CafePress Reports Results for Third Quarter 2017

LOUISVILLE, Ky., Nov. 02, 2017 -- CafePress Inc. (NASDAQ:PRSS) today reported financial results for the three months ended September 30, 2017.

Management Commentary

"We continue to make progress on our multi-year turnaround strategy, specifically focusing on completing the modernization of the CafePress.com website in the third quarter as we prepare to demolish the old site.  These efforts are critical as we continue to optimize the business and enhance our technology to re-energize our customer experience and ultimately return to profitable growth," commented Fred Durham, Chief Executive Officer.  "Challenges persist on CafePress.com that we believe are related to changes in search engine algorithms that have adversely affected our search visibility and traffic on the current site.  While a significant portion of the new website will not be completed until 2018, we are working to mitigate the short-term pressure by making improvements to the current site in parallel with developing the new, modern CafePress.com."

"Growth in the Retail Partner Channel continued within the quarter as we benefited from higher average order size and a broader product catalog compared to the prior year.  We are excited about the growth potential of our newest partner, Walmart.com, and we have been working hard to build out a robust catalog prior to the peak holiday season.  We are excited to share another holiday season filled with unique creative gifts with our customers," concluded Durham.

Third Quarter 2017 Operating Highlights

CafePress.com:

• Continued cleanup of the current website that includes refreshing stale content, updating XML sitemaps and cleaning up link architecture, all which will serve to enhance crawlability for search engines.
• Continued build out of a new, modern CafePress.com, to enhance functionality and the customer experience, including search page capabilities and product descriptions.

Retail Partner Channel:

• Continued testing and build out of product catalog with Walmart.com as a 3rd party Marketplace seller.
• Expanded into Germany domain through Amazon.

Production:

• Completed and implemented a $1.5 million garment printing platform upgrade aimed at improving throughput and creating additional capacity for the peak holiday season.
• Improved the production workflow designed to drive further efficiency.

Third Quarter 2017 Financial Metrics 

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

Third Quarter 2017 Financial Summary

Net Revenue

• Net revenue totaled $15.3 million, down 22% from $19.7 million driven by lower revenue from CafePress.com, which more than offset growth from our Retail Partner Channel. 
  • Revenue from CafePress.com declined $5.2 million or 32% and accounted for 71% of third quarter revenue.  The decline was attributable to a reduction in traffic and conversion rate on the website.  We believe the reduction in traffic was driven by changes in search engine algorithms.  Average order size on CafePress.com declined 2% compared to the prior year, primarily as a result of a reduction to economy shipping pricing of $1.50, which occurred early in the second quarter. 
  • Revenue from the Retail Partner Channel increased $0.9 million, or 26%, and accounted for 29% of third quarter revenue.  We benefited from more robust product catalogs among our established partners compared to the prior year, which were in the build out process during the third quarter of 2016.  Average order size increased 15% primarily due to a free shipping promotion conducted in the prior year.  The lack of a shipping promotion did not appear to negatively impact order volume.
• Visits to CafePress.com declined 26%, which was primarily driven by lower visits from organic search.  Additionally, the conversion rate of all traffic to CafePress.com declined.

Gross Profit:

• Gross profit was $6.1 million, a $2.4 million decline, and gross margin was 39.6% versus 42.9%.  The decline was attributable to higher cost of revenue.
• Cost of net revenue on a per unit basis rose by 9% compared to the prior year:
  • Shipping costs increased partially related to a shift to the Retail Partner Channel where there are fewer units per order.
  • Material costs were higher due to a shift in product mix away from lower cost categories.

Operating Expense:

• Total operating expense was $9.8 million, a $2.0 million improvement.  As a reminder, CafePress reported $1.0 million restructuring costs related to the closure of the California office in the third quarter of 2016.
• Fixed costs improved by $1.2 million compared to a year ago; the closure of the California office in the third quarter of 2016 drove $0.5 million of savings.
• Variable costs grew by $0.2 million due to increases in paid search advertising costs and higher platform fees, which were partially offset by other lower variable costs related to lower net revenue.

Earnings and Cash Flow Information:

• GAAP net loss was $(3.6) million, or $(0.22) per diluted share, compared to a net loss of $(3.4) million, or $(0.20) per diluted share.
• Net cash used in operating activities of $13.2 million increased by $1.3 million primarily reflects the decline in business volumes referred to previously.
• For the nine months ended September 30, 2017, capital spending of $3.7 million was primarily related to capitalization of software and website development costs and investment in a new garment printing platform, compared to $4.7 million in the prior year, which included the build out of our corporate headquarters in Louisville.  Our priorities continue to reflect investment in plant equipment to improve quality and production efficiency.
• At September 30, 2017, cash, cash equivalents, short-term investments and restricted cash totaled $26.5 million, or approximately $1.57 per share.

Non-GAAP Information:

• Non-GAAP Cash Contribution margin was 21.4% of net revenue, a 8.5 point decline which was primarily driven by lower net revenue and combined with increases in paid search advertising costs and higher platform fees.
• Non-GAAP Adjusted EBITDA was $(2.0) million, a decline of $1.2 million primarily due to lower net revenue partially offset by reductions in fixed costs.

Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures. Tables are provided at the end of this press release that reconcile the non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include Adjusted EBITDA, cash contribution margin, and free cash flow. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, please see the information provided at the end of this press release.

To supplement the Company's consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to net income (loss) or net income (loss) per share determined in accordance with GAAP.

Notice Regarding Forward Looking Statements

Information set forth in this news release contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements are made pursuant to the Act.

The reader is cautioned that such forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "seek," "should," "will," and similar words, although some forward-looking statements are expressed differently.  Important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the following: the effect of global economic conditions, including any disruptions in the credit markets; a decrease in consumers' discretionary income; additional taxes and fees; the loss of key personnel; the effect (including possible increases in the cost of doing business) resulting from catastrophic events, including future war and terrorist activities or political uncertainties, or the impact of natural or other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses (including losses related to business interruption); the impact of work stoppages and other labor problems on current and future operations; our ability to comply with governmental regulation and/or other legal obligations related to the privacy of personal information and other data, including the improper disclosure thereof; the impact of system failures or damage from natural disasters, power loss, telecommunications failures, cyber-attacks, or other unforeseen events; the impact of security breaches, computer viruses and hacking attacks on our business and operations; our ability to respond to rapid technological changes in a timely manner; our ability to prevent payment related risks, such as fraudulent use of credit or debit cards; our ability to maintain customer confidence in the integrity of our business; our ability to operate www.cafepress.com in an evolving and highly competitive market segment; our ability to secure new or ongoing content from third party partners; our ability to provide a high-quality customer experience with minimal programming errors, flows and/or technical difficulties; our ability to adequately protect our intellectual property; our ability to maintain or hire additional personnel; and the volatility of our stock price. For further information regarding the risks and uncertainties associated with the Company's business, and important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described under the "Risk Factors" sections of the Company's documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, the Company's quarterly reports on Form 10-Q, and the Company's Annual Report on Form 10-K, copies of which may be obtained at www.sec.gov.

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.

Media Relations:
CafePress Inc.
[email protected] 

Investor Relations:
CafePress Inc.
Phil Milliner
502-822-7503
[email protected] 

The Blueshirt Group
Whitney Kukulka
415-489-2187
[email protected] 

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Cash contribution margin (a non-GAAP financial measure that we reconcile to “Gross profit” in our consolidated statements of operations) consists of gross profit plus stock-based compensation and depreciation and amortization included in cost of net revenue less variable sales and marketing expense.  In addition, variable sales and marketing expense includes platform fees paid to third-party websites selling our products.  Previously, these fees were presented as a reduction to net revenue when the fees should have been presented as sales and marketing expense.  Finally, our definition of variable sales and marketing expense was updated to include fees we pay third parties to manage our keyword advertising spend.  The prior year amounts were reclassified to conform to this presentation.

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