CIMPRESS plc 10-Q

Item 1. Financial Statements CIMPRESS PLC CONSOLIDATED BALANCE SHEETS (unaudited in thousands, except share and per share data) December 31, 2022 June 30, 2022 Assets Current assets: Cash and cash equivalents $ 111,279 $ 277,053 Marketable securities 85,070 49,952 Accounts receivable, net of allowances of $6,473 and $6,140, respectively 70,433 63,885 Inventory 140,517 126,728 Prepaid expenses and other current assets 118,015 108,697 Total current assets 525,314 626,315 Property, plant and equipment, net 278,347 286,826 Operating lease assets, net 70,142 80,694 Software and website development costs, net 93,686 90,474 Deferred tax assets 9,519 113,088 Goodwill 776,788 766,600 Intangible assets, net 131,274 154,730 Marketable securities, non-current 17,107 — Other assets 49,929 48,945 Total assets $ 1,952,106 $ 2,167,672 Liabilities, noncontrolling interests and shareholders’ deficit Current liabilities: Accounts payable $ 318,554 $ 313,710 Accrued expenses 264,510 253,841 Deferred revenue 48,911 58,861 Short-term debt 10,218 10,386 Operating lease liabilities, current 22,857 27,706 Other current liabilities 31,685 28,035 Total current liabilities 696,735 692,539 Deferred tax liabilities 47,178 41,142 Long-term debt 1,679,059 1,675,562 Operating lease liabilities, non-current 50,218 57,474 Other liabilities 79,662 64,394 Total liabilities 2,552,852 2,531,111 Commitments and contingencies (Note 12) Redeemable noncontrolling interests 12,565 131,483 Shareholders’ deficit: Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding — — Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,211,416 and 44,083,569 shares issued, respectively; 26,240,169 and 26,112,322 shares outstanding, respectively 615 615 Treasury shares, at cost, 17,971,247 shares for both periods presented ( 1,363,550 ) ( 1,363,550 ) Additional paid-in capital 521,531 501,003 Retained earnings 256,152 414,138 Accumulated other comprehensive loss ( 28,059 ) ( 47,128 ) Total shareholders' deficit ( 613,311 ) ( 494,922 ) Total liabilities, noncontrolling interests and shareholders’ deficit $ 1,952,106 $ 2,167,672 See accompanying notes. 1 CIMPRESS PLC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited in thousands, except share and per share data) Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Revenue $ 845,202 $ 849,716 $ 1,548,617 $ 1,507,315 Cost of revenue (1) 455,393 423,937 833,128 762,926 Technology and development expense (1) 77,723 70,267 152,198 137,544 Marketing and selling expense (1) 205,148 208,616 406,078 383,313 General and administrative expense (1) 49,791 46,726 103,863 93,274 Amortization of acquired intangible assets 12,362 13,882 24,712 27,340 Restructuring expense (1) 11,207 307 13,027 ( 2 ) Income from operations 33,578 85,981 15,611 102,920 Other (expense) income, net ( 17,392 ) 12,839 10,005 26,009 Interest expense, net ( 28,597 ) ( 25,369 ) ( 53,403 ) ( 51,057 ) (Loss) income before income taxes ( 12,411 ) 73,451 ( 27,787 ) 77,872 Income tax expense 126,129 17,298 135,494 26,679 Net (loss) income ( 138,540 ) 56,153 ( 163,281 ) 51,193 Add: Net (income) attributable to noncontrolling interests ( 1,460 ) ( 1,364 ) ( 2,160 ) ( 3,102 ) Net (loss) income attributable to Cimpress plc $ ( 140,000 ) $ 54,789 $ ( 165,441 ) $ 48,091 Basic net (loss) income per share attributable to Cimpress plc $ ( 5.34 ) $ 2.10 $ ( 6.31 ) $ 1.84 Diluted net (loss) income per share attributable to Cimpress plc $ ( 5.34 ) $ 2.08 $ ( 6.31 ) $ 1.82 Weighted average shares outstanding — basic 26,234,747 26,096,786 26,206,782 26,084,518 Weighted average shares outstanding — diluted 26,234,747 26,402,703 26,206,782 26,493,258 ____________________________________________ (1) Share-based compensation is allocated as follows: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Cost of revenue $ 176 $ 127 $ 369 $ 243 Technology and development expense 4,267 3,355 7,308 6,258 Marketing and selling expense 1,752 2,798 4,211 5,475 General and administrative expense 5,352 6,225 10,134 11,535 Restructuring expense 493 — 649 — See accompanying notes. 2 CIMPRESS PLC CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited in thousands) Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Net (loss) income $ ( 138,540 ) $ 56,153 $ ( 163,281 ) $ 51,193 Other comprehensive income (loss), net of tax: Foreign currency translation gains, net of hedges 11,120 3,542 2,938 3,359 Net unrealized (losses) gains on derivative instruments designated and qualifying as cash flow hedges ( 5,649 ) ( 2,498 ) 11,111 ( 4,423 ) Amounts reclassified from accumulated other comprehensive loss to net (loss) income on derivative instruments 3,136 7,768 198 13,314 Gain on pension benefit obligation, net — 444 — 444 Comprehensive (loss) income ( 129,933 ) 65,409 ( 149,034 ) 63,887 Add: Comprehensive loss (income) attributable to noncontrolling interests 2,015 ( 760 ) 2,662 ( 1,641 ) Total comprehensive (loss) income attributable to Cimpress plc $ ( 127,918 ) $ 64,649 $ ( 146,372 ) $ 62,246 See accompanying notes. 3 CIMPRESS PLC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (unaudited in thousands) Ordinary Shares Deferred Ordinary Shares Treasury Shares Number of Shares Issued Amount Number of Shares Issued Amount Number of Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Deficit Balance at June 30, 2021 44,080 $ 615 25 $ 28 ( 18,045 ) $ ( 1,368,595 ) $ 459,904 $ 530,159 $ ( 71,482 ) $ ( 449,371 ) Restricted share units vested, net of shares withheld for taxes — — — — 54 3,516 ( 6,095 ) — — ( 2,579 ) Share-based compensation expense — — — — — — 11,129 — — 11,129 Net loss attributable to Cimpress plc — — — — — — — ( 6,698 ) — ( 6,698 ) Redeemable noncontrolling interest accretion to redemption value — — — — — — — ( 7,592 ) — ( 7,592 ) Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges — — — — — — — — 3,621 3,621 Foreign currency translation, net of hedges — — — — — — — — 674 674 Balance at September 30, 2021 44,080 $ 615 25 $ 28 ( 17,991 ) $ ( 1,365,079 ) $ 464,938 $ 515,869 $ ( 67,187 ) $ ( 450,816 ) Restricted share units vested, net of shares withheld for taxes — — — — 11 743 ( 1,062 ) — — ( 319 ) Share-based compensation expense — — — — — — 12,398 — — 12,398 Net income attributable to Cimpress plc — — — — — — — 54,789 — 54,789 Redeemable noncontrolling interest accretion to redemption value — — — — — — — ( 8,444 ) — ( 8,444 ) Decrease in noncontrolling interest due to share purchase — — — — — — ( 272 ) — — ( 272 ) Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges — — — — — — — — 5,270 5,270 Foreign currency translation, net of hedges — — — — — — — — 4,146 4,146 Unrealized gain on pension benefit obligation, net of tax — — — — — — — — 444 444 Balance at December 31, 2021 44,080 $ 615 25 $ 28 ( 17,980 ) $ ( 1,364,336 ) $ 476,002 $ 562,214 $ ( 57,327 ) $ ( 382,804 ) See accompanying notes. 4 CIMPRESS PLC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED) (unaudited in thousands) Ordinary Shares Deferred Ordinary Shares Treasury Shares Number of Shares Issued Amount Number of Shares Issued Amount Number of Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Deficit Balance at June 30, 2022 44,084 $ 615 — $ — ( 17,971 ) $ ( 1,363,550 ) $ 501,003 $ 414,138 $ ( 47,128 ) $ ( 494,922 ) Restricted share units vested, net of shares withheld for taxes 112 — — — — — ( 2,212 ) — — ( 2,212 ) Share-based compensation expense — — — — — — 10,653 — — 10,653 Net loss attributable to Cimpress plc — — — — — — — ( 25,441 ) — ( 25,441 ) Redeemable noncontrolling interest accretion to redemption value — — — — — — — ( 2,725 ) — ( 2,725 ) Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges — — — — — — — — 13,822 13,822 Foreign currency translation, net of hedges — — — — — — — — ( 6,835 ) ( 6,835 ) Balance at September 30, 2022 44,196 $ 615 — $ — ( 17,971 ) $ ( 1,363,550 ) $ 509,444 $ 385,972 $ ( 40,141 ) $ ( 507,660 ) Restricted share units vested, net of shares withheld for taxes 15 — — — — — ( 158 ) — — ( 158 ) Share-based compensation expense — — — — — — 12,245 — — 12,245 Net loss attributable to Cimpress plc — — — — — — — ( 140,000 ) — ( 140,000 ) Redeemable noncontrolling interest accretion to redemption value — — — — — — — 10,180 — 10,180 Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges — — — — — — — — ( 2,513 ) ( 2,513 ) Foreign currency translation, net of hedges — — — — — — — — 14,595 14,595 Balance at December 31, 2022 44,211 $ 615 — $ — ( 17,971 ) $ ( 1,363,550 ) $ 521,531 $ 256,152 $ ( 28,059 ) $ ( 613,311 ) See accompanying notes. 5 CIMPRESS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited in thousands) Six Months Ended December 31, 2022 2021 Operating activities Net (loss) income $ ( 163,281 ) $ 51,193 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization 81,816 89,746 Share-based compensation expense 22,671 23,511 Deferred taxes 116,927 3,977 Unrealized loss (gain) on derivatives not designated as hedging instruments included in net (loss) income 25,897 ( 23,020 ) Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency ( 4,982 ) ( 6,302 ) Other non-cash items 11,908 ( 1,699 ) Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable ( 5,465 ) ( 13,102 ) Inventory ( 26,249 ) ( 23,327 ) Prepaid expenses and other assets ( 13,176 ) ( 9,969 ) Accounts payable 10,960 69,318 Accrued expenses and other liabilities ( 1,151 ) 19,585 Net cash provided by operating activities 55,875 179,911 Investing activities Purchases of property, plant and equipment ( 26,490 ) ( 26,539 ) Business acquisitions, net of cash acquired ( 498 ) ( 68,946 ) Capitalization of software and website development costs ( 29,246 ) ( 32,134 ) Proceeds from the sale of assets 1,365 25,835 Purchases of marketable securities ( 84,030 ) — Proceeds from maturity of held-to-maturity investments 32,330 27,000 Payments for settlement of derivatives designated as hedging instruments — ( 1,880 ) Other investing activities — ( 617 ) Net cash used in investing activities ( 106,569 ) ( 77,281 ) Financing activities Proceeds from borrowings of debt 10,000 — Payments of debt ( 16,586 ) ( 7,671 ) Payments of debt issuance costs ( 51 ) ( 1,435 ) Payments of purchase consideration included in acquisition-date fair value ( 225 ) — Payments of withholding taxes in connection with equity awards ( 2,370 ) ( 2,898 ) Payments of finance lease obligations ( 4,264 ) ( 33,107 ) Purchase of noncontrolling interests ( 95,567 ) ( 324 ) Distributions to noncontrolling interests ( 3,652 ) ( 3,963 ) Other financing activities — 41 Net cash used in financing activities ( 112,715 ) ( 49,357 ) Effect of exchange rate changes on cash 1,765 ( 5,137 ) Change in cash held for sale ( 4,130 ) — Net (decrease) increase in cash and cash equivalents ( 165,774 ) 48,136 Cash and cash equivalents at beginning of period 277,053 183,023 Cash and cash equivalents at end of period $ 111,279 $ 231,159 See accompanying notes. 6 CIMPRESS PLC CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited in thousands) Six Months Ended December 31, 2022 2021 Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 50,820 $ 49,687 Income taxes 11,166 15,825 Non-cash investing and financing activities Property and equipment acquired under finance leases 8,643 3,596 Amounts accrued related to property, plant and equipment 9,903 9,818 Amounts accrued related to capitalized software development costs 82 475 Amounts accrued related to business acquisitions 6,838 52,677 See accompanying notes. 7 CIMPRESS PLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited in thousands, except share and per share data) 1. Description of the Business Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization of printing and related products, via which we deliver large volumes of individually small-sized customized orders. Our products include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, and other categories. Mass customization is a core element of the business model of each Cimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of Cimpress plc, its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and for which the related equity securities do not have a readily determinable fair value, are included in other assets on the consolidated balance sheets; otherwise the investments are recognized by applying equity method accounting. Our equity method investments are included in other assets on the consolidated balance sheets. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates. Mandatorily Redeemable Noncontrolling Interests Noncontrolling interests held by third parties in consolidated subsidiaries are considered mandatorily redeemable when they are subject to an unconditional obligation to be redeemed by both parties. The redeemable noncontrolling interest must be required to be repurchased on a specified date or on the occurrence of a specified event that is certain to occur and is to be redeemed via the transfer of assets. Mandatorily redeemable noncontrolling interests are presented as liability-based financial instruments and are re-measured on a recurring basis to the expected redemption value. During the second quarter of fiscal 2023, the exercise of put options by the minority shareholders of three PrintBrothers businesses to redeem a portion of their equity interests triggered a mandatory redemption feature for the remaining minority interests after exercise. As such, we reclassified the remaining minority equity interests from redeemable noncontrolling interest to mandatorily redeemable noncontrolling interest, which is presented as part of other liabilities on the consolidated balance sheets. Refer to Note 10 for additional details. 