UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | | | | | | | |
(Mark One) | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 20202021 |
or |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
Commission file number 000-51539
Cimpress plc
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | | | | |
Ireland | | 98-0417483 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
Building D, Xerox Technology Park A91 H9N9,
Dundalk, Co. Louth
Ireland
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: 353 42 938 8500
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol(s) | | Name of Exchange on Which Registered |
Ordinary Shares, nominal value of €0.01 per share | | CMPR | | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
| | Smaller reporting company | ☐ | | |
| | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No þ
As of October 26, 2020,25, 2021, there were 26,003,64926,094,869 Cimpress plc ordinary shares outstanding.
CIMPRESS PLC
QUARTERLY REPORT ON FORM 10-Q
For the Three Months Ended September 30, 20202021
TABLE OF CONTENTS
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| | Page |
PART I FINANCIAL INFORMATION | |
Item 1. Financial Statements (unaudited) | |
Consolidated Balance Sheets as of September 30, 20202021 and June 30, 20202021 | |
Consolidated Statements of Operations for the three months ended September 30, 20202021 and 20192020 | |
Consolidated Statements of Comprehensive Income (Loss)Loss for the three months ended September 30, 20202021 and 20192020 | |
Consolidated Statements of Shareholders' Equity (Deficit)Deficit for the three months ended September 30, 20202021 and 20192020 | |
Consolidated Statements of Cash Flows for the three months ended September 30, 20202021 and 20192020 | |
Notes to Consolidated Financial Statements | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
| | |
PART II OTHER INFORMATION | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds6. Exhibits | |
Item 6. ExhibitsSignatures | |
Signatures | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIMPRESS PLC
CONSOLIDATED BALANCE SHEETS
(unaudited in thousands, except share and per share data)
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
Assets | Assets | | | | Assets | | | |
Current assets: | Current assets: | | | | Current assets: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 40,229 | | | $ | 45,021 | | Cash and cash equivalents | $ | 193,231 | | | $ | 183,023 | |
Accounts receivable, net of allowances of $10,328 and $9,651, respectively | 47,549 | | | 34,596 | | |
Marketable securities | | Marketable securities | 152,028 | | | 152,248 | |
Accounts receivable, net of allowances of $9,222 and $9,404, respectively | | Accounts receivable, net of allowances of $9,222 and $9,404, respectively | 56,624 | | | 50,679 | |
Inventory | Inventory | 91,504 | | | 80,179 | | Inventory | 90,737 | | | 70,044 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 82,408 | | | 88,608 | | Prepaid expenses and other current assets | 81,431 | | | 72,504 | |
| Total current assets | Total current assets | 261,690 | | | 248,404 | | Total current assets | 574,051 | | | 528,498 | |
Property, plant and equipment, net | Property, plant and equipment, net | 330,309 | | | 338,659 | | Property, plant and equipment, net | 321,773 | | | 328,679 | |
Operating lease assets, net | Operating lease assets, net | 146,557 | | | 156,258 | | Operating lease assets, net | 82,271 | | | 87,626 | |
Software and website development costs, net | Software and website development costs, net | 77,595 | | | 71,465 | | Software and website development costs, net | 88,432 | | | 87,690 | |
Deferred tax assets | Deferred tax assets | 146,807 | | | 143,496 | | Deferred tax assets | 146,431 | | | 149,618 | |
Goodwill | Goodwill | 637,568 | | | 621,904 | | Goodwill | 717,970 | | | 726,979 | |
Intangible assets, net | Intangible assets, net | 200,493 | | | 209,228 | | Intangible assets, net | 171,944 | | | 186,744 | |
Marketable securities, non-current | | Marketable securities, non-current | 40,400 | | | 50,713 | |
Other assets | Other assets | 21,010 | | | 25,592 | | Other assets | 41,416 | | | 35,951 | |
Total assets | Total assets | $ | 1,822,029 | | | $ | 1,815,006 | | Total assets | $ | 2,184,688 | | | $ | 2,182,498 | |
Liabilities, noncontrolling interests and shareholders’ deficit | Liabilities, noncontrolling interests and shareholders’ deficit | | | | Liabilities, noncontrolling interests and shareholders’ deficit | | | |
