CIMPRESS plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 revenues, the potential effects of the COVID-19 pandemic and the actions we are taking to address the pandemic, our expectations with respect to 99designs, sufficiency of our liquidity position, legal proceedings, and sufficiency of our tax reserves. 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 the COVID-19 pandemic; our failure to anticipate and react to the effects of the pandemic on our customers, supply chain, markets, team members, and business; our inability to take the actions that we plan to take or the failure of those actions to achieve the results we expect; 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; 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; and other factors described in our Form 10-K for the fiscal year ended June 30, 2020 and the other documents that we periodically file with the SEC. Executive Overview Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build 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 Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally. As of September 30, 2020, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vistaprint, PrintBrothers, The Print Group, National Pen, and All Other Businesses. Refer to Note 11 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures. COVID-19 Our near-term outlook has changed significantly in light of the COVID-19 pandemic and the negative impact it has had, and may continue to have, on our customers and financial results. It is difficult to predict how the pandemic will continue to impact our results and what the duration will be. The pandemic has affected all of our businesses to varying degrees, and we expect this volatility to be reflected in our financial results as government restrictions are implemented on an ongoing basis that impact business activity in geographies we serve. We have seen partially offsetting benefits as a result of our shift in focus to products and product templates that are relevant in the current environment such as face masks. Additionally, we have executed on a number of actions in response to the pandemic in order to help mitigate the overall impact to our financial results. We have taken these actions to help better position our businesses for future success and give them the ability to remain focused on protecting investments we were making prior to the pandemic. These actions include, but are not limited to, raising additional capital and reducing costs. 25 Financial Summary The primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress wide is our adjusted free cash flow before cash interest expense related to borrowing; however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including revenue growth, constant-currency revenue growth, operating income, adjusted EBITDA, cash flow from operations and adjusted free cash flow. A summary of these key financial metrics for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 follows: First Quarter Fiscal 2021 • Revenue decreased by 7% to $586.5 million. • Revenue decreased by 10% when excluding the impact of currency fluctuations and acquisitions ("organic constant-currency revenue growth", a non-GAAP financial measure) • Operating income increased by $10.6 million to $36.0 million. • Adjusted EBITDA (a non-GAAP financial measure) increased by $9.0 million to $88.5 million. • Cash provided by operating activities increased by $42.8 million to $105.7 million. • Adjusted free cash flow (a non-GAAP financial measure) increased by $46.3 million to $82.5 million. For the first quarter of fiscal year 2021, our revenue declined year over year as the COVID-19 pandemic continues to negatively impact our results, but the decline was less severe in the first quarter of fiscal year 2021 than in the fourth quarter of fiscal year 2020. The launch of new products in response to the pandemic, such as face masks, accounts for 8% of total revenue for the first quarter of fiscal year 2021. For the three months ended September 30, 2020, operating income increased by $10.6 million, despite the decline in revenue described above. The related decrease to gross profit was more than offset by a material reduction in advertising spend across our businesses in response to reduced demand but also as a result of continued improvement in performance advertising efficiency in Vistaprint. We also realized benefits from the continued reduction in discretionary spend, including travel and training costs, as well as the cost savings from the prior-year reorganization of our Vistaprint and central technology teams. Additionally, we recognized a reduction to restructuring costs year over year. In our All Other Businesses segment, our BuildASign business continued to show strong results, delivering revenue and profit improvement as their home decor and pandemic-related products grew year over year, while net investments in our early-stage businesses decreased. Adjusted EBITDA increased as compared to the three months ended September 30, 2019, due to our cost mitigation efforts, despite the revenue and gross profit decline. Adjusted EBITDA excludes restructuring charges and share-based compensation expense, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA, and the net year-over-year impact of currency on consolidated adjusted EBITDA was negative. Consolidated Results of Operations Consolidated Revenue Our businesses generate revenue primarily from the sale and shipment of customized manufactured products. To a much lesser extent (and only in our Vistaprint business) we provide digital services, website design and hosting, and email marketing services, as well as generate 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. 