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Item 7. Management’s Discussion and Analysis

2023-08-04 compared with 2022-08-05 · 173 added, 185 removed, 356 unchanged (50% of the section changed)

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This Report contains forward-looking statements that involve risks and uncertainties.

The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and financial results, the persistence of higher costs and supply chain disruptions and the expected impacts of those costs and disruptions on our business;

our expectations with respect to Vista's brand evolution and design service offerings;

our expectations with respect to National Pen's move from Ireland to the Czech Republic;

the planned divestiture of our YSD business;

our estimates and expectations with respect to our market opportunities, the size and development of our markets, and our market share;

our expectations with respect to our mass customization platform, including our competitive advantage;

our social and environmental goals;

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 financial results, including profitability, cash flows, liquidity, and net leverage;

the expected effects of our cost reductions and recent restructuring, including future cost savings;

our competitive position and the size of our market;

sufficiency of our liquidity position;

legal proceedings;

and sufficiency of our tax reserves and the anticipated benefits of Swiss tax reform.

and sufficiency of our tax reserves.

Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements.

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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 supply chain constraints, inflation, and the ongoing COVID-19 pandemic;

our inability to make the investments that we plan to make or the failure of those investments to achieve the results we expect;

the development, severity, and duration of supply chain constraints, inflation, and the lingering effects of the COVID-19 pandemic;

our inability to make the investments in our business that we plan to make or the failure of those investments to achieve the results we expect;

our failure to execute on the transformation of the Vista business;

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, including possible impacts of the war in Ukraine on Depositphotos' operations;

loss of key personnel or our inability to recruit talented personnel to drive performance of our businesses;

costs and disruptions caused by acquisitions and minority investments;

the failure of businesses we acquire or invest in to perform as expected;

our failure to develop and deploy our mass customization platform or the failure of the platform to drive the efficiencies and competitive advantages we expect;

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and other factors described in this Report and the documents that we periodically file with the SEC.

The Business section of this Report also contains estimates and other statistical data from research we conducted in August 2022 with a third-party research firm, and this data involves a number of assumptions and limitations and contains projections and estimates of the sizes of the opportunities of our markets that are subject to a high degree of uncertainty and should not be given undue weight.

Executive Overview

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.

Cimpress is a strategically focused group of more than ten 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 and services 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, design and digital marketing services, 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.

We discuss mass customization further in the Business section of this Report.

As of June 30, 2023, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments:

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Refer to Note 15 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.

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 have revised our presentation of all prior periods presented to reflect our revised segment reporting, which decreased Vista segment EBITDA and Central and corporate costs by $7.0 million, $6.0 million, and $3.7 million for the years ended June 30, 2022, 2021 and 2020, respectively.

Throughout fiscal year 2022, the effects of the pandemic on Cimpress have generally diminished in terms of its impact on demand, but we experienced volatility throughout the year as COVID-19 variants emerged and government restrictions were put in place, primarily during the third quarter of our current fiscal year.

Our businesses continue to experience supply chain challenges including rising input costs and some areas of

These challenges are a facet of lingering pandemic impacts, and, to a lesser extent, an indirect effect of the Russia-Ukraine conflict, which have created both difficulties and opportunities for Cimpress businesses.

Each of our reportable segments has seen material cost increases of product substrates like paper, production materials like aluminum plates, freight and shipping charges, energy costs and higher compensation costs due to a more competitive labor market.

Our scale-based shared strategic capabilities and supplier relationships provide competitive advantages for our businesses to weather these challenges.

Through data capabilities, our businesses are regularly testing new pricing approaches, and in all businesses there have been pricing increases that are partially offsetting the increased costs.

We announced plans on March 23, 2023 to reduce costs within our Vista business and our central teams and implement organizational changes to support expanded profitability, reduced leverage and increased speed, focus, and accountability.

These plans resulted in a restructuring charge of $30.2 million during fiscal year 2023.

Excluding this restructuring charge, this restructuring action provided a cost savings benefit of approximately $24 million during the current fiscal year due to the timing of the action, and we expect this action to deliver approximately $100 million of annualized pre-tax cost savings in total.

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;

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.

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.

Reconciliations of our non-GAAP financial measures are included within the "Consolidated Results of Operations" and "Additional Non-GAAP Financial Measures" sections of Management's Discussion and Analysis.

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• Revenue increased by 7% to $3,079.6 million.

• Constant-currency revenue increased by 15% and by 13% when excluding the revenue of acquired companies for the first twelve months after acquisition (both non-GAAP financial measures).

• Operating income decreased by $76.2 million to $47.3 million.

• Adjusted EBITDA (a non-GAAP financial measure) decreased by $68.1 million to $281.1 million.

• Diluted net loss per share attributable to Cimpress plc decreased to $(2.08) from $(3.28) in the comparative period.

• Constant-currency revenue increased 11% when excluding the revenue of acquired companies for the first twelve months after acquisition (a non-GAAP financial measure).

• Operating income increased by $10.0 million to $57.3 million.

• Adjusted EBITDA (a non-GAAP financial measure) increased by $58.8 million to $339.8 million.

• Diluted net loss per share attributable to Cimpress plc increased to $7.08 from $2.08 in the prior fiscal year.

• Cash provided by operating activities decreased by $89.2 million to $130.3 million.

• Adjusted free cash flow (a non-GAAP financial measure) decreased by $81.5 million to $18.7 million.

For fiscal year 2022, the increase in reported revenue was primarily due to the continued recovery of demand.

Reported revenue benefited from our recent acquisitions, with the majority of the additional revenue attributable to Depositphotos, which was acquired on October 1, 2021 and is included in our Vista business.

