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Vistaprint N.V. (NASDAQ:VPRT)

Q2 2014 Earnings Call

January 29, 2014 5:15 pm ET

Executives

Ernst J. Teunissen - Chief Financial Officer, Executive Vice President and Member of Management Board

Robert S. Keane - Founder, Chairman of the Management Board, Chief Executive Officer and President

Analysts

Naved Khan - Cantor Fitzgerald & Co., Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Jed Kelly - Oppenheimer & Co. Inc., Research Division

Christopher Merwin - Barclays Capital, Research Division

Kevin Kopelman - Cowen and Company, LLC, Research Division

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Clifford Sosin

Operator

Ladies and gentlemen, welcome to the Vistaprint Fiscal Year 2014 Second Quarter Q&A Earnings Conference Call. My name is Celia, and I will be your operator for today. This call is being hosted by Robert Keane, President and CEO; and Ernst Teunissen, 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.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Youssef Squali from Cantor Fitzgerald.

Naved Khan - Cantor Fitzgerald & Co., Research Division

This is actually Naved Khan for Youssef. So just a couple of questions, Robert and Ernst. So just looking at the top line for the last quarter, can you talk about how the business performed between the home and family and the business segment? And whether or not the performance was impacted by the shortened holiday, if at all?

Ernst J. Teunissen

Yes. So the consumer component of our revenue this quarter was about 40%, and it grew year-on-year roughly in the same measure as small business. Our holiday season in general performed well for us. We were pleased with that. We did see the quarter come in relatively late because of the -- in North America because of the positioning of Thanksgiving and Christmas. And -- but also in Europe, we saw it relatively late in the quarter, but overall, holiday performed well, consumer performed well for us.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay. And then Robert, the European business slowed from, I guess, if I look at it on an FX-neutral basis, it went from positive 2% last quarter to negative 2% in the December quarter. And then I think in your prepared comments, you talked about sort of you're seeing progress on some of the strategic initiative. Can you go into that into sort of a little bit more detail and talk about what exactly are these signs of progress that you're seeing and how confident are you?

Robert S. Keane

Right. So we definitely believe we've been making progress, and we will continue to make progress in stabilizing the European business. There's a bunch of changes that impact our near-term growth rate but we believe that are really right for the longer term. So we don't expect to grow the EU this fiscal year. Instead, we're focusing on improving the fundamentals of that business. And you see that in areas like the transparency of our pricing, the product quality improvements, the way we communicate with our customers in our marketing, the availability of service operations. And in an area that's not directly related to the value proposition, we are trying to apply as much rigor as we can to the return on investment for the advertising. And as we've talked about several times in prior calls, because we've seen a drop off in the cash flow per customer for the lifetime value of a customer in Europe as we've made some of these changes, we have been pretty active in aligning or trimming the negative or the core LTV advertising that we're doing. So we expect all of those measures in aggregate to continue to drag us towards 0 growth or a nongrowth FY '15 -- I'm sorry, FY '14, at the current year we're in, but we think it's healthy for the long term. And I can give you some very specific examples. Things like getting out the right size format, the dimensions of the business cards in Europe that they are market standards. Reducing our list prices while simultaneously reducing our discounts. Moving away from free offers, which we've done more aggressively in places like Canada and the U.S. We've done that quite a bit in the U.K. recently, and we're going to other markets over the coming quarters. And obviously, Europe is a more complex market because there are so many sub-geographies in that overall grouping of countries. So net-net, we're happy with where we're going. It's very consistent with what we would've spoken about, say, last August in our Investor Day in New York. It's moving our value proposition where we want to go. The European business was materially more profitable than it was traditionally or more recent past, and so we're happy with where that's going.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay. And then if I look at the EPS guidance, it looks like it kind of implies sort of a significant deceleration in growth -- year-on-year growth in the back half. Are there significant investment that you guys are sort of contemplating, or what exactly is baked into your numbers?

Ernst J. Teunissen

You were saying EPS guidance, but did you mean revenue guidance because EPS guidance is pretty robust?

Naved Khan - Cantor Fitzgerald & Co., Research Division

Yes. I was just looking at -- I was just backing -- trying to back into the second half EPS numbers. So you guys do a full year, right, and you already have the first half under the belt. So if I look at the implied second half year-on-year, the growth sort of slows down. I'm trying to figure out what's baked into your assumptions there.

Ernst J. Teunissen

Yes. There are always -- one of the reasons why we want to give full year guidance rather than quarter-by-quarter guidance, there are always timing issues between quarters and when we invest certain things and when we don't. So we really look at that overall number. And we -- as you see, we tightened the EPS guidance but we increased it a little bit as well, increased the range, because we feel very good about our profitability this year. Our profitability came in very nicely in the second quarter. And despite the fact that we are overall on the lower end of our expectations in the first half of our revenue, and we have narrowed those slightly, put downward our guidance for revenue for the year, we feel very comfortable with profitability, and we're delivering on our profit targets, not so that we have even upped it a little bit for the year.

Unknown Executive

Naved, if you are looking at non-GAAP EPS versus GAAP, there is a timing issue in the back half of the year, which is we have just come off of enhanced SBC as a part of the Webs transaction 2 years ago. And that was in the front half of this year an additional $4 million of cost that gets backed out of the non-GAAP EPS that will not get added back into that non-GAAP in the back half of the year, if that makes sense.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay, that's helpful. And then lastly, on the increase in the credit facility, can you talk a little bit about your preference between M&A and share repurchase in terms of the financial uses?

Ernst J. Teunissen

Yes. So we've indeed increased the size of our credit facility to $800 million from about $500 million to $800 million. And the largest part of that facility is a revolver. So we paid a very small fee on an undrawn, and it's relatively, in that sense, inexpensive capital for us to hold. We are looking at 2 potential uses, M&A is one of them. We believe there might be interesting M&A opportunities on our path as we look forward. But equally, as we've said in the past, share repurchases are also on our radar screen. We are really triangulating between opportunities we see in both areas.

Robert S. Keane

I would say we always will, without fail, measure the financial attractiveness of M&A relative to purchasing our own shares. And we believe it's a much less risky proposition to purchase our own shares. But it doesn't mean we'll not do M&A. If and when we do M&A, that certainly is not a sign that we do not still consider buybacks an important tool.

Operator

The next call comes from the line of Brian Fitzgerald, Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

I had a question around, you talked about the reduced order volume being offset by strong growth in value for order. Curious if you were kind of surprised by the magnitudes or the levels of the impacts of those 2 levers as we progress through the quarter? And then a bit of a follow-on to that even, is the cadence of the movements you're seeing in those 2 levers, is it similar to what you saw in North America? Or how is it different as you kind of go through the process of highlighting the value proposition and adjusting the marketing campaigns?

Ernst J. Teunissen

Yes. The -- it is somewhat bifurcated between North America and Europe, as you might expect. So in North America, we saw AOV as well as order growth year-on-year. In Europe, we've seen negative order growth and very substantial AOV growth. And in many ways, what we're doing in Europe is a catch-up to what we have been doing much more gradually in North America. And our AOVs had slipped. Part of our issues were that our AOV had slipped, and we have substantially rejiggered our offering, which reduces orders quite significantly. And that is because we are targeting much less of the more aggressive repeat purchases of lower value that we have seen in the past, and we're instead attracting customers that have bigger baskets and have fewer orders in a year with us, but much larger orders in a year with us. And the combination of that works really well for us. It is increasing the health of the overall customer, the health and the profitability of the customer, but it's also a help in the kind of customer we'd like to attract. And it's healthy in terms of the lifetime value of the customer. And so it's been a very deliberate activity, which we have entered this year. A large reason why the growth is flat is because we are very deliberately making this very big switch, so we are losing revenues as a result of this switch, but we believe that it sets us up in a much more healthy way for next year.

Robert S. Keane

And just to add one thing directly to your question, no, we are not surprised by the magnitude of that, I think because it is a catch-up using the learnings that we are taking from North America, we are doing it more rapidly in Europe, but it's going per plan.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

That's good, and maybe kind of a follow-on question I had is timing-wise, do you see -- are we in the middle innings? Are we in the early innings? Do you -- at the progress you're making, do you anticipate you're kind of on the tail end of this stuff as we get to the summer?

Robert S. Keane

I think besides the fact they don't know how to play baseball in Europe, we're in the first quarter of a football match, we're still very early. We think even in the U.S. and Canada 1.5 years, 2 years later, we see constant areas for improvement. We don't want to characterize this as a quick turn through the wind that suddenly is done. It's going through, really, the entire value proposition of how we go to market, and it is -- it's not a 1- or 2-quarter shift.

Ernst J. Teunissen

And definitely within this fiscal year, we are -- if you look at our guidance, our first half year-on-year growth rate has been 7%. If you look at our guidance for the full year, you see that for the second half, we're expecting a similar result as we've had in the first half in terms of year-on-year growth. And so that's where we are. We are really in a year that looks fairly similar quarter-to-quarter, and it is this stable position in Europe, but much increased profitability in Europe.

Operator

A question from the line of Paul Bieber, Bank of America Merrill Lynch.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

There was a comment in the prepared remarks about becoming less promotional on price in the home segment. Was that in Europe or the U.S. as well? And then secondly, just on the digital revenue, I think that's been flat at around $20 million per quarter for the last couple of quarters. What is the strategy to improve the growth there, given that it's higher-margin revenue?

Robert S. Keane

As to the less promotional, that is across the board, in all geographies. If you are in the U.S., you probably saw the advertising we did for the holiday, which was based on a song. It was very, very different than the traditional Vistaprint advertising in the past. And so that -- although the European business is a bigger part of our holiday spike, and we certainly became less promotional there, we are doing the same thing worldwide. On your second question as to the strategy we see in digital products like websites or Facebook pages for small business, one, we really believe that the technology we bought with Webs is a much better technology for the customer, and it's now fully integrated in the Vistaprint site as the offering. But what I think we've done is we have, as we've taken a shift over the last 1.5 years, 2 years, that we've really become more and more committed to the value proposition changes. That is drastically reducing the amount of upfront cross-selling we're doing from if someone comes in to get a business card, offering them many different products. And that has definitely reduced the funnel of first-time people who are purchasing or subscribing to the website services. So that is a very significant headwind on that business. Now we agree with you that the -- on the margin, because we don't have advertising related to this, it's selling to our existing base, the digital business is very, very good business. We still remain committed to it long term, but we remain committed to it long term in the context of shifting the value proposition of Vistaprint brand over to being really the best place for small businesses to come to market their business, whether it's signage or apparel or print or digital. And we're not going to -- what we're not doing is pushing that cross-selling factor with traditional levels just to drive up the near-term revenues. Now I do believe that long term, that will be a very healthy business, but it will be in the context of the broader small business marketing offering.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Okay. And one quick follow-up. Did you say that the North America order volume was actually positive?

Ernst J. Teunissen

Yes, it was, as well as the average order volume as well.

Operator

The next question comes from the line of Jason Helfstein, Oppenheimer.

Jed Kelly - Oppenheimer & Co. Inc., Research Division

This is Jed, on for Jason. Just first on retention rates. I guess it increased in North America. Is that just -- can we take anything that's a direct correlation to like the higher average order value translating into a higher-quality customer? And then would you expect, as you -- as we see average order -- as we see the average price per order increase, do you think we could read into it that you expect retention rates to increase just because you have a higher-quality customer? And then my second question has to do with the digital business. We're seeing some pretty aggressive marketing techniques from your competitors. And do you think just to get Vistaprint's digital offerings out there to the customers, that you'll have to increase marketing for that just given what your competitors' are doing?

Robert S. Keane

Why don't I take that second question, then let Ernst take the first question? The answer is no. We do not believe that we should increase our marketing in the digital space. We have a very lucrative digital business that because it's a marginal business, that is on top of an existing customer base, and for all intents and purposes, we spent close to 0 marketing specifically for the digital business. We take shelf space on our own site, and so we're very happy with it. There are many companies out there who spend hundreds of dollars, if not more, per customer acquisition. And we believe that, that's beyond what, not speaking for them but speaking for our own economics, makes sense from a cash flow LTV relative to the cost of customer acquisition. So our value proposition, and I mentioned this in answer to the last call, as it relates to digital, it's very much to be unique in that we are cross media. We do signs and banners, we do apparel, we do promotional products, we do business cards, we do brochures and we do websites. So our customers who buy from us, it's positioned very differently and a pure play in that market. It's a very, very large market, it's a very competitive market, but we're very happy with our profitability there, and we'd like to make it a growth business going forward. But we will not do that by just pursuing advertising. We don't think the coke LTV makes sense. Ernst, I turn it over to you.

Ernst J. Teunissen

Yes, for the retention numbers. So the retention number was essentially flat quarter-on-quarter and there was little up in North America, it was little down in Europe. I wouldn't read too much into that. The North American statistic has been more or less flat for a while. And it ticked up a little bit, and we don't see very much in that. The reason it's going down in Europe somewhat is because of this big change we're making in the customer base, and that has a short-term impact on that. It's just we're attracting fewer customers because we are particularly attracting fewer customers that make a lot of orders but very small orders. So I wouldn't read too much into that. Looking forward in the long term, we would like to see that number go up. We're working very hard at the moment to increase the loyalty of our customers. The first payoff in that has been the NPS scores are going up and average order value is going up. But -- and over the long term, as we start lapping all of the changes that we've done, we would expect this retention number to go up, but we don't expect them this year.

Operator

The next question comes from the line of Chris Merwin, Barclays.

Christopher Merwin - Barclays Capital, Research Division

So I was hoping if you could just please elaborate a bit more on the pricing change in Europe. Obviously, you're targeting the higher-value customer in that region. And you've talked in the past about how customer growth initially fall as AOVs rise. But longer term, I think you've said that customer growth should eventually reaccelerate. And can you just elaborate a little bit on what would be driving that turnaround in customer growth and when we should start to see any inflection point there. I think you might have said that you're in the first inning now. And then also, just as it relates to share repurchases, it looks like you didn't buy back any stock during the quarter, but you did generate a lot of free cash flow. And I saw that the guidance for your share count didn't change. So I was just wondering if there's anything you could say about the possible timing around return of capital going forward?

Robert S. Keane

Okay. Why don't I take the first part, and then, Ernst, you take the share repurchase and return of capital. So what I -- I don't remember the specific context in which we said we expect to see accelerating new customer growth in Europe, but I certainly agree with that over the long term that we -- if we improve the value proposition, several good things will happen. One is we will have higher cash flows per customer, which will come back to a rational willingness on our part to invest more in advertising because it's just a -- it's a DCF calculation. And we also will have higher loyalty, which will lead to more word of mouth, and we see this very much in places like Canada where we have a strong -- we've been doing this for a longer period of time. So this year in Europe, broadly in Vistaprint since 2011, 2012, we have been focusing on fixing that value proposition first, driving up customer loyalty first, and that does very much change our pricing, for instance, where we used to have everything was free. You could see -- if you look at our advertising 3 years ago, every single thing in the e-mail was there for free and we cross-sell and up-sell, upload charges, faster shipping, you name the up-sell, we up-sold it. And that, by its very nature, pulled in a very large number of customers who gave a stunningly large number of customers, but they often rely on impulse in response to that deep discount direct marketing. As we shift -- we're certainly a direct marketer, and we always will in the future be a direct marketer as far as we can see, but the way we're doing it is with a much less discount-driven approach. So that reduces the number of people who are coming on impulse. We do think that, that will -- we have to go through a significant period of changing over to that new approach, but order of magnitude, we do not see us moving from a world where in the last 12 months, we had 16.9 million customers. We're not going to be going down erratically below that. But until we get through some of these changes, we're not going to see a radical acceleration in the number of new customers. We do think long term, there is a lot of room to grow in this market.

Ernst J. Teunissen

Then on the share repurchases, to start with your comment about the guidance, the share count guidance. So we, in our share count guidance, don't factor in any plans for share repurchases. We've never done that, so it's definitely not included in our guidance. The guidance is purely based on the known impacts of share-based comp and the likes. Then in terms of the share repurchases for the quarter, we indeed did not repurchase any quarter -- shares in the quarter. You referenced our cash flow. We indeed have significant cash flow, and we also have a credit facility that gives us considerable room as well. What we do with share repurchases, we're triangulating between a few things. Firstly, the share price at which we trade, we typically have 10b5 programs in place with certain price triggers and volumes. But we also look at how much powder we want to keep dry either for operational purposes or for potential M&A purposes. So in that triangulation, every quarter, an outcome comes out for share repurchases, and in this quarter, that was no share repurchase.

Operator

The next question comes from the line of Kevin Kopelman, Cowen & Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

I just wanted to jump back into marketing a little bit. Could you talk about what you saw in the quarter that allowed you to reduce your marketing spend year-over-year in a pretty dramatic fashion? And if you also -- if you could talk about it by geography at all, if you also saw in North America revenue growing considerably faster than ad spend?

Ernst J. Teunissen

Yes. So the most important advertising impact this year is in Europe. So what we have been doing in Europe is take a very hard look at the -- our customer base, which kind of customers do we want to grow and which not, which has resulted in a sharp reduction in the number of campaigns. We are focusing on fewer but larger campaigns in Europe, and we're focusing on -- with more targeted towards specific markets, and it's more targeted towards specific customers. And this -- and also what we have seen over the last 12 months, especially last year, as Europe was -- the AOVs were actually going down in Europe, as well as the order growth was going down, is we saw that the return profile of our customers as we had expected was not as attractive as we thought 6 months before. So we have adapted our advertising budget also to that. So in combination, that has meant a very significant reduction of the advertising budget in Europe. We've grown by a negative 2% year-on-year in Europe, but the -- and I'm not going to disclose how much less we spent on advertising, but it was a substantial absolute reduction in advertising underlying that. In North America, it's a little different. In North America, where it's more trimming, it's more getting smart about which campaigns work better than others, it's more learning over time. Also in North America, we have been able to grow our advertising budget slower than revenues, although in North America, we still have an absolute budget increase, where in Europe, we had an absolute budget decrease.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Okay, great. And to what extent is that reduction tied to the holiday quarter at all? Would you be surprised -- or should we be surprised to see total marketing and selling down year-over-year in future quarters?

Ernst J. Teunissen

Yes, the trend is very much one for the year. And so it's not just something that was related to the second quarter for Europe. It's a trend for the whole year.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Okay. And then just one other question. It looks like your hiring accelerated a little bit in the quarter. I was wondering if you could talk about that at all, and maybe give us any color on what regions or capabilities you're focused on building out?

Robert S. Keane

By and large, exclusively, that swing was because of seasonal hiring for the holiday surge.

Operator

The next question comes from the line of Kevin Steinke, Barrington Research.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Just wanted to follow up a little bit on the discussion of advertising spend, and it sounds like you expect to see a pretty significant leverage for the rest of the year on that line. I guess beyond -- you obviously haven't given an outlook for fiscal '15, but beyond this year, I would expect the gains to be less, just given that you've trimmed a lot in Europe and you have optimized a little bit in North America. Does that sound reasonable?

Ernst J. Teunissen

I want to stay away, Kevin, from saying anything about the next fiscal year, really. It is true that we have made significant decrease this year, but I don't want to talk about what that means for next year.

Unknown Executive

I think what is fair to say though is that because we're basing our advertising investments on the lifetime value of the future cash flows of the customers, to the extent that we're able to move that in the future, then we would look differently in the future on how much we're spending on advertising.

Ernst J. Teunissen

Certainly true.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

All right. And in terms of the margin expansion you saw in the quarter, how significant of a contributor was Europe to the overall gains? How much room is there to go in Europe? And kind of what's the gap in margins just kind of maybe on a qualitative basis versus North America?

Ernst J. Teunissen

Yes. The North America improved its margin a little bit year-on-year in the second quarter, but Europe substantially increased its margin. And what was particularly pleasing to us is that North America has had, for quite some time now, a pretty wide margin in profitability between -- in operating income profitability. And if you want to get an indication of that, we disclose our revenues and operating income by geographic segment in our Qs and Ks. And we have been successful in at least narrowing the gap quite substantially for this quarter, in this quarter.

Operator

The next question comes from the line of Mitch Bartlett, Craig-Hallum.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Just wondering about repeat orders in North America, whether they were up on a year-over-year?

Ernst J. Teunissen

Repeat orders, not meaningfully up year-over-year. It was relatively flat in terms of repeat order -- in the reported number or...

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

The repeat order total number. Total number of orders.

Ernst J. Teunissen

Oh, total, yes, it was up. It was up. The trend -- the growth trend is relatively flat, but it was definitely up year-on-year.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Okay, okay. So we're like 3 years into the change of strategy, and North America has been the success story. So can you look across those customers for the last -- all the cohorts of customers in North America and say -- and predict a better lifetime value that you're seeing out of those customers at this point?

Robert S. Keane

Yes, absolutely. I think we've said that this August in our Investor Day that the cash flow per customer is definitely improved in North America and had as of August when we're talking about that. We've often talked about that we were surprised if we go back to our expectations 2.5 years ago at the headwinds in the repeat rate. In retrospect, we understand that how much we were driving that through spontaneous or impulse purchases through deep discounts in a very near term after first order. But in North America, we have seen and we expect that, that will stay the case, that there's -- that we have improved the cash flow per customer.

Ernst J. Teunissen

And in Europe, it's -- the gross profit per customer is also improving right now in the last couple of quarters. Unfortunately, it had been deteriorating for quite sometimes therefore so we're really catching up in Europe still.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

The other question, and you've talked about this a little bit, and I know you don't want to talk too far out into the future. But in Europe, if you cut marketing expenditures dramatically this year, you kind of dig yourself, given the nature of a churning base of customers, you kind of dig yourself a little bit of a hole. Won't it be fairly expensive when you try to reinvigorate growth in the future?

Robert S. Keane

Well, the reality is we don't look at advertising expenditures to drive EPS, be it GAAP or non-GAAP. We look at advertising expenditures to acquire a cohort of customers, the cost per customer relative to the future cash flow of that customer, and we decided if it's a good decision or a bad decision. And so I think they were actually -- I would hope we're never digging ourselves in a hole. We do -- we've said we've overspent in the past given the falling cash flows we saw in Europe. But -- so I don't see that as digging in a hole per se. I guess you could say if we want to reinvest because we like the cash flow patterns, from an ROI perspective, that's a very good investment. But I fully agree with Ernst, we're not going to talk about next year, but that would be based on very sound economic logic, and we don't make our investment decisions on the near-term impact of the margin.

Ernst J. Teunissen

The way we're looking at this, Kevin, is as we stabilize...

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

If they follow though, there would be a short term -- even though the cash flows over the lifetime of that customer are favorable and worth investing in, there will be a short-term impact to margins as you reaccelerate.

Robert S. Keane

If we really put our foot on the gas, which we've not said we're going to, it would also assume there's a lot of that available, I think fundamentally, what we are seeing is these changes are changing the profit profile of Europe to be much closer to North America, period. And we have a marketing team today that is operating in a very unified fashion across North America, Europe and increasingly Australia and New Zealand. And that the learnings and experience we have in North America are now being applied there. So we do not see -- we don't want to guide to '15 and beyond, but I will say I do not see that those -- that growth doesn't -- can't go hand-in-hand with very good profitability.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Good, very good. And Ernst, if I could just go back, you said something, I missed it. On the credit agreement expansion to $800 million, was that costly to do to expand the syndicate? Does it have any near-term cost to you?

Ernst J. Teunissen

It has certain arrangement fees, which are very modest in the overall $300 million. But it did not have a cost in the sense of our -- fundamentally, the terms that we had in our credit agreement were extended. So the covenant agreements that we had, the various limitations that we had were more or less extended. The LIBOR plus terms, the cost, the interest terms were the same. So in that sense, there was no cost to amending it.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Just fees on arranging it?

Ernst J. Teunissen

Just fees, yes.

Operator

Question from the line of Clifford Sosin, CAS Investment Partners.

Clifford Sosin

You guys have held up Canada a few times as an example of the market that's [indiscernible] along, where things are sort of the best. Obviously, from the metrics we have, we can't see how Canada is doing. Are there some metrics, for example, retention or returning customer spend or new customer spend, average order value or any other metrics that we can use that might -- that you can share with us to get a sense, if that's where the business is sort of where you're trying to send the business, it would be great to get a sense with the metrics that we have, where they would go if the whole business looked like Canada?

Ernst J. Teunissen

Yes, we're not disclosing specific numbers. At our investor conference in August, Cliff, I actually showed some numbers which we -- or I showed some graphics in which we blotted up some numbers. But what we have seen is a very healthy growth now especially with our retained customers. Our retention rates are going up in Canada. So in that sense, very much what we would like to see and hope to see for our entire business, retention rates going up, growth rates being very healthy. And growth rate, maybe to Kevin's point earlier, growth rates reaccelerating in Canada without actually needing to spend a lot more in advertising as well. So it's been a very nice virtual cycle.

Clifford Sosin

And along those lines...

Ernst J. Teunissen

It took us -- we started Canada a good 18, 24 months ago, and we now really are seeing the fruits of it. And we went -- just to be very clear, because it's sometimes not so clear, we use Canada because it's a relatively small market for us and because it's relatively closely similar to the North America -- to the U.S. market. We use Canada as a test market so we went really far in a lot of the measures that we have implemented much more slowly in the U.S., so we went really far in Canada. And what we've done in the U.K. for instance in the first quarter, now already more than a quarter ago, we in the U.K. leapfrogged really the United States and went to the Canadian model, which performed well for us. It's very early days because we don't see that rebound that we saw in Canada but well enough. And as we look at the second half of the year, we're going to make similar changes as we've been -- as we have been making in Canada in the U.S. and also in France and Germany.

Clifford Sosin

And then along -- I guess, it's along a similar line of questioning, North American revenue growth has been slowing. When you guys first started talking about this change, the aspiration was to get the North American revenue growth back into the high teens, maybe even over 20%. Is that still -- if you can migrate the business to look a lot more like the Canadian experience, is that still something you believe can happen? And is there any other data besides the Canadian experience that you're looking at that causes you to believe that?

Ernst J. Teunissen

So for this year, we thought North America would be roughly in the mid-teens in terms of growth rate. And as part of our overall reduction of guidance for the year and saying that we are a little shy of where we thought we would be, where we're at the low end of where we -- the range that we'd thought to be, that's also in North America. So we're -- for North America, for the year now targeting more like low to mid-teens growth. That's where this year we are making a lot of changes. Now can that accelerate above and go to the mid-teens or above in '15 and beyond? We think that is possible if things really play out well, but we're cautious in predicting that. As you said, we thought 2.5 years ago that we would be able to reignite or stabilize and possibly reignite North American revenues, and that has not really materialized just yet, so we're being a little bit cautious looking beyond fiscal year '14 on this topic.

Robert S. Keane

And I'll give you some context on this, again, referring back to the half day we spent in New York in the Investor Day, that we presented graphics which are qualitative, they're not exactly right, of the small business market of businesses under 10 employees and how they buy the types of products we sell. And we talked about people who are buying for primarily price reasons, people who have higher expectations. And those 2 together are about 1/2 of the market. Then there's the people who are very focused with local suppliers. If you stick to that 1/2, which are either price-primary or higher expectations, the higher expectations market is several times bigger than the price-primary in value. Vistaprint really owns and, over the last decade, has built that price-sensitive market. This whole -- in retrospect, we have a much clearer understanding that what we are doing is we are -- certainly, we want to defend that price-primary market. We're not going to let people come in underneath us. But we are willing to make changes that will stop our growth at a very high share of that so that we can be positioned and that we do move into those higher expectation customers. To your question on growth, when and if that pans out as we hope and aspire to pan out, that will drive growth but we are -- we have to do quite a wholesale change. It's not new information, we've been talking about for several years. And the success there will allow us to get to a significant growth.

Operator

I will now turn the call back over to Mr. Robert Keane for closing comments.

Robert S. Keane

Well, thanks, everyone, for joining us this evening on the call. Our plan this year continues to be focusing on the strategic objectives we set. And if I will summarize what they were, per my last comment, it's continuing to turn this customer value proposition through towards where we need to go for the future. It's certainly making continued major investments in our manufacturing operations, which we see are a key asset in Vistaprint, the investments in things like Asia. But very importantly, it is driving our margin up and our profitability up, and we continue to believe that we're doing things that are right for that while simultaneously doing things that are strong for our customer relationships, for the product offering and the value proposition we give. And even in the face of, personal [ph] asset question, growth rates, which in the near-term were lower than we would like, we really believe they're the right strategic decisions for the long term. And we appreciate your interest and the attention you've had listening to the story. So thank you very much.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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