Cimpress(CMPR) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents Cimpress plc's unaudited financial statements and detailed notes for the periods ended March 31, 2020, and June 30, 2019 Item 1. Financial Statements (Unaudited) This section presents Cimpress plc's unaudited consolidated financial statements for the three and nine months ended March 31, 2020, and June 30, 2019, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, fair value measurements, derivative instruments, goodwill impairment, debt, income taxes, segment information, leases, commitments, restructuring, and subsequent events Consolidated Balance Sheets Details Cimpress's financial position, showing assets, liabilities, and equity as of March 31, 2020, and June 30, 2019 | Metric | March 31, 2020 (in thousands) | June 30, 2019 (in thousands) | | :--------------------------------------- | :---------------------------- | :--------------------------- | | Assets | | | | Total current assets | $439,378 | $240,300 | | Property, plant and equipment, net | $347,228 | $490,755 | | Operating lease assets, net | $164,391 | — | | Goodwill | $615,333 | $718,880 | | Total assets | $2,039,427 | $1,868,376 | | Liabilities & Equity | | | | Total current liabilities | $480,935 | $520,749 | | Long-term debt | $1,647,214 | $942,290 | | Total liabilities | $2,374,078 | $1,673,382 | | Total shareholders' (deficit) equity | $(404,333) | $131,812 | Consolidated Statements of Operations Reports Cimpress's revenues, costs, and net income (loss) for the three and nine months ended March 31, 2020, and March 31, 2019 | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Nine Months Ended March 31, 2020 (in thousands) | Nine Months Ended March 31, 2019 (in thousands) | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Revenue | $597,960 | $661,814 | $2,052,252 | $2,076,362 | | Cost of revenue | $309,598 | $342,700 | $1,029,281 | $1,056,667 | | (Loss) income from operations | $(87,736) | $29,615 | $59,238 | $114,242 | | Net (loss) income attributable to Cimpress plc | $(84,884) | $6,530 | $125,370 | $60,905 | | Basic net (loss) income per share | $(3.26) | $0.21 | $4.54 | $1.98 | | Diluted net (loss) income per share | $(3.26) | $0.21 | $4.43 | $1.92 | Consolidated Statements of Comprehensive Income Outlines Cimpress's net income and other comprehensive income components, including foreign currency translation and derivative gains/losses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Nine Months Ended March 31, 2020 (in thousands) | Nine Months Ended March 31, 2019 (in thousands) | | :----------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net (loss) income | $(83,500) | $6,242 | $127,000 | $60,285 | | Foreign currency translation gains, net of hedges | $1,490 | $3,802 | $3,110 | $3,720 | | Net unrealized losses on derivative instruments | $(21,201) | $(7,375) | $(22,258) | $(13,572) | | Total comprehensive (loss) income attributable to Cimpress plc | $(102,195) | $5,048 | $112,422 | $59,915 | Consolidated Statements of Shareholders' Equity Tracks changes in Cimpress's shareholders' equity from June 30, 2019, to March 31, 2020, including ordinary shares, treasury shares, and retained earnings | Metric | Balance at June 30, 2019 (in thousands) | Balance at March 31, 2020 (in thousands) | | :--------------------------------------- | :-------------------------------------- | :------------------------------------- | | Ordinary Shares Amount | $615 | $615 | | Deferred Ordinary Shares Amount | — | $28 | | Treasury Shares Amount | $(737,447) | $(1,377,022) | | Additional Paid-in Capital | $411,079 | $404,409 | | Retained Earnings | $537,422 | $660,442 | | Accumulated Other Comprehensive Loss | $(79,857) | $(92,805) | | Total Shareholders' Equity (Deficit) | $131,812 | $(404,333) | Consolidated Statements of Cash Flows Summarizes Cimpress's cash inflows and outflows from operating, investing, and financing activities for the nine months ended March 31, 2020, and March 31, 2019 | Metric | Nine Months Ended March 31, 2020 (in thousands) | Nine Months Ended March 31, 2019 (in thousands) | | :--------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by operating activities | $284,061 | $222,470 | | Net cash used in investing activities | $(47,813) | $(381,554) | | Net cash (used in) provided by financing activities | $(36,756) | $161,900 | | Net increase in cash and cash equivalents | $192,986 | $31 | | Cash and cash equivalents at end of period | $228,265 | $44,258 | Notes to Consolidated Financial Statements Provides detailed explanations of Cimpress's accounting policies, financial statement line items, and significant events Note 1. Description of the Business Cimpress plc is a group of businesses specializing in mass customization of print, signage, photo merchandise, and other categories. The company completed an Irish Merger on December 3, 2019, moving its incorporation from the Netherlands to Ireland, which was accounted for as a merger under common control and is not expected to materially impact operations or financial position - Cimpress plc specializes in mass customization across various product categories, managing businesses in a decentralized manner[41] - On December 3, 2019, Cimpress completed a cross-border merger, changing its incorporation from the Netherlands to Ireland. This Irish Merger was accounted for as a merger under common control and is not expected to have a material impact on operations or financial position[42][44] Note 2. Summary of Significant Accounting Policies This note outlines Cimpress's significant accounting policies, including the use of estimates, basis of presentation, and recent accounting standard adoptions. It highlights the impact of the COVID-19 pandemic on estimates, the reclassification of the VIDA