Robert S. Keane - President, CEO & Chairman-Management Board Ernst J. Teunissen - Chief Financial Officer & Executive Vice President, Cimpress NV Sean Quinn - Senior VP, Chief Financial & Accounting Officer Meredith Burns - Vice President, Investor Relations.

Youssef H. Squali - Cantor Fitzgerald Securities Paul Judd Bieber - Bank of America Merrill Lynch Brian P. Fitzgerald - Jefferies LLC Matthew C. Thornton - SunTrust Robinson Humphrey, Inc. Kevin M. Steinke - Barrington Research Associates, Inc. Andrew Marok - Cowen & Co. LLC Chris Merwin - Barclays Capital, Inc.

Victor Anthony - Axiom Capital Management, Inc. Randall Matthew Heck - Goodnow Investment Group LLC.

Good day, ladies and gentlemen, and welcome to Cimpress Fiscal Year 2016 First Quarter Q&A Earnings Conference Call. My name is Sandra, and I'm your operator today. This call is being hosted by Robert Keane, President and CEO; Sean Quinn, Senior Vice President and CFO; and Ernst Teunissen, Executive Vice President and former CFO.

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 in the Securities and Exchange Commission. Before we begin, I'd like to turn the call over to Robert Keane for opening remarks..

Thank you, Sandra. Hello, everyone, and thank you for joining us today. Before we begin the question-and-answer, I'd like to introduce Sean Quinn, who became Chief Financial Officer this past Monday.

And Sean has a very long track record of supporting me, Ernst and the audit committee over the past six years in his roles in Finance at Cimpress, and most recently, in his role as Chief Accounting Officer. Every one of us who has worked with him recognize Sean's abilities, and we really look forward to his leadership as CFO.

I'd also like to thank Ernst Teunissen who's here with us for his years of service to Cimpress in Finance, Corporate Strategy and in M&A. I truly value our working relationship and the significant contributions that Ernst has made to the business during that time. Now, Ernst would like to say a few words..

Yes. Thanks, Robert. This will be my last call with Cimpress before I take on my new role at TripAdvisor. I've truly enjoyed working here at Cimpress. It's an exciting and ambitious company with a great opportunity ahead of it and, importantly, a robust strategy to execute against this opportunity.

I want to thank you, Robert, and all of the Cimpress team members for an incredible journey during my time here. I have also enjoyed very much working with our investor and analyst community over the years. And I hope and trust our paths will cross again in the future. Now, I'll turn it over to Sean..

Great. Thanks, Ernst. This is my first public call with Cimpress. I've been working closely with Robert and Ernst and Meredith for six years, and we expect a smooth transition. I certainly look forward to working more directly with our investor community in my new role.

Given the recent evolution in some of our reporting, I thought it might be helpful to highlight some of the changes we've made before we take questions.

The first area I'd like to highlight is the change that, we think, should provide increased insight into our reportable segments, particularly the addition of our Upload and Print business unit segments, which should give investors a transparent view into how our newest acquisitions are performing.

In addition to our organic and constant currency revenue trends by segment, we also now provide adjusted net operating profit by reportable segment, which will help you see where we're increasing our investments year-over-year. We posted a guide to these and other reporting changes on our IR website, so I would encourage you to have a look at that.

I look forward to taking your questions in a minute, which I'll tag team with Robert, Ernst and Meredith. But I also look forward to meeting our investors and analysts this coming quarter. Robert and I plan to host an investor session at our office in Waltham next week. And we will webcast that discussion in case you'd like to listen in remotely.

Now, we're ready for the first question..

Thank you. Your first question comes from – apologies for the pronunciation – Youssef Squali, and he's from Cantor Fitzgerald. Please go ahead..

All right. Thank you very much. Good morning, guys. Youssef Squali. So, Sean and Ernst, congratulations to the both of you. Let me just start with – I have two questions.

The first, can you maybe just discuss the Amazon partnership? What does that entail and how significant can it be over time, Robert? And second, on the organic FX-neutral growth of 11%, that seems to have been flat now for the last three quarters, I believe. Can you help us maybe parse out growth this past quarter of Vistaprint U.S.

versus Europe? And just generally, how does that organic FX-neutral growth number accelerate from here, or does it? And if so, what would drive it? Is it the Vistaprint brand? Is it the Upload and Print, although that business probably is going to start decelerating? Just any kind of color into that would be very helpful. Thanks..

