What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-28 compared with 2020-10-29 · 168 added, 121 removed, 244 unchanged (54% of the section changed)

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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.

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 our expectations with respect to our business and financial results during and after the pandemic, our expectations with respect to our market and market share during and after the pandemic, sufficiency of our liquidity position, our future compliance with our debt covenants, 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.

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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:

As of December 31, 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 12 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.

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.

The pandemic and related restrictions continue to have a negative impact on our businesses, customers and the markets that we serve.

Our year-over-year decline in reported revenue improved in the second quarter of fiscal 2021 as compared to the first quarter of fiscal 2021 due to favorable currency movements and acquisition timing;

and otherwise it was flat compared to last quarter, despite sequentially intensified restrictions in various jurisdictions in which we sell our products.

Even with the impacts of the pandemic, we continue to hire talent and make investments in technology, data, new product introduction, customer experience improvements, and branding that are designed to build on our competitive advantages and enable our businesses to grow as we come out of the pandemic.

We don't know how long that will take, and while the promise of COVID-19 vaccinations gives us optimism, recently we see increasingly severe restrictions in many of our major markets that are impacting small business activity and our revenue.

We continue to maintain flexibility in our cost structure, while at the same time increasing investment in areas we believe will generate high return on investment beyond the pandemic.

We believe our financial results have been stronger through the pandemic than traditional offline competitors as a result of our diverse product portfolio and economically advantaged business model, which gives us confidence in our ability to grow as we come out of the pandemic.

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

however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including revenue growth, organic 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 and six months ended December 31, 2020 as compared to the three and six months ended December 31, 2019 follows:

Second Quarter Fiscal 2021

• Revenue decreased by 4% to $786.1 million.

• Revenue decreased by 9% 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.

• Operating income decreased by $27.4 million to $94.2 million.

• Adjusted EBITDA (a non-GAAP financial measure) decreased by $42.1 million to $143.4 million.

Year to Date Fiscal 2021

• Revenue decreased by 6% to $1,372.6 million.

• Organic constant-currency revenue decreased by 10%.

• Operating income decreased by $16.8 million to $130.2 million.

• Adjusted EBITDA decreased by $33.1 million to $231.9 million.

• Cash provided by operating activities decreased by $8.9 million to $256.2 million.

• Adjusted free cash flow (a non-GAAP financial measure) decreased by $0.7 million to $212.9 million.

For the second quarter of fiscal year 2021, our revenue declined year-over-year as the COVID-19 pandemic continues to negatively impact our results.

These results vary by segment because each business has different product mix and customers with unique challenges.

Revenue from event-driven and some small business products continued to decline, partially offset by revenue from new products introduced in reaction to the pandemic such as face masks (about 5% of total revenue for the quarter) and consumer products in Vistaprint and BuildASign that in total grew 6% year-over-year, excluding invitations and announcements which is an event-driven category.

For the second quarter of fiscal 2021, operating income decreased by $27.4 million, due to the gross profit decline driven by the decrease in revenue described above.

Additionally, we incurred $4.5 million of expense for pandemic-related products, most notably for disposable masks in National Pen, for which pricing and demand have dropped.

The negative impact of the pandemic on demand was partially offset by variable cost controls and fixed cost savings, but the gross margin profile of our revenue mix was unfavorable compared to last year particularly in Vistaprint, and advertising and operating expenses increased with increased investments in talent and strategic projects.

Operating income benefited from $4.0 million of COVID-19-related government incentives, primarily to offset wages for manufacturing and customer service team members in countries where demand decreased but roles were maintained.

Adjusted EBITDA decreased year-over-year, primarily due to the gross profit decrease described above.

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.

The net year-over-year impact of currency on consolidated adjusted EBITDA was negative by approximately $4.0 million.

Consolidated Results of Operations

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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.

To a much lesser extent (and primarily 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.