business as held for sale, and the adoption of ASC 842 (Leases) which reclassified build-to-suit leases to operating leases, impacting balance sheet and income statement classifications - Management's estimates, particularly for long-lived assets, goodwill, share-based compensation, business combinations, and income taxes, are subject to uncertainty, with actual results potentially differing[45] - Due to the COVID-19 pandemic, the company evaluated its liquidity and believes its financial position, cash from operations, credit facility, and recent capital raise will be sufficient for at least the next twelve months[50] - In March 2020, Cimpress decided to exit the VIDA business due to COVID-19 impacts and long-term financial outlook uncertainty, classifying it as held for sale and recognizing a $999 thousand loss. The sale closed on April 10, 2020[53] - On July 1, 2019, Cimpress adopted ASC 842 (Leases), reclassifying build-to-suit leases (Waltham, MA and Dallas, TX) to operating leases. This resulted in de-recognition of $121.3 million in lease assets and $124.7 million in lease financing obligations, and recognition of $169.7 million in operating lease assets and $176.4 million in operating lease liabilities[65] - The adoption of ASC 842 reduced operating income by $1.86 million for the three months and $5.58 million for the nine months ended March 31, 2020, with a corresponding decrease in interest expense[66] Note 3. Fair Value Measurements Cimpress uses a three-level valuation hierarchy for fair value measurements, primarily classifying derivatives within Level 2 due to observable market-based inputs. As of March 31, 2020, the fair value of total assets recorded at fair value was $28.2 million, and total liabilities was $(46.7) million. The carrying value of debt was $1,677.5 million, with a fair value of $1,606.4 million | Metric | March 31, 2020 (in thousands) | June 30, 2019 (in thousands) | | :--------------------------------------- | :---------------------------- | :--------------------------- | | Total assets recorded at fair value | $28,232 | $20,177 | | Total liabilities recorded at fair value | $(46,746) | $(16,338) | | Carrying value of debt | $1,677,490 | $1,035,585 | | Fair value of debt | $1,606,445 | $1,045,334 | - The majority of derivative valuations are classified in Level 2 of the fair value hierarchy, utilizing observable market-based inputs, with credit valuation adjustments using Level 3 inputs deemed not significant to the overall valuation[86][89] Note 4. Derivative Financial Instruments Cimpress uses derivative financial instruments (interest rate swaps, cross-currency swaps, currency forwards/options) to manage interest rate and foreign currency exposures. Interest rate swaps are designated as cash flow hedges for variable-rate debt, while cross-currency swaps hedge intercompany loans and net investments. Many currency contracts are not designated for hedge accounting, leading to earnings volatility. The company terminated eight net investment hedge forward contracts, resulting in $27.7 million cash proceeds - Cimpress uses interest rate swap contracts to manage variability in debt payments, designating them as cash flow hedges. As of March 31, 2020, $9.488 million is estimated to be reclassified from accumulated other comprehensive loss to interest expense in the next 12 months[93][94] - Cross-currency swap contracts are used as cash flow or net investment hedges to mitigate currency exposure on intercompany loans and net investments. During Q3 FY2020, one cross-currency swap was terminated, yielding $9.177 million in cash proceeds[96][99] - Eight currency forward contracts designated as net investment hedges were terminated in Q3 FY2020, generating $27.732 million in cash proceeds, recognized as cash provided by investing activities[102] - Many currency forward and option contracts are not designated for hedge accounting, leading to expected volatility in 'other income (expense), net' in consolidated statements of operations[103] Note 5. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss (AOCL) increased from $(79.86) million at June 30, 2019, to $(92.81) million at March 31, 2020. This change primarily reflects net current period other comprehensive loss of $(12.95) million, driven by losses on cash flow hedges and translation adjustments, partially offset by reclassifications to net income | Metric | Balance as of June 30, 2019 (in thousands) | Balance as of March 31, 2020 (in thousands) | | :--------------------------------------- | :----------------------------------------- | :---------------------------------------- | | Gains (losses) on cash flow hedges | $(11,282) | $(28,003) | | Translation adjustments, net of hedges | $(68,371) | $(64,598) | | Total Accumulated Other Comprehensive Loss | $(79,857) | $(92,805) | - Net current period other comprehensive loss was $(12.948) million for the nine months ended March 31, 2020, primarily due to $(16.721) million in losses on cash flow hedges and $3.773 million in translation adjustments[113] Note 6. Goodwill Goodwill decreased from $718.88 million at June 30, 2019, to $615.33 million at March 31, 2020, primarily due to a $100.84 million impairment charge. This impairment was triggered by significant revenue declines in March 2020 due to the COVID-19 pandemic and reduced long-term profitability outlooks for Exaprint, National Pen, and VIDA reporting units | Segment | Goodwill as of June 30, 2019 (in thousands) | Goodwill as of March 31, 2020 (in thousands) | | :-------------------- | :---------------------------------------- | :--------------------------------------- | | Vistaprint | $145,961 | $149,709 | | PrintBrothers | $124,089 | $127,324 | | The Print Group | $198,363 | $152,203 | | National Pen | $34,434 | — | | All Other Businesses | $216,033 | $186,097 | | Total Goodwill | $718,880 | $615,333 | - A goodwill impairment test was triggered in Q3 FY2020 due to significant revenue declines in March from the COVID-19 pandemic and reduced long-term profitability outlooks for Exaprint, National Pen, and VIDA reporting units[116][117] - Impairment charges totaled $100.842 million, including a partial impairment of $40.391 million for Exaprint, a full impairment of $34.434 million for National Pen, and a full impairment of $26.017 million for VIDA[121] Note 7. Other Balance Sheet Components This note details the components of accrued expenses, other current liabilities, and other liabilities. Accrued expenses decreased slightly to $190.1 million, while other current liabilities significantly decreased to $13.1 million due to the reclassification of lease financing obligations. Other liabilities increased to $77.0 million, driven by long-term derivative liabilities Accrued Expenses (in thousands) | Accrued Expenses (in thousands) | March 31, 2020 | June 30, 2019 | | :-------------------------------- | :------------- | :------------ | | Compensation costs | $58,668 | $58,864 | | Income and indirect taxes | $37,340 | $40,102 | | Interest payable | $12,747 | $2,271 | | Total accrued expenses | $190,097 | $194,715 | Other Current Liabilities (in thousands) | Other Current Liabilities (in thousands) | March 31, 2020 | June 30, 2019 | | :--------------------------------------- | :------------- | :------------ | | Current portion of finance lease obligations | $7,833 | $10,668 | | Current portion of lease financing obligation | — | $12,569 | | Short-term derivative liabilities | $3,348 | $1,628 | | Total other current liabilities | $13,144 | $27,881 | Other Liabilities (in thousands) | Other Liabilities (in thousands) | March 31, 2020 | June 30, 2019 | | :------------------------------- | :------------- | :------------ | | Long-term finance lease obligations | $19,360 | $16,036 | | Long-term derivative liabilities | $46,163 | $15,886 | | Total other liabilities | $76,972 | $53,716 | Note 8. Debt Cimpress's total debt outstanding, net, increased significantly to $1,671.6 million as of March 31, 2020, from $1,023.6 million at June 30, 2019. This was driven by an increase in the senior secured credit facility and an additional offering of $200 million in 7.0% senior unsecured notes due 2026. The company was in compliance with all debt covenants as of March 31, 2020, but subsequently amended its credit agreement in May 2020 to suspend maintenance covenants and raise $300 million in new capital | Debt (in thousands) | March 31, 2020 | June 30, 2019 | | :--------------------------------------- | :------------- | :------------ | | Senior secured credit facility | $1,063,836 | $621,224 | | 7.0% Senior unsecured notes due 2026 | $600,000 | $400,000 | | Total debt outstanding, net | $1,671,578 | $1,023,567 | | Long-term debt | $1,647,214 | $942,290 | - On February 13, 2020, Cimpress amended its senior secured credit facility, increasing revolving loan commitments and extending the maturity date to February 13, 2025. It also completed an additional offering of $200 million in 7.0% senior unsecured notes due 2026[129][138] - As of March 31, 2020, Cimpress was in compliance with all financial and other covenants under its credit agreement and senior unsecured notes indenture[136] - On May 1, 2020, the company amended its senior secured credit agreement to suspend maintenance covenants until Q4 FY2021 and raised $300 million to pay down a portion of its term loan[137] Note 9. Income Taxes Cimpress reported an income tax expense of $1.04 million for the three months ended March 31, 2020, and a tax benefit of $86.64 million for the nine months ended March 31, 2020. The nine-month benefit was significantly influenced by a $114.11 million deferred tax benefit from Swiss Tax Reform. The company recognized a $28.47 million tax expense for a full valuation allowance against U.S. deferred tax assets due to decreased profits from COVID-19 and goodwill impairments | Metric | Three Months Ended March 31, 2020 (in thousands) | Nine Months Ended March 31, 2020 (in thousands) | | :--------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | | Income tax expense (benefit) | $1,039 | $(86,641) | | Effective tax rate | (1.3)% | (214.7)% | - A $28.465 million tax expense was recognized for a full valuation allowance against U.S. deferred tax assets, driven by decreased profits due to COVID-19 and goodwill impairments[145] - Cimpress recognized a $114.114 million tax benefit from Swiss Tax Reform, establishing new Swiss deferred tax assets related to transitional relief measures[146] - Tax benefits of $15.35 million from excess share-based compensation and $10.894 million from re-measurement of U.S. tax losses under the CARES Act were recognized in Q3 FY2020[145] Note 10. Noncontrolling Interests Cimpress holds controlling equity stakes in several subsidiaries with minority interests held by third parties or management. Redeemable noncontrolling interests are presented as temporary equity and adjusted to redemption value. The balance of redeemable noncontrolling interests increased to $69.68 million as of March 31, 2020, primarily due to acquisitions and accretion to redemption value | Metric | Redeemable noncontrolling interests (in thousands) | | :--------------------------------------- | :----------------------------------------------- | | Balance as of June 30, 2019 | $63,182 | | Acquisition of noncontrolling interest | $3,995 | | Accretion to redemption value recognized in retained earnings | $5,493 | | Net income attributable to noncontrolling interest | $1,630 | | Balance as of March 31, 2020 | $69,682 | - Redeemable noncontrolling interests are recognized at fair value and adjusted to redemption value periodically, with the offset to retained earnings[150] - In Q4 FY2019, Cimpress sold minority equity interests in PrintBrothers businesses, with put options exercisable from 2021 and call options from 2026[151] - The VIDA Group Co. shares held by Cimpress were repurchased by VIDA Group Co. on April 10, 2020[153] Note 11. Variable Interest Entity ("VIE") Cimpress holds a 53.7% equity interest in Printi LLC, which is considered a Variable Interest Entity. The company has a contractual obligation to acquire the remaining equity interests through a reciprocal put and call structure, exercisable from April 1, 2021, to July 31, 2023. The carrying value of these liabilities was zero as of March 31, 2020, based on estimated redemption values - Cimpress holds a 53.7% equity interest in Printi LLC and has a contractual obligation to acquire the remaining equity through put and call options exercisable from April 1, 2021, to July 31, 2023[156] - The carrying value of the liabilities related to the Printi LLC equity acquisition was zero as of March 31, 2020, based on estimated redemption values[156] Note 12. Segment Information Cimpress revised its segment reporting structure in Q1 FY2020, integrating Vistaprint Corporate Solutions, India, and Japan into the Vistaprint segment. The company now reports in five segments: Vistaprint, PrintBrothers, The Print Group, National Pen, and All Other Businesses. Segment profitability is measured by adjusted EBITDA. Total consolidated revenue for the nine months ended March 31, 2020, was $2,052.25 million, with Vistaprint being the largest contributor - Cimpress revised its internal organizational and reporting structure in Q1 FY2020, integrating Vistaprint Corporate Solutions, Vistaprint India, and Vistaprint Japan into the Vistaprint segment[158] - The company reports in five segments: Vistaprint, PrintBrothers, The Print Group, National Pen, and All Other Businesses[159][160][161] - Segment profitability is now measured by an adjusted EBITDA metric, which excludes depreciation and amortization (with exceptions), earn-out related charges, share-based compensation related to investment consideration, certain impairment expense, and restructuring charges[163][166] Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :------------------------------- | | Vistaprint | $316,310 | $1,092,786 | | PrintBrothers | $109,496 | $345,403 | | The Print Group | $68,537 | $228,494 | | National Pen | $68,362 | $266,510 | | All Other Businesses | $39,237 | $131,287 | | Total consolidated revenue | $597,960 | $2,052,252 | Segment EBITDA (in thousands) | Segment EBITDA (in thousands) | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | | :------------------------------ | :-------------------------------- | :------------------------------- | | Vistaprint | $67,444 | $280,184 | | PrintBrothers | $8,686 | $35,922 | | The Print Group | $10,934 | $42,673 | | National Pen | $(1,244) | $17,005 | | All Other Businesses | $3,187 | $8,572 | | Total segment EBITDA | $89,007 | $384,356 | Note 13. Leases Cimpress leases machinery, equipment, and facilities under non-cancelable operating and finance leases. As of March 31, 2020, total lease assets were $186.63 million and total lease liabilities were $198.87 million. Operating lease expense for the nine months ended March 31, 2020, was $32.42 million, with total net lease cost of $11.20 million. The weighted-average remaining lease term for operating leases is 6.17 years Lease Classification (in thousands) | Lease Classification (in thousands) | March 31, 2020 | | :---------------------------------- | :------------- | | Operating right-of-use assets | $164,391 | | Finance right-of-use assets | $22,243 | | Total lease assets | $186,634 | | Operating lease liabilities, current | $37,405 | | Finance lease liabilities, current | $7,833 | | Operating lease liabilities, non-current | $134,267 | | Finance lease liabilities, non-current | $19,360 | | Total lease liabilities | $198,865 | Lease Expenses (in thousands) | Lease Expenses (in thousands) | Nine Months Ended March 31, 2020 | | :------------------------------ | :------------------------------- | | Operating lease expense | $32,416 | | Amortization of finance lease assets | $4,614 | | Interest on lease liabilities | $635 | | Variable lease expense | $8,433 | | Less: sublease income | $(2,478) | | Net lease cost | $11,204 | - The weighted-average remaining lease term for operating leases is 6.17 years, and for finance leases is 4.63 years[185] Note 14. Commitments and Contingencies As of March 31, 2020, Cimpress had unrecorded purchase commitments totaling $102.82 million, primarily for third-party web services ($64.29 million) and inventory/fulfillment ($12.22 million). The company also had $2.37 million in deferred payments for acquisitions and is not currently party to any material legal proceedings - Unrecorded purchase commitments totaled $102.822 million as of March 31, 2020, including $64.289 million for third-party web services and $12.217 million for inventory and third-party fulfillment[187] - Deferred payments for several acquisitions amounted to $2.369 million as of March 31, 2020[188] - Cimpress is not currently party to any material legal proceedings and does not expect current matters to have a material adverse impact on its financial results[189] Note 15. Restructuring Charges Cimpress recognized restructuring charges of $0.92 million for the three months and $5.01 million for the nine months ended March 31, 2020, primarily within the Vistaprint segment due to organizational structure evolution. This is a significant decrease compared to $7.87 million and $9.06 million in the prior year periods Restructuring Activity (in thousands) | Restructuring Activity (in thousands) | Accrued liability as of June 30, 2019 | Restructuring charges | Cash payments | Non-cash charges | Accrued liability as of March 31, 2020 | | :------------------------------------ | :------------------------------------ | :-------------------- | :------------ | :--------------- | :------------------------------------- | | Severance and Related Benefits | $3,045 | $4,662 | $(4,637) | $(756) | $2,314 | | Other Restructuring Costs | $167 | $344 | $(433) | — | $78 | | Total | $3,212 | $5,006 | $(5,070) | $(756) | $2,392 | - Restructuring charges for the three and nine months ended March 31, 2020, were $919 thousand and $5.006 million, respectively, primarily in the Vistaprint segment due to organizational changes[193] Note 16. Subsequent Events On May 1, 2020, Cimpress amended its senior secured credit agreement to suspend maintenance covenants until December 31, 2021, and raised $300 million from Apollo Funds through 5-year second lien notes and 7-year warrants. The proceeds were used to pay down term loans, and the amendment reduced the credit facility size and increased interest rates. This action provides financial flexibility during the COVID-19 pandemic but eliminates share repurchases and substantially limits acquisitions during the suspension period - On May 1, 2020, Cimpress amended its senior secured credit agreement to suspend maintenance covenants (leverage and interest coverage ratios) until December 31, 2021[196] - The amendment increased pricing to LIBOR +3.25% during the suspension period and changed the maturity date from February 2025 to November 2024. The credit facility was reduced from $1,551.4 million to $1,000 million[196] - Cimpress issued $300 million in 5-year second lien notes with a 12% coupon and 7-year warrants to purchase 1,055,377 ordinary shares to Apollo Funds. Proceeds were used to pay down term loans[197][198] - The credit facility amendment eliminates the ability to repurchase shares and substantially limits acquisitions during the covenant suspension period[276] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Cimpress's financial condition and results of operations, highlighting the significant adverse impact of the COVID-19 pandemic on demand, revenue, and profitability. It details the company's proactive measures, including cost reductions, financial flexibility initiatives, and strategic investments, while also presenting a summary of consolidated and segment-specific financial performance for the three and nine months ended March 31, 2020 Executive Overview Cimpress, a mass customization specialist, experienced significant revenue declines starting March 2020 due to the COVID-19 pandemic. The company responded with decentralized actions, cost reductions, financial flexibility measures (including a credit agreement amendment and capital raise), and efforts to maintain operational continuity and protect key investments. The near-term outlook is materially negative, with expected revenue recovery as restrictions ease - Cimpress is a group of businesses specializing in mass customization of print, signage, photo merchandise, and other categories, managed in a decentralized manner[203] - The COVID-19 pandemic led to materially reduced demand for products starting March 2020, impacting small business customers globally[205] - Cimpress responded by amending its senior secured credit agreement, raising new capital, enacting significant cost-reduction and cash-preservation measures, maintaining operational continuity, and protecting key technology investments[208] - The company expects a material negative impact on Q4 FY2020 results but anticipates continued improvement in revenue trends as restrictions are lifted[210] Financial Summary For Q3 FY2020, revenue decreased by 10% to $598.0 million, with an operating loss of $87.7 million due to a $100.8 million goodwill impairment and COVID-19 impacts. Adjusted EBITDA decreased by $17.9 million to $70.9 million. Year-to-date, revenue decreased by 1% to $2,052.3 million, operating income decreased by $55.0 million to $59.2 million, and Adjusted EBITDA increased by $66.6 million to $335.9 million | Metric | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :------------------------------- | | Revenue | $598.0 million (down 10%) | $2,052.3 million (down 1%) | | Constant-currency revenue growth (excl. acquisitions) | (9)% | (1)% | | Operating income (loss) | $(87.7) million (down $117.4M) | $59.2 million (down $55.0M) | | Adjusted EBITDA | $70.9 million (down $17.9M) | $335.9 million (up $66.6M) | | Cash provided by operating activities | N/A | $284.1 million (up $61.6M) | | Adjusted free cash flow | N/A | $209.6 million (up $79.7M) | - The Q3 FY2020 operating loss was primarily due to a $100.8 million goodwill impairment charge and declining performance from COVID-19 impacts, partially offset by reduced advertising spend and lower restructuring charges[217] Consolidated Results of Operations Consolidated revenue decreased by 10% in Q3 FY2020 and 1% year-to-date, primarily due to COVID-19 impacts and negative currency fluctuations. Cost of revenue decreased in line with demand. Operating expenses saw varied changes: technology and development increased due to infrastructure rebuilds, marketing and selling decreased due to reduced advertising, general and administrative increased due to consulting and merger costs, and a significant goodwill impairment of $100.8 million was recognized Consolidated Revenue Details Cimpress's revenue performance by segment for the three and nine months ended March 31, 2020, highlighting changes and growth drivers | Segment | Three Months Ended March 31, 2020 (in thousands) | % Change (YoY) | Constant-Currency Revenue Growth (excl. acquisitions) | | :-------------------- | :----------------------------------------------- | :------------- | :---------------------------------------------------- | | Vistaprint | $316,310 | (12)% | (11)% | | PrintBrothers | $109,496 | —% | —% | | The Print Group | $68,537 | (13)% | (10)% | | National Pen | $68,362 | (14)% | (13)% | | All Other Businesses | $39,237 | 3% | 5% | | Total consolidated revenue | $597,960 | (10)% | (9)% | - Consolidated revenue decreased by 10% in Q3 FY2020 and 1% year-to-date, primarily due to significant declines in order volumes in March from COVID-19 lockdowns and negative currency impacts[216][221] Consolidated Cost of Revenue Presents Cimpress's cost of revenue and its percentage of total revenue for the three and nine months ended March 31, 2020 | Metric | Three Months Ended March 31, 2020 (in thousands) | Nine Months Ended March 31, 2020 (in thousands) | | :-------------------- | :----------------------------------------------- | :---------------------------------------------- | | Cost of revenue | $309,598 | $1,029,281 | | % of revenue | 51.8% | 50.2% | - Consolidated cost of revenue decreased by $33.1 million in Q3 FY2020 and $27.4 million year-to-date, mainly due to reduced demand-dependent costs (third-party fulfillment, materials, shipping) across segments impacted by COVID-19[224][225] Consolidated Operating Expenses Itemizes Cimpress's operating expenses, including technology, marketing, general and administrative, and impairment charges, for the periods presented | Expense Category (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Technology and development | $67,693 | 13% | $195,287 | 12% | | Marketing and selling | $148,803 | (13)% | $483,056 | (14)% | | General and administrative | $45,148 | 20% | $140,681 | 18% | | Amortization of acquired intangible assets | $12,693 | (9)% | $38,861 | (3)% | | Restructuring expense | $919 | (88)% | $5,006 | (45)% | | Impairment of goodwill | $100,842 | 100% | $100,842 | 100% | - Technology and development expenses increased by $8.0 million in Q3 FY2020 and $20.7 million year-to-date, driven by Vistaprint's technology infrastructure rebuild and increased central technology team costs[228][229] - Marketing and selling expenses decreased by $21.4 million in Q3 FY2020 and $79.5 million year-to-date, primarily due to reduced advertising spend in Vistaprint and National Pen, further tightened in response to COVID-19[231] - General and administrative expenses increased by $7.4 million in Q3 FY2020 and $21.5 million year-to-date, due to consulting costs, Irish Merger-related costs, higher recruiting, and a $1.0 million loss from the VIDA business held for sale[233] - Goodwill impairment charges of $100.8 million were recognized in Q3 FY2020 for National Pen, VIDA, and Exaprint, driven by expected near-term cash flow deterioration from COVID-19 and reduced long-term profit outlooks[238] Other Consolidated Results Summarizes Cimpress's other income (expense), net interest expense, and income tax expense (benefit) for the three and nine months ended March 31, 2020 | Metric (in thousands) | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :------------------------------- | | Other income (expense), net | $22,537 | $29,171 | | Interest expense, net | $(17,262) | $(48,050) | | Income tax expense (benefit) | $1,039 | $(86,641) | - Other income (expense), net increased significantly due to currency exchange rate volatility impacting derivatives not designated as hedging instruments, particularly Euro and British Pound contracts[240] - Interest expense, net increased slightly due to higher debt borrowing levels, partially offset by lower interest expense from the ASC 842 adoption reclassifying the Waltham, MA lease[244] - The nine-month income tax benefit was significantly influenced by a $114.1 million deferred tax benefit from Swiss Tax Reform, offset by a $28.5 million valuation allowance against U.S. deferred tax assets due to COVID-19 impacts[247][248] Reportable Segment Results Segment results show Vistaprint's revenue decline due to advertising changes and COVID-19, while PrintBrothers maintained flat revenue in Q3 but grew year-to-date. The Print Group and National Pen experienced revenue declines, heavily impacted by COVID-19 and reduced direct mail. All Other Businesses saw revenue growth, driven by BuildASign's resilience and Printi's efficiency improvements. Segment EBITDA generally followed revenue trends, with Vistaprint's Q3 decline offset by year-to-date growth from advertising reductions, and All Other Businesses showing significant profitability improvement Vistaprint Reports Vistaprint's revenue and Segment EBITDA for the three and nine months ended March 31, 2020, detailing performance drivers | Metric (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Reported Revenue | $316,310 | (12)% | $1,092,786 | (5)% | | Segment EBITDA | $67,444 | (18)% | $280,184 | 17% | | % of revenue | 21% | | 26% | | - Vistaprint's revenue declined by 11% (constant-currency) in Q3 FY2020 due to ongoing advertising spend changes and reduced demand from COVID-19 lockdowns in March[254] - Q3 FY2020 Segment EBITDA decreased due to revenue declines, partially offset by $17.1 million reduction in advertising spend. Year-to-date Segment EBITDA increased due to $69.5 million reduction in advertising spend and gross margin improvements[255] PrintBrothers Presents PrintBrothers' revenue and Segment EBITDA for the three and nine months ended March 31, 2020, highlighting growth and efficiency | Metric (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Reported Revenue | $109,496 | —% | $345,403 | 6% | | Segment EBITDA | $8,686 | 7% | $35,922 | 18% | | % of revenue | 8% | | 10% | | - PrintBrothers' constant-currency revenue growth (excluding acquisitions) was flat in Q3 FY2020 due to COVID-19 impacts, but grew 8% year-to-date, driven by growth across all businesses and the integration of a former supplier[258] - Segment EBITDA increased in both periods due to increased gross profit, favorable product mix shifts, and production efficiencies, partially offset by technology investments and negative currency impacts[259] The Print Group Details The Print Group's revenue and Segment EBITDA for the three and nine months ended March 31, 2020, noting impacts from COVID-19 | Metric (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Reported Revenue | $68,537 | (13)% | $228,494 | (4)% | | Segment EBITDA | $10,934 | (30)% | $42,673 | (3)% | | % of revenue | 16% | | 19% | | - The Print Group's constant-currency revenue decreased by 10% in Q3 FY2020, primarily due to significant declines in March order volumes, especially in Pixartprinting (Northern Italy) due to tighter COVID-19 restrictions[261] - Segment EBITDA decreased in both periods, driven by revenue decline, technology investments, and unfavorable currency impacts[263] National Pen Reports National Pen's revenue and Segment EBITDA for the three and nine months ended March 31, 2020, showing declines and cost reductions | Metric (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Reported Revenue | $68,362 | (14)% | $266,510 | (4)% | | Segment EBITDA | $(1,244) | (1,201)% | $17,005 | 65% | | % of revenue | (2)% | | 6% | | - National Pen's constant-currency revenue declined by 13% in Q3 FY2020, driven by lower direct mail volumes due to reduced prospecting activity and negative impacts from COVID-19 lockdowns in March[265] - Q3 FY2020 Segment EBITDA decreased due to revenue decline, partially mitigated by proactive variable and fixed cost reductions. Year-to-date Segment EBITDA increased due to reduced advertising spend and operational improvements[266] All Other Businesses Presents revenue and Segment EBITDA for All Other Businesses, highlighting growth and profitability improvements | Metric (in thousands) | Three Months Ended March 31, 2020 | % Change (YoY) | Nine Months Ended March 31, 2020 | % Change (YoY) | | :-------------------- | :-------------------------------- | :------------- | :------------------------------- | :------------- | | Reported Revenue | $39,237 | 3% | $131,287 | 40% | | Segment EBITDA | $3,187 | 377% | $8,572 | 205% | | % of revenue | 8% | | 7% | | - All Other Businesses' constant-currency revenue increased by 5% in Q3 FY2020, driven by strong performance from BuildASign's home decor business, showing resilience during the pandemic[269] - Segment EBITDA improved significantly in both periods, primarily due to efforts to improve the efficiency and focus of Printi and profit growth from BuildASign[270] Central and Corporate Costs Summarizes the changes in central and corporate costs, including share-based compensation and technology investments - Central and corporate costs increased by $6.3 million in Q3 FY2020 and $22.5 million year-to-date, driven by higher share-based compensation, increased central technology investments, and professional fees related to the Irish Merger[272] Liquidity and Capital Resources Cimpress's cash and cash equivalents increased to $228.3 million at March 31, 2020, with total debt at $1,677.5 million. Net cash provided by operating activities was $284.1 million for the nine months ended March 31, 2020. The company took proactive measures, including a $300 million capital raise and credit facility amendment in May 2020, to ensure sufficient liquidity during the COVID-19 pandemic, which also restricts share repurchases and limits acquisitions Cash Flow Data (in thousands) | Cash Flow Data (in thousands) | Nine Months Ended March 31, 2020 | Nine Months Ended March 31, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $284,061 | $222,470 | | Net cash used in investing activities | $(47,813) | $(381,554) | | Net cash (used in) provided by financing activities | $(36,756) | $161,900 | - As of March 31, 2020, Cimpress had $228.3 million in cash and cash equivalents and $1,677.5 million in debt[273] - The company raised $300 million in capital on May 1, 2020, and amended its credit facility to suspend maintenance covenants, ensuring sufficient liquidity for the next twelve months despite COVID-19 uncertainty[276][277] - The May 2020 credit facility amendment eliminates the ability to repurchase shares and substantially limits acquisitions during the covenant suspension period[276] Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :------------------------------------- | :---- | :--------------- | :-------- | :-------- | :---------------- | | Operating leases, net of subleases | $160,387 | $36,758 | $54,645 | $35,347 | $33,637 | | Purchase commitments | $102,822 | $52,674 | $30,148 | $20,000 | — | | Senior unsecured notes and interest payments | $873,000 | $42,000 | $84,000 | $84,000 | $663,000 | | Other debt and interest payments | $1,226,783 | $59,083 | $148,268 | $1,019,432 | — | | Finance leases, net of subleases | $24,176 | $7,550 | $11,446 | $3,586 | $1,594 | | Other | $2,369 | $1,551 | $732 | $86 | — | | Total | $2,389,537 | $199,616 | $329,239 | $1,162,451 | $698,231 | Additional Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including Adjusted EBITDA and Adjusted Free Cash Flow, which management uses to evaluate performance and provide investors with a clearer understanding of underlying business results. Adjusted EBITDA for the nine months ended March 31, 2020, was $335.94 million, and Adjusted Free Cash Flow was $209.60 million - Adjusted EBITDA is defined as GAAP operating income plus depreciation and amortization (with specific exclusions), share-based compensation, earn-out related charges, certain impairments, restructuring