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Executives

Robert Keane – President and CEO

Mike Giannetto – EVP and CFO

Analysts

Jennifer Watson – Goldman Sachs

Jim Friedland – Cowen and Company

Mark Mahaney – Citigroup

Youssef Squali – Jefferies & Company

Mark May – Needham & Company

Mitch Bartlett – Craig-Hallum Capital

VistaPrint Limited (VPRT) F4Q09 (Qtr End 06/30/09) Earnings Call Transcript July 30, 2009 5:15 PM ET

Operator

Ladies and gentlemen, welcome to the VistaPrint 2009 fourth quarter and fiscal year Q&A earnings conference call. My name is Jeremy and I will be your coordinator for today. This call is being hosted by Robert Keane, President and CEO, and Mike Giannetto, Executive Vice President and CFO.

Before we take the first call, as noted in the Safe Harbor statement at the beginning of the earnings presentation, comments may include forward-looking statements, including statements regarding revenue and earnings guidance, and actual results may differ materially. Risks that could impact those statements are described in the documents that are periodically filed with the Securities and Exchange Commission.

Now, we'll proceed to the first call.

Question-and-Answer Session

Operator

(Operator instructions) And ladies and gentlemen, your first question comes from the line of Jennifer Watson with Goldman Sachs. You may proceed.

Jennifer Watson – Goldman Sachs

Great. Thank you so much. Quick question on the investments or the extension to the home and family segment, can you talk about what kind of products you would be targeting there? And from my perspective, it sounds though that there is probably a pretty competitive area with minimal pricing power. Can you just talk about what you can bring there and how that might impact the financial statements?

Robert Keane

Sure. Jennifer, this is Robert speaking. One, we have had a very strong growth in home and family products over the last four or five years and it was above 15% of the revenues in the last fiscal year, so 15% of over $500 million, its already a substantial business. We are very happy with the gross margins and the bottom line margins that we are getting on those products and we believe if we have a lot of more, it would be very good for the business.

We think one of the big reasons we can be very competitive in the business is our ability to have such high scale in the manufacturing and where we get very, very cost competitive products. So for years, we have had things like holiday cards or in the recent year’s calendars which were used a lot by defenders, but are also used by individual consumers. And as we’ve gotten into other products like T-shirts or mouse pads or signage, all of those have actually, for instance banners, each one of those maybe used by small businesses, but we found a significant up tick by consumers.

And so, we do see a proliferation of additional products, but they won’t be drastically different than what we’ve been doing in the past. We see as more of the same thing. We are happy with the margins there, we are happy with our competitive advantages. So one last thing I would say in addition to the manufacturing efficiencies we have just because of scale, one big advantage we have is that we have business which really operates year-round. Many of the people who operate in the consumer market are very, very dependent on the December quarter and a lot of the amortization has to happen over what is really a very short period of time whereas we have a very significant amount of business year-round and we think that adds besides just the pure scale advantages, the diminished seasonality is advantageous.

Jennifer Watson – Goldman Sachs

Great. Thank you.

Robert Keane

Thank you.

Operator

And your next question will be from the line of Jim Friedland with Cowen and Company. You may proceed.

Jim Friedland – Cowen and Company

Thanks. A quick follow-up question on the home products category just to ask straight and direct, you allow people to upload photos today, sometimes with an incremental charge sometimes without, would you have some sort of free photo storage and sharing component here or is it really just to go down the path that you were on and then I have a quick follow-up on the new Australia facility.

Robert Keane

Okay, Jim. I would say, first of all, I want to be too specific on future products and that being said, I will give a broad statement about our philosophies that the model of storing photos is changing very quickly. There is a proliferation of great and highly competitive free storage sites out in the world on the Internet, and rather than trying to create yet another one, we would try to leverage off with those, but I don’t want to get too much more specific than that.

Jim Friedland – Cowen and Company

Okay. Great. And then the second answer – the second question relating to the build out in Australia, two quick questions, are you planning to do local marketing? Have that on the ground there when you launched that facility? And then the second, can you tell us in fiscal 2009 what Australia, Japan, New Zealand represented as a percentage of total revenues?

Mike Giannetto

Jim, it's Mike. The intent is to have local marketing on the ground in Australia in addition to the manufacturing facility we will be constructing there. In terms of the office and the manufacturing site, we would expect it to be up and running in our fiscal 2011.

Jim Friedland – Cowen and Company

Okay. And as a percentage of revenues last year–?

Mike Giannetto

It was less than 5% of revenues for the Asia Pacific region, which is Australia, New Zealand and Japan for us.

Jim Friedland – Cowen and Company

Okay. Great. Thank you.

Operator

And your next question will be from the line of Mark Mahaney with Citigroup.

Mark Mahaney – Citigroup

Thanks. Two questions please. First, the relaunch, redesign of the website at the end of June, have you seen material impact in terms of user behavior customer behavior conversion rates anything like that? And then secondly, just in terms of the timing of some of these investments, this last year fiscal ’09 you clearly cut back on some investments as the economic wins turned pretty nasty, is there particular something you are seeing in the macro environment that makes you think that its safer now to go out in the investment waters? Thank you.

Robert Keane

Sure. I will start with the second question, then go back to the user experience changes we introduced. In terms of confidence, its more a question that we really did very well in a very difficult environment and we are not trying to guess when the recession will end, rather that we feel confident that given the very strong performance we had in a tough economy, we don’t believe it will get worse than it has been in the past. So we are not going to try to be economists and predict when that will change rather we expect to grow whether or not the economy turns around.

In terms of the investment in the user experience in site modifications, we see some – we have not moved to the new site if we had not tested and believed it was a better experience, but there is no immediate and drastic change that you would see in a monthly or quarterly numbers. I think some of the advantages of the new site is just a much better communication of the overall value proposition moving from the prior tagline and value proposition of best printing, best price to the tagline and value proposition of making an impression is one, it’s a more soft change but I think its very important despite that because it will help us position ourselves with our customers as we continue to broaden and expand the products we offer to them.

Underlying that overall brand shift, secondly, we do a lot of work to make the site more user friendly for customers who are buying many different products. If you go back five or eight years ago, when we had two or ten products maximum versus hundreds of options, the site navigation do not need to be – it was intuitive (inaudible) of itself and being able to do the proliferation of products we’ve had and so users find the site to be intuitive and easy to get around, took some work and so feel that it was an important change for that, but again, no drastic improvement that you would see quarter-to-quarter.

Mark Mahaney – Citigroup

Thank you, Robert.

Robert Keane

Thank you.

Operator

And your next question will be from the line of Youssef Squali with Jefferies & Company.

Youssef Squali – Jefferies & Company

Thank you very much. Hello, Robert and Mike, couple of quick ones. So if I look at new customer ads, 1.4 million versus 1.5 million in the prior quarter by element this is the first sequential decline since the IPO, also if I look at COCA cost of customer acquisition, it is also up sequentially and year-on-year, don’t want to read too much into it, but is this just seasonality starting to set in into this business or is the customer just getting a little harder to acquire. And for – I guess for Mike, if I look at the revenue adjustments this quarter, it seems to have jumped to well over $4 million, it was about a million nine last quarter, I was wondering if you can help us understand what caused that?

Robert Keane

Okay, Youssef, let me start with the customers. That’s clearly we agree it’s the first tick down, but we don’t see it as a trend down, we see it as again more what we have set for other metrics we have where we do make decentralized decisions in our marketing department on how do we drive the biggest contribution to the bottom line. And this quarter, the balance between acquisition and retention strayed more in favor the retention side, but we are not concerned with those results. If you look at the year-over-year perspective, it was still very strong but the – one specific reason for the sequential decline was in Europe, which has become a bigger portion of our business. The Easter Holiday is a significant holiday period and the timing of Easter versus a couple of other spring holidays hit us in a negative way. Again, I won’t make it read too much into it, we see it more as natural fluctuation. In terms of COCA, I think again we don’t give out COCA specifically, but I can turn it over to Mike, do you want to talk a little about what you see in the COCA?

Mike Giannetto

Yes. Youssef, you were correct, sequentially and year-over-year was up a bit. We did do some testing in both offline and some on line channels that we’ve been warning to do, we did execute nothing significant but that did contribute to it increasing a bit. Year-on-year, this is also – I said sequential results of an FX impact there, but we do some testing nothing more than that though.

Youssef Squali – Jefferies & Company

(inaudible) in the testing?

Mike Giannetto

From quarter-to-quarter, we do various testing and it is part of what we do, in this particular quarter, we did a little bit more than we had in the past but we will continue to test but that will vary by quarter-by-quarter. Youssef, on your second or third question I guess, on the revenue adjustment, not quite exactly sure what you are referring to say revenue adjustment.

Youssef Squali – Jefferies & Company

If I just take your total revenue, take out the referral revenue which you are given at 4.3% and take out the revenue from orders which I get by just taking the AOV into number of orders etc unless with an adjustment and this time around its just higher than previous periods, you can take it offline if you like.

Mike Giannetto

Yes. I mean there is nothing specific, Youssef, we can take it offline. We do have mailing services posted which is not in the AOV, which I am not sure if you have accounted for that.

Youssef Squali – Jefferies & Company

Okay, because that also includes returns and I was wondering if may be returns this period picked up.

Mike Giannetto

No, they didn’t, very consistent in terms of percentage of revenues.

Youssef Squali – Jefferies & Company

Okay. And then my last question, I apologize but may be you can just help us quantify the FX impact on gross margins and revenues.

