What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2024-02-01 · 136 added, 137 removed, 297 unchanged (48% of the section changed)

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

future payment terms with suppliers;

legal proceedings;

our expectations with respect to our valuation allowance;

and sufficiency of our tax reserves.

The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and financial results, including liquidity, our expectations with respect to our 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.

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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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 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

A summary of these key financial metrics for the three and nine months ended March 31, 2024 as compared to the three and nine months ended March 31, 2023 follows:

Third Quarter Fiscal Year 2024

• Revenue increased by 5% to $780.6 million.

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• Adjusted EBITDA (a non-GAAP financial measure) increased by $25.0 million to $94.2 million.

• 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.

• Diluted net loss per share attributable to Cimpress plc decreased to $0.15 from $1.88 in the prior comparable period.

Year to Date Fiscal Year 2024

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• Adjusted free cash flow (a non-GAAP financial measure) increased by $155.6 million to $144.2 million.

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 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 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 $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.

For the three and nine months ended March 31, 2024, the increase in reported revenue was primarily due to growth across our Vista, PrintBrothers and National Pen reportable segments.

The earlier timing of the Easter holiday dampened revenue growth for the current-year periods, as this holiday was in the fourth fiscal quarter last year but at the end of the current fiscal quarter this year.

Currency exchange fluctuations had a positive effect on revenue growth during the current-year periods.

Revenue growth in our Vista business was driven by increases to total customer count as well as revenue per customer.

Vista revenue grew across all major markets, with the strongest physical product category growth rates coming from sales of signage and promotional products, apparel and gifts.

The increase to operating income during the three and nine months ended March 31, 2024 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 year-over-year operating expense efficiencies, and lower restructuring costs of $30.0 million and $42.9 million, respectively, as a result of cost reduction actions that were completed during the prior year.

Adjusted EBITDA increased during the three and nine months ended March 31, 2024, primarily driven by the operating income growth described above, which was partially offset by $4.2 million and $15.7 million of year-over-year net unfavorable currency impacts, respectively.

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

Diluted net (loss) income per share attributable to Cimpress plc improved year over year for the three and nine months ended March 31, 2024, primarily due to the operating income increase described above.

There was also $108.4 million lower income tax expense for the year-to-date period primarily due to the recognition of a full valuation allowance on Swiss deferred tax assets in the prior-year period.

For the nine months ended March 31, 2024, these increases to income were partially offset by higher interest expense, net of $6.0 million, driven by an increased weighted-average interest rate.

Net currency impacts on net income were negative year over year, primarily due to unrealized currency losses caused by exchange rate volatility and lower realized gains on our derivative contracts.

During the nine months ended March 31, 2024, cash from operations increased $157.2 million year over year due primarily to the increase in operating income as described above, as well as increased working capital inflows of $33.8 million, which were driven in part by the non-recurrence of the prior year's higher inventory levels that were intended to mitigate supply chain issues.

This favorable impact was partially offset by higher cash taxes of $15.8 million, due in part to increased prior-year assessments in one jurisdiction driven by profitability growth, and higher net cash interest payments of $16.6 million.

Adjusted free cash flow increased by $155.6 million for the nine months ended March 31, 2024, 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 $6.9 million of higher capitalized expenditures.

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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 and six months ended December 31, 2023 and 2022 are shown in the following table:

In thousands Three Months Ended December 31, Currency

Total revenue and revenue growth by reportable segment for the three and nine months ended March 31, 2024 and 2023 are shown in the following table:

In thousands Three Months Ended March 31, Currency

Currency Impact of Acquisitions/Divestitures:

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Total revenue $ 780,588 $ 742,164 5% (1)% 4% —% 4%

In thousands Six Months Ended December 31, Currency

In thousands Nine Months Ended March 31, Currency

Currency Impact of Acquisitions/Divestitures:

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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 December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 2023

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% of revenue 51.8 % 53.2 % 51.5 % 53.6 %

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.

For the three and nine months ended March 31, 2024, cost of revenue increased by $9.8 million and $38.8 million, respectively, year over year, partially driven by unfavorable changes in currency exchange rates of $3.1 million and $31.4 million, respectively, 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 as well as savings that resulted from the March 2023 cost reduction actions.