Current liabilities: | Current liabilities: | | | | Current liabilities: | | | |
Accounts payable | Accounts payable | $ | 211,087 | | | $ | 163,891 | | Accounts payable | $ | 219,769 | | | $ | 199,831 | |
Accrued expenses | Accrued expenses | 243,821 | | | 210,764 | | Accrued expenses | 261,161 | | | 247,513 | |
Deferred revenue | Deferred revenue | 36,390 | | | 39,130 | | Deferred revenue | 49,071 | | | 50,868 | |
Short-term debt | Short-term debt | 22,666 | | | 17,933 | | Short-term debt | 11,373 | | | 9,895 | |
Operating lease liabilities, current | Operating lease liabilities, current | 39,426 | | | 41,772 | | Operating lease liabilities, current | 26,340 | | | 26,551 | |
Other current liabilities | Other current liabilities | 21,589 | | | 13,268 | | Other current liabilities | 95,441 | | | 103,515 | |
| Total current liabilities | Total current liabilities | 574,979 | | | 486,758 | | Total current liabilities | 663,155 | | | 638,173 | |
Deferred tax liabilities | Deferred tax liabilities | 33,057 | | | 33,811 | | Deferred tax liabilities | 24,707 | | | 27,433 | |
Long-term debt | Long-term debt | 1,331,549 | | | 1,415,657 | | Long-term debt | 1,718,311 | | | 1,732,511 | |
| Operating lease liabilities, non-current | Operating lease liabilities, non-current | 119,817 | | | 128,963 | | Operating lease liabilities, non-current | 61,459 | | | 66,222 | |
Other liabilities | Other liabilities | 105,845 | | | 88,187 | | Other liabilities | 88,279 | | | 96,410 | |
Total liabilities | Total liabilities | 2,165,247 | | | 2,153,376 | | Total liabilities | 2,555,911 | | | 2,560,749 | |
Commitments and contingencies (Note 12) | Commitments and contingencies (Note 12) | | | | Commitments and contingencies (Note 12) | | | |
Redeemable noncontrolling interests | Redeemable noncontrolling interests | 71,209 | | | 69,106 | | Redeemable noncontrolling interests | 79,593 | | | 71,120 | |
Shareholders’ deficit: | Shareholders’ deficit: | | | | Shareholders’ deficit: | | | |
Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding | Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding | 0 | | | 0 | | Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding | — | | | — | |
Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; 26,003,649 and 25,885,675 shares outstanding, respectively | 615 | | | 615 | | |
Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; 26,090,016 and 26,035,910 shares outstanding, respectively | | Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; 26,090,016 and 26,035,910 shares outstanding, respectively | 615 | | | 615 | |
Deferred ordinary shares, nominal value €1.00 per share, 25,000 shares authorized, issued and outstanding | Deferred ordinary shares, nominal value €1.00 per share, 25,000 shares authorized, issued and outstanding | 28 | | | 28 | | Deferred ordinary shares, nominal value €1.00 per share, 25,000 shares authorized, issued and outstanding | 28 | | | 28 | |
Treasury shares, at cost, 18,076,978 and 18,194,952 shares, respectively | (1,368,723) | | | (1,376,496) | | |
Treasury shares, at cost, 17,990,611 and 18,044,717 shares, respectively | | Treasury shares, at cost, 17,990,611 and 18,044,717 shares, respectively | (1,365,079) | | | (1,368,595) | |
Additional paid-in capital | Additional paid-in capital | 433,827 | | | 438,616 | | Additional paid-in capital | 464,938 | | | 459,904 | |
Retained earnings | Retained earnings | 607,682 | | | 618,437 | | Retained earnings | 532,414 | | | 537,677 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (87,856) | | | (88,676) | | Accumulated other comprehensive loss | (83,732) | | | (79,000) | |
| Total shareholders' deficit | Total shareholders' deficit | (414,427) | | | (407,476) | | Total shareholders' deficit | (450,816) | | | (449,371) | |
Total liabilities, noncontrolling interests and shareholders’ deficit | Total liabilities, noncontrolling interests and shareholders’ deficit | $ | 1,822,029 | | | $ | 1,815,006 | | Total liabilities, noncontrolling interests and shareholders’ deficit | $ | 2,184,688 | | | $ | 2,182,498 | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, | |
| | | 2020 | | 2019 | | | 2021 | | 2020 | |
Revenue | Revenue | | $ | 586,500 | | | $ | 633,959 | | | Revenue | $ | 657,599 | | | $ | 586,500 | | |
Cost of revenue (1) | Cost of revenue (1) | | 298,844 | | | 325,665 | | | Cost of revenue (1) | 338,989 | | | 298,844 | | |
Technology and development expense (1) | Technology and development expense (1) | | 58,489 | | | 63,167 | | | Technology and development expense (1) | 67,277 | | | 58,489 | | |
Marketing and selling expense (1) | Marketing and selling expense (1) | | 138,150 | | | 160,917 | | | Marketing and selling expense (1) | 174,697 | | | 138,150 | | |
General and administrative expense (1) | General and administrative expense (1) | | 41,812 | | | 43,623 | | | General and administrative expense (1) | 46,548 | | | 41,812 | | |
Amortization of acquired intangible assets | Amortization of acquired intangible assets | | 13,305 | | | 13,018 | | | Amortization of acquired intangible assets | 13,458 | | | 13,305 | | |
Restructuring expense (1) | Restructuring expense (1) | | (86) | | | 2,190 | | | Restructuring expense (1) | (309) | | | (86) | | |
| Income from operations | Income from operations | | 35,986 | | | 25,379 | | | Income from operations | 16,939 | | | 35,986 | | |
Other (expense) income, net | | (8,754) | | | 15,674 | | | |
Other income (expense), net | | Other income (expense), net | 22,197 | | | (8,754) | | |
Interest expense, net | Interest expense, net | | (30,516) | | | (15,087) | | | Interest expense, net | (25,688) | | | (30,516) | | |
| (Loss) income before income taxes | | (3,284) | | | 25,966 | | | |
Income (loss) before income taxes | | Income (loss) before income taxes | 13,448 | | | (3,284) | | |
Income tax expense | Income tax expense | | 6,794 | | | 6,115 | | | Income tax expense | 9,381 | | | 6,794 | | |
Net (loss) income | | (10,078) | | | 19,851 | | | |
Add: Net (income) loss attributable to noncontrolling interest | | (677) | | | 180 | | | |
Net (loss) income attributable to Cimpress plc | | $ | (10,755) | | | $ | 20,031 | | | |
Basic net (loss) income per share attributable to Cimpress plc | | $ | (0.41) | | | $ | 0.67 | | | |
Diluted net (loss) income per share attributable to Cimpress plc | | $ | (0.41) | | | $ | 0.66 | | | |
Net income (loss) | | Net income (loss) | 4,067 | | | (10,078) | | |
Add: Net (income) attributable to noncontrolling interest | | Add: Net (income) attributable to noncontrolling interest | (1,738) | | | (677) | | |
Net income (loss) attributable to Cimpress plc | | Net income (loss) attributable to Cimpress plc | $ | 2,329 | | | $ | (10,755) | | |
Basic net income (loss) per share attributable to Cimpress plc | | Basic net income (loss) per share attributable to Cimpress plc | $ | 0.09 | | | $ | (0.41) | | |
Diluted net income (loss) per share attributable to Cimpress plc | | Diluted net income (loss) per share attributable to Cimpress plc | $ | 0.09 | | | $ | (0.41) | | |
Weighted average shares outstanding — basic | Weighted average shares outstanding — basic | | 25,945,998 | | | 29,747,035 | | | Weighted average shares outstanding — basic | 26,072,249 | | | 25,945,998 | | |
Weighted average shares outstanding — diluted | Weighted average shares outstanding — diluted | | 25,945,998 | | | 30,529,472 | | | Weighted average shares outstanding — diluted | 26,583,813 | | | 25,945,998 | | |
(1) Share-based compensation is allocated as follows:
| | | | Three Months Ended September 30, | | Three Months Ended September 30, | |
| | | 2020 | | 2019 | | | 2021 | | 2020 | |
Cost of revenue | Cost of revenue | | $ | 100 | | | $ | 88 | | | Cost of revenue | $ | 116 | | | $ | 100 | | |
Technology and development expense | Technology and development expense | | 2,191 | | | 1,734 | | | Technology and development expense | 2,903 | | | 2,191 | | |
Marketing and selling expense | Marketing and selling expense | | 1,685 | | | (1,311) | | | Marketing and selling expense | 2,677 | | | 1,685 | | |
General and administrative expense | General and administrative expense | | 4,307 | | | 4,239 | | | General and administrative expense | 5,310 | | | 4,307 | | |
Restructuring expense | | 0 | | | 664 | | | |
|
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(unaudited in thousands)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | | | 2020 | | 2019 | | |
Net (loss) income | | | | | $ | (10,078) | | | $ | 19,851 | | | |
Other comprehensive income, net of tax: | | | | | | | | | |
Foreign currency translation gains (losses), net of hedges | | | | | 817 | | | (1,560) | | | |
Net unrealized gains (losses) on derivative instruments designated and qualifying as cash flow hedges | | | | | 3,836 | | | (7,188) | | | |
Amounts reclassified from accumulated other comprehensive (loss) income to net (loss) income on derivative instruments | | | | | (2,071) | | | 4,151 | | | |
| | | | | | | | | |
| | | | | | | | | |
Loss on pension benefit obligation, net | | | | | (336) | | | 0 | | | |
Comprehensive (loss) income | | | | | (7,832) | | | 15,254 | | | |
Add: Comprehensive (income) loss attributable to noncontrolling interests | | | | | (2,103) | | | 1,670 | | | |
Total comprehensive (loss) income attributable to Cimpress plc | | | | | $ | (9,935) | | | $ | 16,924 | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | | | | | |
Net income (loss) | $ | 4,067 | | | $ | (10,078) | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation (losses) gains, net of hedges | (9,210) | | | 817 | | | | | | | |
Net unrealized (losses) gains on derivative instruments designated and qualifying as cash flow hedges | (1,925) | | | 3,836 | | | | | | | |
Amounts reclassified from accumulated other comprehensive loss to net income (loss) on derivative instruments | 5,546 | | | (2,071) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Loss on pension benefit obligation, net | — | | | (336) | | | | | | | |
Comprehensive loss | (1,522) | | | (7,832) | | | | | | | |
Add: Comprehensive (income) attributable to noncontrolling interests | (881) | | | (2,103) | | | | | | | |
Total comprehensive loss attributable to Cimpress plc | $ | (2,403) | | | $ | (9,935) | | | | | | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)DEFICIT
(unaudited in thousands)
| | | Ordinary Shares | | Deferred Ordinary Shares | | Treasury Shares | | | Ordinary Shares | | Deferred Ordinary Shares | | Treasury Shares | |
| | Number of Shares Issued | | Amount | | Number of Shares Issued | | Amount | | Number of Shares | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity (Deficit) | | Number of Shares Issued | | Amount | | Number of Shares Issued | | Amount | | Number of Shares | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
Balance at June 30, 2019 | 44,080 | | | $ | 615 | | | — | | | $ | — | | | (13,635) | | | $ | (737,447) | | | $ | 411,079 | | | $ | 537,422 | | | $ | (79,857) | | | $ | 131,812 | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (18,195) | | | $ | (1,376,496) | | | $ | 438,616 | | | $ | 618,437 | | | $ | (88,676) | | | $ | (407,476) | |
Restricted share units vested, net of shares withheld for taxes | Restricted share units vested, net of shares withheld for taxes | — | | | — | | | — | | | — | | | 4 | | | 87 | | | (259) | | | — | | | — | | | (172) | | Restricted share units vested, net of shares withheld for taxes | — | | | — | | | — | | | — | | | 118 | | | 7,773 | | | (13,366) | | | — | | | — | | | (5,593) | |
Grant of restricted share awards | — | | | — | | | — | | | — | | | (2) | | | (187) | | | — | | | — | | | — | | | (187) | | |
Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 5,164 | | | — | | | — | | | 5,164 | | |
Purchase of ordinary shares | — | | | — | | | — | | | — | | | (1,964) | | | (232,286) | | | — | | | — | | | — | | | (232,286) | | |
Net income attributable to Cimpress plc | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 20,031 | | | — | | | 20,031 | | |
Adoption of new accounting standards | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,143 | | | — | | | 3,143 | | |
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,037) | | | (3,037) | | |
Foreign currency translation, net of hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (70) | | | (70) | | |
Balance at September 30, 2019 | 44,080 | | | $ | 615 | | | — | | | $ | — | | | (15,597) | | | $ | (969,833) | | | $ | 415,984 | | | $ | 560,596 | | | $ | (82,964) | | | $ | (75,602) | | |
| Balance at June 30, 2020 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (18,195) | | | $ | (1,376,496) | | | $ | 438,616 | | | $ | 618,437 | | | $ | (88,676) | | | $ | (407,476) | | |
| Restricted share units vested, net of shares withheld for taxes | — | | | — | | | — | | | — | | | 118 | | | 7,773 | | | (13,366) | | | — | | | — | | | (5,593) | | |
| Share-based compensation expense | Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 8,577 | | | — | | | — | | | 8,577 | | Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 8,577 | | | — | | | — | | | 8,577 | |
Net loss attributable to Cimpress plc | Net loss attributable to Cimpress plc | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,755) | | | — | | | (10,755) | | Net loss attributable to Cimpress plc | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,755) | | | — | | | (10,755) | |
