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CafePress, Inc. (NASDAQ:PRSS)

Q1 2014 Earnings Conference Call

May 14, 2014 05:00 PM ET

Executives

Bob Marino - CEO

Garett Jackson - Interim CFO

Alex Wellins - IR, Blueshirt Group

Analysts

Douglas Anmuth - JPMorgan Chase & Co.

Youssef Squali - Cantor Fitzgerald & Co.

Andrew Merrick - Cowen & Company

Aaron Kessler - Raymond James

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the CafePress First Quarter 2014 Earnings 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 May 14, 2014.

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

Alex Wellins

Thanks for joining us today. With me on today’s call are CafePress’s CEO, Bob Marino; and interim CFO, Garett Jackson. This call is being broadcast live on the web and a replay of this call as well as our press release can be found on our Web site at investor.cafepress.com.

Before we get started, I need to remind everyone that part of today's discussion will include forward-looking statements, including statements regarding our planned consolidation and expenses related thereto, expected impact of improvements being made to our manufacturing processes, the launch and impact of our mobile and social programs, growth strategy and the realignment of our investments, our plans for certain partners and opportunities with partners and large retailers; our investment in products, technology, and operations to drive our business; our position rated to our current cash and yields and our outlook for the coming quarter and full-year, including the underlying assumptions and specifically as to net revenues, adjusted EBITDA, non-GAAP net loss per diluted share, GAAP net loss per diluted share, weighted average fully diluted shares, assume tax rate, capital expenditures, deferred tax assets, GAAP income tax benefits and GAAP tax expense.

These statements are based on what we expect as of this conference call, as well as current market and industry conditions, financial and otherwise. And we undertake no obligation to update these statements to reflect events, circumstances or changes that might arise after this call. These forward-looking statements are not guarantees of future performance or plans and therefore investors should not place undue reliance on them.

In addition, these forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially. These risks and uncertainties include but are not limited to risks regarding fluctuations in operating results, litigation-related risks and associated expenses, and difficulty in estimating the impact and costs related thereto, our dependence on search and our ability to drive traffic to shops and e-commerce sites, our ability to provide accurate search results and recommendations across our long-term marketplace catalogs, fluctuations in the revenue contribution between our various e-commerce properties, and risks and uncertainties related to our growth.

We refer you all to our annual report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on March 31, 2014 and our other SEC filings for more detailed discussions of the risks that could cause actual results to differ materially from those discussed in these forward-looking statements and that could affect our future operating results and financial conditions. I also want to inform our listeners that we will make some reference to non-GAAP financial measures during today’s call. You’ll find supplemental data in our press release which reconciles our non-GAAP measures to our GAAP results.

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

Bob Marino

Thank you, Alex. I like to thank everyone for joining Garett and me on today’s call. As discussed last quarter, Garrett Jackson who joined CafePress last July as our CIO has stepped in as Interim CFO. Garrett’s background includes significant leadership experience with large finance teams and it’s beneficial to have him here with me, in Louisville.

Our long time CFO, Monica Johnson is still active at the Company in a consulting and advisory role, especially with the evaluation of strategic alternatives as we announced on our Q4 call.

As we discussed, we do not plan to disclose or comment on developments regarding this process until further disclosures deemed appropriate. There could be no assurances that a transaction will be brought before the Board or concluded and please understand that we will not be able to comment on this during Q&A.

I’ll start with a quick summary of our Q1 results, which Garett will expand upon in a few minutes. CafePress's customized e-commerce offerings drove revenue of $48.2 million within the range of our prior guidance. We saw a particular strength in our custom products for groups driven by our LogoSportswear brand and continued strong demand in home and art categories.

Q1 adjusted EBITDA was a loss of $600,000, again within our guidance range. Other key metrics. Average order size was up $42, up 18% year-over-year. This metric was favorably impacted by partner and product mix. We shipped more than 1.1 million orders during the quarter, printed and customized to our customers’ specifications.

