Cimpress to Decentralize Its Organizational Structure, Eliminating Approximately 160 Positions
VENLO, Netherlands — January 26, 2017 —Cimpress N.V. (Nasdaq: CMPR) the world leader in mass customization, has announced its intention to implement organizational changes that will deeply decentralize the company’s operations in order to improve accountability for customer satisfaction and
capital returns, simplify decision-making, improve the speed of execution, further develop the company’s cadre of general managers, and preserve and release entrepreneurial energy.
Cimpress intends to implement these changes to accelerate progress toward its established vision, strategy, and long-term objectives, all of which remain unchanged. Many Cimpress teams that are currently part of company-wide central groups in technology, manufacturing and supply chain and other corporate functions will become part of one of the company’s business units or related portfoliomanagement teams. After the changes, Cimpress’ central groups will be limited to global procurement and supplier research, a central technology team whose primary focus is building the Cimpress mass customization platform, and essential corporate services. The portion of Cimpress team members in business units will grow from approximately 66 percent as of the end of December 2016 to approximately 97 percent as of the end of March 2017, with most of the remaining central team members in the central Cimpress Technology team.
Robert Keane, chief executive officer, said, “This decentralization is a natural outgrowth of our strategy and consistent with the evolution of our organization as we pursue that strategy. We started out as a single line of business; however, today Cimpress consists of more than 15 distinct business units. We employ almost 10,000 team members in about 50 locations, more than 30 countries and across six continents, and we aspire to continue growing for many years to come. It is important that, culturally speaking, we stay small as we get big. As we have evolved from Vistaprint to Cimpress and become a much larger and more diverse company, we need to give our businesses more accountability and reduce the weight of our central organization."
Keane continues, "The changes we plan to make are driven by the many opportunities we now see in front of us as well as our own audacious vision to extend our position as the world leader in mass customization. We will place responsibility for operating results, along with all the resources needed to deliver those results, directly in the hands of the highly capable men and women who lead our business units. We expect that doing so will make Cimpress more entrepreneurial, nimble and competitive. It will also simplify our assessment of the return on invested capital that each business unit delivers, which we believe will help us make better capital allocation decisions. As a result, our centrally managed activities will be limited to only those which have the highest company-wide strategic and financial impact.”
Cimpress intends to transfer approximately 3,000 team members that are currently part of central teams into its business units. It also intends to reduce the scope of certain other roles and functions that are currently performed centrally, which would lead to the elimination of approximately 160 positions, or approximately 1.6 percent of its current workforce, and reduce planned hiring in targeted areas. As part of the changes, the company announced that it intends to eliminate the positions of four Cimpress executive officers who, as a result, will leave the company.
Keane continued, “Even though these changes are the right thing to do for the future of Cimpress, it was a difficult decision that we did not take lightly due to the job loss for many highly capable colleagues, including but not limited to four strong executive team leaders. I would like to express my heartfelt respect, empathy and gratitude to each of the people, at all levels, who will leave Cimpress as a result of these organizational changes. Across the board, they have been instrumental contributors to Cimpress. Their departure is in no way a reflection on their accomplishments and talents, and we wish them great success in the future.”
Cimpress also announced the following promotions and additions to its executive team:
- Trynka Shineman, previously president of Vistaprint, has been promoted to chief executive officer of Vistaprint to reflect the substantially increased scope of her responsibilities after the decentralization
- Maarten Wensveen, previously senior vice president, Technology, has been promoted to chief technology officer and will join the Cimpress executive team
- Peter Kelly, chief executive officer of National Pen, will join the Cimpress executive team
Cimpress expects to complete the majority of the changes during the third quarter of fiscal 2017. Certain of the planned actions are subject to mandatory consultations with employees, works councils and governmental authorities. Cimpress estimates it will incur an aggregate pre-tax restructuring charge of approximately $28 million to $31 million, which includes $22 million to $25 million of severance-related expense and approximately $6 million of other restructuring charges. Of the total estimated restructuring charge, Cimpress expects approximately $19 million to $21 million of cash expenditures, and approximately $9 million to $10 million of non-cash expenditures, consisting primarily of accelerated share-based compensation expense.
Once the actions are complete, Cimpress expects annualized pre-tax operating expense savings of approximately $55 million to $60 million and pre-tax free cash flow savings of approximately $45 million to $50 million. The primary difference between the operating expense and free cash flow savings is share-based compensation. These estimates include estimated savings from headcount reductions, a targeted reduction of previously planned new hires in fiscal year 2017, and related non-compensation savings.
“We are making these changes proactively from a position of strength and we maintain our uppermost objectives to be the world leader in mass customization and to maximize our intrinsic value per share,” said Keane. “We also remain committed to our vision to empower millions of customers to make an impression through individually meaningful physical products, to connecting our business units through a mass customization platform, to developing an ecosystem of partnerships with third parties who buy and sell via the Cimpress MCP, and to providing rewarding and engaging career opportunities to our team members.”
Cimpress Reports Second Quarter Fiscal Year 2017 Financial Results
VENLO, Netherlands — January 26, 2017 — Cimpress N.V. (Nasdaq: CMPR), the world leader in mass customization, has announced financial results for the three month period ended December 31, 2016, the second quarter of its 2017 fiscal year.
"We delivered another solid quarter and we continue to execute well against our plans to invest in a broad spectrum of long-term organic investments as outlined at the beginning of the fiscal year," said Robert Keane, president and chief executive officer. "Our largest business unit, Vistaprint, continued to gain traction as customers recognize an improved customer value proposition from its expanded product and service offering and reduced shipping prices. Vistaprint repeat revenue continued at double-digit growth, and our first-time customer count and revenue grew again for the third quarter in a row.
"Importantly," Keane continued, "we achieved a significant milestone with our mass customization platform this quarter against our goal to materially increase platform order flow in fiscal 2017. The Vistaprint business unit fulfilled approximately 2.5 million orders for holiday products across the platform and Cimpress managed that volume across a network of more than a dozen third-party fulfillers and multiple Cimpress-owned production facilities."
Cimpress' increased use of third-party fulfillers was intended to test the platform, facilitate more rapid new product introduction, and reduce the need for capital expenditures to provide capacity for the seasonal peak. Keane added, "The MCP technology worked very well during this first large-scale demonstration of the mass customization platform, allowing us to manage volumes across multiple internal and external production facilities, launch 350 new Vistaprint products, and reduce capital expenditures year over year."
Sean Quinn, chief financial officer, said, "Our revenue results were in line with our expectations, while revenue growth continues to be pressured in the near-term by the loss of certain partner revenue, as we described at the beginning of the year. This loss of partner revenue coupled with our increased investments continues to weigh on near-term profitability. However, we remain confident that our investments will strengthen our competitive position and improve the intrinsic value of our business, consistent with our fundamental approach to capital allocation.
"One noticeable aspect of this quarter's results is the decline in gross margin of about 800 basis points year over year," continued Quinn. "About three-quarters of this impact is from a combination of the increased weighting of our Upload and Print business units, planned investments, and unfavorable currency changes that are offset elsewhere in the income statement. The remainder was primarily caused by a tight temporary labor market impacting our Canadian production facility that increased our internal costs and also drove us to turn quickly to more expensive fulfillment alternatives during our seasonal peak."
Cimpress closed its previously announced acquisition of National Pen on December 30, 2016, which impacted the balance sheet and cash flows from investing and financing activities for the second quarter of fiscal year 2017. However, other than customary professional fees, there was no impact to the income statement and adjusted NOPAT as the post-closing activity was immaterial in the quarter.
GAAP operating income was negatively influenced by the following year-over-year items in the second quarter:
- Increased organic investments in fiscal year 2017 compared to fiscal year 2016, which materially weigh on profitability. These investments include costs that impact our gross margin, including shipping price reductions, expanded design services, and new product introduction.
- The impact of about 200 basis points on consolidated gross margin described above that we believe resulted from production inefficiencies during the quarter.
- Approximately $6 million of profit decline due to the termination of two partner contracts as previously described.
- An increase in share-based compensation expense of $5.2 million, due to the August, 2016 implementation of our previously described long-term incentive program, partially offset by a roll-off of expenses from past grants.
- An increase in earn-out related charges of $3.6 million. The second quarter fiscal year 2017 charge is primarily associated with the acquisition of WIRmachenDRUCK, due to a $6.7 million increase in fair value of the liability as a result of its continued strong performance.
- A significant year-over-year currency impact, which is offset in "other income, net" by the year-over-year change in realized gains on currency hedges.
Cimpress also announced today in a separate press release that it plans to decentralize its operations in order to improve accountability for customer satisfaction and capital returns, simplify decision-making, and improve the speed of execution. In that press release, as well as in our supplemental earnings documents posted on ir.cimpress.com, the company outlines expected restructuring charges and savings.
