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Vistaprint Limited (VPRT)

Morgan Stanley Technology, Media & Telecom Conference

February 26, 2013 4:20 pm ET

Executives

Meredith Mendola

Ernst J. Teunissen - Chief Financial Officer, Executive Vice President and Member of Management Board

Analysts

Andrew Ruud - Morgan Stanley, Research Division

Presentation

Andrew Ruud - Morgan Stanley, Research Division

So we'll go ahead and get started. My name is Andrew Ruud, the small-cap e-commerce analyst at Morgan Stanley. And I'm joined by Ernst Teunissen, CFO of Vistaprint; as well as Meredith Mendola from IR. Thank you very much. I'm going to read a quick Safe Harbor Statement from Morgan Stanley, and then Meredith has one of her own.

Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the registration desk.

Meredith Mendola

And from Vistaprint's perspective, I know you all know that there are risks to investing in stocks. Visaprint is not excluded. And we cordially invite you to read all of our SEC documents, which can be found on our website, to understand those risks better and understand why some of the things that we have said in the past or may say today may turn out differently than what we're saying.

Question-and-Answer Session

Andrew Ruud - Morgan Stanley, Research Division

Thank you. So if we could just rewind the clock back to the end of fiscal 2011, you guys articulated a 5-year plan for -- a 5-year CAGR of 20% growth both on top line and EPS for your core business. We're now a little bit beyond 1.5 years into that. I just wanted to kind of get your take in terms of what's gone well and what you think there's room for improvement as we go towards the -- towards your Analyst Day at the end of fiscal '13.

Ernst J. Teunissen

Absolutely. So there are a few things that worked really well compared to our plans and are more or less on track, and I want to highlight a few. One is the success we had in our North American business. So if you look at our North American business and the amount of change we've gone through in defining our customer proposition there, launching new advertising channels, like TV advertising, and substantially repositioning how we interact with our customers, that has gone very well. If you look at our revenue growth in that area and the profitability we get from that growth, it's gone more or less according to plan. Obviously, there are always puts and takes but more or less has gone according [ph] to plan. If you look at what we've been able to achieve on our manufacturing side, that has gone true to the plan as well. We've publicly said we're targeting our COGS as a percent of revenue to go down with a few percentage points in the course of this 5-year horizon, and we've been tracking nicely to that. In every quarter, since we announced that strategy change, we've seen a year-on-year improvement in our gross margins in the December quarter, which just finished. We had a year-on-year improvement of 40 basis points on our gross margin. That was 90 basis points compared to the year before that. So that has all gone very well. We're very pleased with that. We're pleased with our progress in emerging markets. We've made the investment in India, a minority investment in China. We're pleased with how our development with our acquisitions has gone, how Albumprinter is developing, how Webs is developing. So that's all going good. The one part that has not worked out according to plan has been Europe, and our European growth rate has been significantly -- has been decelerating significantly starting really in the last part of our previous fiscal year but continuing into the first half of this year. And we've seen that the changes that we've been making to our strategy have worked out really well in North America but have not worked as well as -- in Europe. And we believe that is -- [indiscernible] to the question, how much of it is the macro, that we think the macro is likely to have some, the influence. But we think it's -- if we look internally, it's largely how we've been executing on our strategy in Europe. So we think it's the right strategy. We think Europe is an attractive market for us, and there's no reason for us to be growing slower than we're growing in North America for a number of reasons I can go into. But that has been lagging behind, and we're working hard to make sure that we turn that around.

Andrew Ruud - Morgan Stanley, Research Division

Sure. So if we just go into that a little bit more, you cited it's probably more about execution. How would you guys think about the business differently in North America versus internationally that provide you with that opportunity to increase execution abroad?

Ernst J. Teunissen

So what we have done really well in North America is what we expected as part of our strategy is we've expected to create [indiscernible] because we have been changing how we sell through our customers on our site, being more focused on an easier experience rather than on maximizing the total number of products that customer went away with. We've been taking our gas -- a foot off the gas a little on how much we wanted to discount to get a customer to repeat after its first purchase in the months following but have been a little bit more patient in the way we've communicated to our customers. But that has created some headwinds and immediate repeat order frequency as well. And what we did really well in North America is counterbalance some of these effects and get the positive as well from -- as the headwinds. And the positive has been a real change in the clarity at which we price in North America, for instance, therefore, less focus on discounting on the product and more focus on an overall balance of the price, playing more with shipping, reducing, for instance, what we charge for uploads, making it much more transparent, communicating in a very different way. Our TV advertising, although it's a direct response spot, is really focusing on the brand attributes that we want to promote. So that has, in financial terms, meant that although we did see the headwind of repeat order growth slowing, we saw, for instance, our average order value meaningfully improve in North America over the period. So if we go to Europe, we just have not been as effective in making all these additional changes. And in fact, we've, in Europe, seen our average order value declined in the period rather than go up like we've seen in North America. So what we're really focused on right now is making sure that the many things that we were able to do right in North America, that we implement those best practices and adopt them as well as necessary in the European market, and we're working very hard on that. At the moment, we've made some important management changes as well in the process of that. And we feel the market is structurally very attractive, and we'll get through this, and we'll get this business to improve. It may take a little bit of time before we're actually through it. So if we look, for instance, at the back half of this fiscal year, between now and the end of June, we believe that the growth rates are still going to be subdued in Europe, single-digit type of growth rather than the full potential that we think the world trades [ph] and the markets are going to have.

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