Cimpress plc — Form 10-Q summary
Business and period: Cimpress operates a group of mass-customization businesses selling print, promotional and related products and services. This unaudited report covers the three and six months ended December 31, 2022 (fiscal Q2 and first half of fiscal 2023); comparisons are with the corresponding prior-year periods. Amounts are in U.S. dollars unless noted.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 | Prior-year comparison |
|---|---|---|---|
| Revenue | $845.2 million | $1,548.6 million | Q2 approximately flat (down 1% reported); first half up 3% |
| Constant-currency revenue growth | 6%; 5% excluding acquisition/divestiture effects | 10%; 9% excluding acquisition/divestiture effects | Foreign-exchange movements reduced reported growth |
| Operating income | $33.6 million | $15.6 million | Down from $86.0 million and $102.9 million, respectively |
| Adjusted EBITDA | $111.2 million | $156.8 million | Down from $142.1 million and $209.7 million, respectively |
| Net income (loss) attributable to Cimpress | $(140.0) million | $(165.4) million | Prior-year income of $54.8 million and $48.1 million |
| Diluted earnings (loss) per share | $(5.34) | $(6.31) | Prior-year income of $2.08 and $1.82 |
| Cost of revenue as a share of revenue | 53.9% | 53.8% | 49.9% and 50.6%, respectively |
Profitability was pressured by inflation in materials, freight, energy and labor, and, at Vista, unfavorable product mix. Price increases and cost containment measures partly offset those pressures. Q2 operating income also included $11.2 million of restructuring expense; first-half restructuring expense was $13.0 million.
Cash flow, liquidity and debt
- For the first half, operating cash flow was $55.9 million, versus $179.9 million a year earlier. Adjusted free cash flow was $0.1 million, versus $121.2 million.
- At December 31, cash and cash equivalents were $111.3 million and marketable securities were $102.2 million. Cash declined from $277.1 million at June 30; the company also used cash for securities purchases, investment and minority-interest buyouts.
- Debt, excluding issuance costs and discounts, was $1.707 billion; reported net debt carrying value was $1.689 billion. The company had no borrowings under its $250 million revolving facility and reported $243.7 million of availability.
- The Term Loan B weighted-average interest rate was 6.52%, including swaps; the $600 million senior notes bear 7.0% interest and mature in 2026. Cimpress reported compliance with its debt covenants at quarter-end.
- First-half cash use included $95.6 million for purchases of noncontrolling interests. Inventory increased, partly to reduce supply-availability risk. Contractual obligations included $235.6 million of purchase commitments.
Material changes and unusual items
- A $116.7 million valuation allowance against Swiss deferred tax assets contributed to income tax expense of $126.1 million in Q2 and $135.5 million for the first half. Management cited recent Swiss losses as outweighing evidence for future taxable income.
- Currency movements affected reported revenue and earnings. Q2 other expense, net, was $17.4 million, including $24.2 million of losses on derivatives not designated as hedges; management expects continued volatility from these instruments.
- Minority holders exercised put options in three PrintBrothers businesses. Cimpress purchased interests for a total of $90.8 million, and the remaining interests became mandatorily redeemable; the related liability was reported in other liabilities.
- Restructuring included costs associated with the planned Japan exit and China divestiture. The China business sale closed in January 2023. The filing also reports that the Japan land and building met held-for-sale criteria.
- Segment results were mixed: Vista Q2 revenue declined 2% reported and segment EBITDA fell 39%; PrintBrothers revenue rose 8% and EBITDA rose 5%; The Print Group revenue declined 1% and EBITDA fell 16%; National Pen revenue declined 3% and EBITDA fell 22%.
Outlook, commentary and risks
The filing provides no specific quantified full-year revenue or earnings guidance. Management said input-cost pressures were expected to persist, although their duration was uncertain, and planned further cost reductions to support profitability as the fiscal year progressed. It also described ongoing investment in Vista advertising and the mass-customization platform, with uncertain expected returns.
Key risks include inflation and supply-chain disruption, inability to offset costs through pricing or savings, economic downturn and competitive pressure, execution of Vista’s transformation and planned cost reductions, foreign-exchange and interest-rate volatility, and the ability to meet debt obligations and comply with covenants. A 100-basis-point rate increase was estimated to raise interest expense by $7.4 million over the next 12 months, after swaps. Management reported effective disclosure controls and procedures.
Investor verification points
- Review the Swiss deferred-tax-asset valuation allowance, its assumptions and possible future tax effects.
- Track whether pricing, cost reductions and mix improvements offset inflation and restore operating margins and adjusted free cash flow.
- Assess cash generation, inventory levels, cash and securities, and the timing of the substantial debt and purchase commitments.
- Monitor variable-rate exposure, interest-rate swaps, currency-derivative volatility and covenant headroom.
- Confirm the financial effects and completion status of the Japan and China exits and the PrintBrothers minority-interest redemptions.