26 Total revenue and revenue growth by reportable segment for the three months ended September 30, 2020 and 2019 are shown in the following table: In thousands Three Months Ended September 30, Currency Impact: Constant- Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth 2020 2019 % Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2) Vistaprint $ 329,291 $ 343,171 (4)% (1)% (5)% —% (5)% PrintBrothers 100,112 109,290 (8)% (5)% (13)% (2)% (15)% The Print Group 66,437 72,258 (8)% (4)% (12)% —% (12)% National Pen 67,649 70,163 (4)% (1)% (5)% —% (5)% All Other Businesses (3) 43,478 42,276 3% 3% 6% —% 6% Inter-segment eliminations (20,467) (3,199) Total revenue $ 586,500 $ 633,959 (7)% (2)% (9)% (1)% (10)% _________________ (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 the U.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. (3) The All Other Businesses segment includes revenue from our VIDA business from its acquisition date of July 2, 2018 through its divestiture date of April 10, 2020. 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 costs, costs of free products and other related costs of products our businesses sell. In thousands Three Months Ended September 30, 2020 2019 Cost of revenue $ 298,844 $ 325,665 % of revenue 51.0 % 51.4 % For the three months ended September 30, 2020, consolidated cost of revenue decreased by $26.8 million, primarily due to reduced demand-dependent cost of goods sold including third-party fulfillment, material, and shipping costs which decreased across several of our segments that continued to be impacted by the COVID-19 pandemic. The majority of our cost of revenue is variable with revenue which, in addition to fixed cost savings contributed to flat year-over-year gross margins for the first quarter of fiscal year 2021 despite pandemic-driven reductions in order volumes. We realized approximately $3.1 million of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained. 27 Consolidated Operating Expenses The following table summarizes our comparative operating expenses for the following periods: In thousands Three Months Ended September 30, 2020 2019 Technology and development expense $ 58,489 $ 63,167 % of revenue 10.0 % 10.0 % Marketing and selling expense $ 138,150 $ 160,917 % of revenue 23.6 % 25.4 % General and administrative expense $ 41,812 $ 43,623 % of revenue 7.1 % 6.9 % Amortization of acquired intangible assets $ 13,305 $ 13,018 % of revenue 2.3 % 2.1 % Restructuring expense $ (86) $ 2,190 % of revenue 0.0 % 0.3 % 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. During the three months ended September 30, 2020, technology and development expenses decreased by $4.7 million, as compared to the prior year. This was mainly driven by decreased costs in our central technology and Vistaprint teams of $1.8 million and $1.3 million, respectively, driven by our fiscal year 2020 reorganization, as well as a reduction in discretionary spend including travel and training expenses. 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 Vistaprint, National Pen and BuildASign businesses have higher marketing and selling costs as a percentage of revenue as compared to our PrintBrothers and The Print Group businesses. Our marketing and selling expenses decreased by $22.8 million during the three months ended September 30, 2020, as compared to the prior year. The decrease from the prior comparative period is primarily due to the year-over-year reduction in advertising spend in our Vistaprint business of $17.5 million, as a result of the effects of the pandemic on demand, as well as continued efficiency gains from improved usage of data and tooling. We also recognized a decrease in marketing costs in our National Pen business of $8.5 million, primarily due to pandemic-related initiatives to lower costs, which included reductions to direct mail prospecting activities and cost savings from initiatives intended to reduce costs in service centers. 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 three months ended September 30, 2020, general and administrative expenses decreased by $1.8 million, as compared to the prior period, primarily due to lower professional fees of $1.5 million as a result of the non-recurrence of costs related to Cimpress' cross-border merger to Ireland in fiscal year 2020. 