Business context and reporting period
This filing is Vistaprint N.V.’s unaudited Form 10-Q for the quarter and nine months ended March 31, 2012 (fiscal 2012 third quarter). The supplied company metadata says CIMPRESS Plc, but the filing itself identifies Vistaprint N.V.; verify the issuer and period. Vistaprint served microbusinesses with print, promotional, digital marketing, and website products, as well as personalized consumer products.
Results include Albumprinter from October 31, 2011, and Webs from December 28, 2011. The company reported that acquisitions contributed $11.8 million and $2.3 million of quarterly revenue, respectively.
Financial results and liquidity
Amounts below are in U.S. dollars; millions except per-share data and percentages.
| Metric | Quarter ended March 31, 2012 | Prior-year quarter | Nine months ended March 31, 2012 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $257.6; +26% | $203.7 | $769.9; +27% | $608.2 |
| Operating income | $7.8 | $25.6 | $50.1 | $76.1 |
| Operating margin | 3.0% | 12.6% | 6.5% | 12.5% |
| Net income | $0.3 | $22.9 | $40.1 | $67.7 |
| Diluted EPS | $0.01 | $0.51 | $1.01 | $1.50 |
- Gross margin was 65.5% for the quarter and 65.4% for the nine-month period, slightly above the respective prior-year margins of 65.3% and 65.1%. Marketing and selling costs rose to 37.9% of quarterly revenue from 32.7%; technology and development rose to 13.8% from 11.2%; and general and administrative expense rose to 10.8% from 8.8%.
- Income tax provision was $5.5 million for the quarter and $10.4 million for the nine months; the quarterly effective tax rate was 95.2%, versus 8.9% a year earlier. The filing attributes the increase to lower consolidated pretax income amid planned investment, transfer-pricing arrangements, Webs-related tax expense, currency effects, and expiration of the U.S. federal R&D tax credit.
- Nine-month operating cash flow was $121.3 million, compared with $126.3 million. Investing cash use was $217.6 million, including $180.7 million for acquisitions and $32.9 million of property and equipment purchases. Financing cash use was $86.1 million, including $209.6 million of share repurchases.
- Cash and equivalents were $52.1 million at March 31, down from $236.6 million at June 30, 2011. Long-term debt was $126.5 million; current liabilities of $148.1 million exceeded current assets of $103.5 million. Management said cash, operating cash flow, and borrowing capacity would be sufficient for working capital and planned investments for the foreseeable future.
- The unsecured revolving credit facility had $250 million of commitments at quarter-end, with $126.5 million drawn and $123.2 million of additional availability. Commitments increased to $387.5 million on April 13, 2012; the company reported $259.9 million available on April 20. The facility matures October 21, 2016, and the company was in covenant compliance at March 31.
Material changes versus prior period
- Revenue growth reflected more new and repeat customers, acquisitions, and growth across geographic segments. Constant-currency organic revenue growth was 21% for both the quarter and nine months. Quarterly new customer additions, excluding acquisitions, grew 33% to approximately 2.4 million.
- TTM unique active customers, excluding acquisitions, increased 24% to 13.8 million. Average bookings per active customer declined 1% to $69; bookings for new customers fell 4% to $52.
- Despite revenue growth, operating income and net income fell sharply as the company increased spending on customer acquisition, staffing, technology, support, and growth initiatives. Management said diluted EPS declined 98% for the quarter and 33% for the nine months.
- Albumprinter and Webs added goodwill and identifiable intangible assets; goodwill increased to $145.6 million from $4.2 million at June 30, 2011. The acquisitions were funded with cash and borrowings. Albumprinter’s quarterly net loss included in consolidated results was $1.6 million; Webs’ was $5.3 million.
- The company repurchased 6.9 million shares for $209.6 million during the nine months, with no repurchases in the quarter. Outstanding shares were lower than at June 30, 2011.
Outlook, risks, contingencies, and unusual items
- Management described a long-term investment strategy focused on customer experience and retention, customer acquisition, manufacturing efficiency, digital services, geographic expansion, consumer products, and higher-spending small businesses. It cited five-year organic revenue and EPS targets announced in July 2011, but the targets’ numerical values are not provided in this filing text.
- Fiscal 2012 capital expenditures were expected to be approximately $50–$60 million, primarily for European manufacturing capacity, the Jamaican support center, and IT and manufacturing equipment. Management said further acquisitions and share repurchases could use cash flow and debt; incremental investments beyond plan might require additional debt or equity financing.
- Risks highlighted include execution and integration of acquisitions, whether growth investments generate expected returns, customer-acquisition costs, competition and pricing, seasonality, foreign exchange, operational disruption and limited redundancy, cybersecurity and payment fraud, and tax and intellectual-property disputes. The company noted that its second fiscal quarter is typically its seasonal peak.
- At March 31, the company had $28.0 million in unrecorded purchase commitments, primarily for the Jamaican facility, equipment, and inventory. It reported no material legal proceedings, but disclosed IRS audits of U.S. and Bermuda subsidiaries, a Massachusetts audit, and audits of Canadian subsidiaries; management did not expect these examinations to have a material impact.
- The Albumprinter performance-based earn-out had an estimated fair value of approximately $0.6 million; up to €5 million could be payable based on 2012 performance. The company also disclosed approximately $6.1 million of unrecognized tax benefits, including accrued interest.
- Management reported effective disclosure controls as of March 31. Integration of acquired businesses could lead to future changes in internal controls. The filing also disclosed that the COO and the president of Vistaprint Europe planned to leave their respective roles effective July 1, 2012.
Important facts for investors to verify
- Confirm the correct issuer and reporting period: the supplied metadata names CIMPRESS Plc, while this filing names Vistaprint N.V. and covers the period ended March 31, 2012.
- Review whether higher marketing, technology, and staffing expenses are producing sustainable organic growth and improved customer economics; quarterly operating margin fell to 3.0%.
- Assess acquisition integration, acquired-company losses, goodwill and intangible valuations, and the contingent Albumprinter earn-out.
- Monitor liquidity and debt usage after substantial share repurchases and acquisitions, including covenant headroom, capital spending, and any further borrowing or repurchases.
- Evaluate the unusually high quarterly effective tax rate, transfer-pricing exposure, tax audits, and the tax effects of the Webs intellectual-property transfer.
- Compare future results with management’s longer-term targets and determine whether the filing’s investment plans translate into EPS growth; the numerical five-year targets are not clear in the supplied text.