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, sources of liquidity to fund future operations, future payment terms with suppliers, the timing of adoption of certain accounting standards, legal proceedings, our ability to prevail in our appeal of an adverse land duty tax assessment, 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,” "assume," “designed,” “potential,” "possible," “continue,” “target,” “seek,” "likely," "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 fluctuating 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 geopolitical events or political instability and war in Ukraine, Israel, the Middle East or elsewhere; changes in governmental policies, laws and regulations, or in the enforcement or interpretation of governmental policies, laws and regulations, that affect our businesses, including related to import tariffs; 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, this Quarterly Report on Form 10-Q 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 December 31, 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 periods 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, constant-currency revenue growth, organic constant-currency revenue growth (which excludes the impact of acquisitions/divestitures), operating income, adjusted EBITDA, cash flow from operations, 27 and adjusted free cash flow. Reconciliations of our non-GAAP financial measures are included within the "Consolidated Results of Operations" and "Additional Non-GAAP Financial Measures" sections of Management's Discussion and Analysis. A summary of these key financial metrics for the three and six months ended December 31, 2024 as compared to the three and six months ended December 31, 2023 follows: Second Quarter Fiscal Year 2025 • Revenue increased by 2% to $939.2 million. • Organic constant-currency revenue growth (a non-GAAP financial measure) was 2%. • Operating income decreased by $26.7 million to $80.9 million. • Adjusted EBITDA (a non-GAAP financial measure) decreased by $34.2 million to $132.3 million. • Diluted net income per share attributable to Cimpress plc increased to $2.36 from $2.14 in the prior year period. Year to Date Fiscal Year 2025 • Revenue increased by 4% to $1,744.1 million. • Organic constant-currency revenue growth (a non-GAAP financial measure) was 4%. • Operating income decreased by $21.5 million to $120.3 million. • Adjusted EBITDA (a non-GAAP financial measure) decreased by $35.1 million to $220.0 million. • Diluted net income per share attributable to Cimpress plc decreased to $1.86 from $2.31 in the prior year period. • Cash provided by operating activities decreased by $36.3 million to $180.9 million. • Adjusted free cash flow (a non-GAAP financial measure) decreased by $53.0 million to $107.9 million. For the three and six months ended December 31, 2024, the increase in reported revenue was primarily driven by external revenue growth in our Vista, PrintBrothers and The Print Group reportable segments. Revenue growth was led by strong revenue performance in more complex products in our Vista business, which includes product categories like promotional products, apparel, signage, and packaging and labels. Revenue growth was dampened by lower revenue in the U.S. for business cards, as well as lower revenue during the seasonally important second quarter for consumer-focused products, such as holiday cards at Vista and canvas prints in our BuildASign business. In addition, the shortened holiday buying season compared to last year and postal strikes in Canada during the holiday peak that kept customers from buying holiday cards given the uncertainty of deliverability also negatively impacted revenue growth. The decrease to operating income during the three and six months ended December 31, 2024 was driven by the non-recurrence of $12 million of items that benefited the prior year periods, as well as the impact of a $2.9 million charge that we recognized in the second quarter of the current fiscal year for a land duty tax in Australia related to our 2019 redomiciliation to Ireland that we are appealing. In addition, the impact of the Canadian postal strikes and shortened holiday buying season as described above also reduced profits as compared to the prior year periods. The strong revenue growth in more complex products was not enough to overcome the shortfall from higher gross margin products, as well as increased advertising spend and operating expenses. These items were offset in part by $4.1 million and $8.8 million, respectively, 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 during the three and six months ended December 31, 2024, primarily driven by the decrease in operating income described above, as well as negative year-over-year currency impacts of $0.7 million and $2.1 million, respectively, net of realized hedging gains and losses for certain derivatives intended to hedge adjusted EBITDA. 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. 