CIMPRESS plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and financial results, the impact of interest rate and currency fluctuations, future payment terms with suppliers, legal proceedings, indefinitely reinvested earnings, unrecognized tax benefits, our effective tax rate, 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,” "will" and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including but not limited to flaws in the assumptions and judgments upon which our forecasts and estimates are based; the development, severity, and duration of supply chain constraints and heightened inflation; our inability to make investments in our business and allocate our capital as planned or the failure of those investments and allocations to achieve the results we expect; costs and disruptions caused by acquisitions and minority investments; the failure of businesses we acquire or invest in to perform as expected; loss of key personnel or our inability to recruit talented personnel; our failure to develop and deploy our mass customization platform or the failure of the mass customization platform to drive the performance, efficiencies and competitive advantage we expect; unanticipated changes in our markets, customers, or businesses; disruptions caused by political instability and war in Ukraine, Israel, the Middle East or elsewhere; changes in the laws and regulations, or in the interpretation of laws and regulations, that affect our businesses; our failure to manage the growth and complexity of our business; our failure to maintain compliance with the covenants in our debt documents or to pay our debts when due; competitive pressures; general economic conditions; and other factors described in Item 1A (Risk Factors) of our Annual Report on Form 10-K for the 2024 fiscal year and subsequent documents we periodically file with the SEC. Executive Overview Cimpress is a strategically focused collection of businesses that specialize in print mass customization, through which we deliver large volumes of individually small-sized customized orders of printed materials and related products. Our products and services include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, design and digital marketing services, and other categories. Mass customization is a core element of the business model of each Cimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency. We discuss mass customization further in the Business section of this Report. As of September 30, 2024, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vista, PrintBrothers, The Print Group, National Pen, and All Other Businesses. For purposes of measuring and reporting our segment financial performance, we implemented changes to the methodology used for inter-segment transactions during the first quarter of fiscal 2025. These transactions are when one Cimpress business chooses to buy from or sell to another Cimpress business. We have recast the prior period presented for segment revenue and segment EBITDA to ensure comparability with the current fiscal year. These changes in methodology have no impact on our consolidated financial results. Refer to Note 11 in our accompanying consolidated financial statements for additional details. Financial Summary The primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress wide is our adjusted free cash flow before net cash interest payments; however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including revenue growth, organic constant-currency revenue growth, operating income, adjusted EBITDA, cash flow from operations, and adjusted free cash flow. Reconciliations of our non-GAAP financial measures are included within the "Consolidated Results of Operations" and "Additional Non-GAAP Financial Measures" sections of 24 Management's Discussion and Analysis. A summary of these key financial metrics for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 follows: • Revenue increased by 6% to $805.0 million. • Organic constant-currency revenue growth (a non-GAAP financial measure) was 6%. • Operating income increased by $5.2 million to $39.3 million. • Adjusted EBITDA (a non-GAAP financial measure) decreased by $1.0 million to $87.8 million. • Diluted net (loss) income per share attributable to Cimpress plc was a loss of $(0.50) compared to income of $0.17 in the prior year period. • Cash provided by operating activities decreased by $37.9 million to $4.4 million. • Adjusted free cash flow (a non-GAAP financial measure) decreased by $36.5 million to a use of cash of $25.6 million. For the three months ended September 30, 2024, the increase in reported revenue was driven by revenue growth across all of our segments. Revenue growth in our Vista business was driven by customer experience improvements and new product introductions that have supported continued increases in average order value and customer count. The increase to operating income during the three months ended September 30, 2024 was driven by a $23.7 million increase to gross profit that benefited from the revenue growth described above. The increase to gross profit was offset in part by higher advertising spend of $6.3 million which was largely driven by higher mid- and upper-funnel advertising spend in our Vista business. In addition, operating expenses increased as compared to the prior year, due in part to higher cash compensation costs driven by the timing of our annual