8 Marketable Securities We hold certain investments that are classified as held-to-maturity (HTM) as we have the intent and ability to hold them to their maturity dates. Our policy is to invest in the following permitted classes of assets: overnight money market funds invested in U.S. Treasury securities and U.S. government agency securities, U.S. Treasury securities, specifically U.S. Treasury bills, notes, and bonds, U.S. government agency securities, bank time deposits, commercial paper, corporate notes and bonds, and medium term notes. We invest in securities with a maturity of two years or less. As the investments are classified as held-to-maturity they are recorded at amortized cost and interest income is recorded as it is earned within interest expense, net. We will continue to assess our securities for impairment when the fair value is less than amortized cost to determine if any risk of credit loss exists. As our intent is to hold the securities to maturity, we must assess whether any credit losses related to our investments are recoverable and determine if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We did not record an allowance for credit losses and we recognized no impairments for these marketable securities during the three and six months ended December 31, 2022 and 2021. The following is a summary of the net carrying amount, unrealized gains, unrealized losses, and fair value of held-to-maturity securities by type and contractual maturity as of December 31, 2022 and June 30, 2022. December 31, 2022 Amortized cost Unrealized losses Fair value Due within one year or less: Commercial paper $ 40,985 $ ( 227 ) $ 40,758 Corporate debt securities 39,821 ( 304 ) 39,517 U.S. government securities 4,264 ( 66 ) 4,198 Total due within one year or less 85,070 ( 597 ) 84,473 Due between one and two years: Corporate debt securities 12,144 ( 253 ) 11,891 U.S. government securities 4,963 ( 80 ) 4,883 Total due within between one and two years 17,107 ( 333 ) 16,774 Total held-to-maturity securities $ 102,177 $ ( 930 ) $ 101,247 June 30, 2022 Amortized cost Unrealized losses Fair value Due within one year or less: Corporate debt securities $ 49,952 $ ( 546 ) $ 49,406 Total held-to-maturity securities $ 49,952 $ ( 546 ) $ 49,406 Other (Expense) Income, Net The following table summarizes the components of other (expense) income, net: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 (Losses) gains on derivatives not designated as hedging instruments (1) $ ( 24,196 ) $ 6,481 $ 4,449 $ 19,808 Currency-related gains, net (2) 6,227 5,551 6,030 5,874 Other gains (losses) 577 807 ( 474 ) 327 Total other (expense) income, net $ ( 17,392 ) $ 12,839 $ 10,005 $ 26,009 _____________________ (1) Includes realized and unrealized gains and losses on derivative currency forward and option contracts not designated as hedging instruments, as well as the ineffective portion of certain interest rate swap contracts that were de-designated from hedge accounting in the prior periods. For contracts not designated as hedging instruments, we realized gains of $ 16,368 and $ 30,988 for the three and six months ended December 31, 2022, and losses of $ 746 and $ 4,418 for the three and six months ended December 31, 2021. Refer to Note 4 for additional details relating to our derivative contracts. 9 (2) Currency-related gains, net primarily relates to significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. In addition, we have a cross-currency swap designated as a cash flow hedge which hedges the remeasurement of an intercompany loan. Refer to Note 4 for additional details relating to this cash flow hedge. Net (Loss) Income Per Share Attributable to Cimpress plc Basic net (loss) income per share attributable to Cimpress plc is computed by dividing net (loss) income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), warrants, and performance share units ("PSUs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive. The following table sets forth the reconciliation of the weighted-average number of ordinary shares: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Weighted average shares outstanding, basic 26,234,747 26,096,786 26,206,782 26,084,518 Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants (1) — 305,917 — 408,740 Shares used in computing diluted net (loss) income per share attributable to Cimpress plc 26,234,747 26,402,703 26,206,782 26,493,258 Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress plc (1)(2) 3,286,936 567,220 2,987,875 292,834 ___________________ (1) In the periods in which a net loss is recognized, the impact of share options, RSUs and warrants is not included as they are anti-dilutive. (2) On May 1, 2020, we entered into a financing arrangement with Apollo Global Management, Inc., which included 7-year warrants with a strike price of $ 60 that have a potentially dilutive impact on our weighted average shares outstanding. For the three and six months ended December 31, 2022, the weighted average anti-dilutive effect of the warrants was 1,055,377 shares in both periods, and 281,884 and 345,722 shares for the three and six months ended December 31, 2021, respectively. Recently Issued or Adopted Accounting Pronouncements Adopted Accounting Standards In December 2022, the FASB issued Accounting Standards Update No. 2022-06 "Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848" (ASU 2022-06), which extends the optional transition relief to ease the potential burden in accounting for reference rate reform on financial reporting. The transition relief is provided through December 30, 2024 based on the expectation that the London Interbank Offered Rate (LIBOR) will cease to be published as of June 30, 2023. We applied the transition guidance to our two Term SOFR interest rate swap contracts this quarter and will apply the guidance when updating existing interest rate swap contracts to index to a replacement rate. There was no material impact on our consolidated financial statements in the periods presented. In May 2021, the FASB issued Accounting Standards Update No. 2021-04 "Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)" (ASU 2021-04), which provides authoritative guidance for the accounting treatment of contracts in an entity's own equity when calculating earnings per share. We adopted the standard on July 1, 2022. We recognize freestanding equity-classified warrants on our consolidated balance sheet and as the standard is applied prospectively, there was no impact on our consolidated financial statements in the current period. Issued Accounting Standards to be Adopted In September 2022, the FASB issued Accounting Standards Update No. 2022-04 "Liabilities - Supplier Finance Programs (Subtopic 405-50)" (ASU 2022-04), which provides authoritative guidance for expanded disclosure requirements for supply chain finance programs. The standard is effective on July 1, 2023. Cimpress 10 businesses have an active supply chain finance program which will require additional disclosure after adoption of this standard. We will include the expanded disclosure requirements starting in the first quarter of fiscal 2024. 