Business context and reporting period
Vistaprint N.V. (now known as Cimpress) filed this Form 10-Q for the three months ended September 30, 2014, its first quarter of fiscal 2015. The company sells customized print and related products through online brands and automated manufacturing operations. It reorganized reporting into the Vistaprint Business Unit and All Other Business Units.
Financial performance
| Metric | Quarter ended Sep. 30, 2014 | Prior-year quarter |
|---|---|---|
| Revenue | $333.9 million | $275.1 million |
| Income from operations | $16.9 million; 5.1% of revenue | $8.4 million; 3.1% of revenue |
| Net income attributable to Vistaprint | $23.7 million; diluted EPS $0.71 | $0.4 million; diluted EPS $0.01 |
| Operating cash flow | $52.6 million | $(0.1) million |
| Cash and cash equivalents | $60.9 million | $64.7 million |
| Total debt | $447.9 million | $448.1 million at June 30, 2014 |
Revenue rose 21% reported and 21% in constant currency; constant-currency growth excluding recent acquisitions was 6%. Cost of revenue increased to 39.0% of revenue from 34.8%, reflecting acquired businesses’ lower gross margins. Marketing and selling expense declined as a share of revenue to 33.5% from 37.2%. Other income was $12.1 million, versus a $4.8 million expense, principally from currency gains, including gains on derivatives and intercompany balances. The reported earnings increase therefore includes significant currency-related benefits.
Vistaprint Business Unit revenue increased 6% to $271.7 million and operating income rose to $77.1 million from $64.9 million. All Other Business Units revenue increased to $62.2 million from $19.3 million, primarily due to acquisitions; the segment reported an operating loss of $5.8 million, compared with a $6.2 million loss.
Liquidity, debt and capital allocation
Current assets were $144.3 million and current liabilities were $218.9 million at September 30, 2014. The company reported $9.4 million of marketable securities in addition to cash. It generated $52.6 million of operating cash flow and used $46.2 million in investing activities, including $25.9 million for acquisitions and investments and $16.7 million for property and equipment. The credit facility was amended to $850 million of commitments, with maturity extended to September 23, 2019. Reported borrowing availability, after covenant and other limitations, was $268.1 million; the company said it was in compliance with covenants.
Changes, outlook and risks
- Recent acquisitions of People & Print Group and Pixartprinting drove much of the reported growth in All Other Business Units; FotoKnudsen was acquired on July 1, 2014. The company also consolidated Printi, a Brazilian business, after an $8.2 million investment for a 41.6% interest and related rights.
- Management described ongoing work to improve Vistaprint customer value and loyalty. It noted that reducing deep discounts and advertising has weighed on growth in some markets, while repeat customer activity and average order value improved.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management forecast fiscal 2015 capital expenditures of approximately $80–$100 million, including about $20 million for a Japan manufacturing facility and $20–$25 million for product selection and manufacturing capabilities. It expected a lower annual effective tax rate than in fiscal 2014, but cash taxes above tax expense.
- Key exposures include currency and interest-rate volatility, acquisition integration and contingent earn-outs, seasonality (with the holiday quarter disproportionately important), competition and customer acquisition costs, and credit-facility covenants. Management estimated a 100-basis-point interest-rate increase would add about $1.7 million to interest expense over 12 months.
- Tax matters include an IRS dispute concerning a Bermuda subsidiary and Massachusetts assessments concerning royalty income. The company said reserves were adequate but acknowledged final resolution could materially affect financial condition, results or cash flows. It also reported $18.6 million of contingent consideration for acquisitions and $33.2 million of unrecorded purchase commitments.
Important facts for investors to verify
- How much of future revenue growth and profitability comes from acquired businesses versus organic growth, particularly the 6% constant-currency growth excluding acquisitions.
- Whether operating performance remains strong when currency gains reverse or are smaller; assess results excluding the $12.1 million of other income.
- Progress on the acquired businesses’ margins, integration, and performance conditions underlying contingent consideration.
- Available liquidity and covenant headroom alongside planned capital expenditures, acquisition spending, and debt servicing.
- Developments in the IRS and Massachusetts tax disputes, and any resulting change to tax reserves or cash requirements.