For the year-to-date period, cost of revenue benefited $3.0 million from a favorable indirect tax ruling.

Consolidated Operating Expenses

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

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

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

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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 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.

Technology and development expenses increased by $5.5 million and $7.6 million for the three and nine months ended March 31, 2024, respectively, as compared to the prior-year periods.

The majority of the increases were driven by higher share-based compensation costs of $3.2 million and $5.8 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.

The expense increases were also impacted by higher amortization of capitalized software of $1.6 million and $5.5 million, respectively, as compared to the prior periods, driven by the higher capitalized asset base and fluctuations in currency exchange rates.

Third-party technology costs also increased by $2.4 million and $4.2 million, respectively, year over year, driven in part by our businesses' further adoption of certain products offered through our mass customization platform, which has driven increased consumption of those services.

These increases were partially offset by lower cash compensation costs of $1.2 million and $4.7 million, respectively, due primarily to cost savings resulting from the March 2023 restructuring actions that reduced headcount.

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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 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.

For the three and nine months ended March 31, 2024, marketing and selling expenses increased by $4.4 million and $2.3 million, respectively, primarily due to higher advertising spend of $4.4 million and $10.1 million, as compared to the prior-year periods.

Share-based compensation costs increased $3.6 million and $4.7 million, respectively, due to a higher grant value year over year and the impact from our 2024 PSU grants as described above.

Payment processing fees also increased $0.8 million and $4.0 million, as compared to the prior-year periods, due to increased order volumes.

These cost increases are offset in part by lower cash compensation costs of $2.7 million and $9.0 million during the three and nine months ended March 31, 2024, primarily due to the cost reduction actions that were implemented in March 2023.

There was also lower third-party consulting spend of $1.5 million and $4.1 million, as compared to the year-ago periods, 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.

General and administrative expense

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

For the three and 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.

For the three months ended March 31, 2024, general and administrative expenses increased $1.7 million year over year, largely driven by $4.1 million of higher share-based compensation costs due to a higher grant value year over year and the impact from our 2024 PSU grants as described above.

This increase was partially offset by a $1.1 million reduction to third-party consulting spend as well as lower cash compensation costs of $0.9 million, primarily due to the cost reduction actions that were implemented in March 2023.

General and administrative expenses decreased by $5.1 million during the nine months ended March 31, 2024 as compared to the prior-year period.

The year-to-date decrease was driven by a $4.2 million reduction to third-party consulting spend, $3.5 million of lower cash compensation largely driven by a reduction to long-term incentive compensation expense due to lower than previously estimated attainment levels in certain Cimpress businesses, and cost savings from the March 2023 cost reductions, which were partially offset by increased compensation costs from our annual merit cycle.

Additionally, the cost decrease was impacted by nonrecurring expense of $2.4 million for the prior-year termination of one of our leased office locations, as well as 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.

These decreases were partially offset by increases to share-based compensation costs of $8.5 million largely driven by the 2024 PSU grants as described above.

Other Consolidated Results

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

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

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 2023

(Losses) gains on derivatives not designated as hedging instruments

Gains (losses) on derivatives not designated as hedging instruments

$ 9,071 $ (2,428) $ 3,715 $ 2,021

Currency-related gains, net

Currency-related (losses) gains, net

(12,434) 4,187 (2,071) 10,217

Other gains (losses)

Other (losses) gains

(288) (382) 733 (856)

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

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.

We experience currency-related net gains and 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 $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.

Interest expense, net decreased $0.4 million during the three months ended March 31, 2024, primarily due to lower interest expense associated with our 2026 Notes driven by our previously disclosed purchase of a portion of those notes, as well as $1.3 million higher interest income earned on our cash and marketable securities.

These interest expense, net reductions were partially offset by a year-over-year increase to our weighted average interest rate (net of interest rate swaps) on our senior secured Term Loan B.

For the nine months ended March 31, 2024, interest expense, net increased $6.0 million as compared to the prior-year period, primarily due to a higher weighted-average interest rate (net of interest rate swaps), which was partially offset by lower interest expense associated with our 2026 Notes for the same reason described above and a $3.2 million increase to interest income earned on our cash and marketable securities.