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

Total revenue and revenue growth by reportable segment for the three and six months ended December 31, 2020 and 2019 are shown in the following table:

In thousands Three Months Ended December 31, Currency

Currency Impact of Acquisitions/Divestitures:

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Total revenue $ 786,145 $ 820,333 (4)% (3)% (7)% (2)% (9)%

In thousands Six Months Ended December 31, Currency

Currency Impact of Acquisitions/Divestitures:

Constant- Currency Revenue Growth

Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2)

Vistaprint (3) $ 765,608 $ 776,476 (1)% (2)% (3)% (2)% (5)%

PrintBrothers 221,918 235,907 (6)% (6)% (12)% (1)% (13)%

The Print Group 142,641 159,957 (11)% (5)% (16)% —% (16)%

National Pen 182,341 198,148 (8)% (2)% (10)% —% (10)%

All Other Businesses 98,843 92,050 7% 3% 10% —% 10%

Inter-segment eliminations (38,706) (8,246)

Total revenue $ 1,372,645 $ 1,454,292 (6)% (2)% (8)% (2)% (10)%

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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.

(3) The Vistaprint segment includes revenue from our 99designs business since its acquisition date of October 1, 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.

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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.

Three Months Ended September 30,

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 and design costs, costs of free products and other related costs of products our businesses sell.

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 2019

Cost of revenue $ 385,979 $ 394,018 $ 684,823 $ 719,683

% of revenue 49.1 % 48.0 % 49.9 % 49.5 %

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.

For the three and six months ended December 31, 2020, consolidated cost of revenue decreased by $8.0 million and $34.9 million, respectively, 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.

For the three and six months ended December 31, 2020, we realized approximately $2.5 million and $5.6 million, respectively, of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained.

These decreases were partially offset by $4.5 million and $5.5 million of expense during the three and six months ended December 31, 2020, respectively, related to losses associated with the decline in market demand and pricing for disposable masks.

Consolidated Operating Expenses

The following table summarizes our comparative operating expenses for the following periods:

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Technology and development expense $ 65,036 $ 64,427 1% $ 123,525 $ 127,594 (3)%

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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.

Technology and development expenses increased by $0.6 million for the three months ended December 31, 2020 and decreased by $4.1 million for the six months ended December 31, 2020, as compared to the prior comparative periods.

The increase for the second quarter of fiscal 2021 was due to fluctuations in currency exchange rates.

Both periods benefited from decreases in costs from our fiscal 2020 reorganization of our central technology and Vistaprint teams as well as continued reductions in discretionary spend including travel and training expenses.

Marketing and selling expense

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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.

Our marketing and selling expenses during the three months ended December 31, 2020 increased by $9.0 million as compared to the prior comparative period, driven primarily by increased spend in our Vistaprint business due to further expanded return on advertising spend targets, as well as increased brand sponsorships and upper-funnel advertising investment along with associated agency fees.

These increases were partially offset by reductions in advertising across several of our other businesses as they continue to control advertising spend levels in line with demand.

For the six months ended December 31, 2020, marketing and selling expenses decreased by $13.8 million, 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, which is partially offset by progressive increases in upper-funnel advertising investments.

We also recognized a decrease in marketing costs in our National Pen business of $7.9 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.

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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.

For the three and six months ended December 31, 2020, general and administrative expenses decreased by $8.9 million and $10.7 million, respectively, as compared to the prior comparative periods, primarily due to lower professional fees as a result of the non-recurrence of costs related to strategic projects in our Vistaprint business, as well as the Cimpress' cross-border merger to Ireland in fiscal year 2020.

For both periods, we also realized lower share-based compensation costs and discretionary spend.

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.

Amortization of acquired intangible assets increased by $0.3 million and $0.6 million for the three and six months ended December 31, 2020, respectively as compared to the three and six months ended December 31, 2019.

The increase is driven by the acquisition of 99designs, as discussed in Note 7 in our accompanying consolidated financial statements, partially offset by the reduction of amortization expense in our BuildASign business as certain intangible assets became fully amortized during the current quarter.

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.

During the three and six months ended December 31, 2020, we recognized restructuring expense of $2.2 million and $2.1 million, respectively, due to actions taken in The Print Group reportable segment which are intended to streamline certain activities within the segment.

We recognized restructuring expense of $1.9 million and $4.1 million, respectively in the three and six months ended December 31, 2019 due to prior year actions taken in our Vistaprint business.

Other Consolidated Results

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The following table summarizes the components of other (expense) income, net:

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 2019

(Losses) gains on derivatives not designated as hedging instruments $ (19,020) $ (11,666) $ (32,515) $ 7,691

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Total other (expense) income, net $ (17,198) $ (9,040) $ (25,952) $ 6,634

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.