28 Diluted net income per share attributable to Cimpress plc increased for the three months ended December 31, 2024, due to higher unrealized gains on derivative contracts that are not designated hedges, which was partially offset by the operating income decrease described above. Alternatively, diluted net income per share attributable to Cimpress plc decreased for the six months ended December 31, 2024, due to the operating income decrease described above. The operating income decrease was offset in part by higher unrealized gains on derivative contracts that are not designated hedges. During the six months ended December 31, 2024 , cash from operations decreased $36.3 million year over year, primarily driven by the lower operating income as described above, as well as less favorable inflows from changes in net working capital year-over-year. The cash from operations decrease was partially offset by lower cash interest payments of $12.1 million, primarily due to a change in timing of interest payments on our recently refinanced senior notes. Adjusted free cash flow decreased by $53.0 million for the six months ended December 31, 2024, due to the operating cash flow decrease described above, as well as a $9.5 million increase in capitalized expenditures, primarily due to planned investments in new production equipment. Proceeds from sale of assets decreased by $4.3 million, primarily driven by the sale of our previously owned manufacturing facility in Japan in the prior year period. 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 and six months ended December 31, 2024 are shown in the following table: In thousands Three Months Ended December 31, 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 $ 497,677 $ 485,445 3% 0% 3% —% 3% PrintBrothers 174,508 165,551 5% 1% 6% —% 6% The Print Group 98,628 92,135 7% 0% 7% —% 7% National Pen 131,423 130,096 1% 0% 1% —% 1% All Other Businesses 60,333 59,762 1% 2% 3% —% 3% Inter-segment eliminations (23,410) (11,626) Total revenue $ 939,159 $ 921,363 2% 0% 2% —% 2% In thousands Six Months Ended December 31, 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 $ 927,171 $ 882,295 5% 0% 5% —% 5% PrintBrothers 334,923 318,124 5% 0% 5% —% 5% The Print Group 182,700 171,572 6% 0% 6% —% 6% National Pen 224,827 216,892 4% (1)% 3% —% 3% All Other Businesses 117,476 111,187 6% 1% 7% —% 7% Inter-segment eliminations (42,969) (21,413) Total revenue $ 1,744,128 $ 1,678,657 4% 0% 4% —% 4% _________________ 29 (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 December 31, Six Months Ended December 31, 2024 2023 2024 2023 Cost of revenue $ 489,256 $ 463,423 $ 911,992 $ 862,206 % of revenue 52.1 % 50.3 % 52.3 % 51.4 % For the three and six months ended December 31, 2024, cost of revenue increased by $25.8 million and $49.8 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 complex product categories, some of which leverage our third-party fulfillment network. In addition, cost of revenue was negatively impacted year-over-year by $4.2 million due to the non-recurrence of several items that benefited the prior year periods which included a favorable indirect tax ruling. Consolidated Operating Expenses The following table summarizes our comparative operating expenses for the following periods: In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 Technology and development expense $ 82,878 $ 79,961 4% $ 164,739 $ 154,291 7% % of revenue 8.8 % 8.7 % 9.4 % 9.2 % Marketing and selling expense $ 223,861 $ 211,843 6% $ 427,708 $ 404,031 6% % of revenue 23.8 % 23.0 % 24.5 % 24.1 % General and administrative expense $ 56,936 $ 48,793 17% $ 108,868 $ 97,134 12% % of revenue 6.1 % 5.3 % 6.2 % 5.8 % Amortization of acquired intangible assets $ 5,116 $ 9,181 (44)% $ 10,271 $ 19,067 (46)% % of revenue 0.5 % 1.0 % 0.6 % 1.1 % Restructuring expense $ 163 $ 483 (66)% $ 262 $ 149 76% % of revenue 0.0 % 0.1 % 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. 30 Technology and development expense increased by $2.9 million and $10.4 million for the three and six months ended December 31, 2024, respectively, as compared to the prior year periods. The year-over-year increase was driven in part by $1.9 million and $3.7 million, respectively, 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. Amortization of capitalized software also increased $1.1 million and $2.3 million, respectively, as compared to the prior year periods, due to an increase in the capitalized asset base driven by continued investment in technology capabilities across many of our businesses. 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 and six months ended December 31, 2024, marketing and selling expenses increased by $12.0 million and $23.7 million, respectively, partly due to higher advertising spend of $8.3 million and $14.6 million, respectively, as compared to the prior-year periods, largely driven by increases in mid- and upper-funnel spend in our Vista business, as well as higher cost of performance advertising in the U.S. market during the holiday peak. Cash compensation costs increased by $4.8 million and $9.2 million, respectively, 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 $8.1 million and $11.7 million, respectively, during the three and six months ended December 31, 2024 as compared to the prior year periods. The increase in general and administrative expenses was driven by higher long-term incentive compensation of $4.8 million and $4.4 million, respectively, due to variability year-over-year in estimated payouts which resulted in a benefit in the prior year periods, as compared to expense in the current year periods, as well as higher cash compensation costs which were impacted by our annual merit cycle. The increase was also impacted by a $2.9 million charge recognized in the current quarter for a land duty tax in Australia related to our 2019 redomiciliation to Ireland that we are appealing. Other Consolidated Results Other income (expense), net Other income (expense), net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. 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. 