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Executives

Robert Keane – Chairman, President and CEO

Ernst Teunissen – EVP and CFO

Analysts

Youssef Squali – Jefferies and Company

Mark Mahaney – Citi

Jason Helfstein – Oppenheimer

Shawn Milne – Janney Capital Markets

Mark May – Barclays Capital

Mark Zgutowicz – Piper Jaffray

Jim Friedland – Cowen and Company

Mitch Bartlett – Craig-Hallum

Kevin Steinke – Barrington Research

Victor Anthony – Lazard Capital Markets

VistaPrint Limited (VPRT) F2Q 2012 Earnings Call January 26, 2012 5:00 PM ET

Operator

Ladies and gentlemen, welcome to the Vistaprint Fiscal Year 2012 Second Quarter Q&A Earnings Conference Call. My name is Deanna and I will be the 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, 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. As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Robert Keane, President and CEO. Please proceed, sir.

Robert Keane

Thank you, Deanna . Hello, everyone, and thank you for joining us today. Before we open up the call to Q&A I wanted to make a few brief remarks about our quarter and also our outlook. We had a very good quarter in Q2 with revenue and earnings per share in line with our expectations, but we were particularly pleased with two of our operating metrics: new customer growth of 32% year-over-year; and growth in orders of about 28%.

We continue to execute very well against our long-term strategy, although it is still the early days. We progressed in each of early days. We progressed in each of the three initiatives that are focused on our core business. These are customer value proposition improvements, lifetime value-based marketing and world class manufacturing. We also made two acquisitions during the quarter which we’re very excited about, and we are convinced they will become foundations for our future growth.

Looking at our outlook, we have a lot of moving pieces in our guidance and I’m sure you’ll have questions which we’re happy to answer, the important message I really want you to take away is that our organic Vistaprint business is on track to deliver against our full-year targets, the same ones we laid out at the beginning of the year. All updates to our guidance are due to currency movements, acquisitions, the effect of our share repurchase activity and the $0.08 currency-related tax benefit this quarter.

Looking ahead longer term, we remain confident we’re putting the right strategy. We remain – in order to remain a strong growth company for years to come. It’s a multi-year effort so it’s far too early to declare victory, but we do believe in our ability to execute to our plans and to build what we believe will become a transformational and enduring business institution.

So with that, I’d like to open up the call to your questions. Deanna ?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from the line of Youssef Squali – Jefferies and Company. Please proceed, sir.

Youssef Squali – Jefferies and Company

Thank you again very much and good afternoon. I have a couple questions please, I guess starting with you, Robert. On the, on Q3 guidance it seems like hitting the low end of that range of 16% on an organic basis would basically imply a pretty dramatic slowdown in the business at a time when you’re actually trying to reaccelerate it. So I was just wondering what makes you cautious to that level? Are you seeing anything that could, and this is obviously organic so X FX, are you seeing anything that could make you get there? And then second, Ernst, gross margins are at an almost all-time high. It’s been years since it hasn’t had that level. What drove that? How sustainable is it? And just on G&A, what caused it to jump so much? Thanks.

Robert Keane

Sure, Youssef. To answer your first question, in Q3 guidance we really do think are in line with recent performance and we think it’s a realistic guidance. Of course there’s a low and a high end, and when we look at setting that we have headwinds that we see due to some of these value proposition-based investments, our value, proposition-based investments, reduced cross-selling, reducing e-mailing and the like.

That being said, when we look at the guidance, and where we’re looking at the guidance in terms of currency growth rates, constant currency growth rates were driving right down the middle of where we thought we would be at the beginning of the year. Ernst, do you want to talk about the gross margin?

Ernst Teunissen

Yeah, the gross margin, as you know, Q2 is always our larger gross margin month because of volume absorption. But as you correctly note, even if you compare it to Q2s in the last four years, we are, have done really well.

And it’s, the most important driver is, driver of that is actually volume absorption. So, we are seeing I guess in each Q2 that larger volume leads to larger margins, and that’s been the main, the main driver. And within that, obviously, better absorption, particularly in Asia Pacific, as that manufacturing facility is getting to more maturity as well. So, we’re very pleased with the results and the various puts and takes, but that’s the most important one.

And operating expense was your other question. The tick up there has been because of the various transaction expenses that we have, that was the most important (inaudible), legal expenses and accounting expenses and the likes.

Youssef Squali – Jefferies and Company

Are those one time in nature, or are those recurring?

Ernst Teunissen

They’re related to the acquisition, so they’re one-time in nature.

Youssef Squali – Jefferies and Company

Can you quantify it?

Ernst Teunissen

It’s a few million dollars in total.

Youssef Squali – Jefferies and Company

Okay, so we’re looking at Q3, it shouldn’t be there.

Ernst Teunissen

Those particular ones are not there in Q3.

Youssef Squali – Jefferies and Company

Okay, great. Thank you very much.

Ernst Teunissen

Thank you.

Operator

And the next question will come from the line of Mark Mahaney – Citi.

Mark Mahaney – Citi

Hey guys, this is Neil calling in for Mark. A couple questions. Robert, what drove that exceptionally strong new customer growth in the second quarter? And then, as we think about the business long term, given the Webs and Albumprinter acquisitions, do you feel you now have all the pieces in place to get to your, to your long term goal of 20% EPS growth? Or are there still some areas that you feel, that’s different , you will have a need to acquire into or move into to get there?

Robert Keane

Sure. To answer this, what drove the growth, the– I often, and I believe Ernst and others got questions, what would we would want to be– three to six months ago, what would one of the early signs of success in our new strategy be. And clearly, we have increased our advertising spend this year versus prior years. And so, the most straightforward answer is, we’ve increased our advertising and we were hoping to see an increase.

We were very pleased with the increase, but hoping to see an increase. We were very pleased with the increase, but it wasn’t out of bounds of what we were expecting. An important thing to note is if you look at what we call our implied COCA, our cost of customer acquisition, it actually dipped downwards this last quarter.

So even though on a marginal, traditionally if you go into new higher quantities of customers being acquired, you can have an escalating marginal cost through acquisition. But our average cost of acquisition actually dropped versus the prior quarter, the September quarter. So it was just more advertising, but it also was also well spent advertising, and I think it was a very good value proposition that people responded to in repeat orders.

In terms of do we have all the pieces in place, I think your question was as it relates to inorganic acquisition. I would say, in business we think there’s many things we will need to develop and do internally. But certainly we want to rule out other acquisitions in the future, but we happened to do two these last three months and it’s the only two we’ve done other than a very small technology acquisition in the embroidery space several years ago.

So we do not foresee being a company driven by acquisition, and I just do want to reiterate, as we’ve said many times before, that when we talk about growing 20% CAGR for the next five years, that is excluding revenues that come from acquisitions. So we are talking about organic growth rate, and to that extent that we acquire companies like Webs and Albumprinter, whether it be just those two or in the future if there were others, that would be incremental revenues on top of the target we set for ourselves publicly.

Mark Mahaney – Citi

Great. Thank you, Robert.

Robert Keane

Thank you.

Operator

Our next question will come from the line of Jason Helfstein, Oppenheimer & Co.

Jason Helfstein – Oppenheimer

Hey, just three questions, pretty easy ones. So I assume that there are additional investments that you’re making to integrate Albumprinter and Webs so that they can be cross-sold into the Vistaprint site. And then, I mean do you expect to be able to kind of see the benefit of that this year or do you think that’s more of like a next-year upside?

Ernst Teunissen

We definitely will start integrating and it will not only be to sell their products through our base, but very importantly, to sell, in the case of Webs , our products. It’s not just selling their products to our base, but of taking our products to their base. So the reality is that we held off on any integration and even most integration planning for Albumprinter until early January because we both wanted to focus on our most important quarter January because we both wanted to focus on our most important quarter, the December quarter.

So that planning is really only ramping up as we speak, and by the time we actually have fingers on keyboards and are starting to integrate we will be well into our next fiscal year before that starts happening. So we will start seeing some of that, but it will be more next fiscal year and beyond as opposed to the near term.

Jason Helfstein – Oppenheimer

And then two other quick ones, so I think you said the tax affected impact on the full-year guidance of the share-based comp at 26.5, can you just tell us what the kind of the pretax estimate would be that goes with that number? And then what the number, what the average best price and the number of shares that, that dilutes to? And then I just have one more quick other question.

Robert Keane

All right. To be clear, there was not a best price. This was – these were shares taken in lieu of cash, not options.

Jason Helfstein – Oppenheimer

Got it. Okay. And what’s the pretax number?

Robert Keane

Could you repeat your question?

Jason Helfstein – Oppenheimer

Oh, just so that – you disclosed it was 26.5 was the after tax impact, but what’s the pretax number?

Robert Keane

Oh, because you’re saying net of...

Jason Helfstein – Oppenheimer

In other words you’re just giving it to us on an EPS, but if we want to know the income statement impact it’s probably 30-something.

Ernst Teunissen

We’re trying to reconcile what you’re referring to, what specifically are you referring to?

Jason Helfstein – Oppenheimer

So you said that the – on a – for the full year in the guidance the impact of cash-based compensation, not noncash compensation, was 26.5 million after the tax impact, so tax effected. So I’m just asking what the pretax number is that corresponds to the 26.5 which would go in the income statement.

Ernst Teunissen

So there is in the guidance, Jason, a bit of a larger piece that’s related to tax and that is related to the Web transaction. There’s just a bigger tax component to the RFAs that we granted to the founders that we’re recognizing from an accounting perspective as compensation. That’s about $1.5 million in the back half of this year, so that is a bigger piece than we would normally see, normally we see about $100,000 of tax related to SEC each quarter.

Jason Helfstein – Oppenheimer

Okay. Thanks. And then last thing, can you just talk about the max amount of leverage you’re willing to support at the company to support buybacks?

Ernst Teunissen

So at the moment we have a facility in place of up to $250 million. And if you – that facility is very comfortable to us. And if you look at our EBITDA for this year or coming years in your models, you’ll see that as a very comfortable amount of leverage. And that’s the amount we’re planning with today. Any future leverage will – any future expansion of the debt we’ll have to look at it in that expense from the debt, we will have to look at it in that context. But we feel we’re very much in the green at this moment in terms of acceptable leverage.

Jason Helfstein – Oppenheimer

Okay. Thank you.

Ernst Teunissen

Thank you.

Operator

And the next question will come from the line of Shawn Milne – Janney Capital Markets.

Shawn Milne – Janney Capital Markets

Thank you very much. I just had a couple questions, and it may have been broken out in one of the slides, but can you let us know what the growth rate was in Home and Family in the quarter? It looks like that was very strong, even absent Albumprinter. And secondly, on the back of that, it looks like you’re obviously AOV was down about 4%. We saw this front get fairly promotional in that channel, at least in the U.S., with the Daily Deal markets. I mean, does that have some impact on what we’re seeing here in terms of faster growth rates and then new customers and then the impact on average order size? Thanks.

Robert Keane

To answer your first question, our consumer growth in the second quarter was about 24%.

Shawn Milne – Janney Capital Markets

(inaudible) neutral?

Ernst Teunissen

So that grew faster than the...

Robert Keane

That’s constant currency?

Ernst Teunissen

No, that’s not constant currency. That is just, I don’t have a constant currency number for you, for you there. It grew faster than our small business revenue.

Robert Keane

That’s also an organic number. It doesn’t include Alphaprinter.

Ernst Teunissen

Right, it’s just for our core business.

Shawn Milne – Janney Capital Markets

Okay. And then, any comment on your promotional strategies in the channel, especially in the U.S. market?

Robert Keane

Yes, so the promotional strategies you were specifically referring to, grew on top of purchasing or not?

Shawn Milne – Janney Capital Markets

Correct.

Ernst Teunissen

The Daily Deals ? That was a factor, but that was not a significant factor in these numbers.

Robert Keane

I think a more significant factor was, we had significantly turned down the amount of cross-selling in sessions, so that the ease with which you can get to, straight to the shopping cart, and the number of cross-sales that a customer sees.

Shawn Milne – Janney Capital Markets

Okay. And just on the, lastly on the (inaudible), you mentioned a little bit in the slides, expense timing shift. Can you try to quantify how much is being moved from the second quarter to maybe the second half, and specifically what areas those might be in? Thank you.

Ernst Teunissen

Yeah, these are not very large numbers, Jason . It’s not particularly significant for us to call out here. It’s mostly related to hiring. These are not large, these are not large numbers in the grand scheme of things.

Shawn Milne – Janney Capital Markets

Okay, but there was a point when you took down your numbers significantly, six months ago where you were expected to spend a lot more on technology investments and go where you expected to spend a lot more on technology investments and investments within the company. And this is the second quarter in a row that you’ve beaten us on expense control. Are we just not going to see it? Has there been a change in what we said six months ago?

Robert Keane

I think the beat we really thought was not in the operational line. It was in the many moving parts below the line and in the buyback. So we’re still planning to reach the same hiring targets that we had set for ourselves in the beginning.

Ernst Teunissen

And we have, to this date, to this point in the year, reached the targets we set in the beginning of the year.

Shawn Milne – Janney Capital Markets

Okay. Thank you.

Robert Keane

Thank you.

Operator

Your next question will come from the line of Mark May – Barclays Capital.

Mark May – Barclays Capital

Hi. Thanks for taking my questions. I wanted to just follow up on Shawn’s question around home and family contribution. I’m getting a different number and I was just hoping you could walk me through the math. I have a number that they contributed around $90 million in revenue in the quarter, up from around $55 million a year ago. That’s greater than 24%, so I was just hoping that you could either verify my math or walk me through how you get there.

Robert Keane

Hey, Mark. Just going to check the numbers here.

Mark May – Barclays Capital

And it’s excluding Albumprinter.

Robert Keane

Right.

Ernst Teunissen

So your number for Q2 of 2011 is very low. So your number for Q2 2012 is fine, but we did a lot more than $55 million in Q2 of 2011.

Mark May – Barclays Capital

Okay. So it was as a percent of revenue a year ago. What was the rough...

Robert Keane

As a percent of revenue, it was just over 30%.

Mark May – Barclays Capital

And the year-ago quarter?

Robert Keane

Same percentage of revenue in each of the quarters.

Mark May – Barclays Capital

Okay. Great. That’s very helpful. Thanks.

Robert Keane

Thank you.

Operator

And the next question will come from the line of Mark Zgutowicz – Piper Jaffray.

Mark Zgutowicz – Piper Jaffray

Thank you. Hi, guys. Just a follow-up on one of the last questions. Just trying to understand this relationship between new customer growth and COCA. Robert, you had mentioned that the cross-sell, reduction of cross-sell helped there. Just curious how that improves either metric.

Robert Keane

Oh, I think I was talking about something else. The reduction of cross-sell, I believe, reduced, was one of the drivers of reducing average order value.

Mark Zgutowicz – Piper Jaffray

Okay.

Robert Keane

But the cost of customer acquisition.

Mark Zgutowicz – Piper Jaffray

Okay.

Robert Keane

But the cost of customer acquisition, which is just the number of new customers divided into the spend in advertising, ticked down last quarter versus the September quarter. But that, if I did say that, that was related to the cross-selling I was misspeaking.

Mark Zgutowicz – Piper Jaffray

Okay. No, that’s fine. Thanks. I just wanted to clarify that. So just looking back historically and this – in terms of COCA this is a pretty significant reduction sequentially, I don’t think we’ve ever seen a sequential reduction in Q2. And obviously with the new strategy of directing more ad spend, I’m just curious, I’m assuming that the mediums that you’re using or the media you use had shifted to some extent, I’m just curious if you can kind of talk about the mix? I know, Robert, you mentioned that the daily deal phenomenon was some portion of the mix but not significant, I was just wondering if you could maybe quantify what that was? Or provide some more clarity there? And then the mix of TV, et cetera, relative to what maybe you did last quarter? And maybe talk as well about how you see that translating into future quarters?

Ernst Teunissen

So the mix does shift in the second quarter, and so you see some channel shifting. We spent, for instance, less on television in the second quarter than we did in the first quarter. There’s some currency impact in the COCA as well. And there were some – there was also some more effective, success in the effective marketing campaign. So that all mixes together to a lower COCA. It’s mostly channel shift that causes it.

Robert Keane

I would like to say we were very pleased with the quarter on the number of customers which was a very net – step function change up. December’s always a good quarter so we don’t expect to stay at that level going forward, but the other point which I’d just like to reiterate is that one quarter does not make a trend and we did tick down in the implied cost of customer acquisition this quarter. But we don’t see that we’re suddenly going to be trending down here.

Mark Zgutowicz – Piper Jaffray

Okay. Fair enough. And just one last question on media mix, how do you anticipate using TV through the rest of the year?

Ernst Teunissen

So TV expenditure in Q3 is going to be larger than it was in Q2, so you’ll see a larger expenditure in TV in North America. In Europe we have been spending in TV in Q1 and Q2, but in much smaller amounts than we have in North America; and we’ll continue in Europe as well with TV. in North America, and we’ll continue in Europe as well as with TV .

Mark Zgutowicz – Piper Jaffray

Okay. And just on that same, I guess, line, is that, are you seeing a same type of returns in TV that you had sort of seen when you were testing earlier? I’m just kind of curious how you’re thinking about TV in general.

Robert Keane

Yes, we’re definitely happy with what we’re seeing. It’s consistent with the tests we’ve now been running for almost two years. Or, tests going into ramp and actual rollout. So there’s nothing material, up or down, to speak of. It is, I just want to reiterate, a small portion of our overall spend at advertising. It is going up, but it is still a small portion, and we’re happy with what we’re seeing.

Mark Zgutowicz – Piper Jaffray

Okay, great. Thanks, Robert, I appreciate it.

Robert Keane

Thank you.

Operator

Your next question will come from the line of Jim Friedland, Cowen & Company.

Jim Friedland – Cowen and Company

Thanks. First question is, how do you stand on capacity, especially bringing on, potentially, Albumprinter over the next couple years? And for the platform in both Windsor and Venlo, and I have a follow-up.

Ernst Teunissen

So we continue... we routinely expand our capacity. We expanded our capacity Windsor last year. Europe is going to be the next area where we expand capacity. We’re starting that later in this fiscal year, and then more significantly into fiscal year 2013. Albumprinter itself has its own production facilities, with good capacity and room to grow, also based in the Netherlands. So, we are in our normal set of capacity expansions, which are lumpy region to region, but are reasonably steady as you look over our history.

Jim Friedland – Cowen and Company

So there’s no, there’s no major project over the horizon that might show up in the next fiscal year, just sort of...

Ernst Teunissen

There are two, there are two sets of expansions that are worth calling out. One is of our call center in Jamaica, which is happening this year. And the other one is Europe. The European capacity, as I said, is starting this year and then into next year, CapEx...

Robert Keane

Manufacturing capacity.

Ernst Teunissen

Manufacturing, yes.

Jim Friedland – Cowen and Company

Will Jamaica be done this year?

Robert Keane

90% done. We hope to open in the summer.

Jim Friedland – Cowen and Company

Okay, great. And then the follow-up is a separate topic. ebay and Google , although they had solid revenue quarters in international, both noted some weakness in Germany and some marginal comments around various areas. Can you give us any sense of what you’re seeing on a macro front? Do any markets stand out, showing weakness or surprise strength, and did you see that same thing in Germany?

Robert Keane

Sir , we didn’t say we didn’t and did you see that same thing in Germany?

Ernst Teunissen

So we didn’t see it that particularly in Germany. So we saw – we always see every quarter, we see in Europe, we see different markets doing a little better than other market, which is not necessarily correlated to the economy, it’s more correlated to how we execute on our strategy. So this – in this quarter for instance we saw good strength across the board and we’re pleased with it overall. So nothing really to call out.

Jim Friedland – Cowen and Company

Okay. Great. Thank you.

Robert Keane

Thank you.

Operator

(Operator Instructions) The next question will comes from the line of Mitch Bartlett – Craig-Hallum.

Mitch Bartlett – Craig-Hallum

Yep, two quick questions. In the U.S. some of your consumer competitors noted a very promotional environment. Question is how did you fare on the consumer side in the U.S.? How’d you fare internationally? Was it the same type of intensity over in Europe? And then second question would be could you update us on where you’re at as far as digital subscribers?

Ernst Teunissen

So on the North American price pressure, so price pressure was not one of the main features of our experience over the last quarter. I think what you have to realize is compared to other companies is we tend to be fairly low on price and we tend to be quite promotional with our pricing. So although it played a factor in our business, it was not one of the most important factors in our business this quarter.

Robert Keane

I’d say we’re also quite happy, very happy with the quality performance not just in Europe but in the United States.

Mitch Bartlett – Craig-Hallum

As to the number of subscribers?

Ernst Teunissen

Yeah, we had 340,000 active paying subscribers, which was flat with last quarter. We did see an increase in revenue so we saw revenue per customer go up. We did some testing related to different premium-type offerings and we were also offering some free website as part of an E.U. preferred customer offer. And there were some other impacts on the site that we think contributed to the fact that it was flat, which was an anomaly for us. So we continue to believe that we’ll see continued growth in the number of subscribers. And as I said, revenue was up.

Mitch Bartlett – Craig-Hallum

And just one last one, does the consumer segment Home and Family have a lower AOV?

Ernst Teunissen

It depends a little bit on the product type. And there are different consumer products and some are – if you look at photo albums, for instance, have quite high AOVs and there are others there with lower AOVs. But it varies. and there are others that would lower AOPs , but it varies.

Robert Keane

Overall, I would say if you look at past years in the December quarter, we did not see this type of dip in average order value. Now we’ve said for many years, and we still believe that AOV is just one of many factors and we don’t run to average order value, but this quarter, we did see a AOV that dipped in line with our expectations of less aggressive cross-selling. And you can compare that to prior December quarters and you can see that impact.

Mitch Bartlett – Craig-Hallum

Great. Thank you.

Operator

And the next question will come from the line of Kevin Steinke – Barrington Research.

Kevin Steinke – Barrington Research

Hi. Good afternoon. I wonder if you could just comment a little bit more on cost of retention. I know that’s improving, that is bit of a longer-term goal relative to new customer acquisitions, but you did point to some improving customer satisfaction using internal loyalty metrics. Could you just speak to that a little bit more and how close might you be to sharing any customer retention numbers with us?

Robert Keane

We do expect to, next week in New York, go into quite a bit of detail on our modeling so you can help understand that, but if you look at the trailing 12-month number of customers – this is on Slide 16 of the predistributed slide deck – the customers repeating from prior periods went up to 4.5 million from 4.2 million last quarter. And if you go back to the second quarter one year ago, it was 3.6 million. So I can’t get a 4.5 million divider at 3.6 million in the halfway. It was nice, strong growth, over 20% growth in our repeat customers.

So more anecdotally, we see that we are having a significant increase in impact on what we call, we measure it as many do, net promoter’s score or NPS. And we think we’re definitely, although we’re flying a little bit on faith in this regard, for the last six months, we’re starting to see it come through in the actual repeat rate. So we feel very comfortable that that faith was justified and we’re starting to see it. That being said, the real path to this is over the long term. It’s keeping customers one, two, three years into the future.

Ernst Teunissen

One metric we encourage you to look at is on the same Slide 16. You see the repeating customers and the new customers trailing 12 months quarter on quarter is to look at how many repeating customers that we have in Q2 fiscal year 2012 is to look at how many repeating customers that we have in Q2 fiscal year 2012 and compare that to as a ratio to how many customers that we had in total.

How many customers in total, 10.6 million, that we had in Q2 fiscal year 2011 three and 12 months and what percentage does that 4.5 represent that we have now. And if you look at on the graph there, if you look at Q1 fiscal year 2012, for instance, as compared to the year before, that is about 40%. And then this quarter it ticked up to 42.5%. So what we have seen is a steady increase of that ratio. And it’s one of the proxies for retention rate on a more granular level.

Kevin Steinke – Barrington Research

Okay. Great. I will definitely make that calculation. Thanks for the color.

Ernst Teunissen

Thank you.

Operator

And the next question will come from the line of Victor Anthony , Lazard Capital Markets.

Victor Anthony – Lazard Capital Markets

Thanks for putting me on. Just two quick questions. Any data you can share on the effectiveness of the television ad campaign in the U.S.? And the second question, you’ve talked about the (inaudible) market as an area of expansion longer term. I wonder if you’ve seen any sort of early success along that strategy today. Thanks.

Robert Keane

Sure. We, in terms of television, we don’t specifically break out the exact details. We have said that we are happy with the cash flow relative to the cost of acquisition. And it certainly is not our highest cost to customer acquisition. We have others in our basket which are higher on average and then on the margin. So we have some, we’ve now coming into about two years of test, of television testing, and we’re quite happy with it. But I can’t get more granular than that. As your second...

Ernst Teunissen

Maybe if I can add on the advertising effectiveness, one thing we did in Q1 is we changed the creative. And we tested that for a long time. And it tested, actually, quite similar to the old creative that we had in direct response and its short term impact. But one thing that we found was that it does have much longer term revenue potential. It does have much more brand-building potential, for instance. So that was one of the shifts that we made in the first quarter. The same short-term impacts but we believe much longer lasting effect of the advertising campaign.

Robert Keane

That’s a good point, Ernst, and it’s really if you see the two creatives, the new creative is much more speaking to the core value proposition of helping small businesses market their business as opposed to much more of a direct advertising, humorous ad. As to your second point about more up-market for our customers, that is something we see as happening in the future. Certainly not this fiscal year.

We do believe that in Europe, in the Home and Family market that in Europe, in Home and Family market, Albumprinter and their Albury brand, is an example of that where we can sell a product which is really a beautiful quality product, excellent service, and positioned for a more emotive customer feel. So that’s a Home and Family example, and then in the future, we believe there’s opportunities in the small business arena as well. But of the four different foundations for future growth we talk about, the others being geographic expansion, digital, and European Home and Family , broadly, upmarket is really something that is longer out in the five-year plan, not near-term.

Victor Anthony – Lazard Capital Markets

Okay, thanks. Just a follow-up. There’s no change to your five-year EPS and revenue guidance, correct?

Robert Keane

Correct.

Victor Anthony – Lazard Capital Markets

Thanks.

Robert Keane

Well, I do, I’m saying, well, just to say, it is assuming organic growth. So, because we just acquired these two companies, they’re relatively small, but you can add their revenues onto our prior revenue numbers.

Operator

Next question? And again, it is star-one for questions.

Robert Keane

Okay. Well, it doesn’t sound like there’s more questions...

Operator

There are no more questions at this time. I’d like to turn the call back to Robert Keane for closing remarks.

Robert Keane

Thank you, everyone, for joining us on the call. As I mentioned in the prepared written commentary, we had a great quarter, meeting our targets both on an organic and on a consolidated basis. We saw record new customer acquisitions and record order volume, and they really contributed, what we saw, contributing to that was both Home and Family and our core micro business. So we’re very pleased with our performance.

We view it as another quarter of solid execution and, additionally, we believe the expectations that we’ve set for the remainder of the fiscal year reflect a healthy business that we really can say has remained focused on this growth track that we’ve set ourselves on. It’s early in our five-year plan, but performance like this continues to give us confidence that we can capture the large opportunity ahead of us. And, once again, thank you for joining us this evening.

Operator

And thank you once again, ladies and gentlemen. This does conclude today’s conference. You may disconnect, and have a great day.

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