Cimpress : Q3 2021 Quarterly Earnings Document

TABLE OF CONTENTS

	Page
IMPORTANT NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
LETTER FROM CEO ROBERT KEANE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
SUMMARY CONSOLIDATED RESULTS: 3-YEARTREND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
SUMMARY CONSOLIDATED RESULTS: QUARTERLY TREND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
INCOME STATEMENT HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
CASH FLOW AND RETURN ON INVESTED CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
DEBT AND SHARE REPURCHASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
SEGMENT RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
VISTAPRINT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
UPLOAD AND PRINT: PRINTBROTHERS AND THE PRINT GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
NATIONAL PEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
ALL OTHER BUSINESSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
CENTRAL AND CORPORATE COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
CURRENCY IMPACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
CURRENT OUTLOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
INCOME STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
CASH FLOW STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
ABOUT NON-GAAPMEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
NON-GAAPRECONCILIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
ABOUT CIMPRESS, SAFE HARBOR STATEMENT AND CONTACT INFORMATION . . . . . . . . . . . . . . . . . . . . . . .	36

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CIMPRESS' UPPERMOST FINANCIAL OBJECTIVE

Our uppermost financial objective is to maximize our intrinsic value per share ("IVPS"). We define IVPS as (a) the unlevered free cash flow per diluted share that, in our best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital, minus (b) net debt per diluted share. We define unlevered free cash flow as adjusted free cash flow plus cash interest expense related to borrowing.

We endeavor to make all financial decisions in service of this priority. As such, we often make decisions that could be considered non-optimal were they to be evaluated based on other criteria such as (but not limited to) near- and mid-term revenue, operating income, net income, EPS, adjusted EBITDA, and cash flow.

IVPS is inherently long term in nature. Thus an explicit outcome of this is that we accept fluctuations in our financial metrics as we make investments that we believe will deliver attractive long-term returns on investment.

OUR STRATEGY

Cimpress invests in and builds customer-focused, entrepreneurial, mass customization businesses for the long term, which we manage in a decentralized, autonomous manner.

We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create company-wide value.

We limit all other central activities to only those which absolutely must be performed centrally.

OUR CAPITAL ALLOCATION PHILOSOPHY

Cimpress has historically deployed capital via organic investments, share repurchases, acquisitions and equity investments, and debt reduction. We have not paid a dividend and we do not intend to for the foreseeable future. We consider capital to be fungible across all of these categories; we do not favor one over the other, but rather seek to grow our IVPS by allocating capital across these categories in function of the relative returns of current and expected future opportunities.

We delegate to our businesses and central teams capital allocation decisions that our operational executives expect to pay back in less than twelve months. For capital allocation with pay back beyond that time frame, we evaluate the relative returns of potential uses of capital. Most of the executives that lead our businesses are incentivized based on the long-term returns on invested capital generated in their business. The remainder are primarily incentivized though performance share units that are based on the long-term growth of the Cimpress share price beyond a hurdle rate.

We seek to deliver a weighted average return on our portfolio of deployed capital, net of failures, that is materially above our weighted average cost of capital (WACC), which we estimate to be 8.5%. In support of this objective, we vary the hurdle rates that we use at the time of investment decisions in function of our judgment of the risks to various types of investment. For example, we require only 10% for highly predictable organic investments in established markets, 15% for M&A of established, growing, profitable companies, and 25% for risky investments such as our investments in startup businesses or emerging markets.

We recognize that a portfolio of investments that exceeds our WACC does not necessarily mean, by itself, that we have made good capital allocation decisions. We compare our returns against the opportunity cost of potentially higher returns that might have come from deploying the same capital into even higher-returning opportunities of a similar risk level. This more stringent measure of performance clarifies the cost of mistakes, which we have made in the past.

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LETTER FROM ROBERT

APRIL 28, 2021

Dear Investor,

One year ago, I wrote to you about the severe impacts the COVID-19 pandemic was having on small and medium businesses that directly resulted in a steep decline in demand for our products. At that time, we took decisive and proactive measures to help ensure that we could continue investing in areas of strategic importance that were driving momentum in our businesses prior to the pandemic, and I described why we believed that Cimpress would be positioned to succeed in a post-pandemic world. Today, I am even more confident of that post-pandemic future, and I am proud of and profoundly grateful to the thousands of Cimpress team members who delivered for our customers and all of our stakeholders over the last year.

Despite the pandemic, we have continued to improve our execution and customer value. We see this in our year-to- date financial results when compared to the same period two years ago, during which we began Vistaprint's transformation journey, made changes to the way our upload and print businesses are organized so as to better leverage their respective strengths, began to eliminate advertising and other initiatives that weren't meeting our financial return hurdles, improved accountability and instituted new performance-based incentives across our businesses. Year to date through March in FY2021, our revenue was 6% lower than the same period in FY2019, but our operating income and cash flow from operations were at roughly the same levels, and adjusted EBITDA and adjusted free cash flow were up 7% and 16%, respectively.

