CIMPRESS PLC This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and revenues, the size of our market and opportunity, our expectations with respect to our business, markets, competitive position, and demand for our products post-pandemic, our expectations for economic recovery post-pandemic, our expectations for design services in the Vistaprint business and the success of the 99designs acquisition, the anticipated effects of our investments in our business including the hiring of talented personnel, sufficiency of our liquidity position, legal proceedings, and sufficiency of our tax reserves. Without limiting the foregoing, the words "may," "should," "could," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "designed," "potential," "continue," "target," "seek" and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including but not limited to flaws in the assumptions and judgments upon which our forecasts and estimates are based; the development, severity, and duration of the COVID-19 pandemic and the timing and pace of economic recovery; our failure to anticipate and react to the effects of the pandemic on our customers, supply chain, markets, team members, and business; our inability to make the investments that we plan to make or the failure of those investments to achieve the results we expect; loss or unavailability of key personnel or our inability to recruit talented personnel to drive performance of our businesses; the failure of businesses we acquire or invest in to perform as expected; unanticipated changes in our markets, customers, or businesses; changes in the laws and regulations, or in the interpretation of laws and regulations, that affect our businesses; our failure to manage the growth and complexity of our business and expand our operations; our failure to maintain compliance with the covenants in our debt documents or to pay our debts when due; competitive pressures; general economic conditions; and other factors described in this Report and the other documents that we periodically file with theSEC . Executive OverviewCimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. We drive competitive advantage acrossCimpress through a select few shared strategic capabilities that have the greatest potential to createCimpress -wide value. We limit all other central activities to only those which absolutely must be performed centrally. As ofJune 30, 2021 , we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vistaprint, PrintBrothers,The Print Group , National Pen, and All Other Businesses. Refer to Note 15 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures. COVID-19 Throughout fiscal year 2021, the pandemic and related restrictions had a negative impact on most of our businesses, customers and the markets that we serve. We've experienced improving trends in customer demand throughout the fiscal year, and we have experienced stronger recovery in demand in markets where pandemic restrictions have been lifted or are less severe. During the second half of the fiscal year we've lapped the early periods of the pandemic which had the most severe impacts on customer demand. The improving trends give us confidence that demand will continue to pick up as activity resumes in our markets around the world. We continue to hire talent and make investments in technology, data, new product introduction, customer experience 25 -------------------------------------------------------------------------------- improvements, and branding that are designed to build on our competitive advantages and drive growth in our businesses as we come out of the pandemic, although we can't forecast how long that will take. We continue to maintain flexibility in our cost structure, while at the same time increasing investment in areas we believe will generate high return on investment beyond the pandemic. Financial Summary The primary financial metric by which we set quarterly and annual budgets both for individual businesses andCimpress wide is our adjusted free cash flow before cash interest expense related to borrowing; however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including revenue growth, organic constant-currency revenue growth, operating income, adjusted EBITDA, cash flow from operations and adjusted free cash flow. A summary of these key financial metrics for the year endedJune 30, 2021 as compared to the year endedJune 30, 2020 follows: Fiscal Year 2021 •Revenue increased by 4% to$2,592.5 million . •Organic constant-currency revenue increased by 1% and decreased by 1% when excluding acquisitions completed in the last four quarters. •Operating income increased by$67.5 million to$123.5 million . •Adjusted EBITDA (a non-GAAP financial measure) decreased by$50.7 million to$349.1 million . •Diluted net (loss) income per share attributable toCimpress plc decreased to a loss per share in fiscal year 2021 of$2.99 from income per share of$3.00 in fiscal year 2020. •Cash provided by operating activities decreased by$73.2 million to$265.2 million . •Adjusted free cash flow (a non-GAAP financial measure) decreased by$78.2 million to$165.8 million . For fiscal year 2021, the increase in reported revenue is primarily due to positive exchange rate fluctuations that benefited revenue, as well as the addition of the revenue of 99designs, which was acquired onOctober 1, 2020 and is included in our Vistaprint business. Organic constant-currency revenue decreased as we continued to realize negative impacts from COVID-19, as pandemic-related restrictions in certain markets throughout the year reduced customer demand. As restrictions started to ease in certain markets during the second half of the fiscal year, we began to see a strong correlation between markets with less pandemic-related restrictions and the recovery of customer demand. Revenue from event-driven small business products were most impacted during the fiscal year, and were partially offset by continued growth in revenue from home decor and packaging products, as well as contributions from new products introduced in reaction to the pandemic such as face masks. For fiscal year 2021, face masks contributed approximately 4% to total revenue, for which demand during the second half of fiscal year 2021 declined significantly due to increases in vaccination rates and reduction of mask requirements. For the year endedJune 30, 2021 , operating income increased by$67.5 million , primarily driven by the non-recurrence of a$100.8 million goodwill impairment charge in the prior fiscal year, as well as variable cost controls, fixed cost savings and lower restructuring charges. These items were partially offset by increased organic investments in hiring, technology, and upper-funnel brand and performance-based advertising spend primarily in Vistaprint. Operating income was negatively impacted by$19.9 million of lease-related impairment and abandonment charges due to changes in our intended use of two leased locations, which we expect will deliver substantial cost savings in future periods. Adjusted EBITDA decreased year over year, primarily due to the increased organic investments outlined above as well as the non-recurrence of of temporary cost reductions and the salary restructuring program that benefited the fourth quarter of fiscal 2020 by$9.0 million , which more than offset the gross profit increase from reported revenue growth. Adjusted EBITDA excludes goodwill and other impairment charges, restructuring charges and share-based compensation expense, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA. The net year-over-year impact of currency on consolidated adjusted EBITDA was unfavorable by approximately$14.7 million . Diluted net (loss) income per share attributable toCimpress plc decreased to a loss per share in fiscal year 2021 of$2.99 from income per share of$3.00 in fiscal year 2020. The decrease is primarily due to the non-recurrence of a prior year tax benefit, the recognition in fiscal year 2021 of a loss on extinguishment of debt of$48.3 26 -------------------------------------------------------------------------------- million, as well as increased interest expense and negative year-over-year realized and unrealized currency impacts. Consolidated Results of Operations Consolidated Revenue Our businesses generate revenue primarily from the sale and shipment of customized manufactured products. We also generate revenue, to a much lesser extent (and primarily in our Vistaprint business), from digital services, graphic design services, website design and hosting, and email marketing services, as well as generate a small percentage of revenue from order referral fees and other third-party offerings. For additional discussion relating to segment revenue results, refer to the "Reportable Segment Results" section included below. Total revenue and revenue growth by reportable segment for the years endedJune 30, 2021 and 2020 are shown in the following table: In thousands Currency Constant- Year EndedJune 30 , Impact: Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth % 2021 2020 Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2) Vistaprint (3)$ 1,444,807 $ 1,337,291 8% (3)% 5% (4)% 1% PrintBrothers 421,766 417,921 1% (7)% (6)% (1)% (7)%The Print Group 275,534 275,214 -% (7)% (7)% -% (7)% National Pen 313,528 299,474 5% (3)% 2% -% 2% All Other Businesses 192,038 173,789 11% 1% 12% -% 12% Inter-segment eliminations (55,160) (22,331) Total revenue$ 2,592,513 $ 2,481,358 4% (3)% 1% (2)% (1)% In thousands Currency Constant- Constant- Currency Year EndedJune 30 , Impact: Currency Impact of Acquisitions: revenue growth % Excluding Acquisitions 2020 2019 Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable (2) Vistaprint$ 1,337,291 $ 1,508,322 (11)% 1% (10)% -% (10) % PrintBrothers 417,921 443,987 (6)% 3% (3)% (2)% (5) %The Print Group 275,214 325,872 (16)% 3% (13)% -% (13) % National Pen 299,474 348,409 (14)% 1% (13)% -% (13) % All Other Businesses 173,789 136,202 28% 1% 29% (25)% 4 % Inter-segment eliminations (22,331) (11,716) Total revenue$ 2,481,358 $
2,751,076 (10)% 1% (9)% (2)% (11) %
_________________
(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period's average exchange rate for each currency to theU.S. dollar. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results. (2) Constant-currency revenue growth excluding acquisitions/divestitures, a non-GAAP financial measure, excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results. (3) The Vistaprint segment includes revenue from our 99designs business since its acquisition date ofOctober 1, 2020 . We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP. 27 -------------------------------------------------------------------------------- Consolidated Cost of Revenue Cost of revenue includes materials used by our businesses to manufacture their products, payroll and related expenses for production and design services personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production and design costs, costs of free products and other related costs of products our businesses sell. In thousands Year Ended June 30, 2021 2020 2019 Cost of revenue$ 1,316,441 $ 1,248,871 $ 1,401,344 % of revenue 50.8 % 50.3 % 50.9 % For the year endedJune 30, 2021 , consolidated cost of revenue increased by$67.6 million , primarily due to changes in currency that negatively impacted the current fiscal year, as well as the addition of cost of revenue from our 99designs business that is included from the acquisition date ofOctober 1, 2020 . During the year endedJune 30, 2021 , we also recognized$12.2 million of losses associated with the decline in market demand and pricing for certain masks and related personal protective equipment (PPE) products, primarily in our National Pen and Vistaprint businesses. These increases were partially offset by reductions in demand-dependent cost of goods sold including third-party fulfillment, material, and shipping costs in our segments that experienced year-over-year pandemic-related revenue declines. For the years endedJune 30, 2021 and 2020, we realized approximately$10.9 million and$11.6 million , respectively, of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained. Consolidated Operating Expenses The following table summarizes our comparative operating expenses for the following periods: In thousands Year Ended June 30, 2021 2020 2019 Technology and development expense $
253,060
% of revenue
9.8 % 10.2 % 8.6 %
Marketing and selling expense $
648,391
% of revenue
25.0 % 23.1 % 25.9 %
General and administrative expense (1) $
195,652
% of revenue
7.5 % 7.4 % 5.9 %
Amortization of acquired intangible assets (2) $
53,818
% of revenue
2.1 % 2.1 % 1.9 %
Restructuring expense (3) $
1,641
% of revenue
0.1 % 0.5 % 0.4 %
Impairment of Goodwill (2) $ -$ 100,842 $ 7,503 % of revenue - % 4.1 % 0.3 % _____________________ (1) General and administrative expense for the year endedJune 30, 2021 includes lease impairment and abandonment charges for two leased locations totaling$19.9 million . Refer to Note 16 for additional details. (2) Refer to Note 8 in our accompanying consolidated financial statements for additional details related to the amortization of acquired intangibles and goodwill impairment charges. (3) Refer to Note 18 in our accompanying consolidated financial statements for additional details relating to restructuring expense. Technology and development expense Technology and development expense consists primarily of payroll and related expenses for employees engaged in software and manufacturing engineering, information technology operations and content development, as well as amortization of capitalized software and website development costs, including hosting of our websites, asset depreciation, patent amortization, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue. 28 -------------------------------------------------------------------------------- Technology and development expenses decreased by$0.2 million for the year endedJune 30, 2021 , as compared to the prior comparative period. Both periods benefited from decreases in costs from our fiscal year 2020 reorganization of our central and Vistaprint technology teams as well as reductions in discretionary spend including travel and training expenses. These decreases were partially offset by increased investments during the second half of fiscal 2021, primarily in the Vistaprint business and our central technology group. Marketing and selling expense Marketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support and public relations activities; direct-mail advertising costs; and third-party payment processing fees. Our Vistaprint, National Pen and BuildASign businesses have higher marketing and selling costs as a percentage of revenue as compared to ourPrintBrothers and The Print Group businesses due to differences in the customers that they serve. For the year endedJune 30, 2021 , marketing and selling expenses increased by$74.4 million , as compared to the prior year. The increase from the prior comparative period is primarily due to the increase of advertising and marketing spend in our Vistaprint business of$75.1 million . The increase was driven by new investments in brand sponsorships and upper-funnel advertising, expansion of our required return thresholds on our advertising spend, as well as investment in hiring new talent, including for user experience and data and analytics roles that should help us continue to improve the effectiveness of our marketing, merchandising, and customer care activities. The increase was also due to negative impacts from fluctuations in currency exchange rates. These increases were partially offset by a decrease in marketing costs in our National Pen business of$9.2 million , primarily due to reductions to direct mail prospecting activities and savings from initiatives to reduce costs in service centers. General and administrative expense General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance and payroll and related expenses of employees involved in executive management, finance, legal, strategy, human resources and procurement. For the year endedJune 30, 2021 , general and administrative expenses increased by$12.6 million , as compared to the prior comparative period, due to$19.9 million of lease-related impairment and abandonment charges driven by changes in our office footprint at two leased locations. The changes to our leased facility footprint are expected to result in substantial cost savings in future periods. These increased expenses were partially offset by lower professional fees as a result of the non-recurrence of costs for strategic projects in our Vistaprint business, as well as theCimpress cross-border merger toIreland in fiscal year 2020. We also realized lower discretionary spend due to cost control measures implemented in response to the pandemic. Other Consolidated Results Other (expense) income, net Other (expense) income, net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting. The following table summarizes the components of other (expense) income, net: In thousands Year Ended June 30, 2021 2020 2019 (Losses) gains on derivatives not designated as hedging instruments$ (20,728) $ 20,564 $ 23,494 Currency-related gains, net 8,523 2,309 2,506 Other gains 370 1 476 Total other (expense) income, net $
(11,835)
29
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The decrease in other (expense) income, net was primarily due to the currency
exchange rate volatility impacting our derivatives that are not designated as
hedging instruments, of which our Euro and British Pound contracts are the most
significant exposures that we economically hedge. We also recognize the impact
from de-designated interest swap contracts that are no longer highly effective,
which resulted in unrealized losses during the current period. We expect
volatility to continue in future periods, as we do not apply hedge accounting
for most of our derivative currency contracts.
We experienced currency-related losses due to currency exchange rate volatility
on our non-functional currency intercompany relationships, which we may alter
from time to time. The impact of certain cross-currency swap contracts
designated as cash flow hedges is included in our currency-related gains, net,
offsetting the impact of certain non-functional currency intercompany
relationships.
Interest expense, net
Interest expense, net primarily consists of interest paid on outstanding debt
balances, amortization of debt issuance costs, debt discounts, interest related
to finance lease obligations and realized gains (losses) on effective interest
rate swap contracts and certain cross-currency swap contracts.
Interest expense, net increased by $43.5 million during the year ended June 30,
2021 , as compared to the prior year. This is primarily due to the additional
$200.0 million offering of our 7.0% Senior Notes due 2026 (the "2026 Notes") in
February 2020 and issuance of $300.0 million of our 12% Senior Secured Notes due
2025 (the "Second Lien Notes") in May 2020 . During the fourth quarter of fiscal
year 2021, we amended and restated our senior secured credit agreement that
resulted in borrowings under a Term Loan B and the early redemption of our
Second Lien Notes in addition to paying down our Term Loan A due 2024 and the
remaining amounts under our previous revolver due 2024. We expect interest
expense to decrease during the next fiscal year due to the refinancing. Refer to
Note 10 for additional details.
Loss on extinguishment of debt
As part of the amendment and restatement of our senior secured credit agreement
described above, we redeemed all of the $300.0 million of our Second Lien Notes,
which also required the payment of an early redemption premium of $9.0 million .
The loss on extinguishment of debt of $48.3 million included $39.4 million
related to the early redemption of our Second Lien Notes. This loss consisted of
the early redemption premium, write-off of unamortized financing fees of
$8.1 million and an accretion adjustment of $22.3 million to increase the
carrying value of the Second Lien Notes to the principal amount. The accretion
adjustment is driven primarily by the previous allocation of proceeds to the
warrants we issued in conjunction with the Second Lien notes, which reduced the
carrying value of the Second Lien Notes. As of June 30, 2021 the warrants remain
outstanding. In addition, we recognized a loss of $8.9 million for unamortized
financing fees associated with the senior secured credit agreement. Refer to
Note 10 for additional details.