28 Amortization of acquired intangible assets Amortization of acquired intangible assets consists of amortization expense associated with separately identifiable intangible assets capitalized as part of our acquisitions, including customer relationships, trade names, developed technologies, print networks, and customer and referral networks. Amortization of acquired intangible assets increased by $0.3 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019. Restructuring expense Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes employee-related termination costs, third party professional fees and facility exit costs. During the three months ended September 30, 2020 we recognized a restructuring benefit of $0.1 million due to a change in estimates from actions taken in the fourth quarter of fiscal year 2020, while we recognized restructuring expense of $2.2 million in the three months ended September 30, 2019. Other Consolidated Results Other (expense) income, net Other (expense) income, 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 (expense) income, net: In thousands Three Months Ended September 30, 2020 2019 (Losses) gains on derivatives not designated as hedging instruments (1) $ (13,495) $ 19,357 Currency-related gains (losses), net (2) 4,075 (3,412) Other gains (losses) 666 (271) Total other (expense) income, net $ (8,754) $ 15,674 The decrease in other (expense) income, net is primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, in which our Euro and British Pound contracts are the most significant exposures that we economically hedge. We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts. We also 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 (losses), 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 increased by $15.4 million during the three months ended September 30, 2020, as compared to the prior comparable period. This is due to the additional $200.0 million offering of our 7% senior unsecured notes in February 2020 and issuance of our $300.0 million 12% second lien notes in May 2020. 29 Income tax expense In thousands Three Months Ended September 30, 2020 2019 Income tax expense $ 6,794 $ 6,115 Effective tax rate (206.9) % 23.6 % Income tax expense for the three months ended September 30, 2020 increased as compared to the prior year primarily attributable to discrete items. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is higher for fiscal 2021 as compared to fiscal 2020 primarily due to increased non-deductible interest expense. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period. 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 9 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 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. Vistaprint In thousands Three Months Ended September 30, 2020 2019 2020 vs. 2019 Reported Revenue $ 329,291 $ 343,171 (4)% Segment EBITDA 90,157 87,303 3% % of revenue 27 % 25 % Segment Revenue Vistaprint's reported revenue decline for the three months ended September 30, 2020 was positively affected by a currency impact of 1%, resulting in constant-currency revenue decline of 5%. The revenue decline was primarily driven by the impact of the pandemic on customer demand, partially offset by the sale of pandemic-related products, such as face masks. Segment Profitability For the three months ended September 30, 2020, the increase to Vistaprint's segment EBITDA was primarily due to a reduction to, and improved efficiency of, advertising spend. This was combined with the benefits realized from management of variable costs in line with the reduced demand, lower professional and consulting fees as compared to the prior year, and the efficiencies gained through the technology reorganization in the fourth quarter of the prior year. This decrease was partially offset by increased hiring for critical roles and increased spend related to customer experience in anticipation of the upcoming holiday season. Vistaprint received $2.5 million in government incentives to offset wages in locations where demand decreased materially but roles were maintained. Vistaprint's segment EBITDA was positively impacted by currency movements during the quarter. 30 PrintBrothers In thousands Three Months Ended September 30, 2020 2019 2020 vs. 2019 Reported Revenue $ 100,112 $ 109,290 (8)% Segment EBITDA 9,715 10,777 (10)% % of revenue 10 % 10 % Segment Revenue PrintBrothers' reported revenue decline for the three months ended September 30, 2020 was positively affected by a currency impact of 5%, resulting in constant-currency revenue decline, excluding the impact of acquisitions, of 15%. The revenue decline was due to impacts from COVID-19, as the pandemic continued to have a negative effect on demand in the quarter. Segment Profitability PrintBrothers' segment EBITDA decreased during the three months ended September 30, 2020 as compared to the prior comparative period, due primarily to the revenue declines as described above. A portion of the decline in segment EBITDA, as driven by the revenue decline, was partially offset by discretionary cost controls and benefits received of $0.9 million from government incentive programs. The Print Group In thousands Three Months Ended September 30, 2020 2019 2020 vs. 2019 Reported Revenue $ 66,437 $ 72,258 (8)% Segment EBITDA 12,183 13,634 (11)% % of revenue 18 % 19 % Segment Revenue The Print Group's reported