We continue to deal with the effects of the pandemic, but also see increased signs of recovery. Consolidated revenue was down 18% for the first two months of the quarter due to severe restrictions in most of our markets. In March and continuing in the month of April, we saw a pick up in demand in markets where pandemic restrictions have been lifted or are less severe. In the second half of March we also began to lap the start of depressed demand last year. As an example of geographic differences, Vistaprint bookings in Australia grew approximately 10% for the third quarter, while bookings across European countries declined by approximately 7%. Likewise, Vistaprint bookings from customers in less restricted U.S. states such as Florida, Texas, and Georgia are recovering more quickly compared to bookings in U.S. states such as California, Pennsylvania, or New York that were more restricted. These data points give us confidence that demand will continue to pick up as activity resumes in our markets around the world, and we have been preparing for that in the following ways:

• We are investing significantly in talent, technology, customer experience, data science, new product introduction, partnerships, and upper-funnel brand investments in Vistaprint. We expect these investments, along with the favorable industry dynamics I described on our February 24, 2021 mid-year strategy update, to provide multiple avenues for revenue growth as we emerge from the pandemic.
• We expect the $1.15 billion Term Loan B offering we recently launched will facilitate our refinancing of the 12% second lien debt we secured at the height of pandemic uncertainty, and allows us to lower our weighted average cost of debt, diversify and expand our lender base by accessing the institutional loan market in Europe and the U.S., and extend the maturity profile of our secured debt. We expect to price and allocate the Term Loan B in the coming days, and to close it in conjunction with the second lien call date in mid-May 2021.
• We are learning from our execution wins we have had during the pandemic to ensure that the agility, speed of execution, and financial rigor we demonstrated during the past 12 months becomes ingrained in our cultural DNA so that it will continue to benefit us for many years to come.
• Our businesses are increasingly leveraging the mass customization platform (MCP) for the benefit of our customers and financial performance.

Thank you for your continued trust in us as stewards of the capital you've invested in Cimpress. Even though the impact of the pandemic is not fully behind us, I remain confident that our competitive advantages, improved execution, and commitment to value creation will serve us and all our constituents well as we continue this journey.

Sincerely,

Robert S. Keane

Founder, Chairman & CEO

Please see non-GAAP reconciliations at the end of this document.

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SUMMARY CONSOLIDATED RESULTS: THREE-YEAR TREND

$ in thousands, except percentages

REVENUE BY REPORTABLE SEGMENT, TOTAL REVENUE AND INCOME FROM OPERATIONS:

		Q3 FY2019	Q3 FY2020	Q3 FY2021		YTD FY19		YTD FY20		YTD FY21
Vistaprint		$	358,660	$	316,310	$	327,454	$	1,147,920	$	1,092,786	$	1,093,062
PrintBrothers			109,305		109,496		93,997		327,008		345,403		315,915
The Print Group			79,027		68,537		59,945		237,767		228,494		202,586
National Pen			79,721		68,362		62,220		278,643		266,510		244,561
All Other Businesses			38,016		39,237		44,062		93,987		131,287		142,905
Inter-segment eliminations			(2,915)		(3,982)		(8,827)		(8,963)		(12,228)		(47,533)
Total revenue		$	661,814	$	597,960	$	578,851	$	2,076,362	$	2,052,252	$	1,951,496
Reported revenue growth			4 %		(10)%		(3)%		6 %		(1)%		(5)%
Organic constant currency revenue growth			3 %		(9)%		(10)%		6 %		(1)%		(9)%
Income (loss) from operations		$	29,615	$	(87,736)	$	(15,697)	$	114,242	$	59,238	$	114,483
Income from operations margin			5 %		(15)%		(3)%		6 %		3 %		6 %

EBITDA (LOSS) BY REPORTABLE SEGMENT ("SEGMENT EBITDA") AND ADJUSTED EBITDA:

		Q3 FY2019	Q3 FY2020	Q3 FY2021		YTD FY19		YTD FY20		YTD FY21
Vistaprint		$	88,097	$	73,780	$	64,333	$	256,148	$	299,941	$	266,821
PrintBrothers			8,099		8,686		7,560		30,361		35,922		33,732
The Print Group			15,658		10,934		6,475		43,872		42,673		31,227
National Pen			113		(1,244)		(3,324)		10,279		17,005		4,733
All Other Businesses			(1,149)		3,187		6,515		(8,165)		8,572		25,781
Total segment EBITDA		$	110,818	$	95,343	$	81,559	$	332,495	$	404,113	$	362,294
Central and corporate costs			(31,151)		(34,646)		(32,842)		(91,726)		(104,429)		(93,202)
Unallocated share-based compensation			(150)		(3,698)		(1,302)		6,920		(5,973)		(2,946)
Exclude:1share-based compensation			4,504		8,908		9,545		7,807		21,983		23,071
expense
Include: Realized gains (losses) on certain			4,836		5,001		(1,936)		13,889		20,247		(2,297)
currency derivatives not included in
segment EBITDA
Adjusted EBITDA		$	88,857	$	70,908	$	55,024	$	269,385	$	335,941	$	286,920
Adjusted EBITDA margin			13 %		12 %		10 %		13 %		16 %		15 %
Adjusted EBITDA year-over-year growth			29 %		(20)%		(22)%		8 %		25 %		(15)%

1SBC expense listed above excludes the portion included in restructuring-related charges to avoid double counting.

CASH FLOW AND OTHER METRICS:

Net cash provided by (used in) operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) financing activities

Adjusted free cash flow

Cash interest related to borrowing

Q3 FY2019	Q3 FY2020	Q3 FY2021
$	16,980	$	18,964	$	(37,220)
	(32,046)		6,003		(24,470)
	12,039		170,634		61,569
	(14,903)		(3,987)		(62,042)
	8,307		9,450		8,015

YTD FY19		YTD FY20		YTD FY21
$ 222,470	$	284,061	$	218,948
(381,554)		(47,813)		(101,147)
161,900		(36,756)		(130,185)
129,877		209,599		150,891
34,430		42,763		66,314

Please see non-GAAP reconciliations at the end of this document.

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