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 financial results, the persistence of higher costs and supply chain disruptions and the expected impacts of those costs and disruptions on our business; our expectations with respect to Vista's brand evolution and design service offerings; our expectations with respect to National Pen's move fromIreland to theCzech Republic ; the planned divestiture of our YSD business; our estimates and expectations with respect to our market opportunities, the size and development of our markets, and our market share; our expectations with respect to our mass customization platform, including our competitive advantage; our social and environmental goals; sufficiency of our liquidity position; legal proceedings; and sufficiency of our tax reserves and the anticipated benefits of Swiss tax reform. 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 supply chain constraints, inflation, and the ongoing COVID-19 pandemic; our inability to make the investments that we plan to make or the failure of those investments to achieve the results we expect; our failure to execute on the transformation of the Vista business; 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, including possible impacts of the war inUkraine on Depositphotos' operations; our failure to develop and deploy our mass customization platform or the failure of the platform to drive the efficiencies and competitive advantages we expect; 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, including the possibility of an economic downturn in some or all of our markets; and other factors described in this Report and the 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 of printing and related products, via which we deliver large volumes of individually small-sized customized orders. Our products include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, and other categories. Mass customization is a core element of the business model of eachCimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency. As ofJune 30, 2022 , we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vista, 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. During the fourth quarter of fiscal 2022, we revised our internal reporting to reallocate certain third-party technology costs that were previously held within our Central and corporate costs to our Vista business and reportable segment. These include certain third-party costs that are variable in nature and the cost variability is primarily driven by decisions or volumes in the Vista business. We have revised our presentation of all prior periods presented to reflect our revised segment reporting, which decreased Vista segment EBITDA and Central and corporate costs by$7.0 million ,$6.0 million , and$3.7 million for the years endedJune 30, 2022 , 2021 and 2020, respectively.
Throughout fiscal year 2022, the effects of the pandemic on
26 -------------------------------------------------------------------------------- disruption. These challenges are a facet of lingering pandemic impacts, and, to a lesser extent, an indirect effect of theRussia -Ukraine conflict, which have created both difficulties and opportunities forCimpress businesses. Each of our reportable segments has seen material cost increases of product substrates like paper, production materials like aluminum plates, freight and shipping charges, energy costs and higher compensation costs due to a more competitive labor market. Our scale-based shared strategic capabilities and supplier relationships provide competitive advantages for our businesses to weather these challenges. Through data capabilities, our businesses are regularly testing new pricing approaches, and in all businesses there have been pricing increases that are partially offsetting the increased costs.
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; 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. Reconciliations of our non-GAAP financial measures are included within the "Consolidated Results of Operations" and "Additional Non-GAAP Financial Measures" sections of Management's Discussion and Analysis. A summary of these key financial metrics for the year endedJune 30, 2022 as compared to the year endedJune 30, 2021 follows:
Fiscal Year 2022
•Revenue increased by 12% to
•Constant-currency revenue increased by 15% and by 13% when excluding the revenue of acquired companies for the first twelve months after acquisition (both non-GAAP financial measures).
•Operating income decreased by
•Adjusted EBITDA (a non-GAAP financial measure) decreased by
•Diluted net loss per share attributable to
•Cash provided by operating activities decreased by
•Adjusted free cash flow (a non-GAAP financial measure) decreased by
For fiscal year 2022, the increase in reported revenue was primarily due to the continued recovery of demand. Reported revenue benefited from our recent acquisitions, with the majority of the additional revenue attributable to Depositphotos, which was acquired onOctober 1, 2021 and is included in our Vista business. Recent new product introduction, strong growth of volume, and an uptick in orders due to supply chain constraints that turned new customers to our businesses all drove growth in our reported revenue year over year. Pricing changes also improved our revenue, as these actions were one tool we used to mitigate inflationary cost pressures that have arisen from ongoing supply chain challenges. These benefits were slightly offset by revenue for face masks decreasing$85.3 million compared to the prior year because demand for pandemic-related products has diminished. Currency exchange fluctuations also had a negative effect during the current year. For the year endedJune 30, 2022 , the decrease in operating income was primarily due to increased investments in our Vista business. These investments include hiring across several strategic initiatives, as well as increased advertising spend driven by mid- and upper-funnel advertising and higher performance advertising driven by expanded payback thresholds compared to the prior year. The current year was also negatively impacted by inflationary cost pressures, which were not fully mitigated through price increases. We also recognized an increase in restructuring charges of$12.0 million , primarily relating to actions taken in our Vista business and central teams, as well as higher share based compensation expense primarily driven by increased headcount in areas in which we continue to invest. These items were partially offset by an increase to gross profit driven by the revenue growth described above, as well as the non-recurrence of a$19.9 million lease-related impairment in the prior year. Adjusted EBITDA decreased year over year, primarily for the same reasons operating income decreased. Adjusted EBITDA excludes restructuring charges, share-based compensation expense, certain impairments, and non-cash gains on the sale of assets, 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 a benefit of approximately$5.9 million . 27 -------------------------------------------------------------------------------- Diluted net loss per share attributable toCimpress plc decreased for the year endedJune 30, 2022 due to unrealized currency gains caused by exchange rate volatility, decreased interest expense driven by our fourth quarter fiscal year 2021 debt refinancing which also caused a non-recurring$48.3 million loss on debt extinguishment in the prior-year period. This was partially offset by the decrease in operating income as described above and increased income tax expense that was impacted by the current year valuation allowance that related to Swiss tax reform benefits.
Cash from operations decreased
Adjusted free cash flow decreased by$65.6 million , due to the operating cash flow decrease described above, as well as a$15.5 million increase in capital expenditures and a$4.4 million increase in capitalized software expenditures. Information pertaining to fiscal year 2020 was included in our Annual Report on Form 10-K for the year endedJune 30, 2020 under Part II, Item 7, "Management's Discussion and Analysis of Financial Position and Results of Operations," which was filed with theSEC onAugust 11, 2020 .
Consolidated Results of Operations
Consolidated Revenue
Our businesses generate revenue primarily from the sale and shipment of customized products. We also generate revenue, to a much lesser extent (and primarily in our Vista business), from digital services, graphic design services, website design and hosting, and email marketing services, as well as a small percentage of revenue from order referral fees and other third-party offerings. For additional discussion relating to segment revenue results, refer to the "Reportable Segment Results" section included below.
Total revenue and revenue growth by reportable segment for the year ended
Currency Constant- In thousands Year EndedJune 30 , Impact: Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth % 2022 2021 Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2) Vista$ 1,514,909 $ 1,428,255 6% 1% 7% (2)% 5% PrintBrothers 526,952 421,766 25% 8% 33% (1)% 32%The Print Group 329,590 275,534 20% 7% 27% -% 27% National Pen 341,832 313,528 9% 2% 11% -% 11% All Other Businesses 205,862 192,038 7% -% 7% (4)% 3% Inter-segment eliminations (31,590) (55,160) Total revenue$ 2,887,555 $ 2,575,961 12% 3% 15% (2)% 13% 28
-------------------------------------------------------------------------------- Currency Constant- In thousands 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) Vista$ 1,428,255 $ 1,337,291 7% 1% 8% -% 8% PrintBrothers 421,766 417,921 1% 3% 4% (2)% 2%The Print Group 275,534 275,214 -% 3% 3% -% 3% National Pen 313,528 299,474 5% 1% 6% -% 6% All Other Businesses 192,038 173,789 11% 1% 12% (25)% (13)% Inter-segment eliminations (55,160) (11,716) Total revenue$ 2,575,961 $ 2,751,076 (6)% 1% (5)% (2)% (7)% _________________ (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. For example, revenue from 99designs, which we acquired on October 1, 2020 in Q2 2021, is excluded from revenue growth in Q1 of fiscal year 2022 since there are no full quarter results in the comparable period, but revenue is included in revenue growth for Q2 through Q4 of fiscal year 2022. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.
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.
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, 2022 2021 2020 Cost of revenue$ 1,492,726 $ 1,299,889 $ 1,248,871 % of revenue 51.7 % 50.5 % 50.3 % For the year endedJune 30, 2022 , cost of revenue increased by$192.8 million , primarily due to demand-dependent cost of goods sold, including third-party fulfillment, material and shipping costs. During the current fiscal year, we've experienced increasing impacts from global supply chain challenges that resulted in increased costs for product substrates like paper, production materials like aluminum plates, freight and shipping charges, and energy costs. Compensation costs are also higher due to a more competitive labor market. The overall impact of increased costs, net of pricing and manufacturing efficiencies, had varying impacts on our businesses during the year endedJune 30, 2022 . It remains a challenging environment, and we expect higher input costs and supply constraints to persist, although we are unable to predict for how long. We believe we are advantaged in this environment versus smaller competitors because our scale provides us with a stronger supplier negotiation position for both costs and availability of supply. 29 --------------------------------------------------------------------------------
Consolidated Operating Expenses
The following table summarizes our comparative operating expenses for the following periods: In thousands Year Ended June 30, 2022 2021 2020 Technology and development expense$ 292,845 $ 253,060 $ 253,252 % of revenue 10.1 % 9.8 % 10.2 % Marketing and selling expense$ 789,241 $ 648,391 $ 574,041 % of revenue 27.3 % 25.2 % 23.1 % General and administrative expense$ 197,345 $ 195,652 $ 183,054 % of revenue 6.8 % 7.6 % 7.4 % Amortization of acquired intangible assets (1)$ 54,497 $ 53,818 $ 51,786 % of revenue 1.9 % 2.1 % 2.1 % Restructuring expense (2)$ 13,603 $ 1,641 $ 13,543 % of revenue 0.5 % 0.1 % 0.5 % Impairment of Goodwill (1) $ - $ -$ 100,842 % of revenue - % - % 4.1 % _____________________
(1) Refer to Note 8 in our accompanying consolidated financial statements for additional details relating to the amortization of acquired intangibles and goodwill impairment charges.
(2) 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. Technology and development expenses increased by$39.8 million for the year endedJune 30, 2022 , as compared to the prior year. This increase is primarily driven by$28.5 million higher compensation costs due to increased investment from hiring, impacts of our annual merit cycle and prior-year delay of our share-based compensation grants to the middle of the third quarter of fiscal year 2021, mainly in the Vista business and our central technology group. Other operating costs increased in part due to increases in demand, as well as higher travel and training costs as pandemic restrictions diminished in the current year.
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 Vista, 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, 2022 , marketing and selling expenses increased$140.9 million as compared to the prior year. The largest increase in marketing and selling expenses was in our Vista business which had increased internal marketing and customer service costs of$52.1 million and increased advertising costs of$51.1 million . The increases to Vista spend were primarily driven by growth in headcount for areas such as user experience design, brand and data and analytics, higher performance advertising from increased customer demand and expanded payback thresholds as well as higher mid- and upper-funnel advertising. Advertising expense also increased for our remaining businesses in total by$28.7 million for the year endedJune 30, 2022 , due to higher demand and more normalized payback thresholds in the current year. 30 --------------------------------------------------------------------------------
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, 2022 , general and administrative expenses increased by$1.7 million as compared to the prior year, driven primarily by increases of$16.7 million to compensation costs from impacts of our annual merit cycle, increased expense for cash-based long-term incentive awards driven by additional vesting and business performance, as well as higher headcount year over year. Share-based compensation costs also increased$3.6 million due to the prior year's delayed timing of the annual grant cycle, mainly in our Vista business and our central teams. The current fiscal year benefited from a non-cash gain of$3.3 million recognized during the second fiscal quarter as a result of our purchase and sale of a previously leased facility. The year-over-year increase was almost fully offset by the non-recurrence of lease-related impairment and abandonment charges that were recognized in the prior year of$19.9 million . Refer to Note 2 of the accompanying consolidated financial statements for additional details. Other Consolidated Results Other income (expense), net Other income (expense), net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting. The following table summarizes the components of other income (expense), net: In thousands Year Ended June 30, 2022 2021 2020 Gains (losses) on derivatives not designated as hedging instruments$ 58,148 $ (20,728) $ 20,564 Currency-related gains, net 244 1,005 2,309 Other gains 3,071 370 1 Total other income (expense), net$ 61,463
The increase in other income (expense), 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 gains 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 decreased by$19.9 million during the year endedJune 30, 2022 , as compared to the prior year period. This is primarily due to our Term Loan B refinancing during the fourth quarter of fiscal 2021 that resulted in a reduction to our weighted-average interest rate on our outstanding borrowings in the current year. 31 --------------------------------------------------------------------------------
Loss on early extinguishment of debt
As part of the fourth quarter fiscal year 2021 amendment and restatement of our senior secured credit agreement, we redeemed$300.0 million of our 12% Senior Secured Notes due 2025. The loss on extinguishment of debt of$48.3 million during the year endedJune 30, 2021 , consisted of a$22.3 million accretion adjustment to increase the debt's carrying value to the principal amount, a$17.0 million write-off of unamortized financing fees, and a$9.0 million early redemption fee payment. Income tax expense (benefit) In thousands Year Ended June 30, 2022 2021 2020 Income tax expense (benefit)$ 59,901 $ 18,903 $ (80,992) Effective tax rate 642.0 % (29.7) % (2,697.0) % Income tax expense for the year endedJune 30, 2022 increased versus the prior comparative period due to establishing a partial valuation allowance on Swiss deferred tax assets of$29.6 million primarily related to Swiss tax reform benefits recognized in fiscal year 2020 and Swiss tax loss carryforwards that we no longer expect to fully realize. 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. During the fourth quarter of fiscal 2022, we revised our internal reporting to reallocate certain third-party technology costs that were previously held within our Central and corporate costs to our Vista business and reportable segment. These third-party costs are variable in nature and the cost variability is primarily driven by decisions or volumes in the Vista business. We have revised our presentation of all prior periods presented to reflect our revised segment reporting, which decreased Vista segment EBITDA by$7.0 million ,$6.0 million and$3.7 million for the years endedJune 30, 2022 , 2021 and 2020, respectively. Vista In thousands Year Ended June 30, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Reported Revenue$ 1,514,909 $ 1,428,255 $ 1,337,291 6% 7% Segment EBITDA 195,321 318,684 362,589 (39)% (12)% % of revenue 13 % 22 % 27 % 32
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Segment Revenue
Vista's reported revenue growth for the year endedJune 30, 2022 was negatively affected by a currency impact of 1%. When excluding the benefit from the recent acquisitions of Depositphotos and 99designs, Vista's organic constant-currency revenue growth was 5%. Vista's revenue growth accelerated in our European markets during the second half of the fiscal year, while the U.S. market experienced lower growth driven in part by the decline in revenue from consumer products. In addition, revenue related to face masks was$69.0 million less than the prior year as the demand for pandemic-related products declined. From a category perspective, growth was primarily driven by business cards, signage, marketing materials, and promotional products. Revenue from business cards and small format marketing materials improved year over year, but were still below pre-pandemic levels. During the current fiscal year we executed on the migration of Vista's customer-facing website in most major markets, including inthe United States , to a new platform. Each launch in the current year created a short-term negative impact on revenue, but every successive launch benefited from the learnings of prior launches to mitigate the impact of migrating in our largest markets. Segment Profitability For the year endedJune 30, 2022 , segment EBITDA declined by$123.4 million , largely driven by increased operating expenses related to growth investments including hiring of talent, especially in user experience, design, product management, and data and analytics. These organic investments are in support of Vista's multi-year transformation journey to become the expert design and marketing partner to the world's small businesses. Additionally, Vista's advertising expense increased by$57.1 million , driven by$48.1 million of incremental performance advertising from higher volumes and increased payback thresholds relative to last year and$9.0 million from higher mid- and upper-funnel advertising. Advertising spend was more constrained during the prior year when the effects of the pandemic on this segment were more severe. Gross profit was negatively impacted during fiscal year 2022 by significant inflationary cost pressures from higher material, inbound freight, shipping and energy costs. A small portion of those inflationary pressures were offset by price increases. These inflationary pressures were more pronounced during the second half of the current fiscal year. The decline in profitability was also affected by government subsidy benefits in the prior year of$9.0 million that did not recur during the year endedJune 30, 2022 . These decreases were partially offset by the profit improvement driven by the revenue growth described above. PrintBrothers In thousands Year Ended June 30, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Reported Revenue$ 526,952 $ 421,766 $ 417,921 25% 1% Segment EBITDA 66,774 43,144 39,373 55% 10% % of revenue 13 % 10 % 9 % Segment Revenue PrintBrothers' reported revenue growth for the year endedJune 30, 2022 was negatively affected by a currency impact of 8%, resulting in a constant-currency revenue growth of 33%. This strong growth was driven by past new production introductions and growth in order volumes due in part to supply chain constraints that turned new customers to our businesses. The PrintBrothers network and relative size allowed these businesses to address opportunities to meet customer demand when competition could not. In addition, the current year benefited from less-intensive pandemic-related lockdowns than in the prior year, as well as price increases implemented to address inflationary cost increases.
Segment Profitability
PrintBrothers' segment EBITDA during the year endedJune 30, 2022 , as compared to the prior period, increased despite increased input costs, driven by the constant-currency revenue growth described above, the higher margin impact of new products, and improved efficiencies as the businesses in this segment better leverage their combined capabilities. Currency exchange rate fluctuations had a negative year-over-year impact. 33 --------------------------------------------------------------------------------
The Print Group In thousands Year Ended June 30, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Reported Revenue$ 329,590 $ 275,534 $ 275,214 20% -% Segment EBITDA 58,664 43,126 51,606 36% (16)% % of revenue 18 % 16 % 19 % Segment RevenueThe Print Group's reported revenue for the year endedJune 30, 2022 was negatively affected by a currency impact of 7%, resulting in an increase to revenue on a constant-currency basis of 27% due to signs of overall economic recovery in many of the European countries in which we compete, leveraging new products introduced in recent years and growth in order volumes due in part to supply chain constraints that turned new customers to our businesses. In addition, the current year benefited from less-intensive pandemic-related lockdowns than in the prior year, as well as price increases implemented to address inflationary cost increases.
Segment Profitability
The increase inThe Print Group's segment EBITDA during the year endedJune 30, 2022 , as compared to the prior year, was primarily driven by the constant-currency revenue growth described above. In addition,The Print Group continues to benefit from the introduction of new products with higher margins, as well as improved efficiencies as the group better leverages its combined capabilities. Currency exchange rate fluctuations had a negative year-over-year impact. National Pen In thousands Year Ended June 30, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Reported Revenue$ 341,832 $ 313,528 $ 299,474 9% 5% Segment EBITDA 26,845 11,644 7,605 131% 53% % of revenue 8 % 4 % 3 % Segment Revenue For the year endedJune 30, 2022 , National Pen's revenue growth was negatively affected by currency impacts of 2%, resulting in constant-currency revenue growth of 11%. National Pen's revenue has improved across geographic markets and channels, including web and mail order channels. This improvement is due to businesses reopening and a return of in-person events in some markets, despite a decline in revenue from pandemic-related products, including a$26.2 million decline of face mask revenue.
Segment Profitability
The increase in National Pen's segment EBITDA for the year endedJune 30, 2022 was due in part to the revenue increase described above, as well as improvements in gross profit driven by a normalized mix of products and decline in lower-margin pandemic-related products, partially offset by higher freight costs. National Pen also made permanent cost reductions in the prior year that benefited segment EBITDA for the year endedJune 30, 2022 . The increased profitability was also caused by the non-recurrence of the prior years' inventory reserve to reduce the carrying value of disposable masks held in inventory to market prices of$8.2 million . Currency exchange rate fluctuations had a negative year-over-year impact. 34 --------------------------------------------------------------------------------
All Other Businesses In thousands Year Ended June 30, 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Reported Revenue$ 205,862 $ 192,038 $ 173,789 7% 11% Segment EBITDA 23,227 31,707 17,474 (27)% 81% % of revenue 11 % 17 % 10 % This segment consists of BuildASign, which is a larger and profitable business, and two early-stage businesses that we have managed at a relatively modest operating loss as previously described and planned. During the fourth quarter of fiscal year 2022, we decided to exit our YSD business, which generated a loss of$5.5 million during fiscal year 2022, which we expect to complete in early fiscal year 2023.
Segment Revenue
All Other Businesses' constant-currency revenue growth, excluding the impact of acquisitions, was 3% during the year endedJune 30, 2022 . This growth was driven by recovery of demand for both our Printi business and signage products offered by BuildASign, partially offset by a decline in demand for home decor products that had benefited revenue during the pandemic period.
Segment Profitability
The decrease in segment EBITDA for the year endedJune 30, 2022 was due to a combination of factors including increased advertising spend and inflationary pressures on input costs including shipping, materials and labor during the current period.
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 numerousCimpress 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. During the fourth quarter of fiscal 2022, we revised our internal reporting to reallocate certain third-party technology costs that were previously held within our Central and corporate costs to our Vista business. We have revised our presentation of all prior periods presented to reflect our revised segment reporting. Refer to Note 15 in our accompanying consolidated financial statements for additional details. Central and corporate costs increased by$14.6 million during the year endedJune 30, 2022 , as compared to the prior year, due to the end of temporary cost-control measures from the year-ago period and, to a lesser extent, prior year timing of our annual share-based compensation grant which caused a higher expense rate for accelerated vesting in the first quarter of the current fiscal year than in the comparable period. In addition, our continued investments in our mass customization platform through additional hiring in cost-efficient talent markets and increased volumes contributed to higher central operating costs year over year. 35 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data
In thousands Year Ended
2022 2021 2020 Net cash provided by operating activities$ 219,536 $ 265,221 $ 338,444 Net cash used in investing activities (3,997)
(354,316) (66,864) Net cash (used in) provided by financing activities (106,572) 224,128 (258,255)
The cash flows during the year ended
Cash inflows:
•Adjustments for non-cash items of$194.8 million primarily related to adjustments for depreciation and amortization of$175.7 million , share-based compensation costs of$49.8 million , and deferred taxes of$22.9 million , which were partially offset by negative adjustments for unrealized currency-related gains of$39.9 million and gains on ineffective interest rate swaps of$6.4 million
•Proceeds from the maturity of held-to-maturity securities of
•Total net working capital impacts of$75.4 million were a source of cash. Accounts payable and accrued expense inflows were partially offset by inventory, accounts receivable and other asset outflows •The early termination and settlement of derivative contracts resulted in$19.7 million of cash proceeds.$2.2 million of these cash proceeds was from the termination or settlement of net investment hedges and is presented in investing activities. The remainder of the cash proceeds are presented in operating activities, a portion of which is included in net working capital
•Proceeds from the sale of assets in the normal course of business of
Cash outflows:
•Net loss of
•Business acquisitions for
•Internal and external costs of
•Capital expenditures of
•$43.6 million for the payment of purchase consideration included in the 99designs acquisition's fair value
•Repayments of debt for
•Payments for finance lease arrangements, excluding the payment associated with
the purchase option exercise included below, of
•Purchase and sale of a previously leased facility that resulted in a net
payment of
•A
•Payment of withholding taxes in connection with share awards of
•$1.8 million for the final settlement for the purchase of noncontrolling interests in our PrintBrothers businesses, for which an initial payment was made in fiscal year 2021
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•Financing fees of
Additional Liquidity and Capital Resources Information. AtJune 30, 2022 , we had$277.1 million of cash and cash equivalents,$50.0 million of marketable securities and$1,705.4 million of debt, excluding debt issuance costs and debt premiums and discounts. During the year endedJune 30, 2022 , we financed our operations and strategic investments through internally generated cash flows from operations and cash on hand. We expect to finance our future operations through our cash, investments, operating cash flow and borrowings under our debt arrangements. Noncontrolling Interests. The put options for several of our noncontrolling interests are exercisable during the first half of fiscal year 2023. Exercising a put option is at the discretion of each noncontrolling interest holder, which creates uncertainty around the timing of our cash outflow should an option be exercised. The total estimated redemption value for these noncontrolling interests as ofJune 30, 2022 is$103.6 million . Refer to Note 14 in our accompanying consolidated financial statements for additional details. Indefinitely Reinvested Earnings. As ofJune 30, 2022 , 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$49.0 million . We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows.
Contractual Obligations
Contractual obligations at
In thousands Payments Due by Period Less More than 1 1-3 3-5 than 5 Total year years years years Operating leases, net of subleases (1)$ 85,176 $ 28,146 $ 37,465 $ 10,958 $ 8,607 Purchase commitments 310,797 150,307 97,237 63,252 - Senior unsecured notes and interest payments 768,000 42,000 84,000 642,000 - Senior secured credit facility and interest payments (2) 1,407,935 66,289 129,884 125,399 1,086,363 Other debt 8,063 2,800 4,735 528 - Finance leases, net of subleases (1) 16,809 5,016 7,480 3,891 422 Other 8,425 8,425 - - - Total (3)$ 2,605,205 $ 302,983 $ 360,801 $ 846,028 $ 1,095,392 ___________________ (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, 2022 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 2037. The terms of certain lease agreements require
security deposits in the form of bank guarantees and letters of credit in the
amount of
Purchase Commitments. At
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Senior Secured Credit Facility and Interest Payments. As ofJune 30, 2022 , we have borrowings under our Restated Credit Agreement of$1,097.3 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$243.6 million unused as ofJune 30, 2022 . There are no drawn amounts on the revolver, 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, and any amounts drawn under the revolver will be due onMay 17, 2026 . Interest payable included in the above table is based on the interest rate as ofJune 30, 2022 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. 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. Debt Covenants. The Restated Credit Agreement and the indenture that governs our 7.0% Senior Notes due 2026 contain covenants that restrict or limit certain activities and transactions byCimpress and our subsidiaries. As ofJune 30, 2022 , we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2026 Notes. Refer to Note 10 in our accompanying consolidated financial statements for additional information. 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. As ofJune 30, 2022 , we had$8.1 million outstanding for those obligations that have repayments due on various dates throughMarch 2027 . Finance Leases. We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2028. 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, 2022 is$19.2 million , net of accumulated depreciation of$38.5 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, 2022 amounts to$21.4 million . Other Obligations. Other obligations consist of deferred payments relating to previous acquisitions, including the deferred payment relating to our Depositphotos acquisition that is payable inOctober 2022 and small deferred acquisition liabilities for other, smaller acquisitions. Refer to Note 7 in the 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 38 --------------------------------------------------------------------------------
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.
The table below sets forth operating income and adjusted EBITDA for the years
ended
In thousands Year Ended June 30, 2022 2021 2020 GAAP operating income$ 47,298 $ 123,510 $ 55,969 Exclude expense (benefit) impact of: Depreciation and amortization 175,681 173,212 167,943 Proceeds from insurance - 122 - Share-based compensation expense 49,766 37,034 33,252 Earn-out related charges - - (54) Certain impairments and other adjustments (9,709) 20,453 104,593 Restructuring-related charges 13,603 1,641 13,543
Realized gains (losses) on currency derivatives not included in operating income (1)
4,424 (6,854) 24,533 Adjusted EBITDA$ 281,063 $ 349,118 $ 399,779 _________________
(1) These realized gains (losses) include only the impacts of currency derivative contracts that are intended to hedge our exposure to foreign currencies for which we do not apply hedge accounting. See Note 4 in our accompanying consolidated financial statements for further information.
The table below sets forth net cash provided by operating activities and
adjusted free cash flow for the years ended
In thousands Year
Ended
2022 2021 2020 Net cash provided by operating activities (1)$ 219,536 $ 265,221 $ 338,444 Purchases of property, plant and equipment (54,040) (38,524) (50,467) Capitalization of software and website development (65,297) (60,937) (43,992) costs Adjusted free cash flow$ 100,199 $ 165,760 $ 243,985 _________________
(1) The decrease of net cash provided by operating activities was driven by the decrease in operating income as described earlier in this section.
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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 Vista 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 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. 40 -------------------------------------------------------------------------------- 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. Our performance share units, or PSUs, 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. 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. 41 --------------------------------------------------------------------------------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 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 during the year endedJune 30, 2022 , 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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