The decrease in other (expense) income, net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of 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.

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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.

Income tax expense

Three Months Ended September 30,

Interest expense, net increased by $14.4 million and $29.9 million during the three and six months ended December 31, 2020, as compared to the prior comparable periods.

This is primarily 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.

Income tax expense

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 2019

Income tax expense (benefit) $ 12,954 $ (93,795) $ 19,748 $ (87,680)

Effective tax rate 27.6 % (96.8) % 45.3 % (71.4) %

Income tax expense for the three months ended September 30, 2020 increased as compared to the prior year primarily attributable to discrete items.

Income tax expense for the three and six months ended December 31, 2020 increased as compared to the prior year primarily attributable to the discrete tax benefit of $114.1 million related to Swiss Tax Reform recorded in the three months ended December 31, 2019.

Excluding this benefit, tax expense would have decreased, primarily attributable to decreased pre-tax income for the three and six months ended December 31, 2020 as compared to the same prior year periods.

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.

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less gain on purchase or sale of subsidiaries.

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Reported Revenue $ 436,317 $ 433,305 1% $ 765,608 $ 776,476 (1)%

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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%.

Vistaprint's reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 3% and 2%, respectively.

When excluding the benefit from the recent acquisition of 99designs, Vistaprint's organic constant-currency revenue decline was 6% for the three months ended December 31, 2020 and 5% for the six months ended December 31, 2020.

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.

During the second quarter of fiscal 2021, heightened pandemic-related restrictions in certain countries negatively impacted revenue for some business products and event-related consumer products like invitations and announcements, while Vistaprint delivered growth in photo products and other holiday products.

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.

For the three and six months ended December 31, 2020, the decrease to Vistaprint's segment EBITDA was primarily due to a decline in gross profit driven by the revenue decrease described above, as well as a revenue mix shift to lower margin products during the second quarter of fiscal 2021.

This was combined with increased investment in advertising which included expanded return on advertising spend targets and progressive increases in upper-funnel advertising investments (including related agency fees) and brand-based sponsorships.

Additionally, an increase in operating expenses was driven by continued hiring and increased spend related to customer experience, partially offset by technology savings from our fiscal 2020 restructuring and reduced spend for consulting projects compared to the prior year periods.

For the three and six months ended December 31, 2020, Vistaprint received $2.4 million and $4.9 million, respectively 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 for both periods presented.

PrintBrothers

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Reported Revenue $ 121,806 $ 126,617 (4)% $ 221,918 $ 235,907 (6)%

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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.

PrintBrothers' reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 7% and 6%, respectively, resulting in a constant-currency revenue decline, excluding the impact of acquisitions, of 11% and 13%, respectively.

The revenue decline was due to impacts from COVID-19, as the pandemic continued to have a negative effect on demand in the quarter, though less so than our upload and print businesses serving southern European and UK markets.

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.

PrintBrothers' segment EBITDA decreased slightly during the three and six months ended December 31, 2020 as compared to the prior comparative periods, due primarily to the revenue declines described above.

A portion of the decline in segment EBITDA driven by the revenue decline was partially offset by discretionary cost controls and government incentive program benefits of $0.9 million and $1.8 million for the three and six months ended December 2020, respectively.

PrintBrothers' segment EBITDA was positively impacted by currency movements for both periods presented.

The Print Group

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Reported Revenue $ 76,204 $ 87,699 (13)% $ 142,641 $ 159,957 (11)%

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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.

The Print Group's reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 6% and 5%, respectively, resulting in a decrease in revenue on a constant-currency basis of 19% and 16%, respectively.

The revenue decline was due to impacts from the COVID-19 pandemic as these trends worsened when compared to the first quarter of fiscal year 2021, due to new lockdowns in the geographies that these businesses serve.

These businesses benefited from the introduction of 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.

In thousands Three Months Ended September 30,

The Print Group's segment EBITDA decreased during the three and six months ended December 31, 2020, as compared to the prior comparative periods, primarily driven by the revenue decline described above.

This was partially offset by discretionary cost controls, benefits from government incentives totaling $0.7 million and $1.3 million, respectively, and efficiency gains from leveraging our mass customization platform to shift production to lower-cost sources.

The Print Group's segment EBITDA was positively impacted by currency movements for both periods presented.

In thousands Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Reported Revenue $ 114,692 $ 127,985 (10)% $ 182,341 $ 198,148 (8)%

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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.

National Pen's reported revenue decrease for the three and six months ended December 31, 2020 was positively affected by currency impacts of 3% and 2%, respectively, resulting in constant-currency revenue decline of 13% and 10%, respectively.

This performance is slightly worse than year-over-year revenue results during the first quarter of fiscal year 2021, but still significantly better than the results during the height of pandemic impact in the fourth quarter of fiscal year 2020.

National Pen executed well on its holiday peak in light of the pandemic, but revenue was muted compared to last year.

National Pen's sales to larger businesses continue to be negatively impacted due to cancelled trade shows and other large-scale events.

Product sales to other Cimpress businesses continued to supplement some of the lost volume from lower demand.

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.

The decrease in National Pen's segment EBITDA for the three and six months ended December 31, 2020 was due to the 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 periods, partially offset by reduced variable cost, advertising and discretionary spend.

National Pen was negatively impacted by the sale of disposable masks at a loss, as well as the recognition of an inventory reserves to reduce the carrying value of all remaining disposable masks held in inventory to current market prices of $4.4 million and $5.4 million, respectively, for the three and six months ended December 31, 2020.

National Pen's segment EBITDA was positively impacted by currency movements for both periods presented.

All Other Businesses

Three Months Ended September 30,

Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 vs.

2019 2020 2019 2020 vs.

Reported Revenue (1) $ 55,365 $ 49,774 11% $ 98,843 $ 92,050 7%

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(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.

(1) Our All Other Businesses segment includes the results of 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.

All Other Businesses' constant-currency revenue excluding the impact of acquisitions increased by 14% and 10% for the three and six months ended December 31, 2020, respectively.

This was primarily driven by continued growth at BuildASign, whose home décor and pandemic-focused signage products continued to generate strong results.

In addition, the business benefited from higher volumes of political signage in comparison to the prior year due to the 2020 election season in the United States.

BuildASign's strong stand-alone execution is compounded by the business increasingly leveraging our mass customization platform to drive new product introduction and improve customer experience.

Revenue also grew year-over-year in our smaller 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.

Within the All Other Businesses segment, each business improved its profitability for the three and six months ended December 31, 2020 as compared to the comparable periods, with the overall improvement primarily driven by revenue growth and advertising efficiency in BuildASign.

Printi and YSD reduced losses through revenue growth and 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 second quarter.

Central and Corporate Costs

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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

team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal.

and corporate functions including our Board of Directors, CEO, and the 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.

Central and corporate costs decreased by $7.4 million and $10.1 million during the three and six months ended December 31, 2020, respectively, as compared to the prior year periods, due to lower professional fees, share-based compensation expense and discretionary spend, including travel and training costs.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data

Three Months Ended September 30,

Six Months Ended December 31,

Net cash provided by operating activities $ 256,168 $ 265,097

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Net cash used in financing activities (191,754) (207,390)

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.

At December 31, 2020, we had $36.9 million of cash and cash equivalents and $1,315.4 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:

The cash flows during the six months ended December 31, 2020 related primarily to the following items:

Cash inflows:

• Net income of $23.8 million

• Adjustments for non-cash items of $136.3 million primarily related to positive adjustments for depreciation and amortization of $85.9 million, share-based compensation costs of $13.5 million and unrealized currency-related losses of $29.4 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.

• The changes in operating assets and liabilities were a source of cash during the period, driven by increases in accounts payable and accrued expenses, largely driven by our seasonally strong second quarter

Cash outflows:

• Net loss of $10.1 million

• Payments of debt of $171.5 million, net of borrowings and inclusive of debt issuance costs

• Acquisition of 99designs for $36.4 million, net of cash acquired and excluding the deferred payment and post-closing adjustment that are payable February 15, 2022

• Internal and external costs of $26.4 million for software and website development that we have capitalized

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• Payment of withholding taxes in connection with share awards of $5.6 million

• Purchase of noncontrolling interest of $5.1 million and distribution to noncontrolling interest holders of $4.6 million

• Payments for finance lease arrangements of $3.3 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

respective subsidiaries.

During the six months ended December 31, 2020, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing.

As of December 31, 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 $40.4 million.

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.

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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.

As of September 30, 2020, we had aggregate loan commitments from our senior secured credit facility totaling $996.3 million.

As of December 31, 2020, we had aggregate loan commitments from our senior secured credit facility totaling $994.4 million.

The loan commitments consisted of revolving loan borrowings of $260.0 million and term loans of $144.4 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:

September 30, 2020

As of December 31, 2020, the amount available for borrowing under our senior secured credit facility was as follows:

December 31, 2020

Maximum aggregate available for borrowing $ 994,375

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Limitations to borrowing due to debt covenants and other obligations (1) (4,950)

Amount available for borrowing as of September 30, 2020 (2) $ 502,434

Amount available for borrowing as of December 31, 2020 (2)

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(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.

(1) As of December 31, 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 9 in our accompanying consolidated financial statements for further description of the restrictions in place during the covenant suspension period.

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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.

As of December 31, 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:

Payments Due by Period

Contractual obligations at December 31, 2020 are as follows:

In thousands Payments Due by Period

Operating leases, net of subleases (1) (2) $ 154,721 $ 37,085 $ 54,324 $ 33,877 $ 29,435

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Our leases may also incur variable expenses, which are not included in these payments.

(2) On January 6, 2021, we amended our Waltham lease agreement to reduce the amount of space leased.

As part of the agreement, we will pay $8.8 million in two equal installments, which includes both an early termination penalty and the rent we would have otherwise paid for the terminated space through June 30, 2021.

We have separately entered into a lease agreement for a new office space in Waltham, Massachusetts, which will commence on June 1, 2021.

The amended lease terms, combined with the new lease agreement, will result in a reduction to total lease commitments of $47.5 million, exclusive of the termination penalty.

Refer to Note 13 in our accompanying consolidated financial statements for additional details.

(3) Other debt and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash.

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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.

Accordingly, uncertain tax positions of $8.1 million as of December 31, 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 for additional details.

Operating Leases .

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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.

At December 31, 2020, we had unrecorded commitments under contract of $226.3 million.

Purchase commitments consisted of third-party web services of $97.6 million, production and computer equipment purchases of $24.9 million, inventory and third-party fulfillment purchase commitments of $18.4 million, advertising of $17.8 million, commitments for professional and consulting fees of $8.4 million and other unrecorded purchase commitments of $59.2 million.

Senior Unsecured Notes and Interest Payments.

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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.

At December 31, 2020, the term loans of $144.4 million outstanding under our credit agreement had repayments due on various dates through November 15, 2024, with the revolving loans outstanding under our $260.0 million revolving credit facility due on November 15, 2024.

Interest payable included in this table is based on the interest rate as of December 31, 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.

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 December 31, 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.

The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at December 31, 2020, is $60.5 million, net of accumulated depreciation of $41.6 million.

The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at December 31, 2020 amounts to $24.9 million.

Other Obligations .

Other obligations include deferred payments related to previous acquisitions of $1.7 million in the aggregate.

Other obligations include deferred payments related to previous acquisitions of $45.4 million in the aggregate.This balance includes the deferred payment related to the 99designs acquisition totaling $43.7 million.

Refer to Note 7 in our accompanying consolidated financial statements for additional details.

Additional Non-GAAP Financial Measures

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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,

The table below sets forth operating income and adjusted EBITDA for the three and six months ended December 31, 2020 and 2019:

In thousands Three Months Ended December 31, Six Months Ended December 31,

2020 2019 2020 2019

GAAP operating income $ 94,194 $ 121,595 $ 130,180 $ 146,974

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Restructuring-related charges 2,182 1,897 2,096 4,087

Realized gains on currency derivatives not included in operating income 1,217 4,838

Realized (losses) gains on currency derivatives not included in operating income (1,578) 10,408 (361) 15,246

Adjusted EBITDA $ 143,423 $ 185,517 $ 231,896 $ 265,033

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(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,

The table below sets forth net cash provided by operating activities and adjusted free cash flow for the three and six months ended December 31, 2020 and 2019:

In thousands Six Months Ended December 31,

Net cash provided by operating activities $ 256,168 $ 265,097

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis