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Item 2. Management’s Discussion and Analysis

2024-02-01 compared with 2023-10-26 · 186 added, 138 removed, 248 unchanged (57% 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, including revenue, profitability, liquidity, and net leverage;

future impacts of our March 2023 restructuring;

our expectations for the sale of our Jamaica facility;

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 liquidity, net leverage, and capital allocation opportunities;

future payment terms with suppliers;

legal proceedings;

our expectations with respect to our valuation allowance;

and sufficiency of our tax reserves.

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competitive pressures;

general economic conditions, including the possibility of an economic downturn in some or all of our markets;

general economic conditions;

and other factors described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 and the documents that we periodically file with the SEC.

Executive Overview

Cimpress is a strategically focused collection of 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.

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

Cimpress is a strategically focused collection of businesses that specialize in print mass customization.

We have five reportable segments:

Vista, PrintBrothers, The Print Group, National Pen, and All Other Businesses.

Refer to Note 11 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.

During the current quarter, we revised our adjusted free cash flow definition to include proceeds from the sale of assets, which we believe provides useful information regarding the net cash deployed for the purchase of capital assets by incorporating any cash that is recovered from the subsequent sale of any assets.

We have revised all periods presented to incorporate this change.

For further details on our reportable segments, refer to Note 11 in our accompanying consolidated financial statements.

Financial Summary

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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.

A summary of these key financial metrics for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 follows:

A summary of these key financial metrics for the three and six months ended December 31, 2023 as compared to the three and six months ended December 31, 2022 follows:

Second Quarter Fiscal Year 2024

• Revenue increased by 9% to $921.4 million.

• Organic constant-currency revenue increased 4% (a non-GAAP financial measure).

• Organic constant-currency revenue growth (a non-GAAP financial measure) was 6%.

• Operating income increased by $74.1 million to $107.7 million.

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• Diluted net income (loss) per share attributable to Cimpress plc increased to income of $2.14 from a loss of $5.34 in the prior fiscal year.

Year to Date Fiscal Year 2024

• Revenue increased by 8% to $1,678.7 million.

• Organic constant-currency revenue growth (a non-GAAP financial measure) was 5%.

• Operating income increased by $126.2 million to $141.8 million.

• Adjusted EBITDA (a non-GAAP financial measure) increased by $98.4 million to $255.2 million.

• Diluted net income (loss) per share attributable to Cimpress plc increased to income of $2.31 from a loss of $6.31 in the prior fiscal year.

• Cash provided by operating activities increased by $161.3 million to $217.2 million.

• Adjusted free cash flow (a non-GAAP financial measure) increased by $159.4 million to $160.9 million.

For the three months ended September 30, 2023, the increase in reported revenue was primarily due to growth across our Vista, PrintBrothers and National Pen reportable segments.

Revenue growth in our Vista business was driven by order growth, in particular from new customers, and higher average order values driven by both product mix and pricing.

Revenue in our Vista business grew year over year across all product categories, with the fastest growth coming from promotional products, apparel, and gifts (PPAG) while marketing materials, packaging and labels, and signage also showed strong year-over-year growth.

For the three and six months ended December 31, 2023, the increase in reported revenue was primarily due to growth across our Vista, PrintBrothers and National Pen reportable segments.

Revenue growth in our Vista business was driven by growth in total customer count and the continued increase of revenue per customer.

Revenue in our Vista business grew year over year across all major product categories and markets.

The second fiscal quarter is seasonally significant for Vista's sales of consumer products, and this category delivered strong growth during the current period.

Currency exchange fluctuations had a positive effect on revenue growth during the current quarter.

The increase to operating income during the three months ended September 30, 2023 was driven by higher gross profit that benefited from the revenue growth described above, as well as gross margin expansion.

The operating income increase also benefited from improved leverage of advertising spend as a percentage of revenue and reduced operating expenses driven by the prior-year cost reduction actions, as well as lower restructuring costs by $2.2 million as a result of actions that were completed during the prior year.

Adjusted EBITDA increased year over year, primarily driven by the operating income growth described above, but the increase was partially offset by a $3.5 million year-over-year net unfavorable currency impact.

The increase to operating income during the three and six months ended December 31, 2023 was driven by higher gross profit that benefited from the revenue growth described above as well as gross margin expansion.

Operating income also benefited from improved leverage of advertising spend as a percentage of revenue and reduced operating expenses driven by prior-year cost reduction actions, as well as lower restructuring costs of $10.7 million and $12.9 million, respectively, as a result of actions that were completed during the prior year.

Adjusted EBITDA increased during the three and six months ended December 31, 2023, primarily driven by the operating income growth described above, which was was partially offset by $8.0 million and $11.5 million of year-over-year net unfavorable currency impacts, respectively.

Adjusted EBITDA excludes restructuring charges, share-based compensation expense, certain impairments, and gains on the sale of assets, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA.

