Stamps.Com Reports First Ever Profitable Quarter

Year over Year Revenue Growth of 101%; EPS of $0.03

LOS ANGELES, Calif. – October 21, 2004 –™ (Nasdaq: STMP) today announced that third quarter net income was $0.7 million, or $0.03 per fully diluted share, in the first ever profitable quarter in the Company’s history. In addition, the Company announced that third quarter total revenue was $10.7 million, up 101% versus the same quarter last year — the highest quarterly year over year growth rate ever for the Company.

Additional third quarter 2004 financial results and highlights include the following:

  • Approximately 78 thousand sheets of PhotoStamps™ were shipped during the quarter, contributing $1.4 million in total revenue, and approximately $0.5 million in gross profit; incremental sales and marketing costs related to PhotoStamps were approximately $0.3 million for the quarter.

  • Excluding revenue from PhotoStamps, core PC Postage business total revenue was $9.3 million, up 75% versus the same quarter last year. Subscription revenue was $7.1 million and online store revenue was $1.4 million, up 61% and 67%, respectively, versus the third quarter of 2003. Insurance fees, licensing fees, and other revenue was an additional $0.8 million.

  • Total gross margin was 67%, an increase of 4% versus the second quarter of 2004. Gross margin for the core PC Postage business, excluding the impact from PhotoStamps, was approximately 72%.

“We are very pleased to reach profitability in the core PC Postage business ahead of expectations,” said president and CEO Ken McBride. “Core PC Postage quarterly revenue grew at the fastest year over year rate that we have ever experienced, and third quarter gross customer acquisition also reached the highest level we have seen in more than three years. The PhotoStamps business performed extremely well during the initial market test and we are working closely with the USPS during this evaluation period. We hope to gain more insight into the future of that program soon.” reported net income of $0.7 million for the third quarter of 2004 compared to a net loss of $1.7 million in the third quarter of 2003 and a net loss of $2.3 million in the second quarter of 2004. On a per share basis, net income was $0.03 in the third quarter of 2004 based on fully diluted shares outstanding of 23.2 million. This compares to a net loss of $0.08 in the third quarter of 2003, based on shares outstanding of 22.0 million. During the third quarter, received a $1.4 million one-time settlement payment, recognized as other income, related to a legal settlement that was reached in the third quarter. The Company also recognized approximately $1.4 million in litigation expenses, related to the same legal settlement, as part of its third quarter general & administrative expense.

During the third quarter of 2004, received USPS authorization to proceed with a market test of PhotoStamps, a new form of postage that allows customers to include photographs, logos or graphics along with valid US postage. concluded the market test on September 30 with over 130,000 sheets, or 2.6 million individual PhotoStamps, ordered during the 7 &frac12 week test. Approximately 78 thousand of the PhotoStamps sheets shipped during the fiscal third quarter, with the remainder expected to ship during the fiscal fourth quarter. recently submitted a formal request to the US Postal Service to continue testing the PhotoStamps service. That request is being considered during an evaluation period that is expected to take up to 90 days from the end of the market test on September 30.

For the fourth quarter of 2004, anticipates that revenue will be approximately $10.7 million, including $0.9 million in revenue from PhotoStamps that are expected to ship during the fourth quarter. Fourth quarter gross margin is expected to be in the high 60% range. Net income for the fourth quarter is anticipated to be approximately $0.03 per fully diluted share. For fiscal 2005, anticipates that revenue will be approximately $43.5 million and that total gross margin will be in the low 70% range. Net income for fiscal 2005 is anticipated to be $0.16 per fully diluted share. Current guidance for 2005 net income does not reflect the potential impact of the Company being required to expense stock-based compensation, other than in accordance with existing accounting standards.

The financial results conference call will be web cast today at 2:00 p.m. Eastern Time and may be accessed at The Company plans to discuss its business outlook during the conference call. Following the conclusion of the web cast, a replay of the call will be available at the same location.

About and PhotoStamps (Nasdaq: STMP) is a leading provider of Internet-based postage services. enables over 300,000 customers to print U.S. Postal Service-approved postage with just a PC, printer and Internet connection, right from their home or office. The Company targets its services to small businesses and home offices, and currently has partnerships with companies including Microsoft, CompUSA, EarthLink, HP, NCR, Office Depot, Vendio and the U.S. Postal Service.

PhotoStamps is a product that couples the technology of PC Postage with the simplicity of a web-based image up load and order process to allow consumers, small businesses, and large businesses to order fully customized postage. received US Postal Service authorization to proceed with a market test of PhotoStamps, and completed that market test during the third quarter of 2004.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements about our anticipated results that involve risks and uncertainties. Important factors, including the Company’s ability to complete and ship its products and obtain regulatory approval, which could cause actual results to differ materially from those in the forward-looking statements, are detailed in filings with the Securities and Exchange Commission made from time to time by, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2003, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events., the logo and PhotoStamps are trademarks or registered trademarks of Inc. All other brands and names are property of their respective owners.