Okay. Youssef, well, as to your first question, we are testing an offering with Amazon. It's currently limited to just one product, which is business cards. It's only in the U.S., and we have a limited set of options. We do think it has exciting long-term potential.

But in the near-term, we do not expect it to have a material impact on our financial results. We certainly don't expect it to ramp fast enough to replace Staples' revenue in the near term, which we have mentioned that we expect to lose this year.

We do, over the long term, believe the strategy of going to market with multiple merchants, be it the ones we own ourselves and our own portfolio of brands, but also with partnerships including Amazon is the right strategy. So we think it's a good step for the long term. But in the near term, it won't have a material impact on our revenues.

I'll turn it over in a moment to Sean on some of the details on organic neutral growth net of FX, but I'd say that you highlighted some of the key points. We see the VBU, Vistaprint business unit, as a key driver of our growth and we feel that that is in a turnaround stage.

We aren't forecasting growth rates forward or predicting them, but we do say we hope at some point to bring that back to double-digit growth. And, again, there's a mix shift as we get into Upload and Print. Those are growing quite a bit faster. We agree with you, they won't forever stay at that rate.

Sean, do you want to break out some of the details between the various components?.

Yeah. Sure. So I guess I would start out by saying that our growth this quarter was consistent with some of the comments that we made back in July as far our expectation. You're right to point out, Youssef, that our organic constant currency growth is down slightly sequentially, and that's about a 2% decline.

It's worth pointing out that there was about $4 million of a one-off release of deferred revenue in Q4 last year that caused a little bit of a spike in Q4. So we see this 11% consistent with our expectation.

If you peel that apart, in the Vistaprint business, you saw 8% organic constant currency growth, again, consistent with the commentary that we made that we thought the Vistaprint business unit will remain in the single digits for the foreseeable future. But, as Robert said, we believe we can get back to double-digit growth.

And on the Upload and Print, you see organic constant currency growth of 31%, mostly driven by the fact that Pixartprinting and Printi are now included in those numbers and those are strong growers..

And within the Vistaprint brand, any color on U.S. versus Europe? Prior quarters would have shown that you guys were making nice stride in both. U.S. was growing low-double digits; Europe, mid-single digits..

Yeah. Sure. So, Youssef, we're not going to comment anymore on geographies broadly, but I'll call out a couple of things that will hopefully help you here. So we do in our Q and K disclose U.S. revenues, so let me call that out. In the U.S., the growth this quarter was 9%, so that's pretty consistent with the trend we've seen there.

In Canada, we continue to see strong growth rates consistent with the trend there as well. In Europe, there's a mix as you would have seen in our Investor Day materials in August where we called out some of the trends by country in Europe.

But just as an example, this is in Germany, our third consecutive quarter of constant currency growth there, where we had been seeing declining growth for two years..

Okay. Great. Thank you..

Thank you..

Thank you. Your next question comes from Paul Bieber from Bank of America Merrill Lynch. Please go ahead..

Good morning. Thank you for taking my questions and good luck, Ernst, with your new opportunity. I jumped on a little bit late, so I think Youssef touched on this question.

But why is the Vistaprint brand growth decelerating quarter-on-quarter if Staples is no longer in the VBU business unit? And it looks like the repeat bookings growth grew double digits and new customer bookings growth is positive. So, just trying to understand why the deceleration there.

And then, secondly, I was hoping that you'd just provide some color long-term and how we should think about the segment margins for each segment?.

Yeah. Sure. So, this is Sean. I'll comment on your first question. So you're right to point out that there is a deceleration in the organic constant currency growth for the Vistaprint business, and you're also right to point out that that's not related to Staples.

So, as part of our segment changes this quarter, the Staples retail business along with our other retail business has been included in what we call our all other business units as part of a new business unit for our corporate solutions.

So, really the real driver there, we see the organic constant currency revenue growth this quarter very consistent with the trends that we saw towards the end of last year. But the real thing to note there is in Q4, we had about $4 million of deferred revenue release from our group buying partners.