Income tax expense
In thousands Year Ended June 30,
2021 2020 2019
Income tax expense (benefit) $ 18,903 $
(80,992)
Effective tax rate (33.7) % (2,697.0) % 26.3 %
Income tax expense (benefit) for the year endedJune 30, 2021 increased as compared to the prior year primarily due to significant Swiss Tax Reform benefits of$113.5 million recognized in the year endedJune 30, 2020 . Also, in addition to decreased pre-tax profits and a less favorable mix of earnings year over year, we recognized tax benefits of$2.1 million related to excess tax benefits from share based compensation, as compared to$15.7 million in fiscal year 2020. During the year endedJune 30, 2021 we recognized a tax benefit of$6.7 million for the release of our valuation allowance inIndia as a result of increased profitability. Additionally in fiscal year 2020, we recognized tax benefits of$11.2 million for the re-measurement ofU.S. tax losses that were carried back to tax years with higherU.S. federal tax rates under the US CARES Act and tax expense of$41.9 million to record a full valuation allowance against ourU.S. deferred tax assets and a portion for our Irish deferred tax assets. The change in judgment to no longer recognize the deferred tax assets was driven by decreased profits due to impacts of the COVID-19 pandemic and goodwill impairments. 30 -------------------------------------------------------------------------------- We believe that our income tax reserves are adequately maintained by taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain and therefore there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows. Refer to Note 13 in our accompanying consolidated financial statements for additional discussion. Reportable Segment Results Our segment financial performance is measured based on segment EBITDA, which is defined as operating income plus depreciation and amortization; plus proceeds from insurance; plus share-based compensation expense related to investment consideration; plus earn-out related charges; plus certain impairments; plus restructuring related charges; less gain on purchase or sale of subsidiaries. Vistaprint In thousands Year Ended June 30, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Reported Revenue$ 1,444,807 $ 1,337,291 $ 1,508,322 8% (11)% Segment EBITDA 324,715 366,334 349,697 (11)% 5% % of revenue 22 % 27 % 23 % Segment Revenue Vistaprint's reported revenue growth for the year endedJune 30, 2021 was positively affected by a currency impact of 3%. When excluding the benefit from the recent acquisition of 99designs, Vistaprint's organic constant-currency revenue growth was 1%. Vistaprint's revenue continued to be influenced by the severity of pandemic-related restrictions. Our per-customer economics continued to improve, though our new and repeat customer count remain impacted by the pandemic. Revenue grew significantly year over year during the months of March throughJune 2021 as restrictions loosened in some markets and we lapped the earliest periods impacted by the pandemic in fiscal year 2020. Prior toMarch 2021 , our revenue declined year over year because the prior-year comparable periods were not affected by the pandemic. Revenue during the current year benefited from the sale of pandemic-related products such as masks, but we do not expect to have significant revenue from these products in fiscal year 2022. Segment Profitability For the year endedJune 30, 2021 , the decline in segment EBITDA was due to the pandemic impacts on revenue, as well as increased organic growth investments. As our confidence in the recovery improved we expanded payback thresholds for performance based advertising and layered on upper-funnel advertising investment. We also increased investment in hiring particularly in the second half of the fiscal year as we increase our capabilities to deliver against our mission of establishing Vistaprint as the expert marketing and design partner for small businesses. These were partially offset by technology savings from our fiscal year 2020 restructuring, reduced spend for consulting projects compared to the prior year period, and year-over-year reductions in office-related costs as we reduced our office footprint in our move to a remote-first work approach. Vistaprint's segment EBITDA was positively impacted by currency movements during the current year. During each of the current and prior fiscal year, we received government incentives of more than$9.0 million to offset wages in locations where demand decreased materially but roles were maintained. We expect these government incentives to decrease in fiscal year 2022 if the effects of the pandemic continue to be less significant. 31 --------------------------------------------------------------------------------
PrintBrothers
In thousands Year Ended June 30,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Reported Revenue $ 421,766 $ 417,921 $ 443,987 1% (6)%
Segment EBITDA 43,144 39,373 43,474 10% (9)%
% of revenue 10 % 9 % 10 %
Segment Revenue
PrintBrothers' reported revenue growth for the year ended June 30, 2021 was
positively affected by a currency impact of 7%, resulting in a constant-currency
revenue decline of 6%. The revenue decline was due to pandemic-related decreases
in demand. Throughout the year, segment revenue was strongly influenced by the
changing severity of restrictions in most European countries. The negative
impacts of the pandemic were partially offset by a continued focus on new
product introduction. Revenue grew significantly year over year during the
fourth quarter of fiscal year 2021 as restrictions loosened in some markets and
we lapped the earliest periods impacted by the pandemic in fiscal year 2020.
Segment Profitability
The increase in PrintBrothers' segment EBITDA during the year ended June 30,
2021 , as compared to the prior period, was driven by variable and discretionary
cost controls, production efficiencies and positive impacts from currency
movements, which more than offset the decrease in gross profit that was driven
by the constant-currency revenue decline described above.
The Print Group
In thousands Year Ended June 30,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Reported Revenue $ 275,534 $ 275,214 $ 325,872 -% (16)%
Segment EBITDA 43,126 51,606 63,997 (16)% (19)%
% of revenue 16 % 19 % 20 %
Segment Revenue
The Print Group's reported revenue for the year ended June 30, 2021 was
positively affected by a currency impact of 7%, resulting in a decrease in
revenue on a constant-currency basis of 7% due to pandemic-related decreases in
demand. Despite these pressures, our businesses have found pockets of strength
in demand and pivoted quickly over the last year to deliver quality offerings to
help fill in some of the reduced demand in other areas, including the launch of
new products for other Cimpress businesses. During the fourth quarter of fiscal
2021, revenue grew significantly year over year as restrictions loosened in some
markets and we lapped the earliest periods impacted by the pandemic in fiscal
year 2020.
Segment Profitability
The decrease in Print Group's segment EBITDA during the year ended June 30,
2021 , as compared to the prior year, was primarily driven by the revenue decline
described above. This was partially offset by discretionary cost controls and
efficiency gains from leveraging our mass customization platform to shift
production to lower-cost sources. The Print Group's segment EBITDA was
positively impacted by currency movements as compared to the prior fiscal year.
32
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National Pen
In thousands Year Ended June 30,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Reported Revenue $ 313,528 $ 299,474 $ 348,409 5% (14)%
Segment EBITDA 11,644 7,605 17,299 53% (56)%
% of revenue 4 % 3 % 5 %
Segment Revenue
National Pen's reported revenue growth for the year ended June 30, 2021 was
positively affected by a currency impact of 3%, resulting in a constant-currency
revenue growth of 2%. Product sales to other Cimpress businesses continued to
supplement some of the lost volume from lower demand, but to a lesser extent
during the second half of the fiscal year as the demand for face masks has
declined. Revenue during the fourth quarter of fiscal year 2021 grew
significantly year over year as we lapped the earliest periods impacted by the
pandemic in fiscal year 2020, while also experiencing improving trends in
customer demand as restrictions loosened in some markets.
Segment Profitability
The increase in National Pen's segment EBITDA for the year ended June 30,
2021 was due in part to the revenue increase described above, as well as reduced
variable cost, advertising and other discretionary spend. Segment EBITDA
increased for the fiscal year ended June 30, 2021 as a result of a focused
effort to improve efficiency across multiple areas, including telesales and
customer service. The improved profit was partially offset by a negative impact
of $8.2 million of losses and reserves due to shifts in demand for masks and
other PPE products, which led to us selling disposable masks at a loss and to
record an inventory reserve to reduce the carrying value of certain PPE
products. National Pen's segment EBITDA was positively impacted by currency
movements for the year ended June 30, 2021 .
All Other Businesses
In thousands Year Ended June 30,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Reported Revenue (1) $ 192,038 $ 173,789 $ 136,202 11% 28%
Segment EBITDA (1) 31,707 17,474 (6,317) 81% 377%
% of revenue 17 % 10 % (5) %
___________________
(1) Our All Other Businesses segment includes the results of our VIDA
acquisition from July 2, 2018 through the divestiture date of April 10, 2020 .
This segment consists of BuildASign, which is a larger and profitable business,
and smaller businesses through which Cimpress is expanding to new markets or new
product categories, which continue to have operating losses as previously
described and as planned.
Segment Revenue
All Other Businesses' constant-currency revenue excluding the impact of
acquisitions increased by 12% during the year ended June 30, 2021 . This was
primarily driven by continued growth at BuildASign, whose home décor and certain
applications for signage products continued to generate strong results.
BuildASign's strong execution was aided by the business increasingly leveraging
our mass customization platform to fulfill orders for other Cimpress businesses,
avoid capacity constraints, drive new product introduction, and improve customer
experience.
33
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Segment Profitability
Each business within the All Other Businesses segment improved its profitability
for the year ended June 30, 2021 as compared to the prior year, with the overall
improvement primarily driven by revenue growth and manufacturing efficiency in
BuildASign. Printi and YSD reduced losses through revenue growth and improved
efficiency. Our divestiture of loss-making VIDA in the fourth quarter of fiscal
year 2020 also contributed to year-over-year profit improvements in fiscal year
2021.
Central and Corporate Costs
Central and corporate costs consist primarily of the team of software engineers
that is building our mass customization platform; shared service organizations
such as global procurement; technology services such as hosting and security;
administrative costs of our Cimpress India offices where numerous Cimpress
businesses have dedicated business-specific team members; and corporate
functions including our Board of Directors, CEO, and the team members necessary
for managing corporate activities, such as treasury, tax, capital allocation,
financial consolidation, internal audit and legal. These costs also include
certain unallocated share-based compensation costs.
Central and corporate costs decreased by $5.0 million during the year ended June
30, 2021 , as compared to the prior year, due to lower professional fees,
share-based compensation expense and discretionary spend, including travel and
training costs, as well as savings from the prior year reorganization of our
central technology team.
Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data
In thousands Year
Ended
2021 2020 2019
Net cash provided by operating activities $ 265,221 $
338,444
Net cash used in investing activities (354,316)
(66,864) (420,166)
Net cash provided by (used in) financing activities 224,128 (258,255) 81,989
The cash flows during the year endedJune 30, 2021 related primarily to the following items: Cash inflows: •Adjustments for non-cash items of$285.3 million primarily related to positive adjustments for depreciation and amortization of$173.2 million , loss on early extinguishment of debt of$48.3 million , share-based compensation costs of$37.0 million ,$19.9 million of lease-related long-lived asset impairments and unrealized currency-related losses of$10.0 million •Proceeds from borrowings and the issuance of our Term Loan B of$251.9 million , net of borrowings and repayment of our senior secured revolver, term loan A, and Second Lien Notes and inclusive of debt issuance costs due to ourMay 2021 refinancing; a portion of these proceeds have resulted in an increase to our cash and marketable securities balances •Total net working capital impacts of$54.9 million were a source of cash. Inventory, accounts payable, and accrued expenses inflows were partially offset by accounts receivable and other asset outflows Cash outflows: •Net loss of$74.9 million •Purchase of held to maturity securities of$203.6 million , driven by the additional liquidity provided by theMay 2021 refinancing •Internal and external costs of$60.9 million for software and website development that we have capitalized 34 -------------------------------------------------------------------------------- •Purchase consideration for acquisitions of$53.4 million , net of cash acquired, which primarily relates to our acquisition of 99designs, excluding the deferred payment and post-closing adjustment that are payableFebruary 15, 2022 •Capital expenditures of$38.5 million of which the majority related to the purchase of manufacturing and automation equipment for our production facilities •Payments for finance lease arrangements of$8.0 million •Payment of withholding taxes in connection with share awards of$5.8 million •Purchase of noncontrolling interest of$5.1 million and distribution to noncontrolling interest holders of$4.7 million Additional Liquidity and Capital Resources Information. AtJune 30, 2021 , we had$183.0 million of cash and cash equivalents,$203.0 million of marketable securities and$1,764.9 million of debt, excluding debt issuance costs and debt premiums and discounts. During the year endedJune 30, 2021 , we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. We expect to finance our future operations through our cash, investments, operating cash flow and borrowings under our debt arrangements. As ofJune 30, 2021 , a portion of our cash and cash equivalents were held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were$43.4 million . We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows. Debt. As ofJune 30, 2021 , we have borrowings under our amended and restated senior secured credit agreement dated as ofMay 17, 2021 (the "Restated Credit Agreement") of$1,152.0 million consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date ofMay 17, 2028 . Our$250.0 million revolver under our Restated Credit Agreement has$244.4 million unused as ofJune 30, 2021 . There are no drawn amounts on the revolver that would trigger financial maintenance covenants, but our outstanding letters of credit reduce our unused balance. Our unused balance can be drawn at any time so long as we are in compliance with our debt covenants. Debt Covenants. We used the proceeds of the Term Loan B under the Restated Credit Agreement to repay all outstanding borrowings under our previous credit facility, to redeem our Second Lien Notes and to bring our primary source of liquidity onto our balance sheet in the form of cash, cash equivalents and marketable securities. The Restated Credit Agreement contains covenants that restrict or limit certain activities and transactions byCimpress and our subsidiaries. Refer to Note 10 in our accompanying consolidated financial statements for additional information. Other Debt. Other debt primarily consists of term loans acquired through our various acquisitions or used to fund certain capital investments. As ofJune 30, 2021 , we had$12.8 million outstanding for other debt payable throughJanuary 2026 . 35 -------------------------------------------------------------------------------- Contractual Obligations Contractual obligations atJune 30, 2021 are as follows: In thousands Payments Due by Period Less More than 1 1-3 3-5 than 5 Total year years years years Operating leases, net of subleases (1)$ 99,398 $ 28,407 $ 44,425 $ 19,667 $ 6,899 Purchase commitments 245,149 137,963 81,062 26,124 - Senior unsecured notes and interest payments 810,000 42,000 84,000 684,000 - Senior secured credit facility and interest payments (2) 1,495,424 66,821 126,690 119,850 1,182,063 Other debt 12,212 2,587 7,120 2,505 - Finance leases, net of subleases (1) 46,668 31,570 9,643 4,463 992 Other 45,025 44,989 36 - - Total (3)$ 2,753,876 $ 354,337 $ 352,976 $ 856,609 $ 1,189,954 ___________________ (1) Operating and finance lease payments above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses which are not reflected in the contractual obligations above. (2) Senior secured credit facility and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash. (3) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of$9.2 million as ofJune 30, 2021 have been excluded from the contractual obligations table above. See Note 13 in our accompanying consolidated financial statements for further information on uncertain tax positions. Operating Leases. We rent office space under operating leases expiring on various dates through 2034. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit in the amount of$0.9 million in the aggregate. Purchase Commitments. AtJune 30, 2021 , we had unrecorded commitments under contract of$245.1 million . Purchase commitments consisted of third-party web services of$95.5 million , software of$47.7 million , inventory and third-party fulfillment purchase commitments of$55.5 million , advertising of$13.0 million , commitments for professional and consulting fees of$7.4 million , production and computer equipment purchases of$14.7 million and other unrecorded purchase commitments of$11.2 million . Senior Unsecured Notes and Interest Payments. Our$600.0 million of 2026 Notes bear interest at a rate of 7.0% per annum and mature onJune 15, 2026 . Interest on the notes is payable semi-annually onJune 15 andDecember 15 of each year and has been included in the table above. Senior Secured Credit Facility and Interest Payments. AtJune 30, 2021 , the Term Loan B of$1,152.0 million outstanding under our Restated Credit Agreement had repayments due on various dates throughMay 17, 2028 , and we did not have any amounts drawn under our revolving credit facility due onMay 17, 2026 . Interest payable included in this table is based on the interest rate as ofJune 30, 2021 , and assumes all LIBOR-based revolving loan amounts outstanding will not be paid until maturity, but that the term loan amortization payments will be made according to our defined schedule. Other Debt. In addition, we have other debt which consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments, and as ofJune 30, 2021 we had$12.8 million outstanding for those obligations that have repayments due on various dates throughJanuary 2026 . Finance Leases. We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2034. The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet atJune 30, 2021 is$35.4 million , net of accumulated depreciation of$37.9 million . The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet atJune 30, 2021 amounts to$50.8 million . 36 -------------------------------------------------------------------------------- Other Obligations. Other obligations include deferred payments related to previous acquisitions of$45.0 million in the aggregate. This balance includes the deferred payment related to the 99designs acquisition totaling$44.4 million . Refer to Note 7 in our accompanying consolidated financial statements for additional details. Additional Non-GAAP Financial Measures Adjusted EBITDA and adjusted free cash flow presented below, and constant-currency revenue growth and constant-currency revenue growth excluding acquisitions/divestitures presented in the consolidated results of operations section above, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted EBITDA is defined as GAAP operating income plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less interest expense related to ourWaltham, Massachusetts office lease less gain on purchase or sale of subsidiaries. Adjusted EBITDA is the primary profitability metric by which we measure our consolidated financial performance and is provided to enhance investors' understanding of our current operating results from the underlying and ongoing business for the same reasons it is used by management. For example, as we have become more acquisitive over recent years we believe excluding the costs related to the purchase of a business (such as amortization of acquired intangible assets, contingent consideration, or impairment of goodwill) provides further insight into the performance of the underlying acquired business in addition to that provided by our GAAP operating income. As another example, as we do not apply hedge accounting for certain derivative contracts, we believe inclusion of realized gains and losses on these contracts that are intended to be matched against operational currency fluctuations provides further insight into our operating performance in addition to that provided by our GAAP operating income. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adjusted free cash flow is the primary financial metric by which we set quarterly and annual budgets both for individual businesses andCimpress -wide. 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 that are included in net cash used in investing activities, plus the payment of contingent consideration in excess of acquisition-date fair value and gains on proceeds from insurance that are included in net cash provided by operating activities, if any. We use this cash flow metric because we believe that this methodology can provide useful supplemental information to help investors better understand our ability to generate cash flow after considering certain investments required to maintain or grow our business, as well as eliminate the impact of certain cash flow items presented as operating cash flows that we do not believe reflect the cash flow generated by the underlying business. Our adjusted free cash flow measure has limitations as it may omit certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, adjusted free cash flow does not incorporate our cash payments to reduce the principal portion of our debt or cash payments for business acquisitions. Additionally, the mix of property, plant and equipment purchases that we choose to finance may change over time. We believe it is important to view our adjusted free cash flow measure only as a complement to our entire consolidated statement of cash flows. 37 -------------------------------------------------------------------------------- The table below sets forth operating income and adjusted EBITDA for the years endedJune 30, 2021 , 2020 and 2019: In thousands Year Ended June 30, 2021 2020 2019 GAAP operating income$ 123,510 $ 55,969 $ 163,607 Exclude expense (benefit) impact of: Depreciation and amortization 173,212 167,943 172,957 Waltham, MA lease depreciation adjustment (1) - - (4,120) Proceeds from insurance 122 - - Share-based compensation expense (2) 37,034 33,252 18,296 Earn-out related charges - (54) - Certain impairments and other adjustments (3) 20,453 104,593 10,700 Restructuring-related charges 1,641 13,543 12,054 Interest expense for Waltham, MA lease (1) - - (7,236) Realized (losses) gains on currency derivatives not (6,854) 24,533 20,289 included in operating (loss) income Adjusted EBITDA$ 349,118 $ 399,779 $ 386,547 _________________ (1) Upon the adoption of the new leasing standard onJuly 1, 2019 , ourWaltham, MA lease, which was previously classified as build-to-suit, was classified as an operating lease. Therefore, theWaltham depreciation and interest expense adjustments that were made in fiscal year 2019 are no longer being made beginning in fiscal year 2020, as any impact from theWaltham lease is reflected in operating income. (2) The adjustment for share-based compensation expense excludes the portion of share-based compensation expense included in restructuring related charges, if any, to avoid double counting. (3) During the year endedJune 30, 2021 , we recognized impairment and abandonment charges of$19.9 million for the change in nature of use for two of our leased locations. These impairment and abandonment charges are classified within general and administrative expense in the consolidated statement of operations. Refer to Note 16 in our accompanying financial statements for more information. We also recognized$0.6 million of loss for the routine disposal of fixed assets and impairment of capitalized software during the year endedJune 30, 2021 .
The table below sets forth net cash provided by operating activities and
adjusted free cash flow for the years ended
Year
Ended
2021 2020 2019
Net cash provided by operating activities $ 265,221 $ 338,444 $ 331,095
Purchases of property, plant and equipment (38,524) (50,467) (70,563)
Purchases of intangible assets not related to - - (64)
acquisitions
Capitalization of software and website development (60,937) (43,992) (48,652)
costs
Adjusted free cash flow $
165,760
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). To apply these principles, we must make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In some instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as critical accounting policies and estimates, which we discuss further below. This section should be read in conjunction with Note 2, "Summary of Significant Accounting Policies," of our audited consolidated financial statements included elsewhere in this Report. Revenue Recognition. We generate revenue primarily from the sale and shipment of customized manufactured products. To a much lesser extent (and only in our Vistaprint business) we provide digital services, website design and hosting, and email marketing services, as well as a small percentage from order referral fees and other third-party offerings. Revenues are recognized when control of the promised products or services is 38 --------------------------------------------------------------------------------
transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services.
Under the terms of most of our arrangements with our customers we provide satisfaction guarantees, which give our customers an option for a refund or reprint over a specified period of time if the customer is not fully satisfied. As such, we record a reserve for estimated sales returns and allowances as a reduction of revenue, based on historical experience or the specific identification of an event necessitating a reserve. Actual sales returns have historically not been significant. We have elected to recognize shipping and handling activities that occur after transfer of control of the products as fulfillment activities and not as a separate performance obligation. Accordingly, we recognize revenue for our single performance obligation upon the transfer of control of the fulfilled orders, which generally occurs upon delivery to the shipping carrier. If revenue is recognized prior to completion of the shipping and handling activities, we accrue the costs of those activities. We do have some arrangements whereby the transfer of control, and thus revenue recognition, occurs upon delivery to the customer. If multiple products are ordered together, each product is considered a separate performance obligation, and the transaction price is allocated to each performance obligation based on the standalone selling price. Revenue is recognized upon satisfaction of each performance obligation. We generally determine the standalone selling prices based on the prices charged to our customers. Our products are customized for each individual customer with no alternative use except to be delivered to that specific customer; however, we do not have an enforceable right to payment prior to delivering the items to the customer based on the terms and conditions of our arrangements with customers and therefore we recognize revenue at a point in time. We record deferred revenue when cash payments are received in advance of our satisfaction of the related performance obligation. The satisfaction of performance obligations generally occur shortly after cash payment and we expect to recognize our deferred revenue balance as revenue within three months subsequent toJune 30, 2021 . We periodically provide marketing materials and promotional offers to new customers and existing customers that are intended to improve customer retention. These incentive offers are generally available to all customers and, therefore, do not represent a performance obligation as customers are not required to enter into a contractual commitment to receive the offer. These discounts are recognized as a reduction to the transaction price when used by the customer. Costs related to free products are included within cost of revenue and sample products are included within marketing and selling expense. We have elected to apply the practical expedient under ASC 340-40-25-4 to expense incremental direct costs as incurred, which primarily includes sales commissions, since our contract periods generally are less than one year and the related performance obligations are satisfied within a short period of time. Share-Based Compensation. We measure share-based compensation costs at fair value, and recognize the expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period. We recognize the impact of forfeitures as they occur. We primarily issue performance share units, or PSUs, which are estimated at fair value on the date of grant, which is fixed throughout the vesting period. The fair value is determined using a Monte Carlo simulation valuation model. As the PSUs include both a service and market condition the related expense is recognized using the accelerated expense attribution method over the requisite service period for each separately vesting portion of the award. For PSUs that meet the service vesting condition, the expense recognized over the requisite service period will not be reversed if the market condition is not achieved. The compensation expense for these awards is estimated at fair value using a Monte Carlo simulation valuation model and compensation costs are recorded only if it is probable that the performance condition will be achieved. In addition to a service vesting and market condition (based on the three year moving average of theCimpress share price) contained in our standard performance share units, we also issue awards that contain financial performance conditions. These awards with a discretionary performance condition are subject to mark-to-market accounting throughout the performance vesting period. The compensation expense for these awards is estimated at fair value using a Monte Carlo simulation valuation model and compensation costs are recorded only if it is probable that the performance condition will be achieved. We are required to reassess the probability each 39 --------------------------------------------------------------------------------
reporting period. If we determine the awards are not probable at some point during the performance vesting period, we would reverse any expense recognized to date.
Income Taxes. As part of the process of preparing our consolidated financial statements, we calculate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax expense, including assessing the risks associated with tax positions, together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes. We recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse. We assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative. To the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized, we establish a valuation allowance. Our estimates can vary due to the profitability mix of jurisdictions, foreign exchange movements, changes in tax law, regulations or accounting principles, as well as certain discrete items. In the event that actual results differ from our estimates or we adjust our estimates in the future, we may need to increase or decrease income tax expense, which could have a material impact on our financial position and results of operations. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation, or the change of an estimate based on new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Interest and, if applicable, penalties related to unrecognized tax benefits are recorded in the provision for income taxes. Software and Website Development Costs. We capitalize eligible salaries and payroll-related costs of employees and third-party consultants who devote time to the development of our websites and internal-use computer software. Capitalization begins when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. These costs are amortized on a straight-line basis over the estimated useful life of the software, which is three years. Our judgment is required in evaluating whether a project provides new or additional functionality, determining the point at which various projects enter the stages at which costs may be capitalized, assessing the ongoing value and impairment of the capitalized costs, and determining the estimated useful lives over which the costs are amortized. Historically we have not had any significant impairments of our capitalized software and website development costs. Business Combinations. We recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management. The valuations are dependent upon a myriad of factors including historical financial results, forecasted revenue growth rates, estimated customer renewal rates, projected operating margins, royalty rates and discount rates. We estimate the fair value of any contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While we believe the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations.Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to more than one reporting unit, we utilize a method that is consistent with the manner in which the amount of goodwill in a business combination is determined. Costs related to the acquisition of a business are expensed as incurred.Goodwill , Indefinite-Lived Intangible Assets, and Other Definite Lived Long-Lived Assets. We evaluate goodwill and indefinite-lived intangible assets for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider the timing of our most recent fair value assessment and associated headroom, the actual operating results as compared to the cash flow forecasts used in those fair value 40 -------------------------------------------------------------------------------- assessments, the current long-term forecasts for each reporting unit, and the general market and economic environment of each reporting unit. In addition to the specific factors mentioned above, we assess the following individual factors on an ongoing basis such as:
• A significant adverse change in legal factors or the business climate;
• An adverse action or assessment by a regulator;
• Unanticipated competition;
• A loss of key personnel; and
• A more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of.
If the results of the qualitative analysis were to indicate that the fair value of a reporting unit is less than its carrying value, the quantitative test is required. Under the quantitative approach, we estimate the fair values of our reporting units using a discounted cash flow methodology and in certain circumstances a market-based approach. This analysis requires significant judgment and is based on our strategic plans and estimation of future cash flows, which is dependent on internal forecasts. Our annual analysis also requires significant judgment including the identification and aggregation of reporting units, as well as the determination of our discount rate and perpetual growth rate assumptions. We are required to compare the fair value of the reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We are required to evaluate the estimated useful lives and recoverability of definite lived long-lived assets (for example, customer relationships, developed technology, property, and equipment) on an ongoing basis when indicators of impairment are present. For purposes of the recoverability test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The test for recoverability compares the undiscounted future cash flows of the long-lived asset group to its carrying value. If the carrying values of the long-lived asset group exceed the undiscounted future cash flows, the assets are considered to be potentially impaired. The next step in the impairment measurement process is to determine the fair value of the individual net assets within the long-lived asset group. If the aggregate fair values of the individual net assets of the group are less than the carrying values, an impairment charge is recorded equal to the excess of the aggregate carrying value of the group over the aggregate fair value. The loss is allocated to each long-lived asset within the group based on their relative carrying values, with no asset reduced below its fair value. The identification and evaluation of a potential impairment requires judgment and is subject to change if events or circumstances pertaining to our business change. We evaluated our long-lived assets for impairment and during the year endedJune 30, 2021 , and we recognized no impairments.
Recently Issued or Adopted Accounting Pronouncements
See Item 8 of Part II, "Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies - Recently Issued or Adopted Accounting Pronouncements."
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