Cimpress N.V. Form 10-Q Summary
Reporting period: Three and nine months ended March 31, 2015, the company’s fiscal 2015 third quarter. The request metadata says “2014 Q3,” but the filing itself covers 2015 Q3. Unless stated otherwise, amounts below are in U.S. dollars.
Business context
Cimpress aggregates customized print and related orders through online brands and produces them using automated manufacturing facilities. Its reportable segments are the Vistaprint Business Unit and All Other Business Units. The company changed its name from Vistaprint N.V. to Cimpress N.V. in November 2014.
Key financial results
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $339.9 million, up 19% | $1,113.7 million, up 19% |
| Income from operations | $4.3 million, versus $5.2 million | $81.1 million, versus $66.2 million |
| Net income attributable to Cimpress | $8.6 million, versus $1.4 million | $95.9 million, versus $42.7 million |
| Diluted earnings per share | $0.25, versus $0.04 | $2.85, versus $1.24 |
| Operating cash flow | Not separately stated for the quarter | $192.4 million, versus $98.0 million |
Reported revenue growth was 26% for the quarter and 23% for the nine months at constant currency; excluding acquisitions, constant-currency growth was 11% and 8%, respectively. The quarter’s operating margin was 1.3% versus 1.8%; the nine-month margin was 7.2% versus 7.1%. Cost of revenue rose to 36.9% of revenue for the quarter and 37.0% for the nine months, from 35.3% and 34.1%, respectively. Marketing expense declined as a share of revenue, while general and administrative expense increased.
Quarterly net income benefited materially from foreign-exchange and derivative gains. Other income was $8.3 million for the quarter and $30.3 million for the nine months, compared with a small loss and an $8.2 million loss in the respective prior-year periods. These gains included currency-forward gains and currency-related gains from intercompany activity; management cautioned that such results can be volatile.
Segments and material changes
- Vistaprint revenue rose 5% in both periods reported, to $280.6 million for the quarter and $908.5 million for nine months. Constant-currency growth was 11% and 8%.
- All Other Business Units revenue increased to $59.3 million for the quarter and $205.2 million for nine months, primarily reflecting acquisitions. Excluding acquisitions, constant-currency growth was 10% and 6%.
- Acquired businesses contributed lower gross margins but, according to management, lower marketing and selling costs. Acquired-business amortization and contingent consideration also increased expenses.
- Management cited improved customer retention and Net Promoter Score in the core business, alongside continued investment in product quality, software, customer service, and developing markets.
Cash, debt, and liquidity
- Cash and cash equivalents were $134.2 million at March 31, 2015, up from $62.5 million at June 30, 2014. Operating cash flow of $192.4 million was partly offset by $85.8 million of investing outflows and $23.1 million of financing outflows; foreign-exchange effects reduced cash by $11.8 million.
- Investing outflows included $50.1 million of property and equipment purchases, $23.0 million for acquisitions and investment, and $12.5 million of capitalized software and website development.
- Total debt was $430.5 million, including $275.0 million of 7% senior unsecured notes due 2022 and $155.5 million under the secured credit facility. The company reported $609.7 million available to borrow under that facility after stated covenant and other limitations, and said it was in compliance with its financial and other covenants.
- Current assets of $222.1 million were below current liabilities of $234.6 million. Management said available cash, operating cash flow, and borrowing capacity should be sufficient for liabilities and planned investments for the foreseeable future.
- Fiscal 2015 capital expenditures were expected to total approximately $80 million to $90 million. The filing does not provide clear numeric revenue or earnings guidance.
Outlook, transactions, and risks
- Management expected a lower fiscal 2015 annual effective tax rate than in fiscal 2014, but cash taxes were expected to exceed tax expense. The company cited tax uncertainty, including a Massachusetts assessment dispute; the estimated potential impact was not quantified.
- After quarter-end, Cimpress acquired 70% of French company Exagroup for approximately €91.3 million, subject to adjustment, and acquired Austrian company druck.at for €23.3 million. The remaining Exagroup shares are subject to put and call options. The filing says debt proceeds were used to finance the acquisitions.
- Contingent consideration for Printdeal and Pixartprinting generated $14.9 million of expense over nine months. The obligations totaled $17.9 million at March 31; management said amounts were no longer variable and expected no further fair-value adjustments before payment.
- Key risks include acquisition integration and financing, substantial indebtedness and restrictive covenants, currency and hedge-accounting volatility, seasonality, competition and pricing pressure, execution of the core-business transformation, global operating and supply-chain risks, and tax exposures. A 10% currency-rate movement sensitivity indicated a $19.0 million potential change in near-term pretax income for the three months ended March 31, 2015.
Important facts for investors to verify
- Separate underlying operating performance from currency and derivative gains, and assess whether core-business growth and margins continue to improve.
- Review acquisition contributions, integration progress, acquired-business profitability, and the financing and option terms for Exagroup and druck.at.
- Track debt service, covenant headroom, borrowing availability, and the impact of 7% notes and planned capital spending on liquidity.
- Monitor the Massachusetts tax dispute, other open tax examinations, and the timing and amount of contingent-consideration payments.
- Confirm actual fiscal 2015 capital expenditures and the trend in Vistaprint customer metrics and acquisition-excluded constant-currency growth.