Cimpress N.V. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2017; comparative periods ended March 31, 2016. The filing is for fiscal 2017 Q3, notwithstanding the request metadata indicating 2016 Q3. Cimpress sells customized print, signage, apparel and related products through internet-based brands and owned and third-party manufacturing.
Financial performance and condition
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $550.6 million, up 26% reported; up 28% constant currency and 11% excluding recent acquisitions | $1,571.1 million, up 20% reported; up 22% constant currency and 9% excluding recent acquisitions |
| Gross margin | Approximately 51.2%, versus 54.9% | Approximately 51.8%, versus 57.9% |
| Operating income (loss) | $(41.9) million, versus $(17.5) million | $(36.0) million, versus $62.2 million |
| Net income (loss) attributable to Cimpress | $(42.9) million; diluted loss per share $(1.38) | $(37.0) million; diluted loss per share $(1.18), versus net income of $37.4 million and diluted EPS of $1.13 |
| Adjusted NOPAT, non-GAAP | $9.2 million, versus $24.0 million | $55.0 million, versus $122.9 million |
| Operating cash flow | Not separately presented here for the quarter | $123.6 million, versus $195.2 million |
Quarterly cost of revenue was 48.8% of revenue, versus 45.1%; year-to-date it was 48.2%, versus 42.1%. Management cited planned customer-value investments, including lower shipping prices, expanded design services and new products, as well as peak-season production inefficiencies and higher fulfillment and shipping costs. The filing reports $56.9 million of property, plant and equipment purchases and $28.7 million of capitalized software and website development costs year to date.
At March 31, 2017, cash and cash equivalents were $43.5 million, down from $77.4 million at June 30, 2016. Total debt, before debt issuance costs and discounts, was approximately $897.6 million, up from $685.9 million; this included $615.0 million under the secured credit facility and $275.0 million of 7.0% notes due 2022. The company reported $200.6 million available under its credit facility and compliance with debt covenants. Current assets were $216.8 million and current liabilities $429.5 million. Shareholders’ equity was $84.7 million, versus $166.1 million at fiscal year-end.
Material changes and unusual items
- National Pen was acquired on December 30, 2016, contributing $58.8 million in reported revenue for the quarter and year-to-date period, and a $3.2 million adjusted operating loss. The acquisition was funded with credit-facility borrowings; purchase price was $212.6 million after a post-closing adjustment.
- Fiscal 2017 Q3 included $24.8 million of restructuring expense; year-to-date expense was $25.9 million. The January reorganization decentralized operations, transferred about 3,000 team members into business units and eliminated approximately 135 positions, including four executive positions. Cimpress expects annualized net operating expense savings of about $55–$60 million and pretax operating cash flow savings of about $45–$50 million starting in fiscal 2018.
- Cimpress recorded $9.6 million of Tradeprint impairment: $6.3 million of goodwill and $3.2 million of acquired intangible assets, reflecting a weaker profit outlook and lower expected cash flows. The prior-year comparison included a $30.8 million Exagroup goodwill impairment.
- WIRmachenDRUCK earn-out and related compensation charges were significant: $28.1 million year to date, including expense from an increased earn-out valuation and an amendment that accelerated compensation expense. The total related liability was $29.7 million at March 31, 2017, payable in fiscal 2018 at Cimpress’s option in cash or shares.
- Other income, net was $21.8 million year to date, versus $7.9 million, largely due to currency-derivative gains; the quarter instead recorded $6.6 million of other expense. These currency and derivative effects can be volatile and may not reflect underlying operating trends.
Outlook, management commentary and risks
Management said available cash, operating cash flows and committed borrowing capacity should be sufficient for liabilities and planned investments for at least the next 12 months. It expects no material restructuring costs in fiscal Q4. No specific consolidated revenue or earnings guidance is provided in the supplied filing text. Management noted that National Pen is seasonal, with its first and second fiscal quarters historically strongest for revenue and profitability.
Management attributed growth to the National Pen and WIRmachenDRUCK acquisitions and continued growth in Vistaprint and certain Upload and Print businesses. Vistaprint revenue grew, but adjusted operating profit declined as planned investments weighed on margins. All Other revenue fell following termination of partner contracts, and Tradeprint’s outlook weakened. Principal disclosed risks include execution and integration of acquisitions and decentralization, seasonal demand and fulfillment capacity, intense competition and pricing pressure, currency and interest-rate volatility, high debt and covenant restrictions, cybersecurity and operational interruptions, and international tax and regulatory uncertainty. A 100-basis-point interest-rate increase would raise estimated interest expense by about $5.6 million over 12 months, after swaps.
Key facts for investors to verify
- Whether organic growth and the planned customer-value investments translate into improved gross margins and profitability.
- Whether the stated fiscal 2018 restructuring savings are achieved, and whether transition or execution costs offset them.
- National Pen’s seasonal performance, integration progress and final purchase accounting; its acquisition valuation remained subject to finalization.
- Tradeprint’s operating outlook and the assumptions supporting the impairment; also monitor the WIRmachenDRUCK earn-out valuation and payment.
- Debt, liquidity and covenant headroom as borrowing needs, acquisitions, repurchases and investments evolve; confirm continued covenant compliance.
- Cash generation after capital spending and acquisitions, and the effect of currency movements and non-hedge-accounted derivatives on reported results.