Recent new product introduction, strong growth of volume, and an uptick in orders due to supply chain constraints that turned new customers to our businesses all drove growth in our reported revenue year over year.

Pricing changes also improved our revenue, as these actions were one tool we used to mitigate inflationary cost pressures that have arisen from ongoing supply chain challenges.

These benefits were slightly offset by revenue for face masks decreasing $85.3 million compared to the prior year because demand for pandemic-related products has diminished.

Currency exchange fluctuations also had a negative effect during the current year.

For the year ended June 30, 2022, the decrease in operating income was primarily due to increased investments in our Vista business.

These investments include hiring across several strategic initiatives, as well as increased advertising spend driven by mid- and upper-funnel advertising and higher performance advertising driven by expanded payback thresholds compared to the prior year.

The current year was also negatively impacted by inflationary cost pressures, which were not fully mitigated through price increases.

We also recognized an increase in restructuring charges of $12.0 million, primarily relating to actions taken in our Vista business and central teams, as well as higher share based compensation expense primarily driven by increased headcount in areas in which we continue to invest.

These items were partially offset by an increase to gross profit driven by the revenue growth described above, as well as the non-recurrence of a $19.9 million lease-related impairment in the prior year.

Adjusted EBITDA decreased year over year, primarily for the same reasons operating income decreased.

For the year ended June 30, 2023, the increase in reported revenue was primarily due to growth across all businesses and markets through increased pricing and customer demand.

Revenue growth in our Vista business was driven by increases in new customer count as well as new and repeat customer bookings across most major markets.

Promotional products, apparel, and gifts (PPAG) was our fastest-growing product category, with business cards, marketing materials, packaging and labels, and signage all showing strong year-over-year growth;

however, constant-currency revenue from consumer products has declined from the prior year.

Pricing changes made during the past year across all reportable segments improved our revenue on a year-over-year basis, as these actions were one tool we used to mitigate inflationary cost pressures that have arisen from ongoing supply chain challenges.

Currency exchange fluctuations had a negative effect on revenue growth during the current fiscal year.

The increase to operating income during the year ended June 30, 2023 was driven by gross profit growth as we benefited from higher volumes and the reduced net impact of cost inflation including through improved pricing.

We also realized cost efficiencies in advertising spend during the current year.

These items were partially offset by an increase in restructuring charges of $30.2 million, primarily related to actions taken in March 2023 to reduce costs in the Vista business and in our central teams.

These restructuring charges were offset in part by a partial year of savings from the related actions.

Adjusted EBITDA increased for the year ended June 30, 2023, primarily driven by the gross profit growth described above, as well the $13.7 million net benefit of currency on consolidated adjusted EBITDA year over year.

Adjusted EBITDA excludes restructuring charges, share-based compensation expense, certain impairments, and non-cash gains on the sale of assets, 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 a benefit of approximately $5.9 million.

Diluted net loss per share attributable to Cimpress plc decreased for the year ended June 30, 2022 due to unrealized currency gains caused by exchange rate volatility, decreased interest expense driven by our fourth quarter fiscal year 2021 debt refinancing which also caused a non-recurring $48.3 million loss on debt extinguishment in the prior-year period.

This was partially offset by the decrease in operating income as described above and increased income tax expense that was impacted by the current year valuation allowance that related to Swiss tax reform benefits.

Cash from operations decreased $45.7 million year over year due to the decrease in operating income described above, partially offset by increased working capital inflows and $12.1 million of proceeds from the early settlement of certain derivatives.

Adjusted free cash flow decreased by $65.6 million, due to the operating cash flow decrease described above, as well as a $15.5 million increase in capital expenditures and a $4.4 million increase in capitalized software expenditures.

Information pertaining to fiscal year 2020 was included in our Annual Report on Form 10-K for the year ended June 30, 2020 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on August 11, 2020.

Diluted net loss per share attributable to Cimpress plc increased for the year ended June 30, 2023, primarily due to an increase in income tax expense of $95.6 million, driven by our conclusion that Swiss deferred tax assets' recognition was no longer supported, which caused the recognition of a valuation allowance against these assets during the second quarter of the current fiscal year;

higher interest expense driven by an increased weighted-average interest rate;

and the effects of lower unrealized currency gains caused by exchange rate volatility.

Partially offsetting these items was the increase to operating income as described above, as well as a $6.8 million gain on the repurchase of a portion of our senior unsecured notes during the fourth quarter of the current fiscal year.

Refer to Note 10 of our accompanying consolidated financial statements for additional details.

During the year ended June 30, 2023, cash from operations decreased $89.2 million year over year due primarily to $113.3 million of lower working capital inflows, which was largely influenced by the timing impacts of payables.

In addition, the decrease was also driven by higher restructuring payments of $36.9 million, due to actions taken to reduce costs over the past year, as well as higher net cash interest payments of $7.6 million.

Adjusted free cash flow decreased year over year by $81.5 million for the year ended June 30, 2023, due to the operating cash flow decrease described above, partially offset by lower capitalized software and capitalized expenditures.

Consolidated Results of Operations

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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 year ended June 30, 2022 and 2021 are shown in the following table:

Total revenue and revenue growth by reportable segment for the years ended June 30, 2023, 2022, and 2021 are shown in the following table:

In thousands Year Ended June 30, Currency

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Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.

For example, revenue from 99designs, which we acquired on October 1, 2020 in Q2 2021, is excluded from revenue growth in Q1 of fiscal year 2022 since there are no full quarter results in the comparable period, but revenue is included in revenue growth for Q2 through Q4 of fiscal year 2022.

Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.

We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented.

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% of revenue 53.3 % 51.7 % 50.5 %

For the year ended June 30, 2022, cost of revenue increased by $192.8 million, primarily due to demand-dependent cost of goods sold, including third-party fulfillment, material and shipping costs.

During the current fiscal year, we've experienced increasing impacts from global supply chain challenges that resulted in increased costs for product substrates like paper, production materials like aluminum plates, freight and shipping charges, and energy costs.

Compensation costs are also higher due to a more competitive labor market.

The overall impact of increased costs, net of pricing and manufacturing efficiencies, had varying impacts on our businesses during the year ended June 30, 2022.

It remains a challenging environment, and we expect higher input costs and supply constraints to persist, although we are unable to predict for how long.

We believe we are advantaged in this environment versus smaller competitors because our scale provides us with a stronger supplier negotiation position for both costs and availability of supply.

For the year ended June 30, 2023, cost of revenue increased by $147.9 million as compared to the prior year, primarily due to additional variable cost increases driven by the constant-currency revenue growth described above, as well as continued effects of global supply chain challenges that resulted in increased costs for product substrates like paper, production materials like aluminum plates, freight and shipping charges, and energy costs.

Although input costs were higher year over year, we started to see some easing across many product substrates during the second half of the current fiscal year, and we began to pass the anniversary of input cost increases, so the year-over-year impact lessened.

Compensation costs were also higher due to the combination of a more competitive labor market and the inflationary environment in many jurisdictions where we operate.

The compensation cost increases were partially offset by savings for a portion of the year that resulted from the March 2023 cost reduction actions.

Consolidated Operating Expenses

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_____________________

(1) Refer to Note 8 in our accompanying consolidated financial statements for additional details relating to the amortization of acquired intangibles and goodwill impairment charges.

(2) Refer to Note 18 in our accompanying consolidated financial statements for additional details relating to restructuring expense.

(1) Refer to Note 8 in our accompanying consolidated financial statements for additional details relating to the amortization of acquired intangible assets.

(2) During the fourth quarter of fiscal 2023, we recognized a goodwill impairment charge of $5.6 million, which related to one of our small businesses that is a part of our All Other Businesses reportable segment.

Refer to Note 8 in the accompanying consolidated financial statements for additional details.

Technology and development expense

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Technology and development expenses increased by $9.4 million for the year ended June 30, 2023 as compared to the prior year.

This increase is primarily driven by $28.5 million higher compensation costs due to increased investment from hiring, impacts of our annual merit cycle and prior-year delay of our share-based compensation grants to the middle of the third quarter of fiscal year 2021, mainly in the Vista business and our central technology group.

Other operating costs increased in part due to increases in demand, as well as higher travel and training costs as pandemic restrictions diminished in the current year.

This increase is primarily driven by higher volume-related third-party technology costs due in part to increased customer demand.

In addition, amortization expense from capitalized software increased $3.6 million, driven by the higher capitalized asset base, as well as other operating cost increases due to higher travel and training costs.

These increases were partially offset by lower compensation costs year-over-year of $0.8 million, due to cost savings resulting from recent restructuring actions that reduced headcount, which more than offset increases from our inflation-adjusted annual merit cycle and market adjustments.

We also benefited from lower building costs, driven by actions taken over the past year to further optimize our real estate footprint for many of our team members operating under a remote-first model.

Marketing and selling expense

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Our Vista, 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 due to differences in the customers that they serve.

For the year ended June 30, 2022, marketing and selling expenses increased $140.9 million as compared to the prior year.

The largest increase in marketing and selling expenses was in our Vista business which had increased internal marketing and customer service costs of $52.1 million and increased advertising costs of $51.1 million.

The increases to Vista spend were primarily driven by growth in headcount for areas such as user experience design, brand and data and analytics, higher performance advertising from increased customer demand and expanded payback thresholds as well as higher mid- and upper-funnel advertising.

Advertising expense also increased for our remaining businesses in total by $28.7 million for the year ended June 30, 2022, due to higher demand and more normalized payback thresholds in the current year.

For the year ended June 30, 2023, marketing and selling expenses decreased by $15.3 million as compared to the prior year.

The decreased expense was due to lower compensation costs of $13.4 million due in part to recent cost reduction actions.

Other cost decreases include lower third-party consulting spend, mainly in our Vista business, and less building costs driven by actions taken over the past year to further optimize our real estate footprint for many of our team members operating under a remote-first model.

These cost decreases were partially offset by higher advertising spend of $9.3 million across Cimpress, including increases in mid- and upper-funnel spend, partially offset by lower performance advertising in Vista.

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 year ended June 30, 2022, general and administrative expenses increased by $1.7 million as compared to the prior year, driven primarily by increases of $16.7 million to compensation costs from impacts of our annual merit cycle, increased expense for cash-based long-term incentive awards driven by additional vesting and business performance, as well as higher headcount year over year.

Share-based compensation costs also increased $3.6 million due to the prior year's delayed timing of the annual grant cycle, mainly in our Vista business and our central teams.

The current fiscal year benefited from a non-cash gain of $3.3 million recognized during the second fiscal quarter as a result of our purchase and sale of a previously leased facility.

The year-over-year increase was almost fully offset by the non-recurrence of lease-related impairment and abandonment charges that were recognized in the prior year of $19.9 million.

Refer to Note 2 of the accompanying consolidated financial statements for additional details.

For the year ended June 30, 2023, general and administrative expenses increased by $11.9 million as compared to the prior year.

