Cimpress(US:CMPR)2021-01-27 16:00PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for the three and six months ended December 31, 2020, including balance sheets, statements of operations, comprehensive income, shareholders' equity, cash flows, and detailed notes on accounting and significant events Consolidated Balance Sheets Total assets increased to $1.93 billion from $1.82 billion, driven by a $105 million goodwill increase, while total liabilities rose to $2.23 billion, resulting in a $364.9 million shareholders' deficit | Balance Sheet Item | Dec 31, 2020 ($ millions) | June 30, 2020 ($ millions) | | :--- | :--- | :--- | | Cash and cash equivalents | 36.9 | 45.0 | | Goodwill | 726.8 | 621.9 | | Total assets | 1,930.5 | 1,815.0 | | Long-term debt | 1,258.5 | 1,415.7 | | Total liabilities | 2,229.9 | 2,153.4 | | Total shareholders' deficit | (364.9) | (407.5) | Consolidated Statements of Operations Revenue decreased 4% to $786.1 million for Q2 FY2021, with net income attributable to Cimpress plc significantly declining to $32.3 million from $190.2 million due to a prior-year tax benefit | Metric ($ millions, except EPS) | Q2 FY2021 (3 mo ended Dec 31, 2020) | Q2 FY2020 (3 mo ended Dec 31, 2019) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 786.1 | 820.3 | -4.2% | | Income from operations | 94.2 | 121.6 | -22.5% | | Net income attributable to Cimpress plc | 32.3 | 190.2 | -83.0% | | Diluted EPS | $1.22 | $6.81 | -82.1% | | Metric ($ millions, except EPS) | YTD FY2021 (6 mo ended Dec 31, 2020) | YTD FY2020 (6 mo ended Dec 31, 2019) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 1,372.6 | 1,454.3 | -5.6% | | Income from operations | 130.2 | 147.0 | -11.4% | | Net income attributable to Cimpress plc | 21.5 | 210.3 | -89.8% | | Diluted EPS | $0.82 | $7.19 | -88.6% | Consolidated Statements of Cash Flows Net cash from operations was $256.2 million for the six months ended December 31, 2020, with increased cash used in investing activities ($76.7 million) and financing activities ($191.8 million) primarily for debt repayment | Cash Flow Activity ($ millions) | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | 256.2 | 265.1 | | Net cash used in investing activities | (76.7) | (53.8) | | Net cash used in financing activities | (191.8) | (207.4) | | Net decrease in cash | (8.1) | 1.6 | Notes to Consolidated Financial Statements Detailed notes explain accounting policies, including the $88.7 million 99designs acquisition, $1.3 billion debt structure with suspended covenants, varied segment performance due to COVID-19, and a significant income tax change from a prior-year benefit - The company acquired 99designs for $88.7 million, adding $71.4 million to goodwill in the Vistaprint segment9192 - Financial maintenance covenants under the senior secured credit facility are suspended until December 31, 2021, requiring compliance with new covenants including $50 million minimum liquidity103104105 - Income tax expense was $19.7 million for the six months ended December 31, 2020, a significant change from the prior year's $87.7 million benefit, which included a $114.1 million discrete tax benefit from Swiss Tax Reform119 | Segment | Revenue (6 mo ended Dec 31, 2020, $M) | Segment EBITDA (6 mo ended Dec 31, 2020, $M) | | :--- | :--- | :--- | | Vistaprint | 765.6 | 202.5 | | PrintBrothers | 221.9 | 26.2 | | The Print Group | 142.6 | 24.8 | | National Pen | 182.3 | 8.1 | | All Other Businesses | 98.8 | 19.3 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the ongoing negative impact of COVID-19 on revenue, a 6% year-to-date decline, while detailing segment performance, including growth in 'All Other Businesses', and affirming sufficient liquidity despite suspended debt covenants COVID-19 Impact and Financial Summary The COVID-19 pandemic continues to negatively impact business, with Q2 FY2021 revenue decreasing 4% to $786.1 million and operating income falling 22.5% to $94.2 million, despite ongoing strategic investments - The COVID-19 pandemic continues to negatively impact business, though the year-over-year revenue decline improved in Q2 FY2021 compared to Q1 FY2021159 - Despite the pandemic, the company continues to invest in technology, data, new products, and branding to build competitive advantages for post-pandemic growth159 | Metric | Q2 FY2021 | YoY Change | | :--- | :--- | :--- | | Revenue | $786.1 M | -4% | | Organic Constant-Currency Revenue | | -9% | | Operating Income | $94.2 M | -22.5% | | Adjusted EBITDA | $143.4 M | -22.7% | Consolidated Results of Operations Q2 FY2021 total revenue decreased 4% (9% organic constant-currency), with cost of revenue increasing to 49.1% due to product mix and mask losses, while marketing expenses rose 5% and G&A decreased 17% from non-recurring prior-year costs | Segment | Q2 FY2021 Revenue ($M) | Organic Constant-Currency Growth | | :--- | :--- | :--- | | Vistaprint | 436.3 | -6% | | PrintBrothers | 121.8 | -11% | | The Print Group | 76.2 | -19% | | National Pen | 114.7 | -13% | | All Other Businesses | 55.4 | 14% | | Total | 786.1 | -9% | - Cost of revenue increased as a percentage of revenue, partly due to a $4.5 million expense related to declining demand and pricing for disposable masks175 - Marketing and selling expenses increased by $9.0 million in Q2 FY2021, driven by higher advertising spend in the Vistaprint business181 - General and administrative expenses decreased by $8.9 million in Q2 FY2021, primarily due to the non-recurrence of costs from strategic projects and a prior-year cross-border merger184 Reportable Segment Results Segment performance varied in Q2 FY2021, with Vistaprint's EBITDA falling 19% and National Pen's dropping 33% due to mask inventory losses, while 'All Other Businesses' EBITDA grew 191% driven by BuildASign - Vistaprint's segment EBITDA decreased by 19% in Q2, driven by a revenue mix shift to lower-margin products and increased advertising investment199201 - National Pen's segment EBITDA decreased significantly, impacted by a $4.4 million loss and inventory reserve related to disposable masks210212 - The 'All Other Businesses' segment saw a 191% increase in EBITDA, primarily driven by continued growth at BuildASign, benefiting from home décor products and political signage213214216 Liquidity and Capital Resources The company maintains sufficient liquidity with $36.9 million cash and $585.1 million available borrowing as of December 31, 2020, despite $1.32 billion in debt and suspended share repurchases - As of December 31, 2020, the company had $36.9 million in cash and cash equivalents and $1.315 billion in debt (excluding issuance costs)219 - The April 2020 credit facility amendment prohibits share repurchases and limits acquisitions while financial maintenance covenants are suspended223 - The company had $585.1 million available for borrowing under its senior secured credit facility as of December 31, 2020224225 | Contractual Obligation ($ millions) | Total | Less than 1 year | 1-3 years | | :--- | :--- | :--- | :--- | | Operating leases | 154.7 | 37.1 | 54.3 | | Purchase commitments | 226.3 | 121.2 | 89.2 | | Senior unsecured notes & interest | 831.0 | 42.0 | 84.0 | | Second lien notes & interest | 462.0 | 36.0 | 72.0 | | Other debt & interest | 520.4 | 51.5 | 88.1 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its variable-rate debt, mitigated by swaps, and significant currency exchange rate risk from global operations, with hedging strategies for non-GAAP metrics potentially increasing GAAP volatility - The company has exposure to interest rate risk on $404.4 million of variable-rate debt, partially mitigated through interest rate swap contracts247 - Significant currency exchange rate risk exists due to worldwide operations, primarily in the Euro and British Pound, with derivatives used to reduce volatility in forecasted U.S. dollar-equivalent adjusted EBITDA248249 - Because hedging objectives target non-GAAP metrics like adjusted EBITDA, the company may experience increased volatility in its GAAP results249 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of December 31, 2020, with no significant changes to internal control over financial reporting during the quarter - Based on an evaluation as of December 31, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective256 - No significant changes were made to the internal control over financial reporting during the three months ended December 31, 2020257 PART II OTHER INFORMATION Item 1A. Risk Factors No material changes to risk factors were reported since the company's last Form 10-K and Form 10-Q filings - No material changes to risk factors were reported since the last Form 10-K and Form 10-Q filings261 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any ordinary shares during the three months ended December 31, 2020, as the share repurchase program remains suspended due to amended senior secured credit agreement prohibitions - The company's share repurchase program, authorized in November 2019, is currently suspended due to restrictions in its amended senior secured credit agreement from April 2020262263 - No ordinary shares were purchased by the company during the three months ended December 31, 2020263 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the 2020 Equity Incentive Plan, share unit agreements, and CEO/CFO certifications required by the Sarbanes-Oxley Act - Exhibits filed include the 2020 Equity Incentive Plan and related agreement forms, as well as CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906265