Robert S. Keane - President, CEO & Chairman-Management Board Ernst J. Teunissen - Chief Financial Officer & Executive Vice President Meredith Burns - Vice President, Investor Relations.

Youssef H. Squali - Cantor Fitzgerald Securities Brian P. Fitzgerald - Jefferies LLC Paul Judd Bieber - Bank of America Merrill Lynch Robert S. Peck - SunTrust Robinson Humphrey, Inc. Chris Merwin - Barclays Capital, Inc. Victor B. Anthony - Axiom Capital Management Kevin M. Steinke - Barrington Research Associates, Inc.

Mitchell Palmer Bartlett - Craig-Hallum Capital Group LLC Glenn Hank Greenberg - Brave Warrior Advisors LLC.

Ladies and gentlemen, welcome to the Cimpress Fiscal Year 2015 Fourth Quarter Q&A Earnings Conference Call. My name is Lucy, and I will 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 periodically filed – with the Securities and Exchange Commission. And now, I'd like to turn the call over to Robert Keane. Please proceed..

Thank you, Lucy. Good morning, everyone, and thank you for joining us. I also would like to thank you for taking the time to read the content we published yesterday. Between the earnings document and the letter to investors, it was a lot to absorb.

The shareholder letter was our attempt to have a very transparent view on how we manage the business and how we think about capital allocation as we strive towards our objectives to be the world leader in mass customization, and to maximize our intrinsic value per share.

We are going to go into this in more detail at our Investor Day next week in New York. But we believe that this approach and the change in our guidance approach may require some of you to think a little differently about how to model our business.

But we have provided a deeper insight into the things that matter most to our ability to drive intrinsic value per share, and we believe that by aligning how we speak publicly with how we have come to speak internally that we will all be better off. So, now we'd like to take your questions.

Lucy?.

Thank you. Thank you. And the first question comes from the line of Youssef Squali of Cantor Fitzgerald. Please go ahead..

Thank you very much. And good morning, Robert and Ernst, and congrats for an excellent job turning this story around since the new strategy that you formulated to us and which was four years ago almost now, 2011..

Thank you..

I guess, Robert, I have two questions that maybe, the first one is a lengthy one.

Robert, one would think that with time, operating history, and just a larger business base, you would become better at predicting the performance of your business, not less and therefore, more comfortable guiding to actually minimizing the variability in earnings estimates. You're kind of choosing the opposite.

I was wondering if you can just elaborate on why you're doing it now, and well, why don't you address that and I have a follow-up? Thanks..

Yeah. It's a good question, Youssef, and we thought a lot about it. We took the decision very seriously. At the base, what we wanted to do was to only communicate to the investors how we internally, with my management team, with our board of directors, speak about investments.

And the more we can do to align that to the external and the internal, the better off we'll be.

And we do recognize that forward-looking guidance is common in a lot of companies, but we feel that the amount of time and energy that we need to put into that to make sure that it is accurate and to update it, and then to explain the variances from it actually doesn't – frankly, no offense intended – help us make a more valuable intrinsic value per share.

What it does do is take a lot of management time and effort, and we know it's important for a lot of the analysts to have the best understanding they can, but we think that needs to be aligned with how we think about it.

So in the end, it was a decision based on the opportunity cost of that senior executive and many other people's time versus putting it into growing the business.

Ernst, however you want to add more thoughts to or a couple other reasons we spoke about?.

The – we are giving different sort of guidance, so we are no longer being precise on this is the revenue range we expect for the year, this is the EPS range that we expect for the year. But we are providing other forward-looking statements that should help you model our business.

We give a longer-term view on the growth trajectory of the Vistaprint brand as well as our other brands.

And we try to be reasonably precise in our plans to invest, and you saw in both the slides and in Robert's memo that we're identifying how much we are actually investing in growth – long-term growth projects and identify where that is going next year. And we think that is actually helpful guidance in modeling our business.

So I would say we're just providing a different sort of guidance that we've done before and try to be less precise on predicting, for instance, EPS. I think there has been some volatility in our EPS this year, as you have seen through various one-off items, sometimes non-cash.

And we believe it's much more important to communicate to you what our investment plans are than to communicate our expectations of certain things that are difficult to forecast, like currency, for instance..

Okay. All right. I guess, the other question is – goes back to the operations. I'm trying to understand, among the – or as you parse out the performance that you've had, say in the last 12 months to 18 months, and the gradual improvement that you've seen in the U.S.

and in Europe, and also in Asia-Pac, is there a way for you to either quantitatively or at least qualitatively help us kind of parse out, how much of that is actually improvement in just the underlying economies of Europe, for instance, which have been doing better on the margin than the U.S.

certainly? And how much of that may be due to some of the pricing changes, the repositioning, the marketing, etc. that you guys have endeavored? Thank you..

I would say the vast majority of it is due to the changes that we've made internally and we still today are not able to identify any correlation to macroeconomic conditions that – between our revenues and macro conditions.

And if we look country by country in Europe, we see that – and we actually – for instance, when Germany was doing strong as an economy, our revenues were coming down in Germany for a few quarters as we made some wholesale changes to the value proposition, and now they're coming up strongly.

But we really do believe it's an internal issue, not an external one..

Got it. Okay. Thanks a lot. Congrats..

Thank you..

Thank you. The next question comes from Brian Fitzgerald of Jefferies. Please go ahead..

Thanks guys. I want to ask a question around your reseller and acquisitions that you've done over the last few years.

And in order to grow those businesses, what investments do you continue to want to make there? Can you give us a sense of what your priorities are? Will it be investing in salespeople, is it more marketing and advertising, or is it capacity and infrastructure?.

Yes.

So, just for those people on the call who aren't familiar with this, we think of the market as either going direct or through resellers, and resellers are especially very successful and important to getting what we – to what we referred to as a locally-focused customer, people who want to have someone in front of them, helping them out with graphic design choices.

And local printers and graphic designers and other graphic professionals are increasingly turning online to procure the print and other customized products from these resellers. So, that market is today growing very, very robustly overall in Europe. We believe it's growing strongly elsewhere.

And the investments we're making there are predominantly in CapEx to keep up with the very strong double-digit growth we're seeing there. And the areas of marketing are actually very insignificant there, total immaterial.

So marketing as a percentage of – or advertising as a percentage of revenues is very small, but so is – there is basically, for all intents and purposes, no sales force. We'd have customer service and account management teams that are phone-based, but again, they are no more intensive than in our overall business in broad terms.

So it's really a model which is – when we get to selling to the resellers, 100% ecommerce model, to professionals as opposed to the end small business, but the investments required are really on the CapEx and, to a lesser extent, the technology side..

I'd like to put a plug in for our Investor Day next week on Wednesday where Ernst is going to give a great presentation on the new acquisitions and really highlight how they're different from the Vistaprint business, both in terms of how it flows through our financials, as well as things like in investments and how we're helping each other out..

Great. Thanks, guys. That was actually the one follow-up I had was, was about Exagroup and maybe how that might be similar and different from some of the other acquisitions you've done so far in the space..

Exagroup represents a real pure play in the reseller approach. They have a website which is locked out via password unless customers can prove that they are registered legally as a professional graphic reseller or printer. They are our – through our – the Exaprint brand entire objective is to help resellers succeed.

So, they have a very, very broad product line, a very high-quality product line. The – often of those are going to other outsourcers because there's a large portion which is produced internally, but another large portion which is outsourced, so we can offer the broad breadth of products in the long tail of products that graphics professionals seek.

So, it is a different model at the highest level, but when you look at the products being produced – I'm sorry, it's a different model at the lower levels, but if you go to the highest level, it is a model based on the aggregation of individual orders which are very similar to our other upload and print orders and are not radically different than the Vistaprint orders.

They are two times or three times bigger, but they're not 10 times or 15 times bigger on a per-order basis. The real difference is the number of orders per Exaprint customer is much, much higher – it can be many times per week or per month because they are reselling on to other customers..

Got it. Thanks guys, and looking forward to the Analyst Day next week..

Thank you..

Thank you. And then, your next question comes from the line of Paul Bieber of Bank of America. Please proceed..

Good morning. Thank you for taking my questions.

There was a lot of information, as you indicated in the investor presentation and the letter, and I was hoping that you could walk me through the negative impacts to EBITDA in 2016, so we have some visibility into the earnings profile of Cimpress for this fiscal year, and then I have one quick follow-up..

Okay. There's various puts and takes, if you look at – look to model our profits for fiscal year 2016.

An important starting point is the investments we're highlighting in our – in the long-term investments we're highlighting, and we've done that both in our slides, as well as in Robert's letter to the shareholders, and you see there that we are on a NOPAT basis, expecting about a $13 million increase in investment in what we call the major organic long- term investments, and on EBITDA level, it's about $25 million.

So that's a significant increase, and that will impact our profitability in fiscal year 2016. Then, we've also said that for other large long-term investments that we're making which is on a NOPAT basis in fiscal year 2015 was about $150 million EBITDA, about $135 million.

But that, we forecast to grow roughly in line with our revenues, so it should not make a significant impact on our margins. And then we highlight several other puts and takes.

We talk about our revenue profile over a longer period and then we talk about the fact that we expect profits from Vistaprint as well as our other brands to contribute to grow next year.

And of course, we also have additional revenue and profits from the acquisitions that we just made, Druck and Exagroup, that have been in our financials for fiscal 2015 only for a quarter and will be in our full year financials next year. So those are positive impacts as well. And then we've highlight various other puts and takes.

We have currency, of course, which is a headwind year-on-year for us if currencies don't change from where they are today, particularly for the front end of the year, not so much for the back end of the year. Back end of the year, the currencies have been relatively stable.

But especially for the front end of the year, there will be a difference which will impact our revenues, to a lesser extent will impact our profit line. Then there has been some movement in our partnership and wholesale business.

We have – our contract with our largest wholesale commercial partner is winding down which will have a negative impact on revenue as well as our profits for next year, so that's – it's a headwind. We have some other partnership conversations and tests that we have running today which we believe could partly mitigate that, but not in this first year.

And then, we have – this is not on an EBITDA level, but further down in the P&L, we have, of course, our interest expense go up because we'll have a full year of our high yield debt in. So those are the most important puts and takes that will impact that EBITDA number that you highlighted..

A quick follow-up. I think you said $25 million negative impact from the incremental major organic investment.

I think it's $45 million, is that correct?.

No. If you look at slide 27 in our presentation, you see the adjusted EBITDA impact of the major organic long-term investments..

It goes from $65 million in 2015 to an expectation of $90 million in 2016..

Okay. Got it..

And you see that those investments in that category are roughly growing by 40% year-on-year in our expectation, and that is going to be well ahead of our revenues and, therefore, the impact on margin..

And then on the loss of the partner, are there any other wholesale partners that the contractor are coming up for expiration or renegotiation?.

None other that are in the near term coming up for negotiation or any other change. We actually on the flip side, on the positive side, are very optimistic about the things in our pipeline which we're not ready to announce.

And so we feel that that partnership component of our business will continue to be something which will be about the same value to our business expressed in long-term value as it was before, if not greater due to the changes we expect to be able to announce over the coming three to six months.

But that being said, there is a transition where, per Ernst's comments, FY2016 we'll have a headwind, even though we think we'll be better off overall..

Okay. Thank you very much..

Thank you..

Thank you. And the next question comes from Robert Peck of SunTrust. Please go ahead..

Yeah. Hey, thank you, Robert, for the detailed letter. We found it very helpful. Two quick questions for you here.

One is, as we think about longer-term markets you can penetrate – Brazil, India – can you tell us how you're thinking about that and how you're thinking about Japan in terms of relative size to the opportunity? And then just one more follow-up..

Okay, so good question and I'd say each of those understandably are very, very different markets. I'm going to start with Japan. It's culturally perhaps the furthest from North America and Europe and the most unique but, in terms of economic development and infrastructure, it's clearly the closest.

And so Japan, we have a excellent joint venture partner and we really are starting from the ground up. We've been in Japan marginally for almost 10 years, but it's always been a very small business.

And so when we went and negotiated and tried to find a partner and to set up this JV, we really said, let's step back to ground zero and build up a really incredible base in terms of infrastructure, delivery speed, domestic production, local management teams and the like.

We have a production facility which we'll be opening up in the next month or two there and for right now, we've been really pulling back extensively on all marketing for the last 6 to 12 months as we've been putting in those basic components. So we expect FY2016 to be a "startup" year, despite the fact we've been here for a long time.

And we're optimistic about that opportunity. Brazil is growing very fast and is meeting all our objectives and actually surpassing them that we had at the moment of the deal.

Brazil is a very troubled economy right now, but the business there that we are in through our 49.9% investment is very much along the lines of the European upload and print model and it's very successful.

There are many layers that are being disintermediated through that model of distributors and resellers that are five to six layers deep sometimes, not always, and there's just a lot of inefficiencies we're able to take advantage of in that market.

We also are serving resellers in Brazil very successfully, just with only one layer as opposed to multiple layers of sales. India is a very different market. Still, it's – I just saw an article the other day, in the next five to seven years, will surpass China in terms of population.

Obviously, it's a huge country, but with a very concentrated population, 10% or X percent that actually has a disposable income. So there we have positioned ourselves as more of an aspirational brand.

We certainly are not a luxury brand, but as opposed to – even though we use the term Vistaprint and the name Vistaprint in India, we position ourselves as a place for incredible service, quality and international levels of product.

And that business is still very much in the foundation-building stages, but we have very high customer satisfaction rates. And it's a small business, but we still have – we're happy with the progress and we believe that over the long term, will become a material business.

Now when you add all those up together, they are still a small percentage of our revenues. I don't have the exact number ready for disclosure, but they are growing very fast off of a small base..

That's very helpful.

And just pulling the lens back for a second, on a macro level, how are you seeing the health and the confidence of the micro business market? Are there any particular trends to call out for us?.

There's an incredible energy in micro businesses around the world. If I talk about our biggest markets of North America, Europe and Australia, that's very much the case. And it could be from tens of thousands of people signing up to be Uber drivers every month to the small businesses that are just being created in home-based businesses.

There is – we see and I see this – I guess we're entering our third decade as a business, even more entrepreneurial or micro business entrepreneurial activities than we have in the past from a qualitative sense. We don't have specific numbers to say that, but you can see it in many parts of the business.

And the brand that we have – the brand positioning that we've moved to in Vistaprint with the advertising and with the changes we've done to our user experience is really resonating with people, because it touches something that's a huge part of tens and tens of millions of people's economic likelihood.

So I know that's a qualitative answer, not a quantitative, but we feel that it's a very robust time for one-person, two-person businesses..

Thanks, Robert. It's helpful..

All right. Thank you..

Thank you. And the next question comes from Chris Merwin of Barclays. Please go ahead..

Great. Thank you. So my first question is on top line. Are you able to quantify how fast the acquired businesses are supposed to grow. I think your guidance was for single-digits and I assume that's just for the organic business.

I just wanted to clarify that, just because I know you'll get the benefit of some uneven comps with the acquisitions, and I think some of those acquiring companies are growing faster. So just trying to holistically make sense of the puts and takes as it relates to revenue.

And then in terms of the investments just to follow up on a prior question, when you talk about the $30 million increase in investments, does that just mean like if we think about the organic margin being flat year-on-year that there's an incremental $30 million of OpEx such that it'll be a year-on-year margin compression? And then, my last question is just on the impact of FX.

I know there was benefit in the year that just ended, just trying to think about how that's going to impact earnings in particular in fiscal year 2016. Thanks..

Great.

So, Ernst, why don't you take two of those?.

Yes. To start with your question about the growth rates in these new businesses that we've acquired, we disclosed at the time of acquisition at what rate they were growing. But Pixart, for instance, was growing at about 30% as Printdeal was growing at about 20%-plus when we acquired them.

Both of those businesses have continued to grow and have actually slightly accelerated their growth throughout our fiscal year as those have been very, very robust, and very positive experience for us as we had anticipated that these growth rates would be able to be maintained or slightly decrease but they've been very, very robust.

If you look at Druck and Exagroup, they have in the last 12 months grown in sort of the mid-teens area, still developing very robustly and expected to continue that type of growth level going forward. So these entities growing.

What we have said in terms of forward-looking is we believe that these entities for the foreseeable future as an aggregate will continue to grow faster than Vistaprint. And at some point, growth rates of about 30% may come down but we believe that for the foreseeable future, they will be outgrowing our Vistaprint brand..

So the next question, I'm going to let you do, Ernst.

But make sure – I think it was the investments that we're talking about increasing in the large projects is – can you rephrase your question or repeat it?.

Yeah, I'm just trying to think about – I mean when you said $30 million of incremental investments, I'm just trying to think about – obviously, does that just mean like OpEx? I mean, obviously, OpEx, I imagine, has been growing by more than $30 million.

I'm just trying to understand like how to gauge what's truly incremental in the context of the non-GAAP operating margin that you're going to ultimately see in fiscal 2016..

So the incremental spend goes in different areas and that's why we've broken out the difference between cash flow and NOPAT and EBITDA. It is in OpEx. There's a lot of engineering that goes in there, for instance, for building our platform. But it is also CapEx. We're spending a significant amount of CapEx, for instance, in Japan to build our plant.

And there's other items like startup losses we make in our Columbus line as we have identified..

But I do – I'm sorry, I do think it's correct what you said in your question is correct I believe and I'm going to look you, Ernst, to confirm is that we talk about an increased pond (27:38) and you can take the percentage increase that's above our revenue growth and that would be – whatever line you're looking at, free cash flow, NOPAT, EBITDA, that would represent – that delta above our growth would represent a margin compression..

And that is specifically talking about this type of investment, right. So the way that we've broken this out, we actually haven't provided commentary on total margins overall for the business.

So the margin compression that you will see from these investments in MoW, Columbus and our platform are – that's a like-for-like on a year-over-year basis increase of $30 million. The other investments we call out generally on a NOPAT level we say we are going to grow in line with revenue. So you can assume essentially no margin compression there.

And then what we haven't done is we haven't given the overall view. So you can take some of the commentary that we have on slide 30, where we say we're going to have a full year of Exagroup, Druck and Easyflyer which we expect to be accretive to NOPAT.

We're going to increase our operating profits we think in the Vistaprint brand as well as the other acquisitions. And then we have also highlighted a couple of headwinds to sort of give you some indication of where you might want to model the business..

Does that answer your question, Chris?.

Yes, that's very helpful, thanks. Then just a last one just on FX, if there's any way you can help us get through that..

In fiscal year 2015, we have, on operating income level, we were including of the realized hedges that we were making. We're more or less neutral for currency. We have currency hedging program in place which we put in place early in the year and have layered into throughout the year.

And so that was a realized gain on our hedges of $7.5 million, which roughly equates to the equivalent loss that we made operationally underlying, so it netted itself out.

We have some unrealized gains for next year but it is much smaller than the realized gain we've had, so we are going to be relatively un-hedged going into the next year so there will be some headwind. But the $7.5 million over the last year gives you some indication of the underlying exposure that we have to currency.

The most important currencies of exposure for us are the pound and the euro and the Canadian dollar, the Canadian dollar mostly because our production cost for the United States are largely in Canadian dollars. That's a positive for us..

And just to be clear on that, not all of the production cost – paper and utilities -.

And then in Europe, we have the pound that is relatively exposed because we have some operating expenses in pounds but small compared to our revenues. And then, of course, the euro where we have revenues and expenses in Europe..

Okay. Thank you very much..

Thank you..

Thank you. And the next question comes from Victor Anthony of Axiom Capital. Please proceed..

Thanks and also the thanks for the personal letter. It was a good read on the commute last night..

Thank you..

I had a question on just s quick statement you guys made in that little on the decision to not buy back stock versus making acquisitions and you called out two acquisitions that didn't pan out as well, one being out of Albumprinter which I'm surprised about. So maybe you could probably expand on that why that acquisition wasn't a home run.

But also with the spot prices sitting close to all-time highs, at least $10 away from it, as you look forward, how do you reconcile the decision to make future acquisitions versus buying back your stock where it is right now?.

Sure. So we spoke about foregoing share repurchases and that was something we put in there because it is something that we talk about internally. And it really is an opportunity cost argument. Now China was a total loss. It was a mistake we made in choosing that investment. We do believe in China as a longer term opportunity.

But Albumprinter is a good solidly profitable business that as a standalone business, we would say we're very happy with. The difference is only when looked at the opportunity cost of a two-year period where often our share price was under $35 which we believe is the opportunity cost of the capital was just something that we should recognize.

And I guess to your question about how do we look at share buybacks, and share buybacks are something which we do believe are a very important category of capital allocation. But we have a lot of factors such as, once again coming back to opportunity cost, where can we use the capital.

If we have a pipeline of future investments where we believe the returns are material, we may hold off on buying back shares. And we also do recognize that there is as in any publically trades stock, but certainly with ours, a volatility, and so we want to be opportunist about where we purchase shares.

So we did want to make sure to state, and we said some place in letters, that we are not trying to signal to the market, when we do or don't issue or buy back shares our views on intrinsic value. It's just something that we have as one of multiple capital allocation categories..

And second maybe if I could just jump ahead of the Analyst Day and when you put a calculation in that personal letter on steady state free cash flow. And I think, it's intriguing in one part of it you correctly stated I think that the diverse other long-term investments may be required for steady state.

What I'm having difficulty with is really with the major long-term investments.

Why aren't those also considered required to maintain a steady state, given that those investments may become part of your organic growth rate three years from now, five years from now?.

Well, the difference is we define steady state as being able to maintain our cash flow at an inflationary growth rate but no more, which currently is very low single digits. And we certainly are anticipating to have actual growth well above steady state.

So when we do things, like building our platform or going into the apparel market or moving into India or Brazil, those are clearly in our minds something which we do not need to do to maintain steady state as we define it. And Ernst is going to go into this in a little bit more detail next week.

So do you want to give a little bit of a preview what you're going to talk about, Ernst?.

Yes, so next week, I'm going to detail what is actually behind these buckets a little bit more and the order of magnitude of investments we make in those buckets.

You'll hear not just from me, you'll hear from Robert about the emerging market plans, you'll hear from Don about what we're doing, investing in our platform, investing in Columbus and so you'll hear much more detail about it.

And what you'll find is that we see those three categories, as Robert says, in these major investments really as incremental, as new projects, as new veins that we're opening up and you'll hear much more about that. So we see it truly as incremental to the business that we have today.

Some of the other investments in the other categories and that's the reason why we said somewhere in between, you could argue, are needed to sustain some growth. And some of these are more difficult to tease apart from what is really necessary to keep where you are versus what is actually for growth.

And we'll go into much more detail on that next week..

It's a really good question because it gets at sort of how we think about what we're trying to achieve here. As we are making investments to try to increase and maximize our intrinsic value per share, that steady state number will change over time.

We hope that it grows over time because the investments that we make today that we may not need to stand still tomorrow should be returning in part of our organic business for future period..

Okay. Thank you..

Thank you..

Thank you. The next question comes from Kevin Steinke of Barrington Research. Please proceed..

Good morning. Just wanted to follow up on the discussion of the margins.

And if we excluded the expected increase in major organic long-term investments, would you expect the business to show continuing improvement in EBITDA and operating margin?.

Kevin, we purposely want to stay away from giving guidance on our margins. It's one of the areas where we said we would not give guidance. So we're giving you the components to form your own judgment in the various parts that we have given. But, unfortunately, that is as far as we're going with our current guidance approach..

Okay. You talked about, near the end of the letter, some of the operational metrics that you previously reported not being as relevant and so you're going to stop reporting them. I don't know if you want to get into now what those metrics might be and why they would no longer be relevant..

So we'll talk more about this also next week, but they – historically, we've published a number of metrics that were mostly relevant for explaining the performance of our Vistaprint brand because that was our only brand and was the way we looked at the business at the time.

It's things like AOV, number of orders that we've consistently published, COCA, et cetera. Over time, within our Vistaprint brand, the way we look at operational performance has evolved and, on top of that, we now have many other businesses that have different drivers that we highlight.

And we gone through a period where we actually try to present the metrics on a compounded basis as we started to add in Webs, we started to add in Albumprinter in the statistics that we showed. And we realized that with all these very diverse business models that we have, some of those metrics on an aggregate level are just not as helpful anymore.

And so we want to move away from some of those metrics. We'll talk more about next week which and what the kind of metrics are we'll be reporting next year..

I think, from a high level perspective, if you think about – we really want to make sure that we're aligned with our external communications with where we are internally in managing the business. Segment reporting, from an SEC perspective, is really where we're moving toward.

And so a year ago, we moved away from geographic segments to segments that were right now, from a revenue perspective, just two segments. There's the Vistaprint business unit. There's all other business units. We also have a third segment that is a cost segment for corporate and related costs.

And our overarching view on how we're going to communicate starting in FY2016 is by segment. And so we will explain business drivers, provide color commentary in those segments because that is the way that Robert runs the business. That's the way that he manages the business.

Then anything that we have been reporting publicly that spans segments is likely to go away because it's just – it's kind of meaningless once you start consolidating, like an AOV from Vistaprint with an AOV from Pixartprinting..

And I would go on to say that even in the Vistaprint brand itself, when I meet with or Ernst meets with Trynka, we do not any longer ask about things like AOV or COCA. We ask about what are the DCFs by cohort of advertisement invested or what is the expected return of technology investments or similar types of things.

So the way we are aligning our conversations publicly will reflect those areas..

Okay. Great. Thanks for taking my questions. I'll look forward to next week. Thanks..

Thanks, Kevin..

Thank you..

Thank you. And the next question comes from Mitch Bartlett of Craig-Hallum. Please proceed..

Thank you. Robert, in light of that last conversation, maybe you already addressed this, but how did Vistaprint do in Europe? I saw the constant currency 14%, but that includes the accelerating revenues from Pixart and Printdeal and the like, so....

Yeah..

...was there an improvement? How do you see the investment profile out of the Vistaprint brand in Europe?.

So, we had a good quarter in Europe. The growth was 6% in constant currency year-on-year. It was obviously much lower in the foreign currency, but in constant currency, it was 6% growth. And we saw a good performance, a continued good performance in some markets that really matter to us. Germany had solid growth, high single-digit growth.

And as you know, Germany was the market where we were declining a year ago. Solid growth in France, continued good growth in the UK.

So our most important markets in Europe are doing well, and on aggregate, the business is doing well, is doing better than in the three quarters, four quarters before, and so we're very pleased with that result in Europe. We're not quite yet where we hope we can be, but the uptrend is very clear..

Also, the gross profit per customer continues to grow, and in Europe, we've seen yet another quarter, something like three quarters or four quarters in a row of very strong double-digit growth in the gross profit per customer, which again gets back to the value of our customer..

And so, obviously, you're starting to invest more heavily there?.

Not necessarily in advertising. We have launched in this quarter more brand advertising in Europe. As you know, we have had invested in previous quarters in the United States in our new brand advertising. We've done the same in Europe last quarter. So, in that sense, we have increased our advertising levels.

But, overall, as a total percent of revenue we're up meaningfully improving it. The growth is really from repeat orders and improvement in repeat customers. So – and that is pleasing to us because that's really the area that we were focusing on in Europe. The repeat rates were too low two years, three years ago..

Great. Thank you..

Thank you. And your next question comes from Glenn Greenberg of Brave Warrior. Please proceed..

Good morning, Robert. Robert, I'm thinking back four years ago and the way the whole business plan was torn up and major new investments made and targets given four years or five years out for revenue growth and earnings, and how far short we fell from that target.

Why should investors this time around feel better about the investments you're undertaking? You haven't given any targets as to what kind of difference is going to be in growth or intrinsic value looking down the road, but why do you feel better about these investments and the likelihood of them meaningfully adding to intrinsic value relative to the undertakings of four years ago?.

Okay, I would say a couple of things.

One is, that if you read through our documents, the investors at the highest level have to decide, is the philosophy we follow as a business the right one for them, and we've tried to be as transparent as we can, and we believe this is very much fundamental – based on fundamental finance theory, and economic theory, and business theory.

So I think that is question number one. And then, question number two is, if we believe this theory, we are good at executing that theory? And I would respectfully disagree with saying we tore up the old business plan four years ago.

What we said is, we had a business plan that we have been following for years, that we were going to double down investment in, and make major investments – reignite growth in our core through improved customer value proposition, brand changes that are manufacturing capabilities as well as moving to huge investment in new adjacencies.

Now, some of those worked out, and some of them didn't, but several years ago, we publicly did say the long-term EPS target that we had given in 2011 we were backing away from. So I want to reiterate that we have not said that for several years.

But if I take that reiteration as context, it is interesting to look at a comparison, we talked at the time about a $5 EPS. Our free cash flow conversion from EPS was never in the 80% range at the time. I don't have the exact numbers in front of me. But last year, we just delivered more than $4 of free cash flow per share.

So, we made mistakes, and we made great decisions in our capital allocation and our strategy. But if you look back into – let's say, did the company – we're not yet at FY2016, could we have gotten to a point where we would make close to $5 in free cash flow per share? We are there today.

Now, the same philosophy that we had then has been frankly improved or clarified, and we're much clearer in our capital allocation than we were back then, and we've learned from what we've done right and what we've done wrong, we try to be clear about that in this letter.

