Cimpress : Presentation & Commentary

This document is Cimpress' first quarter fiscal year 2018 earnings commentary. This document contains slides and accompanying comments in the "notes" section below each slide.

Please read the above safe harbor statement. Additionally, a detailed reconciliation of GAAP and non-GAAP measures is posted in the appendix of the Q1 fiscal 2018 earnings presentation that accompanies these remarks.

This presentation is organized into the categories shown on the left-hand side of this slide.

Robert Keane, CEO, and Sean Quinn, CFO, will host a live question and answer conference call tomorrow, November 2, 2017 at 7:30 a.m. U.S. Eastern daylight time which you can access through a link at ir.cimpress.com.

We have made three reporting changes at the start of fiscal year 2018 that reflect internal reporting changes we have made to improve our ability to measure returns on investments and reflect the increased financial clarity that we have gained from our decentralization.

First, our primary externally reported profitability metric will be Adjusted Net Operating Profit ("Adjusted NOP"). The only change relative to our prior Adjusted NOPAT metric is that it no longer includes the "cash taxes attributable to the current period". We do not use this view of "cash taxes attributable to the current period" internally and don't believe it was meaningful to readers of our financial results. As a reminder, the sum of the components of our Segment Profit will not equal our consolidated Adjusted NOP, since our central and corporate costs do not constitute a reportable segment, and we do not allocate the gains or losses from hedging contracts included in Adjusted NOP to our reportable segments since we hedge our net currency exposures at a Cimpress level. For clarity, we have changed the name of our segment profitability measure to "Segment Profit" though we haven't changed the underlying calculation other than for the cost allocation described below. Please note that unlevered free cash flow ("UFCF"), not Adjusted NOP or Segment Profit, is the in-year financial performance measure that we use internally. This is because UFCF is a primary input to our estimate of our uppermost financial objective: intrinsic value per share, and because UFCF incorporates factors such as working capital and cash taxes that impact the returns on invested capital which each business delivers to Cimpress. The SEC requires that our segment measure of profitability is not a liquidity measure, which is why we will continue to report Segment Profit. We believe Segment Profit and, on a consolidated basis, Adjusted NOP are good indicators of the underlying profitability trends in the business.

Second, we now present inter-segment fulfillment activity as revenue for the fulfilling business for purposes of measuring and reporting our segment financial performance. For example, if National Pen fulfills an order for Vistaprint, National Pen records both revenue and COGS for that order, and Vistaprint correspondingly records the amount of revenue recorded by National Pen as Vistaprint COGS. Previously, we would have recorded this inter-segment activity as a pure cost transfer. We made this change because we believe it will encourage our businesses to leverage each other when doing so will create value for each business. This inter-segment revenue is, of course, eliminated from our consolidated revenue so we do not double count revenue. Historically, the most meaningful inter-segment activity took place between Vistaprint and All Other Businesses, but we expect this to expand in the future as more businesses leverage each other via our mass customization platform. Please note that activity between businesses within a single segment are not presented in our segment financial results. For example, when our upload and print businesses produce on behalf of each other, this activity is eliminated within the single segment and, therefore, not seen in our external reporting. Tracking the growth of this inter-segment revenue will only help you understand when cross-segment transactions take place, but it will not give you a full picture of the amount of business being transacted between all of our businesses.

Third, we refined our historical segment profitability for the allocation of certain IT costs to further improve the comparability of profit results between segments and central and corporate groups, resulting in a small change to Segment Profit and central and corporate groups costs. These costs are for services performed by the Vistaprint business on behalf of our other businesses. The change has the effect of slightly increasing Vistaprint Segment Profit, and correspondingly reducing profit for our other segments and increasing costs within our central and corporate groups. This change results from the development and improvement of operating routines and reporting systems in the wake of our 2017 reorganization. We have recast historical results for all of the above changes in our Financial and Operating Metrics spreadsheet on ir.cimpress.com.

As a reminder and as context for the initiatives and examples discussed in the remainder of this presentation, Cimpress' uppermost priorities are described above. Extending our history of success into the next decade and beyond in line with these top-level priorities is important to us. Even as we report results on a quarterly basis it is important for investors to understand that we manage to a much longer-term time horizon and that we explicitly forgo short-term actions and metrics except to the extent those short-term actions and metrics support our long-term goals.