CafePress' CEO Discusses Q3 2013 Results - Earnings Call Transcript

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 |  About: CafePress (PRSS)
by: SA Transcripts

CafePress Inc. (NASDAQ:PRSS)

Q3 2013 Earnings Conference Call

November 6, 2013 5:00 PM ET

Executives

Alex Wellins – IR, Blueshirt Group

Bob Marino – CEO

Monica N. Johnson – CFO

Analysts

Diana Kluger - JPMorgan

Brian Fitzgerald – Jefferies & Company

Naved Khan – Cantor Fitzgerald & Company

Shawn Milne – Janney Capital Markets

Andrew Marok – Cowen and Company

Aaron Kessler – Raymond James

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to CafePress’ Third Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Wednesday November 6, 2013.

I’d now like to turn the conference over to Mr. Alex Wellins with the Blueshirt Group. Please go ahead, sir.

Alex Wellins

Thank you for joining us on today’s call. With me today are CafePress’s CEO, Bob Marino; and the company’s CFO, Monica Johnson. After the market close today CafePress announce results for the third quarter of 2012. Today’s call is being broadcast live over the web and can be accessible on the Investors Relations page of CafePress’ website at cafepressinc.com.

During the course of this conference call, management may projections or other forward-looking statements which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected. You’re cautioned not to place undue reliance on the forward-looking statements which state to the date of this call. A detailed discussion of the material factors that may cause results to differ from the statements can be made for example and the risks factors section in CafePress’s filings with the SEC.

Certain supplemental financial measures that may be used on this call touches adjusted EBITDA and non-GAAP operating income are expressed in a non-GAAP basis. Definitions and calculations of these financial measures and in the case of adjusted EBITDA and non-GAAP operating income, a GAAP to non-GAAP reconciliations can be found in the earnings release. These financial measures are not intended to replace any GAAP financial measure which will allow primarily on our GAAP results of adjusted EBITDA and non-GAAP operating income only as a supplement to our GAAP results.

With that said, I’ll turn the call over to Bob Marino, Bob?

Bob Marino

Thank you, Alex. I would like to thank everyone for joining our call today. CafePress the leader in customized e-commerce delivered a positive Q3 shipping more than 1.3 million orders during the quarter; we ship delight in the box. When our customers open their packages from CafePress they discovered an incredible variety of products, customized exactly the way they ordered them, decorated with something special that had significance or meaning to them, their family or group.

Q3 revenue of $50.4 million was up 16% over Q3 of last year and above the midpoint of our guidance. We saw strong demand and drove notable increase international revenue which was up 21% year-over-year.

Adjusted EBITDA of $600,000 was towards the upper end of our guidance and reflects the impact of our previously announced investment in consolidating our manufacturing operations to our flagship plant here in Louisville. Our facilities work is on plan. We believe that the investment we have made –in this effort positions us well for the future and in the near term we feel we are well prepared for the holiday season.

Turning to your business metrics, orders grew 58% year-over-year. Average order size was $38 which is up $4 sequentially but down 30% year-over-year. The year-over-year comparison reflects the impact of the smaller order size of EZ Prints’ B2B business as many of those orders are priced at $10 or less.

Excluding that impact, AOS was $53. Acquisition cost per order was favorably impacted by the consolidation of EZ Prints now CafePress Services and its B2B model. As most CP services orders are transacted through partners, they have substantially lower acquisition cost per order. With CP Services included, our Q3 cost per order was $7, a decrease of approximately $3 from year ago and up $1 from Q2.

Without CP Services, Q3 acquisition cost per order was $11. This is up $1 year-over-year and from Q2. The increase in acquisition cost was from investment in product line such as art and groups which have strong repeat and higher growth rates as well as higher AOS.

Now I will give you more color on the three key areas of our business starting with the marketplace which continued to represent just over half of the revenue during Q3. We were particularly encouraged by the results from the home and art categories, shoppers are seeking out our extensive collection of home products and are excited by how quickly and relatively inexpensively they can update rooms in their house. Visitors to our office are often surprised when they see entire rooms outfitted with customized products from CafePress.

Picture this, a living room with a graphic on the throw pillow on a couch. A stretched canvas with a gorgeous cityscape on the wall, a carpet with a modern art design on the floor. A colorful serving tray on the side table and even custom coasters and glassware on the coffee table or a bathroom outfitted with the shower curtain with a map of your favorite city coordinated with hand towels with metro stops from that city and bath house with complementary designs hanging besides them.

We have custom products for every room of the house and all of this is not only possible but easy and affordable using CafePress. We have invested in the home category for some time now and it's gratifying to see shoppers discover this category and create truly amazing and beautiful products for use all over their homes. Home and art products helped us propel Q3 growth in the marketplace and we believe that we are just in the early stages of growth in these categories.

In addition to home and art, the ongoing addition of new base goods available for customization continue to drive marketplace sales. During Q3, this included a wider selection of items in the apparel and stationary categories and we launched the number of new categories including footwear and cases for tablets.

As I mentioned earlier, international was up sharply in Q3. The focus on investment we have made internationally has reversed the weakness we saw last year and resulted in a strong growth rate for international orders driven by categories including apparel and art.

We continue to upgrade and optimize our network of e-commerce sites during Q3 to focus both on the user experience and conversion. During the quarter, we updated our flagshipcafepress.com site. This included the release of new tools to streamline customized e-commerce product creation with an initiative we call CafePress 2.0. This also allows for the integration with social and mobile which continued to be major areas of focus for us as we seek to move our products closer to our customers who are already looking. Well simultaneously reducing our dependence our search.

Revenue from social media channels was up 165% year-over-year and our social media presence is growing rapidly. We continue to implement a deep road map of high impact programs and campaigns on Facebook and we are pleased with the conversion from social generally and Facebook specifically.

We have recently launched completely new mobile version of CafePress. This modern responsive design allows us for seamless cross device consumer experience across smartphones, tablets and desktops, and improved page load time by 30%.

Creating wise, the part of our business were individuals and groups create unique and customized products represented approximately 30% in revenue in Q3. Again art and merchandise for teams and groups along with our new footwear category were popular at shoppers. Last quarter I mentioned that we had significantly improved the stationary experience by leveraging the advanced builder software that we acquired from EZ Prints. During Q3 we rolled that out on both invitation box and cafepress.com and users responded positively to our enhanced customization and personalization options.

We also added the classic board game monopoly to our Create and Buy offering. You can now create customized monopoly boards with your family photos in a variety of themes and colors on CafePress. This is a terrific example of how customization is now reinventing the familiar and iconic products in our lives.

Also during the quarter we launched an innovative fund raising platform called Tphones.com to provide an easy way for individuals and groups to raise money through T-shirt sales with no inventory. Tphone easily allows users to set a fund raising goal, design a custom T-shirt or leverage content from cafepress.com and pre-sell them in support of a charity cause or event without any cost to the user.

Charities that have already benefited from Tphone campaigns include Autism Speaks and crusade for children. Small shops and CafePress services which is a hybrid of the corporate shops of both EZ Prints and CafePress represented approximately 15% of revenue in Q3. Smaller shops remain challenge from a revenue perspective impacting growth rates by approximately 3 percentage points in the quarter and we expect this trend to continue.

However, recent corporate shop and partner activity include the launch of a fan portal for the upcoming second film in the widely popular hunger game series with Lion's Gate Entertainment. As you recall the first hunger game film was a strong contributor for CafePress and thus for the film is quite strong. We also partnered with Lion's Gate to launch a fan portal for the film enders game which was the number one movie last weekend. Other movie and TV partnerships included an expansion of our relationship with Marvel Entertainment to offer products from the new ABC TV show Marvel Agent of Shield, a new store for Sony Pictures critically acclaimed TV drama breaking bad and the latest element of a long time relationship with Universal Pictures fan portals for the always popular film such as Bride Maids and Back to the Future. In addition to introducing our new brand to new audiences these corporate relationships also feed our marketplace with exciting license products.

Last quarter I mentioned programs with three fortune 500 companies. The first was Facebook. As we have discussed on recent calls, we have been very pleased with the ROI and the campaigns we have been running on Facebook and we have developed a number of innovative programs that helps spur social activity, the sharing of designs and ultimately revenue from this channel.

We had also begun participating in Facebook gifts and we are looking forward to a successful new channel for our products. However, Facebook recently chose to shift the Facebook gifts program away from products and towards gift cards, which limits our participation and revenue opportunity in just this area.

Due to the near term launches, I not able to name the other two partners for you yet, but let me give you some color on them. Both our top global retailers, one is a new partnership and one is an expansion of an existing relationship into new categories and services. For our new partner we already have product loaded on their popular e-commerce site and available for purchase.

While marketing activities have not yet begun, we are extremely pleased to have product ready to go for the holidays and even more so since CafePress products are well branded and socially curetted on the site. We look forward to discussing more details of this exciting new partnership with you on future calls.

We are still in the final stages of our initial launch with some very exciting Create and Buy products with our third major partner. We expect this one will still occur in Q4 but it is a bit delay. This delay as well as changes in the find and buy product road map with this customer are factors in our reduction to guidance in Q4. However, we are very pleased to be part of the expansion of products and services with this key partner and we look forward to revealing more with you in future calls.

We believe the emergence of these partnerships along with the pipeline of other partners that we have developed since the acquisition of EZ Prints signals momentum in the emerging growth area for CafePress. These partnerships further are goal of expanding CafePress’s presence wherever e-commerce occurs. In other words, our goal is to not only offer the largest selection of customized products on all CafePress properties but to power customization on partner site across the web. We also continue to enhance the ways we deliver our unique and vast catalog of content to key e-commerce partners and we must be mindful that partner revenue growth is not linear.

When we construct a public guidance we must include many partner related variables including the timing of how we load products on partners site and the launch of specific programs. So while we are extremely excited about growing our partner revenue especially with many of the top companies in the world, we must recognize that the precise timing of revenue is difficult to predict.

As we add partners to our mix, the volatility around timing of any particular program will cause less of an impact then it does today. In this case, the launch of certain programs coupled with the cautiousness around holiday spending is proving us take our – take a slightly more conservative view of Q4 revenue.

I’ll close my comments with a brief wrap up regarding operations and our outlook. Our investors plan to consolidate many of the remote manufacturing operations that CafePress acquired over the years into our flagship plant in Louisville are right on track. We are well prepared for the holiday period and we should exit the year with meaningful improvements to our manufacturing capabilities.

We are making prudent decisions relative to our cost structure that are designed to restore margins and in fact we expect that our EBITDA margins for Q4 will be a significant improvement over the rest of the year. Our guidance indicates that we expect annual revenues to grow 12% to 16% in 2013, we believe that the combination of new products, new partnerships and the investments we have made in operations position us well for the growth that not only exceeds out of e-commerce in the long term but is sustainable.

We also believe that improvements to our cost structure will result in an attractive margin profile for our company for years to come. Thanks for your attention today. I will now ask Monica to review our financial and guidance before taking your questions. Monica.

Monica N. Johnson

Thanks, Bob. I’ll now review our financial results and provide our outlook for the fourth quarter and fiscal 2013. All comparisons will be year-over-year unless otherwise noted. Overall, we posted third quarter results that were above the midpoint of guidance for revenue and at the upper end of the range for both EBITDA and EPS. Starting with revenues $50.4 million, our overall growth rate of 16% was the result of 15% growth domestically and 21% growth in our international business. Our Q3 adjusted EBITDA of $0.6 million compared to $1.4 million in the previous year.

As a percentage of revenue, EBITDA declined from 3.1% to 1.2%. As a reminder, our adjusted EBITDA results for the quarter and year were impacted by both the plant consolidation that is underway as well as the profit seasonality of the CP services B2B business.

The change in our EBITDA from Q3 2012 to Q3 2013 was a result of 2.1 percentage point decrease in non-GAAP gross margins excluding depreciation that was partially offset by 0.2 percentage points of improvement in our non-GAAP operating expenses.

More specifically, gross margin on a non-GAAP basis was 39.4%, a 2.3 percentage point decline year-over-year of which approximately 1 percentage point is due to lower gross margins associated with CP Services B2B business and of the remaining decrease approximately 2 percentage points was due to plant consolidation that we have discussed throughout the year.

The remaining changes which had a positive impact were primarily driven by products and channel mix. Sequentially, gross margin on a non-GAAP basis improved from Q3 2012 to Q3 2013 by 0.6 percentage points. This sequential increase was primarily due to shipping margin improvement as we are starting to see some initial benefits from our plant consolidation.

Secondly, within non-GAAP operating expenses, we had a favorable 0.2 percentage point decrease in our total non-GAAP operating expenses which include in the following. A 0.3 percentage point decrease in sales and marketing within -- this decrease was comprised of 1.4 points decrease due to lower acquisition cost associated with the CP services with offsetting increases primarily due to an increase in mix and further investment in our higher value art and groups products. On a sequential basis, our variable marketing spend was 1 percentage point higher than last quarter and that was due to similar increase in mix and investments in the higher end products.

Next, a 0.2 percentage point increase in our technology and development expenses of which 0.7 percentage points is due to average spend on CP services platform with the offsetting decreases and that’s primarily coming from savings from our datacenter consolidation. And finally a 0.1 percentage point decrease in our general and administrative expenses. Within G&A, cost increased 0.5 points from addition of CP services infrastructure as well as some increased legal cost associated with the shareholders [dues] [ph]. These increases were more than offset by savings in facilities consolidation and further scale of our operating expenses that are fixed.

As a result of these investments, Q3 non-GAAP operating loss was $1.6 million compared to an operating loss of $0.2 million during Q3 2012. This non-GAAP operating loss and the depreciation expense of $2.3 million compared to $1.5 million a 0.9 percentage point increase. Of the increase in the depreciation, 0.5 points relate to investment in front-end software, 0.3 point related to datacenter consolidation and the remainder was due to plant expenditure. The result in Q3 non-GAAP net loss was $1 million versus breakeven in the previous year. In Q3 non-GAAP diluted loss per share was $0.06 compared to $0.0 in the previous year.

On a GAAP basis, we posted a loss of $3.1 million or a loss of $0.18 per fully diluted share. That compares the GAAP net loss of $2.4 million or loss of $0.14 per fully diluted share in Q3 2012. Included within GAAP operating expenses and accounting for the $2.7 million difference in GAAP versus non-GAAP operating income are the following. First, $1 million stock-based compensation which is flat in Q3 2012. Second, $1.2 million amortization expense and that compared to $0.9 million with the increase primarily due to amortization and tangible assets for acquisition of EZ Prints and lastly $0.5 million acquisition related cost compared to $1.1 million in Q3 2012 with the decrease due to lower earn out and acquisition related activity this past quarter.

Our third quarter income tax benefit was reported at a rate of 36% and that was offset by dispute income tax charge of $0.3 million related to expiring stock options and that resulted in a effective tax rate of 29%. The capital expenditure for Q3 2013 of $3.3 million compared to $4.3 million spend in Q3 2012 that was due to later timing of purchases and in the current year compared to 2012. As a result, we had free cash flow which we define as adjusted EBITDA plus CapEx of negative $2.7 million and that compared to negative $3 million during Q3 2012. Also during the quarter, we had an operating cash outflow of $0.3 million and that compared to an operating cash outflow of $1.7 million in the same period last year.

Of the increase in operating cash flows the $1.4 million, approximately $1.6 million was due to positive changes in the working capital offset by decreases in EBITDA and related income tax effect. On our balance sheet as of September 30, 2013, our cash, cash equivalents and short term investments totaled $21.5 million. We expect to generate significant cash in Q4 as we have historically leaving us with a solid cash balance as we exit the year.

Our basis and fully diluted weighted average share outstanding was 17.2 million. And lastly with regard to our plant consolidation efforts, as we noticed previously, approximate impact to financials was close to 2 percentage point of margin in the third quarter. We expect to have some continued impairments those similar to our margins in the current quarter, but we will exit the year as a stronger margin profile. Overall we are pleased with the operational progress we’ve made during the year and look forward to increases to efficiencies and cost structure that we will have moving forward.

I will now conclude the outlooks for the coming quarter and full year. We look forward to the busiest quarter of the year and we expect to benefit from our branded product offerings that we have recently launched. Like many other consumer companies we are taking a cautious approach to the holidays and given the other factors that Bob mentioned, we are adjusting our guidance specifically for Q4 2013 we expect net revenues in the range of $88.5 million to $96.5 million.

Adjusted EBITDA ranging from $8 million to $11 million. Non-GAAP earnings per diluted share of $0.21 to $0.31, weighted average fully diluted shares are estimated at 17.4 million and we assume the tax rate of 35% for the quarter.

This results employer guidance for the following. Net revenues ranging from $244 to $252 million year-over-year increase of 12% to 16%. Adjusted EBITDA of $10 million to $13 million. Non-GAAP net income per diluted share of $0.2 to $0.13. Weighted average fully diluted share of approximately $17.3 million and total capital expenditures in the range of $11.5 million to $12.5 million.

With that said, I will now turn over to the operator for questions.

Question-and-Answer Session

Operator

Thank you Ms. Johnson. We will now begin the question-and-answer session. (Operator Instruction) Our first question is from the line of Douglas Anmuth with JP Morgan. Please go ahead.

Diana Kluger - JPMorgan

This is Diana Kluger for Doug Anmuth. I was wondering if you guys could go into a little bit more color on the holiday season where the things are shaping up right now. And then maybe also you are talking about pushing some of partnership forward than previously expected, any more color on why or how is it going to impact our [prospected task] [ph]? Thanks.

Bob Marino

Sure. We are off to the start that we have expected and more color on the partnership delays again most of the calling down of our guidance is – a significant majority is due to one customer. We are actually quite pleased by where we heading with that customer. We do have an impact in the fourth quarter. The roadmap with that customer includes the launch for the first ever Create and Buy program with us, their traffic and make their own products. And we are excited by that launch but that launch is a bit delayed.

The existing business is find and buy where their audience can sort through many products that we have on their website and that’s a multiyear arrangement that we have had with them. Now that will be changing. We will have more limited amount of products in the product categories that we are already in but we will, in future, be able to expand the product families and therefore expand our participation with them. But we will see the benefits of that beyond the fourth quarter.

Diana Kluger - JPMorgan

So the impact is -- expected impact is still the same. It's just pushed forward maybe a month or two, is the sense I am getting?

Bob Marino

Since it’s a change in roadmap yes, we have to take a wait and see how that plays out and I am not prepared to talk about future guidance. But for this quarter, we do know that there is going to be an impact because of the change in the roadmap.

Diana Kluger - JPMorgan

Okay. Thank you.

Operator

Our next question is from the line of Brian Fitzgerald with Jefferies & Company. Please go ahead.

Brian Fitzgerald – Jefferies & Company

Thanks guys. A couple of things. You mentioned initiatives or examples of showcased homes and decorated rooms where and I think you even did some of this on a recent annual tour in San Francisco, were there any interesting takeaways or insights from doing that and should we expect to see more of this integrated in the marketing going forward and then one additional one, you – last week you said you are hiring over 800 temp workers in the Kentucky facility how does that compare with the last year? Thanks.

Bob Marino

Monica, do you want to take the first portion of the question. I will handle the operational seasonal work.

Monica N. Johnson

All right. So I think on the home category, we are certain that emerges as a very significant category for us, apparel is still first with but home and art is now second. And we really like to see this integration of the two of them. So we started out with canvas and wall art and now we have added, it's a lot more home products and so what you heard is [inaudible] shower curtains and rugs and [towel cases and duvets] [ph], essentially at this point, we can really outfit basically almost basically every room in your house with different home categories as well as wall art. So what you will continue to see from us is an integration of all of those products across the board. I think it will continue to emerge as the most - the highest growth category that we have today.

Bob Marino

And on the seasonal labor, first of all just characterize that as we are not seeing any changes in the availability of this type of labor since last year that’s a good thing. And we are going to have more of them this year because of the amount of consolidation that we have brought to Louisville. I will say however, we have also spent a lot of time this year getting our automation where it can be achieved so that we are not going to have to bump up labor as much as we would have had to do about that automation. And the project of the plant consolidation is now drawing near to a close. We have basically one and half weeks of small tidbits to clean up, but we are very pleased by that and now of course, we enter into some learning curve and to use these new processes and so forth and we expect that to really drive some impairment in our cost in the fourth quarter but as we exit the fourth quarter, we really see us returning to the efficiencies that we had last year.

Monica N. Johnson

And I would just add, I mean we are definitely going to - right now we are going for an increase in terms of hires we have in Kentucky, we have been there since 2005 now and so we feel great about the processes we have in terms of supplementing our permanent labor force with continued temp labor force. So we are expecting a good 15% to 20% increase from what we got last year and will reflect that as we see demand come in.

Brian Fitzgerald – Jefferies & Company

Thanks guys.

Operator

Our next question is from the line of Naved Khan with Cantor Fitzgerald & Company. Please go ahead.

Naved Khan – Cantor Fitzgerald & Company

Hi, thanks. This is Naved for Youssef Squali. Just a couple of questions. If I had to – if I looked at your guidance, can you sort of parse it out in terms of how much of the take down is because of the pushing out the partnership and how much of it is just caution on your part and what are you assuming in terms for the promotion environment in the fourth quarter?

Bob Marino

Thank you for your question. Both of those elements are into our guidance but the significant majority is due to the customer roadmap change and still far lesser expense due to the cautiousness around the holiday but we did exercise some caution there. As I think you heard other companies are also in their presentation suggest. Help me again Naved with the second part of your question.

Naved Khan – Cantor Fitzgerald & Company

Yes. What are you assuming for the level of promotion activity in this fourth quarter versus last year?

Bob Marino

Well of course, we have been monitoring that all year and when we look at AUR and the competition that we face, we don’t see any major changes between where we are this year and where we have been last year. We are not expecting any significant changes in the fourth quarter and of course we monitor that very closely.

Naved Khan – Cantor Fitzgerald & Company

Okay, great. And then if I were to look at the organic growth, can you break it out for us in the last quarter and what are the assumptions for the fourth quarter?

Bob Marino

Sure, absolutely. Let me first remind everyone that growth in the second quarter was 11% and that’s now ticked up here in the third quarter to 16% that was driven by strengthening organic growth and that organic growth is really across all of the major initiatives we have; the marketplace, the shops and Create and Buy. But in particular, art groups, international they all are very strong and of course, the games and mobile and social the channels that those products write down were very helpful.

Monica N. Johnson

I know it's the set of you know, we have returned to organic growth in Q3. As we look at Q4, we basically almost locked ourselves with the acquisition, EZ Prints was heavily concentrated in the fourth quarter in terms of last two months and so there is very little prior to the acquisition. So when we look at our growth rates that we are predicting for Q4, there are all with organics.

Naved Khan – Cantor Fitzgerald & Company

Okay that’s really helpful and then lastly can you break out the performance by the different segment shops versus Create and Buy how much should they grow at?

Monica N. Johnson

Sure. We look at the 16% growth overall, it was led by our shop business and so with the additional EZ Prints into mix that business almost doubled. Marketplace was second in terms of growth and we saw growth in the teams in that area. And in Create and Buy we saw growth more of a single digit and that was really led by our group business, so there is three different segments.

Naved Khan – Cantor Fitzgerald & Company

Okay, great, thank you.

Operator

Our next question is from the line of Shawn Milne with Janney Capital Markets. Please go ahead.

Shawn Milne – Janney Capital Markets

Thanks. Well, I hate to go back a little bit to the changes and some of the program roadmaps. You seemed to have pretty good confidence when you had your prior call and obviously there is change (indiscernible) which is really between the lines it seems like the bigger change, well clearly the bigger change was the launch of the other big partnership, I mean what really change, I mean what gave you the confidence to give that guidance in the last call and what happened today as I look at the changes in the midpoint, I believe it's almost eight million bucks. So generally, if you had majority of that change was on the program change that’s a big delta for one program that you see baked in your numbers?

Bob Marino

So let me address the program changes and the significance of that and then Monica will come in and talk about the number, the particular delta that you referred to.

This is not a new partnership that I was pointing to. We are still pointing to those new partnerships and again they are going to launch and we will be able to talk about them still this quarter. They are going to launch this quarter. One of those is a bit delayed and that does have some impact in our numbers.

The significant majority of the delta is actually from an existing business that I wasn’t speaking to on the line last quarter. We had no reasons to believe that there was going to be a roadmap change in the find and buy products. We understand that we already participate in. We understand why there has been, we realize it's good for the business long term because it will allow us to participate in other product categories within the product categories that we are participating in that is going to have a short term negative impact here in the fourth quarter. So we do have another program with that same partner that’s part of this roadmap change which is important and new and still we will launch this quarter but the significant change was in the area that we didn’t speak to last quarter. We wouldn’t have known to speak to it because it was a program change of existing business.

Monica N. Johnson

Yes and those are the numbers, I think that the change from midpoint last quarter this quarter is about $6.5 million so not insignificant at all. I think what we plan to is, the changes with one partner was significant enough to call that out, and then on top of that less of ins and outs here, the Facebook and others, but put it all together it caused us to take a little bit more of a conservative approach to the real numbers.

Shawn Milne – Janney Capital Markets

Okay. Just again, just in guidance I mean this has been several quarters in a row, if you're taking down numbers, as you look into the next 12-24 months, you seemed to be talking about improved organic growth. There seems to be clear moves to drive efficiencies in the cost structure, and you sign up for your expectations for double digit organic growth and some improvement in EBITDA margins, what do you thinking out in couple of years?

Bob Marino

First I have to disagree with several quarters in a row we were taking down guidance but that hasn’t happened. But we are going to talk about 2014 in our next earnings call and I’m not prepared to talk about guidance for that.

Operator

Our next question is from the line of Kevin Kopelman with Cowen and Company, please go ahead.

Andrew Marok – Cowen and Company

Hi this is Andrew Marok on for Kevin. Just had two questions. So I was wondering if you could give any color in terms of statistics on your mobile business in terms of revenue, percent of orders, things like that and you mentioned earlier that you had updated your mobile site. I was just wondering if you have seen any uptick in conversation rates since the change? Thank you.

Bob Marino

So we have numbers that are most specific for the property that we have been managing the longest cafepress.com and there we have achieved about a third of our traffic is now coming in through mobile and we have seen an increase in revenue now to Monica, it’s 15%.

Monica N. Johnson

Yes. So I think is for revenues it's just about 55% increase. It's about 12% we have totaled the overall profits about the third from what we are seeing. I would deal that in terms of conversation, we are still really watching those numbers in terms of the homepage we updated at the later part of the quarter not only through checkout has referred most recently. So we are seeing definite improvements in terms of pay mode and interact with the site and we are watching conversion closely as we have just updated through the cart in last two weeks.

Andrew Marok – Cowen and Company

Okay. And I guess on sales and marketing if I could, I notice that there is a little de-leverage in – there was de-leverage in the first half, and then a little leverage in Q3. I was just wondering how to think of sales and marketing as an expense line going into Q4? Thank you.

Monica N. Johnson

You know typically with sales and marketing what we saw is in the third quarter and then all outside, what we saw is the slight increase in terms of the percent spent but if I look at the properties underneath, it's really important to do that because we have got a range of properties what I did not see any – we saw decrease in terms of – as far as the Cafepress.com business but we did see an increase in overall spend as we see a bit of a mix ship as we start to spend a little bit more in terms of the arts and goods products. And we do that because they have higher average order size and they also have characteristics of different link pieces. So we start to shift a little more investment to what I would say is both group business and art business in the Q3 so that’s slight uptick, if look at the history, and what we would expect, we generally see some bit of leverage [Audio Gap] expecting an increase we expect a little bit leverage there.

Andrew Marok – Cowen and Company

Okay. Thank you.

Operator

Our final question is from the line of Aaron Kessler with Raymond James. Please go ahead.

Aaron Kessler – Raymond James

Yes, thanks guys. Just couple of questions. First on the revenue mix, thanks for the growth rate, do you have percentage by category as well and also I think the holiday seasons is about a week shorter this year, how much of that is implied in the guidance and just finally from the larger partner you talked about. How many of these large partners would you think have that could impact the revenues in any given quarter? Thank you.

Monica N. Johnson

So, I will start in and then Bob will follow. I think in terms of revenue there is fairly similar mix. Our marketplace continues to the largest segment of our business is just over half Create and Buy follows and that’s about 30% of our business and then the shop business is just about 15% underneath that was our largest shops and larger part of the business and our smaller shops continues to decline about 15%. In terms of holidays, it's interesting to see what happens this holidays so I think, nice holiday here so everyone is different I think. If we look at shorter holiday, you have to go back to sort of 2008 time frame and look at what you saw there and you know certainly within that time frame we saw spend being concentrated later in the period. If we look at last year, we saw early spend and then sort of a slow down and late spend, it will be interesting to see I think everyone is cautious because there is almost a week left. I think it will be different pattern in terms of how people purchase during the holidays. But I think we like everybody else to take cautious approach when you have almost a week left and you will see more concentration to spend. The flip side will really concentrate, you know, focusing on is production side and ensuring that we have everything in place which we are confident in terms of turning that order around very quickly to get out of the doors and the time frame.

Aaron Kessler – Raymond James

All right. Thank you.

Bob Marino

Aaron on your follow up, on the number of customers that have that kind of scale with us, first of all this customer stands unique in scale with us and that was part of our multiyear relationship and that I am hopeful we will continue to be a relationship for many years in the making. So they are also saying that. And we are also looking forward into that. We are working on new product categories and new product and services with them. There are other customers though they are also larger in scale but not nearly as large as this one. And I would say that as we are in the infancy of this growth channel for us, major corporate partners that we can provide choice in products and designs to their customers in inventory this way. That is engaging. We are seeing a nice pipeline and very significant releases on the roadmap. As we add more and more we are going to grow that base. As we grow that base, any disruptions from any particular partner will be felt less and less. Right now this change and I do understand the change and I think it overtime will be a very positive change. This change does have a consequence here in the fourth quarter.

Aaron Kessler – Raymond James

Right. Thank you.

Operator

Ladies and gentlemen, this concludes the CafePress third quarter earnings conference call. Thank you for your participation. You may now disconnect.

Bob Marino

Thank you.

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