charges, and realized gains/losses on currency derivatives, less interest expense related to the Waltham, MA lease and gains on purchase/sale of subsidiaries[291] - Adjusted Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment, purchases of intangible assets not related to acquisitions, and capitalization of software and website development costs, plus certain contingent consideration payments and insurance proceeds[295] Adjusted EBITDA Reconciliation (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2020 | Nine Months Ended March 31, 2020 | | :--------------------------------------- | :-------------------------------- | :------------------------------- | | GAAP operating (loss) income | $(87,736) | $59,238 | | Adjusted EBITDA | $70,908 | $335,941 | Adjusted Free Cash Flow Reconciliation (in thousands) | Metric (in thousands) | Nine Months Ended March 31, 2020 | | :--------------------------------------- | :------------------------------- | | Net cash provided by operating activities | $284,061 | | Purchases of property, plant and equipment | $(38,638) | | Capitalization of software and website development costs | $(35,824) | | Adjusted free cash flow | $209,599 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Cimpress is exposed to interest rate risk from its variable-rate debt and currency exchange rate risk from its global operations. A hypothetical 100 basis point increase in interest rates would increase interest expense by approximately $5.6 million over 12 months. The company manages currency risks through derivatives, but many are not hedge-accounted, leading to potential GAAP earnings volatility. A hypothetical 10% decrease in exchange rates could increase income before taxes by $14.5 million for Q3 FY2020 - Cimpress has $1,063.8 million in variable-rate debt as of March 31, 2020, exposing it to interest rate risk. A hypothetical 100 basis point increase in rates would increase interest expense by approximately $5.6 million over the next 12 months[301] - The company manages currency risks through derivative financial instruments, but many currency contracts are not designated for hedge accounting, which may lead to increased volatility in GAAP results[302][304] - A hypothetical 10% decrease in currency exchange rates against the functional currency of subsidiaries would have resulted in a $14.5 million increase in income before income taxes for the three months ended March 31, 2020[309] Item 4. Controls and Procedures Cimpress's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2020. There were no significant changes in internal control over financial reporting during the three months ended March 31, 2020 - As of March 31, 2020, Cimpress's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level[310] - No significant changes in internal control over financial reporting occurred during the three months ended March 31, 2020[311] PART II. OTHER INFORMATION Contains additional disclosures, including updated risk factors, equity security sales, and a list of exhibits filed with the report Item 1A. Risk Factors Cimpress updated its risk factors to highlight the major adverse impact of the COVID-19 pandemic on its operations, financial results, customers, and employees. This includes material declines in demand, operational disruptions, and significant resource allocation to mitigation efforts. Prolonged impacts could lead to supply chain disruptions and difficulties complying with credit facility covenants, despite recent amendments - The COVID-19 pandemic is having a major adverse impact on Cimpress's operations, financial results, customers, and employees, including material declines in demand and operational disruptions[313][314] - Future impacts could include supply chain disruptions and difficulties complying with credit facility covenants if adverse effects persist beyond the temporary suspension period[314][316] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Cimpress's Board authorized a share repurchase program for up to 5,500,000 ordinary shares, expiring May 22, 2021. During Q3 FY2020, the company repurchased 758,653 shares at an average price of $117.95 per share, leaving 4,617,947 shares available under the program as of March 31, 2020 - Cimpress's Board authorized a share repurchase program for up to 5,500,000 ordinary shares, expiring May 22, 2021[318] Share Repurchases | Period | Total Number of Shares Purchased | Average Price Per Share | | :--------------------------------------- | :------------------------------- | :---------------------- | | January 1, 2020 through January 31, 2020 | — | — | | February 1, 2020 through February 29, 2020 | 658,653 | $117.95 | | March 1, 2020 through March 31, 2020 | 100,000 | $117.92 | | Total | 758,653 | $117.95 | - As of March 31, 2020, approximately 4,617,947 shares remained available for repurchase under the program[319] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various indentures, credit agreement amendments, a note and warrant purchase agreement, security agreements, intercreditor agreements, and certifications required by the Sarbanes-Oxley Act - Exhibits include the Third Supplemental Indenture for 7.0% senior notes due 2026, Senior Secured Notes Indenture, Form of Warrant, Amendment No. 3 and 4 to the Senior Credit Agreement, Note and Warrant Purchase Agreement, Pledge and Security Agreement, and Intercreditor Agreement[321] - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief Financial Officer are also included[321] Signatures The report is duly signed on behalf of Cimpress plc by Sean E. Quinn, Chief Financial Officer, on May 6, 2020, affirming compliance with the Securities Exchange Act of 1934 requirements - The report was signed by Sean E. Quinn, Chief Financial Officer, on May 6, 2020[324]