PRSS 2017 Annual Report

30 In 2017, we accomplished the following: • We continued to streamline our current website which involved refreshing stale content, updating XML sitemaps and cleaning up link architecture, all which will serve to enhance crawlability for search engines. • We added new products to our merchandising assortment including drinkware, phone cases, and bedding and launched new apparel products, including t-shirts featuring tri-blend fabrics and comfort colors. • We addedWalmart.comto our Retail Partner Channel and expanded ourAmazon partner channel into domains inGermany, Italy, France and Spain. • We implemented a $1.5 million garment printing platform upgrade which improved efficiencies and created additional production capacity. As we enter 2018, our strategy will be focused on the following: • Rebuild the User Experience - During 2018,we plan to complete our website rebuild with the demolition of the old website and modernization of the new CafePress.com website. We will upgrade to a fully encrypted HTTPS site and release new search, product detail, cart and checkout pages. We believe the new website will result in higher traffic, conversion and revenue from search engine optimization channels. • Retail Partner Channel Expansion - We intend to support growth in our Retail Partner Channel by further expanding into new marketplaces and geographies, focusing on product discoverability and an enhanced customer experience that includes detailed product descriptions, photographs, reviews and refined pricing and promotions. During 2018, we will expand further with Amazon into their Australian domain. • Third-Party Printing and Fulfillment - We believe we can leverage our manufacturing platform and excess capacity to enter into new fulfillment agreements with other third-party consumer-facing, on-demand, custom product providers. We are focused on acquiring new customers to generate additional revenue for CafePress. As a result of these changes, in January of 2018, as part of a cost reduction initiative, we reduced headcount by approximately 5%. Basis of presentation Net Revenue We generate revenue from online transactions through CafePress.com and our Retail Partner Channel. We recognize revenue associated with an order when all revenue recognition criteria have been met. Revenue is recorded at the gross amount when we are the primary obligor in a transaction, are subject to inventory and credit risk and have latitude in establishing prices and selecting suppliers. For transactions wherewe act as principal and record revenue on a gross basis, applicable royalty payments to our content owners are recorded in cost of net revenue. Cost of Net Revenue Cost of net revenue includes materials, labor, royalties, depreciation and other fixed overhead costs related to our manufacturing facilities, as well as outbound shipping and handling costs. The cost of materials may vary based on revenue as well as the price we are able to negotiate. Shipping fluctuates with volume as well as the method of shipping and fuel surcharges. Labor varies primarily by volume and product mix, and to a lesser extent, based on whether the employee is an hourly or a salary employee. We rely on temporary employees to augment our permanent staff particularly during periods of peak demand. Our royalty expense is comprised of fees we pay to our content owners for the use of their content on our products. Additionally, we pay commissions to shopkeepers for the use of their content on our products. Such fees vary based primarily on sales channel and volume. Royalty- based obligations and commissions are expensed to cost of net revenue at the contractual rate for the relevant product sales. Operating Expense Operating expense consists of sales and marketing, technology and development, general and administrative expense, impairment charges and restructuring costs. Sales and Marketing