3. Fair Value Measurements We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy: December 31, 2022 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Interest rate swap contracts $ 23,550 $ — $ 23,550 $ — Currency forward contracts 4,579 — 4,579 — Currency option contracts 4,514 — 4,514 — Total assets recorded at fair value $ 32,643 $ — $ 32,643 $ — Liabilities Cross-currency swap contracts $ ( 1,313 ) $ — $ ( 1,313 ) $ — Currency forward contracts ( 3,654 ) — ( 3,654 ) — Currency option contracts ( 599 ) — ( 599 ) — Total liabilities recorded at fair value $ ( 5,566 ) $ — $ ( 5,566 ) $ — June 30, 2022 Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets Interest rate swap contracts $ 14,336 $ — $ 14,336 $ — Currency forward contracts 20,638 — 20,638 — Currency option contracts 10,611 — 10,611 — Total assets recorded at fair value $ 45,585 $ — $ 45,585 $ — Liabilities Cross-currency swap contracts $ ( 446 ) $ — $ ( 446 ) $ — Currency forward contracts ( 505 ) — ( 505 ) — Currency option contracts ( 9 ) — ( 9 ) — Total liabilities recorded at fair value $ ( 960 ) $ — $ ( 960 ) $ — 11 During the six months ended December 31, 2022 and year ended June 30, 2022, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications. The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of December 31, 2022, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy. As of December 31, 2022 and June 30, 2022, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximated their estimated fair values. As of December 31, 2022 and June 30, 2022, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $ 1,706,972 and $ 1,705,365 , respectively, and the fair value was $ 1,530,471 and $ 1,600,627 , respectively. Our debt at December 31, 2022 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as fixed-rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. As of December 31, 2022 and June 30, 2022 our held-to-maturity marketable securities were held at an amortized cost of $ 102,177 and $ 49,952 , respectively, while the fair value was $ 101,247 and $ 49,406 , respectively. The securities were valued using quoted prices for identical assets in active markets, which fall into Level 1 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future. 4. Derivative Financial Instruments We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If a derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. We have designated one intercompany loan as a net investment hedge, and any unrealized currency gains and losses on the loan are recorded in accumulated other comprehensive loss. Additionally, any ineffectiveness associated with an effective and designated hedge is recognized within accumulated other comprehensive loss. The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other (expense) income, net. Hedges of Interest Rate Risk We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as 12 cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net. Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of December 31, 2022, we estimate that $ 8,207 will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending December 31, 2023. As of December 31, 2022, we had fourteen effective outstanding interest rate swap contracts. Twelve of our swaps are indexed to USD LIBOR, while the remaining two are indexed to Term SOFR. The transition relief guidance from ASC 848 was applied to designate the two Term SOFR swap contracts that we entered into during the current quarter for hedge accounting. After USD LIBOR sunsets on June 30, 2023, we may convert our contracts to index to Term SOFR, otherwise the contracts will be subject to the fallback language within our credit agreement. Our interest rate swap contracts have varying start and maturity dates through April 2028. Interest rate swap contracts outstanding: Notional Amounts Contracts accruing interest as of December 31, 2022 $ 400,000 Contracts with a future start date 430,000 Total $ 830,000 Hedges of Currency Risk Cross-Currency Swap Contracts From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedged currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency. Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. As of December 31, 2022, we had one outstanding cross-currency swap contract designated as a cash flow hedge with a total notional amount of $ 58,478 , maturing during June 2024. We entered into the cross-currency swap contract to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency. Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income, net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of December 31, 2022, we estimate that $ 1,794 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending December 31, 2023. Other Currency Hedges We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar. These contracts or intercompany loans may be designated as hedges to mitigate the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment. As of December 31, 2022, we have one intercompany loan designated as a net investment hedge with a total notional amount of $ 364,524 that matures in May 2028. We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and six months ended December 31, 2022 and 2021, we experienced volatility within other (expense) 13 income, net, in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program. As of December 31, 2022, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso, Swiss Franc and Swedish Krona: Notional Amount Effective Date Maturity Date Number of Instruments Index $ 534,594 March 2021 through December 2022 Various dates through Dec 2024 536 Various Financial Instrument Presentation The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of December 31, 2022 and June 30, 2022. Our derivative asset and liability balances fluctuate with interest rate and currency exchange rate volatility. December 31, 2022 Asset Derivatives Liability Derivatives Balance Sheet line item Gross amounts of recognized assets Gross amount offset in Consolidated Balance Sheet Net amount Balance Sheet line item Gross amounts of recognized liabilities Gross amount offset in Consolidated Balance Sheet Net amount Derivatives in cash flow hedging relationships Interest rate swaps Other assets $ 23,554 $ ( 4 ) $ 23,550 Other current liabilities / other liabilities $ — $ — $ — Cross-currency swaps Other assets — — — Other liabilities ( 1,313 ) — ( 1,313 ) Total derivatives designated as hedging instruments $ 23,554 $ ( 4 ) $ 23,550 $ ( 1,313 ) $ — $ ( 1,313 ) Derivatives not designated as hedging instruments Currency forward contracts Other current assets / other assets $ 5,920 $ ( 1,341 ) $ 4,579 Other current liabilities / other liabilities $ ( 6,128 ) $ 2,474 $ ( 3,654 ) Currency option contracts Other current assets / other assets 4,537 ( 23 ) 4,514 Other liabilities ( 1,243 ) 644 ( 599 ) Total derivatives not designated as hedging instruments $ 10,457 $ ( 1,364 ) $ 9,093 $ ( 7,371 ) $ 3,118 $ ( 4,253 ) 14 June 30, 2022 Asset Derivatives Liability Derivatives Balance Sheet line item Gross amounts of recognized assets Gross amount offset in Consolidated Balance Sheet Net amount Balance Sheet line item Gross amounts of recognized liabilities Gross amount offset in Consolidated Balance Sheet Net amount Derivatives designated as hedging instruments Derivatives in cash flow hedging relationships Interest rate swaps Other current assets / other assets $ 14,336 $ — $ 14,336 Other current liabilities / other liabilities $ — $ — $ — Cross-currency swaps Other assets — — — Other liabilities ( 446 ) — $ ( 446 ) Total derivatives designated as hedging instruments $ 14,336 $ — $ 14,336 $ ( 446 ) $ — $ ( 446 ) Derivatives not designated as hedging instruments Currency forward contracts Other current assets / other assets $ 24,440 $ ( 3,802 ) $ 20,638 Other current liabilities / other liabilities $ ( 505 ) $ — $ ( 505 ) Currency option contracts Other current assets / other assets 10,612 ( 1 ) 10,611 Other current liabilities / other liabilities ( 9 ) — ( 9 ) Total derivatives not designated as hedging instruments $ 35,052 $ ( 