Business context and reporting period
Cimpress N.V. filed this Form 10-K for the fiscal year ended June 30, 2018—not fiscal 2017 Q4 as indicated in the request metadata. Cimpress operates a decentralized group of mass-customization businesses selling printed products, promotional items, apparel, photo products, packaging and related digital services. Its four reportable segments are Vistaprint, Upload and Print, National Pen, and All Other Businesses.
Management’s stated priority is to maximize long-term intrinsic value per share, accepting near-term fluctuations in reported results to fund investments. The company had approximately 12,000 employees at year-end.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $2,592.5 million | $2,135.4 million |
| Operating income (loss) | $157.8 million | $(45.7) million |
| Net income (loss) attributable to Cimpress | $43.7 million | $(71.7) million |
| Diluted EPS | $1.36 | $(2.29) |
| Cash from operations | $192.3 million | $156.7 million |
| Company-defined free cash flow | $139.5 million | $45.1 million |
| Adjusted NOP (non-GAAP) | $165.5 million | $95.7 million |
Revenue rose 21% reported, 17% at constant currency, and 11% at constant currency excluding acquisitions and divestitures. Cost of revenue was 49.4% of revenue, versus 48.6% in FY2017 (gross margin approximately 50.6% versus 51.4%). Operating margin was approximately 6.1%, compared with negative 2.1% in FY2017. Net margin attributable to Cimpress was approximately 1.7%, versus negative 3.4%.
At June 30, 2018, cash and cash equivalents were $44.2 million and total debt was $839.4 million before debt issuance costs and discounts, implying approximately $795.2 million of net debt. Current assets of $239.3 million were below current liabilities of $481.0 million; reported net current liabilities were $241.7 million. The company reported $567.5 million available to borrow under its credit facility after covenant and other limitations and was in compliance with its debt covenants.
Cash used for property, plant and equipment was $60.9 million; an additional $40.8 million of software and website development costs was capitalized. Cimpress repurchased $94.7 million of its shares during the year. It has never paid cash dividends and does not expect to do so in the foreseeable future.
Material changes versus FY2017
- Revenue growth included a full year of National Pen, acquired in December 2016, continued growth at Vistaprint and Upload and Print, favorable currency effects, and the loss of Albumprinter revenue following its August 2017 divestiture.
- Operating income improved by $203.5 million. Key contributors included approximately $55 million in restructuring-related operating expense savings, a $47.5 million Albumprinter sale gain, lower acquisition-related charges, higher National Pen contribution, and lower organic investment spending.
- FY2017 included $40.4 million of earn-out-related charges and $9.6 million of impairment charges; these were substantially lower or absent in FY2018. FY2018 also included $15.2 million of restructuring expense.
- Interest expense rose to $53.0 million from $44.0 million. A $17.4 million loss on early debt extinguishment was recorded when Cimpress refinanced its 7.0% notes due 2022 with $400 million of 7.0% notes due 2026.
- Other expense was $21.0 million, compared with other income of $10.4 million in FY2017, primarily reflecting currency and derivative volatility. The effective tax rate was 29.5%, versus 9.0%; FY2018 included tax effects from U.S. tax reform and accounting changes.
- FY2018 was profitable for the year, but the third and fourth quarters reported attributable losses of $2.3 million and $7.3 million, respectively. The second fiscal quarter generated 46% of annual operating income, reflecting significant seasonality.
Outlook, commentary and risks
Management expects available cash, operating cash flow and committed borrowing capacity to fund liabilities and planned investments in FY2019. It identified organic investment, share repurchases, acquisitions and debt reduction as potential uses of capital, without providing numerical revenue or earnings guidance. Management expects All Other Businesses to continue operating at significant losses for several years. National Pen’s unusually high reported growth was partly due to the prior-year comparison and is expected to moderate. Management noted increased price-focused competition in some Upload and Print markets and may reduce prices if appropriate.
Principal risks include execution and returns on the mass-customization platform and other long-term investments; intense competition and price pressure; seasonal concentration of sales and profit; integration and performance of acquisitions; substantial debt, variable interest rates and restrictive covenants; currency and hedging volatility; dependence on online channels and third-party fulfillment; cybersecurity and privacy obligations; cross-border trade changes, tariffs and Brexit; and uncertain tax assessments and evolving tax laws. Early-stage businesses in All Other Businesses are subject to high risk and ongoing losses. The filing reports no material legal proceedings. Management and the auditor concluded internal control over financial reporting was effective as of June 30, 2018.
A subsequent event was a July 2, 2018 investment of $29 million for approximately 74% of VIDA Group Co.
Important facts for investors to verify
- Confirm the reporting period: this is FY2018, ended June 30, 2018, despite the request metadata’s FY2017 Q4 label.
- Assess the quality and sustainability of the operating-income recovery, separating recurring operations from the Albumprinter gain, restructuring savings, acquisition timing and prior-year earn-out and impairment charges.
- Reconcile company-defined free cash flow and adjusted NOP to GAAP results, including their stated adjustments and the $49.2 million contingent-consideration adjustment in the free-cash-flow calculation.
- Review net debt, the $7.0 million notes’ interest cost, maturity and refinancing terms, borrowing availability after covenants, and capacity for planned capital allocation.
- Monitor segment trends, especially Vistaprint and Upload and Print margins, National Pen’s normalized growth and All Other Businesses’ continuing losses.
- Evaluate the impact of seasonality, currency movements and hedging, U.S. tax reform, and the planned revenue-standard adoption on future reported results and cash taxes.