Cimpress Reports 18% Revenue Increase for Q1, But $27.8M GAAP Loss from Operations
VENLO, Netherlands — October 27, 2016 — Cimpress N.V. (Nasdaq: CMPR), a world leader in mass customization, has announced financial results for the three month period ended Sept. 30, 2016, the first quarter of its 2017 fiscal year.
"Fiscal year 2017 is off to a solid start and we are executing well against our plans to invest in a broad spectrum of long-term organic investments as outlined at the beginning of the fiscal year," says Robert Keane, president and CEO. "We continue to have confidence that, even though these investments are depressing near-term profitability, they will strengthen our competitive position and improve the intrinsic value of our business, consistent with our fundamental approach to capital allocation."
Sean Quinn, CFO adds, "Our first quarter consolidated revenue was in line with our expectations as we saw continued strength in the Vistaprint business and many of our brands around the world. However, our results were impacted by a number of discrete items. Organic revenue growth was negatively impacted by increased Vistaprint backlog due to flooding caused by extreme weather that shut down our largest production location at the end of the quarter. This was purely a timing issue which reduced constant-currency revenue growth by approximately 200 basis points for this segment. Additionally, revenue growth was pressured by the loss of certain partner revenue and a reduction in Vistaprint shipping prices, as we described at the beginning of the year."
Quinn continues, "Finally, the Upload and Print group met our expectations at the aggregate level this quarter on both the top and bottom line. Our organic constant-currency growth for this segment dropped to 12% this quarter, with fluctuations by business. The growth of this segment if we had owned all of these businesses for more than a year would have been higher. We remain confident in our view of the expected returns on invested capital and growth opportunity for the Upload and Print portfolio that we discussed at our August, 2016 investor day.”
Cimpress' GAAP operating loss was negatively influenced by the following year-over-year impacts in the first quarter:
- An increase in earn-out related charges of $16.0 million associated with the acquisition of WIRmachenDRUCK. As described last quarter, Cimpress amended the contingent arrangement in a way that required us to accelerate a portion of the earn-out expense for accounting purposes. The charges also include an increase in fair value of the entire liability as a result of strong performance.
- An increase in share-based compensation expense of $5.4 million. $3.4 million was due to the acceleration of the vesting of equity awards from an acquisition-related employment contract, and $3.4 million of this was due to the mid-quarter implementation of its previously described long-term incentive program. These amounts were partially offset by a roll-off of expenses from past grants.
- Approximately $5.7 million relative to the prior-year period due to the termination of two partner contracts as previously described.
- A negative profit impact related to delayed revenue recognition in the Vistaprint business as the result of weather-induced flooding in its North American manufacturing facility during the last two days of the quarter. The year-over-year change in backlog created a 200 basis point drag on Vistaprint revenue for the first quarter (the revenue will be recognized in the second quarter).
- As previously described in its letter to investors on July 27, 2016, Cimpress plans and have begun to significantly increase its organic investments in fiscal year 2017 compared to fiscal year 2016. The full year impact of this is expected to be roughly $67 million on an operating income and adjusted net operating profit basis (including a $20 million estimated profit impact related to the reduction of Vistaprint shipping fees).
Consolidated Financial Metrics:
- Revenue for the first quarter of fiscal year 2017 was $443.7 million, an 18% increase compared to revenue of $375.7 million in the same quarter a year ago. Excluding the estimated impact from currency exchange rate fluctuations and revenue from businesses acquired during the past twelve months, revenue grew 6% year over year in the first quarter.
- Gross margin (revenue minus the cost of revenue as a percent of total revenue) in the first quarter was 51.8%, down from 58.1% in the same quarter a year ago due primarily to the increased weighting of its Upload and Print business units, as well as the investment in shipping price reductions for Vistaprint customers.
- Contribution margin (revenue minus the cost of revenue, the cost of advertising and payment processing as a percent of total revenue) in the first quarter was 32.3%, down from 37.8% in the same quarter a year ago. The year-over-year reduction in gross margin described above was partially offset by a 100 basis point reduction in advertising as a percent of revenue, also driven by the mix shift toward its Upload and Print businesses.
- GAAP operating loss in the first quarter was $27.8 million, or (6.3)% of revenue, a decrease compared to operating income of $12.1 million, or 3.2% of revenue, in the same quarter a year ago. The drivers of this significant decrease are described above.
- Adjusted NOPAT for the first quarter, which is defined at the end of this press release, was $(4.7) million, or (1.1)% of revenue, down from $16.4 million, or 4.4% of revenue, in the same quarter a year ago. The profit impacts described above that also impact adjusted NOPAT are the implementation of its new long-term incentive program, the reduction in partner profits, increased organic investments (including shipping price reductions), and the weather-related Vistaprint revenue timing delay.
- GAAP net loss attributable to Cimpress for the first quarter was $29.1 million, or (6.6)% of revenue, compared to a GAAP net income attributable to Cimpress of $10.8 million, or 2.9% of revenue in the same quarter a year ago. In addition to the impacts described above, GAAP net loss was influenced by year-over-year non-operational, non-cash currency impacts, as well as a tax benefit in the current period compared to an expense in the year-ago period.
- GAAP net loss per diluted share for the first quarter was $0.92, versus net income per share of $0.32 in the same quarter a year ago.
- Capital expenditures in the first quarter were $19.3 million, or 4.4% of revenue.
- During the first quarter, the company generated $9.6 million of cash from operations and $(18.1) million in free cash flow, a non-GAAP measure, which is defined at the end of this press release.
- As of Sept. 30, 2016, the company had $53.6 million in cash and cash equivalents and $682.5 million of debt, net of issuance costs. After considering debt covenant limitations, as of Sept. 30, 2016 the company had $419.3 million available for borrowing under its committed credit facility.
- Cimpress did not repurchase shares during the first quarter.
Cimpress has posted an end-of-quarter presentation with accompanying prepared remarks at ir.cimpress.com.
Important Reminder of Cimpress’ Priorities
Cimpress asks investors and potential investors in Cimpress to understand the upper-most objectives by which it endeavors to make all decisions, including investment decisions. Often Cimpress makes decisions in service of these priorities that could be considered non-optimal were they to be evaluated based on other criteria such as (but not limited to) near- and mid-term net income, operating income, EPS, cash flow, EBITDA, and adjusted NOPAT.
Cimpress' priorities are:
- Strategic Objective: To be the world leader in mass customization. By mass customization, Cimpress means producing, with the reliability, quality and affordability of mass production, small individual orders where each and every one embodies the personal relevance inherent to customized physical products.
- Financial Objective: To maximize intrinsic value per share, defined as (a) the unlevered free cash flow per share that, in its best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital, minus (b) net debt per share.
To understand these objectives and their implications, Cimpress encourages investors to read Robert Keane’s letter to investors published on July 27, 2016 at ir.cimpress.com and to review materials presented at its annual investor day meeting on Aug. 10, 2016.
Cimpress N.V. (Nasdaq: CMPR) is the world leader in mass customization. For more than 20 years, the company has focused on developing software and manufacturing capabilities that transform traditional markets in order to make customized products accessible and affordable to everyone. Cimpress brings its products to market via a portfolio of more than 20 brands including Vistaprint, Albelli, Drukwerkdeal, Pixartprinting, Exaprint, WIRmachenDRUCK and many others. That portfolio serves multiple customer segments across many applications for mass customization. The company produces more than 46 million unique ordered items a year.
Cimpress and the Cimpress logo are trademarks of Cimpress N.V. or its subsidiaries. All other brand and product names appearing on this announcement may be trademarks or registered trademarks of their respective holders.