Sean Quinn concluded, “The net financial impact of the reorganization we announced today is likely to be relatively small in fiscal year 2017 as the expected in-year savings will be offset by expected charges. However, in addition to the organizational benefits that we hope to achieve, we expect this to result in material annualized savings that will drive higher returns on our invested capital and free up funds for additional value creation activities.”
Consolidated Financial Metrics:
- Revenue for the second quarter of fiscal year 2017 was $576.9 million, a 16 percent increase compared to revenue of $496.3 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 8 percent year over year in the second quarter. The previously described loss of partner revenue and the material reduction in shipping prices to Vistaprint customers continues to negatively impact revenue growth.
- Gross margin (revenue minus the cost of revenue as a percent of total revenue) in the second quarter was 52.0 percent, down from 60.2 percent in the same quarter a year ago due to the increased weighting of our Upload and Print business units, planned investments in cost of revenue, production and outsourcing inefficiencies during our holiday peak, and significant unfavorable currency changes.
- Contribution margin (revenue minus the cost of revenue, the cost of advertising and payment processing as a percent of total revenue) in the second quarter was 34.0 percent, down from 41.2 percent in the same quarter a year ago. The year-over-year reduction in gross margin described above was partially offset by an 80 basis point reduction in advertising as a percent of revenue, which was also driven by the mix shift toward our Upload and Print businesses.
- GAAP operating income in the second quarter was $33.7 million, or 5.8 percent of revenue, a decrease compared to $67.6 million, or 13.6 percent of revenue, in the same quarter a year ago. The drivers of this significant decrease are described above, before the "Consolidated Financial Metrics" section of this release.
- Adjusted NOPAT for the second quarter, which is defined at the end of this press release, was $50.6 million, or 8.8 percent of revenue, down from $82.5 million, or 16.6 percent of revenue, in the same quarter a year ago. The profit impacts described above that also impact adjusted NOPAT are the increased organic investments, production inefficiencies, the reduction in partner profits, and the implementation of our new long-term incentive program.
- GAAP net income attributable to Cimpress for the second quarter was $35.0 million, or 6.1 percent of revenue, compared to $59.3 million, or 12.0 percent of revenue in the same quarter a year ago. In addition to the impacts described above, GAAP net income was positively influenced by year-over-year non-operational, non-cash currency impacts, and a gain on the sale of marketable securities, partially offset by a significant increase in our tax provision in the current period compared to the year-ago period. This year-over-year tax increase is due to the combination of a higher forecasted effective tax rate as a result of a less favorable mix of projected income for the full year, as well as the true-up effect from more volatile quarter-to-quarter earnings in fiscal year 2017 compared to 2016.
- GAAP net income per diluted share for the second quarter was $1.07, versus $1.81 in the same quarter a year ago.
- Capital expenditures in the second quarter were $16.9 million, or 2.9 percent of revenue, versus $19.2 million, or 3.9 percent of revenue in the same quarter a year ago.
- During the quarter, the company increased its ownership of Pixartprinting and its business in Japan to 100% for $24.0 million ($20.2 million through financing activities and $3.8 million through operating activities). As part of the transaction in Japan, Cimpress also sold its shares in the former joint venture partner for $6.3 million. The gain on the sale of those securities of $2.3 million was recorded in other income, net on the income statement.
- During the second quarter, the company generated $105.1 million of cash from operations and $77.3 million in free cash flow, a non-GAAP financial measure, which is defined at the end of this press release.
- As of December 31, 2016, the company had $49.6 million in cash and cash equivalents and $876.1 million of debt, net of issuance costs. Cimpress completed the previously announced acquisition of National Pen on December 30, 2016 for $206.2 million, net of cash acquired. This is subject to customary post closing adjustments based on acquired cash, debt and working capital balances. As discussed with the December 12, 2016 announcement of our National Pen acquisition, Cimpress expected that its total leverage ratio (which is debt to trailing twelve month EBITDA) would increase above its long-term target of 3 times trailing twelve month EBITDA as defined by its debt covenants. Based on Cimpress' debt covenant definitions, its total leverage ratio was 3.43 as of December 31, 2016. As often described, Cimpress is willing to temporarily go above its long-term total leverage ratio target of 3 times trailing twelve month EBITDA for the right opportunity and with a clear path to de-lever below that target quickly, which in this case is expected to be within one year. After considering debt covenant limitations, as of December 31, 2016 the company had $220.7 million available for borrowing under its committed credit facility.
- During the quarter, Cimpress purchased 593,763 of its own shares for $50.0 million inclusive of transaction costs, at an average price per share of $84.22.