Cimpress N.V. Form 10-Q Summary
Period clarification: The filing is for the quarter and nine months ended March 31, 2016 (the third quarter of Cimpress’s fiscal 2016), not fiscal 2015. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and reporting period
Cimpress operates an internet-based mass-customization platform selling customized print, signage, apparel and related products through a portfolio of brands. Its reportable segments are Vistaprint, Upload and Print, and All Other. The company revised its segment structure during fiscal 2016.
Key financial metrics
| Metric | Three months ended March 31, 2016 | Nine months ended March 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $436.8; up 29% | $1,308.8; up 18% | $339.9 quarter; $1,113.7 nine months |
| Operating income (loss) | $(17.5) | $62.2 | $4.3 quarter; $81.1 nine months |
| Net income (loss) attributable to Cimpress | $(33.4) | $35.0 | $8.6 quarter; $95.9 nine months |
| Diluted earnings (loss) per share | $(1.06) | $1.07 | $0.25 quarter; $2.85 nine months |
| Operating cash flow | $183.5 for nine months | $192.4 for nine months |
Quarterly gross margin was approximately 54.8%, versus 63.1% a year earlier; nine-month gross margin was approximately 57.8%, versus 63.0%. Operating margin was (4.0)% for the quarter and 4.7% year to date, compared with 1.3% and 7.2%, respectively.
Management’s non-GAAP adjusted NOPAT was $24.0 million for the quarter and $122.9 million for nine months, versus $15.5 million and $105.3 million in the comparable periods. This measure excludes specified items and should not be read as GAAP income.
At March 31, cash and cash equivalents were $76.7 million, with $6.2 million of marketable securities. Total debt, before debt issuance costs and discounts, was $704.4 million, including $275.0 million of 7.0% senior notes due 2022 and $417.7 million under the secured credit facility. Cash less debt was approximately $(627.7) million. Current assets of $204.2 million were below current liabilities of $338.0 million. The company reported $414.7 million available under its credit facility, subject to borrowing restrictions, and stated it was in compliance with debt covenants.
Material changes versus the prior comparable period
- Reported quarterly revenue rose 29%; constant-currency growth was 31%, or 10% excluding acquisitions. For nine months, reported growth was 18%; constant-currency growth was 24%, or 11% excluding acquisitions.
- Acquisitions drove a substantial portion of growth. Upload and Print revenue increased 201% for the quarter and 136% year to date, including acquired brands. WIRmachenDRUCK, acquired February 1, contributed $28.4 million of quarterly revenue.
- Quarterly operating results moved to a loss, primarily due to a $30.8 million Exagroup goodwill impairment and losses on abandoned production equipment. The impairment reflected a weaker outlook amid increased competition and lower expected long-term margins.
- Cost of revenue rose to 45.2% of quarterly revenue from 36.9%, partly because Upload and Print has a lower gross-margin profile. Interest expense increased to $10.1 million for the quarter and $28.4 million year to date, from $3.1 million and $9.5 million.
- Cash from operations declined $8.9 million year to date. Investing used $239.3 million, including $162.4 million for acquisitions and $62.6 million of property, plant and equipment purchases. Financing provided $30.0 million, including debt proceeds and $153.5 million spent on share repurchases.
Outlook, commentary and risks
The filing provides no clear quantified full-year revenue or earnings guidance. Management said available cash, operating cash flow and committed borrowing capacity should be sufficient for liabilities and planned investments for the foreseeable future. Its stated priorities include investment in the mass-customization platform, products, capacity and employees, as well as acquisitions, share purchases and debt reduction.
Management cited stronger Vistaprint growth in North America and Australia than in some European markets, where customer-value proposition changes remain necessary. It also reported continued growth in acquired Upload and Print brands, while All Other faced partner-related revenue declines and planned investment in emerging markets. Management expects interest expense to remain higher than historical levels and foreign-exchange effects to remain volatile, including from currency contracts not designated for hedge accounting.
Notable risks include competition and pricing pressure, execution and integration of acquisitions, the Exagroup outlook and goodwill recoverability, foreign-exchange and variable-rate debt exposure, seasonality, and the ability to fund debt service and investments. A 100-basis-point rate increase was estimated to add approximately $3.1 million of interest expense over 12 months, after swaps. The filing also identifies tax-audit and uncertain-tax-position exposure; no material legal proceedings were reported.
Unusual items include the Venlo production-facility fire: the company received $9.7 million of insurance proceeds and recognized $6.6 million as a reduction of cost of revenue and a $3.1 million gain on equipment recovery during the nine months. It expected to finalize the claim by fiscal year-end. The company also recorded $9.8 million of equipment-abandonment losses year to date.
Important facts for investors to verify
- Whether underlying revenue and profitability growth persists after separating acquisition contributions and currency effects.
- Whether Exagroup’s performance improves against the revised outlook and whether further impairment is required.
- Debt, interest costs, covenant headroom and liquidity after acquisitions, capital spending and share repurchases.
- Whether insurance proceeds fully cover the Venlo fire-related costs and whether operations have returned to normal.
- Progress on customer-value changes in Europe, partner-related revenue weakness, and investment returns in the mass-customization platform and emerging markets.