revenue decline for the three months ended September 30, 2020 was positively affected by a currency impact of 4%, resulting in a decrease in revenue on a constant-currency basis of 12%. The revenue decline was due to impacts from the COVID-19 pandemic, but these trends improved as compared to the fourth quarter of fiscal year 2020, as a result of fewer lockdowns in the geographies that these businesses serve and as these businesses launched new products relevant to the pandemic and leveraged by other Cimpress businesses in Europe, which increased inter-segment sales that are included in segment results but eliminated at the consolidated level. Segment Profitability The Print Group's segment EBITDA decreased during the three months ended September 30, 2020, as compared to the prior period, primarily driven by the revenue decline described above. This was partially offset by discretionary cost controls, benefits from government incentives totaling $0.6 million, and efficiency gains from leveraging our mass customization platform to shift production to lower-cost sources. National Pen In thousands Three Months Ended September 30, 2020 2019 2020 vs. 2019 Reported Revenue $ 67,649 $ 70,163 (4)% Segment EBITDA (10,671) (9,850) 8% % of revenue (16) % (14) % 31 Segment Revenue National Pen's reported revenue decrease for the three months ended September 30, 2020 was positively affected by a currency impact of 1% as compared to the prior year, resulting in constant-currency revenue decline of 5%. Revenue decreased due to the impact of the pandemic; in particular, the year-over-year decline in National Pen's core products was most evident in its sales to larger businesses due to cancelled trade shows and other large-scale events. National Pen's e-commerce and direct mail channels experienced more resiliency on a relative basis as a result of year-over-year gains in advertising spend efficiency. This revenue decline was partially offset by sales of pandemic-related products sold directly to customers as well as to other Cimpress businesses. Segment Profitability The decrease in National Pen's segment EBITDA for the three months ended September 30, 2020 was due to the top-line revenue decline described above. The impacts of lower revenue on National Pen's fixed cost base negatively impacted profitability this quarter in comparison to the year ago period, partially offset by reduced variable cost, advertising and discretionary spend. All Other Businesses In thousands Three Months Ended September 30, 2020 2019 2020 vs. 2019 Reported Revenue (1) $ 43,478 $ 42,276 3% Segment EBITDA (1) 8,609 1,717 401% % of revenue 20 % 4 % ___________________ (1) Our All Other Businesses segment includes the results of our fiscal 2019 acquisition, BuildASign from October 1, 2018, and our VIDA acquisition from July 2, 2018 through the divestiture date of April 10, 2020. This segment consists of BuildASign, which is a larger and profitable business, and two small, rapidly evolving early-stage businesses through which Cimpress is expanding to new markets. These businesses are subject to high degrees of risk and we expect that each of their business models will rapidly evolve in function of future trials and entrepreneurial pivoting. These early-stage businesses continue to have operating losses as previously described and as planned. Segment Revenue Constant-currency revenue excluding the impact of acquisitions increased by 6% for the three months ended September 30, 2020. This was primarily driven by continued growth at BuildASign, even during the pandemic, with strong performance in home decor and pandemic-related signage products. In addition, the business benefited from higher volumes of political signage in comparison to the prior year due to the 2020 U.S. presidential election and down-ballot races. This was partially offset by pandemic-driven decreases in revenue in our Printi and YSD businesses. Segment Profitability Within the All Other Businesses segment, each business improved its profitability for the three months ended September 30, 2020 as compared to the prior year, with the overall improvement primarily driven by revenue growth and advertising efficiency in BuildASign. Printi and YSD reduced losses despite the pandemic-related drop in demand through improved efficiency. Our divestiture of loss-making VIDA in the fourth quarter of fiscal year 2020 also contributed to year-over-year profit improvements in the current quarter. 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 numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the 32 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. Central and corporate costs decreased by $2.6 million during the three months ended September 30, 2020 as compared to the prior year, due to a decrease in technology related expenses of $1.8 million primarily due to the prior-year reorganization of our central technology team, combined with lower professional fees of $1.5 million and a reduction in travel related expenses, partially offset by increases to share-based compensation of $2.9 million. Liquidity and Capital Resources Consolidated Statements of Cash Flows Data In thousands Three Months Ended September 30, 2020 2019 Net cash provided by operating activities $ 105,681 $ 62,905 Net cash used in investing activities (21,084) (29,363) Net cash used in financing activities (91,979) (33,005) At September 30, 2020, we had $40.2 million of cash and cash equivalents and $1,400.8 million of debt, excluding debt issuance costs, and debt premiums and discounts. Under the terms of our April 28, 2020 credit facility amendment, we are required to use cash balances in excess of $100.0 million, if any, to repay the revolving loans under our senior secured credit facility. The cash flows during the three months ended September 30, 2020 related primarily to the following items: Cash inflows: • Adjustments for non-cash items of $63.4 million primarily related to positive adjustments for depreciation and amortization of $42.3 million, share-based compensation costs of $8.3 million and unrealized currency-related losses of $9.7 million. • The changes in operating assets and liabilities were a source of cash during the period, driven by an increase in accounts payable and accrued expenses. This was driven by increased spend in operating expenses, cost of goods sold and external marketing costs, as a result of the increase in revenue as compared to the fourth quarter of fiscal year 2020, partially offset by an outflow from the prior deferral of supplier and rent payments negotiated in response to the pandemic. Cash outflows: • Net loss of $10.1 million • Payments of debt of $83.7 million, net of borrowings and inclusive of debt issuance costs • Internal and external costs of $14.8 million for software and website development that we have capitalized • Capital expenditures of $8.4 million of which the majority related to the purchase of manufacturing and automation equipment for our production facilities and computer and office equipment • Payment of withholding taxes in connection with share awards of $5.6 million • Payments for finance lease arrangements of $1.6 million Additional Liquidity and Capital Resources Information. During the three months ended September 30, 2020, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. As of September 30, 2020, 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 $38.3 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 33 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. We have historically allocated a material amount of capital to purchases of our ordinary shares and corporate acquisitions. The April 2020 amendment to our credit facility prohibits us from repurchasing our shares and limits acquisitions for the period in which the financial maintenance covenants associated with our senior secured credit facility are suspended. Debt. As of September 30, 2020, we had aggregate loan commitments from our senior secured credit facility totaling $996.3 million. The loan commitments consisted of revolving loan borrowings of $343.5 million and term loans of $146.3 million. We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. As of September 30, 2020, the amount available for borrowing under our senior secured credit facility was as follows: In thousands September 30, 2020 Maximum aggregate available for borrowing $ 996,250 Outstanding borrowings of senior secured credit facility (489,767) Remaining amount 506,483 Limitations to borrowing due to debt covenants and other obligations (1) (4,049) Amount available for borrowing as of September 30, 2020 (2) $ 502,434 _________________ (1) As of September 30, 2020, our pre-existing financial maintenance covenants are suspended and we are in compliance with the new restrictions in place, with the primary maintenance covenant during the suspension period that we must maintain liquidity above $50.0 million. Refer to Note 8 in our accompanying consolidated financial statements for further description of the restrictions in place during the covenant suspension period. (2) Share purchases, dividend payments, and corporate acquisitions are subject to more restrictive covenants, and therefore we may not be able to use the full amount available for borrowing for these purposes. Debt Covenants . The April 2020 amendment to our senior secured facility suspended our pre-existing financial maintenance covenants until December 31, 2021, including the total and senior secured leverage covenants and interest coverage ratio covenant. Refer to Note 8 in our accompanying consolidated financial statements for additional information. Other Debt . Other debt primarily consists of term loans acquired through our various acquisitions or used to fund certain capital investments. As of September 30, 2020, we had $11.0 million outstanding for other debt payable through March 2025. Contractual Obligations Contractual obligations at September 30, 2020 are as follows: In thousands Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating leases, net of subleases (1) $ 128,151 $ 28,676 $ 35,842 $ 27,414 $ 36,219 Purchase commitments 193,650 99,739 79,097 14,814 — Senior unsecured notes and interest payments 852,000 42,000 84,000 84,000 642,000 Second lien notes and interest payments 