CURRENT REPORT |
Pursuant to Section 13 or 15(d) |
of the Securities Exchange Act of 1934 |
Date of Report (Date of earliest event reported): April 29, 2015 |
The Netherlands | 000-51539 | 98-0417483 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
Hudsonweg 8 | ||
Venlo | 5928 LW | |
The Netherlands | (Zip Code) | |
(Address of Principal Executive Offices) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | ||||
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Date: April 30, 2015 | CIMPRESS N.V. | |
By: | /s/Sean E. Quinn | |
Sean E. Quinn | ||
Vice President and Chief Accounting Officer |
Exhibit | ||
No. | Description | |
99.1 | Press release dated April 29, 2015 entitled “Cimpress Reports Third Quarter Fiscal Year 2015 Financial Results” was previously furnished as an exhibit to Cimpress' Current Report on Form 8-K filed with the Securities and Ex change Commission on April 29, 2015 | |
99.2 | Presentation dated April 29, 2015 entitled "Cimpress N.V. Q3 Fiscal Year 2015 Earnings presentation, commentary & financial results supplement" | |
99.3 | Cimpress Q3 Fiscal Year 2015 Earnings Presentation Script dated April 29, 2015 accompanying the presentation in Exhibit 99.2 |
1. | Leadership: being the world leader in mass customization, a discipline that lies at the intersection of what we are passionate about, where we can be the best in the world, and what drives our economic engine. |
2. | Long-termism: multi-decade, mutual success for the benefit of the following stakeholders: customers, team members, society, and our long-term investors. |
3. | Intrinsic value per share: the free cash flow per share that, in our best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital. |
• | Build a software-integrated supply chain and manufacturing operational “mass customization platform” that drives scale based competitive advantages in terms of: |
◦ | Selection (the breadth and depth of delivery speed options, substrate choices, product formats, special finishes, etc. which we offer to our customers) |
◦ | Conformance (the degree to which we deliver products to customers as specified, on time) |
◦ | Cost (reducing the cost of delivering any given selection, in conformance with specification) |
• | Bring our mass customization platform capabilities to market via a portfolio of customer-facing brands. These brands are expected to be managed autonomously, and charged with developing compelling and distinct value propositions that resonate with their target customers through investments in areas such as user interface, price positioning, merchandising choices, content, customer service, branding and advertising. |
• | We deploy capital across a wide spectrum of opportunities and are agnostic about what category of capital allocation we fund. Rather, our choices are based on what we believe will best achieve our above-enumerated priorities. Likewise, we may raise capital and reduce capital (via share buybacks) in pursuit of our priorities. |
• | An investment in a new piece of manufacturing equipment to handle additional demand in an existing line of business may pay back, cash on cash, quite quickly. |
• | Our substantial multi-year investments in Most of World (the portion of our business that targets geographic markets beyond Europe, North America, and Australia/New Zealand) are currently depressing our net income by about $15M to $20M per year and our free cash flow by even greater amounts. |
• | In the past four years we have repurchased 12.8 million shares at an average price per share of $32.49, a price we believe was materially below our intrinsic value per share. |
• | We invest very large amounts of capital in long-term organic technology investments in our mass customization platform and in advertising to increase the awareness and positioning of our Vistaprint brand. |
• | Lately we have deployed large amounts of capital to make acquisitions in support of our strategy. |
• | We continued to optimize marketing tactics across markets in which we have already made significant pricing and positioning changes. This quarter was the anniversary of these major changes in the U.S and Germany, and we achieved double-digit revenue growth in both of these markets in the Vistaprint brand. Though this growth compared to a weak quarter in the year-ago period, we were pleased to see this rebound, as well as continued growth in the other markets in which we have made changes. Because our |
• | This quarter, we also rolled out changes in the remaining smaller markets in Europe. Though we are seeing declining year-over-year revenue in these markets as a result of the changes, we are confident that we can follow a similar pattern of optimization and improvement in future quarters. As a result, we believe we are through the worst of the revenue headwinds caused by our important but disruptive customer value proposition changes in the Vistaprint brand. In the larger European markets, the UK, France, and Germany, we delivered constant currency revenue growth. |
• | This quarter we saw continued traction in gross profit per customer as well as double-digit revenue growth from higher expectations customers in all major markets. Our efforts to drive consistent promotions across channels has led to strong revenue performance in our focus product categories: postcards and flyers, signage and business cards. |
• | One of the improvement areas for our customer value proposition is our product selection. This quarter, we continued to make strides here for the Vistaprint brand, with additional signage options, a social media advertising solution for postcard customers, as well as enhanced options for customers to receive design help from experts within Vistaprint or third parties. |
• | Through our joint venture in Japan, we continue to materially improve quality, delivery reliability, pricing transparency and the use of domestically relevant product formats and content. We are actively building the joint venture team and we are on track with the construction of the production facility that we expect to open in the first half of our next fiscal year. |
• | Our business in India continued strong year-over-year growth off of a small revenue base. We continue to invest in expanded customer service and manufacturing operations, and we broadened our product line. |
• | Printi, the startup Brazilian company in which we have a 41.6% minority interest, continues to execute well. We expect we will increase our ownership stake to just under 50% in the fourth quarter. |
• | Due to continued strong Printdeal performance, as well as an amendment of Printdeal's earn-out arrangement, we took additional expense of $7.5 million this quarter. The payment of the accrued earn-out will take place in two stages; the first was paid during Q3 2015 and the second will be paid in June 2016. |
• | As a reminder, the Pixartprinting earn-out achievement period was completed in December 2014, and during Q4 2015 we expect to pay the full amount we had accrued for this earn-out as of Q2 (€9.6M). There was no P&L impact during Q3 for the Pixartprinting earn-out. |
• | The integration of FotoKnudsen, the leading photo products competitor in Norway that we acquired in July, continues to progress as expected. |
• | Continued to expand functionality and products through our beta site for a broad range of embroidered soft goods, promotional products and apparel that can be decorated with customer-specific logos starting at quantities of as low as one item. |
• | Continued to optimize the manufacturing process for Printdeal products in our facility in Venlo, the Netherlands. As mentioned previously, this integration will last beyond the end of Fiscal 2015 and should help us reduce costs and expand the product selection offered by our various brands served via Venlo. |
• | Made other productivity, reliability and conformance improvements around the world. |
• | Operating income impacts: |
• | The impact of acquisition-related earn-outs flow through our P&L after the closing of the acquisition. This quarter, we incurred an additional $7.5 million related to continued strong performance of our Printdeal acquisition as well as an amendment of the earn-out arrangement. This is in the G&A line in our P&L. We are excluding these changes from our non-GAAP results and will report the cash payments of each earn out when they are incurred. |
• | Transaction costs/third-party fees associated with recent acquisitions of $0.7 million. This is not excluded from our non-GAAP results. |
• | Below-the-line impacts: |
• | Currency gains and losses within our "Other expense, net" line, a net gain of $8.3 million. Please see the next slide for a detailed explanation of the underlying drivers. |
• | In March we issued $275 million of Senior Notes with an approximate annualized interest expense of $19 million. In this quarter the interest expense and transaction related expenses for the bond offering was $0.5 million. |
• | Our year-over-year revenue growth rate expressed in USD was negatively impacted by about 700 basis points. Our largest currency exposure for revenue is the Euro. |
• | However, there are many natural expense offsets in our business, and therefore the net currency exposure of the Euro to our bottom line is less pronounced than it is for revenue. |
• | For currencies where we do have a net exposure because costs and revenues are not well matched, we execute currency forward contracts for which we do not apply hedge accounting. As a result, we see volatility in our “Other expense, net” line due to changes in realized and unrealized gains and losses on the mark-to-market of outstanding currency contracts. On a GAAP basis for the third quarter, the realized gain on hedging contracts was $1.8 million, and the unrealized gain was $4.0 million. The amount which was excluded from our non-GAAP net income was a change in unrealized gains of $4.0 million. |
• | We have U.S. Dollar denominated intercompany loans that result in non-operational, non-cash currency gains and losses. In Q3, this was an unrealized loss of $3.2 million (pre-tax as well as net of tax), also in the “Other expense, net” line on our GAAP income statement. We expect these fluctuations will be ongoing and we will exclude these gains and losses from our non-GAAP earnings as well, as they reflect adjustments that do not have current or long-term cash implications. |
• | There is also a currency impact on acquisition-related earn-outs. In Q3, this was a gain of $1.2 million. This is now excluded from our non-GAAP net income. Prior-period non-GAAP results have been recast to reflect this (the total gains year to date are $2.3 million). |
• | Additionally, in Q3 we recorded within the "Other expense, net" line realized gains of about $4.5 million based on the currency impact of revaluing working capital items (primarily accounts payable, accruals, and intercompany transactional activity). This was not excluded from our non-GAAP results. |
- | Total leverage ratio not to exceed 4.5x TTM EBITDA |
- | Senior leverage ratio not to exceed 3.25x TTM EBITDA |
- | Interest coverage ratio of at least 3.0x TTM EBITDA |
• | North American revenue was $189.8 million in the third quarter, reflecting 14% year-over-year growth in reported terms and 15% in constant currency terms. |
• | European revenue was $133.2 million, reflecting a year-over-year increase of 28% in reported terms and an increase of 44% year over year in constant currency terms. Excluding the results of Printdeal, Pixartprinting and FotoKnudsen, European revenue increased 5% in constant currencies. This is a sequential improvement and in line with our expectations as the roll out of changes to the value proposition have launched in our largest European markets including Germany and U.K. in FY14 and France in Q1 FY15. Revenue from newly acquired companies showed strong year-over-year growth in Q3. |
• | Revenue from other regions was $16.9 million, reflecting 6% year-over-year growth in reported terms and a 21% increase year over year in constant currencies, in line with expectations for the quarter. Excluding revenue from Printi (Brazil) and Digipri (a brand in our Japan JV), the constant currency year-over-year growth rate was 14%. |
• | We processed approximately 7.2 million orders, a decrease of 1% year over year due to lower new and repeat customer orders in Europe and Asia Pacific. Sequentially, the trend reflects our seasonal holiday revenue. |
• | Average order value in Q3 was $42.08, up 5% from an average order value of $40.14 in Q3 of last fiscal year with both new and repeat AOV growth in North America, Europe and Asia Pacific. We believe this is a positive sign of improving customer retention. Year-over-year there was a material negative impact on AOV from currency movements; without currency impacts, our AOV growth would have been above 10%. |
• | Quarterly new customer additions in the third quarter were approximately 2.2 million, down from 2.4 million in Q3 of last fiscal year. New customer counts were flat in North America and Asia Pacific, and declined year over year in Europe due to recent changes to marketing practices. |
• | We use the term “implied cost of customer acquisition” or “implied COCA” to describe total advertising expense in a period divided by the number of unique first time customers in that period. The second chart illustrates our implied COCA for the quarter, at approximately $31.71, was up from last quarter and the third quarter of last fiscal year. This is influenced by channel mix as the result of our recent marketing changes in top markets to make discount levels consistent across channels, as well as our Q3 investment in our previously described brand advertisement in North America. Year-over-year and sequentially, there was a currency benefit on COCA. |
• | Advertising costs were $70.5 million, or 23.7% of revenue in the quarter. This is slightly higher on an absolute dollar basis and in percentage terms than 23.0% one year ago. We continue to optimize channel spend and mix particularly in Europe. The increased advertising as a percent of revenue was driven by the US, where we launched our new TV brand advertising campaign. |
• | On a TTM basis for the period ended March 31, 2015, unique customer count was 16.7 million, a 1% year-over-year decrease in unique customers, and a slight sequential uptick. |
• | First-time unique customers in the TTM period ending March 31, 2015 declined 5% year over year while unique customers transacting from prior periods grew 6% year over year. The changes to our marketing approach, acquisition channel mix and focus on European customer economics have resulted in a decline in our total TTM new customer adds. |
• | Per unique customer: $77, reflecting a 5% increase year over year. |
• | Per new customer: $56, reflecting 6% year-over-year growth. |
• | Per customer transacting in prior periods: $103, reflecting a 2% increase year over year. |
• | Our constant-currency operational outlook underlying our previous revenue guidance remains essentially unchanged. We are narrowing our constant currency revenue growth expectations toward the mid to upper end of the prior range as we continue to execute well against our targets. |
• | Currencies have continued to move in ways that create a negative impact on our revenue. Our updated revenue guidance has been lowered by about $20 million to reflect this. Some of this reduction since the guidance we provided in January has already been locked into our third quarter results, and the rest is the projected impact on the remainder of the year using a recent 30-day average for relevant currencies. |
• | Finally, our recent acquisitions of Exagroup and Druck.at are expected to add about $30 million of revenue during the remainder of the year. |
• | The net impact of the above changes results in expectations for FY 15 constant currency revenue growth of 21% to 22% for the consolidated business. |
• | Operationally our FY15 profit outlook has improved by about $3 million versus the guidance we gave in January. |
• | The largest change compared to the GAAP EPS guidance we gave last quarter is our expectation for non-operational, non-cash currency gains and losses on the revaluation of intercompany loans. Using recent currency rates, we now expect to see a full-year gain in our GAAP net income of about $13 million (previously we were expecting a loss of $12 million for the year). |
• | Our GAAP EPS guidance range has been updated to include the additional $7.5 million impact of acquisition-related earn-outs in Q3. This is excluded from our non-GAAP EPS guidance. |
• | As mentioned earlier, we have also recast our non-GAAP net income to exclude the currency impact on these acquisition-related earn-outs. This was $2.3 million during the first three quarters of the year. |
• | Our GAAP and non-GAAP EPS guidance ranges have been updated to reflect the impact of the newly acquired businesses. We expect approximately $2.5 million dilution to GAAP net income, inclusive of transaction fees of $0.7 million already incurred in Q3 2015. The impact of the acquisitions on our non-GAAP EPS is expected to be neutral. |
• | Our GAAP and non-GAAP EPS guidance ranges have been updated to reflect the impact of our recent private offering of $275 million in senior notes, which creates additional interest expense of $5 million in FY 15 (including Q3 impact already incurred). |
• | Our GAAP and non-GAAP EPS guidance ranges have been updated to reflect a higher estimate for our income tax provision. For GAAP results, we expect an effective tax rate of roughly 8% to 9% of pre tax income for the year. This higher estimate is partly due to the fact that the currency loss we had previously projected for Q3 on our intercompany loan revaluation was much smaller than expected, and as such, the related tax benefit will not materialize. The tax impact on currency gains/losses on intercompany loan revaluation would be excluded from our non-GAAP results. As we have mentioned previously, we expect our cash taxes to be higher in FY15 than our GAAP tax expense. |
• | We are also narrowing our EPS guidance ranges. |
• | If exchange rates stay the same as they were for the 30-day average in mid-April 2015, we would expect consolidated full year 2015 revenue to be $1,460 million to $1,480 million, an increase of 15% to 17% year over year in U.S. dollars and 21% to 22% in constant currencies. Of course, reported revenue will depend in part on currency exchange rate developments throughout the remainder of the fiscal year. |
• | Full fiscal year GAAP EPS, on a diluted basis, is expected to be between $2.72 and $2.92 based on about 33.6 million weighted average shares outstanding. This would reflect EPS growth of 113% to 128%, and at the revenue and EPS guidance midpoints, implies net income margins of roughly 6.4%, versus net income margins of 3.4% in fiscal 2014. |
• | Based on these assumptions, for the full fiscal year 2015, non-GAAP adjusted EPS is expected to be between $4.00 and $4.20, and excludes the following estimates (net of tax): expected acquisition-related amortization of intangible assets of approximately $23.7 million; share-based compensation expense of approximately $22.5 million; charges related to the alignment of acquisition-related intellectual property with global operations of approximately $2.2 million; the impact of acquisition-related earn-outs of $14.9 million; currency (gains) related to the acquisition-related earn-outs of approximately $(2.3) million; unrealized currency (gains) on U.S. Dollar denominated intercompany loans of $(11.4) million (net of tax) based on a recent 30-day currency exchange rate for relevant currencies; Changes in unrealized (gains) on currency forward contracts of $(5.3) million, based on a recent 30-day currency exchange rate for relevant currencies. |
• | This would reflect non-GAAP EPS growth of 36% to 42%, and at the revenue and non-GAAP EPS guidance midpoints, implies non-GAAP net income margins of roughly 9.5%, versus non-GAAP net income margins of 8.1% in fiscal 2014. |
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