Cimpress plc — Form 10-Q Summary
Period: Fiscal third quarter and first nine months ended March 31, 2021. The request metadata says “2020 Q3,” but the filing is for the quarter ended March 31, 2021 (fiscal 2021 Q3).
Business context
Cimpress operates a group of mass-customization businesses selling print, signage, photo products, promotional goods, packaging, apparel and related services. Its five reportable segments are Vistaprint, PrintBrothers, The Print Group, National Pen and All Other Businesses.
Financial performance
| Metric | Three months ended Mar. 31 | Nine months ended Mar. 31 |
|---|---|---|
| Revenue | $578.9m, down 3% year over year; organic constant-currency revenue down 10% | $1,951.5m, down 5%; organic constant-currency revenue down 9% |
| Operating income (loss) | $(15.7)m vs. $(87.7)m | $114.5m vs. $59.2m |
| Net income (loss) attributable to Cimpress | $(39.1)m vs. $(84.9)m | $(17.5)m vs. $125.4m |
| Adjusted EBITDA | $55.0m vs. $70.9m | $286.9m vs. $335.9m |
| Cash from operations | Not presented as a quarterly figure in the supplied filing text | $218.9m vs. $284.1m |
| Adjusted free cash flow | Not presented as a quarterly figure in the supplied filing text | $150.9m vs. $209.6m |
Quarterly cost of revenue was 52.2% of revenue, versus 51.8% a year earlier, implying gross margin of approximately 47.8% versus 48.2%. Operating expenses included $19.9m of lease-related impairment and abandonment charges. At March 31, cash was $36.4m; debt was $1,341.2m net of issuance costs and discounts, or $1,384.1m before those adjustments. Shareholders’ deficit was $404.8m.
Changes and segment trends
- Quarterly revenue decline reflected pandemic restrictions and reduced demand, partially offset by Vistaprint growth and strength in All Other Businesses. Vistaprint revenue rose 4% reported but fell 5% on an organic constant-currency basis; PrintBrothers, The Print Group and National Pen revenue fell 14%, 13% and 9%, respectively.
- All Other Businesses revenue increased 12% and segment EBITDA increased to $6.5m from $3.2m, driven principally by BuildASign. National Pen recorded a quarterly segment EBITDA loss of $3.3m, including losses and inventory reserves tied to disposable masks.
- Operating loss improved year over year mainly because the prior-year quarter included a $100.8m goodwill impairment. Adjusted EBITDA nevertheless declined, reflecting lower pandemic-affected revenue.
- Nine-month operating income also benefited from the absence of the prior-year impairment. The prior-year nine-month net result included a $114.1m discrete Swiss tax-reform benefit, making the net-income comparison unusually favorable to 2020.
Liquidity, debt and outlook
Nine-month operating cash flow declined by $65.1m year over year. Investing cash use was $101.1m, including $45.3m of capitalized software and website development, $22.7m of property and equipment purchases, and the 99designs acquisition. Financing cash use was $130.2m; cash declined $8.7m from June 30, 2020.
Unused revolver capacity available under the leverage-based calculation was $267.8m at quarter-end; the filing states $516.0m could be available in a leverage-neutral refinancing. Cimpress reported compliance with debt covenants. It expects a senior secured Term Loan B financing, announced after quarter-end, to refinance existing secured debt, redeem the 12% Second Lien Notes and add liquidity; the transaction was expected in fiscal Q4 2021 and was not assured to close.
Management said pandemic restrictions continued to weigh on most businesses, but March demand improved in some markets as restrictions eased and comparisons began to include prior-year pandemic declines. It expects results to remain volatile with restrictions, while year-over-year growth may improve as depressed comparison periods are lapped. Management did not provide a quantified revenue or earnings forecast and said it could not forecast the pandemic recovery timeline. It expects substantial future savings from the reduced office footprint.
Risks, contingencies and unusual items
- COVID-19 restrictions, demand shifts and differing recovery rates by geography remain significant uncertainties. Goodwill testing found no impairment in the three reporting units assessed this quarter, but valuation depends on forecast cash flows and assumptions.
- Currency movements and derivatives can cause significant earnings volatility; most currency contracts are not designated for hedge accounting. A hypothetical 10% currency move was estimated to affect near-term pretax income by $3.3m for the three-month period.
- Debt is substantial and subject to leverage and interest-coverage covenants. The planned refinancing, redemption and liquidity benefits depend on execution.
- Unrecorded purchase commitments totaled $211.3m. Deferred acquisition payments and other obligations totaled $44.7m, including $43.7m related to 99designs. No material legal proceedings were reported; tax audit outcomes could affect results or cash flows.
- Quarterly results included $19.9m of lease and abandoned-asset charges; the company said the related footprint changes should reduce future costs. The 99designs acquisition purchase price was $88.7m, with $43.7m deferred.
Most important facts to verify
- Whether the Term Loan B financing closed as planned, the final terms, and whether the Second Lien Notes were redeemed.
- Subsequent revenue, bookings and margins as pandemic restrictions eased, particularly in Europe and National Pen.
- Actual cash generation, revolver availability and covenant headroom relative to the company’s debt service obligations.
- Whether lease-footprint savings materialize and whether any goodwill or long-lived-asset impairment triggers emerge.
- The effect of currency and derivative volatility, and the resolution of tax uncertainties.