CafePress reports results for Fourth Quarter and Fiscal Year 2017

Management Commentary

“Our fourth quarter and full year 2017 results were clearly disappointing as CafePress.com continued to be negatively impacted by lower traffic resulting from changes in search engine algorithms during the first half of 2017.  The Company remains focused on completing the modernization of CafePress.com and demolishing the old site and will roll out significant portions of the modernization in the first quarter of 2018.  These efforts are critical, particularly in this increasing competitive environment as we continue to optimize the business and enhance our technology to re-energize our customer experience and ultimately return to profitable growth, which has always been our top priority,” commented Fred Durham, Chief Executive Officer.  “The Company will continue to align its cost structure and operational objectives each quarter to maintain discipline in its operations and conserve its cash balances. The Company took actions in the first quarter to drive reductions of approximately $4 million in normalized, annual fixed costs,” continued Durham.

“Growth in the Retail Partner Channel continued within the quarter as we benefited from a higher average order size that drove higher margins.  We began taking orders through our newest partner, Walmart.com and expect that the product catalog build out during 2018 will drive future growth,” concluded Durham.

Fourth Quarter 2017 Operating Highlights

CafePress.com Modernization:

• During the quarter, the Company made significant strides toward finishing work designed to grow revenue through CafePress.com and mitigate the pressure resulting from the changes in search engine algorithms in 2017; this technical work included:
  • Upgraded to a fully encrypted HTTPS website, which has already resulted in improved crawl and search engine indexation rates
  • Released search pages for the new, modern CafePress.com to the first of four web domains
  • Advanced development work for the new website, including work related to product detail, cart and checkout pages

Retail Partner Channel:

• Began taking orders through the Walmart.com marketplace, generating a modest level of revenue with an initial product catalog that will expand throughout 2018.

Fourth Quarter and Fiscal Year 2017 Operating Metrics

All comparisons are on a year over year basis unless specifically stated otherwise.

Fourth Quarter 2017 Financial Summary

Net Revenue

• Net revenues totaled $34.2 million, down 22% from $43.7 million driven by lower revenue from CafePress.com, which more than offset growth from the Retail Partner Channel.
  • Revenue from CafePress.com declined $9.7 million and accounted for 68% of fourth quarter revenue.  The decline was primarily attributable to lower revenue from search engine optimization.  Average order size on CafePress.com increased 1% compared to the prior year, primarily as a result of a shift in mix toward higher-priced, new products introduced during the year.
  • Revenue from the Retail Partner Channel increased $0.2 million and accounted for 32% of fourth quarter revenue.  Although order volume and associated revenue were adversely impacted from the loss of a portion of content sold through one partner during the fourth quarter of 2017, higher average order size driven by a more concentrated effort to optimize margins contributed to higher revenue levels.  Additionally, the Company benefited to a lesser extent from the contribution of the Walmart marketplace, which launched during the last half of 2017.
• Visits to CafePress.com declined 33%, which was primarily driven by lower visits from organic search.

Gross Profit:

• Gross profit was $13.2 million, down 22% from $16.8 million, and gross margin was 38.5% versus 38.4% in the prior year.
• Cost of net revenue on a per unit basis rose by 5% compared to the prior year.  This increase is primarily attributable to a shift in product mix away from lower cost categories.

Operating Expense:

• Total operating expense was $13.4 million compared to $14.5 million in the prior year.  During the fourth quarter of 2016, operating expense was negatively impacted by $1.1 million in restructuring costs related to the closure of the California office.  In addition, operating expense during the fourth quarter of 2016 benefited favorably by $1.2 million related to one-time items, including a $0.7 million reversal of escheatment and sales tax liabilities and a $0.5 million impact from a change in the Company’s paid-time-off policy.
• Fixed costs increased by $0.5 million compared to a year ago; the aforementioned one-time 2016 expense reductions were partially offset by lower headcount, lower cost of business insurance and lower technology infrastructure expenses.

Earnings and Cash Information:

• GAAP net loss was $(0.1) million, or $(0.01) per diluted share, compared to net income of $2.9 million, or $0.17 per diluted share.
• As of December 31, 2017, cash, cash equivalents, short-term investments and restricted cash totaled $32.4 million, or approximately $1.92 per share.

Non-GAAP Information:

• Non-GAAP Cash Contribution margin was 19.4% of net revenue versus 22.6%, which was primarily driven by lower net revenue from search engine optimization.
• Non-GAAP Adjusted EBITDA was $1.5 million, a decline of $3.4 million primarily due to lower net revenue and the one-time 2016 expense reductions of $1.3 million primarily related to the write-down of escheatment, sales tax and paid-time-off liabilities previously mentioned.

Fiscal Year 2017 Financial Summary

Net Revenue

• Net revenue totaled $85.7 million, down 16% from $102.2 million driven by lower revenue from CafePress.com, which more than offset growth from the Retail Partner Channel.
  • Revenue from CafePress.com declined $19.8 million and accounted for 72% of 2017 revenue.  The decline was attributable to lower revenue from search engine optimization.  Average order size on CafePress.com declined 2% compared to the prior year due to lower shipping prices and other promotional activity in a very competitive environment.
  • Revenue from the Retail Partner Channel increased $3.3 million and accounted for 28% of 2017 revenue.  The Company benefited from more robust product catalogs among established partners compared to the prior year.  Average order size increased as a result of improved pricing, which drove an improvement in margins.
• Visits to CafePress.com declined 20%, which was primarily driven by lower visits from organic search.

Gross Profit:

• Gross profit was $33.2 million versus $41.8 million in the prior year, and gross margin was 38.7% versus 40.9% in the prior year.  The decline was attributable to higher cost of net revenue primarily attributable to a shift in product mix away from lower cost categories.
• Cost of net revenue on a per unit basis rose by 4% compared to the prior year.  During 2016, cost of net revenue was positively impacted by $0.6 million related to a one-time reduction in commissions expense.

Operating Expense:

• Total operating expense was $43.7 million and compared to $69.2 million in the prior year.  Operating expense was negatively impacted by $20.9 million of non-cash impairment charges and $2.1 million of restructuring costs related to the closure of the California office during 2016.  In addition, operating expense during 2016 benefited favorably by $1.3 million related to one-time items, including a $0.7 million reversal of escheatment and sales tax liabilities and a $0.5 million impact from a change in the Company’s paid-time-off policy.
• Fixed costs improved by $2.4 million compared to a year ago on the closure of the California office, expense reductions from outside agencies and other technology infrastructure savings, which were partially offset by the aforementioned one-time 2016 expense reductions as well as higher depreciation and amortization of $0.8 million and higher equity compensation of $0.2 million.

Earnings and Cash Flow Information:

• GAAP net loss was $(10.3) million, or $(0.61) per diluted share, compared to net loss of $(26.5) million, or $(1.58) per diluted share.
• Net cash used in operating activities of $6.4 million increased $4.6 million during 2017 and primarily reflects the declines in business volumes referred to previously.
•  For the year, capital spending of $4.6 million was primarily related to capitalization of software and website development costs and investment in a new garment printing platform, compared to $6.5 million in the prior year, which included the build out of the corporate headquarters in Louisville

Non-GAAP Information:

• Non-GAAP Cash Contribution margin was 21.2% of net revenue versus 26.5% in 2016, which was primarily driven by lower net revenue from search engine optimization.
• Non-GAAP Adjusted EBITDA was $(4.0) million, a decline of $5.5 million primarily due to lower net revenue and the one-time 2016 items totaling $1.7 million that were previously mentioned.

About CafePress (PRSS):

At CafePress, our mission is to create human connection by inspiring people to express themselves.  We believe a coffee mug can start a conversation and a t-shirt can ignite a movement.

Founded in 1999 and based in Louisville, Kentucky, CafePress is the recognized pioneer of customizable products.  Our global online platform enables people to express themselves through engaging community generated designs and licensed and personalized one-of-a-kind products.