Our orders were down 19% year-over-year, primarily due to a change in legacy partner’s roadmap away from lower value, higher volume photo prints. Flash also had an impact as we continue to move from higher volume, lower AOS Flash promotions as I will discuss later.

Acquisition cost per order was $8, up $1.40 from a year-ago due primarily to increased cost of search marketing. I also note that we drove an improvement in gross profit margin which rose by nine times of a point compared to the first quarter of 2013.

We are pleased with our operational performance in Q1. We continue to see increased efficiency and lower cost from the planned consolidation performed last year. This is contributed to year-over-year reductions in labor, materials, and freight per item produced.

Our Q1 GAAP results include some consolidation related expenses primarily a restructuring charge for space in Atlanta and severance payments. These costs were included in our guidance. We are excited about the continuous improvements being made to our manufacturing processes that are designed to drive product quality and long-term margin for CafePress. These ongoing improvements include an automation project that will yield better operational controls and enhancements to our on time performance.

Since our IPO we’ve described our business to you in terms of marketplace, create-and-buy and shops. For consistency, we will continue to do that for Q1. Marketplace represented just under 60% of our revenue, create-and-buy was just under 30% and the remainder was from shops.

In terms of year-over-year performance, marketplace was up slightly in Q1, while create-and-buy and shops were down. It should be noted that the reduction in create-and-buy was mostly driven by our decision to reduce Flash sales due to the changing economics of that channel.

Our business has evolved in the last few years and I believe it’s important for investors to think about the business in the same way that we do. Specifically we’re managing the Company in terms of our consumer businesses, which are CafePress.com, Art and Groups, and our partner business, which is CafePress Services. I will give you some color on each of those now.

CafePress.com is our flagship e-commerce store where consumers can buy, create-and-sell a wide range of custom products. We continue to add products to our industry leading platform in Q1 and continue to see strong interest in our home category. To have a size growth in this category further, we ran a well attended media event, in New York for key editors from home and lifestyle publications. Editors were pleasantly surprised when they saw just how easy and cost effective it is to outfit their home with our incredible variety of high quality products.

CafePress.com represented a little more than 50% of the Q1 revenue and was down approximately 8% year-over-year. This pressure was due to the continued increase in the cost of search engine marketing, ongoing impact from shifts in traffic towards lower converting mobile traffic, along with decreases in our small shops and create-and-buy businesses.

As we’ve discussed for several quarters, we’re diligently working to reduce our reliance on paid search by implementing mobile and social offerings. We launched important mobile and social programs at the beginning of Q2 with many more schedule through the remainder of Q2 and into Q3.

These social and mobile programs build on the achievements already realized in our art and groups businesses. These crosspollination initiatives are already yielding strong growth and ROI for CafePress.com within these channels.

As a reminder, CafePress has content for any conversation happening on social media, and as such, can participate in the organic conversations happening there in a germane way. This allows us to push content rather than passively wait for mobile visitors to our site. We believe this is a unique strength of CafePress.

As we’ve mentioned on our Q4 call, this is the year we’re investing in this key avenue of growth. As we do, we will face increases in other acquisition channels that have become too expensive relative to ROI. In mobile, we are starting to see conversion rate improvements following the launch of a responsive design in late 2013. In fact, while mobile traffic continues to grow, revenue from mobile is growing even faster. Our mobile revenue is now 17% of our CafePress.com revenue, significantly up over last year.

We are focused on initiatives designed to continue this trend, be a better catalog creation, higher levels of personalization and new features. The social initiatives allow us to push content and build lion share and the mobile initiatives reduce friction in conversion when visitors arrive back at our site to shop.

Despite the headwinds that are impacting the performance of CafePress.com and we believe impact to our competitors to an even larger extend, we’re very excited about the promise of these new initiatives. We see significant opportunities to drive a strong -- stronger growth profile for CafePress as these channels mature in gains scale.

For Art business, it is comprised of CanvasOnDemand offering on demand photo to canvas printing, GreatBigCanvas, our online store for large panoramic wall art and Imagekind our online art gallery for independent artist.

Art represented approximately 25% of revenue in Q1 and was down slightly year-over-year. This decline is primarily due to the fact that last year we relied heavily on Flash sales in our Art business and that we’ve made an important strategic decision to reduce that dependency dramatically this year. That strategy is working. When you exclude Flash sales, we saw strong growth of approximately 30% in total for our art properties.

This non Flash growth is being driven by the impact of our social media initiatives and shows how effective social can be for our business. Our growth strategy in art is focused on expanding our brands to satisfy all of our customers’ interest from photos and fine art to license merchandise to new products such as personalized [ph] [bus-rolls]. We also intend to leverage the initial success of the entry of our art products in Canada, Australia and the U.K. for expanding to other geographies this year.

As I said at the beginning of the call, our groups business led by LogoSportswear was a highlight in Q1. Groups was just under 10% of revenue and this business has grown sharply since we acquired Logo growing approximately 20% this year. In fact Logo accelerated its growth over previous quarters while improving marketing ROI.

Logo empowers groups, teams, schools and organizations to buy, share, and sell custom apparel with no minimum orders or set of restrictions. Logo now offers more than 4,000 products and a fully integrated product builder platform allowing anyone to create their custom apparel order online.

We’ve 10s of 1000s of proprietary custom design templates which aid in the customization process. To give you a sense of scale here, more than 220,000 users have created more than 11 million designs in LogoSportswear’s community.

On prior calls, I mentioned TFUND, our crowdfunding Web site for T-shirt fundraisers. This initiative continues to accelerate growth for Logo and now represents over one quarter of Logo’s total growth. TFUND has hit critical mass on social media resulting in more and more campaigns being started, which is in turn helping to drive the groups business. We are pleased with its success and we will be adding new features to it that we will discuss in the coming months. Led by exciting technology and products, groups has been a winner for us. We are excited about the future in this area.

And finally CafePress Services, our partner business, which leverages our proprietary platform to enable customization for e-commerce partners including Amazon, Sirius, and Staples, along with brand partners like ABC Television, Paramount Pictures, Marvel Entertainment, and Warner Bros.

CafePress Services represented approximately 13% of our Q1 revenue. CafePress Services revenue was down year-over-year mostly due to a roadmap change by a large partner that we discussed with you over the last two calls, plus some weakness and changes in the timing of partner promotions in the legacy photo gift business. We have a strong long-term roadmap with this large partner that the change was negative for us in the short-term.

CafePress Services has an excellent pipeline of partnership opportunities with great brands and our flexible deployment of customization technology offers a compelling value proposition to content owners and retail partners. You saw a list of some of our new partnerships in our press release and we were excited about new opportunities with some very large retailers.

To sum up, we’re making the right investments in product technology and operations to drive our business for the long run. To be specific, our continued focus on social and mobile is being -- is beginning to reduce our reliance on Search and Flash sales, which is a strong positive for our business. We have a dedicated team to focus on more socially oriented sales approach.

Recent deployments in our art categories have proven to increase our conversion and simplify the buying process. Our new retail partners are continuing to grow nicely adding more products in more categories. We believe that these new channels have the potential to grow considerably through the rest of the year, but are dependent on each partners timing of adding new products and features to their site.

The performance of our groups in art business net of third-party Flash sales continues to be very strong. We believe that these factors and other initiatives that we will be rolling out bode well for CafePress and give us confidence in reiterating our 2014 revenue and EBITDA guidance.

Thanks for your attention today. I’ll now ask Garett to review our results in more detail before we take your questions. Garett?

Garett Jackson

Thank you, Bob. First of all, I’d like to thank Monica Johnson for her assistance in transitioning responsibilities. She has been a great partner and asset for CafePress.

I’ll now review our financial results and provide our outlook for the second quarter and fiscal 2014. All comparisons will be year-over-year unless otherwise noted.

Net revenues for the first quarter of $48.2 million represented a decline of 8.2%. As we guided last quarter, strong performance from art groups at home were more than offset by weaker sales on CafePress.com. Additionally, a key partner roadmap change that we discussed with you last quarter resulted in a typical year-over-year comp. Lower Flash sales as Bob discussed, also impacted Q1 revenue. International was 10.2% of revenue this quarter, up from 9.6% of revenue last year.

Our Q1 adjusted EBITDA was negative $600,000 compared to a positive $100,000 in 2013. As a percentage of revenue, EBITDA declined from 0.1% to negative 1.2%. This 1.3 percentage point decrease in our EBITDA was the result of a 0.9 percentage point increase in non-GAAP gross margin, partially offsetting a 3.4 percentage point increase in our non-GAAP operating expenses, including a 1.2 percentage point increase in depreciation expense included in those categories.

More specifically, gross margin on a non-GAAP basis was 38.4%, which was the result of improved unit costs for production and shipping due to the planned consolidation, product order mix and changes in commission.

Secondly, although non-GAAP operating expenses decreased by $100,000. The decline in result resulted in an increase of 3.4 percentage points in non-GAAP operating expenses, primarily due to a $700,000 decrease in sales and marketing on lower revenue resulted in a 0.8 percentage point increase in sales and marketing as a percent of growth. This increase was driven primarily by higher search marketing costs on CafePress.com.

And a 1.8 percentage point increase in general and administrative expenses, primarily to higher professional service fees. Q1 non-GAAP operating loss was $3.1 million compared to an operating loss of $2.1 million last year, an increase of $1 million or 2.5 percentage points, driven by the fixed cost burden on lower revenues and higher search marketing costs.

GAAP operating loss for Q1 was $4.6 million as compared to a loss of $5.9 million. Included within GAAP operating expenses and accounting for the $1.5 million difference in GAAP versus non-GAAP operating loss was the following. First, an $800,000 in stock-based compensation as compared to a $1.1 million during Q1, ’13. Second, $1.1 million in amortization expense compared to $1.3 million in Q1, ’13. Third, $1.1 million credit in acquisition related costs compared to a $1.4 million expense in Q1, ’13. The decrease is due to changes in the expected fair value of our earnout agreements for LogoSportswear. Lastly, $700,000 in restructuring costs.

Our Q1 non-GAAP net loss was $2 million compared to a net loss of $1.4 million last year. Q1 non-GAAP net loss per diluted share was $0.12 compared to a net loss of $0.08 in the previous year.

Our Q1 non-GAAP effective tax rate was 35.7%. On a GAAP basis we posted a loss of $5.2 million or $0.30 per fully diluted share that compares to a GAAP net loss of $4 million or $0.23 per fully diluted share in Q1, ’13. Our capital expenditures for Q1, 2014 of $1.1 million compared to $1.3 million in Q1, 2013. We had free cash flow which we define as adjusted EBITDA less CapEx of negative $1.7 million compared to negative $1.2 million last year.

Also during the quarter we had an operating cash outflow of $13.3 million compared to an operating cash outflow of $12.3 million in the same period last year. Cash, cash equivalents and short-term investments totaled $22.1 million as of March 31, 2014. We remain comfortable with our cash position and have an unused $5 million line of credit that is currently available to us. Lastly, our basic fully diluted weighted average shares outstanding were $17.2 million.

I'll now conclude with our outlook for the coming quarter and full-year. Specifically for Q2, 2014 we expect net revenues in the range of $48 million to $52 million. Adjusted EBITDA ranging from a loss of $1.3 million to a positive $0.3 million. Non-GAAP net loss per diluted share of $0.14 to a loss of $0.08. GAAP net loss per diluted share of $0.31 to a loss of $0.25. Weighted average fully diluted share is estimated at $17.5 million and we assume the tax rate of 36.5% for non-GAAP EPS.

We are reiterating our full-year guidance for revenue and EBITDA with some adjustments to net income and loss per diluted share as a result of Q1 adjustments for acquisition related costs, related tax effects and expected utilization of tax loss carrybacks. Full-year guidance represents our best view of our business at this time and assumes that new and continued initiatives some of which we have laid out for you on today's call including partner launches, mobile and social programs, and the performance of art, home and groups businesses continue their growth trajectory on the timelines as anticipated.

Also our GAAP guidance for both Q2, 2014 and full-year 2014 includes the impacts of maintaining our full deferred tax valuation allowance on our deferred tax assets throughout 2014. As a result, other than with respect to tax loss carrybacks we generally not only -- we generally don’t record any GAAP income tax benefits in periods in which we incur a loss.

Throughout 2014 we expect to incur a small amount of GAAP tax expense related to state and local taxes and the impact of our deferred tax liabilities. We estimate the impact of the full deferred tax valuation allowance on our diluted earnings per share to be negative $0.08 to $0.10 per share in Q2 and negative $0.17 to $0.23 per share for all of 2014.

Our full-year guidance calls for net revenues ranging from $244 million to $256 million. Adjusted EBITDA of $7 million to $11 million. Non-GAAP net loss per diluted share of $0.12 to net income of $0.01. GAAP net loss per diluted share of $0.64 to a loss of $0.44. Weighted average fully diluted shares of approximately $17.6 million and basic shares of approximately $17.4 million. And total capital expenditures in the range of $11 million to $14 million. Finally we assume the tax rate of 36.5% for non-GAAP EPS.

With that said, we will turn it over to the operator for questions. Operator.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.

Douglas Anmuth - JPMorgan Chase & Co.

Great. Thanks for taking questions. If you could go into to have -- and I apologize like (indiscernible) but can you just go over some of the details in the difference that you saw basically in terms of the order count, and then also the average order size just some more color around that. And then also if you could go into more on just what gives you the confidence in some of those other categories going forward like art and home and groups? Thanks.

Bob Marino

Thanks, Doug. On the order count the lion share of that change is driven by one legacy account in the CafePress services business where the client is moving from more of a luminous smaller value photos and photo gift items, and that really impacts the order count. That had an impact on AOS of course, but most of the AOS delta improvement over the year ago is due to a change in mix to the groups in our portfolio they’re growing more, happen to be the ones with a higher average order value. I think you also asked about the confidence that we have in the art, in the home as well as the groups business?

Douglas Anmuth - JPMorgan Chase & Co.

Yes.

Bob Marino

I'll start with art. Sales that we drive without the benefit of a third party Flash sale that this quarter was up 30% year-over-year. And we expect that to continue and expect also the comps to get easier because the decision we made about a year ago to really lean ourselves off of a dependency on Flash is about to laugh itself, so the comps going forward on that get somewhat easier. The home category continues to introduce new higher value items and we stand with very little competition in some of these harder to do items like shower curtains and wall art and things like that, so we continue to see growth there. And on the groups business there is a natural repeat rate that you get with that type of customer. So the growth in sales, the growth in new accounts plus the lifetime value of those accounts has it set up pretty well for the rest of the year there.

Douglas Anmuth - JPMorgan Chase & Co.

Okay. Thank you, Bob.

Operator

Thank you. Our next question comes from the line of Youssef Squali with Cantor Fitzgerald. Please go ahead.

Youssef Squali - Cantor Fitzgerald & Co.

Hi, thanks. Couple of questions, I guess just following up on Doug’s question. So, if I looked at your 2014 guidance, the second half basically assumes a nice accelerating growth. Maybe can you point to just literally two or three things that you think are going to -- that give you the confidence that, that growth is going to come in maybe beyond just the easy comps that you just spoke to. And then on the Flash sale, maybe you can just remind us a little bit, because a year ago I thought you guys had made the case that Flash sale for your was working in large part because of the nature of the product and the uniqueness of your product. It seems that moving away from them obviously indicate that they ended up not working for you. So, what kind of went wrong there just so that we understand kind of what happened? Thanks.

Bob Marino

Okay. I think I’ll invite Garett to start with what the guidance implies for growth in the back half of the year, and then I’ll come in with the color around the questions you have asked.

Garett Jackson

Sure. So, yes our guidance does look at a 7% growth over in the second half of the year. We do think that there are, the key initiatives in the groups and the art businesses that will get us there once our trend around the mobile and social that Bob has spoken to a little bit, but he’ll get into a little bit more detail later are trending well especially in the revenues that we’re seeing there in the growth, and that’s before some of the newer initiatives that we’re undertaking in the next few quarters, and as well as our partnerships. So our partnerships with existing partners that we already have, we are continuing in some of our retail channels there to be able to add products, and also categories. And as we do that we see growth in those new channels as we move in. So, Bob you want to add any color to that?

Bob Marino

Thank you for that. That was very thorough. I’ll just sum up by saying Youssef, you asked for three. There is actually four key elements I think achieving that 7% backend guidance. Two of which are already firmly in here and working as Garett says the arts and the groups businesses. The partner business it's a nice mix of growth with existing partners and new features with existing partners, and new launches with yet new partners. We have launched a number of partnerships in the fourth quarter. They have done well, and we have grown not only in those categories but already been invited to add additional categories to them. So, as that begins to build we get more revenue in the back half of the year. And finally the mobile and social platform that we’ve done so well in art and groups is now moving towards CafePress nearly read on that is we’re seeing the same success there. It's still a small channel for us, but the rate of growth and the ROI leaves us to believe that we have plenty to work with there. Now you had mentioned also about Flash, what went wrong there? And I would suggest that nothing went wrong there. I made the distinction in my opening remarks that it was third party Flash sales that we’re retrieving from and we learnt a lot from those sales. They did get more competitive. We still do participate in them, but just not nearly at the extent that we used to, because we don’t have to. There is a lot of what we have learned we can now drive our own promotion without having to share it with the third party when we do that. Year-over-year, the percentage of revenue is down four points in Flash, went from 14% of a revenue to 10% of a revenue. But within that 10% there is a much more robust position in the promotion that we drive without a third party.

Youssef Squali - Cantor Fitzgerald & Co.

Okay. And then maybe can you just update us on the consolidation of facilities maybe they quantify the cost that is incurred in 2014 that should go away in 2015?

Bob Marino

I’ll remind everyone that in 2013 we saw an increase in our cost per unit, because when you’re in the make to on-demand business you don’t get to run finished goods up into inventory and help you transition from one plant to another. So we saw higher operating cost as a result of that. And we’re already seeing here in the first quarter that our production cost and our freight cost as anticipated on a order or per unit basis has come down, and of course that’s what the plant configures over. When we talk about gross margin it’s a function of revenue. But in looking at the cost structure of the plants, we are achieving what we had hoped to achieve.

Garett Jackson

I’ll probably add that there is a $700,000 in restructuring costs that we took in Q1, that we should not be incurring again in 2015.

Youssef Squali - Cantor Fitzgerald & Co.

Thank you.

Operator

Thank you. Our next question comes from the line of Kevin Kopelman with Cowen & Company.

Andrew Merrick - Cowen & Company

Hi, this is Andrew Merrick on for Kevin. Two questions, I was wondering to the extent that you can, could you talk about how you saw performance in Easter and Mother’s Day earlier in the quarter. And if you could give us a little color on what you’re seeing in the competitive and promotional environment so far in ’14, and how that’s affecting margins? Thank you.

Bob Marino

Thank you, Andrew. The Easter and Mother’s Day promotions went fairly middle of the road what we anticipated them to be. In terms of the competitive environment it's getting more competitive in the sales and marketing side, and that’s just more companies participating not just in head terms now reaching deeper into torso terms. We’re not yet seeing an over abundance of competition in the tail terms, but certainly more in the torso terms. In terms of our direct competitors, I don’t think anything has changed. I just think it is the cost associated with paid acquisition.

Andrew Merrick - Cowen & Company

Okay. Thank you.

Operator

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

Unidentified Analyst

Hi. This is Dan (indiscernible) for Brian. Thanks for taking my question, just a follow-up to your comment on the change in the roadmap for large partner in CP Services. If I remember well they were delayed the launch of a create-and-buy campaign with you. What's the current status of this implementation?

Bob Marino

Yes, we’re in line with -- we are doing the create-and-buy with that large partner, it's kicked off in Q4 and continues through this year. At this point there’s not a whole lot more we can probably kickstand on with that partner relationship.

Unidentified Analyst

Okay, thanks. And one last question, can you give us more color on the improving conversion differential between mobile and PC? You mentioned [ph] [something] to that effect. What's driving this improvement?

Bob Marino

So the improvement overall which would impact both PC and mobile is driven by our new smart product creation technology that is making sure only the best of products are being served up in our search regimes while you’re on our site. But specifically for mobile traffic, you might remember that we launched a mobile friendly version of our CafePress.com site in the second half of 2013. That has certainly led to a better shopping experience while on mobile devices which in turn lead to better conversion.

Unidentified Analyst

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Aaron Kessler with Raymond James. Please go ahead.

Aaron Kessler - Raymond James

Hi, thanks, couple of questions. First on, you mentioned some nice growth on the mobile side. Can you just talk about maybe at the characteristics of a mobile user are they engaging more and are you seeing nice incremental mobile user growth. Also in social is that primarily Facebook still a good point or are you diversifying to other channels, such as Pinterest or Twitter within the social channel. Thank you.

Bob Marino

Thank you, Aaron. I think what we’re going to comment about in terms of mobile users is probably, fairly normal behavior. We are seeing folks do a lot of surfing of our site. They do buy on mobile devices, but we’re also seeing a lot of that same user come back on their PC when they go home or wherever it's convenient for them to actually consummate the order. On social, for us mobile and social are linked and linked this way. And I think on the social side CafePress gets to do some things that most companies couldn’t do. So, we made mobile improvements so that when people come to our site we have less resistance, it's an easier and better shopping experience on a mobile device, better conversion. But when we are actively participating in social, it's not really an opportunity for a direct sale all the time. What I mean by that is, social allows us to push content and really the goal there is engagement that will be the overwriting metric, and you crawl into the mindshare of these users that share this really cool content and only CafePress has, it might be funny, it might be (indiscernible), it might really hit the spot on what they’re talking about at that moment, and then its shared and re-shared. Now I can give you a practical example of that and that’s the key fund business that we launched last year, and we’re able to really target consumers based on their profile that they left within social media. So that we’re showing up not with 700 million products in our catalogue that they may not be interested in, but really the dozen or so things that and topics that they are interested in. Now we’re seeing very, very high conversion there and therefore very good ROI. And that’s the technology that we were talking about earlier that we’re cross pollinating it to the CafePress brand.

Aaron Kessler - Raymond James

Great. And just following on international, it was up a little bit on a year-over-year basis as a percent of revenues, anything to note there?

Bob Marino

It's fairly consistent with what I said last call, there’s two areas. There is the CafePress properties and also the art properties. The art properties continue to show tremendous strength and growth there, so that’s why we’re internationalizing them. The international versions of CafePress are performing similar to domestic because again we are purposely tying to pull back on channels where ROI is getting cost prohibitive. So, a lot of it is driven today -- but a lot of that growth is driven today by art in the future will be driven by the social and mobile programs that we just discussed.

Aaron Kessler - Raymond James

All right. Thank you.

Operator

Thank you. I would now like to turn the conference back over to Mr. Marino for any closing remarks. Please go ahead.

Bob Marino

All right. Thank you very much for your time today and have a good afternoon. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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