Cimpress NV Falls Along With Earnings, Business Restructuring

Cimpress NV (CMPR -1.06%) announced fiscal second-quarter 2017 results Wednesday after the market closed, along with plans to "decentralize its organizational structure." Shares are down more than 8% in after-hours trading, as Wall Street frowns upon continued profitability headwinds for the mass customization specialist.

To be fair, going into this report Cimpress shares had all but recovered from last quarter's similar post-earnings plunge. And investors should recall Cimpress hasn't provided specific financial guidance since late 2015, when it outlined a novel long-term approach of maximizing its intrinsic per-share value. Nonetheless, let's have a deeper look at what drove the company's results in the crucial holiday quarter.

Cimpress' mass customization platform. IMAGE SOURCE: Cimpress NV.

Cimpress results: The raw numbers

Data source: Cimpress. 

What happened with Cimpress this quarter?

• Adjusted net operating profit after tax (NOPAT) declined 38.7% year over year, to $50.6 million.
• Excluding both currency exchange and the contributions of acquired businesses, revenue grew 8% year over year.
• Generated operating cash flow of $105.1 million, and free cash flow of $77.3 million during the quarter.
• Vistaprint business unit revenue increased 7% year over year (9% excluding currencies), to $379.4 million, in line with expectations.
• This performance was underscored by "continued traction with customer value proposition improvements," including recent shipping price reductions, expanded design services, and new products. These have collectively improved customer satisfaction, repeat rates, and conversion rates -- albeit at the expense of near-term profitability.
• Upload and Print business unit revenue rose 63% (66% excluding currencies), to $152.4 million, driven primarily by contributions from acquisitions. Excluding acquisitions and currency exchange, Upload and Print sales would have increased 11%, also in line with expectations.
• "Other" business unit revenue declined 7%, to $45 million, as Most of World and Albumprinter B2C growth was more than offset by expected declines in partner revenue.
• Repurchased 593,763 Cimpress shares during the quarter for $50 million, or an average price of $84.22 per share.
• Completed the $218 million acquisition of custom pen specialist National Pen on Dec. 30, 2016.
• Invested $14.8 million to increase ownership of Pixartprinting to 100% during the quarter.
• Increased ownership of Cimpress' Japan business to 100%, after purchasing joint venture partner Plaza Create's 49% ownership stake for $9.4 million.
• Ended the calendar year with $49.6 million in cash and equivalents, and $876.1 million of debt (net of issuance costs).
• Last quarter, Cimpress implemented a "notional cash pool" that allows it to keep less cash on hand to fund operations of certain subsidiaries. In turn, this makes more cash available for strategic investments or debt repayment.
• Cimpress also announced a business restructuring through which it will "deeply decentralize the company's operations in order to improve accountability for customer satisfaction and capital returns, simplify decision making, improve speed of execution, further develop the company's cadre of general managers, and preserve and release entrepreneurial energy."
• After the changes, Cimpress' only central groups will be global procurement and supplier research, a technology team that focuses primarily on building the mass customization platform, and essential corporate services. As such, the percentage of Cimpress' nearly 10,000 team members who are part of one of the company's business units (rather than part of a centralized group) will increase to 97% by the end of March 2017, up from from 66% at the end of Dec. 2016.
• Cimpress will also eliminate roughly 160 positions, or 1.6% of its workforce, including four Cimpress executive offers, and reduce planned hiring in certain areas.

What management had to say

As Cimpress CEO Robert Keane elaborated:

We delivered another solid quarter and we continue to execute well against our plans to invest in a broad spectrum of long-term organic investments as outlined at the beginning of the fiscal year. Our largest business unit, Vistaprint, continued to gain traction as customers recognize an improved customer value proposition from its expanded product and service offering and reduced shipping prices. Vistaprint repeat revenue continued at double-digit growth, and our first-time customer count and revenue grew again for the third quarter in a row. Importantly, we achieved a significant milestone with our mass customization platform this quarter against our goal to materially increase platform order flow in fiscal 2017. The Vistaprint business unit fulfilled approximately 2.5 million orders for holiday products across the platform and Cimpress managed that volume across a network of more than a dozen third-party fulfillers and multiple Cimpress-owned production facilities.

CFO Sean Quinn noted revenue was in line with expectations, even as the company faces near-term growth headwinds given the loss of partner revenue and as strategic investments supress profitability.

"However," Quinn added, "we remain confident that our investments will strengthen our competitive position and improve the intrinsic value of our business, consistent with our fundamental approach to capital allocation."

Looking forward

Cimpress typically reminds investors that it is "not targeting any specific revenue growth rates for any particular quarter or year." Rather, the company will continue to allocate capital as it sees fit to most effectively capture its compelling market opportunities. That might be maddening for Wall Street analysts who would love to more accurately model Cimpress' earnings on a quarterly basis. But for now, Cimpress appears to be exactly where it wants to be.