And that was a one-time item, that was non-cash that if you take that out, you'll see that the sequential growth is actually consistent in Q4 to Q1..

And then the second question was on longer-term margins of the segment, which we're not giving specific guidance on.

But generally speaking, what we've said there is that, absent major long-term investments that we're making in this business, absent some of the diverse other organic investments that we're making in the business, the trend is positive.

We saw in – of the three segments this last quarter, one of the segments had a year-over-year margin improvement that was the Upload and Print segment.

That one, as we integrate the acquisitions and as they start to take advantage of our mass customization platform capability-by-capability, over time we think that there is some opportunity there to improve the margin.

I guess the other thing that I would say there too is, when you think about the relative margins of those businesses, there are some imperfections in how we look at that. So you see the profitability of the Vistaprint business unit is obviously the highest there.

That's partly because it had strong profitability, but also partly because there are some unallocated expenses that remain in that corporate and mass customization platform bucket that would be in the Upload and Print segment..

Okay. Thank you..

Thank you. Your next question comes from Brian Fitzgerald, Jefferies. Please go ahead..

Thanks, guys. A couple of questions. Maybe quickly as a follow-up to Youssef's question. You mentioned the Amazon relationship is starting with business cards. What's the potential for expanding the product lines there? They do store a lot of consumer images because they expand them to an album printing type of relationship.

And then the second one is, with the Q1 acquisitions of Tradeprint and Pixartprinting supplier, how are you seeing the landscape now out there and what's the temper or cadence for acquisitions? Any change to your thoughts around that? Thanks..

Great. Brian, as it relates to Amazon, we don't want to comment on future opportunities there probably for confidentiality reasons, partly because they really are dependent on the success of how we deal on this first test. But clearly, they have the capability to be a large partner if things go well for both parties.

But beyond that, I wouldn't want to provide any more specific forecast. As it relates to acquisitions, we continue to see M&A as a viable use of our capital. It's certainly not the only use. We look at a lot of other internal organic investments, share buybacks and the like. We are maintaining quite a bit of rigor on the deals that we are looking at.

We're looking at many more deals than we actually ever executed on. And so they're going to be somewhat sporadic, but we do feel that there are opportunities out there of interest..

Great. Thanks, Robert, and congratulations to Sean and Ernst..

Thanks very much, Brian..

Thank you..

Thank you. Your next question comes from Robert Peck from SunTrust. Please go ahead..

Hey. Good morning. It's actually Matt in for Bob. Good morning, Robert. Welcome to the new role, Sean, and congratulations. And, Ernst, congratulations to you as well and look forward to working with you over at TripAdvisor in the coming weeks and months. Couple of housekeeping questions if I could, and then maybe one bigger picture.

First, I think you guys did a couple of small tuck-in type acquisitions in the quarter, Tradeprint and a small supplier to Pixart. Wondering if you can kind of quantify the contribution there in the quarter.

And then, similarly, the fire at the production facility that you called out in the prepared remarks, wondering if, again, you can quantify that impact in the first quarter and then kind of what you're expecting in terms of cumulative forward insurance recoveries. And then I'll come back with my follow-up. Thanks..

Sure. Thanks, Matt. It's Sean. So we haven't disclosed the terms of the two acquisitions. But I guess it's fair to say that as far as our Q1 results, they had immaterial impact. Yeah, I would say although we haven't disclosed the terms, you can see on our cash flow the net cash that we spent which was about $23 million for the two.

So, on the fire, good question. We mentioned this in the release and some of our other materials. Let me just start out by maybe describing what happened.

So this is a fire that happened fairly early in the quarter in our Venlo production facility and resulted in the loss of a piece of equipment, some significant cleanup charges, some lost inventory, and a disruption in the business that required us to fulfill many of our European customer orders through our production facilities or outsourced suppliers for a few days while we stopped production in Venlo to clean up.

First and foremost, one of the things that's most important to us is that our team members are all safe and healthy. We take that incredibly seriously. The other thing is that the team at Venlo just did an unbelievable job here recovering in what was a tough situation. So let me get into some of the numbers, which was at the spirit of your question.

So, to-date, we've received some of our insurance recovery payments that offset a lot of the actual cost that we incurred, so cleaning and lost inventory. Some of the business interruption is still being worked out with the insurance company, as you might imagine. So you'll see a couple of things this quarter in the P&L.

One is we received some of the recoveries of the cost that we incurred. Where we did receive them, that's offset against where those costs actually showed up, so mostly in COGS. There is a net few million dollars of cost that we haven't yet recovered that comes through COGS, so that's a drag in Q1.

For our equipment that was damaged, we did receive recovery on that, which was a little over $2 million. And because that's in excess of the net book value of the equipment, you do see a gain of about $1.6 million that's below the line in Q1. So we continue to work with our insurance company on this.

These things are obviously, as far as business disruption goes, are somewhat difficult to estimate. But at this time, we would expect that we'll be able to recover at least a couple million dollars that would come in, in the balance of the fiscal year, and when it does, would offset some of that COGS drag that I mentioned in Q1..

All right. That's helpful. Appreciate the color there. And then maybe one bigger picture one, Robert. Now that you're a little bit into the investment cycle here, I was wondering if you have any sense as to whether you expect 2015 to kind of be the peak – or I'm sorry, fiscal 2016 to the peak investment year in this investment cycle. Thanks, guys..

We certainly don't want to get into forecasting investment beyond this fiscal year. We went into a lot of detail as you know in the August Investor Day, and we'll certainly do so again next year, but I don't want to comment on the time beyond that..

I will say generally speaking that, because our philosophy is to allocate capital to the things that we think are going to drive long-term cash flows for the business and maximize that intrinsic value per share of the company, that it's likely given normal constraints that we have from a bandwidth perspective and from a capital perspective, with the debt covenant and our desire to sort of be in the comfort zone there, that you will probably end up seeing this fluctuate from year-to-year because we're not trying to optimize the margins or the absolute profits.

And so, that's more of an outcome of what the approach actually is..

Yeah. I fully agree with that. What we're looking to do is to deploy capital well above our cost of capital..

Great. Thanks. I'll jump back in the queue. Thanks, guys..

Thank you..

Thanks, Matt..

Thank you. We have another question for you, and apologies for the pronunciation, this one's from Kevin Steinke, and he's from Barrington Research. Please go ahead..

Good morning, everyone. So I wanted to ask you about the new customer bookings within the Vistaprint unit growing at single-digit rates over the last – in recently anyway. Just wanted to get a little bit more under the hood what's driving that and if you expect continued improvement in growth in new customer bookings..

Sure, Kevin.

So, basically, what we're seeing with new customer bookings is very similar to what we're seeing in general with the Vistaprint business unit, which is that our revenue growth is coming much more from an increase in customer value and the type of customers that we're bringing in the door, versus an absolute number of customers coming in the door.

And so, for a period of time, as we were making these major changes in the Vistaprint brand and the value proposition, we actually were seeing new customer bookings in decline. And that was because we were narrowing that funnel and we were getting many fewer customers in the door.

And so we are actually encouraged that as we lap some of these major changes that, at least, the bookings growth is turning positive, though the absolute customer number is not there yet..

Okay. Yeah. Maybe a follow-up to that and just wondering, I guess that you're not as focused on the customer numbers now and you're not going to give those anymore. Just kind of the rationale for not giving the customer numbers or bookings for customer going forward..

Yeah. In terms of the set of metrics that we're providing, we're providing metrics that are much more aligned with the way that the Vistaprint business unit looks at their performance. And we'll continue to get color commentary on some of the other areas.

But when we sit down and talk to them about performance during a period of time, they would look at how are new bookings growing in a specific country, how are repeat bookings growing in a specific country.

And so we'll continue to give that number, give you color commentary on the growth rates, and then give you other color commentary on anything that we see that we feel needs to be called out..

Yeah. And I would just reiterate what Meredith said in a different way, which is we're trying to show to our investors what I, the board, and our management team talk about when we make business decisions.

Some of these metrics which were reminiscent of the days after we went public, we just are not using, on a regular basis, at the senior most levels of the company. So we don't think – since we're not trying to manage those, that we should be presenting those out publicly..

All right. That makes sense. Just any update on, perhaps, launching Upload and Print in the U.S.? My understanding is that there are fewer acquisition opportunities in that space in the U.S.

But given that it's going well in Europe, I mean, what are your thoughts on potentially expanding that in the U.S.?.

Yeah. Right now, we don't have anything to announce. We believe that, one, as – the Vistaprint brand is very strong in the U.S. and we think there's opportunity to use that strongly. We also see the near-term focus as the acquisitions we've made in Europe.

Longer-term, we do see opportunity in North America for that model, but it's certainly not something we're ready to talk about now..

All right. Well, thanks for taking my questions. And good luck to you, Ernst, and look forward to working with you going forward, Sean. Thanks..

Likewise, Kevin. Thank you..

Thank you. We have another question for you and this one is from Andrew Marok from Cowen & Company. Please go ahead..

Hi. This is Andrew on for Kevin Kopelman. Just had a question on the advertising and commissions expense. It looks like it grew slightly slower than revenue in the quarter. Can you talk about how you felt ROIs were in the quarter and how you're thinking about that going forward? Thank you..

Yeah. Sure, Andrew. So, first, let me just comment on the first part of that. So advertising spend year-on-year was actually flat. It was 19% last year Q1 in the same this time around. Now, underneath that, there are some shifts.

So, just like you see shifts in our gross margin because of the mix change from Upload and Print, which is more dominant this quarter than it was a year ago quarter, you might expect that you would see the opposite trends within advertising as a percentage of revenue because there are structural differences in sort of the Upload and Print P&L model.

And that didn't happen this quarter and that's because you also see that, for the Vistaprint business unit, advertising as a percentage of revenue actually went up from 22% last year to 24%. And that's a percentage that we may see fluctuate over time.

We don't target specific percentage there and we'll continue to invest where we think that the returns are justified..

And I would say specifically to that last comment that Sean made, we thought the ROIs were strong and against the cost of customer acquisition relative to the cash flows we expect from a cohort. And this quarter, one of the things we've been doing is investing in advertising related to product expansion a little bit beyond the business card area.

And that type of product, combined with the general shift in the quality of our customers, that is the inverse of the prior question we had on the reduced number of new customers, we actually see the ROIs as being very strong for the advertising we're doing right now..

All right. Great. Thanks for the color..

Thanks, Andrew..

Thank you. We have another question for you. This one's from Chris Merwin, Barclays. Please go ahead..

All right. Great. Thank you. So I just had a follow-up on the last question, just about margins in general. Looks like gross margins compressed by more than operating margins in the quarter. So there's actually operating leverage in OpEx year-on-year despite the investments in OpEx that you talked about at the Analyst Day.

Is there any way you can quantify the dollar amount of the investments that you made in the quarter and what the offsets were that caused that leverage other than the lower marketing spend for the acquired businesses? And just generally, how should we be thinking about the cadence of the $25 million in investments throughout the year? And then, just one last question, obviously, with gross margin, as I mentioned that came in a bit lower, but just wondering if that's more seasonality than anything else and really how we should be thinking about gross margin trending throughout the year now that you have a number of acquired businesses that are affecting that in new ways, and I just want to make sure we have that sought out correctly as we model out the year.

Thanks..

Sure. Thanks, Chris. And there are a couple of pieces to your question. Let me try and address all of them, and if I don't, just let me know what I haven't addressed. So, to start out, gross margin. So you're right to say that gross margin has compressed year-on-year. There are really two factors that you should think about there.

One is the mix shift that I mentioned into Upload and Print. And so, if you look at last year, and you can see this in the breakout by segment, the Vistaprint business unit was about 78% of our total revenue last year in Q1. And this year, it's I think a little under 71%.

And so, that shift towards Upload and Print will lead to compression in the margin and gross margin. And as I said to one of the prior questions, you might expect that you'll get some leverage at the advertising line.

But this quarter, that's not the case because we actually accelerated some of our advertising spend as a percentage of revenue in the Vistaprint business. So, that's an overall dynamic that you should be aware of. The other thing is that the Venlo fire that we mentioned did have some drag on margin this quarter.

And we expect, if we're successful in getting the recoveries that I talked about, then that will come back later this year.

From an OpEx perspective, and maybe to your sort of broader question about investments, so back in July, both the Robert's letter to shareholders as well as our earning materials, and then, again in August at our Investor Day, we talked about two buckets of investments that we expected to make throughout fiscal 2016.

The first one was what we call diverse other organic long-term investments that included things like advertising and product expansion. And we said that at least on a NOPAT basis that we expected that would grow roughly in line with revenue. And we still expect that to be the case. We made good progress against that in Q1.

And so we would say we're sort of on track there. The other category was our major organic long-term investments, and I think this is what you were referring to. On a NOPAT basis, we had said that that would be a drag of about $30 million for the full year. And here too we made good progress in Q1.

We're still on track with our expectations for the full year. We're not going to give specific commentary on how that $30 million breaks down quarter-to-quarter, but I think it's fair to say that part of that $30 million certainly impacted Q1. But we're just not going to give detailed commentary on how that spend breaks up quarter-by-quarter..

Okay. Thanks. And just I guess to follow up, so I mean if you're investing the $30 million incrementally and we're seeing leverage in the OpEx line, does that just mean that the sort of the organic leverage is significantly greater? I mean, because you did get some nice leverage out of all of OpEx year-on-year..

So the $30 million was not a holistic number. That was only for certain investments. And so the thing that we did not provide guidance on at the beginning of the year was that holistic number.

And so what we did today was that we did expect in the Vistaprint business unit, absent some specific investments, and certainly in the Upload and Print businesses, that we expected those profits to grow in this fiscal year as well. And so we would expect to see some offset. We didn't say how much..

And, Chris, I think as Meredith said, I think Upload and Print is really the area to focus on. So you do see increased profits from Upload and Print and that's where some of that OpEx margin leverage comes in in Q1..

The OpEx in the Upload and Print business is structurally lower than in the Vistaprint business. And so, as we do that shift, it's just like you see in the advertising reduction, it shows up as favorable..

Okay. That makes sense. Thanks a lot. And congrats, again, to Sean and Ernst. I look forward to working with both of you in your respective roles..

Thank you..

Thanks a lot, Chris..

Thank you. We have another question for you. This one is from Victor Anthony from Axiom Capital. Please go ahead..

Yeah. Thanks. Just a follow-up to few of the questions that have been asked.

Well, when I look at the commentary on new customer growth growing slower than repeat bookings and then I look at the fact that television advertising campaign has been launched over the past several months, I would expect that the new customer growth would have accelerated, but it hasn't happened.

So maybe you could help me understand the return on that television ad spend.

And second, Robert, maybe you could just talk holistically or in general, how do you plan to get to a double-digit growth to support Vistaprint brand?.

Sure. So, in terms of new customer growth and the return on advertising via television or otherwise, we don't measure the success of that on a number of customers acquired.

We measure the success of that on a classic DCF analysis of the total cash flows from the entire cohort relative to the cost of acquiring the customers, whatever number of customers that is. And we've seen increasingly valuable customers coming in.

Meredith mentioned that we are seeing a decrease of the breadth of the funnel at the top of the customer acquisition process because we are not doing anywhere near the type of deep discounting and free and other types of promotional advertising which drives a lot of customers, but customers who have a lower long-term cash flow per customer or even near-term cash flow per customer.

So, the returns on the advertising, I mentioned in a response to a prior question, we see as quite favorable. And that's why we are seeing a trend up in advertising as a percentage of revenues in the Vistaprint business unit because of those positive cohorts. Now, your second question was – could you just repeat that again? I'm sorry, everybody..

Yeah.

Just the commentary about hopefully getting to double-digit growth rate in the core Vistaprint brand, just how do you plan to achieve that?.

Okay. That's where we certainly aspire to get back to and that we believe, in the end, it's going to be driven by higher revenues and, importantly, higher gross profit per customer, which then will justify more spend on a marketing perspective relative to that cash flow.

But it really is the shift towards the segment we call higher expectations, which is already an important part of our business, which is growing as we expected. But we have to continue that over the next several quarters and several years.

You see those higher expectations, customers driving higher cash flows, partly from just higher loyalty and higher satisfaction, but also because we are seeing strong growth in other types of products.

If you look at some of our new product categories like marketing materials or the like, we're going beyond business cards and that is helping drive that cash flow per customer. In the end, we do expect and hope that we can grow new customers, but we're starting with the per customer economics as step one..

I guess one other thing that I would add, Vic, is that we are increasingly thinking about our advertising mix in the Vistaprint business unit as more holistic than just about acquiring new customers. So, Robert mentioned earlier, we did some advertising this quarter that was really about product category expansion.

It was this beyond business cards thing. And for us, that often is equally successful, if not more so, with a repeat customer to reinforce with them that we're more than just business cards than it can be with a new customer.

And so that – as we think about the returns on our advertising, we want to take that into consideration as well, and the repeat rates have been strong and we hope we can continue to execute on that path..

Okay. Thank you..

Thank you. We have another question for you. This one's from Randy Heck from Goodnow Investment Group. Please go ahead..

Thanks for taking the question. I had a question on Amazon, but I think you've answered that question to the extent you want to answer it. The other question I had was on spending $140 million to buy back 2 million shares.

Robert, could you – the answer to this is probably pretty obvious, but can you discuss the thought process of buying back stock in lieu of the M&A opportunities out there, the CapEx opportunities, in terms of how this all plays into the goal of maximizing intrinsic value? And, Sean, good luck. And Ernst, good luck, and I'll see you soon..

Thank you..

Thanks, Randy..

So, Randy, as I think you're alluding to, we see share buyback as a major part of our capital allocation choice set. At the highest level, in FY 2008, we ended up with, that was seven years ago, 46 million shares. Today we have – we ended up last fiscal year with less than 34 million shares.

And over that same timeframe, our free cash flow and what we perceive to be our discounted cash flow to the future has grown substantially. So, in the end, what really matters from our intrinsic value per share calculation is the per share calculation.

And so, when we see opportunities to deploy capital, certainly we look at organic investments, and we've talked a lot about that in the most recent Investor Day and a few points were brought up on that today on the call. We've done a number of M&A. We certainly expect to do that.

But we really do like share buybacks when we believe we're below our intrinsic value per share because the execution risk is de minimis compared to a acquisition and it's certainly lower even then internal organic investment. And we feel that when we have that cash flow, we should certainly have that in one of the choices where we make investments.

I'd say the other thing is that, as much as we like capital investment and capital deployment into organic operations, we do have debt covenants which we have to follow. And so there are limits on the amount of investment we do from a margin perspective, and that does mean we have cash flow available for other purposes such as share buybacks..

Okay. Thank you very much..

Thank you. We have another question for you, and this one's from Robert Peck from SunTrust. Please go ahead..

Yeah. Hey. A couple of follow-ups, if I could. It's Matt again for Bob. I think in the prepared remarks, you alluded to Albumprinter profits being down a little like year-on-year. Can you remind us what's the headwind there again? I'm probably forgetting.

And then also I'd be very interested to hear, Robert, maybe kind of what you're seeing out there from a macro standpoint, where things may be perhaps a little weaker than they have been in previous quarters versus stronger in previous quarters. So any color there on the macro would be very helpful. Thanks, guys..

Yeah. Sure, Matt. So I'll take the first question and then I'll turn it over to Robert. So, for Albumprinter, in their direct-to-consumer business, we saw a good price growth and strong customer retention, but the drag that you mentioned is because their relationship with the retail partner is winding down throughout the year.

And so, that is a little bit of a drag year-on-year..

And for the macro environment, we remain optimistic. We see there's a secular shift online which we are certainly a leader in. And even in tough economic times, be it the 2008 world financial crisis or currently in Europe, we see that if we are there with the right business model and value proposition, we can have material growth.

So there is nothing in the macroeconomic world that we see as even a yellow flashing light. We believe that the opportunities we have are controlled by the things we do internally. Okay.

Sandra?.

We have no more questions for you..

Okay. Well, thank you all for joining us today. We are working towards our objectives to be, first, the world leader in mass customization and very importantly, secondly, to maximize our intrinsic value per share.

We are at an exciting time in our history as we are going and driving towards a much broader market opportunity via multiple brands, who would tap into this shared mass customization platform which we are building.

This is a long-term path, but we are pleased with the results of the first quarter this year as a very solid first step – or next step along that path. Thank you very much for your time. Have a good day..

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day..