Cimpress N.V. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2015; comparative periods ended December 31, 2014. Amounts below are in U.S. dollars.
Business context and performance
Cimpress operates an online mass-customization business selling printed products, signage, apparel and related services through Vistaprint and acquired brands. Fiscal 2016 reporting segments are Vistaprint, Upload and Print, and All Other Business Units.
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $496.3 million, up 13% | $872.0 million, up 13% |
| Constant-currency revenue growth | 20%; 10% excluding acquisitions | 21%; 10% excluding acquisitions |
| Operating income | $67.6 million, up $7.7 million | $79.7 million, up $2.9 million |
| Net income attributable to Cimpress | $58.4 million, versus $63.6 million | $68.4 million, versus $87.3 million |
| Diluted EPS | $1.80, versus $1.89 | $2.07, versus $2.62 |
| Adjusted NOPAT, a non-GAAP measure | $82.5 million, versus $67.1 million | $98.9 million, versus $89.7 million |
Margins, cash flow, debt and liquidity
- Gross margin was 60.2% for the quarter (versus 64.4%) and 59.3% year to date (versus 62.9%). Management attributed the decline mainly to acquired Upload and Print businesses, which have lower gross margins. Operating margin was 13.6% for the quarter (unchanged) and 9.1% year to date (versus 9.9%).
- Operating cash flow was $159.7 million for the six months, down from $190.8 million. Investing cash outflow was $79.2 million and financing cash outflow was $108.6 million. Cash fell $30.4 million to $73.2 million.
- At December 31, current assets were $197.4 million and current liabilities $340.0 million, a $142.6 million working-capital deficit. Management stated available cash, operating cash flow and committed borrowing capacity should cover liabilities and planned investments for the foreseeable future.
- Debt, excluding issuance costs and discounts, was $555.9 million; reported debt net of those items was $547.7 million. This included $275.0 million of 7.0% senior notes due 2022 and $271.6 million under the secured credit facility. The company reported $564.7 million available under that facility and compliance with debt covenants.
- Interest expense, net, rose to $10.2 million for the quarter and $18.3 million year to date, primarily following the senior-note issuance and commencement of Waltham facility lease costs. A 100-basis-point rate increase was estimated to add about $1.5 million of interest expense over 12 months, after swaps.
Material changes and unusual items
- Upload and Print revenue more than doubled in the quarter, with acquisitions contributing $42.9 million; constant-currency growth excluding acquisitions was 31%. Vistaprint revenue increased 3% reported and 8% constant currency. All Other revenue declined 4% reported, with 8% constant-currency growth.
- The company acquired Tradeprint and Litotipografia Alcione in the first quarter for aggregate consideration of $25.4 million, net of cash acquired. Acquired businesses and amortization increased costs.
- A fire at the Venlo production facility generated $9.7 million of insurance cash receipts during the six months. The company recognized $2.0 million as a reduction of quarterly cost of revenue and a $1.5 million gain in quarterly other income. It expected to finalize the claim by fiscal year-end.
- A $3.0 million manufacturing-equipment abandonment charge was recorded in cost of revenue. Share repurchases totaled $142.2 million during the six months; 2.0 million shares were repurchased in that period.
- On December 18, 2015, Cimpress agreed to acquire WIRmachenDRUCK for approximately €140 million, including €132 million cash and €8 million in shares, plus a potential earn-out of up to €40 million. The company expected closing in February 2016 and planned to use debt financing.
- Currency translation reduced comprehensive income: foreign-currency translation loss, net of hedges, was $24.1 million for the six months. Currency and derivative gains also contributed materially to other income, which was lower year over year.
Outlook, risks and contingencies
No specific full-year revenue or earnings guidance was provided. Management described planned fiscal 2016 capital allocation across platform and technology investments, product and capacity expansion, advertising and employees, acquisitions, share purchases and debt reduction. It said investment returns and business performance may fluctuate, particularly because the second fiscal quarter is seasonally important.
Key risks include acquisition integration and execution, competitive and pricing pressure, customer acquisition and retention, foreign-exchange and interest-rate volatility, seasonal production demands, operational interruption, and the company’s substantial debt and restrictive covenants. Management cited revenue weakness in some European markets and ongoing investment in customer-value improvements. Current liabilities exceeded current assets, although management believed liquidity was adequate. The filing reported no material legal proceedings; tax audits and uncertain tax positions remain subject to final resolution and could affect results or cash flows.
Important facts for investors to verify
- Whether acquired-brand growth, especially Upload and Print, translates into sustained profitability despite lower gross margins and higher amortization.
- How much of reported operating performance and cash flow depends on seasonality, insurance recoveries, currency gains, and working-capital timing.
- The funding, closing conditions, earn-out exposure and integration progress for the WIRmachenDRUCK acquisition, and its effect on leverage and covenant headroom.
- Whether operating cash generation can support planned investments, debt service and any future repurchases given the working-capital deficit and contractual commitments.
- Whether Vistaprint’s customer-value initiatives improve retention and growth in weaker European markets without further margin pressure.