Cimpress N.V. — Form 10-Q summary
Business context and period. Cimpress, formerly Vistaprint N.V., changed its name in November 2014 and trades as CMPR. It sells customized print and related products and digital services through Vistaprint and other brands. This report covers the three and six months ended December 31, 2014, the second quarter and first half of fiscal 2015. Figures below are in U.S. dollars; financial statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $439.9 million, up 19% reported; 23% constant currency | $773.8 million, up 20% reported; 22% constant currency |
| Operating income / margin | $59.9 million / 13.6%; prior-year margin 14.2% | $76.7 million / 9.9%; prior-year margin 9.4% |
| Net income attributable to Cimpress | $63.6 million; $1.89 diluted EPS | $87.3 million; $2.62 diluted EPS |
| Operating cash flow | $190.8 million for the six-month period, versus $94.9 million |
Quarterly cost of revenue rose to 35.6% of sales from 32.6%; first-half cost of revenue rose to 37.1% from 33.5%. Acquired businesses with lower gross margins contributed to the increase. Marketing and selling expense declined as a share of revenue, while technology and development expense also declined as a share. Quarterly operating margin narrowed, although first-half operating margin improved.
Revenue excluding acquisitions grew 7% constant currency in the quarter and 6% in the first half. Vistaprint revenue grew 3% and 5% reported, respectively; All Other Business Units revenue increased sharply, largely reflecting acquisitions. Those acquisitions contributed $54.1 million of quarterly and $96.0 million of first-half revenue.
Cash, debt and liquidity
- At December 31, cash and cash equivalents were $77.9 million and marketable securities were $8.6 million. Current assets were $179.1 million versus current liabilities of $295.9 million; management noted current liabilities continued to exceed current assets.
- Total debt was $346.9 million, down from $448.1 million at June 30, 2014. The company had $399.1 million available to borrow under its committed credit facility after covenant limitations, and was in compliance with its covenants.
- Six-month investing cash outflow was $65.5 million, including $35.0 million of property and equipment purchases, $23.0 million for acquisitions and investments, and $7.4 million of capitalized software development. Financing cash outflow was $103.3 million, including $243.3 million of debt repayments, partly offset by $139.5 million of borrowings.
- Operating cash flow included favorable working-capital movements, particularly higher accounts payable and accrued expenses. Cash increased $15.4 million over the half-year to $77.9 million.
Changes, outlook and notable items
- Reported results benefited from acquisitions and significant currency-related gains. Other income was $9.9 million for the quarter and $22.0 million for the half-year, compared with losses in the prior-year periods. Gains included currency-forward mark-to-market results and intercompany currency effects; the company cautioned that these can reverse or remain volatile. Management expected potentially significant currency losses in fiscal Q3, particularly related to Swiss franc movements, with no U.S.-dollar cash impact for the consolidated group from intercompany remeasurement.
- Management forecast fiscal 2015 capital expenditures of approximately $85–95 million, including about $20 million for a Japanese manufacturing facility and about $20 million for product-line expansion and new manufacturing capabilities. It said cash, operating cash flow and borrowing capacity should fund obligations and planned investment for the foreseeable future.
- Management forecast a lower fiscal 2015 effective tax rate than fiscal 2014, citing geographic earnings mix and tax benefits from a 2013 restructuring. It expected cash taxes to exceed tax expense in fiscal 2015. The six-month effective tax rate was 6.6%, versus 13.7% a year earlier.
- The Vistaprint business is undergoing a multi-year customer-value proposition transformation. Management cited improved repeat-customer activity, average order value and customer Net Promoter Score, but fewer orders, especially among price-sensitive customers; reduced discounting and advertising remain revenue headwinds in some markets.
- FotoKnudsen was acquired in July 2014; Cimpress also invested in Printi in Brazil and consolidated it as a variable-interest entity. The company recorded $21.2 million of contingent consideration for Printdeal and Pixartprinting; changes in estimated earn-outs increased expense. Acquisition-related amortization also rose.
- Tax matters remain a contingency: a federal IRS audit of Vistaprint Limited for 2007–2009 concluded with no additional tax, while a Massachusetts tax assessment dispute was being appealed. The company said final resolution of tax matters could materially affect results, financial position or cash flows. It reported no material legal proceedings.
- The company authorized repurchases of up to 6.4 million ordinary shares through May 12, 2016, subject to credit-agreement restrictions; none were repurchased in the quarter.
Important facts for investors to verify
- How much future revenue and earnings growth depends on acquisitions versus underlying constant-currency growth, particularly as Vistaprint’s order count remains under pressure.
- Whether operating margins recover as lower-margin acquired businesses are integrated and investments in customer service, product quality and manufacturing continue.
- The sustainability of earnings excluding currency gains, contingent-consideration revaluations, tax benefits and other unusual effects; also monitor the anticipated fiscal Q3 currency impact.
- Whether operating cash flow remains strong after seasonal working-capital benefits, and whether planned capital spending and acquisition activity affect debt and liquidity.
- Progress on the Massachusetts tax dispute, contingent acquisition payments, the Japanese facility and other material commitments; confirm covenant headroom and repurchase-program constraints.