3,803 ) $ 31,249 $ ( 514 ) $ — $ ( 514 ) The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income, net of tax, for the three and six months ended December 31, 2022 and 2021: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Derivatives in cash flow hedging relationships Interest rate swaps $ ( 1,266 ) $ 5,021 $ 11,688 $ 5,540 Cross-currency swaps ( 4,383 ) ( 7,519 ) ( 577 ) ( 9,963 ) Derivatives in net investment hedging relationships Intercompany loan ( 18,636 ) 8,359 ( 5,684 ) 17,386 Currency forward contracts — 2,922 — 6,414 Total $ ( 24,285 ) $ 8,783 $ 5,427 $ 19,377 The following table presents reclassifications out of accumulated other comprehensive loss for the three and six months ended December 31, 2022 and 2021: Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income Affected line item in the Statement of Operations Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Derivatives in cash flow hedging relationships Interest rate swaps $ ( 1,089 ) $ 2,973 $ ( 692 ) $ 5,470 Interest expense, net Cross-currency swaps 4,606 3,821 864 7,808 Other (expense) income, net Total before income tax 3,517 6,794 172 13,278 (Loss) income before income taxes Income tax ( 381 ) 974 26 36 Income tax expense Total $ 3,136 $ 7,768 $ 198 $ 13,314 15 The following table presents the adjustment to fair value recorded within the consolidated statements of operations for the three and six months ended December 31, 2022 and 2021 for derivative instruments for which we did not elect hedge accounting and de-designated derivative financial instruments that did not qualify as hedging instruments. Amount of Gain (Loss) Recognized in Net (Loss) Income Affected line item in the Statement of Operations Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Currency contracts $ ( 24,196 ) $ 7,161 $ 4,449 $ 20,024 Other (expense) income, net Interest rate swaps — ( 680 ) — ( 216 ) Other (expense) income, net Total $ ( 24,196 ) $ 6,481 $ 4,449 $ 19,808 5. Accumulated Other Comprehensive Loss The following table presents a roll forward of amounts recognized in accumulated other comprehensive income (loss) by component, net of tax of $ 3,888 for the six months ended December 31, 2022 : Gains on cash flow hedges (1) Losses on pension benefit obligation Translation adjustments, net of hedges (2) Total Balance as of June 30, 2022 $ 5,179 $ ( 86 ) $ ( 52,221 ) $ ( 47,128 ) Other comprehensive income before reclassifications 11,111 — 7,760 18,871 Amounts reclassified from accumulated other comprehensive loss to net loss 198 — — 198 Net current period other comprehensive income 11,309 — 7,760 19,069 Balance as of December 31, 2022 $ 16,488 $ ( 86 ) $ ( 44,461 ) $ ( 28,059 ) ________________________ (1) Gains on cash flow hedges include our interest rate swap and cross-currency swap contracts designated in cash flow hedging relationships. (2) As of December 31, 2022 and June 30, 2022, the translation adjustment is inclusive of both the unrealized and realized effects of our net investment hedges. Gains on currency forward and swap contracts, net of tax, of $ 15,079 have been included in accumulated other comprehensive loss as of December 31, 2022 and June 30, 2022. Intercompany loan hedge gains of $ 42,519 and $ 51,003 have been included in accumulated other comprehensive loss as of December 31, 2022 and June 30, 2022, respectively. 6. Goodwill The carrying amount of goodwill by reportable segment as of December 31, 2022 and June 30, 2022 was as follows: Vista PrintBrothers The Print Group All Other Businesses Total Balance as of June 30, 2022 $ 291,498 $ 130,828 $ 143,969 $ 200,305 $ 766,600 Adjustments — — — 225 225 Effect of currency translation adjustments (1) 2,384 3,619 3,960 — 9,963 Balance as of December 31, 2022 $ 293,882 $ 134,447 $ 147,929 $ 200,530 $ 776,788 ________________________ (1) Related to goodwill held by subsidiaries whose functional currency is not the U.S. dollar. 16 7. Other Balance Sheet Components Accrued expenses included the following: December 31, 2022 June 30, 2022 Compensation costs $ 67,900 $ 78,521 Income and indirect taxes 55,261 41,886 Advertising costs 20,887 25,925 Shipping costs 13,492 10,228 Third party manufacturing and digital content costs 17,961 15,790 Variable compensation incentives (1) 8,578 — Sales returns 6,686 6,286 Restructuring costs (2) 5,239 13,449 Professional fees 3,998 2,394 Interest payable 2,901 2,477 Other 61,607 56,885 Total accrued expenses $ 264,510 $ 253,841 ______________________ (1) Includes cash-based employee long-term incentives, which are variable based on the performance of individual businesses and vest over four years. (2) Includes accrued restructuring charges related to severance benefits primarily from our fiscal year 2022 actions. Refer to Note 13 for additional details. Other current liabilities included the following: December 31, 2022 June 30, 2022 Current portion of finance lease obligations $ 7,198 $ 6,684 Short-term derivative liabilities 7,593 4,299 Other 16,894 17,052 Total other current liabilities $ 31,685 $ 28,035 Other liabilities included the following: December 31, 2022 June 30, 2022 Long-term finance lease obligations $ 19,935 $ 14,699 Long-term derivative liabilities 2,460 463 Mandatorily redeemable noncontrolling interest (1) 11,724 — Long-term compensation incentives 17,577 19,934 Other 27,966 29,298 Total other liabilities $ 79,662 $ 64,394 ______________________ (1) During the second quarter of fiscal year 2023, we reclassified the noncontrolling interest for three businesses in the PrintBrothers reportable segment to other liabilities, due to the exercise of a put option in the current quarter for a portion of the minority equity interests that triggered a mandatory redemption feature for the remaining minority equity interest. Subsequent to the option exercise, we recognized an accretion adjustment to increase the liability by $ 2,142 to the estimated redemption value due to the businesses' continued strong performance, which is recognized within interest expense, net in our consolidated statements of operations . Refer to Note 10 for additional details. 17 8. Debt December 31, 2022 June 30, 2022 7.0% Senior Notes due 2026 $ 600,000 $ 600,000 Senior secured credit facility 1,100,238 1,097,302 Other 6,734 8,063 Debt issuance costs and debt premiums (discounts) ( 17,695 ) ( 19,417 ) Total debt outstanding, net 1,689,277 1,685,948 Less: short-term debt (1) 10,218 10,386 Long-term debt $ 1,679,059 $ 1,675,562 _____________________ (1) Balances as of December 31, 2022 and June 30, 2022 are inclusive of short-term debt issuance costs, debt premiums and discounts of $ 3,502 and $ 3,498 , respectively. Our various debt arrangements described below contain customary representations, warranties and events of default. As of December 31, 2022, we were in compliance with all covenants in our debt contracts, including those under our amended and restated senior secured credit agreement ("Restated Credit Agreement") and the indenture governing our 2026 Notes (as defined below). Senior Secured Credit Facility On May 17, 2021, we entered into a Restated Credit Agreement consisting of the following: • A senior secured Term Loan B with a maturity date of May 17, 2028 (the “Term Loan B”), consisting of: ◦ a $ 795,000 tranche that bears interest at LIBOR (with a LIBOR floor of 0.50 %) plus 3.50 %, and ◦ a € 300,000 tranche that bears interest at EURIBOR (with a EURIBOR floor of 0 %) plus 3.50 %; and • A $ 250,000 senior secured revolving credit facility with a maturity date of May 17, 2026 (the “Revolving Credit Facility”). Borrowings under the Revolving Credit Facility bear interest at LIBOR (with a LIBOR floor of 0 %) plus 2.50 % to 3.00 % depending on the Company’s First Lien Leverage Ratio, a net leverage calculation, as defined in the Restated Credit Agreement. LIBOR is expected to sunset on June 30, 2023, and under the terms of our Restated Credit Agreement our benchmark rate will automatically transition to Term SOFR. The Restated Credit Agreement contains covenants that restrict or limit certain activities and transactions by Cimpress and our subsidiaries, including, but not limited to, the incurrence of additional indebtedness and liens; certain fundamental organizational changes; asset sales; certain intercompany activities; and certain investments and restricted payments, including purchases of Cimpress plc’s ordinary shares and payment of dividends. In addition, if any loans made under the Revolving Credit Facility are outstanding on the last day of any fiscal quarter, then we are subject to a financial maintenance covenant that the First Lien Leverage Ratio calculated as of the last day of such quarter does not exceed 3.25 to 1.00 . As of December 31, 2022, we have borrowings under the Restated Credit Agreement of $ 1,100,238 consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date of May 17, 2028. We have no outstanding borrowings under our Revolving Credit Facility as of December 31, 2022. As of December 31, 2022, the weighted-average interest rate on outstanding borrowings under the Restated Credit Agreement was 6.52 %, inclusive of interest rate swap rates. We are also required to pay a commitment fee for our Revolving Credit Facility on unused balances of 0.35 % to 0.45 % depending on our First Lien Leverage Ratio. We have pledged the assets and/or share capital of a number of our subsidiaries as collateral for our debt as of December 31, 2022. Senior Unsecured Notes We have issued $ 600,000 in aggregate principal of 7.0% Senior Notes due 2026 (the "2026 Notes"), which are unsecured. We can redeem some or all of the 2026 Notes at the redemption prices specified in the indenture that governs the 2026 Notes, plus accrued and unpaid interest to, but not including, the redemption date. As of December 31, 2022, we have not redeemed any of the 2026 Notes. 18 Other Debt Other debt consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments. As of December 31, 2022 and June 30, 2022, we had $ 6,734 and $ 8,063 , respectively, outstanding for those obligations that are payable through March 2027. 9. Income Taxes Our income tax expense was $ 126,129 and $ 135,494 for the three and six months ended December 31, 2022, respectively, as compared to $ 17,298 and $ 26,679 for the three and six months ended December 31, 2021, respectively. Tax expense increased year over year for both comparable periods due to the Swiss valuation allowance, discussed below, offset by lower tax expense on decreased profits. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is lower for fiscal year 2023 as compared to fiscal year 2022 primarily due to a forecasted pre-tax loss. 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. During the second quarter of fiscal year 2023, we recorded a full valuation allowance on Swiss deferred tax assets of $116,694 primarily related to Swiss tax reform benefits recognized in fiscal year 2020 and tax loss carryforwards. Management concluded that based on the current period results, that objective and verifiable negative evidence of recent losses in Switzerland outweighed more subjective positive evidence of anticipated future income. As of December 31, 2022 we had unrecognized tax benefits of $ 15,852 , including accrued interest and penalties of $ 1,658 . We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. If recognized, $ 7,777 of unrecognized tax benefits would reduce our tax expense. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months in the range of $ 370 to $ 420 related to the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties. We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2014 through 2022 remain open for examination by the U.S. Internal Revenue Service and the years 2015 through 2022 remain open for examination in the various states and non-U.S. tax jurisdictions in which we file tax returns. We believe that our income tax reserves are adequately maintained 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 there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows. 10. Noncontrolling Interests Redeemable Noncontrolling Interests For some of our subsidiaries, we own a controlling equity stake, and a third party or key members of the business management team own a minority portion of the equity. The put options for several of our noncontrolling interests were exercised during the current quarter as summarized below. In addition to the noncontrolling interests described below, we also have several less significant minority interests that span multiple businesses and reportable segments. PrintBrothers Members of the PrintBrothers management team hold minority equity interests in several businesses within the reportable segment. During the second quarter of fiscal year 2023, put options were exercised by the minority interest holders for a portion of their equity interests that required us to purchase 10 % to 11 % in three of the respective businesses for a total of $ 90,841 . The exercise of the put options triggered a mandatory redemption feature for the remaining minority equity interests, which requires the purchase of the remaining 1% equity interests on the third anniversary of the put option exercise, absent the earlier exercise of a call option on the first and second anniversaries by Cimpress. The remaining noncontrolling interests are mandatorily redeemable, which requires the reclassification of the remaining equity interests to a liability, which has been presented in other liabilities within our consolidated balance sheet. 19 The following table presents the reconciliation of changes in our redeemable noncontrolling interests: Redeemable Noncontrolling Interest Balance as of June 30, 2022 $ 131,483 Net income attributable to noncontrolling interests 2,160 Distribution to noncontrolling interests (1) ( 3,652 ) Purchase of noncontrolling interest (2) ( 95,567 ) Accretion to redemption value (3) ( 7,455 ) Reclassification to mandatorily redeemable noncontrolling interest (4) ( 9,582 ) Foreign currency translation ( 4,822 ) Balance as of December 31, 2022 $ 12,565 _________________ (1) Distributions to noncontrolling interests include contractually required profit sharing payments made annually to the minority interest holders in one of the PrintBrothers businesses. (2) As discussed above, we purchased an additional 10% to 11% of the equity interests in three PrintBrothers businesses during the second quarter of fiscal year 2023. We also purchased the 1% minority interest in our BuildASign business this quarter. (3) Accretion of redeemable noncontrolling interests to redemption value recognized in retained earnings is the result of changes in the estimated redemption amount to the extent increases do not exceed the estimated fair value. (4) During the second quarter of fiscal year 2023, the minority equity interest holders of three PrintBrothers businesses exercised a put option that triggered a mandatory redemption feature for the remaining minority equity interests. The remaining minority equity interests were reclassified to mandatorily redeemable noncontrolling interests, as part of other liabilities within the consolidated balance sheets. Refer above for additional information regarding the transaction and Note 7 for additional details about the reclassified liability balance. 11. Segment Information Our operating segments are based upon the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance. As of December 31, 2022, we have numerous operating segments under our management reporting structure which are reported in the following five reportable segments: • Vista - Vista is the parent brand of multiple offerings including VistaPrint, VistaCreate, 99designs by Vista, Vista Corporate Solutions, and Depositphotos, which together represent a full-service design, digital and print solution, elevating small businesses’ presence in physical and digital spaces and empowering them to achieve success. • PrintBrothers - Includes the results of our druck.at, Printdeal, and WIRmachenDRUCK businesses. • The Print Group - Includes the results of our Easyflyer, Exaprint, Pixartprinting, and Tradeprint businesses. • National Pen - Includes the global operations of our National Pen business, which manufactures and markets custom writing instruments and promotional products, apparel and gifts. • All Other Businesses - Includes two businesses grouped together based on materiality. In addition to BuildASign, which is a larger and profitable business, the All Other Businesses reportable segment consists of another, smaller business that we continue to manage at a relatively modest operating loss. ◦ BuildASign is an internet-based provider of canvas-print wall décor, business signage and other large-format printed products, based in Austin, Texas. ◦ Printi is an online printing leader in Brazil, which offers a superior customer experience with transparent and attractive pricing, reliable service and quality. 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 20 consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs. The expense value of our PSU awards is based on a Monte Carlo fair value analysis and is required to be expensed on an accelerated basis. In order to ensure comparability in measuring our businesses' results, we allocate the straight-line portion of the fixed grant value to our businesses. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated expense profile of the awards is recognized within central and corporate costs. Our definition of segment EBITDA is GAAP operating income excluding certain items, such as depreciation and amortization, expense recognized for contingent earn-out related charges including the changes in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment, share-based compensation related to investment consideration, certain impairment expense, and restructuring charges. We include insurance proceeds that are not recognized within operating income. We do not allocate non-operating income, including realized gains and losses on currency hedges, to our segment results. During the fourth quarter of fiscal 2022, we revised our internal reporting to reallocate certain third-party technology costs that were previously held within our Central and corporate costs to our Vista business and reportable segment. These include certain third-party costs that are variable in nature and the cost variability is primarily driven by decisions or volumes in the Vista business. We revised our presentation of the prior period results to reflect our updated segment reporting, which decreased both Vista segment EBITDA and Central and corporate costs by $ 1,923 and $ 3,042 for the three and six months ended December 31, 2021. Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment. We do present other segment information to the CODM, which includes purchases of property, plant and equipment and capitalization of software and website development costs, and therefore include that information in the tables below. Revenue by segment is based on the business-specific websites or sales channel through which the customer’s order was transacted. The following tables set forth revenue by reportable segment, as well as disaggregation of revenue by major geographic region and reportable segment. Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Revenue: Vista $ 437,736 $ 448,114 $ 807,105 $ 797,594 PrintBrothers 148,598 137,694 281,297 263,051 The Print Group 89,336 90,130 166,159 162,950 National Pen 120,621 124,717 202,287 193,981 All Other Businesses 59,998 57,719 111,825 105,590 Total segment revenue 856,289 858,374 1,568,673 1,523,166 Inter-segment eliminations (1) ( 11,087 ) ( 8,658 ) ( 20,056 ) ( 15,851 ) Total consolidated revenue $ 845,202 $ 849,716 $ 1,548,617 $ 1,507,315 _____________________ (1) Refer to the "Revenue by Geographic Region" tables below for detail of the inter-segment revenue within each respective segment. 21 Three Months Ended December 31, 2022 Vista PrintBrothers The Print Group National Pen All Other Total Revenue by Geographic Region: North America $ 291,885 $ — $ — $ 62,208 $ 52,200 $ 406,293 Europe 110,143 148,089 86,291 50,799 — 395,322 Other 35,206 — — 2,130 6,251 43,587 Inter-segment 502 509 3,045 5,484 1,547 11,087 Total segment revenue 437,736 148,598 89,336 120,621 59,998 856,289 Less: inter-segment elimination ( 502 ) ( 509 ) ( 3,045 ) ( 5,484 ) ( 1,547 ) ( 11,087 ) Total external revenue $ 437,234 $ 148,089 $ 86,291 $ 115,137 $ 58,451 $ 845,202 Six Months Ended December 31, 2022 Vista PrintBrothers The Print Group National Pen All Other Total Revenue by Geographic Region: North America $ 558,371 $ — $ — $ 111,655 $ 95,492 $ 765,518 Europe 180,639 280,471 161,282 75,744 — 698,136 Other 67,083 — — 4,682 13,198 84,963 Inter-segment 1,012 826 4,877 10,206 3,135 20,056 Total segment revenue 807,105 281,297 166,159 202,287 111,825 1,568,673 Less: inter-segment elimination ( 1,012 ) ( 826 ) ( 4,877 ) ( 10,206 ) ( 3,135 ) ( 20,056 ) Total external revenue $ 806,093 $ 280,471 $ 161,282 $ 192,081 $ 108,690 $ 1,548,617 Three Months Ended December 31, 2021 Vista PrintBrothers The Print Group National Pen All Other Total Revenue by Geographic Region: North America $ 289,615 $ — $ — $ 57,976 $ 51,035 $ 398,626 Europe 117,627 137,173 87,596 53,797 — 396,193 Other 39,767 — — 9,229 5,901 54,897 Inter-segment 1,105 521 2,534 3,715 783 8,658 Total segment revenue 448,114 137,694 90,130 124,717 57,719 858,374 Less: inter-segment elimination ( 1,105 ) ( 521 ) ( 2,534 ) ( 3,715 ) ( 783 ) ( 8,658 ) Total external revenue $ 447,009 $ 137,173 $ 87,596 $ 121,002 $ 56,936 $ 849,716 Six Months Ended December 31, 2021 Vista PrintBrothers The Print Group National Pen All Other Total Revenue by Geographic Region: North America $ 534,064 $ — $ — $ 99,014 $ 92,343 $ 725,421 Europe 189,160 262,301 158,751 74,648 — 684,860 Other 72,563 — — 12,762 11,709 97,034 Inter-segment 1,807 750 4,199 7,557 1,538 15,851 Total segment revenue 797,594 263,051 162,950 193,981 105,590 1,523,166 Less: inter-segment elimination ( 1,807 ) ( 750 ) ( 4,199 ) ( 7,557 ) ( 1,538 ) ( 15,851 ) Total external revenue $ 795,787 $ 262,301 $ 158,751 $ 186,424 $ 104,052 $ 1,507,315 22 The following table includes segment EBITDA by reportable segment, total income from operations and total (loss) income before income taxes: Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Segment EBITDA: Vista $ 55,157 $ 90,766 $ 85,894 $ 157,686 PrintBrothers 19,509 18,605 34,500 34,888 The Print Group 13,681 16,358 25,901 30,747 National Pen 24,783 31,599 23,486 23,551 All Other Businesses 5,406 6,264 11,584 11,155 Total segment EBITDA 118,536 163,592 181,365 258,027 Central and corporate costs ( 33,802 ) ( 34,703 ) ( 68,380 ) ( 68,856 ) Depreciation and amortization ( 40,874 ) ( 45,314 ) ( 81,816 ) ( 89,746 ) Certain impairments and other adjustments 925 2,713 ( 2,531 ) 3,493 Restructuring-related charges ( 11,207 ) ( 307 ) ( 13,027 ) 2 Total income from operations 33,578 85,981 15,611 102,920 Other (expense) income, net ( 17,392 ) 12,839 10,005 26,009 Interest expense, net ( 28,597 ) ( 25,369 ) ( 53,403 ) ( 51,057 ) (Loss) income before income taxes $ ( 12,411 ) $ 73,451 $ ( 27,787 ) $ 77,872 Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Depreciation and amortization: Vista $ 14,193 $ 17,563 $ 28,863 $ 33,966 PrintBrothers 5,149 5,106 9,922 10,340 The Print Group 5,799 6,612 11,661 13,196 National Pen 5,795 6,220 11,686 12,128 All Other Businesses 4,326 4,381 8,842 9,423 Central and corporate costs 5,612 5,432 10,842 10,693 Total depreciation and amortization $ 40,874 $ 45,314 $ 81,816 $ 89,746 Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Purchases of property, plant and equipment: Vista $ 6,445 $ 7,881 $ 9,569 $ 10,359 PrintBrothers 1,053 1,204 1,761 2,716 The Print Group 5,270 5,249 10,089 6,677 National Pen 846 1,023 2,447 2,211 All Other Businesses 767 2,157 1,835 3,672 Central and corporate costs 351 401 789 904 Total purchases of property, plant and equipment $ 14,732 $ 17,915 $ 26,490 $ 26,539 23 Three Months Ended December 31, Six Months Ended December 31, 2022 2021 2022 2021 Capitalization of software and website development costs: Vista $ 5,139 $ 8,618 $ 11,774 $ 16,190 PrintBrothers 1,069 236 1,458 468 The Print Group 771 519 1,261 945 National Pen 512 1,053 1,100 1,731 All Other Businesses 899 1,083 1,823 2,267 Central and corporate costs 5,526 4,986 11,830 10,533 Total capitalization of software and website development costs $ 13,916 $ 16,495 $ 29,246 $ 32,134 The following table sets forth long-lived assets by geographic area: December 31, 2022 June 30, 2022 Long-lived assets (1): United States (2) $ 83,937 $ 95,589 Switzerland 74,775 72,394 Netherlands 68,074 67,240 Canada 58,746 58,498 Italy 46,328 48,262 France 25,855 25,383 Jamaica 18,642 18,744 Australia 20,048 17,751 Japan (3) — 11,392 Other 94,263 90,677 Total $ 490,668 $ 505,930 ___________________ (1) Excludes goodwill of $ 776,788 and $ 766,600 , intangible assets, net of $ 131,274 and $ 154,730 , deferred tax assets of $ 9,519 and $ 113,088 , and marketable securities, non-current of $ 17,107 and zero as of December 31, 2022 and June 30, 2022, respectively. (2) The decrease of the United States long-lived assets is primarily driven by the termination of our Waltham, MA lease in August 2022 that resulted in a reduction to the operating lease asset and related leasehold improvements. (3) The decrease in Japan's long-lived assets is due to the planned sale of the land and building, which resulted in the reclassification of the carrying value to prepaid expenses and other current assets because it meets held-for-sale criteria during the current quarter. Refer to Note 13 for additional details. 12. Commitments and Contingencies Purchase Obligations At December 31, 2022, we had unrecorded commitments under contract of $ 235,619 , including third-party cloud services of $ 87,452 ; inventory, third-party fulfillment and digital service purchase commitments of $ 69,588 ; software of $ 28,874 ; advertising of $ 20,862 ; production and computer equipment purchases of $ 5,798 ; professional and consulting fees of $ 4,206 , and other unrecorded purchase commitments of $ 18,839 . Other Obligations We deferred payments for several of our acquisitions, resulting in the recognition of a liability of $ 6,838 as of December 31, 2022, which primarily relates to a deferred payment for our acquisition of Depositphotos that is expected to be paid during the third quarter of fiscal 2023. Legal Proceedings We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or 24 financial position. For all legal matters, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred. 13. Restructuring Charges Restructuring costs include one-time employee termination benefits, acceleration of share-based compensation, write-off of assets, costs to exit loss-making operations, and other related costs including third-party professional and outplacement services. All restructuring costs are excluded from segment and adjusted EBITDA. During the three and six months ended December 31, 2022, we recognized restructuring charges of $ 11,207 and $ 13,027 , respectively, and immaterial charges in the prior comparable periods. For the three and six months ended December 31, 2022, $ 7,265 and $ 8,722 , respectively, were recognized in our Vista reportable segment primarily related to the impairment and write-off of assets associated with our previously announced plan to exit the Japanese market. In addition, we recognized $ 3,561 for the three and six months ended December 31, 2022 within our All Other Businesses reportable segment, which includes losses related to our planned sale of our Chinese business, which closed in January 2023. The remaining costs in the current periods include severance and related benefits associated with previously announced actions in our National Pen reportable segment and in our central and corporate costs. The following table summarizes the restructuring activity during the six months ended December 31, 2022. Severance and Related Benefits Other Restructuring Costs Accrued restructuring liability Balance as of June 30, 2022 $ 13,449 $ — $ 13,449 Restructuring charges 2,335 10,692 13,027 Cash payments ( 9,827 ) — ( 9,827 ) Non-cash charges (1) ( 649 ) ( 10,692 ) ( 11,341 ) Foreign currency translation ( 69 ) — ( 69 ) Balance as of December 31, 2022 $ 5,239 $ — $ 5,239 ________________ (1) During the three and six months ended December 31, 2022, non-cash restructuring charges primarily includes the loss recorded on assets that are held-for-sale for our planned Japan and China exits as described above, and share-based compensation expense upon modification to accelerate the vesting of share-based compensation awards for the actions described above. 25