Ladies and gentlemen, welcome to the Vistaprint First Quarter Fiscal Year 2013 Q&A Earnings Conference Call. My name is Fab, and I'll be your operator for today. This call is being hosted by Robert Keane, President and CEO; and Ernst Teunissen, Executive Vice President and CFO. Before we take the first call, as noted in the Safe Harbor statement at the beginning of the earnings presentation, comments may include forward-looking statements, including statements regarding revenue and earnings guidance, and actual results may differ materially. Risks that could impact those statements are described in the documents that are periodically filed with the Securities and Exchange Commission. Now we'll proceed with the first call.

[Operator Instructions] And your first question will come from the line of Carter Malloy with Stephens.

It's actually Ben, on for Carter. Just a couple of quick questions here. First, when you think about all the recent initiatives you guys have put into place, I know you released several metrics, which one do you guys think is most important that we should really look to in the near term, to kind of see that progress that would capture kind of the benefits of these recent initiatives?

The most apparent one is new customer growth and we've seen quite healthy new customer growth, really, since we started our strategy and also in this quarter, good customer growth. The other thing that we look at is something that we report on only directionally, but not give you numbers on, is we look at our net promoter scores. And despite the fact that we have not yet seen meaningful improvements in our repeat rates, as a matter of fact, we've seen some pressure on repeat rates as we roll out our strategy, our net promoter score is going up in, both in Europe and in North America. And that gives us a lot of confidence that, at least from a reported customer experience perspective, the metrics are going the right way, and this should become a leading indicator to the total gross profit per customer, which is something we look at internally. So we look at what will happen to our retention rates over time, as well as the spend per customer over time and the margin we make on them. So that's going in the right direction. And there are some intermediary statistics that are pointing in a good direction. So if you look at, for instance, AOV, although we don't directly manage our business to AOV, AOV, on a constant currency basis year-on-year, is trending slightly up. But if we look at North America, which is, as you've seen in our statement, is where we have had our relative success, it, actually, average order value in spend per customer is trending up, which is an indication -- is another indication for us that the value proposition is working for our customers. The other metric I would point to is just continued gross margin improvement. And this was another quarter where we had year-on-year gross margin improvement, and that's another thing that we target and watch.

Okay, great. And now switching over to Europe. Look at the weakness over there, the softness over there, how much of that do you attribute to kind of macro issues, and how much would you say is company-specific, that you guys can go and address today?

We do believe that obviously, there's a weak macroeconomic backdrop in Europe. But we really are not sure how much it's impacting us. It's very hard for us to decipher that. So regardless of the economy, in a global perspective, we really are focusing much more on what we can control, which is our execution. Our hypothesis is that the strategy we have in Europe is the right one. It's more a question of getting it implemented and executed.

Your next question will come from the line of Mark Zgutowicz with Piper Jaffray.

This is John Crowther, on for Mark. My first question, Ernst, you actually talked in response to the first question about AOV as being up in North America as being a particular point of -- where you think the strategy might be working. And I'm wondering maybe you could talk a little bit about returning customer growth, segmenting maybe between the United States and Europe. Just maybe are there things you're seeing in the U.S. market, which actually is up 19% or so year-over-year, that might give you some indications that the strategy is working that we may not be seeing on the overall basis because of Europe?

Sure. This is Robert, I'll just jump in here. If you -- we do see a decline in repeat growth quarter-over-quarter. It's actually happening across all the regions and it alludes to what you're talking about, which is that strength has been more in the bookings per order. But I do think that, that is a outcome of the strategy in the U.S. It's not yet being seen in Europe and there are several subsidiary causes of that. I think that the marketing position that we've been able to implement in the U.S. has been more advanced in terms of just broadening the value proposition, and we are making a lot of investments in the value proposition, which include -- they would allow us to move beyond the traditional approach of marketing of Vistaprint, which are much more in place in the U.S. than they are in Europe. So to summarize, to your question, I do think it will move longer term in Europe, but there is -- in the near term, we are not seeing that success, which is part of our near-term challenge there.

And although AOV is an outcome, we look at and present here to you, as we look -- really look at the totality of the lifetime value profile of our customer. So we look at the spend per customer, but also the margin we make, and that's where gross margin comes in as an important metric, and then the retention and the churn rates. So in its totality is what we look at in terms of customer economics. But AOV or spend per customer is definitely one of those components.

And when you look at your, sort of the gross margin improvement year-over-year, what are the big drivers there? As you mentioned, there are -- part of it could be AOV. I mean, is some of it pricing or is it -- can you kind of break it up between pricing and sort of operational efficiency?

Yes. Quite a bit of it is absorption. So still, we still see, as we grow, that we have volume absorption in our plan, so that it's making a real impact and this is one of the drivers why there's a consistent thread of improvements in our gross margin. But we also have continued labor productivity that helps us bring it down. So those are the most important drivers. And then there are lots of puts and takes, depending on the product mix that we have and the price profile, but those have been the big drivers, really, year-on-year.

And I would say that the investments in manufacturing have always been a real core part of our strategy to reinvigorate the core business there, the 3 components of the value proposition, lifetime value, based advertising and the manufacturing, engineering investments.

Okay. And then just one last question here on sort of advertising and your customer acquisition metrics. Obviously, that number in Q2 is affected by, I think you guys said a pullback -- I'm sorry, in calendar Q2 or your fiscal Q4 by a pullback in spend because of what you saw in Europe. But it looked like you sort of reaccelerated spend again this quarter. Just wondering, is that sort of -- more sort of investment in long tail, sort of television advertising in the U.S. market that's driving that? Or did you sort of pick back up in Europe despite what you're seeing on the macroenvironment, to see if you could sort of improve that growth rate as we move through year?

So what we did see is our revenue, especially in Europe, was lower than what we anticipated. And that was mostly -- that came mostly through the retained revenue rather than new acquisition growth and it came through in average order value. So in that sense, the efficiency of our advertising as a percent of revenue came in low, and that's why you see that 26% of advertising as a percent of revenue versus 24%. But having said that, if you look at, back a little bit further, we had 27% in our first quarter, 26% in our second quarter. We had COCA of similar levels in Q1 of last year and Q2 of last year as well. So I wouldn't -- I'd say that Q4 may have been more of the outlier than Q1.

The next question will come from the line of Mark May with Barclays.

Sorry if you've already answered this. In Europe, can you highlight any specific products and/or countries that were particularly slow for you during the quarter? And then, in North America, and over the last year, you've benefited from, among other things, some affiliate partnerships. And I'm wondering, how much have they contributed to the recent growth, question sort of getting at the sustainability of the growth that you saw there, which was quite good. And then I had one follow-up on CapEx.

Sure. In terms of the European question, we do not see it specific to one product or one geography. It's more, what I believe Ernst alluded to, it's in the repeat numbers that we're seeing the weakness. We had healthy new customer acquisition numbers worldwide, including in Europe. So we believe it has more to do with things that are generalized across our European business as opposed to specific.

Just to follow along that thread. It wasn't a situation where maybe you saw a lot of growth over the last year from introduction of some new product or line, and then that customer that you acquired as a result of that, didn't repeat? It's still sort of getting at the product question, but looking at it a little bit differently.

Yes, we don't believe so. And we've seen nothing to indicate that. We do see that there's been a lot of changes we've done in the value proposition improvement, which have, we've talked about it, created headwinds from a revenue perspective, although they've been very good for net promoter score. We see net promoter score jumping up in Europe. It hasn't in the United States, and North America in general. But we have not counter -- we haven't created the tailwind effectively in the repeat business through the broadening of our communications to, for instance, if you look at our television advertising, it is all public advertising the U.S. We're now offering a straightforward $10 all-inclusive, including free shipping, offer on television. That actually is creating a very strong kind of customer goodwill, I'll use that term, which we see expanding into repeat. And we're just rolling out those types of customer value improvements in Europe now. And so again, we don't see it as product-specific. I would say that one example I gave you on the television advertising, the difference between North America and Europe is one of many, many different things, and we are working on understanding and addressing these hypotheses we have. Let me just jump to your other question on North America and the affiliate partnerships. I think you refer there to what we call our strategic partnerships with people like FedEx Office and Staples?

Yes. I think that you called that out in the prepared, yes. And I just wonder what sort of benefit historically, and comp issue that creates going forward.

We've had a very strong relationship with FedEx Office for quite some time. We switched to Staples about a little bit more than a year ago, right, it's just about a year ago, from OfficeMax, and that's been a very strong positive relationship. We're very happy with that and it's growing. It is something that is helping us out in North America. But if you were to strip that out, we still see very healthy growth and a turnaround of our growth rates in North America. So where those partnerships are coming in, because there was a -- we had to pull out, we couldn't do both OfficeMax and Staples, so we had to take one out and put one it. We do see some things happening in the average order value. There's actually some downward pressure like, I would say, we see in the digital product line, just because of the average order values are lower. But from the top line revenue growth in North America, they're very healthy, whether or not you look at it with those partnerships.

And a follow-up on CapEx, it was elevated in the quarter. I suspect that was partly due to Jamaica, maybe. Can you talk about that? And then what's sort of the expectation we should have for CapEx over the next few quarters?

Yes. So our CapEx guidance for the year is $80 million to $95 million. And a good driver of that, and also in the first quarter, is our expansion in the Netherlands for our production facility in Venlo. So roughly 1/4 of our CapEx this year is going there, and so that's what you saw there. There has also been a tail investment in Jamaica, still in the first quarter, which has taken it up. And so those have been the most important drivers of the weighting towards Q1 out of that $80 million to $95 million, and the rest will spread fairly evenly throughout the rest of the year.

Next question will come from the line of Andrew Ruud with Morgan Stanley.

This is about customer retention, and I was just wondering, I categorize your current period repeat customers as either last year's repeat customers who are again repeating this year or last year's new customers who are repeating this year. Would you mind trying to help me understand the order of magnitude between the retention levels of each group individually? Is one higher than the other, or are they roughly the same?

Great. So just to make sure I understood your question, you're distinguishing between these are all -- both groups are people who ordered last year, but the people who were new last year versus the people who were repeat last year, what's the difference?

Right. And in terms of retention level for the next year, yes.

Yes. I will look to Ernst to give you specifics, but I'm almost certain that the more tenured a customer is, the higher the retention rate gets. So both of those are good retention groups, but Ernst, do you have specific numbers on that?

We don't give the specific numbers, but it is true that a lot of our churn happens in the first and second year. And a lot of it happens in the first year. So if we have customers that have been with us for more than a year, the churn rates start to flatten out quite significantly from that initial drop. So you -- a customer that has been in for 12 months, 18 months, 24 months, 36 months, that increasingly will show a decreased term -- increasingly, a decreased terminator.

Okay. So in terms of order of magnitude, can you give a difference? I think trying to emphasize the importance of the repeat and retention of those kind of customers that stay with you year-after-year is pretty important, because I think that they are driving a pretty disproportionate amount of that gross profit that goes into your LTV.

That's correct. So we're not giving any specifics on this other than there is actually a significant difference, and that's the reason why we're so focused on improving that retention rate and particularly focus on improving the retention rates in the first 12 to 18 months because if we can achieve that, then we have many more of those existing customers in with relatively lower churn rates. That is obviously extremely profitable for us.

I just want to add to what Ernst said is that when we look at it, we've always had very, very loyal, sticky customers that have been here with us for years. And once they get into that third, fourth, fifth year, they are great customers. We don't believe we really can do a lot to have them buy more, because those are our most loyal customers. Of course, we can introduce new services or products, but for us, the focus is more on taking the cohorts that are in that new first year and second year, and keeping a higher percentage of them who get into that mature group. Because the mature group traditionally is somewhat self-selected to people who are very happy with the way Vistaprint operate and the value proposition we have. As we make that value proposition wider and better, the original people stay very happy, but we can expand the percentage that go into that retained, mature cohort. So you're right, those are important customers, but our focus is less on getting more from those already loyal customers.

Okay. And then in terms of all the different initiatives that you guys have undertaken to improve that retention of that 12- to 18-month customer, what's been the most successful?

We -- I think the question didn't respond the way I just responded, but most of our effort is working on taking new and first-time customers for the first year, and what's been very successful, I think, has been a whole series of things that have moved our net promoter scores up across the board. And I think that ranges from a significant change in the marketing approach and methodology, which is not as price promotional driven. It's a broader, brand-based approach. You can see that in our advertising, and you can certainly see it on our website. We rolled out a new website functionality and structure this quarter, which is vastly superior in terms of its user interface, not in terms of actually laying out at product and designing, but rather how you navigate through the products and choose things. Speaking to the value we bring to the customer is more than the price promotionalism in the past. The price promotionalism, it certainly drives near-term revenue, but it leads to high levels of opt-out and frustration with our customers. So I think that's been a major thing. The second thing is we've significantly upped our customer service. We're investing very heavily in opening up additional customer service operations, not additional locations, but the numbers of people that we have on phones. And I'd say, third, we've done many things to simply upgrade our products in terms of everything from the substrate that we're using, to the quality of the packaging to make sure there's less damage in shipping, to -- in countries, especially where we had poor delivery rates, to upgrading shipping carriers at our own cost, and a whole series of things like that which are driving satisfaction.

The next question will come from the line of Brian Fitzgerald with Jefferies.

In terms of the 25% year-over-year unique customer growth, how much of that was North America versus Europe? Can you break that out regionally? And then maybe related to Mark's question, you think your competitive advantages are different in North America versus Europe?

I'll answer the growth question and Robert can answer the competitive position question. We don't break out the customer growth between the 2 regions. The customer growth is healthy in both regions. Although there was, at least versus our expectations in Europe, also some softness in new customer growth, but both regions show good growth in new customers.

And in terms of the competitive advantage and the relative strength or applicability between Europe and North America, we actually believe that there's more similarities than not. The strengths that we have tend to come from scale. The bigger we are, the more competitive we are. And that actually, in certain areas, just transcends the European, North American boundary. So procurement of raw materials, we do on a worldwide basis. Engineering, we do on a worldwide basis. So that scale is something that crosses both geographies and into Australia and other places. Then it's clear that Europe is, with 17-plus countries and languages and multiple currencies and certainly, very different cultures, each from one and another, is a more complex place from a marketing perspective to drive scale-based advantages. We certainly think that we can do quite a bit more, and we're working on that. Some of the work that we've done in our organization that we announced in, for a July 1 implementation of a new organizational structure, we believe will allow us to avail ourselves of scale-based advantages in the marketing perspective. That being said, I think marketing and aspects around that are going to be less scale-intensive just because it's inherently different media markets in each country, different languages, different -- other different components of the marketing.

The next question will come from the line of Scott Kessler with S&P Capital IQ. Scott H. Kessler - S&P Equity Research: So you, I guess, updated your CapEx guidance from, at least the low end you raised to $80 million from, I guess, $75 million. I'm wondering to what extent that contemplates the potential expansion of your Lexington, Massachusetts facility, and what the potential timetable for that project might be. And I have a follow-up.

Okay. No, the tightening of the range has nothing to do with any specific projects. It has everything to do with the fact that we are one quarter into the year, and so we have a little bit more of visibility into our total spend. So it was a tightening of the range really from the same, very same initiatives that we have been contemplating. To your specific question, we're looking at a few options of office expansion here in Lexington. And the CapEx involved there, just to be clear, is not -- does not include buying land or property. We're leasing here in Lexington, so any CapEx involved would be fixtures and furniture.

And we are looking at multiple options, both in Lexington and surrounding communities, and those -- whatever those options we're looking at will be a lease, not a buy. Scott H. Kessler - S&P Equity Research: And if I could follow up, when do you expect that you're going to kind of finalize what your plans are going to be and perhaps communicate about the anticipated CapEx obligations? Because while I completely understand and appreciate that, there's a difference between leased facilities and owned facilities in terms of upgrades and the like, nonetheless, from what I understand, what's potentially contemplated is pretty significant and could add notably to the CapEx that you would be spending.

Yes. So I would say, one, when we talk about the commitments, we have always been a strong employer in the Massachusetts area and we're continuing to grow there. We will continue to grow strongly, so we see a continued expansion need. Now, again, where that is exactly, we don't know, but it will be leased. Now what I disagree with is the premise that it will be even any type of material impact on our CapEx. We spend a very -- we build very, very large factories around the world with enormous amounts of capital equipment that is actually even more than a building, than land, it's the capital equipment inside that is expensive. Office expansion, especially under a leased scenario, is de minimis in our overall CapEx. And when we move to expand in the Massachusetts area, the change, I think, will be a rounding error -- rounding error in our annual CapEx. Ernst, if you have any...?

It will not be a big factor, and it is definitely included in our CapEx guidance, so it's not additional to any guidance that we've given. Scott H. Kessler - S&P Equity Research: Okay, great. And I guess my last question involves some of the tax reviews that you guys are being subjected to in a couple of jurisdictions in the U.S. Any update on those fronts and when maybe we should be expecting to hear more?

Yes, we're in the early stages of a number of audits and one particular is our Bermuda entity, which is investigated by the IRS. That's the beginning of a long process. We have a disagreement about the size of the tax bill in the years of '07, '09, and we're in the early stages of that. We have protested that audit. We think we will prevail. We have not taken any additional reserves. We believe our reserves are sound and secure for the risk that we have there. Scott H. Kessler - S&P Equity Research: So it's going to take some time before that kind of works its way through the process, so to speak?

Yes.

Definitely. We're definitely planning to defend it all the way to the end.

And there are no further questions. I would now like to turn the call back over to Mr. Robert Keane for closing remarks.

Well, thank you, everyone for joining us on the call tonight. And as noted in our commentary, we're really working to address our near-term challenges while remaining focused on our longer-term strategy. And with that belief -- and with the belief that we're really building a stronger, much more competitively positioned business that will grow for years to come. So thanks again for your time, and I look forward to seeing some of you over the coming quarter.

Thank you all for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.