Diluted net income (loss) per share attributable to Cimpress plc increased year over year for the three months ended September 30, 2023, primarily due to the operating income increase as described above and a $1.4 million gain on the purchase of a portion of our 2026 Notes during the current quarter, but the increase was partially offset by lower realized and unrealized currency gains caused by exchange rate volatility, as well as higher interest expense driven by an increased weighted-average interest rate.

During the three months ended September 30, 2023, cash from operations increased $67.5 million year over year due primarily to the increase in net income as described above, as well as a favorable shift in working capital outflows of $31.8 million, which was largely driven by the prior-year increases in inventory levels that were intended to minimize availability risk due to supply chain disruptions, which has reversed in the current quarter.

Diluted net income (loss) per share attributable to Cimpress plc increased year over year for the three and six months ended December 31, 2023, primarily due to the operating income increase described above and $109.3 million and $110.6 million of decreases to income tax expense, respectively.

The reduced income tax expense was due to the recognition of a full valuation allowance on Swiss deferred tax assets in the prior periods.

These increases to income were partially offset by higher interest expense of $2.0 million and $6.4 million, respectively, driven by an increased weighted-average interest rate.

Net currency impacts on net income for the three months ended December 31, 2023 were positive year over year due to lower unrealized losses on our derivative contracts, while the net currency impacts on net income for the six months ended December 31, 2023 were negative year over year, primarily due to lower realized gains on our derivative contracts.

These fluctuations were primarily caused by currency exchange rate volatility.

During the six months ended December 31, 2023, cash from operations increased $161.3 million year over year due primarily to the increase in operating income as described above, as well as a favorable shift in working capital inflows of $88.7 million, which was driven in part by the normalization of working capital trends.

This favorable impact was partially offset by higher cash taxes of $15.3 million, due in part to increased prior-year assessments in one jurisdiction driven by profitability growth, as well as higher net cash interest payments of $14.7 million.

Adjusted free cash flow increased by $63.1 million for the three months ended September 30, 2023, due to the operating cash flow increase described above, as well as higher proceeds from the sale of assets, primarily driven by the sale of our previously owned manufacturing facility in Japan.

These increases were partially offset by higher capitalized expenditures.

Adjusted free cash flow increased by $159.4 million for the six months ended December 31, 2023, due to the operating cash flow increase described above, as well as $4.6 million higher proceeds from the sale of assets, primarily driven by the sale of our previously owned manufacturing facility in Japan.

These increases were partially offset by $7.5 million of higher 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 three months ended September 30, 2023 and 2022 are shown in the following table:

In thousands Three Months Ended September 30, Currency

Total revenue and revenue growth by reportable segment for the three and six months ended December 31, 2023 and 2022 are shown in the following table:

In thousands Three Months Ended December 31, Currency

Currency Impact of Acquisitions/Divestitures:

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Total revenue $ 921,363 $ 845,202 9% (3)% 6% —% 6%

In thousands Six Months Ended December 31, Currency

Currency Impact of Acquisitions/Divestitures:

Constant- Currency Revenue Growth

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

Vista $ 881,798 $ 807,105 9% (1)% 8% —% 8%

PrintBrothers 317,369 281,297 13% (7)% 6% —% 6%

The Print Group 173,807 166,159 5% (7)% (2)% —% (2)%

National Pen 217,827 202,287 8% (3)% 5% —% 5%

All Other Businesses 112,083 111,825 0% (1)% (1)% —% (1)%

Inter-segment eliminations (24,227) (20,056)

Total revenue $ 1,678,657 $ 1,548,617 8% (3)% 5% —% 5%

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Cost of revenue includes materials used by our businesses to manufacture their products, payroll and related expenses for production and design services personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production and design costs, costs of free products, and other related costs of products our businesses sell.

Three Months Ended September 30,

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

2023 2022 2023 2022

Cost of revenue $ 463,423 $ 455,393 $ 862,206 $ 833,128

% of revenue 50.3 % 53.9 % 51.4 % 53.8 %

For the three months ended September 30, 2023, cost of revenue increased by $21.0 million as compared to the prior year, primarily driven by fluctuations in currency exchange rates of $15.5 million, as well as increased shipping costs year over year due to both volume increases and higher fuel surcharges.

Production costs increased year over year due to volume growth and product mix shifts in some of our businesses as well as higher labor costs from the combination of a more competitive labor market and the inflationary environment in many jurisdictions where we operate.

These cost increases were partially offset by lower input costs for some key substrates like paper, and savings that resulted from the March 2023 cost reduction actions.

For the three months ended December 31, 2023, cost of revenue increased by $8.0 million year over year, primarily driven by unfavorable changes in currency exchange rates of $12.8 million as well as higher production and shipping costs due to volume growth and product mix shifts in some of our businesses.

These cost increases were partially offset by lower input costs, savings that resulted from the March 2023 cost reduction actions, a favorable indirect tax ruling in the current quarter that provided a benefit of $3.0 million, and a $2.6 million timing-related benefit which was offset by a negative impact during the first fiscal quarter of the current fiscal year.

Cost of revenue increased $29.1 million for the six months ended December 31, 2023, as compared to the prior-year period, primarily driven by unfavorable changes in currency exchange rates of $28.3 million.

Production volume growth also contributed to the year-to-date increase, while lower input costs, the March 2023 cost reduction actions, and the aforementioned favorable indirect tax ruling partially offset these increases.

Consolidated Operating Expenses

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

Three Months Ended September 30,

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Technology and development expense $ 79,961 $ 77,723 3% $ 154,291 $ 152,198 1%

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Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue.

Technology and development expenses decreased by $0.1 million for the three months ended September 30, 2023 as compared to the prior year.

The decrease is largely attributable to lower cash compensation costs of $2.0 million, due primarily to cost savings resulting from the March 2023 restructuring actions that reduced headcount, which were partially offset by the effect of our annual merit cycle and market adjustments.

This net compensation decrease was partially offset by higher volume-related third-party technology costs due in part to increased customer demand, as well as the increased adoption of customer-facing technologies that are part of the mass customization platform.

In addition, amortization expense from capitalized software increased $2.0 million, driven by the higher capitalized asset base.

Technology and development expenses increased by $2.2 million and $2.1 million for the three and six months ended December 31, 2023, respectively, as compared to the prior-year periods.

The increase is largely attributable to increased amortization expense from capitalized software of $1.9 million and $4.0 million, respectively, driven by the higher capitalized asset base and fluctuations in currency exchange rates.

There were also increased share-based compensation costs of $1.6 million and $2.9 million, respectively, due to a higher grant value and the impact from our 2024 PSU grants that have an accelerated expense profile as well as expense volatility from changes in the estimated attainment of the related performance condition.

These increases were partially offset by lower cash compensation costs of $1.6 million and $3.5 million, respectively, due primarily to cost savings resulting from the March 2023 restructuring actions that reduced headcount.

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 three months ended September 30, 2023, marketing and selling expenses decreased by $8.7 million as compared to the prior year.

The expense decrease was due to lower compensation costs of $3.2 million due in part to the March 2023 cost reduction actions.

Other cost decreases include lower third-party consulting spend, mainly in our Vista business, and 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.

Advertising spend was also lower by $1.0 million across Cimpress, due to the decrease of advertising spend in our Vista business of $10.2 million driven by lower mid- and upper-funnel spend, which was largely offset by advertising spend increases across our other businesses, most notably driven by an increase in our National Pen business due in part to timing effects of direct mail campaigns.

For the three months ended December 31, 2023, marketing and selling expenses increased by $6.7 million, primarily due to higher advertising spend of $6.7 million, which is largely driven by our Vista and National Pen businesses.

Payment processing fees also increased $1.7 million, as compared to the prior year, due to increased order volumes.

Additionally, share-based compensation costs increased $1.4 million, due to a higher grant value and the impact from our 2024 PSU grants that have an accelerated expense profile as well as expense volatility from changes in the estimated attainment of the related performance condition.

These cost increases are offset in part by lower cash compensation costs of $3.1 million, primarily due to the cost reductions that were implemented in March 2023.

For the six months ended December 31, 2023, marketing and selling expenses decreased by $2.0 million as compared to the prior year period.

The decrease was caused by lower cash compensation costs due in part to the March 2023 cost reduction actions, as well as lower third-party consulting spend, mainly in our Vista business, and 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.

These cost decreases were offset in part by higher advertising spend of $5.6 million, largely due to higher spend in our Vista and National Pen businesses, as well as increased share-based compensation costs of $1.1 million driven by the 2024 PSU grants.

General and administrative expense

General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance, and payroll and related expenses of employees involved in executive management, finance, legal, strategy, human resources, and procurement.

For the three months ended September 30, 2023, general and administrative expenses decreased by $5.7 million as compared to the prior year.

The decrease was driven by the nonrecurrence of $2.4 million of expense related to the prior-year termination of one of our leased office locations as we've continued to optimize our real estate footprint with many of our team members operating under a remote-first model, as well as the reduction of third-party consulting spend.

The exit of our business in China during fiscal year 2023 also decreased our general and administrative expenses by $0.7 million versus the prior year.

For the three and six months ended December 31, 2023, general and administrative expenses were flat and decreased by $6.7 million, respectively, as compared to the prior-year periods.

The year-to-date decrease was driven by a $3.0 million reduction of third-party consulting spend, the nonrecurrence of $2.4 million of expense related to the prior-year termination of one of our leased office locations, and the exit of our business in China during fiscal year 2023 that reduced our general and administrative expenses by $1.8 million versus the prior year.

Cash compensation decreased by $1.9 million and $2.5 million for the three and six months ended December 31, 2023, respectively, largely driven by a reduction to long-term incentive compensation expense, due to lower than previously estimated attainment levels in certain Cimpress businesses, as well as cost savings from the March 2023 cost reductions.

These decreases were partially offset by costs from our annual merit increase cycle and increases to share-based compensation costs of $3.3 million and $4.4 million, respectively, as compared to the prior-year periods, largely due to the 2024 PSU grants.

Other Consolidated Results

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.

Other (expense) income, net

Other (expense) income, net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments.

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

Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting.

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

Three Months Ended September 30,

Gains on derivatives not designated as hedging instruments

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

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

2023 2022 2023 2022

Currency-related losses, net

(Losses) gains on derivatives not designated as hedging instruments

$ (13,668) $ (24,196) $ (5,356) $ 4,449

Currency-related gains, net

13,062 6,227 10,363 6,030

Other gains (losses)

Total other income, net

215 577 1,021 (474)

The decrease in other income, net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of which our Euro and British Pound contracts are the most significant exposures that we economically hedge.

Total other (expense) income, net

$ (391) $ (17,392) $ 6,028 $ 10,005

The decrease in other (expense) income, net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of which our Euro and British Pound contracts are the most significant exposures that we economically hedge.

We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts.

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

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

Gains on the revaluation of non-functional currency debt and on a cross-currency swap contract designated as a cash flow hedge are included in our currency-related losses, net, offsetting the impact of certain non-functional currency intercompany relationships.

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Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, debt discounts, interest related to finance lease obligations, 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 $4.4 million during the three months ended September 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 $1.2 million.

Interest expense, net increased by $2.0 million and $6.4 million during the three and six months ended December 31, 2023, respectively, as compared to the prior year periods, 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 $0.6 million and $1.9 million, respectively.

Gain on extinguishment of debt

For the three and six months ended December 31, 2023, we have recognized gains on the extinguishment of debt of $0.3 million and $1.7 million, respectively, resulting from the purchase of 2026 Notes' principal of $5.0 million and $26.2 million, respectively.

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

Income tax expense

In thousands Three Months Ended September 30,

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

2023 2022 2023 2022

Income tax expense $ 16,795 $ 126,129 $ 24,917 $ 135,494

Effective tax rate 21.8 % (1,016.3) % 27.8 % (487.6) %

Income tax expense for the three months ended September 30, 2023 decreased versus the prior comparative period due to various immaterial discrete items in both periods, offset by increased tax on increased profits as we reported pre-tax income for the three months ended September 30, 2023 and a pre-tax loss in the prior comparative period.

Income tax expense for the three and six months ended December 31, 2023 decreased versus the prior comparative period.

During the second quarter of fiscal year 2023, we recorded a full valuation allowance on Swiss deferred tax assets of $116.7 million primarily related to Swiss tax reform benefits recognized in fiscal year 2020 and tax loss carryforwards.

This was partially offset by increased tax on increased profits as we reported pre-tax income for the three and six months ended December 31, 2023 and pre-tax losses in the prior comparative periods.

Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our valuation allowance will no longer be needed.

A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period the release is recorded.

However, the timing and amount of the valuation allowance release, if any, are unknown as this is subject to change on the basis of the level of profitability that we are able to actually achieve in future periods.

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.

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Our segment financial performance is measured based on segment EBITDA, which is defined as operating income plus depreciation and amortization;

plus proceeds from insurance;

plus proceeds from insurance not already included in operating income;

plus share-based compensation expense related to investment consideration;

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plus restructuring related charges;

less gain on purchase or sale of subsidiaries.

less gain on purchase or sale of subsidiaries as well as the disposal of assets.

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.

Three Months Ended September 30,

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Reported Revenue $ 485,151 $ 437,736 11% $ 881,798 $ 807,105 9%

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Segment Revenue

Vista's reported revenue growth for the three months ended September 30, 2023 was positively affected by a currency impact of 1%, and constant-currency revenue growth was 6%.

The constant-currency growth was reduced by higher backlog versus the prior year of approximately $4.3 million that we expect to benefit revenue throughout the remainder of the fiscal year.

Overall revenue growth was driven by approximately even contribution from order growth and higher average order values from both product mix and pricing.

Revenue grew across product categories with the fastest growth continuing in the promotional products, apparel, and gifts (PPAG) category, while marketing materials, packaging and labels, and signage all grew strongly year over year.

Vista's reported revenue growth for the three and six months ended December 31, 2023 was positively affected by a currency impact of 2% and 1%, respectively, and constant-currency revenue growth was 9% and 8%, respectively.

Revenue growth was driven by growth in total customer count, paired with the continued increase of revenue per customer.

Revenue grew across all major product categories and markets.

The second fiscal quarter is seasonally significant for Vista's sales of consumer products, and this category delivered strong growth during the current period.

Segment Profitability

For the three months ended September 30, 2023, segment EBITDA increased by $43.7 million, due in part to gross profit growth as a result of the revenue growth described above, diminishing effects of inflationary pressure on key input costs and the benefit of cost reduction actions implemented in March 2023.

These collective benefits also resulted in stronger gross margins versus the prior year that was offset in part by unfavorable product mix changes from a gross margin perspective, since the fastest growth was in product categories like PPAG that have lower gross margins despite higher average order values.

Vista benefited from $10.2 million of lower advertising costs as compared to the prior-year period, a result of improved advertising efficiencies and lower spend in mid- and upper- funnel channels in which we were conducting heavy testing last year.

Operating expenses, excluding the effect of restructuring costs which do not impact segment EBITDA, decreased $15.1 million primarily due to savings

resulting from cost reduction actions implemented in March 2023, partially offset by the effect of merit increases.

Changes in currency exchange rates had a slightly positive impact year over year.

For the three and six months ended December 31, 2023, segment EBITDA increased by $48.0 million and $91.7 million, respectively.

Gross profit growth was driven by the revenue growth described above, lower input costs, efficiency gains, and customer experience improvements.

During the current quarter Vista's gross profit benefited $3.0 million from a favorable indirect tax ruling.

Vista's advertising spend as a percentage of revenue decreased due to efficiency gains and focus.

Operating expenses, excluding the effect of restructuring costs which do not impact segment EBITDA, decreased $5.9 million and $20.2 million, respectively, primarily due to savings resulting from cost reduction actions implemented in March 2023, partially offset by inflationary cost increases such as the effect of merit increases on compensation costs.

Changes in currency exchange rates had a positive impact on segment EBITDA of $3.6 million and $4.3 million, respectively, as compared to the prior-year periods.

PrintBrothers

Three Months Ended September 30,

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Reported Revenue $ 165,148 $ 148,598 11% $ 317,369 $ 281,297 13%

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Segment Revenue

PrintBrothers' reported revenue growth for the three months ended September 30, 2023 was positively affected by currency impacts of 9%, resulting in an increase to revenue on a constant-currency basis of 6%.

Constant currency growth was driven primarily by continued order volume growth in the segment's largest business, and to a lesser extent from pricing improvements.

PrintBrothers' reported revenue growth for the three and six months ended December 31, 2023 was positively affected by currency impacts of 6% and 7%, respectively, with revenue increasing on a constant-currency

basis by 5% and 6%, respectively.

Constant-currency growth was driven primarily by continued order volume growth, partially offset by customers purchasing lower quantities in certain product categories.

Segment Profitability

PrintBrothers' segment EBITDA for the three months ended September 30, 2023 grew year over year, driven by the constant-currency revenue growth described above, as well as gross margin expansion which benefited from favorable product mix shifts, as well as operating expense efficiencies.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $1.5 million.

PrintBrothers' segment EBITDA for the three and six months ended December 31, 2023 grew year over year, driven by the constant-currency revenue growth described above, as well as gross margin expansion which benefited from lower input costs and operating expense efficiencies.

Additionally, PrintBrothers benefited from a favorable timing item of $2.6 million in the three months ended December 31, 2023, which offset unfavorability in the first quarter and therefore does not impact the six month period.

Segment EBITDA also benefited from $1.5 million of government incentives during the three and six months ended December 31, 2023.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $1.5 million and $3.0 million, respectively.

The Print Group

Three Months Ended September 30,

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Reported Revenue $ 93,268 $ 89,336 4% $ 173,807 $ 166,159 5%

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Segment Revenue

The Print Group's reported revenue for the three months ended September 30, 2023 was positively affected by a currency impact of 8%, resulting in a decrease to revenue on a constant-currency basis of 3%.

Constant-currency revenue decline was negatively impacted by the non-recurrence of a prior-year revenue benefit of $2.0 million from a change in commercial terms.

Excluding this item, constant-currency revenue growth would have been flat.

Revenue from reseller customer channels declined and this was offset by growth in direct customer channels and favorable product mix shifts.

The Print Group's reported revenue for the three and six months ended December 31, 2023 was positively affected by a currency impact of 5% and 7%, respectively, with revenue decreasing on a constant-currency basis by 1% and 2%, respectively.

This segment is continuing to see order growth, which was partially offset by customers purchasing lower quantities in certain product categories and headwinds in the reseller channel, which is more prominent in The Print Group.

Segment Profitability

The increase in The Print Group's segment EBITDA during the three months ended September 30, 2023 as compared to the prior year was largely driven by gross profit growth as gross margins expanded materially, benefiting from a reduction in key input costs such as materials, shipping, and utilities, as well as improved manufacturing efficiencies.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $1.0 million.

In thousands Three Months Ended September 30,

The increase in The Print Group's segment EBITDA during the three and six months ended December 31, 2023 as compared to the prior-year periods was largely driven by $4.6 million and $9.8 million of gross profit growth, respectively, as gross margins expanded materially, benefiting from a reduction in key input costs such as materials and shipping.

Segment EBITDA also benefited from a reduction in long-term incentive compensation expense of $2.1 million and $1.1 million for the three and six months ended December 31, 2023, respectively, due to lower forecasted payouts for business-specific long-term incentive awards.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $1.0 million and $2.0 million, respectively.

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Reported Revenue $ 130,572 $ 120,621 8% $ 217,827 $ 202,287 8%

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Segment Revenue

For the three months ended September 30, 2023, National Pen's revenue growth was positively affected by currency impacts of 2%, resulting in constant-currency revenue growth of 5%.

Constant-currency revenue growth was dampened by a prior-year revenue benefit of $2.2 million due to a change in customer terms that impacted the timing of revenue recognition, as well as revenue growth headwinds from the prior-year exit from the Japanese market of $1.7 million.

For the three and six months ended December 31, 2023, National Pen's revenue growth was positively affected by currency impacts of 3%, with constant-currency revenue growth of 5% in both periods.

National Pen continued to deliver strong growth in its e-commerce channel and from fulfillment for other Cimpress businesses.

Segment Profitability

The decrease in National Pen's segment EBITDA for the three months ended September 30, 2023 was driven by the aforementioned revenue impacts, higher external marketing spend and the impact of currency changes.

National Pen's direct mail advertising is expensed earlier than the related revenue, and therefore we expect a portion of the higher spend to benefit revenue during the second quarter of the current fiscal year.

Currency exchange fluctuations negatively impacted segment EBITDA year over year by $1.8 million.

The increase in National Pen's segment EBITDA for the three months ended December 31, 2023 was driven by revenue growth described above, partially offset by increased advertising spend in their e-commerce

channels and higher compensation costs.

Currency exchange fluctuations had an immaterial effect on segment EBITDA during the current fiscal quarter.

The decrease in National Pen's segment EBITDA for the six months ended December 31, 2023 was driven by higher external marketing spend, primarily to support their e-commerce channel, as well as higher operating expenses.

Currency exchange fluctuations had a negative year-over-year impact of $1.6 million for the six months ended December 31, 2023.

All Other Businesses

Three Months Ended September 30,

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

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Reported Revenue $ 60,283 $ 59,998 0% $ 112,083 $ 111,825 0%

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% of revenue 13 % 9 % 13 % 10 %

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 includes BuildASign and Printi, an early-stage business that we have managed at a relatively modest operating loss.

Segment Revenue

All Other Businesses' constant-currency revenue decreased by 1% during the three months ended September 30, 2023.

BuildASign generates the majority of revenue in this segment, and revenue declined slightly year over year as real estate signage product sales were down, driven by exposure to trends in the U.S.

real estate market.

All Other Businesses' constant-currency revenue was flat and decreased by 1% during the three and six months ended December 31, 2023, respectively.

BuildASign generates the majority of revenue in this segment, and revenue declined slightly year over year as this business continued to experience lower revenue for real estate-related products as well as home decor products in the seasonally significant second quarter.

Other signage products grew in this business.

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

Printi revenue continued to grow.

Segment Profitability

The increase in segment EBITDA for the three months ended September 30, 2023, as compared to the prior year, was primarily due to the fiscal year 2023 exit of our business in China, which drove a small loss in the year-ago period.

The increase in segment EBITDA for the three and six months ended December 31, 2023, as compared to the prior year, was partly due to $2.0 million and $3.3 million of lower long-term incentive compensation expense, respectively, as compared to the prior year periods, due to lower forecasted payouts for business-specific long-term incentive awards.

Segment EBITDA also benefited from the fiscal year 2023 exit of our business in China, which drove $1.1 million and $1.8 million of losses in the respective year-ago periods.

Central and Corporate Costs

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administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members;

and corporate functions including our 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.

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.

Central and corporate costs decreased by $2.8 million during the three months ended September 30, 2023 as compared to the prior year's first quarter, driven by lower compensation costs due to savings from the March 2023 cost reduction actions, as well as lower third-party consulting spend.

During the three months ended December 31, 2023, central and corporate costs increased by $2.2 million as compared to the prior-year period, largely driven by $5.4 million of increased share-based compensation expense due to due to a higher grant value and the impact from our 2024 PSU grants that have an accelerated expense profile as well as expense volatility from changes in the estimated attainment of the related performance condition.

This increase was partially offset by lower cash compensation expense of $2.2 million due to savings from the March 2023 cost reductions, as well as lower third-party consulting spend of $1.6 million as compared to the prior-year period.

Central and corporate costs decreased by $0.6 million during the six months ended December 31, 2023, as compared to the year-ago period, largely driven by $3.4 million of lower third-party consulting spend, partially offset by compensation cost increases of $2.6 million.

The higher compensation costs were driven by increased share-based compensation costs due to the 2024 PSU awards, partially offset by the benefit from the March 2023 cost reduction actions.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data

Three Months Ended September 30,

Net cash provided by (used in) operating activities $ 42,254 $ (25,251)

Six Months Ended December 31,

Net cash provided by operating activities $ 217,200 $ 55,875

Net cash used in investing activities (30,395) (106,569)

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(47,155) (112,715)

The cash flows during the three months ended September 30, 2023 related primarily to the following items:

The cash flows during the six months ended December 31, 2023 related primarily to the following items:

Cash inflows:

• Net income of $64.8 million

• Adjustments for non-cash items of $44.3 million primarily related to adjustments for depreciation and amortization of $39.9 million, share-based compensation costs of $12.5 million, partially offset by unrealized currency-related gains of $4.4 million and deferred taxes of $1.1 million

• Adjustments for non-cash items of $98.7 million primarily related to adjustments for depreciation and amortization of $79.0 million and share-based compensation costs of $30.1 million, partially offset by unrealized currency-related gains of $5.8 million, deferred taxes of $2.1 million, and the gain on extinguishment of debt of $1.7 million

• Net working capital inflow of $53.6 million, primarily due to timing impacts from favorable changes to accounts payable, as well as further reductions to inventory following the prior year build up of safety stock to mitigate the risk of supply chain disruptions

• Proceeds from the maturity of held-to-maturity securities of $25.9 million

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• Internal and external costs of $28.3 million for software and website development that we have capitalized

• Total outflow from net working capital of $6.6 million, primarily due to timing impacts from unfavorable changes to accounts payable

• Purchases of a portion of our 2026 Notes of $19.8 million.

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

• Payments for early redemption of our 2026 Notes of $24.5 million

• Payment of withholding taxes in connection with share awards of $10.2 million, primarily driven by the annual vesting of share grants during August 2023

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Additional Liquidity and Capital Resources Information.

At September 30, 2023, we had $125.2 million of cash and cash equivalents, $22.6 million of marketable securities, and $1,621.0 million of debt, excluding debt issuance costs and debt premiums and discounts.

During the three months ended September 30, 2023, we financed our operations and strategic investments through internally generated cash flows from operations and cash on hand.

At December 31, 2023, we had $274.2 million of cash and cash equivalents, $17.2 million of marketable securities, and $1,626.3 million of debt, excluding debt issuance costs and debt premiums and discounts.

During the six months ended December 31, 2023, we financed our operations and strategic investments through internally generated cash flows from operations and cash on hand.

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

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

During the first quarter of fiscal 2024, we allocated $19.8 million of capital toward the purchase 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.

During the first half of fiscal year 2024, we allocated $24.5 million of capital toward the purchase of a portion of our 2026 Notes, and we will continue to consider using excess liquidity to repurchase our debt.

We have significantly reduced our net leverage over the last year primarily through increased profitability driven by the combination of returns from past investments, the focusing of our growth investments, restrained growth of operating expenses, and the easing of inflationary pressure on our input costs.

This increased profitability and resultant cash flow generation should provide the opportunity to continue to delever

our balance sheet while also opportunistically allocating capital that enhances our intrinsic value per share.

Our Board of Directors has authorized the repurchase of up to $150.0 million of Cimpress shares.

This authorization does not have an expiration date or a defined time frame for repurchases.

We evaluate share repurchases, as any other use of capital, relative to our view of the impact on our intrinsic value per share compared against other opportunities;

therefore, any repurchases will be price dependent.

Supply Chain Financing Program.

As part of our ongoing efforts to manage our liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms.

We facilitate a voluntary supply chain finance program through a financial intermediary, which provides certain suppliers the option to be paid by the financial intermediary earlier than the due date of the applicable invoice.

The decision to sell receivables due from us is at the sole discretion of both the suppliers and the financial institution.

Our responsibility is limited to making payment on the terms originally negotiated with each supplier, regardless of whether a supplier participates in the program.

We do not believe there is a risk that our payment terms will be shortened in the near future.

We facilitate a voluntary supply chain finance program through a financial intermediary to enable the extension of our payment terms with certain suppliers.

We do not believe there is a substantial risk that our payment terms will be shortened in the near future.

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

Indefinitely Reinvested Earnings.

As of September 30, 2023, a portion of our cash and cash equivalents were held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $70.0 million.

As of December 31, 2023, a portion of our cash and cash equivalents were held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $72.9 million.

We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries.

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Contractual Obligations

Contractual obligations at September 30, 2023 are as follows:

Contractual obligations at December 31, 2023 are as follows:

In thousands Payments Due by Period

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However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities.

Accordingly, uncertain tax positions of $9.1 million as of September 30, 2023 have been excluded from the contractual obligations table above.

Accordingly, uncertain tax positions of $9.1 million as of December 31, 2023 have been excluded from the contractual obligations table above.

See Note 9 in our accompanying consolidated financial statements for further information on uncertain tax positions.

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We rent manufacturing facilities and office space under operating leases expiring on various dates through 2028.

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 September 30, 2023.

The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $2.7 million in the aggregate outstanding as of December 31, 2023.

Purchase Commitments.

At September 30, 2023, we had unrecorded commitments under contract of $285.7 million.

At December 31, 2023, we had unrecorded commitments under contract of $208.1 million.

Purchase commitments consisted of third-party fulfillment and digital services of $93.4 million;

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Senior Secured Credit Facility and Interest Payments.

As of September 30, 2023, we have borrowings under our Restated Credit Agreement of $1,087.4 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 Revolving Credit Facility with a maturity date of May 17, 2026, under our Restated Credit Agreement, has $244.2 million unused as of September 30, 2023.

As of December 31, 2023, we have borrowings under our Restated Credit Agreement of $1,098.4 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 Revolving Credit Facility with a maturity date of

May 17, 2026, under our Restated Credit Agreement, has $243.3 million unused as of December 31, 2023.

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

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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 September 30, 2023 and assumes all Term SOFR-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.

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.

Interest payable included in the above table is based on the interest rate as of December 31, 2023 and assumes all Term SOFR-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.

2026 Notes and Interest Payments.

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Interest on the notes is payable semi-annually on June 15 and December 15 of each year.

During the three months ended September 30, 2023, we purchased an aggregate principal amount of $21,165 for a purchase price of $19,815, as well as the related settlement of unpaid interest, which resulted in the recognition of a gain on the extinguishment of debt of $1,372.

During the six months ended December 31, 2023, we purchased an aggregate principal amount of $26.2 million for a purchase price of $24.5 million, as well as the related settlement of unpaid interest, which resulted in the recognition of a gain on the extinguishment of debt of $1.7 million.

Debt Covenants.

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

As of December 31, 2023, we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2026 Notes.

Refer to Note 8 in our accompanying consolidated financial statements for additional information.

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 September 30, 2023, we had $6.5 million outstanding for those obligations that have repayments due on various dates through November 2027.

As of December 31, 2023, we had $5.8 million outstanding for those obligations that have repayments due on various dates through September 2027.

Finance Leases.

We lease certain facilities, machinery, and plant equipment under finance lease agreements that expire at various dates through 2037.

The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at September 30, 2023 is $28.7 million, net of accumulated depreciation of $36.2 million.

The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at September 30, 2023 amounts to $37.8 million.

The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at December 31, 2023 is $29.2 million, net of accumulated depreciation of $38.9 million.

The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at December 31, 2023 amounts to $40.1 million.

Additional Non-GAAP Financial Measures

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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.

During the current fiscal year, we revised our adjusted free cash flow

definition to include proceeds from the sale of assets, which we believe provides useful information regarding the net cash deployed for the purchase of capital assets by incorporating any cash that is recovered from the subsequent sale of any assets.

We have revised all periods presented to incorporate this change.

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We believe it is important to view our adjusted free cash flow measure only as a complement to our entire consolidated statement of cash flows.

The table below sets forth operating income and adjusted EBITDA for the three months ended September 30, 2023 and 2022:

In thousands Three Months Ended September 30,

GAAP operating income (loss)

The table below sets forth operating income and adjusted EBITDA for the three and six months ended December 31, 2023 and 2022:

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

2023 2022 2023 2022

GAAP operating income $ 107,679 $ 33,578 $ 141,779 $ 15,611

Exclude expense (benefit) impact of:

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Restructuring-related charges 483 11,207 149 13,027

Realized gains on currency derivatives not included in operating income (loss) (1)

Realized gains on currency derivatives not included in operating income (1) 945 14,901 2,995 21,770

Adjusted EBITDA $ 166,434 $ 111,182 $ 255,170 $ 156,777

_________________

(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.

(1) These realized gains 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.

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

The table below sets forth net cash provided by (used in) operating activities and adjusted free cash flow for the three months ended September 30, 2023 and 2022:

In thousands Three Months Ended September 30,

Net cash provided by (used in) operating activities

$ 42,254 $ (25,251)

The table below sets forth net cash provided by operating activities and adjusted free cash flow for the six months ended December 31, 2023 and 2022:

In thousands Six Months Ended December 31,

Net cash provided by operating activities $ 217,200 $ 55,875

Purchases of property, plant and equipment (33,955) (26,490)

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_________________

(1) During the current quarter, we revised our adjusted free cash flow definition to include proceeds from the sale of assets.

(1) During the first quarter of fiscal year 2024, we revised our adjusted free cash flow definition to include proceeds from the sale of assets.

We have revised all periods presented to incorporate this change.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis