Cimpress : Annual Letter to Investors – July 2021 423.7 KB

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TABLE OF CONTENTS
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
CAPITAL ALLOCATION ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
SUMMARY & CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
HISTORICAL ESTIMATES OF STEADY STATE FREE CASH FLOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
HOW WE THINK ABOUT INTRINSIC VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
CAPITAL ALLOCATION APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
ORGANIC INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
ACQUISITIONS, EARLY-STAGEINVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
SHARE REPURCHASES & ISSUANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
DEBT ISSUANCE & REPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
NET DEBT PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
NON-GAAPRECONCILIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

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July 28, 2021

Dear Investor,

As always, the purpose of this annual investor letter is to reflect on our strategic progress and capital allocation effectiveness over the past year, and describe our ambitions for the coming year. Over the next week, we will share examples of our strategic progress, capital allocation assessment, leadership talent and future ambitions in our annual investor day. For a detailed look at our financial results please review our separate Q4 and FY2021 earnings document that we posted today on ir.cimpress.com.

We're at the end of a fiscal year that will be remembered for the pandemic's impact to our economy, customers, industry, business operations and personal lives. I am profoundly grateful and deeply proud of the way Cimpress team members pulled together to support and deliver value for each other, our customers, our long-term investors and society at large over the past year.

The pandemic depressed our financial results throughout the fiscal year yet we still delivered $2.6 billion in revenue, $349 million of adjusted EBITDA, and $283 million of unlevered adjusted free cash flow.1 We demonstrated that, if and when necessary, we can rapidly pivot and reduce costs and deliver material cash flow even in an extremely adverse economic environment. Once we had stabilized our financial situation, especially in the second half of the fiscal year, we returned to building for the future by recruiting a significant number of talented new team members, driving innovation, and expanding our capabilities including in data, technology development and design while continuing to push for quality improvements and efficiency gains. Importantly, we also implemented a flexible capital structure that, in addition to lowering our weighted average cost of debt, allows us to continue to invest for the future even if we were to experience additional volatility.

Here are four takeaways from the last year that are relevant for our future:

• Our decentralized structure proved to be resilient under stress: Our decentralized structure enabled our businesses to react quickly and decisively to local restrictions, the care for the health and safety of our team members, and rapidly changing customer needs. They leveraged our select few shared strategic capabilities, Cimpress-wide financing, and each others' strengths in order to weather the storm better than they could have as stand-alone businesses. In other words, our choice to operate as a group of relatively autonomous businesses with only a few, but powerful, central capabilities, proved to work well in times of extreme market turbulence. This reinforced the advantages of the structure in the minds of team members across Cimpress, and should make our future execution even better.
• Constraints and incentives are powerful: The constraints we faced during the pandemic were harsh especially in those first weeks and months. When combined with the long-term orientation of our incentives, the clarity of what we collectively needed to achieve was never clearer. We learned quickly what we could do without and reduced costs accordingly. We learned how fast we can move when aligned around common objectives within the context of these constraints and incentives. We leveraged assets across Cimpress to launch many new products and product formats that helped customers react to the changing situation, generating revenue and profits to aid our recovery. We now know what's possible and don't need a pandemic in the future to move with that type of speed.
• Remote-firstwork is a new source of competitive advantage: During the pandemic, we pivoted to remote work and, for many team members, moved to a permanent remote-first model. We have been very intentional about our remote-first approach and are investing behind this way of working so that it becomes

• Operating income in FY2021 was $124 million, operating cash flow was $265 million, adjusted free cash flow (a non-GAAP financial measure) was $166 million, and cash interest related to borrowing was $117 million. Please see reconciliation of non- GAAP measures at the end of this letter.

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a competitive advantage to the recruitment, retention and engagement of top talent. We reshaped our office footprint accordingly, freeing up capital that we can redeploy into organic investment, including hiring and enhancing team member experience. Time will tell how these real-time case studies on moving away from traditional office cultures will work - early indicators for us are very positive.

• Giving back was never more important: Our businesses actively supported small businesses and communities around the world over the last year through grants, donations, advice, and products. We accelerated carbon pollution reduction targets by setting a net-zero carbon goal by 2040, we continued our high standards for using only responsibly harvested forest products and we implemented a plan to eliminate problematic plastics and to use much more recycled and recyclable content for packaging and products. We continued to increase the diversity of our team members and the inclusiveness of our company culture in recognition of the importance of these topics to team members and the pursuit of long-term value creation for customers and shareholders.

As we look to the chapter that comes after the pandemic, we are very optimistic. We operate in a massive and highly fragmented market that is undergoing a multi-decade shift from traditional offline suppliers to mass customization online players like Cimpress- and we are the clear market leader. The long-term trend toward e- commerce has accelerated, small business formation has increased, and we have the strategy, investments, and momentum to capture the opportunity in front of us. We are seeing positive results from the work we were doing prior to and through the pandemic. We know how to build long-term value by making it convenient and affordable for customers to place small, customized orders chosen from a vast combination of products and product attributes. As we begin FY2022 and see recent revenue results returning to pre-pandemic levels, we see a clear path to return to sustainable growth and improve our competitive position in FY2022 and beyond.

Please note that we have not published a steady state free cash flow (SSFCF) estimate for FY2021 because we cannot comfortably quantify what the impact of the pandemic was on the unlevered free cash flow component which is a critical part of our SSFCF estimate. Factors such as revenue volatility, temporary cost reductions, government incentives and many others directly impacted our unlevered free cash flow in FY2021. For reference, the chart below includes our SSFCF estimates for the multi-year period leading up to the start of the pandemic (this is identical to the version included in my letter to investors one year ago).

Past Approximate Estimates of our Likely Range of Steady State Free Cash Flow

(USD Millions)

				$430	$485
$385
$351	$340	$340		$455
	$400
	$271	$290	$300
$210
FY2015	FY2016	FY2017	FY2018	FY2019	TTM February
					2020

We anticipate continued volatility on the path to a full reopening including from the possibility of increased government restrictions. While we haven't disclosed an estimate for FY2021, based on recent bookings trends, the permanent cost reductions we have implemented, and the progress and investments we have made over the last year for which you'll hear tangible examples in our annual investor day, we believe we should be exiting FY2022 at a run rate of SSFCF similar to the levels we last estimated for the the twelve months ended in February 2020, with a clear trajectory toward sustained growth beyond that. More on this further below.

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Historical and Recent Financial Measures2,3

Revenue ($M)

Adjusted EBITDA ($M)

	$2,797
$2,751
$2,593	$2,593
	$2,481						$477
$2,135							$400
						$387
$1,788						$349
				$326
$1,494
				$283
$1,167$1,270				$243
			$238
$1,020				$181
$817		$165
	$140	$143
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21	FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21
	FEB20						FEB20

Adjusted FCF ($M)

UFCF ($M)

					$360
		$293				$317
				$269	$283
		$244
		$212			$189
		$166	$165	$184
$157	$152
$139
$121		$121
$95			$96		$83
$72			$78
		$59
$54		$45
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21	FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21
		FEB20			FEB20

Net Debt ($M)

Shares Outstanding (M)

$237		Wtd. Avg. S/O				S/O at End of Period
	45.0
$(167)$(189)	39.0
$(386)$(419)
43.1	34.5	34.2	33.8
$(609)		33.0	32.6	32.2	31.7
$(795)								29.5
$(857)	34.1								27.8	26.5
$(1,000)	32.8	32.3	33.2	31.5	31.4	30.9	30.4
$(1,379)								26.0	25.9	26.0
$(1,437)
$(1,488)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21	FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 TTM FY20 FY21
FEB20								FEB20

• Please see reconciliation of non-GAAP measures at the end of this letter.

• Weighted average shares outstanding for FY2017 and FY2021 represent the number of shares we would have reported if we recorded a profit instead of a loss that year. The basic weighted shares outstanding we reported those years was 31.3M and 26.0M, respectively.

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