Compensation costs increased year over year from higher headcount and the impacts of our inflation-adjusted annual merit cycle, partially offset by savings from recent cost reduction actions.

Other cost increases included higher travel and training costs and consulting spend.

We also recognized an additional $2.2 million of expense related to the termination of one of our leased office locations as we continue to optimize our office footprint with many of our team members operating under a remote-first model.

This incremental expense was partially offset by lower building costs due to the termination.

The increases were partially offset by lower share-based compensation expense due to forfeitures from our recent restructuring actions, as well as favorability due to different timing of expense from our granting of restricted share units, or RSUs, and share options for most employees during the current year, as compared to performance share units, or PSUs, in prior years.

Restructuring expense

Restructuring costs include 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.

For the year ended June 30, 2023, restructuring expenses increased by $30.2 million as compared to the prior year.

This increase is largely driven by $30.2 million of costs related to the previously described action taken in our Vista business and central teams during March 2023 that were intended to reduce costs and support expanded profitability, reduced leverage, and increased speed, focus, and accountability.

The remaining increase relates to other actions announced in the fourth quarter of fiscal year 2022 to prioritize our investments and exit the Japanese and Chinese markets.

Refer to Note 18 in the 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.

Other income, net

Other income, net generally consists of gains and losses from currency exchange rate fluctuations on

transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments.

In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden.

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Currency-related gains, net 16,350 244 1,005

Other gains 3,071 370 1

Other (losses) gains (1,163) 3,071 370

Total other income (expense), net $ 18,498 $ 61,463 $ (19,353)

The increase 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 losses during the current period.

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 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 gains due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter from time to time.

We experienced currency-related net gains due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter from time to time.

The impact of certain cross-currency swap contracts designated as cash flow hedges is included in our currency-related gains, 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 decreased by $19.9 million during the year ended June 30, 2022, as compared to the prior year period.

This is primarily due to our Term Loan B refinancing during the fourth quarter of fiscal 2021 that resulted in a reduction to our weighted-average interest rate on our outstanding borrowings in the current year.

Loss on early extinguishment of debt

As part of the fourth quarter fiscal year 2021 amendment and restatement of our senior secured credit agreement, we redeemed $300.0 million of our 12% Senior Secured Notes due 2025.

The loss on extinguishment of debt of $48.3 million during the year ended June 30, 2021, consisted of a $22.3 million accretion adjustment to increase the debt's carrying value to the principal amount, a $17.0 million write-off of unamortized financing fees, and a $9.0 million early redemption fee payment.

Income tax expense (benefit)

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, accretion adjustments related to our mandatorily redeemable noncontrolling interests, and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swap contracts.

Interest expense, net increased by $13.4 million during the year ended June 30, 2023 as compared to the prior year, primarily due to a higher weighted-average interest rate (net of interest rate swaps) and partially offset by an increase in interest income earned on our cash and marketable securities of $7.7 million.

In addition, we recognized expense related to accretion adjustments of $2.3 million during the year ended June 30, 2023 for our mandatorily redeemable noncontrolling interests, which did not occur in the prior year.

Income tax expense

Year Ended June 30,

2023 2022 2021

Income tax expense (benefit) $ 59,901 $ 18,903 $ (80,992)

Income tax expense $ 155,493 $ 59,901 $ 18,903

Effective tax rate (514.5) % 642.0 % (29.7) %

Income tax expense for the year ended June 30, 2022 increased versus the prior comparative period due to establishing a partial valuation allowance on Swiss deferred tax assets of $29.6 million primarily related to Swiss tax reform benefits recognized in fiscal year 2020 and Swiss tax loss carryforwards that we no longer expect to fully realize.

Income tax expense increased for the year ended June 30, 2023 versus the prior comparable period primarily due to recording a full valuation allowance during the year ended June 30, 2023 of $116.7 million on Swiss deferred tax assets related to Swiss Tax Reform benefits recognized in fiscal year 2020 and tax loss carryforwards, partially offset by a partial valuation allowance on Swiss deferred tax assets of $29.6 million recorded during the year ended June 30, 2022.

Management concluded in the second quarter of this fiscal year that based on current period results at that time, that objective and verifiable negative evidence of recent losses in Switzerland outweighed more subjective positive evidence of anticipated future income.

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.

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 13 in our accompanying consolidated financial statements for additional discussion.

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less gain on purchase or sale of subsidiaries.

These third-party costs are variable in nature and the cost variability is primarily driven by decisions or volumes in the Vista business.

We have revised our presentation of all prior periods presented to reflect our revised segment reporting, which decreased Vista segment EBITDA by $7.0 million, $6.0 million and $3.7 million for the years ended June 30, 2022, 2021 and 2020, respectively.

The effects of currency exchange rate fluctuations impact segment EBITDA and we do not allocate to segment EBITDA any gains or losses that are realized by our currency hedging program.

Year Ended June 30,

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Segment Revenue

Vista's reported revenue growth for the year ended June 30, 2022 was negatively affected by a currency impact of 1%.

When excluding the benefit from the recent acquisitions of Depositphotos and 99designs, Vista's organic constant-currency revenue growth was 5%.

Vista's revenue growth accelerated in our European markets during the second half of the fiscal year, while the U.S.

market experienced lower growth driven in part by the decline in revenue from consumer products.

In addition, revenue related to face masks was $69.0 million less than the prior year as the demand for pandemic-related products declined.

From a category perspective, growth was primarily driven by business cards, signage, marketing materials, and promotional products.

Revenue from business cards and small format marketing materials improved year over year, but were still below pre-pandemic levels.

