Ladies and gentlemen, welcome to the Vistaprint Fiscal Year 2014 Fourth Quarter Q&A Earnings Conference Call. My name is Tony, 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 will proceed with the first call.

[Operator Instructions] Your first question comes from the line of Mr. Brian Fitzgerald of Jefferies.

Thanks, this is Sachin sitting in for Brian. The question is, as you guys think about the average order value in core Vistaprint, and maybe as you benchmark that against competitors, how do you think Vistaprint stacks up in the U.S. and in Europe against competitors, and how much room is there to grow that? And then a kind of a follow-up on that is as you think about growing that -- I know you've had some pretty nice trends this quarter on growing average order value in the U.S. and Europe, but -- or in North America and Europe. But what products and service do you think you could sell more of?

Okay. Let me -- this is Robert speaking. First of all, I would characterize where we are in terms of average order value and spend per year as very low compared to the vast majority of competitors. We have an average order value that is in the 30s, depending on the quarter, whether you're looking at new or repeat business. But if you look at the -- it's up in the 40s right now, but it's been for the 30s, up $42 range. On an annual basis, a customer spends about $100 if they are a repeat customers and about $50 in their first year. And those are very small numbers compared to competition. And it's really been the sweet spot where Vistaprint has been most successful. Inside that average order value of $40, $42 in the last quarter, there are usually 2 or 3 line items of different types of products. So the -- and it also includes shipping. So the individual orders are very, very small. That's been the real sweet spot of Vistaprint for more than a decade. And even though we've been able to consistently grow our AOV, and we certainly hope to do so in the future, I think relative to competition, we will stay in those micro quantity orders. There are many, many products that we hope to sell in addition to the traditional products or more enhanced products, for instance, higher-quality substrates or different finishes, which will raise the value, as well as if you are imagining an apparel product line, higher-end products than, say, a T-shirt. Those will, over time, we believe, especially as we change our value proposition as we've been doing for the last several years, allow us to have higher AOVs, but we don't see it is as a step-function change. We see it as a continued gradual growth over the coming years. There was a second part of your question, which I'm sorry I don't recall. Ernst, do you want to...

Which products would be driving the growth?

It's not a wholesale shift of product type. A lot -- as I mentioned in the example of substrates and enhancements. If you take our most traditional product line of business cards, we've come up with brilliant finishes, which you can see offered, which is certainly increasing the average order value of the customers who take that for a business card product. But it's still the same base product. That same type of example applies across the board. Within a category, we are expanding the quality of offerings and moving closer towards maybe a traditional retail approach of good, better and best selection. And that would lead to higher average order values.

[Operator Instructions] Your first (sic)[next] question comes from the line of Mr. Glenn Greenberg of Brave Warrior.

Robert, Ernst, I just saw the results, and I haven't had a chance to tear it apart, but what if you take out the newly acquired businesses? What does that imply for sort of the traditional Vistaprint business for next year for revenue growth and for margins on that business?

Yes, for next year, the revenue growth for our traditional Vistaprint brand business is in the sort of mid to high-single digit revenue growth number that's implied in our guidance. And the rest of the growth is really going to come from the new acquisitions, obviously, only anniversarying it when we get to the fourth quarter.

In terms of margins, it's quite substantial. Do you want to...

In terms of margins, the -- we have margin expansion for our Vistaprint core business that we're targeting on the various different margin metrics. And the acquisitions are also -- are accretive in absolute terms. But they, because of integration costs, are weighing down the margin in the guidance. This is for operating income and non-GAAP. On a GAAP basis, it's going to be slightly dilutive, the acquisitions, because of the amortization of the intangibles.

No, on a non-GAAP basis, I'm trying to understand what happens to your margins on the traditional Vistaprint business. So you said revenue's up 5% to 10%. And then what do you -- what does that imply for your margins for that?

Margin's modestly improving in the core business.

They're growing faster than that 5% to 10%.

But you are getting a positive contribution even after integration costs for the acquisitions on a non...

We are, yes. Yes, we're on a non-GAAP -- a positive contribution in absolute terms. We're on a per share terms, but on the margin, it weighs down a little bit. The...

So have you -- can you say how much integration costs will be next year that will go away after the first 12 months?

Yes, it's roughly $5 million is embedded in the budget.

Your next question comes from the line of Mr. Dan Rickles of Force Capital.

Hoping you guys could talk anecdotally a little bit about when in Q4 the inflection point in revenue growth happened in the core business. And any other color around how you're successful there would be helpful.

Yes, in the core business, we already saw in April that the performance was improving versus the third quarter. And we did mention this on our previous call that we already saw in April. And we saw, throughout the quarter, we saw improvement versus the previous quarter. Starting actually in March, already, we saw improvement.

Got it. So were trends sequentially better in core?

Yes. Yes, we are, and we had pretty lackluster growth, obviously, in the core in the -- in Q3. That was very much away towards January, February. In March, it improved. And then the -- in the fourth quarter, we saw improvement throughout the entire quarter.

Your next question comes from the line of Mr. Kevin Steinke of Barrington Research.

Just following up on that last question, just curious about the growth rates in U.S. U.K. and Germany. Are those improving kind of in line with your expectations or more quickly than you would have hoped? Or is it just kind of too unpredictable at this point in terms of how quickly you expect them to improve, I guess?

So they did improve in all those markets. The growth rate improved. The year-on-year growth rate improved sequentially from the third quarter, and they're definitely moving closer to where our expectations were. Overall, we -- as you may have seen, at least compared to where we were 3 months ago, we ended up at the high end of our -- exactly at the high end of our revenue guidance range, which is an indication that we, also, in the core business actually we're at the upper end of our expectation. Where we are in the overall trajectory is still a few quarters away for them really reaching their full potential or their -- or getting on their way to their full potential.

And I would want to say that those 3 markets you mentioned, U.K. U.S. and Germany, are performing differently. The U.K.'s a major market, in which we're the furthest along besides the Canadian example we've talked about. And we're very happy with the recent performance. The U.S. market, we still have optimization to do, but we are going in the right direction. Germany, we're going in the right direction, but we'd like to be clear that the improvement is less of a decline. And we still -- we didn't see growth in Germany last year -- last quarter. Now that includes the impact of a dramatic reduction to advertising spend we did in the last several quarters in this fiscal year overall because we were doing so many improvements to the website. We didn't want to be advertising heavily. So a lot of that was self-inflicted either through the major pricing and marketing changes or that reduction to advertising in Germany. But all of them are going in the right direction in the last quarter.

And in North America, we are, in the fourth quarter, sort of halfway between where we were in the third quarter in terms of growth and where we had been before, in quarters before. So we were in the mid-single digits growth in the U.S., where in Q1, Q2 of the fiscal year, we were in the 12%, 13% area.

Okay. I mean, is it fair to say that each market might progress towards kind of more optimal growth levels at a different pace than -- there's -- I guess you had the Canadian example, but each market may be different and there could be variance in terms of improvement back to where you expect perhaps by several quarters, I guess. Is that fair to say?

Yes, that's a fair statement.

Okay. Just a quick overview of the investment in Japan and what's driving that investment. What's growth been like in that market recently, and how much do you think you can improve it there based on your investment?

Okay. So we have been in Japan for a very long time, 8, 10 years, but it's a very small market for us because up until the recent investment and the joint venture, we did, for all intents and purposes, very, very limited localization. Of course, we translated it and we sold in yen. But everything from product format to content to the way we went to market was not well localized. And secondly, it was very much using the old-style, deep-discounting approach that we did to marketing in the U.S. and Europe. But in Japan, that was probably the most poorly received of all the markets. It's just the kind of the antithesis of what we believe will do well there. And that was not done intentionally other than we just didn't focus on that market. About 1.5, 2 years ago, as we started looking at geographic expansion beyond Europe, North America and Australia, we certainly looked at Japan, and it's probably going back 2 years ago. We started to do some significant improvements in product localization. We saw an uptick there. And so we started negotiating a joint venture. We are now in a joint venture, as you know, and we are taking very much the long view in Japan. We have a plan to build a local production facility. We currently still ship from Australia, which is a little bit like -- or actually, a lot like shipping to New York from Buenos Aires. It's a very far distance to ship product. That facility is going to be constructed over the next year. This current year, we are doing the type of overhaul of our marketing practices that we're doing elsewhere. And we see Japan as a non-growth market this year, and it won't be until after we've put the core foundations in, in terms of service, delivery and new product that we would see that going back to a growth market.

Okay. And just lastly, can you remind us what markets would you expect to roll out marketing and pricing changes in, say, over the next fiscal year similar to what you've been doing in the other geographies or other countries recently?

So the most significant market is France, which is the last one of our 4 largest markets, where...

In Europe.

We introduced this. And so we're introducing that in this quarter. We are going to do a more modest version of it in some other markets in Europe as well, some of our smaller markets, but France is really the larger one where we do this. And then in Asia, we're going to continue in markets where we've already started like Japan, for instance.

Your next question comes from the line of Ran Li of Lone Pine Capital.

I have 2 questions, one is around the acquisitions. So you gave a breakdown of organic growth in the quarter x acquisitions. What about EBITDA growth or EBIT growth in the quarter x acquisitions? And second question is you had paid -- I think you disclosed you paid 9.8x EBITDA for Pixartprinting. How much did you pay for People & Print?

So to answer the first question, so the acquisitions grew very nicely on an EBITDA level, and so did our entire business. We're not breaking out exactly what was the contribution for each. But both grew there -- grew quite effectively. The acquisitions in calendar year '13, the calendar year that we just finished, People & Print Group grew about 20%, and their EBITDA was about 9%, 10% of their revenue. Pixart was EUR 56 million of revenue in calendar year 2013. They were growing at over 30% and they've even accelerated that growth in this calendar year in the last 6 months. And their EBITDA is in the 30% -- 25%, 30% range, very high EBITDA.

And Li, I think you also asked how much did we pay for People & Print Group. That was EUR 24 million.

Sorry, you paid EUR 24 million?

Correct. There is also a significant portion of the value, which could be paid out in the future as the result of the meeting revenue and EBITDA targets over the course of the next 2 years.

Right. Wait, sorry, this is a business that generated USD 43 million of revenue in the quarter, and it's doing 9% to 10% EBITDA margin?

No, the $43 million in the quarter was for the combined Pixartprinting and People & Print Group.

Right. But Pixartprint -- okay. So Pixartprint, I think, in your announcement, was doing about EUR 56 million per year of revenue. So looks like the bulk of the revenue in the fourth quarter came from People & Print. And if that's a business that doing 9% to 10% EBITDA margin, and you only take EUR 24 million...

There's something wrong with either our -- your interpretation about what we said or your math.

Yes. So the -- in 2013, the combined revenue in calendar year '13 was about EUR 90 million. So if you translate that to dollars is about $120 million combined revenue in 2013 calendar year. They're growing very rapidly. They're growing each at 25% to 35%. And so if you put it in that context, you may put the $43 million combined in the -- in this last quarter in context.

But Pixartprinting is contributing more revenue, it's a larger company than People & Print Group is.

So Pixartprint is actually contributing more in revenue than People & Print?

Yes.

Your next question comes from the line of Mr. Andrew McQuilling of UBS O'Connor.

I actually had a question on the People & Print and Pixart together. Can you talk about Q4's year-over-year growth? I think you might've said it, 35% on the Pixart and maybe 25% on People & Print for Q4 '14?

Yes, actually, both companies were able to accelerate their growth. And in combination, they've accelerated their growth. And so for Pixartprinting, the growth rate was 30% in 2013. They accelerated from there in these 6 months in '14.

Can you talk about why? It's great to hear because sometimes you buy an acquisition, and they've dressed it up. What's been driving the acceleration for Pixart?

They're doing very well in a market that is relatively young compared to our market in moving online. So it's an old market in terms of an offline, but relatively young in terms of moving online. And they're successfully expanding from their base in Italy into other markets. They're strong and growing quickly in markets like France and Spain and other markets in Europe. And they're just being very successful with the current offering that they have.

To be clear, what -- we talked about the difference in offerings. We're all selling -- all of our brands are selling flyers and business cards and printing and signs. The difference is this -- the Pixartprinting and People & Print model, which Ernst referred to as being more immature in its move online, is not using graphic design templates or online design systems like Vistaprint really invented in 1999, 2000, but are using uploads of production-ready graphic files produced in professional desktop publishing programs. So it's selling to a very different type of customer in terms of their graphic capabilities, but they're still small businesses buying signs, banners, business cards and flyers.

Terrific. And then I was wondering if you could talk at all about kind of the U.S. trend on a monthly basis? You talked about improvement in April. Has there been a sequential improvement in trend, May, June, July even, if you're willing to talk about that? I don't want to kill the fun of the Investor Day, but I just figure I'd ask.

Yes, we are going to talk about this in Investor Day. But the -- it wasn't. In the last quarter, we really had a story of a month-by-month story in the United States. This quarter was much less pronounced. It was much more universally April, May, June, roughly in line with where we thought it would be.

There are no further questions in the queue.

Well, thank you, everyone, for joining us, and we do look forward to seeing you at our Investor Day next week in New York City. Thank you for your time.