31 The following table summarizes the components of other income (expense), net: In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Gains (losses) on derivatives not designated as hedging instruments $ 33,632 $ (13,668) $ 13,063 $ (5,356) Currency-related (losses) gains, net (2,107) 13,062 6,560 10,363 Other gains 153 215 563 1,021 Total other income (expense), net $ 31,678 $ (391) $ 20,186 $ 6,028 The increase in other income (expense), net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of which our Euro and British Pound contracts are the most significant exposures that we economically hedge. We 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 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 decreased $1.4 million during the three months ended December 31, 2024, primarily due to a year-over-year decrease to our weighted average interest rate (net of interest rate swaps) on our senior secured Term Loan B arising in part from our repricing actions in May 2024 and December 2024 that reduced our credit spread. Interest expense, net increased $0.8 million during the six months ended December 31, 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 arising in part from our recent repricing actions 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 and six months ended December 31, 2024, we recognized $0.7 million and $0.5 million of losses on the extinguishment of debt primarily due to the net write-off of unamortized debt discount and financing fees associated with the refinancing of our Term Loan B. Refer to Note 8 in our accompanying consolidated financial statements for additional details. The prior year periods includes gains of $0.3 million and $1.7 million, respectively, arising from the purchase of a portion of our previously outstanding 2026 Notes. Income tax expense In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Income tax expense $ 21,151 $ 16,795 $ 30,146 $ 24,917 Effective tax rate 25.6 % 21.8 % 38.0 % 27.8 % Income tax expense for the three and six months ended December 31, 2024 increased versus the prior comparative periods due to 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 32 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 periods 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 December 31, Six Months Ended December 31, 2024 2023 (1) 2024 vs. 2023 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 497,677 $ 485,445 3% $ 927,171 $ 882,295 5% Segment EBITDA 92,423 107,870 (14)% 169,270 186,448 (9)% % of revenue 19 % 22 % 18 % 21 % _____________________ (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 and six months ended December 31, 2024 was 3% and 5%, respectively. Revenue growth for the three and six months ended December 31, 2024 was stronger in Europe, as well as globally from product categories like promotional products, apparel, signage and packaging and labels. Revenue growth was dampened by a decline in consumer products in North America during the seasonally important second quarter and a decline in business cards and stationery in the U.S. in both periods presented. For holiday products in the U.S. more intensive discounting from competitors, significantly higher advertising costs in performance channels and fewer buying days during the holiday season combined to reduce revenue versus the prior year periods. Additionally, there was a postal strike in Canada during the second quarter of the current fiscal year that also negatively impacted demand during the holiday peak. Segment Profitability For the three and six months ended December 31, 2024, segment EBITDA decreased by $15.4 million and $17.2 million, respectively, primarily due to the non-recurrence of items that benefited the prior-year periods of $4.6 million and $6.4 million, respectively, and the impact of product mix shifts largely driven by the declines in North American consumer products that was influenced in part by the Canadian postal strikes, as well as declines in business cards and stationery, each of which have high gross margins. Vista advertising expense increased year-over-year by $6.4 million and $13.6 million, respectively, which drove the revenue growth described above, and was impacted by a higher cost of advertising during the peak consumer weeks in North America, as well as unfavorable shifts in channel mix due to weaker performance in organic search and free channels. 33 PrintBrothers In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 (1) 2024 vs. 2023 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 174,508 $ 165,551 5% $ 334,923 $ 318,124 5% Segment EBITDA 23,333 28,802 (19)% 43,489 49,012 (11)% % of revenue 13 % 17 % 13 % 15 % _____________________ (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 December 31, 2024 was negatively affected by currency impact of 1%, while currency exchange fluctuations had a minimal effect on the six months ended December 31, 2024, resulting in constant currency revenue growth of 6% and 5%, respectively. Constant-currency growth was driven primarily by continued order volume growth, partially offset by customers purchasing lower quantities in certain product categories. Segment Profitability PrintBrothers' segment EBITDA for the three and six months ended December 31, 2024 decreased $5.5 million year over year for both periods presented. The segment EBITDA decrease for the three and six months ended December 31, 2024 was driven by the non-recurrence of discrete items, including government incentives from one jurisdiction, which benefited the prior year periods by $4.1 million and $2.1 million, respectively. In addition, advertising spend was higher by $1.6 million and $3.0 million, respectively, 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 $0.3 million and $0.7 million, respectively, due to in part to variability in estimated payouts. The Print Group In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 (1) 2024 vs. 2023 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 98,628 $ 92,135 7% $ 182,700 $ 171,572 6% Segment EBITDA 18,526 17,309 7% 36,428 29,816 22% % of revenue 19 % 19 % 20 % 17 % _____________________ (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 and constant-currency revenue growth for the three and six months ended December 31, 2024 was 7% and 6%, respectively. The Print Group revenue has benefited from increased fulfillment to other Cimpress businesses, as well as pricing optimization. Segment Profitability The increase in The Print Group's segment EBITDA during the three and six months ended December 31, 2024 as compared to the prior year periods was largely driven by revenue growth described above and gross margin expansion due to reductions in key input costs such as raw materials. The gross profit growth for the three months ended December 31, 2024 was partially offset by higher variable long-term incentive compensation expense of $1.9 million, while variable long-term incentive compensation was lower for the six months ended December 31, 2024 by $0.9 million due to variability in estimated payouts. 34 National Pen In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 (1) 2024 vs. 2023 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 131,423 $ 130,096 1% $ 224,827 $ 216,892 4% Segment EBITDA 23,299 25,389 (8)% 18,541 16,627 12% % of revenue 18 % 20 % 8 % 8 % _____________________ (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 and six months ended December 31, 2024, currency exchange fluctuations positively impacted National Pen's revenue growth by 0% and 1%, respectively. The segment's constant-currency revenue growth was 1% and 3% as compared to the prior year periods, respectively. National Pen revenue growth was driven by growth in e-commerce, cross-Cimpress fulfillment for other Cimpress businesses, and telesales. These growing channels were offset by revenue declines in mail order where National Pen continued to optimize for efficiency of direct mail advertising. Segment Profitability The decrease in National Pen's segment EBITDA for the three months ended December 31, 2024 was driven by a reduction in gross profit, due to gross margin compression driven by unfavorable product mix shift and increased freight costs versus the prior year periods. Currency exchange fluctuations had a positive year-over-year impact of $0.7 million for the three months ended December 31, 2024. The increase in National Pen's segment EBITDA for the six months ended December 31, 2024 was driven by the revenue growth described above, and $1.6 million of lower advertising spend intended to drive efficiency across channels. Currency exchange fluctuations had a positive year-over-year impact of $1.3 million for the six months ended December 31, 2024. All Other Businesses In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 (1) 2024 vs. 2023 2024 2023 (1) 2024 vs. 2023 Reported Revenue $ 60,333 $ 59,762 1% $ 117,476 $ 111,187 6% Segment EBITDA 3,667 7,371 (50)% 10,402 13,389 (22)% % of revenue 6 % 12 % 9 % 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% and 1% by currency, resulting in constant-currency revenue growth of 3% and 7% during the three and six months ended December 31, 2024, respectively. 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 home decor products. Our smaller Printi business delivered constant-currency revenue growth versus the prior year periods. Segment Profitability For the three and six months ended December 31, 2024, segment EBITDA decreased $3.7 million and $3.0 million versus prior year periods, largely driven by higher long-term incentive compensation expense of $2.8 million and $3.8 million due to a prior year reversal of expense driven by changes in estimated payouts year over year that was a benefit in the prior year periods and did not recur during the current year periods. In addition, 35 gross profits declined year-over-year during the seasonally significant second quarter for our BuildASign business, driven by lower revenue in home decor products, as well as gross margin compression driven in part by temporary production inefficiencies related to new capabilities. 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, 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 and six months ended December 31, 2024, central and corporate costs increased by $1.2 million and $6.4 million, respectively, as compared to the prior year periods, due in part to a $2.9 million charge recognized in the current quarter for a land duty tax in Australia related to our 2019 redomiciliation to Ireland that we are appealing. 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. These increases were partially offset by lower unallocated share-based compensation expense year-over-year of $2.4 million and $4.6 million, respectively, due to lower attainment estimates associated with performance share units granted during the current fiscal year. Liquidity and Capital Resources Consolidated Statements of Cash Flows Data In thousands Six Months Ended December 31, 2024 2023 Net cash provided by operating activities $ 180,903 $ 217,200 Net cash used in investing activities (63,061) (30,395) Net cash used in financing activities (94,076) (47,155) The cash flows during the six months ended December 31, 2024 related primarily to the following items: Cash inflows: • Net income of $49.2 million • Adjustments for non-cash items of $85.9 million primarily related to adjustments for depreciation and amortization of $70.8 million, share-based compensation costs of $30.0 million, and deferred taxes of $3.4 million, partially offset by unrealized currency-related gains of $21.8 million • Net working capital inflow of $45.8 million, primarily due to favorable changes to accounts payable and accrued expenses, driven in large part by timing impacts from our seasonally significant second quarter • Proceeds from the settlement of derivatives designated as hedging instruments of $5.4 million • Proceeds from the maturity of held-to-maturity securities of $4.5 million • Proceeds from the sale of assets of $1.7 million • Proceeds from the exercise of options of $1.4 million Cash outflows: • Purchases of our ordinary shares for $53.0 million • Capital expenditures of $43.4 million, of which the majority related to the purchase of manufacturing and automation equipment for our production facilities 36 • Internal and external costs of $31.2 million for software and website development that we have capitalized • Payment of withholding taxes in connection with share awards of $16.8 million, primarily driven by the vesting of restricted and performance share unit grants • Repayments of other debt, net of proceeds from borrowings, of $8.0 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. • Payments for finance lease arrangements of $4.2 million • Purchase of noncontrolling interests of $4.1 million Additional Liquidity and Capital Resources Information. At December 31, 2024, we had $224.4 million of cash and cash equivalents and $1,610.5 million of debt, excluding debt issuance costs and debt premiums and discounts. During the six months ended December 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, 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 six months ended December 31, 2024, we purchased and retired 657,193 of our ordinary shares for $53.0 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 December 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 $86.6 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 December 31, 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) $ 92,251 $ 22,381 $ 32,610 $ 19,547 $ 17,713 Purchase commitments 207,240 145,770 34,168 20,165 7,137 Senior secured credit facility and interest payments (2) 1,297,458 79,923 153,916 1,063,619 — 2032 Notes and interest payments 833,568 37,536 77,438 77,438 641,156 Other debt 7,240 3,703 3,537 — — Finance leases, net of subleases (1) 36,374 8,245 10,664 5,734 11,731 Total (3) $ 2,474,131 $ 297,558 $ 312,333 $ 1,186,503 $ 677,737 ___________________ (1) Operating and finance lease payments above include only amounts which are fixed under lease agreements. Our leases may also incur 37 variable expenses which are not reflected in the contractual obligations above. (2) Interest payments are based on the interest rate as of December 31, 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 $9.0 million as of December 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 2037. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit, with $2.8 million in the aggregate outstanding as of December 31, 2024. Purchase Commitments. At December 31, 2024, we had unrecorded commitments under contract of $207.2 million. Purchase commitments consisted of third-party fulfillment and digital services of $93.2 million; software of $38.3 million; third-party cloud services of $36.6 million; production and computer equipment purchases of $7.6 million; insurance costs of $5.4 million; professional and consulting fees of $5.2 million; production-related temporary labor of $4.0 million; advertising of $0.7 million; and other commitments of $16.2 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 $237.3 million unused as of December 31, 2024. There are no drawn amounts on the revolving credit facility. As of December 31, 2024, we have borrowings under our Restated Credit Agreement of $1,078.2 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 December 31, 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 December 31, 2024, we had $7.2 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 December 31, 2024 is $27.6 million, net of accumulated depreciation of $31.3 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, 2024 amounts to $31.9 million. 38 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 (which we refer to above as organic constant-currency revenue growth), 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 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. 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. 39 The table below sets forth operating income and adjusted EBITDA for the three and six months ended December 31, 2024 and 2023: In thousands Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 GAAP operating income $ 80,949 $ 107,679 $ 120,288 $ 141,779 Exclude expense (benefit) impact of: Depreciation and amortization 35,211 39,089 70,757 79,031 Share-based compensation expense 14,373 17,649 30,006 30,102 Certain impairments and other adjustments 1,183 589 569 1,114 Restructuring-related charges 163 483 262 149 Include (expense) benefit impact of: Realized gains (losses) on currency derivatives not included in operating income (1) 375 945 (1,857) 2,995 Adjusted EBITDA $ 132,254 $ 166,434 $ 220,025 $ 255,170 _________________ (1) These realized gains (losses) include only the impacts of certain currency derivative contracts that are intended to hedge our adjusted EBITDA exposure to foreign currencies for which we do not apply hedge accounting. 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, 2024 and 2023: In thousands Six Months Ended December 31, 2024 2023 Net cash provided by operating activities $ 180,903 $ 217,200 Purchases of property, plant and equipment (43,419) (33,955) Capitalization of software and website development costs (31,248) (28,344) Proceeds from the sale of assets 1,668 5,988 Adjusted free cash flow $ 107,904 $ 160,889