Cimpress plc — Form 10-Q summary
Business and period: Cimpress operates a group of mass-customization businesses selling print, signage, photo merchandise, design and digital services, and other customized products. This report covers the three and six months ended December 31, 2021, the second quarter and first half of fiscal 2022. Unless indicated otherwise, financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2021 | Six months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $849.7 million | $780.9 million | $1,507.3 million | $1,367.4 million |
| Operating income | $86.0 million | $94.2 million | $102.9 million | $130.2 million |
| Net income attributable to Cimpress | $54.8 million | $32.3 million | $48.1 million | $21.5 million |
| Diluted earnings per share | $2.08 | $1.22 | $1.82 | $0.82 |
| Adjusted EBITDA (non-GAAP) | $142.1 million | $143.4 million | $209.7 million | $231.9 million |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $179.9 million | $256.2 million |
| Adjusted free cash flow (non-GAAP) | Not separately presented for the quarter | Not separately presented for the quarter | $121.2 million | $212.9 million |
Second-quarter gross margin was approximately 50.1%, compared with 51.2% a year earlier; first-half gross margin was approximately 49.4%, versus 50.3%. Operating margin was approximately 10.1% for the quarter and 6.8% for the half year. Management reported second-quarter constant-currency revenue growth of 11%, or 9% excluding acquisitions completed in the prior four quarters; first-half growth on those measures was also 11% and 9%, respectively.
At December 31, 2021, cash and cash equivalents were $231.2 million and marketable securities totaled $174.9 million. Debt was $1.739 billion before debt issuance costs and premiums/discounts ($1.718 billion net on the balance sheet). The $600 million 7.0% senior notes mature in 2026; the senior secured term loan balance was approximately $1.129 billion. No revolver borrowings were outstanding, and $243.7 million of revolving capacity was available. The company said it was in compliance with debt covenants. Six-month capital spending was $26.5 million for property, plant and equipment and $32.1 million for capitalized software and website development.
Changes, management commentary and outlook
- Revenue increased 9% year over year in the quarter and 10% in the first half, reflecting recovering demand, pricing actions and, in part, acquisitions. Operating income fell $8.2 million in the quarter and $27.3 million year to date. Adjusted EBITDA declined $1.4 million and $22.2 million, respectively.
- Management attributed operating-cost pressure to higher investment and discretionary spending, increased hiring and compensation, share-based compensation timing, and higher advertising. Input costs for materials, freight, shipping and labor rose amid supply-chain challenges. Pricing and efficiency gains offset some, but not all, cost increases.
- Results varied by segment. PrintBrothers, The Print Group and National Pen reported higher segment EBITDA for the quarter; Vista EBITDA declined 17% and All Other Businesses declined 41%. Vista’s spending on talent, advertising and its multi-year transformation contributed to its lower EBITDA. Mask demand fell substantially versus the prior-year pandemic-related peak.
- Net income and EPS increased despite lower operating income, helped by favorable year-over-year changes in derivative and currency-related results and lower interest expense following the fiscal 2021 debt refinancing. These non-operating items can be volatile.
- Management said pandemic effects on demand had generally diminished but remained variable, and supply constraints and elevated input costs were expected to persist for an uncertain duration. It described pricing, supplier relationships, shared capabilities and continued investment as responses. The filing provides no specific earnings or revenue guidance.
- On October 1, 2021, Cimpress acquired Depositphotos for a stated purchase price of $84.9 million, funded with cash on hand. The acquisition adds digital design and creative-content offerings to Vista; its contribution to reported revenue and earnings in the period was not material. Purchase accounting remained preliminary.
- Vista introduced a parent-brand architecture in October 2021, bringing VistaPrint, VistaCreate, 99designs by Vista and Vista Corporate Solutions under “Vista”; the change did not alter internal reporting structure.
- The company disclosed an immaterial correction to foreign-currency hedge accounting: $9.0 million of gains previously recorded in other income in the September 2021 quarter were reclassified to foreign-currency translation in other comprehensive income. It also revised prior-period 99designs one-to-one design revenue and cost of revenue downward by $5.2 million for the 2020 comparative quarter, with no change to profit. Management concluded these prior-period errors were not material.
Risks, contingencies and unusual items
- Key stated risks include continued supply-chain disruption and inflation, changing pandemic conditions, execution of Vista’s transformation, acquisition performance, competition, foreign-exchange volatility, talent retention, and the ability to meet debt obligations and covenants. The company specifically noted possible impacts of the Ukraine conflict on Depositphotos’ operations.
- Currency derivatives can create significant GAAP earnings volatility because many are not designated for hedge accounting. A hypothetical 100-basis-point interest-rate increase was estimated to raise interest expense by $4.3 million over the next 12 months, after swaps.
- Contractual obligations totaled $2.708 billion, including $306.9 million of purchase commitments. Deferred acquisition payments totaled $52.7 million, including $43.7 million due for 99designs in February 2022. The filing also identifies uncertain tax positions and possible audit outcomes; no material legal proceedings were reported.
- Quarter results included a $3.3 million gain on the purchase and immediate sale of a previously leased facility. The filing reports $16.0 million of accretion to the redemption value of redeemable PrintBrothers noncontrolling interests in the first half, charged against retained earnings.
Important facts for investors to verify
- Whether revenue growth and pricing continue to offset elevated materials, freight, shipping and labor costs—and how those pressures affect gross margin.
- Whether planned Vista investments and the Depositphotos acquisition deliver customer growth, cross-selling and improved profitability.
- Cash conversion: first-half operating cash flow and adjusted free cash flow were down year over year; assess working-capital seasonality and ongoing investment needs.
- Debt, interest-rate and currency exposure, including future derivative-driven earnings volatility and available revolver capacity.
- Timing and amount of deferred acquisition payments, preliminary Depositphotos purchase accounting, and potential changes in tax reserves or other contingencies.