Cimpress plc — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020; filed August 11, 2020. Although the request metadata says “2019 Q4,” this is an annual report for FY2020, including the fourth quarter. Cimpress is a group of mass-customization businesses selling customized print, signage, promotional products, apparel, packaging and related products. Its Irish parent succeeded Cimpress N.V. in a cross-border merger completed December 3, 2019; the report includes the full year’s predecessor-company activity.
Financial performance and key metrics
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue | $2,481.4 million | $2,751.1 million | Down 10% reported; down 9% at constant currency and 11% excluding acquisitions and divestitures |
| Gross margin | 49.7% | 49.1% | Cost of revenue was 50.3% of sales versus 50.9% |
| Operating income | $56.0 million | $163.6 million | Down $107.6 million; includes $100.8 million goodwill impairment |
| Net income attributable to Cimpress | $83.4 million | $95.1 million | Diluted EPS was $3.00 in both years |
| Adjusted EBITDA | $399.8 million | $386.5 million | Up $13.2 million; non-GAAP |
| Cash from operating activities | $338.4 million | $331.1 million | Up $7.3 million |
| Adjusted free cash flow | $244.0 million | $211.8 million | Up $32.2 million; non-GAAP |
| Cash and cash equivalents | $45.0 million | $35.3 million | At June 30 |
| Total debt | $1,482.2 million | $1,035.6 million | At June 30, before debt issuance costs, premiums and discounts |
FY2020 income tax benefit was $81.0 million, including a $113.5 million benefit from Swiss tax reform, largely expected to be realized in FY2025–FY2030. Cimpress also recorded a $41.9 million valuation allowance against U.S. and some Irish deferred tax assets. Accordingly, reported net income benefited substantially from tax items despite only $3.0 million of pretax income.
Fourth-quarter revenue was $429.1 million, versus $674.7 million in the prior-year quarter; Cimpress reported a $42.0 million attributable net loss, versus $34.1 million attributable income. FY2020 operating income was unusually seasonal: second-quarter operating income represented 217% of the full-year amount, as the holiday quarter’s profits were offset by third-quarter impairments and pandemic-related fourth-quarter weakness.
Material changes versus FY2019
- Revenue fell as COVID-19 disruption reduced demand beginning in March, with the steepest reported monthly bookings decline in April. Bookings were down 19% year over year in June, an improvement from a 51% decline in April.
- Goodwill impairment increased to $100.8 million from $7.5 million: full impairments for National Pen ($34.4 million) and VIDA ($26.0 million), and a partial Exaprint impairment ($40.4 million). VIDA was sold April 10, 2020.
- Marketing and selling expense declined $139.8 million, principally from lower Vistaprint advertising and reduced National Pen direct-mail prospecting. Technology and development expense increased $16.5 million; general and administrative expense increased $20.4 million.
- Interest expense rose $12.7 million to $75.8 million, reflecting higher borrowings and new debt. Revenue declined across the four largest operating segments: Vistaprint 11%, PrintBrothers 6%, The Print Group 16%, and National Pen 14% reported. All Other Businesses revenue rose 28%, partly reflecting acquisitions; organic constant-currency growth excluding acquisition/divestiture effects was 4%.
- Operating cash flow included working-capital support from deferred supplier, lease, indirect-tax and employer-tax payments. Cimpress deferred more than $30 million of supplier and lease payments otherwise due before June 30, 2020.
Liquidity, debt and capital actions
- At year-end, debt was $1,482.2 million and cash was $45.0 million. The balance sheet showed $238.4 million of net current liabilities and a $407.5 million shareholders’ deficit.
- In May 2020, Cimpress issued $300 million of 12% second-lien notes and warrants to Apollo-affiliated funds; proceeds were used partly to repay senior secured term loans. In February, it issued an additional $200 million of 7% senior unsecured notes due 2026.
- An April credit-facility amendment reduced commitments to $1.0 billion and extended the facility maturity to November 2024. Financial maintenance covenants were suspended through the quarter ending December 31, 2021, subject to conditions including minimum liquidity of $50 million and specified EBITDA requirements. The amendment also restricted share repurchases, dividends and certain acquisitions. Available revolver capacity at year-end was $423.7 million.
- Cimpress repurchased $627.1 million of shares during FY2020, including 5.0 million shares overall. Repurchases were prohibited during the covenant-suspension period. Management stated that available cash, operating cash flow, revolver capacity and financing measures should fund obligations and requirements for at least the next 12 months.
Outlook, commentary and risks
Management provided no quantified FY2021 earnings or revenue guidance. It reported sequential improvement in bookings through June but cautioned that demand could remain volatile as pandemic restrictions and economic conditions evolve. Management described the pandemic’s effects as materially adverse and uncertain in duration; it prioritized employee safety, cost and cash preservation, operational continuity, and continued investment in technology and customer value. The decentralized model and mass-customization platform helped reroute orders between facilities and adapt product offerings.
Key risks include prolonged or renewed COVID-19 disruption, high leverage and debt-service needs, the return of maintenance covenants after the suspension period, intense price and online competition, foreign-exchange volatility, goodwill and forecast impairment assumptions, and execution risk in technology investment and decentralized operations. The filing also identifies cybersecurity, privacy, supply-chain, tax, regulatory and cross-border risks. Most currency derivatives are not hedge-accounting designated, which can create GAAP earnings volatility.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Goodwill impairment testing for Exaprint and National Pen was identified as a critical audit matter because of significant judgment in forecasts, margins and discount rates.
Most important facts for investors to verify
- Whether bookings and revenue recovery continued after June 2020, and how much the improvement reflected reopening versus product mix or timing.
- Debt balances, borrowing availability, covenant-suspension requirements and the company’s ability to meet debt service and renewed covenants.
- The sustainability of operating cash flow and adjusted free cash flow, including the effects of supplier, lease and tax-payment deferrals.
- The assumptions underlying goodwill valuations and deferred-tax-asset recoverability, especially following the impairments and large Swiss tax benefit.
- The impact of the 12% second-lien financing, share warrants and restrictions on future capital allocation.
- Segment-level performance and the extent to which cost reductions can be maintained without weakening customer acquisition or growth.