During the current fiscal year we executed on the migration of Vista's customer-facing website in most major markets, including in the United States, to a new platform.

Each launch in the current year created a short-term negative impact on revenue, but every successive launch benefited from the learnings of prior launches to mitigate the impact of migrating in our largest markets.

Vista's reported revenue growth for the year ended June 30, 2023 was negatively affected by a currency impact of 2%, and organic constant-currency revenue growth was 9%.

Constant-currency revenue growth was driven by new customer count and new customer bookings growth across all major markets, as well as increased repeat customer bookings and higher average order values.

From a product perspective, the strongest growth was in the promotional products, apparel, and gifts (PPAG) category, as well as business cards, marketing materials, packaging, and signage.

Revenue from consumer oriented products that include holiday cards, invitations, and announcements declined, particularly in the U.S.

market, which had a more pronounced impact during our seasonally significant second quarter.

For the year ended June 30, 2023, revenue growth described above was partially offset by a decline in face mask sales of $10.3 million as well as lower revenue year over year of $7.2 million due to our exit from the Japanese market.

Segment Profitability

For the year ended June 30, 2022, segment EBITDA declined by $123.4 million, largely driven by increased operating expenses related to growth investments including hiring of talent, especially in user experience, design, product management, and data and analytics.

These organic investments are in support of Vista's multi-year transformation journey to become the expert design and marketing partner to the world's small businesses.

Additionally, Vista's advertising expense increased by $57.1 million, driven by $48.1 million of incremental performance advertising from higher volumes and increased payback thresholds relative to last year and $9.0 million from higher mid- and upper-funnel advertising.

Advertising spend was more constrained during the prior year when the effects of the pandemic on this segment were more severe.

Gross profit was negatively impacted during fiscal year 2022 by significant inflationary cost pressures from higher material, inbound freight, shipping and energy costs.

A small portion of those inflationary pressures were offset by price increases.

These inflationary pressures were more pronounced during the second half of the current fiscal year.

The decline in profitability was also affected by government subsidy benefits in the prior year of $9.0 million that did not recur during the year ended June 30, 2022.

These decreases were partially offset by the profit improvement driven by the revenue growth described above.

For the year ended June 30, 2023, segment EBITDA increased by $28.8 million, due in part to gross profit growth as a result of the revenue growth described above.

Cost inflation had a negative impact on gross profit year over year, but the impacts were more pronounced during the first half of fiscal year 2023, as input costs have started to stabilize and further price increases have been implemented throughout the current fiscal year.

Product mix weighed on Vista's gross margins during the current fiscal year, since the fastest growth was in product categories like PPAG that have lower gross margins despite higher average order values.

Vista's advertising expense decreased by $1.1 million year over year, driven by reductions to performance advertising spend during the second half of the fiscal year, which were offset in part by higher mid- and upper funnel advertising spend, mainly during the first half of fiscal year 2023.

Operating expenses also decreased $13.8 million, largely due to a partial year of cost savings of approximately $20.0 million that resulted from cost reduction actions implemented in March 2023.

Changes in currency exchange rates had a negative impact year over year.

PrintBrothers

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Segment Revenue

PrintBrothers' reported revenue growth for the year ended June 30, 2022 was negatively affected by a currency impact of 8%, resulting in a constant-currency revenue growth of 33%.

This strong growth was driven by past new production introductions and growth in order volumes due in part to supply chain constraints that turned new customers to our businesses.

The PrintBrothers network and relative size allowed these businesses to address opportunities to meet customer demand when competition could not.

In addition, the current year benefited from less-intensive pandemic-related lockdowns than in the prior year, as well as price increases implemented to address inflationary cost increases.

PrintBrothers' reported revenue growth for the year ended June 30, 2023 was negatively affected by currency impacts of 8%.

When excluding the benefit from a small recent acquisition, organic constant-currency revenue growth was 17%.

This strong performance was driven by growth in order volumes and price increases implemented to address inflationary cost increases.

Segment Profitability

PrintBrothers' segment EBITDA during the year ended June 30, 2022, as compared to the prior period, increased despite increased input costs, driven by the constant-currency revenue growth described above, the higher margin impact of new products, and improved efficiencies as the businesses in this segment better leverage their combined capabilities.

Currency exchange rate fluctuations had a negative year-over-year impact.

Despite a challenging supply chain and inflationary environment, PrintBrothers' segment EBITDA for the year ended June 30, 2023 grew year over year, driven by the constant-currency revenue growth described above, as well as profit contribution from a business acquired in the last twelve months.

Currency exchange fluctuations negatively impacted segment EBITDA year over year by $3.8 million.

We continue to focus on key areas within these businesses to exploit scale advantages and improve their cost competitiveness.

These businesses also continue to adopt technologies that are part of our mass customization platform, which we believe will further improve customer value and the efficiency of each business over the long term.

The Print Group

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Segment Revenue

The Print Group's reported revenue for the year ended June 30, 2022 was negatively affected by a currency impact of 7%, resulting in an increase to revenue on a constant-currency basis of 27% due to signs of overall economic recovery in many of the European countries in which we compete, leveraging new products introduced in recent years and growth in order volumes due in part to supply chain constraints that turned new customers to our businesses.

In addition, the current year benefited from less-intensive pandemic-related lockdowns than in the prior year, as well as price increases implemented to address inflationary cost increases.

The Print Group's reported revenue for the year ended June 30, 2023 was negatively affected by a currency impact of 8%, resulting in an increase to revenue on a constant-currency basis of 13%.

Constant-currency revenue growth was largely driven by price increases that have been implemented over the past year to address inflationary cost increases, as well as volume growth and increased order fulfillment for other Cimpress businesses.

