Cimpress N.V. — Form 10-Q Summary
Business context and period: Cimpress operates a group of mass-customization businesses selling print, signage, promotional products and related offerings. This report covers the three months ended September 30, 2019, the first quarter of fiscal 2020; comparisons are with the quarter ended September 30, 2018. Financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 FY2020 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $634.0 million | $589.0 million | Up 8% reported; up 10% at constant currency and 4% excluding acquisitions/divestitures. |
| Gross margin | 48.6% | 48.6% | Cost of revenue was 51.4% of sales in both periods. |
| Operating income (loss) | $25.4 million | $(6.0) million | Improved by $31.4 million; operating margin was about 4.0%, versus about (1.0)%. |
| Net income (loss) attributable to Cimpress | $20.0 million | $(14.6) million | Diluted EPS was $0.66 versus $(0.47). |
| Adjusted EBITDA (non-GAAP) | $79.5 million | $42.5 million | Up $37.1 million; approximately 12.5% of revenue versus 7.2%. |
| Cash provided by operating activities | $62.9 million | $22.2 million | Increased $40.7 million. |
| Adjusted free cash flow (non-GAAP) | $36.2 million | $(10.1) million | Improved $46.3 million; excludes certain investing and acquisition cash flows. |
| Cash and cash equivalents | $31.2 million | $35.3 million at June 30, 2019 | Quarter-end balance. |
| Debt, gross of issuance costs and discounts | $1,239.2 million | $1,035.6 million at June 30, 2019 | Net debt was approximately $1,208.0 million. |
Changes, drivers and management commentary
- Revenue growth included BuildASign, acquired October 1, 2018, and growth in PrintBrothers, The Print Group and National Pen. Currency movements reduced reported revenue growth.
- Vistaprint revenue was slightly higher on a constant-currency basis, while lower advertising spend reduced reported growth. Management said the reductions improved profitability; Vistaprint segment EBITDA rose to $80.6 million from $60.0 million.
- National Pen revenue grew 8% at constant currency and its segment EBITDA loss narrowed to $9.9 million from $16.5 million, primarily reflecting lower advertising and operational improvements.
- European print businesses reported constant-currency revenue growth, but management cited aggressive price and online-search competition. Technology investments and price reductions partly offset profit improvement.
- Reported other income was $15.7 million, including $19.4 million of gains on derivatives not designated as hedges, partly offset by currency-related losses. Management cautioned that currency-related GAAP earnings volatility may continue.
- Cash flow benefited from higher earnings and accrued expenses. Investing cash outflow was $29.4 million, including $14.2 million of property and equipment purchases and $12.5 million of capitalized software and website development. Financing cash outflow was $33.0 million, including $231.9 million of share repurchases, alongside net debt proceeds.
- During the quarter Cimpress repurchased 1,963,629 shares for approximately $231.9 million. It reported negative consolidated shareholders’ equity of $75.6 million at quarter-end. Management stated that statutory distributable reserves remained sufficient for repurchases.
Outlook, liquidity and risks
- No specific consolidated revenue or earnings guidance is provided. Management expects cash, operating cash flows and available committed borrowing to be sufficient for liabilities and planned investments, and did not expect a material acquisition in fiscal 2020.
- Of the $1.579 billion senior secured facility, $521.5 million was available for borrowing after covenant and other limitations at September 30, 2019. Cimpress reported compliance with debt covenants. Share repurchases and acquisitions are subject to more restrictive covenant limits.
- Management expects Swiss tax reform, if enacted as anticipated in the quarter ending December 31, 2019, to produce a material tax benefit; the amount was not quantifiable in the filing.
- Key risks include competition, execution of business and technology investments, customer acquisition and retention, foreign-exchange and interest-rate exposure, and the ability to meet debt obligations and covenants. A 100-basis-point rate increase was estimated to add about $3.1 million to interest expense over the following 12 months, after swaps.
- The July 1, 2019 adoption of lease accounting standard ASC 842 recognized operating lease assets and liabilities. The new treatment changed balance-sheet classifications and affected comparability; management reported a $1.9 million reduction in operating income related to the build-to-suit lease classification change during the quarter.
- Restructuring expense was $2.2 million, primarily related to Vistaprint organizational changes. The filing reports no material legal proceedings and no material change to previously disclosed risk factors.
- After quarter-end, through October 25, 2019, Cimpress repurchased another 585,106 shares for $75.6 million.
Important facts for investors to verify
- Whether revenue growth excluding acquisitions and foreign-exchange effects is sustained, particularly in Vistaprint and the European print businesses.
- Whether the strong year-over-year earnings and cash-flow improvement persists, given the contribution of derivative gains, lower advertising, and acquisition-related effects.
- Debt, interest expense, covenant headroom and liquidity after substantial share repurchases; quarter-end cash was $31.2 million against gross debt of $1.239 billion.
- Execution and returns on technology investments, and progress against competition and planned business improvements.
- The enactment, timing and actual financial impact of Swiss tax reform, which management expected to yield an unquantified tax benefit.
- The effects of lease-accounting adoption and the changed segment reporting and profitability measure when comparing periods.