Mike Giannetto

Sure. I will do sequentially and year-over-year, so from a year-over-year standpoint on revenues it's about a negative $9 million impact with the strengthening dollar. From a sequential standpoint, it helped – currency helped us about $3 million positive from our Q3. From a gross margin standpoint year-over-year, it was a benefit of about 80 basis points and sequentially a negative of about 40 basis points.

Youssef Squali – Jefferies & Company

Excellent. Thank you so much.

Mike Giannetto

You are welcome.

Operator

(Operator instructions) And your next question will be from the line of Mark May with Needham. You may proceed.

Mark May – Needham & Company

Thank you.

Robert Keane

Hi, Mark, are you there?

Operator

Mr. May, your line is open.

Mark May – Needham & Company

Hello?

Robert Keane

Hi, Mark. We can hear you. I don’t know if you can hear us.

Mark May – Needham & Company

Sorry. You mentioned most of your investment is in the first half of fiscal (inaudible) your adjusted EPS represented about 18% or 20% of annual EPS, and basically your first quarter fiscal 2010 guidance implies also 18% of your annual guidance. So if I look at, and the question is about Q2. In Q2 of fiscal ’09, it was about 30% of your annual EPS. I am wondering if it was 30% again in fiscal 2010, you are talking about 57% or $0.57 in adjusted earnings in the second quarter, is there something unusual about the linearity of quarters in fiscal 2010 were that kind of pattern wouldn’t persist this year?

Mike Giannetto

Mark, its Mike. The first part of your question broke up. I think you said that the investments would be front-end loaded. Is that your first statement?

Mark May – Needham & Company

The statement is, in fiscal ’09, 20% of your earnings were in Q1, 30% in Q2, your guidance for Q1 of fiscal 2010 is also 20% of your annual earnings in Q1. I am wondering if should we – do we extrapolate that Q2 might also be around 30% of your annual earnings.

Mike Giannetto

Yes, okay. I got you. So when I am giving quarter-by-quarter guidance, but that said in terms of seasonality of the business, I don’t see anything changing dramatically from what we saw in 2009. So in terms of revenue flow and profit flow, I would expect it to look somewhat similar to 2009. There of course will be some variations, but I don’t think you will see significant differences in the seasonality.

Mark May – Needham & Company

Okay. And then quick on digital services with a 150,000 paying customers (inaudible) and I guess ultimately what I am asking is, you have advertised prices for new services on your website or any or many of those paying customers paying something that’s less than the minimum advertise rate on the site?

Robert Keane

We don’t tend to discount anywhere as much on the digital or electronic services as we do in other places. So we don’t talk about the specific ARPU we have there, but I think we started just under $5, you know, $4.95 or something, we go up from there. But it’s safe to assume that although we offer free trial subscriptions, which a free trial subscriber would not be counted in the 150,000 plus number we gave, but other than that we do not discount. So it will be one of the price points you see there. There may be occasion and acceptance [ph] to that, but as a broad rule, we don’t.

Mark, you still there?

Mark May – Needham & Company

Yes. Thank you very much for clinching [ph] the conference.

Robert Keane

Okay. Thank you.

Operator

And your next question will be from the line of Mitch Bartlett with Craig-Hallum. You may proceed.

Mitch Bartlett – Craig-Hallum Capital

Yes. Just following along on the last question, electronic products ARPU, what has happened with the ARPU since you have entered these websites over a year ago, has it started – has it been progressively higher as people moved that up over time?

Robert Keane

Yes. Without saying what it is, yes. VistaPrint is a good act, cross selling and up selling customers in a transactional sale for a physical product, it comes through in the average order value, but its a one time – one off up sell – but in the subscription businesses, we have a number of different price points, but secondly, we are constantly introducing new upgrades to what is available in the different packages. So as we came into this market, we had a what we believe is a compelling offer but we continue to roll out new functionality be it things like video or music integration or payment in shopping cart functionality and the more compelling that value is to the customers of the higher package rates than more we can upgrade and that moves up the average ARPU.

Mitch Bartlett – Craig-Hallum Capital

Great. And any sense on new business formation, new business starts either here or internationally.

Robert Keane

No. We don’t really have insight into that. I think a lagging indicator which you could watch it might be the Census Bureau type statistics with the Department of Commerce, but we don’t have any specific insight into that.

Mitch Bartlett – Craig-Hallum Capital

Great.

Robert Keane

Thank you.

Operator

And I would like to turn the call now back over to Mr. Keane.

Robert Keane

If there are no more questions, I like to just say thank you very much for everyone who joined us this evening, we appreciate your time and attention. We certainly look forward to updating you again as we progress through fiscal year 2010 and to reporting out you hope [ph] will be and we believe will be another great year of success and growth and extended market leadership. So, thank you for your time and we appreciate it. Operator?

Operator

Thank you very much, sir. Ladies and gentlemen, this does conclude this conference. You may now disconnect. Have a wonderful day.

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