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 our expectations with respect to our business, markets, and financial results during and after the pandemic, the anticipated effects of our investments in our business, expected cost savings resulting from changes in our real estate lease footprint, the anticipated completion of our Term Loan B financing, the planned redemption of our Second Lien Notes, 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. The Term Loan B financing may be delayed or may not close at all, and we may choose not to redeem our Second Lien Notes as planned. 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 make the investments that we plan to make or the failure of those investments 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 March 31, 2021, 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. COVID-19 The pandemic and related restrictions continue to have a negative impact on most of our businesses, customers and the markets that we serve. Consolidated revenue was down 18% year over year for the first two months of the third quarter due to severe restrictions in most of our markets. In March we saw a pick up in demand in markets where pandemic restrictions have been lifted or are less severe and in the second half of the month we began to lap the start of depressed demand last year. As an example of geographic differences, Vistaprint bookings in Australia grew approximately 10% for the third quarter, while bookings across European countries declined by approximately 7%. Likewise, Vistaprint bookings from customers in less restricted U.S. states such as Florida, Texas, and Georgia are recovering more quickly compared to bookings in U.S. states such as California, Pennsylvania, or New York that were more restricted. These data points give us confidence that demand will continue to pick up as activity resumes in our markets around the world. 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 33 pandemic, although we can't forecast how long that will take. 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. 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, 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 nine months ended March 31, 2021 as compared to the three and nine months ended March 31, 2020 follows: Third Quarter Fiscal 2021 • Revenue decreased by 3% to $578.9 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 loss improved by $72.0 million to $15.7 million. • Adjusted EBITDA (a non-GAAP financial measure) decreased by $15.9 million to $55.0 million. Year to Date Fiscal 2021 • Revenue decreased by 5% to $1,951.5 million. • Organic constant-currency revenue decreased by 9%. • Operating inco me increased by $55.2 million to $114.5 million. • Adjusted EBITDA decreased by $49.0 million to $286.9 million. • Cash provided by operating activities decreased by $65.1 million to $218.9 million. • Adjusted free cash flow (a non-GAAP financial measure) decreased by $58.7 million to $150.9 million. For the third quarter of fiscal year 2021, our revenue declined year-over-year as the COVID-19 pandemic continues to negatively impact our results, although results vary by segment depending on product and customer mix. Our businesses also serve customers in different geographic markets where the extent and impact of government restrictions and lockdowns vary. Revenue from event-driven and some small business products continued to decline year-over-year, partially offset by continued growth in revenue from home decor and packaging products, as well as new products introduced in reaction to the pandemic such as face masks, although the contribution from those products has lessened compared to the first six months of fiscal 2021. We expect our financial results will continue to experience volatility connected to the extent of pandemic-related restrictions but also higher rates of year-over-year revenue growth as we lap depressed periods of demand from last year. For the third quarter of fiscal 2021, operating loss improved by $72.0 million, primarily driven by the non-recurrence of a $100.8 million goodwill impairment charge in the prior comparable period, as well as continued variable cost controls, fixed cost savings and lower restructuring charges, in addition to the benefit of $3.2 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. During the current quarter operating income was negatively impacted by $19.9 million of lease-related impairment and abandonment charges due to changes in our intended use of two leased locations, which we expect will deliver substantial cost savings in future periods. We also increased organic investment primarily through hiring in Vistaprint. Adjusted EBITDA decreased year-over-year, primarily due to the pandemic-related revenue decline during the three months ended March 31, 2021 as described above. Adjusted EBITDA excludes goodwill and other impairment charges, 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 $4.4 million. 34 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 primarily in our Vistaprint business) we provide digital services, graphic design 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 and nine months ended March 31, 2021 and 2020 are shown in the following table: In thousands Three Months Ended March 31, Currency Impact: Constant- Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth 2021 2020 % Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2) Vistaprint (3) $ 327,454 $ 316,310 4% (3)% 1% (6)% (5)% PrintBrothers 93,997 109,496 (14)% (7)% (21)% —% (21)% The Print Group 59,945 68,537 (13)% (7)% (20)% —% (20)% National Pen 62,220 68,362 (9)% (3)% (12)% —% (12)% All Other Businesses 44,062 39,237 12% 3% 15% —% 15% Inter-segment eliminations (8,827) (3,982) Total revenue $ 578,851 $ 597,960 (3)% (4)% (7)% (3)% (10)% In thousands Nine Months Ended March 31, Currency Impact: Constant- Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth 2021 2020 % Change (Favorable)/Unfavorable Revenue Growth (1) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (2) Vistaprint (3) $ 1,093,062 $ 1,092,786 —% (2)% (2)% (3)% (5)% PrintBrothers 315,915 345,403 (9)% (6)% (15)% (2)% (17)% The Print Group 202,586 228,494 (11)% (6)% (17)% —% (17)% National Pen 244,561 266,510 (8)% (3)% (11)% —% (11)% All Other Businesses 142,905 131,287 9% 3% 12% —% 12% Inter-segment eliminations (47,533) (12,228) Total revenue $ 1,951,496 $ 2,052,252 (5)% (3)% (8)% (1)% (9)% _________________ (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 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. 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. 35 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 and design costs, costs of free products and other related costs of products our businesses sell. In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 2020 Cost of revenue $ 302,022 $ 309,598 $ 986,845 $ 1,029,281 % of revenue 52.2 % 51.8 % 50.6 % 50.2 % For the three and nine months ended March 31, 2021, consolidated cost of revenue decreased by $7.6 million and $42.4 million, respectively, due to reduced demand-dependent cost of goods sold including third-party fulfillment, material, and shipping costs in our segments that experienced year-over-year pandemic-related revenue declines. For the three and nine months ended March 31, 2021, we realized approximately $2.2 million and $7.9 million, respectively, of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained. These benefits were partially offset by $2.1 million and $7.6 million of expense incurred during the three and nine months ended March 31, 2021, respectively, related to losses associated with the decline in market demand and pricing for certain masks and related products, primarily in our Vistaprint and National Pen businesses. Changes in currency negatively impacted cost of revenue for both periods presented. Cost of revenue from our 99designs business is included from the acquisition date of October 1, 2020. Consolidated Operating Expenses The following table summarizes our comparative operating expenses for the following periods: In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Technology and development expense $ 62,572 $ 67,693 (8)% $ 186,097 $ 195,287 (5)% % of revenue 10.8 % 11.3 % 9.5 % 9.5 % Marketing and selling expense $ 154,472 $ 148,803 4% $ 474,944 $ 483,056 (2)% % of revenue 26.7 % 24.9 % 24.3 % 23.5 % General and administrative expense (1) $ 62,358 $ 45,148 38% $ 147,149 $ 140,681 5% % of revenue 10.8 % 7.6 % 7.5 % 6.9 % Amortization of acquired intangible assets $ 13,506 $ 12,693 6% $ 40,264 $ 38,861 4% % of revenue 2.3 % 2.1 % 2.1 % 1.9 % Restructuring expense $ (382) $ 919 (142)% $ 1,714 $ 5,006 (66)% % of revenue (0.1) % 0.2 % 0.1 % 0.2 % Impairment of Goodwill $ — $ 100,842 (100)% $ — $ 100,842 (100)% % of revenue — % 16.9 % — % 4.9 % _____________________ (1) General and administrative expense for the three and nine months ended March 31, 2021 includes lease impairment and abandonment charges for two leased locations totaling $19.9 million. Refer to Note 2 for additional details. 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. 36 Technology and development expenses decreased by $5.1 million and $9.2 million for the three and nine months ended March 31, 2021, as compared to the prior comparative periods. Both periods benefited from decreases in costs from our fiscal 2020 reorganization of our central and Vistaprint technology teams as well as continued reductions 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 during the three months ended March 31, 2021 increased by $5.7 million as compared to the prior comparative period, driven primarily by fluctuations in currency exchange rates. We also increased spend in our Vistaprint business due to 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 nine months ended March 31, 2021, marketing and selling expenses decreased by $8.1 million, as compared to the prior year. The decrease from the prior comparative period is primarily due to the year-over-year reduction in performance based advertising spend in our Vistaprint business of $11.8 million, which is partially offset by increases in brand sponsorships and upper-funnel advertising investments. We also recognized a decrease in marketing costs in our National Pen business of $8.1 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. These decreases were partially offset by negative impacts from fluctuations in currency exchange rates. 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 and nine months ended March 31, 2021, general and administrative expenses increased by $17.2 million and $6.5 million, respectively, as compared to the prior comparative periods, due to $19.9 million of lease-related impairment and abandonment charges driven by changes in our office footprint at two leased locations. These changes to our leased facility footprint are expected to result in substantial cost savings in future periods. These increased expenses were partially offset by 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. We also realized lower discretionary spend in both periods. 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 $0.8 million and $1.4 million for the three and nine months ended March 31, 2021, respectively, as compared to the three and nine months ended March 31, 2020. The year-over-year increase is driven by the negative impact of fluctuations in currency exchange rates. The incremental amortization from the newly acquired 99designs intangibles was offset by the expense reduction caused by another acquired intangible asset becoming fully amortized during the second quarter of fiscal 2021. Refer to Note 7 in our accompanying consolidated financial statements for additional information about the 99designs acquisition. 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. 37 We recognized a restructuring benefit of $0.4 million during the three months ended March 31, 2021 and an expense of $1.7 million for the nine months ended March 31, 2021, 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 $0.9 million and $5.0 million, respectively in the three and nine months ended March 31, 2020 due to prior year actions taken in our Vistaprint business. Impairment of goodwill During the prior comparative periods, we recognized goodwill impairment charges of $100.8 million. We did not recognize any goodwill impairment charges during the current periods presented. Refer to Note 6 in our accompanying consolidated financial statements for additional details. Other Consolidated Results Other income (expense), net Other income (expense), 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 income (expense), net: In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 2020 Gains (losses) on derivatives not designated as hedging instruments $ 18,724 $ 18,039 $ (13,791) $ 25,730 Currency-related (losses) gains, net (8,841) 3,950 (2,957) 3,183 Other (losses) gains (98) 548 581 258 Total other income (expense), net $ 9,785 $ 22,537 $ (16,167) $ 29,171 The decrease in other income (expense), 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 also recognize the impact from de-designated interest swap contracts that are no longer highly effective, which resulted in unrealized gains during the current periods. We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts. We experienced currency-related losses 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 (losses) gains, 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 $11.7 million and $41.6 million during the three and nine months ended March 31, 2021, 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. 38 Income tax expense In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 2020 Income tax expense (benefit) $ 3,927 $ 1,039 $ 23,675 $ (86,641) Effective tax rate (11.2) % (1.3) % 273.5 % (214.7) % Income tax expense (benefit) for the three and nine months ended March 31, 2021 increased as compared to the prior year. For the period ended March 31, 2020, we calculated our year-to-date income tax on ordinary income based on the actual year-to-date effective tax rate rather than the estimated annual tax rate. The increased tax expense for the three months ended March 31, 2021 was primarily due to a higher forecasted effective tax rate as compared to the actual effective tax rate for the same prior year period. In the nine months ended March 31, 2020, we recognized a discrete tax benefit of $114.1 million related to Swiss Tax Reform. Excluding this benefit, tax expense would have decreased, primarily attributable to decreased pre-tax income for the nine months ended March 31, 2021 as compared to the same prior year period. 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 and a less favorable mix of earnings. 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 10 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 proceeds from insurance; 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 March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Reported Revenue $ 327,454 $ 316,310 4% $ 1,093,062 $ 1,092,786 —% Segment EBITDA 64,333 73,780 (13)% 266,821 299,941 (11)% % of revenue 20 % 23 % 24 % 27 % Segment Revenue Vistaprint's reported revenue growth for the three and nine months ended March 31, 2021 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 5% for both periods presented. 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 first two months of the third quarter, Vistaprint's revenue continued to be impacted in function of the severity of restrictions in the markets we serve. Revenue grew significantly year over year during the month of March 2021 as restrictions loosened in some markets and we lapped the earliest periods impacted by the pandemic in fiscal year 2020. 39 Segment Profitability For the three and nine months ended March 31, 2021, the decrease to Vistaprint's segment EBITDA was primarily due to a decline in gross profit driven by the organic revenue decrease described above, as well as a revenue mix shift to lower margin products during the second quarter of fiscal 2021. For the three months ended March 31, 2021, an increase in operating expenses was driven by the acquisition of 99designs combined with increased investment in hiring, which was more than offset by year-over-year cost reductions including lower building-related costs and travel expenses. For the nine months ended March 31, 2021, the decline in segment EBITDA was combined with increased investment in advertising which included expanded return on advertising spend targets and increases in upper-funnel advertising investments (including related agency fees) and brand-based sponsorships. Additionally, the 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 nine months ended March 31, 2021, Vistaprint received $1.9 million and $6.8 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 In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Reported Revenue $ 93,997 $ 109,496 (14)% $ 315,915 $ 345,403 (9)% Segment EBITDA 7,560 8,686 (13)% 33,732 35,922 (6)% % of revenue 8 % 8 % 11 % 10 % Segment Revenue PrintBrothers' reported revenue decline for the three and nine months ended March 31, 2021 was positively affected by currency impacts of 7% and 6%, respectively, resulting in a constant-currency revenue decline,of 21% for the three months ended March 31, 2021, and, excluding the impact of acquisitions, a constant-currency organic revenue decline of 17%, for the nine months ended March 31, 2021. The revenue decline was due to pandemic-related decreases in demand. In the current quarter, heightened restrictions in certain European countries, including Germany and the Netherlands, resulted in more significant impacts on demand as compared to the first six months of the fiscal year. Segment Profitability PrintBrothers' segment EBITDA decreased during the three and nine months ended March 31, 2021 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 $2.5 million for the three and nine months ended March 31, 2021, respectively. PrintBrothers' segment EBITDA was positively impacted by currency movements for both periods presented. The Print Group In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Reported Revenue $ 59,945 $ 68,537 (13)% $ 202,586 $ 228,494 (11)% Segment EBITDA 6,475 10,934 (41)% 31,227 42,673 (27)% % of revenue 11 % 16 % 15 % 19 % 40 Segment Revenue The Print Group's reported revenue decline for the three and nine months ended March 31, 2021 was positively affected by currency impacts of 7% and 6%, respectively, resulting in a decrease in revenue on a constant-currency basis of 20% and 17%, respectively. The revenue decline was due to pandemic-related decreases in demand. Despite these pressures, our businesses have found pockets of strength in demand and pivoted quickly over the last year to deliver quality offerings to help fill in some of the reduced demand in other areas, including the launch of new products for other Cimpress businesses. Segment Profitability The Print Group's segment EBITDA decreased during the three and nine months ended March 31, 2021, 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 $0.3 million and $1.6 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. National Pen In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Reported Revenue $ 62,220 $ 68,362 (9)% $ 244,561 $ 266,510 (8)% Segment EBITDA (3,324) (1,244) (167)% 4,733 17,005 (72)% % of revenue (5) % (2) % 2 % 6 % Segment Revenue National Pen's reported revenue decrease for the three and nine months ended March 31, 2021 was positively affected by currency impacts of 3% in both periods, resulting in constant-currency revenue declines of 12% and 11%, respectively. National Pen's sales 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 and nine months ended March 31, 2021 was due to the revenue decline described above. The impacts of lower revenue on National Pen's fixed cost base negatively impacted profitability 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 reserve to reduce the carrying value of all remaining disposable masks held in inventory to current market prices of $0.8 million and $6.2 million, respectively, for the three and nine months ended March 31, 2021. National Pen's segment EBITDA was positively impacted by currency movements for both periods presented. All Other Businesses In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 vs. 2020 2021 2020 2021 vs. 2020 Reported Revenue (1) $ 44,062 $ 39,237 12% $ 142,905 $ 131,287 9% Segment EBITDA (1) 6,515 3,187 104% 25,781 8,572 201% % of revenue 15 % 8 % 18 % 7 % ___________________ (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. 41 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 early-stage businesses continue to have operating losses as previously described and as planned. Segment Revenue All Other Businesses' constant-currency revenue excluding the impact of acquisitions increased by 15% and 12% for the three and nine months ended March 31, 2021, respectively. This was primarily driven by continued growth at BuildASign, whose home décor and pandemic-focused signage products continued to generate strong results. BuildASign's strong execution was aided 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 and nine months ended March 31, 2021 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 third quarter of fiscal year 2021. 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 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 $4.2 million and $14.3 million during the three and nine months ended March 31, 2021, 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. In addition, the lower central costs were also impacted by the prior year reorganization of our central technology team. Liquidity and Capital Resources Consolidated Statements of Cash Flows Data In thousands Nine Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 218,948 $ 284,061 Net cash used in investing activities (101,147) (47,813) Net cash used in financing activities (130,185) (36,756) At March 31, 2021, we had $36.4 million of cash and cash equivalents and $1,384.1 million of debt, excluding debt issuance costs, and debt premiums and discounts. The cash flows during the nine months ended March 31, 2021 related primarily to the following items: Cash inflows: • Adjustments for non-cash items of $197.1 million primarily related to positive adjustments for depreciation and amortization of $128.7 million, share-based compensation costs of $23.1 million , unrealized currency-related losses of $20.8 million and $19.9 million of lease-related long-lived asset impairments • Total net working capital impacts of $36.8 million were a source of cash. Inventory, accounts payable, and accrued expenses inflows were partially offset by accounts receivable and other asset outflows 42 Cash outflows: • Net loss of $15.0 million • Payments of debt of $107.9 million, net of borrowings and inclusive of debt issuance costs • Internal and external costs of $45.3 million for software and website development that we have capitalized • 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 • Capital expenditures of $22.7 million of which the majority related to the purchase of manufacturing and automation equipment for our production facilities • 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 $5.5 million Additional Liquidity and Capital Resources Information. During the nine months ended March 31, 2021, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. As of March 31, 2021, 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 $41.4 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. 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. As described in Note 15 of our accompanying consolidated financial statements, we expect to refinance our 12% Second Lien Notes in May 2021 at materially improved interest rates. We plan to raise a senior secured Term Loan B that would repay our existing secured debt and bring liquidity onto the balance sheet. If executed, the transaction would reduce our weighted average cost of capital, provide additional financial flexibility, and extend the maturity profile of our secured debt. Debt. As of March 31, 2021, we had aggregate loan commitments from our senior secured credit facility totaling $992.5 million. The loan commitments consisted of revolving loan borrowings of $329.0 million and term loans of $142.5 million. We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. As of March 31, 2021, the amount available for borrowing under our senior secured credit facility was as follows: In thousands March 31, 2021 Maximum aggregate available for borrowing $ 992,500 Outstanding borrowings of senior secured credit facility (471,500) Remaining amount 521,000 Limitations to borrowing due to debt covenants and other obligations (1) (253,186) Amount available for borrowing as of March 31, 2021 (2) (3) $ 267,814 _________________ (1) The debt covenants of our senior secured credit facility limit our borrowing capacity each quarter, depending on our leverage and other indebtedness, such as notes, finance leases, letters of credit, and any other debt, as well as other factors that are outlined in the credit agreement. As of March 31, 2021, we elected to exit the Covenant Suspension Period early, and entered into an amendment to our senior secured credit agreement which reinstated modified financial maintenance covenants under the credit agreement. Refer to Note 9 in our accompanying consolidated financial statements for additional information. (2) The amount available for borrowing reflects borrowings available for incremental debt that would increase our leverage, which is impacted by our leverage covenants. However, as of March 31, 2021, $516.0 million o f unused capacity was available to us assuming any amounts above the amount available for borrowing are used to refinance our existing second lien notes, under a leverage neutral transaction. (3) 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. 43 Debt Covenants . In conjunction with the February 2021 amendment to our senior secured facility, we elected to exit the Covenant Suspension Period early, and entered into an amendment to our senior secured credit agreement which reinstated modified financial maintenance covenants under the credit agreement. Refer to Note 9 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 March 31, 2021, we had $12.6 million outstanding for other debt payable through January 2026. Contractual Obligations Contractual obligations at March 31, 2021 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) (2) $ 100,133 $ 26,084 $ 36,638 $ 16,254 $ 21,157 Purchase commitments 211,311 106,922 88,514 15,875 — Senior unsecured notes and interest payments 831,000 42,000 84,000 84,000 621,000 Second lien notes and interest payments 462,000 36,000 72,000 354,000 — Other debt and interest payments (3) 587,789 50,696 94,474 442,619 — Finance leases, net of subleases (1) 21,697 8,634 8,963 3,552 548 Other 44,680 44,586 94 — — Total (4) $ 2,258,610 $ 314,922 $ 384,683 $ 916,300 $ 642,705 ___________________ (1) Operating and finance lease payments above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses which are not reflected in the contractual obligations above. (2) On January 6, 2021, we amended our Waltham lease agreement to reduce the amount of space leased. As part of the agreement, as of March 31, 2021, we had a remaining obligation of $4.4 million for the lease termination penalty that was paid on April 1, 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, resulted in a reduction to total lease commitments of $44.6 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. We have excluded the effect of interest rate swaps of $0.5 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. (4) 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 $9.0 million as of March 31, 2021 have been excluded from the contractual obligations table above. See Note 10 in our accompanying consolidated financial statements for further information on uncertain tax positions. 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 $2.4 million. Purchase Commitments . At March 31, 2021, we had unrecorded commitments under contract of $211.3 million. Purchase commitments consisted of third-party web services of $96.7 million, software of $54.5 million, inventory and third-party fulfillment purchase commitments of $19.0 million, advertising of $15.1 million, , commitments for professional and consulting fees of $7.4 million, production and computer equipment purchases of $2.4 million and other unrecorded purchase commitments of $16.2 million. Senior Unsecured Notes and Interest Payments. Our 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 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 44 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 March 31, 2021, the term loans of $142.5 million outstanding under our credit agreement had repayments due on various dates through November 15, 2024, with the revolving loans outstanding under our $329.0 million revolving credit facility due on November 15, 2024. Interest payable included in this table is based on the interest rate as of March 31, 2021, 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 March 31, 2021 we had $12.6 million outstanding for those obligations that have repayments due on various dates through January 2026. 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 March 31, 2021 is $59.9 million, net of accumulated depreciation of $39.9 million. The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at March 31, 2021 amounts to $27.0 million. Other Obligations . Other obligations include deferred payments related to previous acquisitions of $44.7 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 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. 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. 45 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 and nine months ended March 31, 2021 and 2020: In thousands Three Months Ended March 31, Nine Months Ended March 31, 2021 2020 2021 2020 GAAP operating (loss) income $ (15,697) $ (87,736) $ 114,483 $ 59,238 Exclude expense (benefit) impact of: Depreciation and amortization 42,809 41,840 128,696 126,731 Proceeds from insurance 122 — 122 — Share-based compensation expense (1) 9,545 8,908 23,071 21,983 Certain impairments and other adjustments (2) 20,563 101,976 21,131 102,736 Restructuring-related charges (382) 919 1,714 5,006 Realized (losses) gains on currency derivatives not included in operating (loss) income (1,936) 5,001 (2,297) 20,247 Adjusted EBITDA $ 55,024 $ 70,908 $ 286,920 $ 335,941 _________________ (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. (2) During the three months ended March 31, 2021, we recognized impairment and abandonment charges of $19.9 million for the change in nature of use for two of our leased locations. These impairment and abandonment charges are classified within general and administrative expense in the consolidated statement of operations. Refer to Note 2 in our accompanying financial statements for more information. We also recognized $0.6 million of loss for the routine disposal of fixed assets and impairment of capitalized software during the three months ended March 31, 2021. The table below sets forth net cash provided by operating activities and adjusted free cash flow for the nine months ended March 31, 2021 and 2020: In thousands Nine Months Ended March 31, 2021 2020 Net cash provided by operating activities $ 218,948 $ 284,061 Purchases of property, plant and equipment (22,736) (38,638) Capitalization of software and website development costs (45,321) (35,824) Adjusted free cash flow $ 150,891 $ 209,599 46