Cimpress Beats Q3 EPS, Grows Revenue
Thursday, April 30, 2015
Press release from the issuing company
VENLO, Netherlands - Cimpress N.V. (Nasdaq: CMPR), the world leader in mass customization, today announced financial results for the three month period ended March 31, 2015, the third quarter of its 2015 fiscal year.
“Our Vistaprint brand continues to show positive customer loyalty momentum in the wake of significant and on-going improvements to its customer value proposition,” said Robert Keane, president and chief executive officer. “This includes continued reductions to traditional Vistaprint practices such as aggressive cross-selling, which create on-going revenue headwinds in all Vistaprint geographic markets. However, Vistaprint’s net growth rate continues to improve in geographies where the value proposition improvements are most advanced because the force of long-term loyalty tailwinds is overcoming that of the revenue headwinds.”
Keane added, “We also continue to invest heavily in our vision to build a common mass customization platform that we bring to market via multiple, focused brands; in new product development; and in building foundational capabilities in potentially large and valuable geographic markets such as India, Japan and Brazil.
“As we pass the anniversary of the Pixartprinting and Printdeal acquisitions, we have been pleased with their sustained revenue and bottom-line performance,” Keane continued. “Subsequent to the end of the quarter we closed the acquisitions of Exagroup and Druck.at, which together represent an initial investment of over €110 million. As we integrate these firms into Cimpress over the coming years, we expect them to bring strong operational capabilities that we will incorporate into our mass customization platform and focused brands that will operate as part of our growing portfolio of brands.”
Ernst Teunissen, executive vice president and chief financial officer, added, “This quarter, we completed a Senior Notes debt offering which we believe adds to our ability to deploy capital to the type of investments described above. Turning to our third quarter results, revenue was in line with expectations, and our non-GAAP net income was moderately ahead of expectations. Our third quarter GAAP net income was significantly higher than expected due to below-the-line currency movements caused by a material change in the value of the Swiss Franc relative to the U.S. Dollar following January 28, 2015, the date we last issued guidance. This impact is non-cash and non-operational, and is excluded from our non-GAAP results.”
Consolidated Financial Metrics:
- Revenue for the third quarter of fiscal year 2015 was $339.9 million, a 19 percent increase compared to revenue of $286.2 million reported in the same quarter a year ago. The year-over-year strengthening of the U.S. Dollar has negatively impacted the U.S. Dollar value of our revenues generated from countries other than the United States. Excluding the estimated impact from currency exchange rate fluctuations and revenue from businesses acquired during the past twelve months, total revenue grew 11 percent year over year in the third quarter, in line with our expectations.
- Gross margin (revenue minus the cost of revenue as a percent of total revenue) in the third quarter was 63.1 percent, down from 64.7 percent in the same quarter a year ago. The year-over-year reduction in gross margin was primarily due to the mix effect of our acquisitions of Printdeal and Pixartprinting, which have lower gross margins than our Vistaprint-branded business. Excluding the businesses we acquired during the past twelve months, our gross margin increased moderately year over year driven by efficiency gains and currency fluctuations.
- Operating income in the third quarter was $4.3 million, or 1.3 percent of revenue, a decrease in both absolute dollars and as a percent of revenue compared to $5.2 million, or 1.8 percent of revenue, in the same quarter a year ago. This operating margin compression was largely driven by a $7.5 millionimpact of acquisition-related earn-outs.
- GAAP net income for the third quarter was $8.6 million, or 2.5 percent of revenue, compared to $1.4 million, or 0.5 percent of revenue in the same quarter a year ago. The impact of acquisition-related earn-outs was offset by below-the-line currency movements that created significant gains in the current period.
- GAAP net income per diluted share for the third quarter was $0.25, versus $0.04 in the same quarter a year ago.
- Non-GAAP adjusted net income for the third quarter, which excludes amortization expense for acquisition-related intangible assets, tax charges related to the alignment of acquisition-related intellectual property with our operational structure, the impact of acquisition-related earn-outs and related currency gains, unrealized currency gains and losses on derivative instruments and intercompany financing arrangements included in net income, share-based compensation expense, and the related income tax effect of these items, was $25.1 million, or 7.4 percent of revenue, representing a 203 percent increase compared to $8.3 million, or 2.9 percent of revenue, in the same quarter a year ago.
- Non-GAAP adjusted net income per diluted share for the third quarter, as defined above, was $0.72, versus $0.24 in the same quarter a year ago.
- Capital expenditures in the third quarter were $15.2 million, or 4.5 percent of revenue.
- During the third quarter, the company generated $1.6 million of cash from operations and a loss of $17.5 million in free cash flow, defined as cash from operations less purchases of property, plant and equipment, purchases of intangible assets not related to acquisitions, and capitalization of software and website development costs, plus payment of contingent consideration in excess of acquisition-date fair value. This negative free cash flow for the quarter was primarily due to the seasonality of accruals in our second quarter that pay out in the third quarter.
- As of March 31, 2015, the company had $134.2 million in cash and cash equivalents and $430.5 million of debt. After considering debt covenant limitations, as of March 31, 2015 the company had $609.7 million available for borrowing under its committed credit facility.
Operating metrics are provided as a table-based supplement to this press release. The acquisitions of Printdeal, Pixartprinting, and FotoKnudsen and the investment in Printi are not yet incorporated into our customer metrics.
Fiscal 2015 Outlook as of April 29, 2015:
Ernst Teunissen noted, “Our outlook for fiscal year 2015 constant currency revenue growth excluding fourth quarter acquisitions remains consistent with our expectations set throughout the year. We are making some adjustments to our revenue outlook for currency, which has a negative impact on this year, and to include the acquisitions of Exagroup and Druck.at. Our GAAP and non-GAAP EPS ranges have been adjusted upward for underlying operational improvements, and our new GAAP EPS range reflects further non-cash and non-operational currency benefits since last quarter.”
Financial Guidance as of April 29, 2015:
The following guidance incorporates completed acquisitions and share repurchases, and outstanding debt obligations, as of April 29, 2015. Based on current and anticipated levels of demand, the company expects the following financial results:
Fiscal Year 2015 Revenue
- The company expects revenue of approximately $1,460 million to $1,480 million, or 15 percent to 17 percent growth year over year in reported terms and 21 percent to 22 percent growth on a constant-currency basis. Constant-currency growth expectations assume a recent 30-day currency exchange rate for all currencies.
- The drivers of this revenue guidance relative to the guidance we gave on January 28, 2015 are:
- The addition of recent acquisitions Exagroup and Druck.at, which we expect will deliver about $30 million in revenue during the fourth quarter.
- A negative impact of about $20 million at the high end of the prior range due to recent weakening of currencies against the US dollar, particularly European currencies.
Fiscal Year 2015 GAAP Net Income Per Diluted Share
- The company expects GAAP net income per diluted share of approximately $2.72 to $2.92, which assumes 33.6 million weighted average diluted shares outstanding.
- Based on a recent 30-day currency exchange rate for relevant currencies, we estimate that realized net gains on currency forward contracts as well as natural hedges will largely offset the currency impact to revenue in our full-year net income results.
- However, we are increasing our GAAP EPS guidance range versus the guidance we last gave on January 28, 2015 in large part due to Swiss Franc movements previously described, which have a non-cash, non-operational impact on a US dollar denominated intercompany loan. If the USD to CHF exchange rates remain the same as a recent 30-day average, we expect a small fourth quarter loss, and a full year gain on the intercompany loans we have recorded in our GAAP net income. This projected full year gain is excluded from our non-GAAP EPS expectation below.
- Our fiscal 2015 GAAP EPS guidance range reflects improved underlying operational performance in our business.
- The GAAP EPS guidance also reflects the addition of our fourth quarter acquisitions of Exagroup and Druck.at. We expect approximately $2.5 million of dilution to GAAP net income ($0.07 per diluted share), inclusive of transaction fees of $0.7 million already incurred in the third quarter of 2015.
Fiscal Year 2015 Non-GAAP Adjusted Net Income Per Diluted Share
- The company expects non-GAAP adjusted net income per diluted share of approximately $4.00 to $4.20, which excludes our expectations for the following items inclusive of their tax effects:
- Acquisition-related amortization of intangible assets of approximately $23.7 million or approximately $0.70 per diluted share.
- Share-based compensation expense of approximately $22.5 million or approximately $0.66 per diluted share.
- The impact of acquisition-related earn-outs of approximately $14.9 million or approximately $0.44 per diluted share.
- Currency (gains) related to the acquisition-related earn-outs of approximately $(2.3) million or approximately $(0.07) per diluted share.
- Tax charges related to the alignment of acquisition-related intellectual property with global operations of approximately $2.2 million, or $0.06 per diluted share.
- A non-cash, non-operational currency (gain) on U.S. Dollar denominated intercompany loans of $(11.4) million, or $(0.34) per diluted share, based on a recent 30-day currency exchange rate for relevant currencies.
- Changes in unrealized (gains) on currency forward contracts of $(5.3) million, or $(0.16) per diluted share, based on a recent 30-day currency exchange rate for relevant currencies.
- This guidance assumes a non-GAAP weighted average diluted share count of approximately 34.0 million shares.
- The acquisitions of Exagroup and Druck.at are expected to be neutral to our fiscal year 2015 non-GAAP EPS.
Fiscal Year 2015 Depreciation and Amortization and Capital Expenditures
- The company expects depreciation and amortization expense to be approximately $95 million to $100 million. This includes the amortization of acquisition-related intangible assets described above in our non-GAAP earnings per share expectations, as well as our expectations for capitalized software development costs.
- The company expects to make capital expenditures of approximately $80 million to $90 million. The majority of planned capital investments are designed to support the planned long-term growth of the business. This fiscal year, we expect to invest about $20 million to build a new manufacturing facility in Japan as part of our joint venture there and about $20 million in the expansion of our product lines and other new manufacturing capabilities.
The above guidance incorporates estimates for the impact of the fourth quarter acquisitions of Exagroup and Druck.at. These estimates are preliminary and subject to change based on the completion of purchase accounting during the fourth quarter ending June 30, 2015. The foregoing guidance supersedes any guidance previously issued by the company. All such previous guidance should no longer be relied upon.
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