PRSS 2017 Annual Report

35 Comparison of the Years Ended December 31, 2017 and December 31, 2016 The following table presents our statements of operations for the periods indicated: Year Ended December 31, 2017 2016 $ Change % Change (in thousands, except for percentages) Net revenue $ 85,685 $ 102,208 $ (16,523) (16)% Cost of net revenue 52,503 60,406 (7,903) (13) Gross profit 33,182 41,802 (8,620) (21) Operating expense: Sales and marketing 21,514 23,167 (1,653) (7) Technology and development 12,062 12,825 (763) (6) General and administrative 10,110 10,192 (82) (1) Impairment charges — 20,899 (20,899) (100) Restructuring costs — 2,103 (2,103) (100) Total operating expense 43,686 69,186 (25,500) (37) Loss from operations (10,504) (27,384) 16,880 62 Interest income 181 179 2 1 Interest expense (11) (66) 55 83 Other income 81 411 (330) (80) Loss before income taxes (10,253) (26,860) 16,607 62 Provision (benefit) for income taxes 4 (390) 394 U Net loss $ (10,257) $ (26,470) $ 16,213 61% U:> 100% unfavorable F:> 100% favorable Net Revenue Net revenue decreased $16.5 million, or 16%, in 2017 as compared to 2016. The change in revenue was driven by lower revenue from our CafePress.com domains which more than offset growth from our Retail Partner Channel. The decline in revenue from CafePress.com of $19.8 million, or 24%, was primarily driven by declines in visits and conversion from most traffic sources. We believe the reduction in traffic was driven by changes in search engine algorithms. Furthermore, there was one less sale day during the year ended December 31, 2017, and we experienced a decline in sales of political merchandise as 2016 benefited from the presidential election cycle. Within our Retail Partner Channel, revenue increased $3.3 million, or 16%, primarily as a result of higher order volumes from our retail partners driven by the continued merchandising expansion of our catalogs and to a lesser extent, by the contribution of the Walmart marketplace, which launched during the last half of 2017. Retail Partner Channel revenue was adversely impacted from the loss of a portion of content sold through one partner during the fourth quarter of 2017. Cost of Net Revenue Cost of net revenue decreased $7.9 million, or 13%, in 2017 compared to 2016. As a percentage of net revenue, cost of net revenue was 61.3% in 2017, compared to 59.1% in 2016. The cost of materials increased as a percentage of net revenue by approximately 1.5 percentage points primarily as a result of changes in product mix away from lower cost categories. In addition, the cost of shipping increased as a percentage of net revenue by approximately 0.5 percentage points, which was primarily attributed to an increase in the number of shipments through our Retail Partner Channel where the average number of units per order is much lower than that experienced on CafePress.com. This increase was partially offset by fewer shipping upgrades during our 2017 peak holiday season and free shipping promotions that occurred in 2016 but did not recur in 2017. Labor costs as a percentage of net revenue also increased by 0.5 percentage points as the decline in volume resulted in lower labor efficiencies in our plant operations. Plant overhead costs, including depreciation and amortization, declined as a percentage of net revenue by 0.2 percentage points driven by a reduction in our plant footprint. Finally, content commission costs also decreased as a percentage of net revenue by approximately 0.1 percentage points. An increase in revenue in 2017 from our internally produced content, which lowered