PRSS 2017 Annual Report

36 commission expense was partially offset by the establishment of a commission forfeiture program for inactive shopkeepers in the prior year that resulted in a one-time reduction in commission expense during 2016 of $0.4 million. On a per unit basis, excluding the impact of the one-time reduction in commission expense in 2016, total cost of net revenue was $10.98, which is approximately 4% higher than the prior year. The 5% decline in average order size also negatively impacted our cost of net revenue as a percentage of net revenue. Sales and Marketing Sales and marketing expense decreased $1.7 million, or 7%, in 2017 compared to 2016. Sales and marketing expense was 25.1% of net revenue in 2017 compared to 22.7% in 2016. The decrease in absolute dollars in sales and marketing expense consisted of a $1.6 million decline in fixed expenses and a $0.1 million decrease in variable expenses. Lower fixed costs were primarily driven by reductions in personnel-related costs associated with the 2016 closure of our California office as well as expense reductions from outside agencies. Cafepress.com variable costs decreased $1.1 million as a decrease in credit card fees and customer service expense were partially offset by higher paid search advertising costs. Retail Partner Channel variable expenses increased $1.0 million from an increase in platform fees and advertising of $0.7 million and $0.3 million, respectively. Technology and Development Technology and development expense decreased $0.8 million, or 6%, in 2017 compared to 2016. Technology and development expense was 14.1% of net revenue in 2017 compared to 12.5% in 2016. Personnel-related, consulting, recruiting and other technology infrastructure costs declined $1.6 million primarily from the 2016 closure of our California office. Partially offsetting this decline was an increase of $0.8 million in depreciation expense. General and Administrative General and administrative expense decreased $0.1 million, or 1%, in 2017 compared to 2016. General and administrative expense was 11.8% of net revenues in 2017 compared to 10.0% in 2016. Personnel-related costs and rent costs decreased $0.6 million, partially driven by the closure of our California office. In addition, professional service fees decreased $0.5 million primarily due to a reduction in legal fees. Finally, insurance expense declined $0.1 million as we experienced favorable insurance renewals during the last half of 2017. These decreases were partially offset by an increase of $0.4 million in stock compensation expense and one-time expense reductions of $0.7 million in the prior year. One-time items in 2016 reflected a decrease of other taxes of $0.4 million as we had a reduction in sales and use tax liabilities during 2016 as well as a decrease of corporate expenses of $0.3 million as penalties and interest recorded for escheatment issues during 2015 were favorably reversed in 2016. Impairment Charges Impairment charges decreased $20.9 million in 2017 as compared to 2016 as the prior year expense consisted of a non-cash charge related to the impairment of goodwill. Restructuring Costs Restructuring costs decreased $2.1 million in 2017 as compared to 2016 as the prior year expense consisted of severance charges of $1.8 million and a charge of $0.3 million for the abandonment of our office space in Hayward, California, which represented the net present value of the remaining minimum lease payments less expected sub-lease proceeds. Other Income Other income decreased $0.3 million in 2017 as compared to 2016 as the prior year consisted primarily of one-time commission forfeiture income due to the write-off of outstanding shopkeeper checks that did not qualify for escheatment. Provision (Benefit) for Income Taxes We recorded a $0.4 million benefit for income taxes during 2016. Our effective tax rate was a 1.5% benefit in 2016. For 2016, the effective tax rate was different than our statutory rate primarily due to the net loss while maintaining a valuation allowance against substantially all of our deferred tax assets and the tax impact of the goodwill impairment.