Cimpress N.V. — Form 10-Q Summary
Reporting period: Three and six months ended December 31, 2017 (fiscal 2018 second quarter and year to date). Amounts are in U.S. dollars; financial statements are unaudited.
Business context
Cimpress sells customized print, signage, apparel and related products, primarily online, through Vistaprint and acquired brands. Its reportable segments are Vistaprint, Upload and Print, National Pen, and All Other Businesses. National Pen was acquired in December 2016; Albumprinter was sold on August 31, 2017. Segment comparisons reflect revised presentation of inter-segment fulfillment revenue and certain IT costs.
Financial performance
| Metric | Three months ended Dec. 31 | Six months ended Dec. 31 |
|---|---|---|
| Revenue | $762.1 million, up 32% reported; up 27% at constant currency and 11% excluding recent acquisitions/divestitures | $1,325.3 million, up 30% reported; up 26% at constant currency and 11% excluding recent acquisitions/divestitures |
| Gross margin | 52.7%, versus 52.1% | 51.4%, versus 52.0% |
| Operating income | $72.7 million, versus $33.7 million | $119.3 million, versus $5.9 million |
| Net income attributable to Cimpress | $29.9 million, versus $35.0 million; diluted EPS $0.93, versus $1.07 | $53.3 million, versus $5.9 million; diluted EPS $1.65, versus $0.18 |
| Adjusted net operating profit (non-GAAP) | $93.7 million, versus $57.3 million | $104.1 million, versus $60.0 million |
| Cash from operations | Not presented separately for the quarter | $176.7 million, versus $114.7 million |
| Free cash flow (non-GAAP) | Not presented separately for the quarter | $119.7 million, versus $59.2 million |
Quarterly operating income improved with revenue growth, Vistaprint performance and the absence of prior-year production inefficiencies. Net income nevertheless fell year over year in the quarter, partly reflecting the reversal from prior-period foreign-exchange and derivative gains to current-period losses and higher interest expense. For the six-month comparison, operating income includes a $47.5 million gain on the Albumprinter sale; the prior period included no such gain.
Segments, cash, debt and liquidity
- Second-quarter revenue and segment profit: Vistaprint $428.9 million and $99.0 million; Upload and Print $192.5 million and $22.5 million; National Pen $126.1 million and $17.6 million. All Other Businesses recorded a $8.6 million segment loss.
- At December 31, cash and equivalents were $40.1 million. Gross debt, excluding issuance costs and discounts, was $708.6 million, compared with $882.6 million at June 30; balance-sheet debt net of those costs was $700.5 million. Total debt included $425.5 million under the secured facility and $275.0 million of 7.0% notes due 2022.
- The company reported $489.8 million available to borrow under its secured facility after covenant and other limitations. It was in compliance with debt covenants. Management expected cash, operating cash flow and committed financing to cover liabilities and planned investments for at least the next 12 months.
- Six-month investing cash flow was positive $35.9 million, principally reflecting $93.8 million of net Albumprinter sale proceeds; financing cash flow was negative $213.7 million, including $179.4 million of net debt repayments and $55.1 million of share repurchases. Capital expenditures were $38.7 million.
Changes, outlook and notable items
- Reported growth benefited materially from National Pen, which had no comparable prior-year quarter, and favorable currency translation. Excluding acquisitions and divestitures, constant-currency growth was 11% in both the quarter and six-month period.
- Vistaprint’s November reorganization generated $11.5 million of second-quarter restructuring charges. Management expects fiscal 2018 savings of $8–10 million net of restructuring charges, expects some savings in future periods, and plans to reinvest a portion. It did not expect additional material charges for this initiative.
- The company sold Albumprinter for approximately $93.1 million net of transaction costs and cash divested, and recorded a $47.5 million gain. It also sold approximately 12% of WIRmachenDRUCK for $35.4 million. The $48.0 million WIRmachenDRUCK earn-out liability was paid January 2, 2018.
- The U.S. Tax Cuts and Jobs Act caused a $4.7 million increase in quarterly tax expense from deferred-tax remeasurement. Management expected the tax changes, based on its current interpretation, to be net favorable to fiscal 2018 cash taxes and forecast a more favorable annual effective tax rate than fiscal 2017, excluding discrete items.
- National Pen is highly seasonal, with management expecting its second quarter to include most of its fiscal 2018 profits. Management also noted that second-quarter holiday demand is seasonally significant. All Other Businesses’ early-stage operations are expected to continue generating significant operating losses for the next several years.
- Foreign-exchange movements and non-hedge-accounted derivatives caused substantial earnings volatility; management expected that volatility to continue. Interest expense was higher year over year, and the filing says it expects higher expense due to borrowing levels, rates and leases. The filing gives inconsistent estimates for the impact of a 100-basis-point rate increase: $3.3 million in one market-risk disclosure and $10.5 million in another.
Key investor verification points
- Reconcile the $3.3 million versus $10.5 million interest-rate sensitivity disclosures and confirm the company’s current exposure after swaps.
- Assess underlying growth and profitability apart from National Pen, Albumprinter, currency effects, the Albumprinter gain and other acquisition-related or restructuring items.
- Track delivery of the $8–10 million fiscal 2018 restructuring savings, including reinvestment and any effects on customer service or growth.
- Monitor debt, covenant headroom, interest costs and cash requirements, including the effect of the January 2018 earn-out payment and planned investments or repurchases.
- Verify subsequent tax-reform guidance and the evolution of tax reserves, as tax positions and interpretations could change and affect cash flows or results.