Filing summary
Filing identity: The supplied filing is for Vistaprint N.V., not CIMPRESS Plc. It reports the three and nine months ended March 31, 2013 (fiscal 2013 Q3), with comparisons to the same 2012 periods. The financial statements are unaudited.
Business context and results
Vistaprint sells customized printing, promotional products, marketing services, and digital solutions, primarily to micro businesses. It is investing in customer experience, marketing, technology, manufacturing efficiency, and geographic and product expansion.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $287.7 million, up 12% | $887.4 million, up 15% |
| Operating income / margin | $9.7 million / 3.4%; prior year $7.8 million / 3.0% | $43.0 million / 4.8%; prior year $50.1 million / 6.5% |
| Net income | $5.9 million; prior year $0.3 million | $27.1 million; prior year $40.1 million |
| Diluted EPS | $0.17; prior year $0.01 | $0.78; prior year $1.01 |
| Operating cash flow | Not separately provided for the quarter | $103.3 million; prior year $121.3 million |
| Cash and cash equivalents | $51.3 million at March 31, 2013 | Down $10.9 million from June 30, 2012 |
| Debt | $238.5 million outstanding | Up from $229.0 million at June 30, 2012 |
Quarterly cost of revenue was 34.5% of revenue, unchanged year over year; quarterly gross margin was therefore 65.5%. For the nine-month period, cost of revenue improved to 34.0% from 34.6%. Increased technology and development and marketing investment weighed on nine-month operating margin and earnings. Interest expense rose to $3.7 million for nine months from $0.9 million, principally because of increased borrowings.
Constant-currency revenue growth was 12% for the quarter and 17% year to date; constant-currency organic growth was 11% and 13%, respectively. North America was the strongest large region. Organic European growth was 5% constant currency for the quarter and 6% for nine months. Trailing-twelve-month unique active customers rose 14% to 15.7 million, while average bookings per active customer declined 1% to $68.
Financial position and cash flows
At March 31, 2013, current assets were $104.4 million and current liabilities were $154.0 million, a working-capital deficit of $49.6 million. The company stated that cash, operating cash flow, and borrowing capacity should be adequate for working capital and planned investments for the foreseeable future. It reported $237.3 million of borrowing availability after covenant and other limitations.
Nine-month investing cash outflow was $84.1 million, including $66.5 million of capital expenditures and $12.8 million invested in Namex. Financing cash outflow was $30.5 million, including $36.3 million of share repurchases, partly offset by debt proceeds. Capital expenditure spending included facility construction and manufacturing and automation equipment.
A February 2013 amended credit agreement provides a $500 million secured facility; the company had $238.5 million outstanding and was in compliance with its financial covenants. Outstanding borrowings had a 1.98% weighted-average interest rate. The facility includes leverage and interest-coverage tests and restrictions on, among other things, capital expenditures and share repurchases.
Changes, outlook, and notable items
- Management said revenue growth was below historical trends and expected it to remain so for at least the rest of fiscal 2013. Weak European performance put significant pressure on the company’s 2016 revenue target; management continued to target its 2016 net income goal.
- Fiscal 2013 capital expenditures were expected to total approximately $85 million to $95 million, versus $66.5 million spent through March 31, primarily to expand manufacturing capacity in Europe and India and support technology and operations.
- Management attributed lower nine-month EPS partly to planned spending on advertising, technology, manufacturing and supply-chain initiatives, and additional personnel. Acquisitions and the Namex investment also diluted earnings; related share-based compensation, amortization, and equity-method losses totaled $14.3 million for nine months.
- The estimated useful life of capitalized software and website development costs changed from two to three years, increasing pre-tax income by approximately $2.1 million year to date. A change in interim cash-incentive accrual practice reduced Q3 pre-tax income by $1.6 million; management said the change does not affect full-year net income, but would negatively affect Q4 earnings, subject to actual award expectations.
- The 34.5%-owned Namex investment generated a $1.0 million equity-method loss year to date. Vistaprint committed a further $5.0 million by October 1, 2013; its stated exposure also includes invested capital and ordinary ownership risks.
- Tax matters include an IRS dispute concerning Vistaprint Limited for 2007–2009 and examinations or assessments in Canada and Massachusetts. The company believes its positions and reserves are appropriate but acknowledged that final resolution could materially affect financial condition, results, or cash flows. Unrecognized tax benefits were approximately $6.0 million.
- The January 2013 goodwill impairment test found no impairment. The Albumprinter earn-out liability was reduced to zero because its targets were not achieved. No material legal proceedings were reported.
Important facts for investors to verify
- Confirm the issuer and period: the supplied document is Vistaprint N.V.’s Form 10-Q, not a CIMPRESS Plc filing.
- Track European organic growth and the causes of performance below historical trends, along with progress toward management’s revenue and net-income targets.
- Assess whether planned spending and elevated capital expenditures improve customer growth, operating efficiency, and profitability; monitor the expected fiscal 2013 capex range.
- Review liquidity, working-capital deficit, debt costs, covenant headroom, and the impact of share repurchases on cash and borrowing capacity.
- Monitor tax examinations and disputes, including potential cash exposure, and the Namex funding commitment and investment performance.
- Consider the earnings effects of the software-life estimate and incentive-accrual change when comparing periods, and distinguish reported growth from constant-currency and organic measures.