merit cycle, and increases in share-based compensation expense. These operating expense increases were offset in part by $4.7 million of lower amortization of acquired intangible assets due to the runoff of fully amortized assets across several of our previously acquired businesses. Adjusted EBITDA decreased year over year by $1.0 million, which included negative year-over-year currency impacts of $0.9 million. Excluding the effect of currency, adjusted EBITDA decreased slightly versus the prior period. Adjusted EBITDA excludes depreciation and amortization, restructuring charges, share-based compensation expense, earn-out related charges, certain impairments and other charges, gains or losses on the purchase or sale of subsidiaries and the disposal of assets, and includes proceeds from insurance not already included in operating income as well as the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA. Diluted net (loss) income per share attributable to Cimpress plc decreased for the three months ended September 30, 2024, primarily due to the net negative currency impacts of $15.2 million year over year, primarily due to unrealized currency losses caused by exchange rate volatility and lower realized gains on our derivative contracts. We also recognized $2.2 million of higher interest expense, net, primarily due to the impact of changes in our estimated redemption amount of mandatorily redeemable noncontrolling interests, which has resulted in $2.7 million of higher interest expense, net, year over year. Additionally, we recognized $1.2 million of lower gains on extinguishment of debt driven by the prior year purchase of a portion of our previously outstanding 2026 Notes. During the three months ended September 30, 2024 , cash from operations decreased $37.9 million year over year primarily driven by unfavorable changes in working capital due to timing items, as well as higher cash interest of $10.6 million driven by the earlier interest payment associated with the redemption of our previously outstanding 2026 Notes. For additional details regarding the refinancing of our 2026 Notes, refer to Note 8 in our accompanying consolidated financial statements. Adjusted free cash flow decreased by $36.5 million for the three months ended September 30, 2024, due to the operating cash flow decrease described above, as well as $4.1 million of lower proceeds from the sale of assets, primarily driven by the sale of our previously owned manufacturing facility in Japan in the prior period. These decreases were partially offset by lower capitalized expenditures year-over-year of $5.6 million, primarily due to the timing of cash payments on asset purchases. 25 Consolidated Results of Operations Consolidated Revenue Our businesses generate revenue primarily from the sale and shipment of customized products. We also generate revenue, to a much lesser extent (and primarily in our Vista business), from digital services, graphic design services, website design and hosting, and social media marketing services, as well as a small percentage of revenue from order referral fees and other third-party offerings. For additional discussion relating to segment revenue results, refer to the "Reportable Segment Results" section included below. Total revenue and revenue growth by reportable segment for the three months ended September 30, 2024 and 2023 are shown in the following table: In thousands Three Months Ended September 30, Currency Impact: Constant- Currency Impact of Acquisitions/Divestitures: Constant- Currency Revenue Growth 2024 2023 (1) % Change (Favorable)/Unfavorable Revenue Growth (2) (Favorable)/Unfavorable Excluding Acquisitions/Divestitures (3) Vista $ 429,494 $ 396,850 8% —% 8% —% 8% PrintBrothers 160,415 152,573 5% (1)% 4% —% 4% The Print Group 84,072 79,437 6% (2)% 4% —% 4% National Pen 93,404 86,796 8% (1)% 7% —% 7% All Other Businesses 57,143 51,425 11% 2% 13% —% 13% Inter-segment eliminations (19,559) (9,787) Total revenue $ 804,969 $ 757,294 6% —% 6% —% 6% _________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. (2) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period’s average exchange rate for each currency to the U.S. dollar. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results. (3) Constant-currency revenue growth excluding acquisitions/divestitures, a non-GAAP financial measure, excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results. We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP. Consolidated Cost of Revenue Cost of revenue includes materials used by our businesses to manufacture their products, payroll and related expenses for production and design services personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production and design costs, costs of free products, and other related costs of products our businesses sell. In thousands Three Months Ended September 30, 2024 2023 Cost of revenue $ 422,736 $ 398,783 % of revenue 52.5 % 52.7 % For the three months ended September 30, 2024, cost of revenue increased by $24.0 million year over year, partially driven by higher production and shipping costs due to volume growth as well as increases in third-party fulfillment costs in some of our businesses, primarily due to product mix shifts toward faster growing product categories, some of which leverage our large fulfillment network. 26 Consolidated Operating Expenses The following table summarizes our comparative operating expenses for the following periods: In thousands Three Months Ended September 30, 2024 2023 Technology and development expense $ 81,861 $ 74,330 % of revenue 10.2 % 9.8 % Marketing and selling expense $ 203,847 $ 192,188 % of revenue 25.3 % 25.4 % General and administrative expense $ 51,932 $ 48,341 % of revenue 6.5 % 6.4 % Amortization of acquired intangible assets $ 5,155 $ 9,886 % of revenue 0.6 % 1.3 % Restructuring expense $ 99 $ (334) % of revenue 0.0 % 0.0 % Technology and development expense Technology and development expense consists primarily of payroll and related expenses for employees engaged in software and manufacturing engineering, information technology operations, and content development, as well as amortization of capitalized software and website development costs, including hosting of our websites, asset depreciation, patent amortization, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue. Technology and development expense increased by $7.5 million for the three months ended September 30, 2024 as compared to the prior year. The year-over-year increase was driven in part by $1.8 million of higher third-party technology costs driven partly by our businesses' further adoption of certain products offered through our mass customization platform, as well as increased business volumes, which has collectively increased consumption of those services. There were also $1.8 million of higher cash compensation costs in the current quarter, resulting in part from our annual merit cycle and market adjustments and higher share-based compensation costs of $0.9 million. Amortization of capitalized software also increased $1.2 million as compared to the prior year, due to an increase in the capitalized asset base driven by continued investment in technology capabilities mainly in our Vista business and central technology teams. Marketing and selling expense Marketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support, and public relations activities; direct-mail advertising costs; and third-party payment processing fees. Our 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, 2024, marketing and selling expenses increased by $11.7 million, partly due to higher advertising spend of $6.3 million as compared to the prior year, largely driven by increases in mid- and upper-funnel spend in our Vista business. These increases were driven in part by the non-recurrence of temporarily stopping activity in these channels to test their performance that reduced spend in the prior year. Cash compensation costs increased by $4.4 million driven by our annual merit cycle, as well as hiring in our Vista business. 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. General and administrative expenses increased by $3.6 million during the three months ended September 30, 2024 as compared to the prior year. The increase in general and administrative expenses were driven by higher compensation costs, which included $2.7 million of higher share-based compensation expense, driven by the 27 accelerated expense profile of our performance share units, as well as $0.6 million of higher cash compensation costs which was impacted by our annual merit cycle. Other Consolidated Results 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 (expense) income, net: In thousands Three Months Ended September 30, 2024 2023 (Losses) gains on derivatives not designated as hedging instruments $ (20,569) $ 8,312 Currency-related gains (losses), net 8,667 (2,699) Other gains 410 806 Total other (expense) income, net $ (11,492) $ 6,419 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 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. Losses on the revaluation of non-functional currency debt are included in our currency-related gains (losses), net, offsetting the impact of certain non-functional currency intercompany relationships. Interest expense, net Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, debt discounts, interest related to finance lease obligations, 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 $2.2 million during the three months ended September 30, 2024, primarily due to the impact of changes in our estimated redemption amount of mandatorily redeemable noncontrolling interests, which has resulted in $2.7 million of higher interest expense, net, year over year. This was partially offset by a year-over-year decrease to our weighted average interest rate (net of interest rate swaps) on our senior secured Term Loan B due in part to our repricing in May 2024 as well as less interest expense associated with our 2026 Notes driven by the prior-year purchase of a portion of those notes. Gain on extinguishment of debt During the three months ended September 30, 2024, we recognized $0.2 million of gains on the extinguishment of debt primarily due to the net write-off of unamortized debt premium and financing fees associated with the refinancing of our 2026 Notes. Refer to Note 8 in our accompanying consolidated financial statements for additional details. The prior period includes gains of $1.4 million arising from the purchase of a portion of our previously outstanding 2026 Notes. 28 Income tax expense In thousands Three Months Ended September 30, 2024 2023 Income tax expense $ 8,995 $ 8,122 Effective tax rate (265.4) % 64.0 % Income tax expense for the three months ended September 30, 2024 increased versus the prior comparative period due to various immaterial discrete items in both periods and an increased full-year forecasted effective tax rate, excluding loss entities with no tax benefit. We believe that our income tax reserves are adequately maintained by taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and therefore there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows. Refer to Note 9 in our accompanying consolidated financial statements for additional details. Reportable Segment Results Our segment financial performance is measured based on segment EBITDA, which is defined as operating income plus depreciation and amortization; plus proceeds from insurance not already included in operating income; plus share-based compensation expense related to investment consideration; plus earn-out related charges; plus certain impairments and other adjustments; plus restructuring related charges; less gain or loss on the 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. For purposes of measuring and reporting our segment financial performance, we implemented changes to the methodology used for inter-segment transactions during the first quarter of fiscal 2025. These transactions are when one Cimpress business chooses to buy from or sell to another Cimpress business. We have recast the prior period presented for segment revenue and segment EBITDA to ensure comparability with the current fiscal year. These changes in methodology have no impact on our consolidated financial results. Refer to Note 11 in our accompanying consolidated financial statements for additional details. Vista In thousands Three Months Ended September 30, 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 429,494 $ 396,850 8% Segment EBITDA 76,847 78,578 (2)% % of revenue 18 % 20 % _____________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. Segment Revenue Vista's reported and constant-currency revenue growth for the three months ended September 30, 2024 was 8%. The revenue growth was driven by customer experience improvements and new product introductions that have supported continued increases in average order value and customer count. Segment Profitability For the three months ended September 30, 2024, segment EBITDA decreased by $1.7 million due to $7.2 million of increased advertising expenses driven in part by the non-recurrence of advertising tests in certain markets, which reduced spend in the prior year. Additionally, operating expenses were higher year over year due to our annual merit cycle. These increased expenses were partially offset by the benefit of revenue growth described above, which resulted in year-over-year gross profit growth of $12.4 million. Gross profit margin for this segment declined year over year as the profit impact of revenue growth was muted by product mix shifts. Segment EBITDA also benefited in the prior period from a $1.8 million item that helped gross profit and did not recur in the current 29 period. Changes in currency exchange rates had a positive impact on segment EBITDA of $1.5 million as compared to the prior-year period. PrintBrothers In thousands Three Months Ended September 30, 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 160,415 $ 152,573 5% Segment EBITDA 20,156 20,210 —% % of revenue 13 % 13 % _____________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. Segment Revenue PrintBrothers' reported revenue growth for the three months ended September 30, 2024 was positively affected by currency impacts of 1% with revenue increasing on an organic constant-currency basis by 4% year over year. Constant-currency growth was driven primarily by continued order volume and customer growth, partially offset by customers purchasing lower quantities in certain product categories. Segment Profitability PrintBrothers' segment EBITDA for the three months ended September 30, 2024 was flat year over year. The constant-currency revenue growth described above and product mix shifts that supported higher gross margins, both contributed to gross profit growth which benefited segment EBITDA. Additionally, currency exchange fluctuations favorably impacted segment EBITDA by $0.3 million year over year. Gross profit growth and currency favorability were offset by higher advertising spend of $1.4 million driven by one of the segment's businesses testing into new digital marketing channels, as well as higher variable long-term incentive compensation expense of $0.5 million, due to a non-recurring reduction of expense in the prior-year period driven by changes in estimated payouts. The Print Group In thousands Three Months Ended September 30, 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 84,072 $ 79,437 6% Segment EBITDA 17,902 12,507 43% % of revenue 21 % 16 % _____________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. Segment Revenue The Print Group's reported revenue for the three months ended September 30, 2024 was positively affected by currency impacts of 2%, which resulted in organic constant-currency revenue growth of 4%. The Print Group revenue has benefited from order growth from external customers as well as increased fulfillment to other Cimpress businesses. Segment Profitability The increase in The Print Group's segment EBITDA during the three months ended September 30, 2024 as compared to the prior year was largely driven by revenue growth described above and gross margin expansion due to reductions in key input costs such as raw materials. There was also a year-over-year reduction in variable long-term incentive compensation expense of $2.8 million for the three months ended September 30, 2024 due to changes in estimated payouts, as well as lower advertising spend year over year of $0.4 million. Currency exchange fluctuations positively impacted segment EBITDA year over year by $0.3 million. 30 National Pen In thousands Three Months Ended September 30, 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 93,404 $ 86,796 8% Segment EBITDA (4,758) (8,762) 46% % of revenue (5) % (10) % _____________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. Segment Revenue For the three months ended September 30, 2024, currency positively impacted National Pen's revenue growth by 1%. The segment's constant-currency revenue growth was 7% as compared to the prior year. National Pen continued to deliver strong growth within its e-commerce channel and fulfillment for other Cimpress businesses. Segment Profitability The increase in National Pen's segment EBITDA for the three months ended September 30, 2024 was driven by the revenue growth described above, higher gross margins, and $2.4 million of lower advertising spend intended to improve returns and efficiency. Currency exchange fluctuations had a positive year-over-year impact of $1.1 million for the three months ended September 30, 2024. All Other Businesses In thousands Three Months Ended September 30, 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 57,143 $ 51,425 11% Segment EBITDA 6,735 6,018 12% % of revenue 12 % 12 % _____________________ (1) The prior period segment results have been adjusted to ensure comparability with the new methodology used for inter-segment transactions. Refer to Note 11 of the accompanying consolidated financial statements for additional details. This segment includes BuildASign and Printi, a smaller business that is an online printing leader in Brazil. Segment Revenue All Other Businesses' revenue growth was negatively impacted 2% by currency, resulting in constant-currency revenue growth of 13% during the three months ended September 30, 2024. BuildASign, the largest business in this segment, delivered strong growth from fulfillment for other Cimpress businesses, as well as growth in their signage products, which was partially offset by lower revenue for real estate-related and home decor products. Our smaller Printi business delivered constant-currency revenue growth versus last year. Segment Profitability For the three months ended September 30, 2024, segment EBITDA increased $0.7 million versus last year, largely driven by increased gross profit that was supported by the revenue growth described above. These increases were offset by higher long-term incentive compensation expense of $1.1 million due to a prior period reversal of expense driven by changes in estimated payouts year over year that was a benefit in the prior period and did not recur during the current period. Our Printi business delivered positive segment EBITDA results as it continues to gain scale and deliver efficiencies. Central and Corporate Costs Central and corporate costs consist primarily of the team of software engineers that is building our mass customization platform; shared service organizations such as global procurement; technology services such as security; 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, 31 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. During the three months ended September 30, 2024, central and corporate costs increased by $5.2 million as compared to the prior year, due in part to higher share-based compensation expense of $2.4 million. Cash compensation also increased by $1.5 million year over year, largely due to the timing of our annual merit cycle. In addition, third party technology costs increased, as a result of continued adoption and usage of mass customization platform products that are developed by our central technology teams. Liquidity and Capital Resources Consolidated Statements of Cash Flows Data In thousands Three Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 4,384 $ 42,254 Net cash used in investing activities (25,502) (10,826) Net cash used in financing activities (35,416) (35,065) The cash flows during the three months ended September 30, 2024 related primarily to the following items: Cash inflows: • Adjustments for non-cash items of $63.2 million primarily related to adjustments for depreciation and amortization of $35.5 million, share-based compensation costs of $15.6 million, partially offset by deferred taxes of $3.0 million and unrealized currency-related gains of $8.0 million • Proceeds from the maturity of held-to-maturity securities of $4.5 million • Cash tax refunds, net of payments, of $1.8 million were driven by tax refunds received in two jurisdictions. The impact of the cash tax refunds, net of payments, is included as a benefit in the net working capital outflow described below • Proceeds from the sale of assets of $1.6 million • Proceeds from the exercise of options for $1.0 million Cash outflows: • Net loss of $12.4 million • Net working capital outflow of $46.4 million, primarily due to unfavorable changes to accounts payable and purchases of inventory in preparation for our peak season, as well as higher cash interest payments made this quarter as a result of the early redemption of our 2026 Notes. Refer to Note 8 in our accompanying consolidated financial statements for additional details regarding the refinancing • Capital expenditures of $17.0 million, of which the majority related to the purchase of manufacturing and automation equipment for our production facilities • Internal and external costs of $14.6 million for software and website development that we have capitalized • Payment of withholding taxes in connection with share awards of $12.9 million, primarily driven by the vesting of restricted share unit and performance share unit grants • Purchases of our ordinary shares for $10.6 million • Net payments of $5.6 million associated with the refinancing of our 2026 Notes and amendment to our revolving credit facility, including financing fees paid. Refer to Note 8 in the accompanying consolidated financial statements for additional details. 32 • Payments for finance lease arrangements of $2.0 million • Repayments of other debt, net of proceeds from borrowings, of $4.5 million Additional Liquidity and Capital Resources Information. At September 30, 2024, we had $153.0 million of cash and cash equivalents and $1,617.5 million of debt, excluding debt issuance costs and debt premiums and discounts. During the three months ended September 30, 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, 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 three months ended September 30, 2024, we purchased and retired 123,325 of our ordinary shares for $10.6 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. 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 includes the extension of payment terms. We facilitate a voluntary supply chain finance program through a financial intermediary to allow our suppliers to receive funds earlier than our contractual payment date. We do not believe there is a substantial risk that our payment terms will be shortened in the near future. Refer to Note 12 of the accompanying consolidated financial statements for additional information. Indefinitely Reinvested Earnings. As of September 30, 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 $81.3 million. We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows. Contractual Obligations Contractual obligations at September 30, 2024 are as follows: In thousands Payments Due by Period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating leases, net of subleases (1) $ 98,491 $ 23,491 $ 33,869 $ 20,429 $ 20,702 Purchase commitments 231,826 170,378 31,542 22,882 7,024 Senior secured credit facility and interest payments (2) 1,362,007 89,831 172,322 1,099,854 — 2032 Notes and interest payments 833,568 37,536 77,438 77,438 641,156 Other debt 8,577 4,146 4,431 — — Finance leases, net of subleases (1) 39,661 9,076 12,086 6,083 12,416 Total (3) $ 2,574,130 $ 334,458 $ 331,688 $ 1,226,686 $ 681,298 ___________________ (1) Operating and finance lease payments above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses which are not reflected in the contractual obligations above. (2) Interest payments are based on the interest rate as of September 30, 2024 and assume 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. Senior secured credit facility and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash. (3) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of $9.2 million as of September 30, 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. 33 Operating Leases . We rent manufacturing facilities and office space under operating leases expiring on various dates through 2037. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $2.9 million in the aggregate outstanding as of September 30, 2024. Purchase Commitments. At September 30, 2024, we had unrecorded commitments under contract of $231.8 million. Purchase commitments consisted of third-party fulfillment and digital services of $94.6 million; third-party cloud services of $46.1 million; software of $35.8 million; production-related temporary labor of $10.3 million; insurance costs of $9.6 million; production and computer equipment purchases of $9.4 million; professional and consulting fees of $7.0 million; advertising of $2.0 million; and other commitments of $17.1 million. Senior Secured Credit Facility and Interest Payments. On September 26, 2024, we entered into an amendment to our Restated Credit Agreement to extend the maturity date of our senior secured revolving credit facility to September 26, 2029 and reduced the minimum credit spread on borrowing and the minimum commitment fee on unused balances, depending on our first lien leverage ratio. Our $250.0 million senior secured revolving credit facility has $238.0 million unused as of September 30, 2024. There are no drawn amounts on the revolving credit facility. As of September 30, 2024, we have borrowings under our Restated Credit Agreement of $1,083.9 million, consisting of the Term Loan B, which amortizes over the loan period, with a final maturity date of May 17, 2028. 2032 Senior Notes and Interest Payments. On September 26, 2024, we completed a private placement of $525.0 million in aggregate principal amount of senior unsecured notes due 2032 (the "2032 Notes"). We used the net proceeds from the 2032 Notes, together with cash on hand, to redeem all of the outstanding 2026 Notes, and pay associated accrued interest and all related financing fees. Our $525.0 million 2032 Notes bear interest at a rate of 7.375% per annum and mature on September 15, 2032. Interest on the 2032 Notes is payable semi-annually on March 15 and September 15 of each year. Refer to Note 8 in the accompanying consolidated financial statements for additional information. Debt Covenants. The Restated Credit Agreement and the indenture that governs our 2032 Notes contain covenants that restrict or limit certain activities and transactions by Cimpress and our subsidiaries. As of September 30, 2024, we were in compliance with all covenants under our Restated Credit Agreement and the indenture governing our 2032 Notes. Refer to Note 8 in the accompanying consolidated financial statements for additional information. Other Debt. 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, 2024, we had $8.6 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 assets under finance leases included in property, plant and equipment, net in our consolidated balance sheet at September 30, 2024 is $30.1 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 September 30, 2024 amounts to $35.3 million. Additional Non-GAAP Financial Measures Adjusted EBITDA and adjusted free cash flow presented below, and constant-currency revenue growth and constant-currency revenue growth excluding acquisitions/divestitures presented in the consolidated results of operations section above, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. 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 EBITDA is defined as GAAP operating income (loss) plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance not already included in operating income plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less the gain or loss on purchase or sale of subsidiaries as well as the disposal of assets. Adjusted EBITDA is the primary profitability metric by which we measure our consolidated financial performance and is provided to enhance investors' understanding of our current operating results from the 34 underlying and ongoing business for the same reasons it is used by management. For example, for acquisitions, we believe excluding the costs related to the purchase of a business (such as amortization of acquired intangible assets, contingent consideration, or impairment of goodwill) provides further insight into the performance of the underlying acquired business in addition to that provided by our GAAP operating income. As another example, as we do not apply hedge accounting for certain derivative contracts, we believe inclusion of realized gains and losses on these contracts that are intended to be matched against operational currency fluctuations provides further insight into our operating performance in addition to that provided by our GAAP operating income. 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. Adjusted free cash flow is defined as net cash provided by (used in) operating activities less purchases of property, plant and equipment, purchases of intangible assets not related to acquisitions, and capitalization of software and website development costs that are included in net cash used in investing activities, plus the proceeds from sale of assets, payment of contingent consideration in excess of acquisition-date fair value, and gains on proceeds from insurance that are included in net cash provided by operating activities, if any. We use this cash flow metric because we believe that this methodology can provide useful supplemental information to help investors better understand our ability to generate cash flow after considering certain investments required to maintain or grow our business, as well as eliminate the impact of certain cash flow items presented as operating cash flows that we do not believe reflect the cash flow generated by the underlying business. Our adjusted free cash flow measure has limitations as it may omit certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, adjusted free cash flow does not incorporate our cash payments to reduce the principal portion of our debt or cash payments for business acquisitions. Additionally, the mix of property, plant and equipment purchases that we choose to finance may change over time. We believe it is important to view our adjusted free cash flow measure only as a complement to our entire consolidated statement of cash flows. The table below sets forth operating income and adjusted EBITDA for the three months ended September 30, 2024 and 2023: In thousands Three Months Ended September 30, 2024 2023 GAAP operating income $ 39,339 $ 34,100 Exclude expense (benefit) impact of: Depreciation and amortization 35,546 39,942 Share-based compensation expense 15,633 12,453 Certain impairments and other adjustments (614) 525 Restructuring-related charges 99 (334) Include (expense) benefit impact of: Realized (losses) gains on currency derivatives not included in operating income (1) (2,232) 2,050 Adjusted EBITDA $ 87,771 $ 88,736 _________________ (1) These realized (losses) 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. 35 The table below sets forth net cash provided by operating activities and adjusted free cash flow for the three months ended September 30, 2024 and 2023: In thousands Three Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 4,384 $ 42,254 Purchases of property, plant and equipment (17,001) (22,565) Capitalization of software and website development costs (14,571) (14,397) Proceeds from the sale of assets 1,570 5,636 Adjusted free cash flow $ (25,618) $ 10,928