Cimpress : Investor Day 2023 – Transcript

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EDITED TRANSCRIPT

CMPR.OQ - Cimpress PLC Investor Day

EVENT DATE/TIME: SEPTEMBER 14, 2023 / 12:00PM GMT

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SEPTEMBER 14, 2023 / 12:00PM, CMPR.OQ - Cimpress PLC Investor Day

C O R P O R A T E P A R T I C I P A N T S

Christina Wick SVP, Product Experience, Vista

Emily Whittaker EVP, North America & Global Marketing, Vista

Florian Baumgartner Chief Executive Officer, Vista

Maarten Wensveen EVP, Chief Technology Officer, Cimpress

Meredith Burns VP, Investor Relations & Sustainability, Cimpress

Michael Fries EVP, Europe & Global Manufacturing, Vista

Paolo Roatta CEO The Print Group & Pixartprinting, Upload & Print

Robert S. Keane Founder, Chairman & CEO, Cimpress

Sean Edward Quinn EVP, Chief Financial Officer, Cimpress & Vista

Sebastian Klapdor EVP, Technology & Data, Vista

P R E S E N T A T I O N

Meredith Burns VP, Investor Relations & Sustainability, Cimpress

Hello, and welcome to Cimpress' 2023 Investor Day. My name is Meredith Burns, Vice President of Investor Relations and Sustainability. I am so excited that you're here with us to learn about the progress we're making across Cimpress'.

Today, we'll hear from executives representing Cimpress, Vista and Upload and Print.

There are management bios available in the speaker bio tab of the webcast viewer. So I want them spend time today introducing everyone. However, I will introduce the new face on the slide, Christina Wick, who was promoted to the Vista executive team in February when Martin moved back to Cimpress only role. She joined Vista in 2021, and today, leads Vista's product, commerce platform and user experience teams.

So here is a view of how we will spend the next roughly 3 hours together. Robert will start with some perspective on FY '23, our advantages and market dynamics across Cimpress. Then Martin will provide an update on our mass customization platform and the state of machine learning capabilities our businesses are adopting. And Paolo will provide an update on our Upload and Print businesses. Next, Florian, Christina, Christina, Basti, Michael, Emily and Sean will take us on a tour of the great progress we're making in Vista. At that point, we'll take a short break and come back after that to go through financial review and outlook.

Finally, we'll finish with a Q&A session with all of our presenters.

In terms of what you expect today, we'll cover both presubmitted and live questions in the event.

(Operator Instructions)

A replay and supporting content will be available on our website after the event. Now some of the numbers that we'll show or discussed today are non-GAAP. You can find reconciliations to GAAP measures posted on ir.cimpress.com or in the download section of the live webcast viewer. And finally, you can expect that we will be sharing our thoughts about the future.

So this is a great time to note that our actual results may differ materially from these statements about the future, due to risk factors that are outlined in detail in our SEC filings and also here on this slide. We invite you to read them. With that, I'd like to turn the presentation over to Robert Keane. Robert?

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SEPTEMBER 14, 2023 / 12:00PM, CMPR.OQ - Cimpress PLC Investor Day

Robert S. Keane - Founder, Chairman & CEO, Cimpress

Thanks, Meredith. And I'd also like to join Meredith in welcoming all of you, our shareholders, debt holders and many others to this year's Investor Day. We have some great content to convey today. I hope it's going to illustrate for you how FY '23 was an important turning point for Cimpress and how fiscal '24, where we are now will be an acceleration of that change.

We made significant investments over the past several years, and they've augmented and expanded Cimpress' foundations. Early benefits of those investments are already apparent in our customer experience, and we're focused on delivering even greater customer value going forward. That customer value improvement drives a proven economic engine, and mass customization. And furthermore, our investments are also improving the efficiency of that economic engine.

More volume and more efficiency in turn are supporting improved profitability and improved cash flow this year and beyond. So this slide illustrates our revenue, our adjusted EBITDA and our net leverage ratio. So the gray columns represent fiscal years 2018 to 2023. The blue columns represent our guidance for fiscal '24. Looking at EBITDA, you'll see that although we have remained profitable over time, recently, we have been in an investment cycle.

And at last year's Investor Day about a year ago, when we were comfortable that we were about to exit that investment cycle, we said that we expected EBITDA would decline year-over-year in the first half of fiscal '23, but then grow again as returns on our investments started to build, as we slowed the year-over-year increases to our cost bases. And as the cost inflation we have been seeing became less pronounced. We delivered on that promise, expanding EBITDA in the second half of fiscal '23 by more than 150% compared to the second half of fiscal '22.

And for the full fiscal year, we delivered $340 million of EBITDA and in fiscal '24, we expect that to grow to at least $420 million, surpassing our previous fiscal year record. Importantly, we expect a higher profitability combined with the anticipated free cash flow generation will reduce our net leverage ratio to below 3.25 by the end of June '24.

So to understand this recent financial turning point, it's helpful to step back and look at some of the key financial metrics over the longer term since progress rarely happens in a straight line. The chart here show our revenue and our adjusted EBITDA for the 20 years from fiscal 2004 through fiscal 2023 as well as our guidance for 2024. And for 2 decades, revenue has marched steadily up and to the right, other than, of course, during the disruption of the pandemic. And now we have returned to that long-term trend with our current revenue level well ahead of our pre-pandemic level.

The EBITDA chart clearly shows our past investment cycles. These investment cycles were followed by profit expansion, and we began a similar recovery in fiscal '23, and I just mentioned our guidance calls for this to continue this year. Of course, today is not the right time to speak about our planned financial results for the years beyond what are shown in this chart. But we are very well aware that we can and we should continue to move EBITDA and cash flow up into the right in fiscal '25 and beyond.

I say that because just as I wrote in the Annual Investor Letter that we published at the end of July. We are all committed to doing better than we have done over the past 8 or 9 years in terms of converting the growing EBITDA and unlevered free cash flow into intrinsic value per share. These charts are obviously financial in nature, but in many ways, they correspond to different stages of our company's development in terms of customer value proposition, technology, production operations, marketing capabilities and our human talent organization.

Fiscal '23 was a turning point in which we moved to a new stage of Cimpress' development, and we firmly believe that we are prioritized -- we have prioritized and therefore, we are positioned to grow IVPS at an attractive annual rate in the years to come. To illustrate why we have the ability to do that, let me step back from the financials and spend some time describing who Cimpress is strategically and describing the value we deliver to our customers.

Cimpress is the inventor and the undisputed leader in the business model of print mass customization. This has powered our multi-decade revolution of a very large and fragmented market. We produce small quantity orders at a cost per unit which is well below the cost quantity trade-off curve of the traditional printing industry.

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SEPTEMBER 14, 2023 / 12:00PM, CMPR.OQ - Cimpress PLC Investor Day

And in addition to lower prices, Cimpress delivers great value to our customers through convenience, breadth and depth of choice, fast production and delivery times and reduced obsolescence because small quantity orders that we produce for our customers are produced on demand only as needed.

Mass customization leverages the three capabilities that you see on the right-hand side of the slide. The first two capabilities, e-commerce and software-driven order aggregation or production systems are required no matter who the end customer is. The third part on the right is called democratized design. It's required to serve customers who don't have graphic design skills. You'll hear more about the progress we're making to expand the design capabilities of Vistaprint and some of our Upload and Print businesses.

As we talk about that today, Again, that's driving an improvement to the customer experience by providing more design capabilities. The 2 x 2 matrix on this slide illustrates how over time, Cimpress through our businesses has expanded in part by bringing the mass customization paradigm to more complex markets. So let me start by describing what this matrix shows. The horizontal axis represents the graphic design skills of customers. Novices are on the left and professionals are on the right.

The vertical axis represents the complexity of production and although complexity of production when we were making these physical customized products, lower complexity on the bottom, higher on the top. Our businesses began in the lower half of the slide. For 2 decades, Vistaprint has been and remains a leader in the lower left-hand quadrant, which are lower complexity small business print products for customers with limited graph design skills.

Cimpress' Upload and Print businesses are leaders in the lower right, serving graphic design professionals for products that, in many ways, are similar to Vistaprint's products. But under Cimpress' ownership, over the past 5 to 8 years, our Upload and Print businesses have expanded to the upper right quadrant, still selling to graphic professionals but expanding into products that have higher levels of production complexity. There's a picture on the upper right, which illustrates this, for instance, packaging products. But whatever those products are, that has allowed us to really expand our addressable market.

And now the investments that we are making in the democratization of design and in continued new product introduction, are moving us into the upper left-hand quadrant, serving customers who have limited graph design skills, but expanding the product line to higher complexity physical products, which we have already developed in the Upload and Print businesses. Because of the innovation with which we've expanded all our product lines over the past decades, this has increased our addressable market.

And today, we offer our customers a really unparalleled breadth and depth of products, of product attributes and product options, all with the convenience of online ordering. Signage, marketing material, logo apparel, books, catalogs, magazines, labels, wall decor, promotional products, packaging, photo merchandise and many more. All of our product categories are served by our mass customization capabilities and all of our products are available again in small order quantities at affordable prices with the convenience of online configuration and online ordering.

And because of the breadth and depth of our offering, Cimpress' total addressable market or TAM, is enormous, exceeding $100 billion across North America, Europe and Australia. The chart on the left shows the major categories in our market. The chart on the right shows that for each of those categories, online competitors who employ largely traditional business models still account for over 60% of the market. And Cimpress has invested, as we have over the past years and over the past decades in order to continue to drive into those traditional parts of the printing market for long time to come.

We've always seen cycles in which mature products with higher penetration slowdown in terms of growth. But nonetheless, we continue to remain stable or even grow in many mature parts of our market. We've then successfully driven, and we expect to continue to drive growth by bringing the mass customization print paradigm to new and more complex products within the same major 4 categories that you see on this slide.

In terms of market share, we believe that Cimpress is growing faster, not only than the traditional print market but faster than the online market, which includes not only the mass customization focused online players like Cimpress, but also traditional printers and retail chains who use a web and e-commerce interface to take orders. But still the most of the business remains offline. And it's important to recognize that Cimpress' growth and profitability contrast with the state of the printing industry overall, especially the state of traditional printers.

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SEPTEMBER 14, 2023 / 12:00PM, CMPR.OQ - Cimpress PLC Investor Day

The upper left-hand chart shows that at the same time, Cimpress has continued to grow rapidly. Over the past decade, there has been a slow and steady decline in the number of traditional print providers because online mass customization continues to penetrate the market. The chart at the lower left shows that the vast majority of the 21,000 remaining are print -- competitors are very small. 73% employed fewer than 10 people and [93%] employed fewer than 50.

The statistics in Europe and elsewhere are very similar. Yet small traditional competitors, like the ones you see in the pictures on this slide still account for the majority of our revenue -- of the revenue in our market. And with over $3 billion of revenues, Cimpress is really the polar opposite to these small-scale competitors, and that leads to our scale advantage.

Cimpress has many differentiated scale-based capabilities, which deliver great value to our customer and which drive our competitive advantage. These include software engineering, product development, data and analytics, manufacturing supply chain, design and service, globally competitive talent locations, procurement, e-commerce marketing and team members who are experienced driving synergies through M&A.

We already delivered great customer value, which we are continuously increasing via a flywheel in which our market share gains generated strong cash flows, which, in turn, support investments in our talent base, in our product development and in our operations, and these investments improve the value we deliver to the customer, which starts the cycle again.

These self-reinforcing scale advantages are the key to our long history of profitable growth. The business model, the market opportunity, the fragmented competitive field and the customer value flywheel, which I just reviewed are the context within which we think about how we made a turning point in FY '23 in our financial performance.

And in summary, last fiscal year, we gained traction, thanks to the investments and learnings of the past years. We successfully navigated through a period of high input cost inflation and supply chain instability and therefore, demonstrated the robustness of our supply chain and our advantages in cost and supplier relationships that come from our market-leading scale. We grew revenues and profits in a challenging macroeconomic environment including successfully executing a significant cost reduction exercise, which was enabled in part by Vista's completion of its multiyear technology replatforming.

You'll hear a lot of details about these subjects from our presenters today and a lot about how we're going to improve both the customer value and the intrinsic value per share over the coming years. Financially speaking, Cimpress executives have long-term incentive compensation, which aligns very well with the plans we are discussing with you today.

First, we have business-specific LTI plans for leadership teams of the Cimpress businesses other than Vista. Their compensation payout levels depend on delivering attractive multiyear returns on investment at their business-specific level. Second, starting with fiscal '24, we are now using a new form of performance share units or PSUs for our named executive officers for Cimpress central teams and for Vista leaders. These new PSUs have performance criteria for revenue, EBITDA and cash flow and these criteria are Cimpress-wide for our NEOs and central team recipients and Vista specific for Vista recipients.

Sean is going to provide more details about how these work. The important takeaway for you now is that these new PSUs are tied directly to the guidance, which we are reiterating today.

Today's presentations are going to describe how we are continuing to expand customer value and efficiency and in turn, grow our profits and our cash flow. You'll hear about the significant investments that we've made over the past several years and how they have augmented and expanded our foundations. You're going to hear about the early benefits to those investments that are already apparent in our customer experience and how we are focused on delivering even greater customer value.

You'll hear and see examples of the flywheel of customer and shareholder value creation, which I just described. You will hear about Cimpress' focus on execution and how that's driving more volume through our proven economic engine of mass customization of print. And you're going to hear from Sean, how these initiatives will improve our profits and cash flow in fiscal '24 and beyond.

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