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.

During the nine months ended March 31, 2024, we recognized gains on the extinguishment of debt of $1.7 million, resulting from the purchase of 2026 Notes' principal of $26.2 million.

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

Income tax expense

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

In thousands Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 2023

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Effective tax rate 195.4 % (20.5) % 37.3 % (208.3) %

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.

Tax expense increased for the three months ended March 31, 2024 versus the prior comparable period due to increased profits as we reported pre-tax income for the three months ended March 31, 2024 and pre-tax losses in the comparable period.

Tax expense decreased for the nine months ended March 31, 2024 versus the prior comparable period due to the full valuation allowance on Swiss deferred tax assets of $116.7 million recorded during the nine months ended March 31, 2023.

Given our current earnings and anticipated future earnings, we believe there is a reasonable possibility that within the next twelve 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.

Any future valuation allowance release will not have a cash tax impact.

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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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 December 31, Six Months Ended December 31,

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

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Segment Revenue

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.

Vista's reported revenue growth for the three months ended March 31, 2024 was minimally affected by currency versus last year, while currency had a 1% favorable impact on the reported revenue growth during the nine months ended March 31, 2024.

For these same periods, constant-currency revenue growth was 5% and 7%, respectively, and was driven by increases in total customer count as well as revenue per customer.

Revenue was higher year over year across all major markets, with significant growth in sales of signage and promotional products, apparel and gifts.

Vista continues to improve its customer experience, resulting in higher customer satisfaction and lower credit rates.

Segment Profitability

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.

For the three and nine months ended March 31, 2024, segment EBITDA increased by $11.4 million and $103.1 million, respectively.

Incremental gross profit was driven by the revenue growth described above, lower input costs, and efficiency gains as compared to the prior-year periods.

Segment EBITDA growth was also driven by lower operating expenses, excluding the effect of restructuring costs which do not impact segment EBITDA, of $6.4 million and $26.6 million, respectively, for these same periods, primarily due to savings resulting from cost reduction actions implemented in March 2023.

These operating expense savings were partially offset by inflationary cost increases, such as the annual merit cycle increases' effect on compensation costs.

Advertising expenses were higher year over year for both periods presented and for the current quarter was higher as a percentage of revenue due to a slightly higher mix of spend in mid- and upper-funnel channels where there are additional opportunities to drive awareness.

For the year-to-date period, advertising expenses as a percentage of revenue were lower year over year as efficiency gains more than offset the mix effect of higher mid- and upper-funnel spend.

Changes in currency exchange rates had a positive impact on segment EBITDA of $0.1 million and $4.5 million, respectively, as compared to the prior-year periods.

PrintBrothers

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

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

4 unchanged sentences

Segment Revenue

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.

PrintBrothers' reported revenue growth for the three and nine months ended March 31, 2024 was positively affected by currency impacts of 2% and 5%, respectively, with revenue increasing on a constant-currency basis by 6% in both periods.

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 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.

PrintBrothers' segment EBITDA for the three and nine months ended March 31, 2024 grew year over year, driven by the constant-currency revenue growth described above, as well as gross margin expansion that benefited from lower input costs.

Segment EBITDA also benefited from $1.5 million of government incentives during the nine months ended March 31, 2024.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $0.4 million and $3.4 million, respectively.

The increase to PrintBrothers' segment EBITDA in the three and nine months ended March 31, 2024 was partially offset by $1.7 million of expense in our Printdeal business related to an unfavorable court ruling that is being appealed;

we do not expect this matter to have a material impact on future periods.

The Print Group

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

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

4 unchanged sentences

Segment Revenue

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.

The Print Group's reported revenue for the three and nine months ended March 31, 2024 was positively affected by currency impacts of 1% and 5%, respectively, with revenue increasing on a constant-currency basis by 2% during the current quarter and decreasing 1% on a year-to-date basis.

This segment is continuing to see order growth, while revenue growth continues to be dampened by customers purchasing lower quantities in certain product categories and headwinds in the reseller channel.

