cash equivalents $ 29,730
$ (75,639 ) $ 105,369

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had ~~$143.5~~$389.6 million and ~~$113.8~~$156.3 million, respectively, primarily in cash and cash equivalents.

Net cash provided by operating activities was approximately ~~$100.6~~$179.5 million and ~~$160.1~~$100.6 million during the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, respectively. The ~~decrease~~increase in net cash provided by operating activities was primarily attributable to the following changes in the consolidated statement of cash flows line items: a ~~decrease~~$93.3 million increase in net income, ~~of $87.1 million~~ and a ~~$10.9~~$41.0 million increase in cash flows from an increase in accounts payable and other current liabilities, partially offset by a $25.9 million decrease in cash flows ~~due to the prior year~~from an increase in current income taxes, a $23.6 million decrease ~~in net deferred income tax assets, partially offset by a $22.1 million increase~~ in cash flows ~~due to a decrease~~from an increase in ~~net accounts receivable~~other current assets, and a ~~$9.8~~$16.9 million ~~increase~~decrease in cash flows ~~due to a decrease~~from an increase in ~~current income taxes.~~other assets.

Net cash used in investing activities was approximately ~~$1.7~~$3.2 million and ~~$210.1~~$1.7 million during the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, respectively. The ~~decrease~~increase in net cash used in investing activities was primarily attributable to the ~~prior year acquisition~~increase in the purchase of ~~MetaPack for a purchase price of $208.5~~property and equipment.

Net cash provided by financing activities was approximately $57.0 million during the nine months ended September 30, 2020, while net ~~of cash acquired.~~

~~Net~~ cash used in financing activities was approximately $69.1 million ~~and $25.4 million~~ during the nine months ended September 30, ~~2019 and September 30, 2018, respectively.~~2019. The increase in net cash ~~used in~~provided by financing activities was primarily due to ~~the $42.7~~a $110.1 million ~~decrease~~increase in proceeds received from stock option exercises, ~~and the $9.1~~a $33.7 million ~~decrease~~increase in cash flows due to the increase in net proceeds from short-term financing obligations, and a $24.7 million decrease in ~~short term financing obligations,~~common stock repurchases, partially offset by a $42.8 million increase in term loan principal payments, including the ~~prior year full repayment~~optional prepayment of ~~MetaPack's existing revolving credit facility balance~~the remaining debt balance.

Table of ~~approximately $12.7 million.~~Contents

~~The following table is a schedule of our significant~~Significant contractual obligations ~~and commercial commitments (other than debt commitments), which consist of minimum operating lease payments~~ as of September 30, ~~2019~~2020 were as follows (in thousands):


	Payments due by period
	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years
Debt Obligations (1)	$	—	$	—	$	—	$	—	$	—
Estimated Interest on Debt Obligations (1)	—		—		—		—		—
Capital Lease Obligations	—		—		—		—		—
Operating Lease Obligations (2)	80,386		(606)		19,200		14,444		47,348
Purchase Obligations	—		—		—		—		—
Other Long-Term Liabilities	—		—		—		—		—
Total	$	80,386	$	(606)	$	19,200	$	14,444	$	47,348

(1) The Company has no outstanding debt obligations as of September 30, 2020. See additional details described below.

Twelve Month Period Ending September 30, Operating
Lease Obligations
2020 $ 5,162
2021 5,109
2022 3,970
2023 3,655
2024 1,449
Thereafter 2,621
Total undiscounted cash flows 21,966
Less amount representing interest (2,521 )
Present value of lease liabilities $ 19,445
(2) Amounts represent the undiscounted cash lease payments under non-cancelable leases, net of tenant improvement allowance reimbursements reasonably expected to be received by the Company. In the third quarter of 2020, the Company entered into a new operating lease for commercial office space in Austin, Texas resulting in approximately $62.4 million of undiscounted net operating lease obligations through 2032.

OnDuring the second quarter of 2020, the Company repaid the existing term loan balance outstanding under the Credit Agreement dated November 18, ~~2015,~~2015. The optional prepayment satisfied the $47.5 million term loan balance in full.

On June 29, 2020, we entered into a revolving credit facility (the "Amended Credit ~~Agreement~~Agreement") with a group of banks, which ~~provided~~provides for ~~a term loan of $82.5 million and~~ a revolving credit facility with a maximum borrowing of ~~$82.5~~$130.0 million. Our Amended Credit Agreement matures on ~~November 18, 2020.~~June 29, 2022 (the “Maturity Date”). The Amended Credit Agreement is secured by substantially all of our assets. In connection with entering into the Amended Credit Agreement, we incurred approximately ~~$1.8 million~~$762,000 in ~~debt issuance costs~~creditor and third-party fees which were recorded as ~~debt discount~~deferred expense and ~~are being~~will be accreted as interest expense over the life of the Amended Credit Agreement. ~~Interest expense associated with~~See Note 13 - "Debt" in our Notes to Consolidated Financial Statements for further description.

The COVID-19 pandemic and resulting global disruptions have caused significant market volatility. This disruption can contribute to defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the ~~debt issuance costs for each~~availability of credit. We expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the ~~three~~pandemic are reasonably likely to materially affect our liquidity and nine months ended September 30, 2019 and September 30, 2018 was approximately $93,000 and $280,000, respectively. In December 2017, we repaid all of our revolving credit facility outstanding debt of $62.0 million.

Borrowings under the term loan are payable in quarterly installments which began on December 31, 2015. We pay interest on our Credit Agreement equal to the London Interbank Offered Rate plus an applicable margin, between 1.25% and 2.00%, based upon certain financial measures. As of September 30, 2019, our applicable margin was 1.25% and the interest rate on our outstanding loan was approximately 3.45%. We are subject to certain customary quarterly financial covenants under our Credit Agreement such as a maximum total leverage ratio and a minimum fixed charge coverage ratio. As of September 30, 2019, we were in compliance with the covenants of the Credit Agreement.

The Credit Agreement includes negative covenants, subject to exceptions, restricting or limiting our ability to among other things, incur additional indebtedness; grant liens; repurchase stock; pay dividends; and engage in certain investment, acquisition, and disposition transactions. The Credit Agreement imposes certain requirements in order for us to make dividend payments. As of September 30, 2019, such requirements were: (1) our Consolidated Total Leverage Ratio, as definedcapital resources in the Credit Agreement, must be less than 2.50 to 1.00; (2) our Fixed Charge Coverage Ratio, as defined in the Credit Agreement, must be greater than 1.25 to 1.00; and (3) our Liquidity as defined in the Credit Agreement must be greater than $20 million. As of September 30, 2019, our Consolidated Total Leverage Ratio was 0.29 to 1.00, our Fixed Charge Coverage Ratio was 11.26 to 1.00 and our Liquidity was approximately $226 million, which includes cash and cash equivalent balances, as well as the available balance under the revolving credit facility. Based on our actual financial condition and results of operations, we do not believe that the provisions of the Credit Agreement currently represent a restriction to our ability to pay dividends in permissible amounts.future.

~~The contractual maturities of our debt obligations due subsequent to September 30, 2019 are as follows (in thousands):~~

Year Ending September 30, Amount
2020 $ 12,375
2021 41,250
Thereafter —
Total debt 53,625

Less: debt issuance costs 436
Total debt, net of debt issuance costs $ 53,189

~~The estimated interest payments related to our debt due subsequent to September 30, 2019 are as follows (in thousands):~~

Year Ending September 30, Amount
2020 $ 1,718
2021 194
Thereafter —
Total $ 1,912

~~The above estimated interest payments assume an interest rate of 3.45%, which is our interest rate as of September 30, 2019.~~

~~Immediately following the acquisition of MetaPack, we repaid in full MetaPack's existing revolving credit facility balance of approximately $12.7 million.~~

We believe our available cash and marketable securities, together with the cash flow from operations, will be sufficient to fund our business for at least the next twelve months.

~~Segment Analysis~~

We acquired MetaPack on August 15, 2018, and, accordingly, there is no inclusion of MetaPack’s results prior to our ownership within this Report. Given the absence of MetaPack data in our results prior to our ownership of MetaPack, and the inclusion of segment financial information contained in Note 10 to the Notes to Consolidated Financial Statements contained in this Report, we believe that, as of the filing of this Report, a segment presentation in this Management's Discussion and Analysis of Results of Operations section is not necessary to form an understanding of our overall business. We intend to provide a segment analysis in our future Management's Discussion and Analysis of Results of Operations sections when appropriate to facilitate an understanding of our business.

Business Outlook and Forward-Looking Statements

The following forward-looking statements are accompanied by, and should only be read in conjunction with, the qualifications and limitations described in the forward-looking statements discussion at the beginning of this Item 2 and the risks and other factors set forth in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed with the SEC on May 8, 2020, and in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~1, 2019.~~2, 2020.

As previously disclosed, our agreement with the USPS that provided for Package Incentive Payments to be paid directly to us by the USPS for certain classes of shipping labels terminated on December 31, 2018. In addition, we have become aware of potential adverse amendments, renegotiations, changes, or termination of certain contracts between the USPS and certain of our strategic partners who are part of the USPS’s reseller program, and through which we derive material revenues and profits (such potential events, collectively the "Reseller Restructuring"); however there is significant uncertainty as to whether, how and when any Reseller Restructuring may be implemented.

We expect our mailing and shipping revenue to ~~decrease~~increase in ~~2019~~2020 compared to ~~2018 primarily due~~2019.

The USPS eliminated its customized postage program and also revoked our authorization to ~~the termination on December 31, 2018~~offer products pursuant to that program effective June 16, 2020. The revenue and cost of ~~our agreement~~revenue associated with the USPS which provided for Package Incentive Payments, partially offset by an increase due to MetaPack results being included for the full fiscal year in 2019, compared to the period from August 15 through year end in 2018. Our mailing and shipping revenue is also dependentthese products appear on our ability to increase our sales and marketing spend to acquire new customers and to retain our existing customers. To the extent we are not able to achieve our target increase in spending and acquire or retain customers, this would further negatively impact our 2019 mailing and shipping revenue expectations.

~~Our expectations of mailing and shipping revenue reflect the discontinuation of Package Incentive Payments.~~financial statements as “Customized Postage.” As a result, our revenue and operating results will be adversely affected unless we are successful in timely replacing the lost revenue with similar compensation from the USPS or other potential partners. While we have strategies to replace some portion of these revenues with new carrier relationships, such as our collaboration with UPS announced on October 21, 2019 to bring discounted UPS shipping rates to our customers, these plans are in various stages, and we do not expect ~~any~~ material replacement of such revenues to occur during the 2019 fiscal year. Further, there is no assurance as to when, if or to what extent we may ultimately succeed in implementing such strategies, all of which carry negotiation and execution risks. Unless and until we replace these lost revenues and associated profit margins, our operating results in 2019 and beyond may be materially less than in 2018. See "Risk Factors--Risks Related to our Industry--The discontinuation of certain financial compensation arrangements with the USPS will have an adverse effect on our revenues and operating results, unless we are successful in replacing the lost revenue and profit with similar compensation from the USPS or other potential partners, of which there is no assurance~~," "~~Risk Factors--Risks Related to our Industry--The USPS could modify, discontinue or terminate agreements and other financial compensation arrangements, which would have an adverse effect on our revenue and operating results~~," "~~Risk Factors--Risks Related to our Industry--The USPS or our integration partners could cause discounts our customers receive to be diminished or terminated, which would have an adverse effect on our results of operations, reputation and competitiveness~~," and "~~Risk Factors--Risks Related to our Industry--Strategic business Partners or carriers could modify or terminate agreements and other financial compensation arrangements, which could materially adversely affect our results of operations and prospects~~," in our Annual Report on Form 10-K for the fiscal year ended December 1, 2018, filed with the SEC on March 1, 2019.~~

~~We expect~~ customized postage revenue to decline in 2019 compared to 2018, due to certain high volume business purchases occurring in 2018, which may not be repeated in 2019. High volume business orders for customized postage can fluctuate significantly from quarter to quarter and therefore historical trends may not be indicativeor cost of ~~future results for customized postage revenue.~~revenue after June 2020.

We expect our sales and marketing expenses to be higher in ~~2019~~2020 as compared to ~~2018.~~2019 and we expect the percent increase in sales and marketing expense in 2020 to be greater than the percent increase in 2019. The increases are as a result of the ~~inclusion of MetaPack, the~~ annualized effect of our headcount investments in ~~2018,~~2019, and our plan to increase our investments in headcount resources and

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spending in ~~2019. We expect the percent increase~~discretionary marketing channels in ~~sales and marketing expense in 2019~~2020 to ~~be less than the percent increase in 2018.~~drive growth. We will continue to monitor our customer metrics and the state of the economy and adjust our level of spending accordingly. Sales and marketing spend is expensed in the period incurred, while the revenue and profits associated with the acquired customers are earned over the customers’ lifetimes. As a result, increased sales and marketing spend in future periods could result in a reduction in operating profit and cash flow compared to past periods.

We expect research and development expenses to be higher in ~~2019~~2020 as compared to ~~2018.~~2019 and we expect the percent increase in research and development expense in 2020 to be less than the percent increase in 2019. The increases are a result of ~~the inclusion of MetaPack,~~ the annualized effect of our headcount investments in ~~2018,~~2019, and our plan to increase our investments in headcount resources in ~~2019. We expect the percent increase in research and development expense in 2019~~2020 to ~~be greater than the percent increase in 2018.~~drive growth.

We expect general and administrative expenses to be higher in ~~2019~~2020 as compared to ~~2018.~~2019 and we expect the percent increase in general and administrative expense in 2020 to be less than the percent increase in 2019. The increase is a result of ~~the inclusion of MetaPack,~~ the annualized effect of our headcount investments in ~~2018,~~2019, and our plan to increase our investments in headcount resources in ~~2019. We expect the percent increase in general and administrative expense in 2019 to be less than the percent increase in 2018.~~2020.

We expect our stock-based compensation expense in 2020 to be ~~higher~~similar to 2019 due to an increase in ~~2019 compared~~the weighted average grant date fair values of options granted in 2020 relative to ~~2018.~~non-vested options at December 31, 2019.

WeAbsent borrowings, we expect our interest ~~and other income (expense), net~~expense in ~~2019~~2020 to be ~~approximately similar to 2018~~lower than 2019 due to ~~higher expected interest rates and~~ lower average outstanding ~~balances.~~debt balances under our credit facility.

We expect our effective tax rate for ~~2019~~2020 to be ~~higher~~lower than ~~2018. The increase in our estimated effective tax rate for 2019 was primarily driven by an increase in projected non-deductible expenses related~~2019; however, there are factors that impact taxable income compared to ~~executive compensation coupled with a reduction in projected pre-tax~~ book ~~income.~~income which can be difficult to predict and can change from quarter-to-quarter.

As discussed earlier in this Report, our expectations are subject to substantial uncertainty and our results are subject to macro-economic factors and other factors which could cause these trends to be worse than our current expectation or which could cause actual results to be materially different than our current expectations. These expectations are “forward-looking statements,” are made only as of the date of this Report and are subject to the qualifications and limitations on forward-looking statements discussion in the beginning of Item 2 of this Report and the risks and other factors set forth in Item 1A of Part II of our Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020, and Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on March ~~1, 2019.~~2, 2020, including those related to the ongoing COVID-19 pandemic. Our business has grown through acquisitions during 2014 through 2018; however the expectations above do not assume any future acquisitions or dispositions, any of which could have a significant impact on our current expectations. As described in our forward-looking statements discussion, we do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Report.

Critical Accounting Policies and Judgments

Management's discussion and analysis of our financial condition and results of operations is based on our unaudited financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and notes. For more information regarding our critical accounting estimates and policies, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Judgments" of our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~1, 2019.~~2, 2020.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~On November 18, 2015, we entered into a~~Borrowings under our Amended Credit Agreement ~~with~~bear interest, at our option, at the base rate, as defined, plus an applicable margin or a group of banks, which provided for a term loan of $82.5 million and a revolving credit facility with a maximum borrowing of $82.5 million. Our Credit Agreement matures on November 18, 2020. As of September 30, 2019, the debt outstanding under our Credit Agreement, gross of debt issuance costs, was $53.6 million. Borrowings under the term loan are payable in quarterly installments which began on December 31, 2015. We pay interest on our Credit Agreement at a rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin, ~~which is~~in each case such margin will be between 1.25% and ~~2.00%, based upon~~3.00% and is determined by certain financial measures. AsThere were no amounts drawn on the revolving credit facility as of September 30, ~~2019,~~2020. See Note 13 - "Debt" in our ~~applicable margin was 1.25%~~Notes to Consolidated Financial Statements for further description.

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the ~~interest rate on~~US dollar, primarily the British Pound Sterling. Accordingly, changes in exchange rates could negatively affect our ~~outstanding loan was approximately 3.45%. Interest expense would not be significantly affected by either~~results. We have experienced and will continue to experience fluctuations in our net income as a ~~10% increase~~result of transaction gains or ~~decrease~~losses related to revaluing monetary asset and liability balances that are denominated in currencies other than the ~~rates~~functional currency of ~~interest on our debt.~~

the entities in which they are recorded.

We do not hold or issue financial instruments for trading purposes. We do not have material exposure to market risk with respect to investments. We do not use derivative financial instruments for speculative or trading purposes. Nor do we use forwards, options or other derivative instruments to hedge our forecast cash flow currency exposures, our foreign currency intercompany transactions or otherwise. However, we may adopt specific hedging strategies in the future.

Our cash balances would not be materially affected by significant changes in exchange rates.

Our cash equivalents consist ~~primarily~~ of money market securities and had a weighted average maturity of ~~13 days~~1 day and a weighted average interest rate of ~~2.0%~~0.05% at September 30, ~~2019.~~2020. The aggregate value of our cash and cash equivalents was ~~$143.5~~$389.6 million at September 30, ~~2019.~~2020. Interest rate fluctuations impact the carrying value of the portfolio. The fair value of our portfolio of marketable securities would not be significantly affected by either a 10% increase or decrease in the rates of interest due primarily to the short-term nature of the portfolio. We do not believe that the future market risks related to the above securities will have a material adverse impact on our financial position, results of operations, or liquidity.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

As of the end of the period covered by this Report, our management evaluated, with the participation of our Principal Executive Officer and Principal Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded, as of that time, that our disclosure controls and procedures were effective.

Changes in ~~internal controls~~Internal Controls

As discussed in Note 2 in our Notes to Consolidated Financial Statements, we acquired MetaPack on August 15, 2018. We are in the process of integrating certain processes, systems and controls relating to MetaPack into our existing system of internal control over financial reporting in accordance with our integration plans. Except for the foregoing, duringDuring the quarter ended September 30, ~~2019,~~2020, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 3 - "Commitments and Contingencies" of our Notes to Consolidated Financial Statements, which is incorporated herein by reference. ~~See also Item 1 of Part II of our Quarterly Report on Form 10-Q for the periods ended March 31, 2019 and June 30, 2019, filed with the SEC on May 10, 2019 and August 8, 2019, respectively.~~

ITEM 1A. RISK FACTORS

We are not aware of any material changes to the risk factors included in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019 filed with the SEC on March ~~1, 2019.~~2, 2020, other than those disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 8, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (in 000's)



July 1, 2020 - July 31, 2020	15,214	$	216.38	15,214	$	2,250
August 1, 2020 - August 31, 2020	21,407	$	269.31	21,407	$	35,132
September 1, 2020 - September 30, 2020	30,110	$	226.34	30,110	$	28,316

Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet be
Purchased Under the
Plans or Programs
(in 000's)
July 1, 2019 -
July 31, 2019
47,029
$ 46.77
47,029
$ 30,563
August 1, 2019 -
August 31, 2019
38,483
$ 56.75
38,483
$ 28,379
September 1, 2019 -
September 30, 2019
27,730
$ 72.10
27,730
$ 26,380

On March 8, 2019, our ~~Board~~board of ~~Directors~~directors approved a $60 million share repurchase plan which was scheduled to expire in September 2019. On May 1, 2019, our ~~Board~~board of ~~Directors~~directors adjusted the repurchase parameters of the plan such that it was expected to repurchase a further $9 million, between May 9, 2019 and the plan's initially scheduled expiration in September 2019 in addition to the $24 million purchased under the plan prior to such period. On July 29, 2019 and October 31, 2019, our ~~Board~~board of ~~Directors~~directors approved further adjustments to the plan to extend its ~~term,~~term. On February 13, 2020, our board of directors approved a new share repurchase plan, which ~~we now expect will run into May~~became effective February 24, 2020, that replaced our prior stock repurchase plan and authorized the Company to repurchase up to $40 million of stock over the six months following its effective date. On February 28, 2020, our board of directors adjusted the repurchase parameters of the plan in response to increased market volatility, resulting in an expected aggregate repurchase thereunder of up to approximately $19 million through the plan's scheduled expiration in August 2020. On August 3, 2020, our Board of Directors approved termination of the current plan ahead of schedule and approved a new share repurchase program that took effect on August 11, 2020, following such termination. The new plan authorizes us to repurchase up to $40 million of stock over approximately six months following its effective date.

From time to time we withhold shares of our stock to satisfy income tax obligations related to performance-based or restricted equity awards. See Note 1 - "Summary of Significant Accounting Policies-Treasury Stock" in our Notes to Consolidated Financial Statements included elsewhere in this filing.

We will consider repurchasing stock in the future by evaluating such factors as the price of the stock, the daily trading volume and the availability of large blocks of stock and any additional constraints related to material inside information we may possess. Our repurchase of any of our shares will be subject to limitations that may be imposed on such repurchases by applicable securities laws and regulations and the rules of The NASDAQ Stock Market, as well as restrictions under our Amended Credit Agreement. Repurchases may be made in the open market, or in privately negotiated transactions from time to time at our discretion. We have no commitment to make any repurchases.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 5. OTHER INFORMATION



Delaware						77-0454966
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	STMP	NASDAQ Global Select Market


	Nine Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2020		2019
Operating activities:							Operating activities:
Net income	$	38,895		$	125,981		Net income	$	132,191	$	38,895
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,149			16,861			Depreciation and amortization	19,602		21,149
Stock-based compensation expense	30,418			26,350			Stock-based compensation expense	34,106		30,418
Deferred income tax expense	—			10,929

Accretion of debt issuance costs	280			279			Accretion of debt issuance costs	437		280
Changes in operating assets and liabilities, net of assets and liabilities acquired:							Changes in operating assets and liabilities, net of assets and liabilities acquired:
Accounts receivable	17,045			(5,054		)	Accounts receivable	14,513		17,045
Prepaid expenses	(5,668		)	(4,377		)	Prepaid expenses	2,838		(5,668)
Other current assets	(6,365		)	(12,339		)	Other current assets	(30,008)		(6,365)
Current income taxes	8,465			(1,373		)	Current income taxes	(17,404)		8,465
Lease right-of-use assets	2,282			—			Lease right-of-use assets	2,678		2,282
Other assets	(7,571		)	(1,299		)	Other assets	(24,494)		(7,571)
Deferred revenue	590			560			Deferred revenue	1,917		590
Lease right-of-use liabilities	(2,416		)	—			Lease right-of-use liabilities	(3,153)		(2,416)
Other liabilities	1,320			2,183			Other liabilities	3,008		1,320
Accounts payable and accrued expenses	2,200			1,363
Accounts payable and other current liabilities							Accounts payable and other current liabilities	43,235		2,200
Net cash provided by operating activities	100,624			160,064			Net cash provided by operating activities	179,466		100,624

Investing activities:							Investing activities:
Acquisition of MetaPack, net of cash acquired	—			(208,500		)

Acquisition of property and equipment	(1,749		)	(1,587		)	Acquisition of property and equipment	(3,164)		(1,749)
Net cash used in investing activities	(1,749		)	(210,087		)	Net cash used in investing activities	(3,164)		(1,749)

Financing activities:							Financing activities:
Proceeds from short term financing obligations, net of repayments	(8,463		)	678
Net proceeds from (repayments of) short-term financing obligations							Net proceeds from (repayments of) short-term financing obligations	25,229		(8,463)
Debt issuance costs							Debt issuance costs	(762)		0
Principal payments on term loan	(7,734		)	(6,187		)	Principal payments on term loan	(50,530)		(7,734)
Payment on revolving credit facility	—			(12,716		)

Proceeds from exercise of stock options	2,925			45,625			Proceeds from exercise of stock options	113,043		2,925
Issuance of common stock under Employee Stock Purchase Plan	2,817			3,755			Issuance of common stock under Employee Stock Purchase Plan	3,846		2,817
Repurchase of common stock	(58,571		)	(52,424		)	Repurchase of common stock	(33,849)		(58,571)
Payments related to tax withholding for share-based compensation	(93		)	(4,144		)
Net cash used in financing activities	(69,119		)	(25,413		)
Payments related to tax withholding for stock-based compensation							Payments related to tax withholding for stock-based compensation	0		(93)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	56,977		(69,119)
Effect of exchange rate changes	(26		)	(203		)	Effect of exchange rate changes	32		(26)
Net increase (decrease) in cash and cash equivalents	29,730			(75,639		)	Net increase (decrease) in cash and cash equivalents	233,311		29,730
Cash and cash equivalents at beginning of period	113,757			153,903			Cash and cash equivalents at beginning of period	156,307		113,757
Cash and cash equivalents at end of period	$	143,487		$	78,264		Cash and cash equivalents at end of period	$	389,618	$	143,487

Supplemental information:							Supplemental information:
Capital expenditures accrued but not paid at period end	$	123		$	13		Capital expenditures accrued but not paid at period end	$	0	$	123
Tenant improvement allowance	$	—		$	600
Cash paid for amounts included in the measurement of lease liabilities included in cash provided by operating activities	$	3,530		$	—		Cash paid for amounts included in the measurement of lease liabilities included in cash provided by operating activities	$	4,537	$	3,530
Lease liabilities arising from obtaining right-of-use assets	$	8,649		$	—		Lease liabilities arising from obtaining right-of-use assets	$	45,534	$	8,649


	Stamps.com Segment		MetaPack Segment		Total
Goodwill balance at December 31, 2019	$	239,705	$	144,835	$	384,540
Foreign currency translation	0		(3,832)		(3,832)
Goodwill balance at September 30, 2020	$	239,705	$	141,003	$	380,708



	Stamps.com Segment		MetaPack Segment			Total
Goodwill balance at December 31, 2018	$	239,705	$	142,005		$	381,710
Measurement period adjustments (see Note 2 - "Acquisitions")	—		(2,512		)	(2,512		)
Foreign currency translation	—		(5,108		)	(5,108		)
Goodwill balance at September 30, 2019	$	239,705	$	134,385		$	374,090



☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Nine Months Ended September 30, 2020
	Common Stock			Additional Paid-in Capital		Treasury Stock at Cost		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at December 31, 2019	17,029	$	56	$	1,098,426	$	(593,511)	$	150,941	$	9,713	$	665,625
Net income	—	—		—		—		16,494		—		16,494
Other comprehensive income (loss)	—	—		—		—		—		(14,727)		(14,727)

Stock-based compensation expense	—	—		10,725		—		—		—		10,725
Exercise of stock options	103	0		8,818		—		—		—		8,818
Shares issued under the Employee Stock Purchase Plan	50	—		1,950		—		—		—		1,950
Stock repurchase	(80)	—		—		(8,577)		—		—		(8,577)

Balance at March 31, 2020	17,102	$	56	$	1,119,919	$	(602,088)	$	167,435	$	(5,014)	$	680,308
Net income	—	—		—		—		51,726		—		51,726
Other comprehensive income (loss)	—	—		—		—		—		(338)		(338)
Stock-based compensation expense	—	—		13,221		—		—		—		13,221
Exercise of stock options	368	0		29,750		—		—		—		29,750
Stock repurchase	(56)	—		—		(9,397)		—		—		(9,397)
Balance at June 30, 2020	17,414	$	56	$	1,162,890	$	(611,485)	$	219,161	$	(5,352)	$	765,270
Net income	—	—		—		—		63,971		—		63,971
Other comprehensive income (loss)	—	—		—		—		—		8,742		8,742
Stock-based compensation expense	—	—		10,160		—		—		—		10,160
Exercise of stock options	825	1		74,474		—		—		—		74,475
Shares issued under the Employee Stock Purchase Plan	31	—		1,896		—		—		—		1,896
Stock repurchase	(67)	—		—		(15,875)		—		—		(15,875)
Balance at September 30, 2020	18,203	$	57	$	1,249,420	$	(627,360)	$	283,132	$	3,390	$	908,639



	Nine Months Ended September 30, 2019
	Common Stock				Additional Paid-in Capital		Treasury Stock at Cost			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Additional Paid-in Capital		Treasury Stock at Cost			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2018	17,662		$	56	$	1,049,669	$	(528,529	)	$	91,712	$	757		$	613,665
Net income	—		—		—		—			15,755		—			15,755
Other comprehensive income (loss)	—		—		—		—			—		3,962			3,962
Issuance of shares for performance-based awards	4		—		—		—			—		—			—
Stock-based compensation expense	—		—		8,857		—			—		—			8,857
Exercise of stock options	29		—		2,381		—			—		—			2,381
Shares issued under the Employee Stock Purchase Plan	13		—		2,100		—			—		—			2,100
Stock repurchase, excluding tax withholding stock repurchase	(235	)	—		—		(31,998		)	—		—			(31,998		)
Tax withholding stock repurchase	(1	)	—		—		(93		)	—		—			(93		)
Balance at March 31, 2019	17,472		56		1,063,007		(560,620		)	107,467		4,719			614,629
Net income	—		—		—		—			13,992		—			13,992
Other comprehensive income (loss)	—		—		—		—			—		(4,886		)	(4,886		)
Stock-based compensation expense	—		—		9,808		—			—		—			9,808
Exercise of stock options	12		—		272		—			—		—			272
Stock repurchase	(295	)	—		—		(20,187		)	—		—			(20,187		)
Balance at June 30, 2019	17,189		56		1,073,087		(580,807		)	121,459		(167		)	613,628
Net income	—		—		—		—			9,148		—			9,148
Other comprehensive income (loss)	—		—		—		—			—		(6,886		)	(6,886		)
Stock-based compensation expense	—		—		11,753		—			—		—			11,753
Exercise of stock options	9		—		272		—			—		—			272
Shares issued under the Employee Stock Purchase Plan	18		—		717		—			—		—			717
Stock repurchase	(113	)	—		—		(6,386		)	—		—			(6,386		)
Balance at September 30, 2019	17,103		$	56	$	1,085,829	$	(587,193	)	$	130,607	$	(7,053	)	$	622,246



	Nine Months Ended September 30, 2018
	Common Stock				Additional Paid-in Capital		Treasury Stock at Cost			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Additional Paid-in Capital		Treasury Stock at Cost			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2017	17,573		$	55	$	962,227	$	(387,545	)	$	(76,930	)	$	6		$	497,813
Net income	—		—		—		—			47,044			—			47,044
Other comprehensive income (loss)	—		—		—		—			—			1			1
Issuance of shares for performance-based awards	56		—		—		—			—			—			—
Stock-based compensation expense	—		—		7,548		—			—			—			7,548
Exercise of stock options	380		—		19,632		—			—			—			19,632
Shares issued under the Employee Stock Purchase Plan	15		—		1,981		—			—			—			1,981
Stock repurchase, excluding tax withholding stock repurchase	(120	)	—		—		(23,221		)	—			—			(23,221		)
Tax withholding stock repurchase	(21	)	—		—		(4,144		)	—			—			(4,144		)
Balance at March 31, 2018	17,883		55		991,388		(414,910		)	(29,886		)	7			546,654
Net income	—		—		—		—			45,524			—			45,524
Other comprehensive income (loss)	—		—		—		—			—			(1		)	(1		)
Stock-based compensation expense	—		—		9,891		—			—			—			9,891
Exercise of stock options	322		—		21,329		—			—			—			21,329
Stock repurchase	(54	)	—		—		(12,811		)	—			—			(12,811		)
Balance at June 30, 2018	18,151		55		1,022,608		(427,721		)	15,638			6			610,586
Net income	—		—		—		—			33,413			—			33,413
Other comprehensive income (loss)	—		—		—		—			—			5,543			5,543
Stock-based compensation expense	—		—		8,911		—			—			—			8,911
Exercise of stock options	56		1		4,662		—			—			—			4,663
Shares issued under the Employee Stock Purchase Plan	10		—		1,774		—			—			—			1,774
Stock repurchase	(49	)	—		—		(12,248		)	—			—			(12,248		)
Balance at September 30, 2018	18,168		$	56	$	1,037,955	$	(439,969	)	$	49,051		$	5,549		$	652,642


	Fair Value		Fair Value		Useful Life (In Years)	Weighted Average Estimated Useful Life (In Years)
Cash and cash equivalents	$	9,186
Trade accounts receivable	9,767
Other current assets	2,776
Property and equipment	1,039
Goodwill	138,956
Identifiable intangible assets:
Trade names			$	10,936	12
Developed technology			40,691		16
Customer relationships			49,211		16
Total identifiable intangible assets	100,838					16
Accounts payable and other current liabilities	(13,519)
Deferred revenue	(1,145)
Revolving credit facility	(12,716)
Deferred income tax liability	(15,963)
Other liabilities	(1,533)
Total purchase consideration	$	217,686


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining weighted average amortization period (years)
Patents and Others	$	8,195	$	8,195	$	0	0.0
Customer Relationships	110,704		56,194		54,510		6.9
Technology	81,199		30,983		50,216		8.6
Non-Compete	2,211		2,050		161		0.7
Trademarks and Trade Names	13,090		3,358		9,732		9.1
Total amortizable intangible assets at September 30, 2020	$	215,399	$	100,780	$	114,619	7.8


	September 30, 2020		December 31, 2019
Accounts payable	$	53,368	$	47,783
Customer prepayments for postage and shipping labels	78,271		40,002
Income taxes payable	3,436		7,996
Payroll and related accruals	26,935		23,029
Short-term financing obligations	26,210		982
Other accruals	2,054		2,061
Accounts payable and other current liabilities	$	190,274	$	121,853


Year	First Quarter	Second Quarter	Third Quarter	Year	First Quarter	Second Quarter	Third Quarter
2020				2020	777	956	987
2019	736	742	743	2019	736	742	743
2018	740	737	732



Year Ending September 30,	Amount
2020	$	12,375
2021	41,250
Thereafter	—
Total debt	53,625

Less: debt issuance costs	436
Total debt, net of debt issuance costs	$	53,189



31.1			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *

32.2			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. *



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104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



	STAMPS.COM INC.
	(Registrant)

Date: November ~~12, 2019~~6, 2020	By:	/s/ KEN MCBRIDE
		Ken McBride
		Chairman and Chief Executive Officer



Date: November ~~12, 2019~~6, 2020	By:	/s/ JEFF CARBERRY
		Jeff Carberry
		Chief Financial Officer

September 30, ~~2019~~2020

Weighted-average remaining lease term

Weighted-average discount rate

~~4.9~~4.7