Cimpress : Q3 Fiscal Year 2023 Quarterly Earnings Document

TABLE OF CONTENTS

	Page
IMPORTANT NOTES	3
LETTER FROM CEO ROBERT KEANE	4
SUMMARY CONSOLIDATED RESULTS: 3-YEARTREND	6
SUMMARY CONSOLIDATED RESULTS: QUARTERLY TREND	8
INCOME STATEMENT HIGHLIGHTS	10
CASH FLOW	12
DEBT AND SHARE REPURCHASES	14
SEGMENT RESULTS	15
VISTA	15
UPLOAD AND PRINT: PRINTBROTHERS AND THE PRINT GROUP	16
NATIONAL PEN	18
ALL OTHER BUSINESSES	19
CENTRAL AND CORPORATE COSTS	20
CURRENCY IMPACTS	21
FINANCIAL STATEMENTS	22
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	34

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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. The executives that lead most of our businesses are incentivized based on the long-term returns on invested capital generated in their business. The remainder, most of whom are in our Vista reporting segment or central functions, are primarily incentivized through Cimpress share-based compensation.

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). 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.

Hurdle rates for investments may also vary based on leverage levels and external factors.

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 26, 2023

Dear Investor,

Our third quarter financial results were strong, better than the guidance we provided in our mid-year update call on March 24, 2023. Consolidated revenue grew 13% on a reported basis and 16% on an organic constant-currency basis. Vista drove this sequential acceleration as its product mix shifted seasonally back toward faster-growing small business products and we passed the anniversary of a weaker prior-year quarter that included the migration of Vista's U.S. website onto the new technology platform.

Revenue growth including year-over-year increases in pricing, combined with stabilizing input costs, led to strong gross profits and relatively flat gross margins versus the year-ago period. The tables below show the year-over-year change in quarterly and year-to-date revenue and gross profit by segment for Q3 FY2023:

			Change Q3 FY2023 versus Q3 FY2022
		Revenue		Gross Profit
Segment:	Reported		Organic	Reported		Constant Currency
	Constant Currency
Vista	14%		16%	13%		15%
PrintBrothers	16%		22%	15%		19%
The Print Group	13%		19%	23%		29%
National Pen	12%		15%	8%		13%
All Other Businesses	1%		1%	(8)%		(8)%
Total	13%		16%	12%		15%
			Change YTD Q3 FY2023 versus YTD Q3 FY2022
		Revenue		Gross Profit
Segment:	Reported		Organic	Reported		Constant Currency
	Constant Currency
Vista	5%		8%	(2)%		1%
PrintBrothers	10%		21%	9%		20%
The Print Group	6%		17%	2%		13%
National Pen	6%		12%	5%		13%
All Other Businesses	4%		4%	1%		-%
Total	6%		11%	1%		5%

Q3 FY2023 advertising and operating expenses both decreased as a percentage of revenue. Operating loss improved $16.2 million year over year despite a restructuring charge of $30.1 million in the current quarter from recent cost-savings actions. Adjusted EBITDA grew $35.5 million year over year to $69.1 million; this was higher than the guidance of $60 million to $62 million we provided in our March investor update.

Operating cash flow and adjusted free cash flow for the quarter increased year over year by $60.8 million and $68.2 million, respectively. We maintained ample liquidity of $189.8 million in cash and marketable securities at March 31, 2023, which was significantly higher than the guidance we provided of $135 million to $145 million as a result of the strong adjusted EBITDA and adjusted free cash flow results. Net leverage of 4.83 times trailing-twelve-month EBITDA as defined by our credit agreement was lower sequentially due to improved profitability and the pro forma benefit of a portion of our recent cost reduction actions we announced in March.

Our improved Q3 FY2023 profitability was prior to any material impact of those cost reduction actions for which the benefits will further support year-over-year expansion of adjusted EBITDA in Q4 FY2023 and FY2024. We continue to expect annualized cost reduction benefits of about $100 million excluding restructuring charges, consistent with the guidance we provided on March 24, 2023. Our current outlook for operating income and adjusted EBITDA for the remainder of FY2023 and FY2024 is as follows:

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

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	Profitability Outlook as of April 26, 2023
	Q4 FY2023	FY2023		FY2024
Operating income	$33 million to $37 million	$36 million to $40 million		At least $195 million
Adjusted EBITDA	$90 million to $94 million	$316 million to $320 million		At least $400 million

This guidance for Q4 FY2023 profitability has been increased based on recent operating performance. We expect the profitability expansion in Q4 FY2023 to be accompanied by seasonally strong free cash flow conversion, even after restructuring payments. For FY2024, we continue to expect our adjusted EBITDA to convert to adjusted free cash flow at approximately 40%. We also continue to expect we will reduce our net leverage as defined by our credit agreement to below 4.5x by the end of FY2023, and to below 3.5x by the end of FY2024.

We believe that many of the investments we have made over the past few years have given us the talent, capabilities and competitive advantages to significantly improve the value that we deliver to our customers. Over the coming years the revenue growth that we expect this customer value will drive, combined with our cost reduction actions, should improve our steady-state free cash flow and expand our options for capital structure and capital allocation.

Sean and I look forward to taking your questions about our financial results on our public earnings call tomorrow, April 27, 2023 at 8:00 am ET, which you can join using the link on the events section of ir.cimpress.com. You may presubmit questions by emailing [e-mail], and you may also ask questions via chat during the live call.

Sincerely,

Robert S. Keane

Founder, Chairman & CEO

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

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