Cimpress plc — Form 10-Q summary
Reporting period: Three months ended September 30, 2022, the first quarter of fiscal 2023. The filing is for the quarter ended September 30, rather than calendar 2022 Q1. Cimpress operates a portfolio of mass-customization businesses serving print and related product markets.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2022 | Prior-year quarter |
|---|---|---|
| Revenue | $703.4 million | $657.6 million |
| GAAP operating income (loss) | $(18.0) million | $16.9 million |
| Net loss attributable to Cimpress | $(25.4) million | $(6.7) million |
| Diluted loss per share | $(0.97) | $(0.26) |
| Adjusted EBITDA (non-GAAP) | $45.6 million | $67.6 million |
| Cash from operating activities | $(25.3) million | $36.6 million |
| Adjusted free cash flow (non-GAAP) | $(52.3) million | $12.3 million |
Revenue grew 7% reported, 15% at constant currency, and 14% at constant currency excluding acquisitions and divestitures. Cost of revenue was 53.7% of revenue, compared with 51.5%, implying gross margins of 46.3% and 48.5%, respectively. Operating margin was approximately (2.6)%, versus 2.6% in the prior-year quarter.
At September 30, cash and cash equivalents were $132.1 million and marketable securities were $124.2 million. Debt was $1.683 billion before debt issuance costs and discounts; reported debt net of those items was $1.664 billion. Cash plus marketable securities totaled approximately $256.3 million. The $250 million revolving facility was undrawn, with $243.8 million available. Cimpress reported compliance with debt covenants. Current liabilities exceeded current assets by $92.3 million.
Changes, management commentary and outlook
- Revenue increased across all reportable segments, supported by pricing and customer demand, but foreign exchange materially reduced reported growth. The company cited higher paper, production, freight, energy and labor costs; pricing and manufacturing efficiencies partly offset these pressures.
- Adjusted EBITDA fell $22.0 million year over year. Management attributed the decline mainly to higher Vista investment, including advertising and staffing, alongside inflation and currency effects. Vista segment EBITDA declined to $30.7 million from $66.9 million; National Pen remained loss-making at the segment EBITDA level but improved year over year.
- Operating cash flow and adjusted free cash flow deteriorated, with working capital a significant use of cash. Inventory increased as the company built raw-material stocks to reduce supply-availability risk ahead of its seasonally significant second quarter. Investing cash outflow also included $84.0 million of marketable-security purchases.
- Management said elevated input costs and supply constraints were expected to persist, but could not predict their duration. It highlighted pricing actions, supplier scale and continued investment in the mass-customization platform. The filing provides no quantified company-wide earnings or revenue guidance.
- Cimpress expected to complete the planned divestiture of its small, loss-making China business in fiscal 2023 Q2. Put options on certain noncontrolling interests could require cash outflows; estimated redemption value was $89.0 million, with $4.7 million already exercised in the second quarter of fiscal 2023.
- Other income included $27.4 million of net gains, largely gains on derivatives not designated as hedges. Management warned that currency-driven volatility in GAAP results may continue. A 100-basis-point increase in interest rates was estimated to affect interest expense by $7.0 million over the next 12 months.
- The 2021 comparative quarter was revised for an accounting error: $9.0 million of foreign-currency gains on a net-investment hedge had been recorded in earnings instead of other comprehensive income. The revision changed prior-period reported earnings and loss per share but did not affect operating cash flow.
- Restructuring expense was $1.8 million. The filing identifies tax uncertainty, including open tax years and deferred tax assets dependent on forecast Swiss profitability; it states that final tax resolutions could materially affect results or cash flows. No material legal proceedings were reported, and management said there were no material changes to the risk factors in the fiscal 2022 Form 10-K.
Important facts for investors to verify
- Whether pricing and productivity continue to offset inflation, supply-chain disruption and wage pressure, and whether Vista’s increased marketing and staffing investment delivers returns.
- How much reported performance and GAAP earnings depend on foreign-exchange movements and derivative gains, including the distinction between realized and unrealized effects.
- Whether inventory converts to sales and cash after the seasonal build, given negative operating cash flow and adjusted free cash flow in the quarter.
- Debt-service capacity and liquidity under higher interest rates, including the availability of the revolving facility and potential cash requirements from noncontrolling-interest puts.
- Progress on the China divestiture and the assumptions supporting realization of Swiss deferred tax assets.
- The restated September 2021 comparison and management’s non-GAAP reconciliations when assessing year-over-year trends.