Cimpress N.V. — FY2017 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2017. The filing is an FY2017 annual report, not a 2016 Q4 report; it also reports fourth-quarter results separately. Cimpress aggregates customized print, signage, apparel and related orders through online brands, including Vistaprint, and owned and third-party fulfillment. Its strategy emphasizes decentralized businesses and investment in a shared mass-customization platform.
Key financial results
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $2,135.4 million | $1,788.0 million |
| Revenue growth | 19% reported; 21% constant currency; 8% constant currency excluding recent acquisitions | 20% reported |
| Operating income (loss) | $(45.7) million | $78.2 million |
| Net income (loss) attributable to Cimpress | $(71.7) million; $(2.29) per diluted share | $54.3 million; $1.64 per diluted share |
| Adjusted NOPAT, non-GAAP | $64.6 million | $139.8 million |
| Cash from operating activities | $156.7 million | $247.4 million |
| Capital expenditures | $74.2 million | $80.4 million |
| Cash and cash equivalents at year-end | $25.7 million | $77.4 million |
| Total debt, before debt issuance costs and discounts | $882.6 million | $685.9 million |
| Working capital | $(203.5) million | $(135.1) million |
Cost of revenue increased to 48.6% of revenue from 43.3%, reducing the corresponding gross margin to 51.4% from 56.7%. Operating cash flow less capital expenditures was approximately $82.6 million, versus $166.9 million in FY2016. Year-end cash was $25.7 million on the balance sheet; management separately cited $37.7 million including cash classified as held for sale.
Changes, segments and unusual items
- Reported revenue rose 19%, primarily reflecting acquired WIRmachenDRUCK and National Pen businesses as well as growth in Vistaprint and established Upload and Print businesses. Constant-currency growth excluding recent acquisitions was 8%.
- Vistaprint revenue grew 7% to $1,305.3 million, while adjusted net operating profit fell 22% to $165.2 million. Upload and Print revenue rose 36% to $588.6 million and adjusted profit rose 9% to $63.8 million. National Pen, acquired December 30, 2016, contributed $112.7 million revenue and a $2.2 million adjusted operating loss. All Other Businesses revenue declined 7% to $128.8 million and recorded a $30.7 million adjusted operating loss.
- The operating loss reflected higher organic investment, shipping price reductions, expanded design services and new products; higher fulfillment and shipping costs after peak-season production inefficiencies; acquisition-related costs; restructuring; and partner-contract losses. The WIRmachenDRUCK earn-out expense was $37.3 million, and the company recorded $26.7 million of restructuring charges and $9.6 million of impairment charges.
- National Pen was acquired for a final purchase price of $212.6 million. In July 2017, after year-end, Cimpress agreed to sell Albumprinter, with expected proceeds of approximately €92 million before fees and pre-closing dividends, subject to customary conditions.
- Management said the January 2017 decentralization was substantially complete and expected no material further charges from that restructuring. For FY2018, it expected approximately $50 million in net operating expense savings and $35 million in pre-tax operating cash flow savings from the changes.
Liquidity, outlook and risks
At year-end, Cimpress had $600.0 million outstanding under its senior secured credit facility, $275.0 million of 7.0% notes due 2022, and $7.5 million of other debt. It reported $211.8 million of unused credit-facility availability after covenant limitations and was in compliance with its debt covenants. On July 13, 2017, the facility was amended, expanding total capacity to $1,045.0 million and extending maturity to July 2022. Management believed cash, operating cash flow and committed borrowing capacity would cover liabilities and planned investment for at least 12 months. No specific revenue or earnings guidance was provided.
Management intends to allocate capital among organic investment, acquisitions, share repurchases and debt reduction. The company has historically paid no cash dividends and does not anticipate doing so in the foreseeable future. Major risks include execution of its growth strategy and mass-customization platform, acquisition integration and returns, intense price competition, seasonal dependence on the holiday quarter, production and supply-chain disruption, cyber and privacy risks, currency and interest-rate exposure, Brexit and trade-policy uncertainty, tax audits and changes, and debt covenants. The second fiscal quarter is especially important: it was the only profitable quarter in FY2017, despite a full-year operating loss. A 100-basis-point increase in interest rates was estimated to add about $5.4 million to interest expense over 12 months.
Investor verification priorities
- Reconcile the steep decline in GAAP operating results and adjusted NOPAT with management’s explanation of investments, acquisition charges and operating inefficiencies.
- Track whether FY2018 restructuring savings are achieved and whether Vistaprint’s customer-value investments improve repeat business and profitability.
- Review National Pen’s full-year contribution and integration progress, and verify completion and proceeds of the Albumprinter sale.
- Monitor operating cash flow, working-capital needs, debt levels, facility availability and covenant headroom, particularly alongside planned investment and share repurchases.
- Assess the durability of the WIRmachenDRUCK earn-out assumptions, the Tradeprint impairment, and the performance of other acquired businesses.
- Note that the auditor gave an unqualified opinion and reported effective internal control over financial reporting, but National Pen was excluded from the internal-control assessment and audit because it was acquired during FY2017.