481,500 37,500 72,000 372,000 — Other debt and interest payments (2) 623,352 65,196 94,242 463,914 — Finance leases, net of subleases (1) 22,629 7,063 10,018 4,361 1,187 Other 1,676 931 745 — — Total (3) $ 2,302,958 $ 281,105 $ 375,944 $ 966,503 $ 679,406 ___________________ (1) Operating and finance lease payments included above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses, which are not included in these payments. (2) Other debt and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash. 34 We have excluded the effect of interest rate swaps of $1.1 million within the more than five years category above as that period extends beyond the term of our debt and the interest rate swaps do not yet offset contractual interest payments. (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 $13.3 million as of September 30, 2020 have been excluded from the contractual obligations table above. For further information on uncertain tax positions, see Note 9 in our accompanying consolidated financial statements. Operating Leases. We rent office space under operating leases expiring on various dates through 2034. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit in the amount of $2.1 million. Purchase Commitments . At September 30, 2020, we had unrecorded commitments under contract of $193.7 million. Purchase commitments consisted of third-party web services of $114.5 million, inventory purchase commitments of $29.3 million, commitments for professional and consulting fees of $19.2 million, production and computer equipment purchases of approximately $3.8 million, and other unrecorded purchase commitments of $26.9 million. Senior Unsecured Notes and Interest Payments. Our 7.0% senior unsecured notes due 2026 bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the notes is payable semi-annually on June 15 and December 15 of each year and has been included in the table above. Second Lien Notes and Interest Payments. Our 12.0% senior secured notes due 2025 bear interest at a rate of 12.0% per annum and mature on May 15, 2025. Interest on the notes is payable semi-annually on May 15 and November 15 of each year and has been included in the table above. At our option, we may elect to pay interest on up to 50.0% of the then outstanding principal amount of the notes as paid-in-kind and applied to the outstanding principal balance of the notes. Other Debt and Interest Payments. At September 30, 2020, the term loans of $146.3 million outstanding under our credit agreement had repayments due on various dates through November 15, 2024, with the revolving loans outstanding under our $343.5 million revolving credit facility due on November 15, 2024. Interest payable included in this table is based on the interest rate as of September 30, 2020, 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 and all Prime rate based revolving loan amounts will be paid within a year. Interest payable includes the estimated impact of our interest rate swap agreements. In addition, we have other debt which consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments, and as of September 30, 2020 we had $11.0 million outstanding for those obligations that have repayments due on various dates through March 2025. Finance Leases. We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2027. The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at September 30, 2020, is $19.8 million, net of accumulated depreciation of $41.4 million. The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at September 30, 2020 amounts to $26.2 million. Other Obligations . Other obligations include deferred payments related to previous acquisitions of $1.7 million in the aggregate. 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 our Waltham, Massachusetts office lease less gain on purchase or sale of subsidiaries. 35 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 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 and Cimpress-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 three months ended September 30, 2020 and 2019: In thousands Three Months Ended September 30, 2020 2019 GAAP operating income $ 35,986 $ 25,379 Exclude expense (benefit) impact of: Depreciation and amortization 42,290 42,535 Share-based compensation expense (1) 8,283 4,750 Certain impairments and other adjustments 783 (176) Restructuring-related charges (86) 2,190 Realized gains on currency derivatives not included in operating income 1,217 4,838 Adjusted EBITDA $ 88,473 $ 79,516 _________________ (1) The adjustment for share-based compensation expense excludes the portion of share-based compensation expense included in restructuring related charges, if any, to avoid double counting. The table below sets forth net cash provided by operating activities and adjusted free cash flow for the three months ended September 30, 2020 and 2019: In thousands Three Months Ended September 30, 2020 2019 Net cash provided by operating activities $ 105,681 $ 62,905 Purchases of property, plant and equipment (8,383) (14,193) Capitalization of software and website development costs (14,804) (12,471) Adjusted free cash flow $ 82,494 $ 36,241 36