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,765 | | | 1,765 | | Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,765 | | | 1,765 | |
Foreign currency translation, net of hedges | Foreign currency translation, net of hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (609) | | | (609) | | Foreign currency translation, net of hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (609) | | | (609) | |
Unrealized loss on pension benefit obligation, net of tax | Unrealized loss on pension benefit obligation, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (336) | | | (336) | | Unrealized loss on pension benefit obligation, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (336) | | | (336) | |
Balance at September 30, 2020 | Balance at September 30, 2020 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (18,077) | | | $ | (1,368,723) | | | $ | 433,827 | | | $ | 607,682 | | | $ | (87,856) | | | $ | (414,427) | | Balance at September 30, 2020 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (18,077) | | | $ | (1,368,723) | | | $ | 433,827 | | | $ | 607,682 | | | $ | (87,856) | | | $ | (414,427) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (18,045) | | | $ | (1,368,595) | | | $ | 459,904 | | | $ | 537,677 | | | $ | (79,000) | | | $ | (449,371) | |
| Restricted share units vested, net of shares withheld for taxes | | Restricted share units vested, net of shares withheld for taxes | — | | | — | | | — | | | — | | | 54 | | | 3,516 | | | (6,095) | | | — | | | — | | | (2,579) | |
| Share-based compensation expense | | Share-based compensation expense | — | | | — | | | — | | | — | | | — | | | — | | | 11,129 | | | — | | | — | | | 11,129 | |
Net income attributable to Cimpress plc | | Net income attributable to Cimpress plc | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,329 | | | — | | | 2,329 | |
Redeemable noncontrolling interest accretion to redemption value | | Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,592) | | | — | | | (7,592) | |
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | | Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,621 | | | 3,621 | |
Foreign currency translation, net of hedges | | Foreign currency translation, net of hedges | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,353) | | | (8,353) | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | 44,080 | | | $ | 615 | | | 25 | | | $ | 28 | | | (17,991) | | | $ | (1,365,079) | | | $ | 464,938 | | | $ | 532,414 | | | $ | (83,732) | | | $ | (450,816) | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
|
|
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| | 2020 | | 2019 | | | 2021 | | 2020 | |
Operating activities | Operating activities | | | | | Operating activities | | | | |
Net (loss) income | $ | (10,078) | | | $ | 19,851 | | | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
Net income (loss) | | Net income (loss) | $ | 4,067 | | | $ | (10,078) | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | Depreciation and amortization | 42,290 | | | 42,535 | | | Depreciation and amortization | 44,432 | | | 42,290 | | |
| Share-based compensation expense | Share-based compensation expense | 8,283 | | | 5,414 | | | Share-based compensation expense | 11,006 | | | 8,283 | | |
| Deferred taxes | Deferred taxes | (32) | | | (960) | | | Deferred taxes | (1,138) | | | (32) | | |
| Unrealized loss (gain) on derivatives not designated as hedging instruments included in net (loss) income | 14,628 | | | (14,527) | | | |
Unrealized (gain) loss on derivatives not designated as hedging instruments included in net income (loss) | | Unrealized (gain) loss on derivatives not designated as hedging instruments included in net income (loss) | (16,534) | | | 14,628 | | |
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency | Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency | (4,958) | | | 5,028 | | | Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency | (8,853) | | | (4,958) | | |
| Other non-cash items | Other non-cash items | 3,192 | | | 1,365 | | | Other non-cash items | (471) | | | 3,192 | | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | | |
Accounts receivable | Accounts receivable | (12,448) | | | (6,595) | | | Accounts receivable | (7,149) | | | (12,448) | | |
