Cimpress Announces Q1 27% Revenue Increase, Vistaprint Restructuring
VENLO, Netherlands - November 2, 2017 - Cimpress N.V., the world leader in mass customization, announced financial results for the first quarter of its fiscal year ended September 30, 2017.
"We are off to a solid start for fiscal year 2018," said Robert Keane, president and CEO. "Our businesses delivered strong results in terms of the value they are creating for their customers, and our financial results are on track relative to our internal objectives for fiscal year 2018 growth in revenue and unlevered free cash flow. We entered this fiscal year with our new decentralized operating structure that we announced on January 25, 2017, and we have seen the intended benefits, including tightened coordination between marketing and manufacturing activities throughout our businesses, reduction of complexity and costs, and an improved ability to evaluate performance and assess returns on the capital we invest."
Keane continued, "That decentralization resulted, among many other changes, in the transfer to Vistaprint of nearly three thousand team members who were previously in central teams. We continue to see evidence that the Vistaprint business has successfully strengthened its customer value proposition and improved customer retention. Following more than six months of experience with their newly integrated organization, the Vistaprint leadership team has taken the difficult but appropriate decision to reorganize the business. These changes will reduce headcount and other operating costs, but also simplify and streamline operations and more closely align functions to increase the speed of execution. We believe these changes will improve the steady-state free cash flow of this business and, importantly, free up capital to reinvest in other areas of Vistaprint that provide the greatest benefit to our customers and our long-term shareholders."
Cimpress expects the Vistaprint headcount and cost reductions to be largely implemented over the coming two months and believes they will reduce fiscal year 2018 operating expenses by between $20 million and $22 million. Based on a preliminary assessment of these potential actions, the company expects to take a restructuring charge of approximately $15 million to $17 million during the quarter ending December 31, 2017, but we expect net savings for the full fiscal year 2018. Cimpress will provide additional information in its second quarter earnings documents after the Vistaprint restructuring is implemented.
Sean Quinn, chief financial officer, said, "First quarter revenue growth by segment was in line with our commentary at the beginning of the year. Our profits increased significantly year over year due in part to savings from the decentralization we announced last January and some non-operational benefits described below. Conversely, as anticipated, we continue to see pressure on Vistaprint's incremental gross profit from the rapid expansion of new products and design services. As described at our August 8, 2017 investor day, we believe that Vistaprint has multiple pricing and operating levers to alleviate some of this pressure throughout fiscal year 2018 as we scale the new product offerings, but we expect it to take time. In the meantime, our revenue from newly launched products continues to grow strongly, so the mix effect on our profitability is meaningful: Vistaprint's gross margin was about 400 basis points lower this quarter compared to the same period last year. Finally, we remain on track to reduce our leverage to approximately three times trailing-twelve month EBITDA by the end of our second fiscal quarter despite repurchasing $41 million of Cimpress shares during the first quarter."
The following year-over-year items positively influenced GAAP operating income in the first quarter:
- A $47.5 million gain on the sale of our Albumprinter business, net of transaction costs. The amount of this gain was influenced by the partial allocation of goodwill to our other businesses in past periods, and the minimal carrying value of acquired intangible assets related to Albumprinter at the time of the sale, partially offset by negative currency-related impacts.
- Net restructuring savings of approximately $10 million related to the decentralization announced on January 25, 2017. These savings were realized largely in technology and development and general and administrative costs. From a segment reporting perspective, about half of the savings benefit Vistaprint's Segment Profit, with the bulk of the remaining benefit in our central and corporate costs.
- A year-over-year decrease in acquisition-related charges as follows: First, earn-out related charges were $15.1 million lower in the first quarter of fiscal year 2018 versus the prior-year period. Share-based compensation related to investment consideration also decreased year over year by $4.1 million. These reductions were partially offset by an increase in acquisition-related amortization of intangible assets of $2.5 million.
- Favorable year-over-year currency fluctuations that were offset below the line by year-over-year changes in realized gains and losses from hedging contracts in other expense, net.
