Cimpress plc — Form 10-Q Summary
Business context and reporting period
Cimpress operates a group of mass-customization businesses selling printed products and related services, including Vista, PrintBrothers, The Print Group, National Pen and All Other Businesses. Although the request metadata says “2022 Q3,” this filing reports the three and nine months ended March 31, 2023—Cimpress fiscal 2023 third quarter and year to date. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $742.2 million, up 13% reported and 16% constant currency | $2,290.8 million, up 6% reported and 12% constant currency |
| Operating income (loss) | $(12.2) million, versus $(28.4) million | $3.4 million, versus $74.5 million |
| Net loss attributable to Cimpress | $(49.3) million; diluted loss per share $(1.88) | $(214.8) million; diluted loss per share $(8.19) |
| Adjusted EBITDA (non-GAAP) | $69.1 million, versus $33.6 million | $225.9 million, versus $243.3 million |
| Cash from operations | Not presented for the quarter in the supplied filing text | $68.5 million, versus $131.7 million |
| Adjusted free cash flow (non-GAAP) | Not presented for the quarter in the supplied filing text | $(13.2) million, versus $39.7 million |
Third-quarter cost of revenue was 53.2% of revenue, compared with 52.9%; year-to-date it was 53.6%, compared with 51.3%. This corresponds to gross margins of approximately 46.8% and 47.1% for the quarter, and 46.4% and 48.7% year to date, respectively.
At March 31, 2023, cash and cash equivalents were $115.0 million and marketable securities were $74.8 million. Debt was $1,693.4 million net of issuance costs and discounts, or $1,710.2 million before those deductions. The company had no borrowings on its $250 million revolving facility and reported $244 million available, subject to its terms. The weighted-average rate on senior secured credit facility borrowings was 6.94%, including swaps. Cimpress said it was in compliance with debt covenants.
Material changes versus comparable periods
- Third-quarter revenue growth accelerated, with all five reportable segments posting higher reported revenue. Vista revenue rose 14% reported and 16% constant currency; PrintBrothers rose 16% and 22%, respectively, excluding the acquisition effect.
- Third-quarter operating loss narrowed and adjusted EBITDA increased, aided by revenue growth, improved advertising efficiency, and lower compensation and consulting costs. Year-to-date operating income and adjusted EBITDA fell, reflecting inflation, currency effects and investment spending.
- Year-to-date net loss included a $116.7 million full valuation allowance on Swiss deferred tax assets. Income tax expense was $144.0 million, compared with $56.2 million in the prior-year period.
- Operating cash flow declined $63.2 million year over year. Management cited less favorable working-capital movements, including accounts-payable timing, higher inventory, higher cash interest and restructuring payments.
- Cash decreased by $162.1 million from June 30, 2022. Financing outflows included $95.6 million to purchase noncontrolling interests, principally following put-option exercises in PrintBrothers businesses.
Outlook, commentary, risks and unusual items
- March 2023 cost-reduction and organizational actions in Vista and central teams generated $30.1 million of third-quarter restructuring charges. Management expects approximately $100 million of annualized pretax savings and additional, immaterial restructuring charges in fiscal Q4.
- Management expects liquidity to increase in fiscal Q4 and fiscal 2024, and expects capital allocation beyond current organic investment to favor net debt reduction through fiscal 2024. The company gave no specific revenue or earnings guidance in the supplied filing text.
- Management cited easing in some input-cost pressures and pricing actions, while continuing to identify inflation, supply-chain conditions, foreign-exchange movements, economic weakness, competitive pressures, execution of Vista’s transformation and mass-customization platform, and debt-service and covenant compliance as risks.
- Foreign-exchange and derivative movements can create volatility in GAAP earnings; most currency derivatives are not designated for hedge accounting. A hypothetical 100-basis-point rate increase was estimated to affect interest expense by $7.7 million over the next 12 months, after swaps.
- Other unusual items include the Swiss deferred-tax valuation allowance, Japan and China market exits, and a $6.3 million impairment charge related to the Japan exit. Cimpress reported no material legal proceedings. It had $206.0 million of unrecorded purchase commitments and $9.6 million of uncertain tax positions excluded from its contractual-obligations table.
Investor verification priorities
- Confirm the expected timing and realization of the approximately $100 million annualized cost savings, and the remaining restructuring costs.
- Assess the drivers of the year-to-date decline in cash generation and the company’s plan to reduce net leverage while funding investments.
- Review the Swiss deferred-tax valuation allowance, future tax expense and any changes in recoverability assumptions or tax audits.
- Track refinancing and interest-rate exposure, the transition from LIBOR to Term SOFR, available revolver capacity and covenant headroom.
- Compare constant-currency growth and segment profitability with reported results, particularly Vista’s recovery and the effects of pricing, mix, advertising and currency.