Segment Profitability

The increase in The Print Group's segment EBITDA during the year ended June 30, 2022, as compared to the prior year, was primarily driven by the constant-currency revenue growth described above.

In addition, The Print Group continues to benefit from the introduction of new products with higher margins, as well as improved efficiencies as the group better leverages its combined capabilities.

Currency exchange rate fluctuations had a negative year-over-year impact.

The increase in The Print Group's segment EBITDA during the year ended June 30, 2023 as compared to the prior year was largely due to the revenue growth described above, despite higher input costs that are impacted by supply chain disruptions and higher shipping and energy costs, which had a larger impact during the first half of fiscal year 2023.

Currency exchange fluctuations negatively impacted segment EBITDA year over year by $3.9 million.

In thousands Year Ended June 30,

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For the year ended June 30, 2023, National Pen's revenue growth was negatively affected by currency impacts of 5%, resulting in constant-currency revenue growth of 12%.

National Pen's revenue has improved across geographic markets and channels, including web and mail order channels.

This improvement is due to businesses reopening and a return of in-person events in some markets, despite a decline in revenue from pandemic-related products, including a $26.2 million decline of face mask revenue.

Constant-currency revenue growth was driven by price increases that have been implemented over the past year to address inflationary cost increases, as well as volume growth in new product categories that include bags and drinkware.

Year-over-year revenue growth was negatively impacted by our exit from the Japanese market by approximately $11.7 million as well as the decline in face mask sales of approximately $9.2 million.

Segment Profitability

The increase in National Pen's segment EBITDA for the year ended June 30, 2022 was due in part to the revenue increase described above, as well as improvements in gross profit driven by a normalized mix of products and decline in lower-margin pandemic-related products, partially offset by higher freight costs.

National Pen also made permanent cost reductions in the prior year that benefited segment EBITDA for the year ended June 30, 2022.

The increased profitability was also caused by the non-recurrence of the prior years' inventory reserve to reduce the carrying value of disposable masks held in inventory to market prices of $8.2 million.

Currency exchange rate fluctuations had a negative year-over-year impact.

The decrease in National Pen's segment EBITDA for the year ended June 30, 2023 was driven by currency exchange fluctuations that negatively impacted segment EBITDA year over year by $8.1 million.

Excluding the effect of currency, segment EBITDA grew, as a result of contribution profit growth that was due to the revenue growth described above.

During the current fiscal year, duplicative costs from the migration of European manufacturing from Ireland to the Czech Republic lessened contribution profit growth versus the prior year.

Additionally, operating expenses increased year over year due to higher tech spend and customer service costs driven by higher sales volumes, which partially offset the contribution profit growth described above.

All Other Businesses

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% of revenue 12 % 11 % 17 %

This segment consists of BuildASign, which is a larger and profitable business, and two early-stage businesses that we have managed at a relatively modest operating loss as previously described and planned.

During the fourth quarter of fiscal year 2022, we decided to exit our YSD business, which generated a loss of $5.5 million during fiscal year 2022, which we expect to complete in early fiscal year 2023.

This segment includes BuildASign, which is a larger and profitable business, and Printi, an early-stage business that we have managed at a relatively modest operating loss as previously described and planned.

This segment also included results from our YSD business in China that was divested during the third quarter of fiscal year 2023.

Segment Revenue

All Other Businesses' constant-currency revenue growth, excluding the impact of acquisitions, was 3% during the year ended June 30, 2022.

This growth was driven by recovery of demand for both our Printi business and signage products offered by BuildASign, partially offset by a decline in demand for home decor products that had benefited revenue during the pandemic period.

All Other Businesses' constant-currency revenue growth was 4% during the year ended June 30, 2023.

BuildASign generates the majority of revenue in this segment, and grew year over year with mixed performance by product line.

Printi delivered strong revenue growth across product lines and channels supported by price increases implemented over the past year.

Segment Profitability

The decrease in segment EBITDA for the year ended June 30, 2022 was due to a combination of factors including increased advertising spend and inflationary pressures on input costs including shipping, materials and labor during the current period.

The increase in segment EBITDA for the year ended June 30, 2023, as compared to the prior year, was primarily due to the recent divestiture of our small, loss making business in China (YSD), which we completed during the third quarter of fiscal year 2023.

Segment EBITDA for our BuildASign business declined due to lower gross margins driven by higher input costs, including increased labor and marketing costs, which had a larger impact on BuildASign's home decor products.

Central and Corporate Costs

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shared service organizations such as global procurement;

technology services such as hosting and security;

technology services such as 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.

and corporate functions including our tax, treasury, internal audit, legal, sustainability, corporate communications, remote first enablement, consolidated reporting and compliance, investor relations, and the functions of our CEO and CFO.

These costs also include certain unallocated share-based compensation costs.

We have revised our presentation of all prior periods presented to reflect our revised segment reporting.

Refer to Note 15 in our accompanying consolidated financial statements for additional details.

Central and corporate costs increased by $14.6 million during the year ended June 30, 2022, as compared to the prior year, due to the end of temporary cost-control measures from the year-ago period and, to a lesser extent, prior year timing of our annual share-based compensation grant which caused a higher expense rate for accelerated vesting in the first quarter of the current fiscal year than in the comparable period.

In addition, our continued investments in our mass customization platform through additional hiring in cost-efficient talent markets and increased volumes contributed to higher central operating costs year over year.

Central and corporate costs decreased by $10.4 million during the year ended June 30, 2023 as compared to the prior year, driven by favorability from unallocated share-based compensation due to changes in the mix of

equity instruments granted and forfeitures from recent cost reduction actions.