And so, looking forward, I mean the question is to say, okay if the company can do a steady state cash flow today of between X and Y, and you divide that by the number of shares we have, then it is up to each investor to assess my performance, the entire company's performance, and say they believe that we are going to take the delta between what we could be generating today and what we are generating today and invest it above our cost-to-capital.

We think the answer is yes. But in the end, of course, it is everyone's individual decision..

Since 2011, the company has invested about $850 million in capital projects and acquisitions, and the profits are about $48 million higher. So, I guess that's above your cost of capital, but cost of capital is like 8%, it's not really, I don't – a fantastic return.

Your return on invested capital is somewhere between 15% and 23% according to your figures depending whether you want to use non-GAAP or GAAP.

So why are we aiming at a returning of cost of capital when in fact, historically you've been able to, even with mistakes, generate 15% to 23% return on capital?.

So, we're aiming to return well above our cost of capital, and this is one of the things that we talked about in the letter. The cost of capital is really the floor of – if you don't return more of your cost of capital then, you're by definition, destroying value.

But we have targets for many of the projects, hurdle rates for many of the projects that are significantly, significantly higher. For M&A for instance, we look for about 15% returns. For some riskier profiles in some of our investments in emerging markets for instance, we require even higher hurdle rates.

And for some investment that we make which are relatively safe, that's like investing in equipment to – for a product that we know how to sell, we would require still above – well above our cost of capital for the lower hurdle rate. So it's not our aim to return our cost of capital.

It's our aim to return well above – the cost of capital is clearly the dividing point between creating and not creating value..

And I would say the difference between the actual current after-tax free cash flow and any estimate you or we make of what we can do in a steady state, that really does represent discretionary growth spending that we invest, with the belief that per Ernst's comment we would earn a return well above our costs to capital..

Well, I wasn't trying to attack – to downgrade what you've done over the last four years, I was trying to get you to elucidate why, to what degree you feel that the investments are making now have a higher or lower degree of likelihood of being successful given the nature of the investments you're making..

Yeah. And I think it's a fair question. If you think broadly about these groups, there are what we call these diverse others, and that's order of magnitude, about $175 million in cash flow reductions we had last year. And then we had another, about half of that, about $80 million last year that we invested in these major projects.

Now the first group, the diverse other, is a very large series of relatively small decisions. There's – a material chunk of that is LTV advertising where we can, based on almost actuarial levels of precision, look at the cash flows for large numbers of our cohorts. There's a test component which is always more volatile of that.

We also look at capital expenditures, technology investments. And there, I feel that it's pretty, with nothing's guaranteed in life, but it's a large basket of relatively small investments, and that that portfolio of diverse others is overall stable, and we feel comfortable that it will continue to return above our cost of capital.

The major organic investments are riskier, and they're bigger individually, not in aggregate. And there, I believe that it is something that – in the past, we've made some great investments, and we've made some less great investments or poor investments.

And the confidence we have in those major organic long-term investments comes from the fact that we look at them and say, we are seeing very strong traction and green shoots in areas like emerging markets in our platform, which is still in its very early days in the entry into the apparel and promotional products markets, which is growing very fast.

The – so each of those, at this stage, we've been doing these for more than a year, and we feel comfortable what we're seeing so far..

Okay. Thank you very much..

All right. Thank you..

Thank you....

Maybe we'll take one more question at most. I think we're getting a little close to the end..

And your next question comes from Victor Anthony at Axiom Capital. Please proceed..

Thanks. Maybe you could talk about the returns you're seeing on your brand-oriented TV advertisement that you launched in the U.S., and I think you also launched in the UK as well. Thanks..

I hope we can talk about that next week. Trynka is going to talk about our brand advertising next week, and we'll talk about how we see that and how we think about measuring that, so I hope we can talk about that next week.

But, broadly, the brand advertising is relatively new in our portfolio and is different compared to advertising we've done in the past, which was much more direct response with a direct offer. So the measurement is a little bit more indirect than we've done before, especially if you compare it to, for instance, doing a paid search.

And so – and it's also early days, so we look at some other metrics like where do we see surveys of willingness to try or likelihood to buy, and Trynka's going to talk about that next week..

Thank you..

Okay. Well....

Thank you..

I'd like to say thank you very much for joining us today. I know there may be more questions, but we are running a little long on time. So, as we've said a few times, we'll go into a lot more detail next week at our Investor Day in New York, which will also be available via webcast. So, we appreciate your time and attention today.

Operator?.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Good day..