Business context and reporting period
The filing is Vistaprint N.V.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2012 (fiscal Q2 and first half of fiscal 2013). The company sells customized print and promotional products, digital marketing services, and personalized home and family products. The filing names Vistaprint N.V. as the registrant; confirm the relationship to the CIMPRESS Plc named in the request metadata.
Financial performance
| Metric | Three months ended Dec. 31, 2012 | Six months ended Dec. 31, 2012 |
|---|---|---|
| Revenue | $348.3 million; +16% reported, +17% constant currency, +14% organic constant currency | $599.7 million; +17% reported, +19% constant currency, +14% organic constant currency |
| Income from operations | $33.0 million; +1.5% year over year; 9.5% margin versus 10.9% | $33.3 million; down 21%; 5.5% margin versus 8.3% |
| Net income | $23.0 million versus $31.7 million; 6.6% margin versus 10.6% | $21.3 million versus $39.9 million; 3.5% margin versus 7.8% |
| Diluted EPS | $0.66 versus $0.82, down 20% | $0.61 versus $0.99, down 38% |
| Operating cash flow | $95.2 million, versus $111.7 million in the prior-year period |
Cost of revenue was 32.8% of revenue for the quarter and 33.7% for the half, improving from 33.2% and 34.7%, respectively. The improvements reflected better production efficiency and overhead absorption, partly offset by higher material costs. Technology and development and marketing and selling expenses rose substantially; for the six months they increased 38% and 25%, respectively. The six-month effective tax rate was 27.7%, compared with 11.1%.
Financial position and liquidity
At December 31, 2012, cash and equivalents were $64.7 million, long-term debt was $230.5 million, and total assets were $653.7 million. Current assets of $132.3 million were below current liabilities of $182.4 million. The company reported $125.1 million of borrowing availability under its $387.5 million revolving facility after covenant and other limitations, and was in compliance with its covenants. Debt matures October 21, 2016; the weighted-average rate on outstanding borrowings was 1.63%.
Investing cash outflow was $70.4 million, including $55.4 million of capital expenditures and $12.8 million for the Namex investment. Financing cash outflow was $23.7 million, including $24.8 million of share repurchases. Management expected fiscal 2013 capital expenditures of approximately $85–$95 million and stated that cash, operating cash flow, and borrowing capacity should cover working capital and planned investments for the foreseeable future.
Material changes, outlook and notable items
- Revenue growth was strongest in North America and Most of World; European organic constant-currency growth was 6% for the first half. Management expected European growth to remain below historical trends and other regions for at least the rest of fiscal 2013.
- Trailing-twelve-month unique active customers rose 19% to 15.4 million, while average bookings per active customer declined 6% to $67. Management said customer growth more than offset the lower average booking value.
- Management attributed lower EPS primarily to planned investment in marketing, technology, manufacturing and personnel, as well as acquisition-related costs and the Namex equity-method loss. It continued to target its previously announced 2016 net-income goal but said European weakness put pressure on its 2016 revenue target. No specific fiscal 2013 revenue or EPS guidance is provided in the filing text.
- Seasonality is significant: fiscal Q2 typically benefits from holiday cards, calendars, photo books and other seasonal products, and management cautioned that this revenue does not recur in other quarters.
- Two interim accounting changes benefited reported pre-tax income: extending the estimated useful life of capitalized software from two to three years added about $0.7 million in the quarter and $1.4 million for the half; changing the interim accrual method for annual cash incentives added about $1.9 million for both periods, with an expected offsetting reduction in Q3 and Q4 earnings, subject to actual payout estimates.
- The Albumprinter contingent earn-out was reduced to zero because targets were not achieved. Namex, in which the company held a 34.5% interest, generated a $0.4 million first-half equity-method loss and carries a further $5.0 million funding commitment due by October 1, 2013.
- Key risks include execution of the growth strategy, continued weakness in Europe, customer-acquisition costs, seasonality, foreign exchange, competition, operational disruption, and tax uncertainty. The IRS and other tax authorities were examining multiple subsidiaries; management believed its positions were supportable but acknowledged a possible material effect from final resolution.
Important facts for investors to verify
- Confirm that this Vistaprint N.V. filing is the intended issuer and period for the CIMPRESS Plc request.
- Track European organic growth and whether marketing and technology investments improve customer retention, bookings per customer, and profitability.
- Assess the effect of the incentive-accrual and software-life accounting changes when comparing quarterly earnings, particularly the expected later-year incentive expense.
- Monitor cash conversion, the planned capital-expenditure range, share repurchases, and remaining revolver capacity and covenant headroom.
- Review developments in the tax audits and Namex’s performance and additional funding commitment.