Segment Profitability

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.

The increase in The Print Group's segment EBITDA during the three and nine months ended March 31, 2024 as compared to the prior-year periods was largely driven by $3.2 million and $13.0 million of gross profit growth, respectively, as gross margins expanded materially, benefiting from a reduction in key input costs such as raw materials, energy and shipping.

Segment EBITDA also benefited from a reduction in long-term incentive compensation expense of $1.7 million and $2.8 million for the three and nine months ended March 31, 2024, respectively, due to volatility in the estimated payouts.

Currency exchange fluctuations positively impacted segment EBITDA year over year by $0.2 million and $2.2 million, respectively.

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

In thousands Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

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Segment Revenue

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.

For the three months ended March 31, 2024, National Pen's revenue growth was minimally affected by currency versus last year, while currency positively impacted revenue by 2% for the nine months ended March 31, 2024, resulting in constant-currency revenue growth of 10% and 6%, respectively.

National Pen continued to deliver strong growth within its e-commerce and telesales channels, as well as from fulfillment for other Cimpress businesses.

Segment Profitability

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.

The increase in National Pen's segment EBITDA for the three months ended March 31, 2024 was driven by the revenue growth described above;

$2.7 million less advertising spend year over year, primarily in its direct mail channel;

and $0.9 million of less long-term incentive compensation expense, primarily due to changes in the estimated payouts.

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.

The increase in National Pen's segment EBITDA for the nine months ended March 31, 2024 was driven by revenue growth described above as well as $1.7 million less long-term incentive compensation expense, primarily due to changes in the estimated payouts.

These increases were partially offset by higher advertising spend of $4.6 million, primarily during the first half of the current fiscal year to support its e-commerce channel, as well as higher operating expenses year over year.

Currency exchange fluctuations had a negative year-over-year impact of $1.4 million for the nine months ended March 31, 2024.

All Other Businesses

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

Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 vs.

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Segment Revenue

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 revenue continued to grow.

All Other Businesses' constant-currency revenue was relatively flat during the three and nine months ended March 31, 2024.

BuildASign generates the majority of revenue in this segment, and revenue was flat year over year as this business delivered stronger growth in their signage products and from fulfillment for other Cimpress businesses, while real estate-related and home-decor products continued to experience revenue headwinds.

Segment Profitability

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.

The decrease in segment EBITDA for the three months ended March 31, 2024 was primarily due to the decline of profitability in our BuildASign business, partly due to flat revenue growth, less efficient advertising spend, and $1.0 million of increased long-term incentive compensation expense, primarily due to changes in the estimated payouts that benefited the prior-year period but did not recur this year.

Partially offsetting the profitability decline, our Printi business reduced their operating losses as it continues to gain scale and deliver efficiencies.

During the nine months ended March 31, 2024 segment EBITDA increased year over year, partially driven by $2.4 million of reduced long-term incentive compensation expense caused by lower forecasted payouts for business-specific long-term incentive awards when compared to the year-ago period.

Segment EBITDA also benefited from the fiscal year 2023 exit of our business in China, which drove $1.8 million of losses in the year-ago period, and reduced operating losses in our Printi business.

Central and Corporate Costs

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

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.

During the three and nine months ended March 31, 2024, central and corporate costs increased by $5.0 million and $4.4 million, as compared to the prior-year periods.

The increases were largely driven by $8.7 million and $15.5 million of increased share-based compensation expense, respectively, due to a higher grant pool 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 $0.9 million and $5.0 million due to savings from the March 2023 cost reductions, as well as lower third-party consulting spend of $0.9 million and $4.3 million, respectively, as compared to the prior-year periods.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data

Six Months Ended December 31,

Nine Months Ended March 31,

Net cash provided by operating activities $ 225,627 $ 68,474

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Net cash used in financing activities (157,506) (125,766)

(47,155) (112,715)

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

The cash flows during the nine months ended March 31, 2024 related primarily to the following items:

Cash inflows:

• Net income of $59.6 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

• Adjustments for non-cash items of $160.3 million primarily related to adjustments for depreciation and amortization of $116.1 million, share-based compensation costs of $48.5 million, and deferred taxes of $1.1 million partially offset by unrealized currency-related gains of $4.2 million, and the gain on extinguishment of debt of $1.7 million

• Proceeds from the maturity of held-to-maturity securities of $36.7 million

• Proceeds from the sale of assets of $6.4 million, which primarily included proceeds from the sale of our Japanese manufacturing facility following our prior year exit from the Japanese market

• Net working capital inflow of $5.7 million, primarily due to further reductions to inventory following the prior-year build up of safety stock to mitigate the risk of supply chain disruptions as well as timing impacts from favorable changes to accounts payable and accrued liabilities

Cash outflows:

• Purchases of our ordinary shares for $100.7 million

• Capital expenditures of $44.4 million, of which the majority related to the purchase of manufacturing and automation equipment for our production facilities

• Internal and external costs of $43.4 million for software and website development that we have capitalized

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

• Payments for the purchase of a portion of our 2026 Notes for $24.5 million

• Payment of withholding taxes in connection with share awards of $14.1 million, primarily driven by the annual vesting of share grants during August 2023

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Additional Liquidity and Capital Resources Information.

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.

At March 31, 2024, we had $154.3 million of cash and cash equivalents, $6.5 million of marketable securities, and $1,615.0 million of debt, excluding debt issuance costs and debt premiums and discounts.

During the nine months ended March 31, 2024, 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 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.

During the three months ended March 31, 2024, we purchased and retired 1,085,574 of our ordinary shares for $100.7 million.

In April 2024 we repurchased an additional 202,452 shares for $19.3 million.

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.

therefore, any additional repurchases will be price dependent.

During the nine months ended March 31, 2024, we also 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.

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.

Supply Chain Financing Program.

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Indefinitely Reinvested Earnings.

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.

As of March 31, 2024, 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 $77.0 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 December 31, 2023 are as follows:

Contractual obligations at March 31, 2024 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 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.

Accordingly, uncertain tax positions of $9.3 million as of March 31, 2024 have been excluded from the contractual obligations table above.

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

Operating Leases .

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 $2.7 million in the aggregate outstanding as of December 31, 2023.

The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $2.9 million in the aggregate outstanding as of March 31, 2024.

Purchase Commitments.

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

At March 31, 2024, we had unrecorded commitments under contract of $184.4 million.

Purchase commitments consisted of third-party fulfillment and digital services of $85.8 million;

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Senior Secured Credit Facility and Interest Payments.

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.

As of March 31, 2024, we have borrowings under our Restated Credit Agreement of $1,088.1 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 $238.0 million unused as of March 31, 2024.

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 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.

Interest payable included in the above table is based on the interest rate as of March 31, 2024 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 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.

During the nine months ended March 31, 2024, 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 December 31, 2023, we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2026 Notes.

As of March 31,

2024, 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 December 31, 2023, we had $5.8 million outstanding for those obligations that have repayments due on various dates through September 2027.

As of March 31, 2024, we had $4.8 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 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.

The aggregate carrying value of the leased assets under finance leases included in property, plant and equipment, net in our consolidated balance sheet at March 31, 2024 is $27.8 million, net of accumulated depreciation of $31.7 million.

The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at March 31, 2024 amounts to $37.5 million.

Additional Non-GAAP Financial Measures

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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.

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 and six months ended December 31, 2023 and 2022:

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

The table below sets forth operating income and adjusted EBITDA for the three and nine months ended March 31, 2024 and 2023:

In thousands Three Months Ended March 31, Nine Months Ended March 31,

2024 2023 2024 2023

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

GAAP operating income (loss)

$ 39,238 $ (12,197) $ 181,017 $ 3,414

Exclude expense (benefit) impact of:

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Restructuring-related charges 128 30,115 277 43,142

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

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

(349) 4,783 2,646 26,553

Adjusted EBITDA $ 94,158 $ 69,145 $ 349,328 $ 225,922

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

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,

The table below sets forth net cash provided by operating activities and adjusted free cash flow for the nine months ended March 31, 2024 and 2023:

In thousands Nine Months Ended March 31,

Net cash provided by operating activities $ 225,627 $ 68,474

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis