Cimpress N.V. — FY2019 Form 10-K summary
Period: Fiscal year ended June 30, 2019. Although the request metadata refers to 2018 Q4, this filing reports FY2019; its fourth quarter ended June 30, 2019. Amounts are U.S. dollars unless stated otherwise.
Business context and reporting period
Cimpress operates a decentralized group of mass-customization businesses selling printed products, signage, photo merchandise, promotional products, apparel, packaging and related items. Its five reportable segments are Vistaprint, PrintBrothers, The Print Group, National Pen and All Other Businesses. Management’s stated financial priority is maximizing long-term intrinsic value per share, accepting that investment choices may produce near-term fluctuations.
In fiscal 2019, Cimpress acquired BuildASign and VIDA, reorganized its former Upload and Print segment into PrintBrothers and The Print Group, and changed its parent company’s tax residence from the Netherlands to Ireland.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $2,751.1 million | $2,592.5 million |
| Revenue growth | 6% reported; 9% constant currency; 5% constant currency excluding acquisitions and divestitures | — |
| Gross margin | 49.1% | 50.6% |
| Operating income | $163.6 million; 5.9% of revenue | $157.8 million |
| Net income attributable to Cimpress | $95.1 million; diluted EPS $3.00 | $43.7 million; diluted EPS $1.36 |
| Cash from operations | $331.1 million | $192.3 million |
| Adjusted free cash flow (non-GAAP) | $211.8 million | $139.5 million |
| Adjusted net operating profit (non-GAAP) | $253.2 million | $165.5 million |
| Net interest expense | $63.2 million | $53.0 million |
Revenue increased 6%; excluding acquisition and divestiture effects, constant-currency growth was 5%. Operating income rose modestly, while net income increased substantially, including a favorable year-over-year swing in other income: a $26.5 million gain in FY2019 versus a $21.0 million loss in FY2018. The FY2018 comparison also included a $47.5 million gain on the Albumprinter sale and a $17.4 million early debt-extinguishment loss. FY2019 adjusted NOP and adjusted free cash flow are non-GAAP measures and should be read with their filed reconciliations.
At June 30, 2019, cash and cash equivalents were $35.3 million, total debt was $1,035.6 million before debt issuance costs and discounts, and net current liabilities were $280.4 million. The company reported $603.8 million of borrowing availability under its senior secured facility after covenant and other limits. It was in compliance with debt covenants. Total assets were $1,868.4 million and shareholders’ equity was $131.8 million.
FY2019 investing cash outflow was $420.2 million, chiefly reflecting $289.9 million of acquisitions, $70.6 million of property and equipment purchases, and $48.7 million of capitalized software and website development. Financing cash inflow was $82.0 million. Debt included $400 million of 7.0% notes due 2026 and $621.2 million of borrowings under the variable-rate credit facility.
Fourth-quarter revenue was $674.7 million, versus $631.1 million in FY2018 Q4. Fourth-quarter net income was $33.2 million, compared with a $5.6 million net loss a year earlier. The second fiscal quarter is highly seasonal: it generated 55% of annual operating income in FY2019.
Material changes versus the prior year
- Reported revenue rose 6%; currency movements reduced reported growth, while BuildASign contributed to the increase. Organic constant-currency growth excluding acquisitions and divestitures was 5%.
- Gross margin declined from 50.6% to 49.1%, primarily due to Vistaprint product mix and discounting, as well as higher paper costs at several businesses.
- Operating income increased $5.8 million. Lower Vistaprint advertising spend and reduced share-based compensation expense helped offset the nonrecurrence of the prior-year Albumprinter sale gain.
- Cash from operations increased $138.8 million. Management attributed cash generation in part to changes in operating assets and liabilities, including higher accounts payable and accrued expenses.
- Debt increased, including borrowings used to fund the $275.1 million BuildASign acquisition. Interest expense rose $10.1 million year over year.
- National Pen segment profit fell to $9.8 million from $22.2 million amid weaker revenue performance and increased e-commerce and marketing investment. Vistaprint segment profit increased to $275.3 million from $241.5 million.
Outlook, commentary, risks and unusual items
Outlook: The filing provides no numerical FY2020 revenue, earnings or cash-flow guidance. Management expects FY2020 operating-income trends to benefit from a full-year impact of Vistaprint advertising reductions and lower investment in early-stage businesses and National Pen. Higher Vistaprint technology spending is expected to weigh on operating income. Management said available cash, operating cash flows and committed financing should be sufficient for liabilities and planned investments, while noting that capital allocation among organic investment, share repurchases, acquisitions and debt reduction will depend on opportunities.
Business and execution risks: Competition is intense and may pressure pricing, advertising costs and margins. Mobile access has negatively affected Vistaprint conversion rates. Management cited slower Vistaprint growth following advertising reductions, National Pen prospecting payback below expectations and supply-chain delays, and continued competition in print businesses.
Debt, seasonality and market risks: Debt covenants restrict borrowing, acquisitions, repurchases and other actions; variable-rate borrowings expose the company to higher interest costs. A 100-basis-point rate increase was estimated to add about $1.0 million of interest expense over the next 12 months, after swaps. Seasonal demand makes the holiday quarter especially important. Currency hedges that generally do not qualify for hedge accounting can cause earnings volatility.
Unusual items and estimates: Cimpress recorded a $7.5 million goodwill impairment for Printi following underperformance, restructuring and lower cash-flow forecasts; it also reduced the estimated redemption value of certain Printi-related obligations to zero and reserved against related loan receivables. A $15.4 million cumulative expense for supplemental performance share units was reversed when achievement was no longer considered probable. FY2019 included $12.1 million of restructuring expense, primarily at Vistaprint; some additional FY2020 charges were expected. The parent’s February 2019 tax-residence change and tax-authority audits could affect future tax expense or cash flows. Adoption of the new lease standard on July 1, 2019 was expected to recognize approximately $165 million of lease assets and $170 million of lease liabilities, with a change in presentation of related expense and cash flows.
The company reported no material legal proceedings and said current matters were not expected to have a material adverse impact. It does not anticipate paying cash dividends in the foreseeable future. A share-repurchase authorization permits purchases of up to 5.5 million shares through May 13, 2020, subject to restrictions.
Important facts for investors to verify
- Reconcile reported growth, constant-currency growth and acquisition effects, particularly the contribution and post-acquisition performance of BuildASign.
- Review the non-GAAP reconciliations for adjusted NOP and adjusted free cash flow, including the role of currency-derivative gains and losses.
- Assess cash conversion and liquidity alongside net current liabilities, debt maturities, covenant limits and planned investment or repurchases.
- Monitor gross-margin trends, Vistaprint customer conversion after advertising changes, and National Pen prospecting returns and supply-chain performance.
- Evaluate Printi’s revised operating plans and impairment assumptions, and whether early-stage business losses decline as management expects.
- Track tax-residence consequences, open tax audits and the potential realization of deferred tax assets; confirm the effects of the new lease accounting standard.
- Consider seasonality: the second quarter generated 55% of FY2019 operating income, so annual performance is sensitive to holiday-period execution.