Business context and reporting period
This is Vistaprint N.V.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2013 (fiscal Q2 and first half of fiscal 2014). The business sells customized print and promotional products, digital marketing services, and personalized products. The filing identifies the registrant as Vistaprint N.V., not CIMPRESS Plc; investors should verify the entity and filing intended by the request.
Key financial results
Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.
| Metric | Three months ended Dec. 31, 2013 | Three months ended Dec. 31, 2012 | Six months ended Dec. 31, 2013 | Six months ended Dec. 31, 2012 |
|---|---|---|---|---|
| Revenue | $370.8 | $348.3 | $645.9 | $599.7 |
| Operating income | $52.5 | $33.0 | $60.9 | $33.3 |
| Operating margin | 14.2% | 9.5% | 9.4% | 5.5% |
| Net income | $40.9 | $23.0 | $41.3 | $21.3 |
| Diluted EPS | $1.18 | $0.66 | $1.20 | $0.61 |
| Operating cash flow | Not presented quarterly | $94.9 | $95.2 |
Quarterly revenue rose 6% (6% at constant currency); first-half revenue rose 8% reported and 7% at constant currency. Cost of revenue was 32.6% of quarterly revenue and 33.5% for the half, versus 32.8% and 33.7%, respectively. Marketing and selling expense fell to 33.5% of quarterly revenue from 38.6%, and to 35.1% for the half from 39.1%. The effective tax rate was 12.6% for the quarter and 13.7% for the half, compared with 26.0% and 27.7% a year earlier.
Financial position and liquidity
At December 31, 2013, cash and cash equivalents were $62.3 million; total debt was $204.5 million ($15.3 million current and $189.3 million long term). Debt was down from $238.8 million at June 30, 2013. Total assets were $674.6 million and shareholders’ equity was $260.3 million. Current assets of $135.5 million were below current liabilities of $197.9 million.
First-half operating cash flow was $94.9 million. Investing cash outflow was $51.6 million, including $42.2 million of property and equipment purchases and $5.0 million invested in Namex. Financing cash outflow was $32.4 million, including $101.6 million of debt repayments partly offset by $67.0 million of borrowings. Cash increased $12.2 million during the half. Management said cash, operating cash generation, and borrowing capacity should be sufficient for working capital and planned investments for the foreseeable future. Fiscal 2014 capital expenditures were expected to total approximately $80–$90 million.
At December 31, the company reported $289.7 million of available borrowing capacity under its then-existing facility and was in compliance with its covenants. A January 17, 2014 amendment increased total commitments to $800 million, comprising $640 million revolving and $160 million term loan commitments; it made no material covenant changes.
Material changes versus prior comparable periods
- Profitability improved substantially: quarterly operating income increased 59% and net income 78%; first-half operating income increased 83% and net income 94%.
- Management attributed earnings improvement primarily to revenue growth and better leverage of advertising and operating expenses. Advertising expense was lower, particularly in Europe.
- North America delivered 14% constant-currency growth in both the quarter and half. Europe declined 2% for the quarter and 1% for the half at constant currency; Most of World grew 6% for the quarter and 4% for the half.
- Trailing-twelve-month unique active customers increased 2% to 16.9 million, while new customers declined 5% to 10.0 million and retained customers increased 13% to 6.9 million. Average bookings per active customer rose 7% to $72.
- Other expense increased to $3.2 million for the quarter and $8.0 million for the half, principally reflecting losses on currency forwards not designated for hedge accounting and currency remeasurement effects.
Outlook, risks, contingencies and unusual items
- Management expected higher net-income margin and EPS improvement for the remainder of fiscal 2014 versus fiscal 2013, while acknowledging that revenue growth was below historical levels. It cited ongoing European customer-value and marketing changes as near-term growth headwinds intended to support longer-term profitability.
- Fiscal Q2 is seasonally the company’s strongest quarter, driven by holiday cards, calendars, photo books and other seasonal products; management cautioned that this revenue does not repeat in other quarters.
- Management forecast a lower fiscal 2014 consolidated effective tax rate than in fiscal 2013, reflecting higher expected pretax earnings, geographic mix, and tax benefits from a corporate-structure and intellectual-property reorganization.
- Unhedged currency forwards produced a $6.4 million loss in the first half. Management expected continued earnings volatility on contracts without hedge accounting; changes to intercompany activity may also increase currency volatility.
- The company recorded $3.0 million of restructuring expense for closing its Singapore location and said it did not expect additional costs from that action, though estimates could change.
- The 45%-owned Namex investment generated a $1.6 million first-half equity-method loss. In January 2014, the company agreed to lend Namex approximately $11 million through convertible debt, with possible additional lending up to $11 million at its discretion.
- A proposed Japan joint venture was planned for the second half of fiscal 2014, subject to contingencies; the company may contribute approximately $5.1 million and certain intangible assets and separately purchase about $4.9 million of Plaza Create shares.
- A Waltham, Massachusetts lease was contingent on permits not yet fully obtained as of December 31. If it proceeds, expected rent over its initial 11-year term is approximately $119.6 million, beginning in 2015; the company had recorded $2.7 million of construction costs and a corresponding financing obligation.
- Tax exposures include an IRS dispute over 2007–2009 involving Vistaprint Limited and a Massachusetts tax appeal concerning 2006–2008. Management considered reserves adequate but said final resolution could materially affect financial condition, results, or cash flows. A Canadian 2006 assessment was overturned, with no additional tax due.
- Key risks include slower growth in Europe, customer acquisition and retention, seasonality, foreign exchange and interest-rate exposure, execution of strategic investments, competition, operational interruptions, cybersecurity, and tax-authority challenges to the international structure. A 100-basis-point rate increase was estimated to raise interest expense by approximately $1.6 million over 12 months.
Important facts for investors to verify
- Confirm that Vistaprint N.V.’s December 31, 2013 Form 10-Q is the intended filing for the CIMPRESS Plc request.
- Track whether European growth and customer economics improve, and whether retention gains offset declining new-customer counts.
- Assess the sustainability of margin and EPS gains, including seasonal effects and the lower advertising spend.
- Monitor foreign-exchange derivative losses, tax-audit outcomes, and the effective tax-rate assumptions.
- Review debt capacity, covenant headroom, planned capital expenditures, and funding commitments related to Namex, Japan, and the Waltham lease.