Cimpress N.V. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2016 (the first quarter of fiscal 2017), compared with the three months ended September 30, 2015. Cimpress operates an online mass-customization business, selling print, signage, apparel and related products through a portfolio of brands.
Key financial results
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $443.7 million | $375.7 million |
| Operating income (loss) | $(27.8) million | $12.1 million |
| Net income (loss) attributable to Cimpress | $(29.1) million | $10.8 million |
| Basic and diluted earnings (loss) per share | $(0.92) | $0.33 basic; $0.32 diluted |
| Cash from operating activities | $9.6 million | $27.4 million |
| Cash and cash equivalents at period end | $53.6 million | $93.8 million |
Revenue increased 18% as reported and 19% at constant currency; constant-currency growth excluding acquisitions was 6%. Gross margin, calculated as revenue less cost of revenue, was approximately 51.8%, down from 58.1%. Operating margin was -6.3% versus 3.2%, and net margin was -6.8% versus 2.7%. Adjusted NOPAT, a non-GAAP measure, was $(4.7) million versus $16.4 million.
Segments and material changes
- Vistaprint: Revenue rose 7% reported (8% constant currency) to $285.4 million. Repeat bookings supported growth, while shipping-price reductions and flooding at a North American production facility weighed on results.
- Upload and Print: Revenue grew 72% to $132.0 million, including $46.7 million from fiscal 2016 acquisitions. Constant-currency growth excluding acquisitions was 12%.
- All Other: Revenue declined 17% to $26.3 million (19% lower at constant currency), principally due to terminated Corporate Solutions and Albumprinter partner contracts.
The operating loss reflected higher costs and investments, including acquisition-related amortization, increased technology and marketing spending, and sharply higher general and administrative expense. G&A included approximately $16.0 million of WIRmachenDRUCK earn-out-related expense, including accelerated compensation expense and a higher estimated contingent liability. The quarter also included incremental share-based compensation under a new incentive plan and a one-time Tradeprint award-vesting acceleration expense.
Cash, debt and liquidity
Operating cash flow fell to $9.6 million, while investing activities used $27.5 million, including $19.3 million of property, plant and equipment purchases and $8.3 million of capitalized software and website development. Financing activities used $6.6 million; cash declined $23.8 million during the quarter.
At September 30, cash was $53.6 million and debt was $689.5 million before debt issuance costs and discounts ($682.5 million net on the balance sheet). Current assets of $175.2 million were below current liabilities of $331.7 million. The company reported $419.3 million available under its secured credit facility and compliance with debt covenants. Management said available cash, operating cash flow and committed borrowing capacity were expected to cover liabilities and planned investments for the foreseeable future.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management described planned investment in the mass-customization platform, technology and production capacity, product development, new markets, Corporate Solutions, acquisitions, share repurchases and debt reduction.
- Management expects the flooding-related production backlog to affect revenue and profit in Q1, with the impact expected to be recognized in Q2; the filing does not quantify the expected recovery.
- The business is highly seasonal: the second fiscal quarter includes the holiday period and historically generated more than 60% of annual operating income in each of the three fiscal years cited. Results may vary materially as investments, seasonality, pricing, acquisitions and partner-contract changes affect performance.
- Currency movements remain a source of earnings volatility. The quarter included $2.1 million of other expense, compared with $9.2 million of other income a year earlier, largely reflecting currency-related losses. A hypothetical 100-basis-point rate increase was estimated to add approximately $3.4 million to interest expense over 12 months.
- Other key exposures include substantial debt and restrictive covenants, acquisition integration and earn-out estimates, competition, operational interruptions, and tax and regulatory uncertainty. The filing disclosed no material legal proceedings and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether the production backlog caused by North American flooding was recovered in Q2 and what financial impact remained.
- How WIRmachenDRUCK performs against its earn-out targets and whether the $19.2 million estimated liability changes.
- Whether revenue and profitability improve in Vistaprint and All Other, given partner-contract losses, planned investment and pricing changes.
- Cash generation, capital spending and debt levels relative to the $419.3 million of reported facility availability and covenant limits.
- How seasonality, foreign-exchange movements, variable interest rates and tax exposures affect subsequent results.