In addition, compensation costs decreased due to savings from recent cost reduction actions, which more than offset the effect of our inflation-adjusted annual merit cycle and higher volume-related technology costs.

Liquidity and Capital Resources

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Cash inflows:

• Adjustments for non-cash items of $194.8 million primarily related to adjustments for depreciation and amortization of $175.7 million, share-based compensation costs of $49.8 million, and deferred taxes of $22.9 million, which were partially offset by negative adjustments for unrealized currency-related gains of $39.9 million and gains on ineffective interest rate swaps of $6.4 million

• Proceeds from the maturity of held-to-maturity securities of $151.2 million

• Total net working capital impacts of $75.4 million were a source of cash.

Accounts payable and accrued expense inflows were partially offset by inventory, accounts receivable and other asset outflows

• The early termination and settlement of derivative contracts resulted in $19.7 million of cash proceeds.

$2.2 million of these cash proceeds was from the termination or settlement of net investment hedges and is presented in investing activities.

The remainder of the cash proceeds are presented in operating activities, a portion of which is included in net working capital

• Proceeds from the sale of assets in the normal course of business of $14.5 million, primarily the sale of land adjacent to one of our production facilities

• Adjustments for non-cash items of $353.9 million primarily related to adjustments for depreciation and amortization of $162.4 million, deferred taxes of $114.9 million, share-based compensation costs of $42.1 million, and unrealized currency-related losses of $22.4 million

• Proceeds from the maturity of held-to-maturity securities of $8.1 million, net of purchases

Cash outflows:

• Net loss of $185.7 million

• Business acquisitions for $75.3 million, net of cash acquired, primarily related to the Depositphotos acquisition

• Exercise of PrintBrothers and BuildASign minority equity interest holders' put options for $95.6 million;

refer to Note 14 in the accompanying consolidated financial statements for additional details

• Internal and external costs of $57.8 million for software and website development that we have capitalized

• Capital expenditures of $53.8 million, of which the majority related to the purchase of manufacturing and automation equipment for our production facilities

• $43.6 million for the payment of purchase consideration included in the 99designs acquisition's fair value

• Repayments of debt for $14.5 million

• Payments for finance lease arrangements, excluding the payment associated with the purchase option exercise included below, of $9.6 million

• Purchase and sale of a previously leased facility that resulted in a net payment of $4.7 million due to our exercise of the lease purchase option and subsequent sale

• A $4.0 million distribution to noncontrolling interest holders

• Repurchases of a portion of our 7.0% Senior Notes due 2026 (the "2026 Notes") of $45.0 million.

Refer to Note 10 in the accompanying consolidated financial statements for additional details.

• Total outflow from net working capital of $37.9 million, primarily due to timing impacts from unfavorable changes to accounts payable and accrued expenses.

• Repayments of debt, net of proceeds from borrowings, of $13.0 million

• Payments for finance lease arrangements of $8.3 million

• $6.9 million for the payment of purchase consideration included in the Depositphotos acquisition's fair value

• Payment of withholding taxes in connection with share awards of $4.4 million

• $1.8 million for the final settlement for the purchase of noncontrolling interests in our PrintBrothers businesses, for which an initial payment was made in fiscal year 2021

• Financing fees of $1.4 million from our fourth quarter fiscal year 2021 credit facility amendment that have been capitalized

• $3.7 million of distributions to noncontrolling interest holders

Additional Liquidity and Capital Resources Information.

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We expect to finance our future operations through our cash, investments, operating cash flow, and borrowings under our debt arrangements.

Noncontrolling Interests.

The put options for several of our noncontrolling interests are exercisable during the first half of fiscal year 2023.

Exercising a put option is at the discretion of each noncontrolling interest holder, which creates uncertainty around the timing of our cash outflow should an option be exercised.

The total estimated redemption value for these noncontrolling interests as of June 30, 2022 is $103.6 million.

Refer to Note 14 in our accompanying consolidated financial statements for additional details.

In light of our recently implemented cost savings measures and our expectation of continued profitability expansion and cash flow generation, we expect our liquidity to increase in fiscal year 2024.

We have historically used excess cash and cash equivalents for organic investments, share repurchases, acquisitions and equity investments, and debt reduction.

During the fourth quarter of fiscal year 2023, we allocated $45.0 million of capital toward the repurchase of a portion of our 2026 Notes.

We expect to continue reducing our net leverage through fiscal year 2024.

Beyond fiscal year 2024, we expect to have the flexibility to opportunistically deploy

capital that enhances our intrinsic value per share even while maintaining leverage similar to or below our pre-pandemic levels.

Indefinitely Reinvested Earnings.

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Purchase commitments 222,860 140,527 56,375 14,958 11,000

Senior unsecured notes and interest payments 768,000 42,000 84,000 642,000 —

2026 Notes and interest payments 663,443 38,381 625,062 — —

Senior secured credit facility and interest payments (2) 1,493,444 95,483 188,515 1,209,446 —

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Finance leases, net of subleases (1) 38,379 9,727 9,606 5,736 13,310

Other 8,425 8,425 — — —

Total (3) $ 2,508,339 $ 309,878 $ 913,654 $ 1,243,507 $ 41,300

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Operating Leases .

We rent office space under operating leases expiring on various dates through 2037.

The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit in the amount of $1.8 million in the aggregate.

We rent manufacturing facilities and office space under operating leases expiring on various dates through 2037.

The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $1.5 million in the aggregate outstanding as of June 30, 2023 .

Purchase Commitments.

