Cimpress plc — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2020; filed May 6, 2020. The filing covers Cimpress’s mass-customization businesses, including Vistaprint, PrintBrothers, The Print Group, National Pen and All Other Businesses. Amounts below are in U.S. dollars unless stated otherwise.
Financial results
| Metric | Three months ended March 31, 2020 | Nine months ended March 31, 2020 |
|---|---|---|
| Revenue | $598.0 million, down 10% year over year | $2,052.3 million, down 1% |
| Operating income (loss) | $(87.7) million, versus $29.6 million income | $59.2 million, versus $114.2 million |
| Net income (loss) attributable to Cimpress | $(84.9) million; diluted EPS $(3.26) | $125.4 million; diluted EPS $4.43 |
| Adjusted EBITDA (non-GAAP) | $70.9 million, versus $88.9 million | $335.9 million, versus $269.4 million |
| Operating cash flow | Not provided for the quarter | $284.1 million, versus $222.5 million |
| Adjusted free cash flow (non-GAAP) | Not provided for the quarter | $209.6 million, versus $129.9 million |
- Quarterly cost of revenue was 51.8% of revenue, unchanged year over year; for the nine months it improved to 50.2% from 50.9%.
- Quarterly revenue fell sharply in March as COVID-19 restrictions disrupted demand. Constant-currency revenue declined 8% for the quarter and grew 1% year to date; excluding acquisitions and divestitures, it declined 9% and 1%, respectively.
- Quarterly segment EBITDA declined at Vistaprint ($67.4 million versus $82.6 million), The Print Group ($10.9 million versus $15.7 million), and National Pen (a loss of $1.2 million versus $0.1 million income). PrintBrothers increased to $8.7 million from $8.1 million; All Other Businesses increased to $3.2 million from a $1.1 million loss.
- At March 31, cash was $228.3 million. Debt, net of issuance costs and discounts, was $1,671.6 million, including $24.4 million current debt. Current assets of $439.4 million were below current liabilities of $480.9 million; shareholders’ equity was a deficit of $404.3 million.
- Nine-month investing cash outflow was $47.8 million and financing cash outflow was $36.8 million. Financing included $627.1 million of share repurchases and $41.4 million of withholding-tax payments on equity awards.
Material changes and unusual items
- A $100.8 million goodwill impairment was recorded in the quarter: full impairments for National Pen ($34.4 million) and VIDA ($26.0 million), and a partial impairment for Exaprint ($40.4 million). Management cited pandemic-related near-term cash-flow deterioration and lower long-term profit expectations.
- Nine-month net income includes a $114.1 million Swiss tax-reform benefit, largely expected to be realized during fiscal 2025–2030. In the quarter, Cimpress also recorded a $28.5 million valuation allowance against U.S. deferred tax assets. These tax items make reported earnings and the effective tax rate less indicative of recurring performance.
- Other income included $18.0 million of quarterly gains on derivatives not designated as hedges, contributing to volatility in reported results.
- Cimpress adopted the new lease standard on July 1, 2019. At March 31, operating lease assets were $164.4 million and operating lease liabilities totaled $171.7 million; prior-year balance-sheet comparisons are not on the same accounting basis.
- On April 10, 2020, VIDA repurchased Cimpress’s shares in the business, completing Cimpress’s planned exit. The company had recognized a $1.0 million disposal-group measurement loss.
Outlook, liquidity and risks
- Management said quarter-to-date revenue and adjusted EBITDA had grown through February, but demand declined materially in March. Bookings improved in the final weeks of April; Cimpress nevertheless expected a material negative impact on results for the quarter ending June 30, 2020. It expected recovery as restrictions eased, with National Pen’s recovery potentially lagging because of its direct-mail exposure. No quantified earnings or revenue guidance was provided.
- Management described cost reductions, cash preservation and continued protection of key technology and customer-value investments. It said cash, operating cash flow, revolver availability and the May financing actions were expected to fund obligations and operating needs for at least twelve months.
- Subsequent to quarter-end, on May 1, 2020, Cimpress amended its secured credit facility: maintenance covenants were suspended until publication of results for the quarter ending December 31, 2021, subject to new liquidity and EBITDA tests; the facility was reduced to $1.0 billion and its maturity moved to November 2024. During the suspension, minimum liquidity of $50 million and positive EBITDA are required in the quarters ending June 30 and September 30, 2021.
- Also on May 1, Cimpress raised $300 million from Apollo-affiliated funds through five-year second-lien notes bearing 12% interest and seven-year warrants for 1,055,377 shares. Proceeds were used to repay part of the term loan and cover financing-related costs. The amended facility restricts share repurchases and substantially limits acquisitions during the covenant-suspension period.
- COVID-19 was identified as a major risk to demand, earnings, cash flows, operations and customers, with potential future supplier disruption. Other disclosed exposures include substantial debt, covenant compliance after the suspension period, variable interest rates, foreign exchange volatility, and uncertain tax positions. A 100-basis-point rate increase was estimated to add approximately $5.6 million to interest expense over the next 12 months.
Important facts for investors to verify
- Whether the post-March demand recovery continued, and how the June 2020 quarter and subsequent periods compared with management’s expectations.
- Cash generation, available revolver capacity and compliance with the amended facility’s liquidity and EBITDA tests, including the effect of the $300 million high-coupon second-lien financing.
- Recurring operating performance excluding the goodwill impairment, unusual derivative gains and the Swiss tax benefit; review the company’s non-GAAP reconciliations alongside GAAP results.
- Whether long-term outlook assumptions for Exaprint and National Pen remain supportable after their impairments, and the financial effects of the completed VIDA exit.
- The scale of share repurchases, future capital-allocation restrictions and potential dilution from Apollo’s warrants.