Quinn added, "As we look ahead to the remainder of fiscal year 2018, we are on track to recognize the financial benefits of the decentralization announced last January in line with our past commentary. We now also expect to recognize net savings and organizational benefits from the Vistaprint restructuring announced today. Finally, we see no material changes to our planned investment spend that we outlined in detail in our letter to investors dated July 26, 2017."
Sale of Albumprinter Business
As anticipated, on August 31, 2017 we sold our Albumprinter business, net of transaction costs and based on the exchange rate as of the date of sale, for $93.1 million plus $11.9 million in pre-closing dividends. In connection with the divestiture, we have entered into an agreement under which Albumprinter will continue to fulfill photobook orders for our Vistaprint business via our mass customization platform.
Consolidated Financial Metrics
- Revenue for the first quarter of fiscal year 2018 was $563.3 million, a 27 percent increase compared to revenue of $443.7 million in the same quarter a year ago. Excluding the estimated impact from currency exchange rate fluctuations and revenue from businesses acquired or divested during the past twelve months, revenue grew 12 percent 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 49.6 percent, down from 52.0 percent in the same quarter a year ago due to lower Vistaprint gross margins as a result of significant growth in lower-margin new products which are not yet at scale, as well as a continued mix shift toward our Upload and Print businesses which have a lower gross margin than our Vistaprint and National Pen businesses.
- 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 31.0 percent, down from 32.5 percent in the same quarter a year ago. Advertising spend as a percent of revenue declined year over year for the first quarter, which partially offset the decline in gross margin as described above.
- GAAP operating income in the first quarter was $46.6 million, or 8.3 percent of revenue, compared to an operating loss of $27.8 million, or 6.3 percent of revenue, in the same quarter a year ago. The drivers of this significant improvement are described above, before the "Sale of Albumprinter Business" section of this release.
- Adjusted NOP for the first quarter, which is defined at the end of this press release, was $10.4 million, or 1.8 percent of revenue, up from $2.7 million, or 0.6 percent of revenue, in the same quarter a year ago. This increase is primarily due to the savings from our fiscal year 2017 decentralization.
- GAAP net income attributable to Cimpress for the first quarter was $23.4 million, or 4.1 percent of revenue, compared to a net loss of $29.1 million, or 6.6 percent of revenue in the same quarter a year ago. In addition to the impacts described above, GAAP net income was negatively influenced by year-over-year non-operational, non-cash currency impacts, and a reduction in our tax benefit in the current period compared to the year-ago period due to lower discrete tax benefits in the current period compared to the same prior-year period. In addition, we adopted a new accounting standard (ASU 2016-16) effective this quarter which changes how we account for the tax effects of certain intra-entity sales. We expect this change will be unfavorable to our GAAP tax expense and effective tax rate for the year, but in no way changes our current or future cash taxes.
- GAAP net income per diluted share for the first quarter was $0.72, versus a net loss of $0.92 in the same quarter a year ago.
- Capital expenditures in the first quarter were $20.5 million or 3.6 percent of revenue, versus $19.3 million, or 4.4 percent of revenue in the same quarter a year ago.
- During the first quarter, we generated $16.4 million of cash from operations and $(6.5) million in unlevered free cash flow, a non-GAAP financial measure, which is defined at the end of this press release. Cash from operations was impacted by approximately $4 million of payments related to our January 2017 restructuring as well as transaction costs from the sale of Albumprinter.
- As of September 30, 2017, we had $42.8 million of cash and cash equivalents and $820.8 million of debt, net of issuance costs. After considering debt covenant limitations, as of September 30, 2017 the company had $262.4 million available for borrowing under its committed credit facility. Based on Cimpress' debt covenant definitions, its total leverage ratio was 3.39 as of September 30, 2017. The company continues to expect to reduce its leverage ratio to approximately 3 times trailing twelve month EBITDA by the end of calendar year 2017 through a combination of debt repayment and EBITDA expansion.
- During the first quarter, Cimpress repurchased 452,820 shares for $40.7 million inclusive of transaction costs, at an average price per share of $89.82.
The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of Printing Impressions.