At June 30, 2023, we had unrecorded commitments under contract of $222.9 million.

Purchase commitments consisted of inventory, third-party fulfillment and digital service purchase commitments of $124.4 million;

Purchase commitments consisted of third-party fulfillment and digital services of $100.3 million;

third-party cloud services of $74.9 million;

software of $13.7 million;

advertising of $10.1 million;

$23.7 million;

commitments for professional and consulting fees of $6.2 million;

production and computer equipment purchases of $7.1 million;

and other unrecorded purchase commitments of $17.3 million.

production and computer equipment purchases of $3.9 million, and other commitments of $13.8 million.

Senior Secured Credit Facility and Interest Payments.

As of June 30, 2022, we have borrowings under our Restated Credit Agreement of $1,097.3 million consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date of May 17, 2028.

Our $250.0 million revolver under our Restated Credit Agreement has $243.6 million unused as of June 30, 2022.

There are no drawn amounts on the revolver, but our outstanding letters of credit reduce our unused balance.

Our unused balance can be drawn at any time so long as we are in compliance with our debt covenants, and any amounts drawn under the revolver will be due on May 17, 2026.

As of June 30, 2023, we have borrowings under our amended and restated senior secured credit agreement ("Restated Credit Agreement") of $1,098.6 million, consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date of May 17, 2028.

Our $250.0 million senior secured revolving credit facility with a maturity date of May 17, 2026 (the “Revolving Credit Facility") under our Restated Credit Agreement has $244.2 million unused as of June 30, 2023.

There are no drawn amounts on the Revolving Credit Facility, but our outstanding letters of credit reduce our unused balance.

unused balance can be drawn at any time so long as we are in compliance with our debt covenants and 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 (as defined in the Restated Credit Agreement) calculated as of the last day of such quarter shall not exceed 3.25 to 1.00.

Any amounts drawn under the Revolving Credit Facility will be due on May 17, 2026.

Interest payable included in the above table is based on the interest rate as of June 30, 2023 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.

Senior Unsecured Notes and Interest Payments.

Our $600.0 million of 2026 Notes 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.

The LIBOR sunset occurred on June 30, 2023, and, under the terms of our Restated Credit Agreement, our benchmark rate transitioned to Term SOFR in July 2023.

2026 Notes and Interest Payments.

Our $548.3 million 2026 Notes 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.

Debt Covenants.

The Restated Credit Agreement and the indenture that governs our 7.0% Senior Notes due 2026 contain covenants that restrict or limit certain activities and transactions by Cimpress and our subsidiaries.

The Restated Credit Agreement and the indenture that governs our 2026 Notes contain covenants that restrict or limit certain activities and transactions by Cimpress and our subsidiaries.

As of June 30, 2023, we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2026 Notes.

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In addition, we have other debt which consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments.

As of June 30, 2022, we had $8.1 million outstanding for those obligations that have repayments due on various dates through March 2027.

As of June 30, 2023, we had $7.1 million outstanding for those obligations that have repayments due on various dates through September 2027.

Finance Leases.

We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2028.

We lease certain facilities, machinery, and plant equipment under finance lease agreements that expire at various dates through 2028.

The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at June 30, 2023 is $30.6 million, net of accumulated depreciation of $36.5 million.

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Other Obligations.

Other obligations consist of deferred payments relating to previous acquisitions, including the deferred payment relating to our Depositphotos acquisition that is payable in October 2022 and small deferred acquisition liabilities for other, smaller acquisitions.

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

During fiscal year 2023, we made a $6.9 million deferred payment for our Depositphotos acquisition, and there were no outstanding acquisition-related deferred liabilities as of June 30, 2023.

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 defined as GAAP operating income plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance not already included in operating income plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less the gain or loss on purchase or sale of subsidiaries as well as the disposal of assets.

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.

For example, for acquisitions, 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.

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.

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.

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Share-based compensation expense 39,682 49,766 37,034

Earn-out related charges — — (54)

Certain impairments and other adjustments 6,932 (9,709) 20,453

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_________________

(1) These realized gains (losses) include only the impacts of currency derivative contracts that are intended to hedge our exposure to foreign currencies for which we do not apply hedge accounting.

(1) These realized gains (losses) include only the impacts of certain currency derivative contracts that are intended to hedge our adjusted EBITDA exposure to foreign currencies for which we do not apply hedge accounting.

See Note 4 in our accompanying consolidated financial statements for further information.

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Adjusted free cash flow $ 18,730 $ 100,199 $ 165,760

_________________

(1) The decrease of net cash provided by operating activities was driven by the decrease in operating income as described earlier in this section.

Critical Accounting Policies and Estimates

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We record deferred revenue when cash payments are received in advance of our satisfaction of the related performance obligation.

The satisfaction of performance obligations generally occur shortly after cash payment and we expect to recognize our deferred revenue balance as revenue within three months subsequent to June 30, 2021.

The satisfaction of performance obligations generally occur shortly after cash payment and we expect to recognize the majority of our deferred revenue balance as revenue within three months subsequent to June 30, 2023.

We periodically provide marketing materials and promotional offers to new customers and existing customers that are intended to improve customer retention.

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We are required to compare the fair value of the reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.

For the year ended June 30, 2023, we recognized a goodwill impairment charge of $5,609.

The charge is a partial impairment of the goodwill for one of our small reporting units within our All Other Businesses reportable segment.

There were no impairments identified for any other reporting units.

We are required to evaluate the estimated useful lives and recoverability of definite lived long-lived assets (for example, customer relationships, developed technology, property, and equipment) on an ongoing basis when indicators of impairment are present.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis