Vistaprint N.V.'s CEO Discusses Q4 2011 Results - Earnings Call Transcript

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Vistaprint N.V. (VPRT) Q4 2011 Earnings Call July 28, 2011 4:20 PM ET


Meredith Mendola - VP of Corporate Communications

Ernst Teunissen - Chief Financial officer, Executive Vice President and Director of Management Board

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

Meredith Mendola

Welcome to the Vistaprint Fourth Quarter Fiscal Year 2011 Earnings Presentation. This is Meredith Mendola, Vice President of Investor Relations. With us today are Robert Keane, our President and Chief Executive Officer; and Ernst Teunissen, our Chief Financial Officer.

Before we start, please note that our comments include forward-looking statements, including statements regarding revenue and earnings guidance and our long-term goals and actual results may differ materially. Risks that could cause actual results to differ materially from those statements are described in the documents that we periodically file with the Securities and Exchange Commission including our Form 10-K for the fiscal year ended June 30, 2010, our Form 10-Q for the quarter ended March 31, 2011, and our other recent SEC filings, which are available on the Investor Relations

page at

As a reminder, a detailed reconciliation of GAAP and non-GAAP measures is posted in the appendix of the Q4 fiscal 2011 earnings presentation that accompanies these remarks.

Now I'd like to turn the presentation over to Robert Keane. Robert?

Robert Keane

Thank you, Meredith, and welcome to everyone joining us. As you've all seen in the press release issued this afternoon, we have a lot to talk about today. Therefore, we'll just spend a small amount of time in the quarter and the year just completed. Bypassing the typical detailed commentary and metrics on this call.

Of all our metrics -- all of our metrics are available on our website and we'll be happy to answer any questions you have about them subsequent to this webcast. We'll spend the bulk of this time during the prepared remarks discussing our long-term growth strategy and investment approach. After that, Ernst will review our financial guidance for 2012.

Later at 5:30 p.m. Eastern Time, we'll post a separate question-and-answer session that you can access through a link on the Investor Relations section of

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Next, now is the right time to evolve our strategy to further capitalize in our large market opportunity to deliver significant value to our customers, to maintain high revenue growth rates and to deliver substantial, long-term value to our shareholders.

Next, we are publicly introducing today our internal long-term organic financial targets, which are to achieve $2 billion or more in annual revenue by the end of fiscal 2016, and approximately $5 of GAAP EPS that same year. On a compounded annual basis, this is more than 20% growth from the GAAP EPS we just delivered for fiscal year 2011. To achieve these long-term targets, we will need to execute successfully on the operational strategy we first talked about publicly at our February 28, 2011 Investor Day.

A new financial approach is also required. To that end, we expect to make disciplined but significant profit and loss investments in fiscal 2012 and '13, which we believe will cause our EPS to decline significantly in the near term, before accelerating again in fiscal year 2014.

As I mentioned, FY 2011 was a strong year. We are pleased with our Q4 performance, exceeding the high end of our revenue guidance and coming in at a high end of EPS guidance. For the full year, revenue grew 22% in both reported terms and on a constant currency basis. EPS grew 23% for the full year. We entered fiscal 2011 with slowing revenue growth rates and some execution issues that we were able to tackle and resolve quickly.

The organizational changes that we announced in October set the stage for developing a stronger focus on our customers by better aligning marketing resources around key customer groups. As we deepened our understanding of what our customers value, and of the value that our customers bring to us over the long term, we asked, how can we incorporate those insights into our strategy? This in turn became a catalyst for us to undertake a comprehensive and strategic review in order to position ourselves for continued strong growth for years to come.

An important component of our strategic review was to analyze our market opportunity and our competitive position. Based on that analysis, we believe there is significant room for further growth, and that we have a strong market position on which we can and should capitalize now.

Let's take a few minutes to look at that opportunity starting with our core, the market for micro business marketing solutions. Our strategic investigations confirmed what we already knew: There are a huge number of small businesses in the world, who have a need for marketing solutions and the market is highly fragmented. Based on the latest census information and other similar types of business reporting, we believe there are about 60 million businesses with fewer than 10 employees in North America and Europe. The large majority of spending on marketing needs for small businesses is still offline. A major source of growth has been through attracting offline customers to Vistaprint, and we believe this will continue to be a major source of growth in the future.

Within that overall market, our approach of mass-market advertising through online channels and our offering of a single uniform experience has made us very successful in our sweet spot of micro businesses, typically, one person or part-time businesses. These firms account for 80% or 90% of the total number of small businesses and our success there has allowed us to build unmatched scale advantages.

This chart shows our revenue growth over the past 11 years. Clearly, Vistaprint has been extremely successfully in deploying a highly automated, standardized approach to serve the mass-market of small business customers. We have carved out a clear leadership position and as a result, have enjoyed very strong growth. Since our IPO at the beginning of fiscal 2006, our compounded annual revenue growth rate has been 40%. As we will discuss shortly, we believe that in retrospect, the history we've had to date will be seen only as the first wave in a multi-year growth curve.

And we have achieved this growth very profitably with great financial returns. Our return on invested capital, which includes investments in manufacturing assets and in capitalized software, has been well over our historical 15% hurdle rate. In terms of EPS, we have delivered a 5-year CAGR of 32%, from $0.45 in fiscal year 2006 to $1.83 in fiscal year 2011.

As we look to the future, we believe our greatest growth opportunity remains in our core market of marketing products for small businesses in North America and Europe. The market is extremely fragmented and even though Vistaprint is a clear market leader, we only have about 3% market share. Our strategy includes 3 major initiatives to drive continued growth in this core market: first, we will provide an even stronger customer value proposition by improving quality, user interface, shipping pricing and customer service levels, and by developing differentiated experiences for different types of customers; second, we will seek to accelerate new growth in customers through lifetime value based marketing investments; and third, we will focus on developing major competitive advantages through world-class manufacturing initiatives.

We believe the 3 core initiatives can work together in a self-reinforcing way via positive feedback loops. This interconnectedness is one of the reasons we believe is important to invest in the initiatives together instead of sequencing them over a longer period of time. The sum of the strategy elements is greater than any individual initiative.

Starting on the left-hand side, improved customer value proposition leads to increased customer satisfaction and loyalty. We expect this to increase the lifetime value due to better retention, more spend per customer and the opportunity for pricing optimization. Higher customer value also increases the rate of word-of-mouth referrals.

Moving to LTV based marketing and its objective to increase new customer acquisition, we expect that higher customer volumes will drive scale advantages in manufacturing as well as increase the return on our customer value proposition investments.

And becoming a world-class manufacturer will increase our quality and reliability to help drive customer loyalty and support our customer value proposition initiatives. We also expect it to lower our cost of goods sold, helping us drive higher gross margins. Both of these results will in turn increase the lifetime, cash flow and financial value of a customer.

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For Home & Family. The opportunity to attract offline customers is even larger. We continue to further develop our foothold in this market. In some geographies, most notably Europe, we are already one of the largest players in the market for consumer personalized products on a regional basis.

Digital marketing services provide another area of opportunity, it's a fast-growing market and there's plenty of room for future growth, as we believe the majority of micro businesses do not have a website today. We want to be at the forefront of helping customers understand the powerful ways in which print and non-print marketing can be combined. Another area is geographic expansion beyond Australia, North America and Europe. The Internet population in Asia-Pacific is projected to be 3x that of North America in just two years. And Latin America, in two years, is projected to have a similar Internet population as North America today. China has more Internet users than the U.S., and Korea has far and away the highest broadband penetration in the world.

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The chart in the right illustrates that this number varies materially depending on the size of that business. Vistaprint has customers across the spectrum of businesses from 0 to 10 employees, but our strength has traditionally been in the smallest and most numerous of these customers. We believe we can make the customer value proposition improvements for our traditional core micro-small businesses, but this will also provide us with an opportunity to take a more significant share of the upmarket small business opportunity.

In order to capitalize both on our core market and on the four identified adjacencies, the next component of our strategy is to commit to multi-year resource increases in key supporting functions such as manufacturing engineering, software development, project management, finance, legal and human resources.

Our strategy review this year has resulted in a clear multi-year roadmap of priorities, which we are confident will enable us to plan more efficiently, both during the fiscal year and over the long term. In turn, we believe this will significantly enhance our ability to scale to the $2 billion revenue company we hope to become over the next 5 years.

What financial benefit could great execution of our strategy yield? Well, starting with revenues, we are targeting a 20% or better 5-year organic revenue CAGR from 2011 through fiscal year 2016, which means revenues of $2 billion or more in fiscal year '16, assuming current currency exchange rates.

In addition to strong revenue growth, we are targeting an EPS CAGR of at least 20% from the $1.83 we just delivered in FY '11 to about $5 in fiscal year 2016. However, in addition to successful execution of our operating strategy, this strong 5-year average growth rate will require heavy investment in fiscal year 2012 and '13. We're going to be speaking about this investment in detail over the remainder of this presentation.

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Were strong in order to ensure that we hit self-imposed EPS targets. We must take a longer term view of the returns that match our marketing, product and customer service investment decisions in order to maximize customer lifetime value instead of a onetime transaction value. We must take a longer term view of our manufacturing investments, developing and implementing needle moving engineering and production capabilities that take us from best in industry to best in the world.

And we must invest more proactively in the growth drivers that are not material today, but in 5 years from now will help us build new growth curves for Vistaprint's next phase of growth.

Achieving the aggressive revenue and profit growth targets we set for the next 5 years, also requires us to make some changes to our financial strategy. And some aspects have not change at all such as our requirement for high returns on investment, strong multi-year EPS CAGRs and our disciplined approach to investment decisions. These are foundational to our ability to drive long-term shareholder value, scale and competitive advantage.

What has changed is primarily the following: First, we've set an explicit 20% or better organic CAGR targets for revenue and earnings growth over 5 years. Next, we're accepting reductions in earnings per share in FY '12 in order to fund the initiatives that enable the 5-year 20% objective. We are currently expecting only modest EPS growth from fiscal year '12 to fiscal year '13, and then strong growth in fiscal years '14 through '16. Next, to the extent we deliver earnings upside within a fiscal year, we now intend to allow it to flow through to the bottom line. Previously, just as we did in the past quarter, we'd often reinvest earnings upside within a fiscal year resulting in quarterly earnings fluctuations beyond those that are related to the seasonality of our business. And finally, as we'll discuss in a few moments, we'll be supporting the overall strategy with a more proactive approach to deploy our strong balance sheet and cash flows.

In order to provide our shareholders more transparency as to the logic and reasoning, we are making the following changes to our investor communications: First, we are publicly sharing our internal organic revenue and EPS long term targets. As discussed, we are explicitly driving for 5-year organic EPS CAGRs of 20% or better, and similar levels of revenue growth. Second, this fiscal year, we'll be providing a few new operational metrics that we believe are good indicators of the impact of our strategy, such as customer retention rates. And third, we'll provide more detailed profit and loss line item guidance on an annual basis.

One question you may ask is, “Why is Vistaprint doing this now?” First, to remain a high-growth company for years to come. As I noted a few moments ago, the slowdown in growth rates that we had 12 months ago challenged us to take a comprehensive look at our business. That strategy review strongly reinforced our belief that our organic growth opportunity is large, and that we believe these investments will open a significant growth trajectories identified in that strategy.

Second, because we are in a position of strength in our industry with a strategically compelling window of competitive opportunity, we believe that acting decisively now will enhance our competitive position and our market share.

Another question on your minds may be, "Why this degree and a simultaneous timing of investments?" One, because the strategic initiatives we've outlined reinforce each other, and we believe we will deliver the highest returns when they are interconnected. Two, because each of these initiatives and related investments make great financial sense. We believe that investing heavily earlier on will deliver the greatest long term returns for shareholders, for our customers and for employees. Yes, they will have a negative short-term impact on profitability, but longer term, we believe these investments will deliver strong returns, profits and enterprise value.

And three, because we have a broader and deeper management team than ever before that is very capable of managing multiple strategic initiatives. Whereas it would not have been possible for us to execute this broad of an investment strategy a couple of years ago, today, we are confident that we can do so.

We understand that our new financial approach involving upfront acceleration of investments may surprise some investors. But we have invested large amounts of research and discussion as part of the development of our 5-year strategic plan and this has lead to a strong consensus on the supervisory board, the management board and the executive team that this strategy is the best path to creating the most value for our shareholders over the mid and the long term.

Now I'd like to discuss in more detail the rationale behind the investments in each of our core focus areas: customer value proposition improvements, LTV-based marketing and world-class manufacturing.

Let's start with our customer value proposition. We believe we can make material improvements here by investing more holistically in the customer experience. Holistic in two senses: One, looking at the end-to-end experience from the customers' perspective, which includes product quality, site usability, content, and customer service. Two, the monetary value of a customer to Vistaprint over the customer lifetime, not just at a transactional level. Our main objectives are to drive increased customer satisfaction, loyalty and lifetime value, focusing on improving retention rates and gaining a higher share of wallet.

There are two reasons for this: Historically, less than half of our customers returned from one year to the next. Even a small increase in retention would yield significant gross profit with little incremental marketing costs, and we believe we can increase per customer revenue via these initiatives. A second -- a few examples of fiscal year 2012 investments in this area include the following: We will improve the customer experience on our site, while many customers appreciate and enjoy the matching products they can purchase from us, others believe it creates confusion or frustration if they're provided with too many choices. So we'll be scaling back the extent of some of our cross-selling, which will have a short-term negative revenue impact because it lowers in-session revenues. But we do believe it would also make a more enjoyable experience for our customers. Another fiscal year 2012 investment is to significantly increase the visibility of contact telephone numbers and other types of customer service.

Today, only certain customers have access to a phone customer service due to past self-imposed cost control targets. We know that our customers, who use customer service tend to spend more with Vistaprint over their lifetime. This example is both an expense increase and a likely short-term negative revenue impact, as we would expect the increased access to customer service could create the need for additional agents, and will also increase the number of refunds and reprints we provide to customers.

Next, we will significantly increase our budget for proprietary customer research so that we continue to deepen our ability to understand, segment and serve the needs of our customers and to improve our site via usability studies.

The next example of a customer improvement in 2012 is to improve the quality and the packaging of our products. We believe that we can significantly increase the wow factor of our customers experience upon receiving their product, and in doing so increase customer satisfaction, loyalty and referral rates. This will increase our unit costs and reduce our revenue from shipping and processing, negatively impacting gross margin.

Finally, we will begin to test lower pricing for shipping and processing, which would have a negative impact on both revenues and gross margins in fiscal year '12. But we believe this could increase customer satisfaction and in turn, increase customer retention rates.

In total, for fiscal year 2012, we expect to invest about $14 to $18 million in this initiative in the form of reduced operating income versus our expectation otherwise. This is a lot of investment, but we believe it will make Vistaprint an even better value for our customers than we are today and will translate into higher revenues and profits over the long term, as well as into an increasing competitive lead that Vistaprint has in our marketplace.

Moving to lifetime value based marketing, our objective is to enhance our ability to acquire new customers by extending our ROI payback period. We believe we can acquire not only additional customers who are similar to our current customers, but also those with a higher lifetime value than our average customers, such as those who are currently purchasing their marketing materials offline.

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Additionally, we fundamentally believe that market share matters and that driving additional growth through return on investment positive advertising will help us maximize our scale advantages over the long term. Examples of FY '12 lifetime value investments include expanding advertising and relatively new channels such as TV, direct mail and online display adds. Additionally, we expect to invest deeper into more established existing advertising channels, including box inserts through e-commerce partners. In total, we plan to spend about $38 million more in advertising to support this initiative in FY '12 than we would have under traditional advertising ratios.

Moving on to world-class manufacturing, our objectives are to make a step function change in on-time, into specification delivery to customer, and quality attributes of the customers value, and manufacturing costs and in click-to-doorstep throughput time. We've described the rationale for these investment in the past. We believe that by moving from best in industry to world class in manufacturing, we can support customer retention efforts and reduce costs, putting up investment dollars which in turn, drive further competitive advantages.

The largest planned FY '12 investment in this area is in hiring approximately 50 additional employees in engineering and supply chain management roles to help us execute against our long-term strategy.

That would be an increase of about 50%. Example projects which we expect to undertake in fiscal year 2012 are: First, building out our Vistaprint production system, which is our framework for how we will deliver on our manufacturing vision, which is modeled after the Toyota production system; second, building our supply chain management capabilities to better take advantage of the global marketplace for materials and equipment; and third, re-architecting and rewriting our manufacturing software to reduce manufacturing costs and throughput time in light of the much greater volumes that we'll be producing in the future relative to the volume we had when we first built the technology.

In total, we're planning to add about $13 million to our FY '12 operating expenses to support this initiative, which includes hiring as well as research and consulting projects. Over 3 to 5 years, if we're successful in executing against our manufacturing strategy, we believe we'll have an opportunity to improve gross margins by several percentage points, assuming stable product pricing and mix. We expect these improvements to come in each of the four major COGS categories: labor, materials, shipping, and overhead.

The final component of our strategy is to leverage Vistaprint's strong balance sheet and cash flow in support of other portions of the strategy. From an M&A perspective, we expect to remain prudent and selective, but we'll be more proactive than in the past. We're adopting a formalized approach to assessing potential targets that would enhance our ability to pursue these strategies I've just discussed, including addressing our identified market adjacencies.

The Soft Sight acquisition we made 18 months ago has been very successful from a customer value perspective as well as on a financial return basis. Our embroidery offering is growing rapidly and as such, Soft Sight is an example of a great acquisition target. Smaller sized companies that have technology, market presence, leaders and/or expertise that would have taken us more time and more investment if we try to build it on our own.

To the extent we do make acquisitions, our objective will most likely be to expand in the identified market adjacencies which we've been already succeeding in. We expect to target firms with 0 to $100 million in revenue, though most typically, those with less than $50 million in revenue. As I mentioned in the strategy release, we put out today, or 5-year targets are organic targets. We cannot predict the timing or the magnitude of potential acquisitions and therefore, to the extent we do complete transactions, we will provide expectations at that time regarding financial impact on the 5-year targets.

Also related to the use of our balance sheet and cash flows, we still have an authorization to repurchase up to 10% of our outstanding shares for a total value of about $160 million, under which we have purchased about 3% from $55 million through June 30, 2011. We expect we will continue to use -- we expect that we will continue to use share repurchases as a high return investment when we believe our stock is undervalued.

Having provided you with that overview of our strategy, I'd now like to turn the presentation over to Ernst.

Ernst Teunissen

Thanks, Robert. I'd like to describe how we will publicly report progress to our shareholders, relative to the objectives of our strategy. We are looking to continue to grow our unique customer count, which is influenced by the number of new

Customers we acquire, as well as our success at retaining them.

In the past, investors have been able to subtract new customers from total unique customers in a given year and derive an assumption for customers retained from past periods. Internally, we look beneath that derived retention metric at more detailed cohort level retention information. We are currently determining 1 or 2 retention metrics that we believe will be useful to our shareholders, and we'll begin to provide you with more information this fiscal year. We expect to achieve multi-year improvements in customer value delivery. We currently provide a proxy for this on an annual basis, which is annual spend per unique customer.

As we invest in new marketing channels to reach new customers, we expect our cost of customer acquisition to increase, both in absolute dollars, and as a percentage of the NPV of anticipated customer cash flows. We also expect a multi-year gross margin improvement through the combination of our manufacturing efforts, pricing optimization and the mix shift towards products such as digital marketing services that have higher gross margins.

We will continue to provide the ability to understand our quarterly performance in the Home & Family market and in Asia Pacific. Asia Pacific is currently our only non-North American or European geography. In addition, we will begin to provide quarterly updates on our digital marketing services business as well. Over time, as we ramp up our efforts to target higher value small businesses, we will consider adding metrics in this area. But since these initiatives will take several years before they are material, we are not currently doing so.

Finally, we will also provide color commentary on our strategy execution and the impact of our investments. All of these are metrics that we are tracking and actively using internally. On the other hand, the metrics of session counts and conversion rate will no longer be provided externally because we have found that taken in isolation, these are not the best indicators of the trends in our business.

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We'd like to describe our expectations by P&L line item in more detail. In comparison to the fiscal year just ended, we would expect to see the following results: Our revenue growth expectation is 18% to 24% in constant currency terms in fiscal 2012. We have two opposing forces on revenue in the year. The first, our investment in the customer value proposition is expected to create a near-term drag on revenue. We also expect to see a near-term positive impact from our increased advertising investments. Both of these are factors in the FY '12 guidance range.

In the gross margin line, we expect a slight increase from 64.8% in fiscal 2011 to approximately 65% in fiscal 2012. There are multiple forces at work here as well. We expect to benefit from manufacturing cost reduction initiatives and continued growth of our digital product line. Conversely, we expect these gains to be partially offset by higher costs related to product quality initiatives. By fiscal year 2016, we expect significant leverage in the gross margin line due to our strategic manufacturing initiatives.

We expect advertising expense to increase from 22% to about 25% to 26% in fiscal 2012. The bulk of the increase will go toward broadcast advertising as well as some of the other new channels as discussed earlier. By FY 2016, if we are very successful in increasing customer loyalty, we would not be surprised to see advertising as a percent of revenue to be lower than what we're expecting in FY 2012.

In the fixed marketing line, we expect an increase year-over-year, due to investment in our customer service operations, as well as our other marketing talent. Technology and development is expected to increase from 11.5% in fiscal 2011 to about 12% in fiscal 2012 due to a stepped up investment in manufacturing engineering and software engineers to support increased development across our business.

In the G&A line, we expect an increase due to investments in headcount and third-party fees to support growth. Part of the G&A growth is related to the Print Bell acquisition in India. The acquisition will not be material to financial results and we are not disclosing further details. By FY 2016, as we scale globally, we expect that G&A will decrease as a percent of revenue versus FY 2012 levels.

Operating income margin is expected to be approximately 6% to 7% as a result in FY '12.

As we move to below-the-line impacts to net income, it is important to recall that our effective tax rate is derived from a cost-plus tax structure. We pay taxes on guaranteed intercompany markups of our costs, unrelated to our profit level. The lower profits due to our growth investments do not change the cost based taxes we must pay, so the result is a higher tax rate in percentage terms. We expect a jump from the 10% range we've seen historically to approximately 20% in FY '12. As pretax earnings returned to a more normalized level beyond FY 2013, we are still comfortable with a tax range closer to historic levels.

Net income margin is expected to be about 5% in FY 2012. This represents about $50 million of investment versus maintaining our FY '11 net income margin. In order to achieve our 20% EPS CAGR from FY '11 to FY 2016, our net income and net income margin will have to grow significantly from FY 2012 levels. We believe this is achievable and we are committed to strong execution.

Now, I'd like to review our financial guidance as of July 28, 2011. The guidance reflects our expected market opportunity and our ongoing commitment to making investments for growth and competitive advantage. Vistaprint specifically disclaims any obligation to update any forward-looking statements, which should not be relied upon as representing our expectations or beliefs as of any date subsequent to July 28, 2011, the date of this presentation.

Our expectations for the full fiscal year ending June 30, 2012, are as follows: As I mentioned a few moments ago, we expect constant currency growth rates of 18% to 24%. If exchange rates stay the same as they were for the 30-day average in mid-July 2011, we would expect revenues to be $918 million to $1,030,000,000, an increase of 20% to 26% year-over-year in U.S. dollars. Of course, actual revenue will depend on currency exchange rates fluctuations.

Full fiscal year GAAP EPS on a diluted basis, is expected to be between $1.10 and $1.20, based on about 44.5 million weighted average shares outstanding and based on the 30-day average exchange rates as of mid-July. This is a decrease of about 37% from FY '11 at the midpoint of the range.

Our expectations for the first quarter of fiscal year 2012 are as follows: Q1 revenue is expected to be in the range of $207 million to $215 million, an increase of 21% to 26% year-over-year.

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Constant currency growth will be about 16% to 21%. Year-over-year for the first quarter all of our major currencies have moved significantly and favorably from a revenue perspective and that is incorporated in today's guidance.

Q1 GAAP EPS on a diluted basis, is expected to be between $0.07 and $0.17 based on about 44.5 million weighted average shares outstanding. We are providing a wide range for quarterly EPS guidance due to the fact that the timing of our plan expenses may not be precise. Our most important goal is to deliver on our targets for the year, and drive towards our 5-year targets. We are providing the assumptions noted on our guidance slide to facilitate comparisons with non-GAAP adjusted net income per diluted share.

Based on the assumptions for the full year -- full fiscal year 2012, non-GAAP adjusted EPS, which excludes share-based compensation expense and its related tax effect, is expected to be $1.58 to $1.68 based on an estimated share-based compensation expense of $22.2 million and 45.0 million shares outstanding.

For Q1 of fiscal 2012, non-GAAP adjusted EPS, excluding share based compensation expense and its related tax effect, is expected to be $0.20 to $0.30 based on an estimated share based compensation expense of approximately $5.8 million and 45.0 million shares outstanding.

As a reminder, at the beginning of the fiscal year 2010, we started providing some of our long-term incentives in cash instead of shares, so share-based compensation is not expected to grow as fast for our net income. Therefore, we expect that non-GAAP adjusted EPS will decline at a slower rate than GAAP EPS in FY '12.

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Our Home & Family focused holiday products are seasonal in nature so they accelerate our sequential growth in our fiscal second quarter, which ends December 31. The seasonality also has an impact on our quarterly earnings, which historically has risen significantly in our second fiscal quarter and then trends lower over the remaining portion of the year. For fiscal 2012, we expect a majority of our earnings to be delivered in our second quarter.

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This chart shows capital expenditures in dollars and as a percentage of revenue for the past several years and also shows our expectations for 2012 at the midpoint of our revenue guidance range. We expect capital expenditures as a percentage of revenue and in absolute dollars to increase in 2012 over 2011. As you know, fiscal 2011 was a lighter CapEx year because we had no major facility expansions, while we had 2 in 2010, and expect major positive expenses again in 2012. Our capital expenditures guidance of $75 million to $95 million or 8% to 9% of our revenue guidance midpoint, includes plans to expand our capacity in Europe, our ongoing build out of a new call center in Jamaica and other IT and manufacturing equipment requirements to support our growth plans.

We continue to expect to see leverage in capital expenditures as a percentage of revenue over the long term, as our general trend has shown over the past several years. We also would expect this number to fluctuate from one year to the next.

Now, let me turn the call back to Robert.

Robert Keane

Thanks, Ernst. I'd like to take a moment to acknowledge that this strategy asks our shareholders to believe in a growth-oriented path that we've chosen. I'm a large shareholder myself and I've concerted this path very carefully.

I and the rest of our team believe that this is the right thing to do to drive long-term shareholder value. This strategy aims to deliver high organic growth rates for years to come, enabling Vistaprint to grow much faster than we would have in the absence of this strategy. There are multiple supporting efforts we'll pursue in order to convert higher growth into higher long-term shareholder value. First, we'll capitalize on a large market opportunity ahead of us to strengthen our already formidable scale based competitive advantages. Second, we'll make only disciplined ROI attractive investments. And third, we're targeting high, multi-year EPS CAGRs. Fourth, we'll utilize our balance sheet and cash flows as a tool to support our strategy. We're also committing to provide you with meaningful metrics and commentary to help you understand how we are executing against our exciting strategy.

In summary, FY 2011 was the latest in a 15-year history of success. We have an exciting and a credible strategy to continue this growth rate well into the future. Specifically, we believe we can grow both revenue and EPS at/or above 20% CAGR over the next 5 years. We're confident in our ability to achieve this, as we have strong market positions and a significant amount of runway in front of us in this market. Our incredibly dedicated and talented management team and our employee base have created this success and are excited about continuing this history. We have a significant technology and competitive advantage, which we can build upon in the future. And we have exciting and clear new long-term strategy and investment approaches. We strongly believe that this is the path that will deliver the greatest shareholder value.

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