Cimpress N.V. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2018, the first quarter of fiscal 2019. The filing is unaudited; financial amounts below are U.S. dollars.
Business context and financial results
Cimpress operates a decentralized group of mass-customization businesses selling printed products, signage, promotional products, apparel, and related offerings. Its reportable segments are Vistaprint, Upload and Print, National Pen, and All Other Businesses.
| Metric | Quarter ended Sep. 30, 2018 | Comparable 2017 period |
|---|---|---|
| Revenue | $589.0 million | $563.3 million |
| Gross profit / gross margin | $286.5 million / 48.6% | $279.5 million / 49.6% |
| Operating income (loss) | $(6.0) million | $46.6 million |
| Net income (loss) attributable to Cimpress | $(14.6) million | $23.4 million |
| Diluted earnings (loss) per share | $(0.47) | $0.72 |
| Cash from operating activities | $22.2 million | $16.4 million |
| Free cash flow, a non-GAAP measure | $(10.1) million | $(13.0) million |
Revenue increased 5% as reported, 6% at constant currency, and 8% at constant currency excluding acquisitions and divestitures. Segment revenue grew at Vistaprint (6%), Upload and Print (7%), and National Pen (10%); All Other Businesses revenue fell 33%, mainly reflecting the prior-year Albumprinter divestiture. Segment profit was $47.3 million at Vistaprint and $16.2 million at Upload and Print; National Pen recorded a segment loss of $18.0 million and All Other Businesses a loss of $9.6 million.
Liquidity, debt, and capital spending
At September 30, cash and cash equivalents were $48.1 million; current assets were $263.5 million and current liabilities $478.2 million. Total debt was $876.2 million before debt issuance costs and discounts ($863.6 million net on the balance sheet), compared with $839.4 million gross at June 30. Debt included $400 million of 7.0% senior notes due 2026 and borrowings under a senior secured credit facility. The company reported covenant compliance and $563.8 million available to borrow after stated covenant and other limitations.
Investing cash outflow was $49.6 million, including $21.0 million of property and equipment purchases, $11.2 million of capitalized software development, and an $18.0 million acquisition outlay. Financing provided $31.6 million net. Management said cash, operating cash generation, and committed borrowing capacity were expected to fund liabilities and planned investments. On October 1, after quarter-end, Cimpress acquired approximately 99% of BuildASign for $274.2 million in cash, funded through its credit facility; this increased debt after the reporting date.
Material changes, outlook, and risks
- Revenue accounting change: Cimpress adopted ASC 606 on July 1, 2018 using the modified retrospective method. National Pen direct-mail advertising costs are now expensed when mail is sent rather than capitalized and amortized over the customer response period. This added approximately $14.0 million of current-quarter expense and reduced reported net income by $11.2 million versus the prior accounting treatment; management said the timing change increases quarterly earnings volatility, should not materially affect annual results, and does not affect cash flow. The prior-year comparison was not restated.
- Drivers of operating loss: The prior-year quarter included a $47.5 million gain on the Albumprinter sale that did not recur. The ASC 606 expense timing also weighed on results. These were partly offset by Vistaprint and Upload and Print growth and efficiencies. Adjusted NOP, a non-GAAP measure, declined to $5.3 million from $10.4 million.
- Tax and currency items: A $5.6 million discrete tax charge followed IRS guidance on executive compensation deductions and the write-off of related deferred tax assets. Other income was $10.3 million, versus expense of $16.3 million a year earlier, largely reflecting derivative and currency gains; management expects continued volatility because many currency derivatives are not hedge-accounted.
- Management commentary: Management cited repeat-customer growth and product initiatives at Vistaprint, and growth and operating efficiencies at Upload and Print, while noting price-focused competition in some Upload and Print markets. National Pen revenue grew, but advertising levels and the new cost-recognition timing depressed quarterly profit; management expected some timing-related cost benefit to profit in the seasonally strong second quarter. The company expects losses to continue for several years in its early-stage All Other Businesses segment. No numerical full-year revenue or earnings guidance is stated in the provided filing text.
- Key risks and contingencies: Results are seasonal, with the second fiscal quarter disproportionately important. Risks include competition and price pressure, mobile conversion challenges, acquisition execution and integration, foreign-exchange and interest-rate exposure, cybersecurity and operational disruption, tax uncertainty, and substantial leverage. A 100-basis-point rate increase was estimated to raise next-12-month interest expense by approximately $2.2 million in the market-risk disclosure. Cimpress reported no material legal proceedings and did not expect current matters to materially affect results, cash flows, or financial position.
Most important facts for investors to verify
- How much of reported National Pen and consolidated quarterly weakness reflects ASC 606 timing, and whether the expected second-quarter profit benefit materializes.
- Post-BuildASign debt, borrowing capacity, covenant headroom, and the acquisition’s price, financing, and subsequent operating contribution.
- Whether revenue growth and segment profitability persist amid competition, customer-acquisition spending, and seasonal concentration in the second quarter.
- Cash conversion and investment needs, including negative free cash flow, working-capital requirements, and planned capital allocation.
- Potential changes in tax balances and cash taxes, and the continuing earnings volatility from currencies, derivatives, and interest rates.