Inventory | Inventory | (3,111) | | | (6,410) | | | Inventory | (11,744) | | | (3,111) | | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 2,523 | | | 737 | | | Prepaid expenses and other assets | (4,832) | | | 2,523 | | |
Accounts payable | Accounts payable | 38,684 | | | (11,038) | | | Accounts payable | 10,290 | | | 38,684 | | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 26,708 | | | 27,505 | | | Accrued expenses and other liabilities | 17,493 | | | 26,708 | | |
Net cash provided by operating activities | Net cash provided by operating activities | 105,681 | | | 62,905 | | | Net cash provided by operating activities | 36,567 | | | 105,681 | | |
Investing activities | Investing activities | | | | | Investing activities | | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (8,383) | | | (14,193) | | | Purchases of property, plant and equipment | (8,624) | | | (8,383) | | |
| Business acquisitions, net of cash acquired | 0 | | | (4,272) | | | |
| | Capitalization of software and website development costs | Capitalization of software and website development costs | (14,804) | | | (12,471) | | | Capitalization of software and website development costs | (15,639) | | | (14,804) | | |
| Proceeds from the sale of assets | Proceeds from the sale of assets | 2,103 | | | 670 | | | Proceeds from the sale of assets | 1,699 | | | 2,103 | | |
| Proceeds from maturity of held-to-maturity investments | | Proceeds from maturity of held-to-maturity investments | 10,000 | | | — | | |
| Other investing activities | Other investing activities | 0 | | | 903 | | | Other investing activities | (617) | | | — | | |
Net cash used in investing activities | Net cash used in investing activities | (21,084) | | | (29,363) | | | Net cash used in investing activities | (13,181) | | | (21,084) | | |
Financing activities | Financing activities | | | | | Financing activities | | | | |
Proceeds from borrowings of debt | Proceeds from borrowings of debt | 99,000 | | | 277,785 | | | Proceeds from borrowings of debt | — | | | 99,000 | | |
| | Payments of debt | Payments of debt | (182,726) | | | (74,392) | | | Payments of debt | (4,111) | | | (182,726) | | |
| | Payments of debt issuance costs | Payments of debt issuance costs | (410) | | | 0 | | | Payments of debt issuance costs | (1,137) | | | (410) | | |
Payments of purchase consideration included in acquisition-date fair value | Payments of purchase consideration included in acquisition-date fair value | (648) | | | 0 | | | Payments of purchase consideration included in acquisition-date fair value | — | | | (648) | | |
Payments of withholding taxes in connection with equity awards | Payments of withholding taxes in connection with equity awards | (5,592) | | | (359) | | | Payments of withholding taxes in connection with equity awards | (2,579) | | | (5,592) | | |
Payments of finance lease obligations | Payments of finance lease obligations | (1,592) | | | (2,719) | | | Payments of finance lease obligations | (2,526) | | | (1,592) | | |
| Purchase of ordinary shares | 0 | | | (231,883) | | | |
| Other financing activities | Other financing activities | (11) | | | (1,437) | | | Other financing activities | 2 | | | (11) | | |
Net cash used in financing activities | Net cash used in financing activities | (91,979) | | | (33,005) | | | Net cash used in financing activities | (10,351) | | | (91,979) | | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 2,590 | | | (4,582) | | | Effect of exchange rate changes on cash | (2,827) | | | 2,590 | | |
| Net decrease in cash and cash equivalents | (4,792) | | | (4,045) | | | |
Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | 10,208 | | | (4,792) | | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 45,021 | | | 35,279 | | | Cash and cash equivalents at beginning of period | 183,023 | | | 45,021 | | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 40,229 | | | $ | 31,234 | | | Cash and cash equivalents at end of period | $ | 193,231 | | | $ | 40,229 | | |
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for: | | | |
Interest | $ | 9,078 | | | $ | 9,384 | | | |
Income taxes | 352 | | | 4,472 | | | |
Non-cash investing and financing activities: | | | |
Property and equipment acquired under finance leases | 76 | | | 0 | | | |
Amounts accrued related to business acquisitions | 1,676 | | | 2,645 | | | |
| | | | | | | | | | | | | |
Supplemental disclosures of cash flow information | | | | | |
Cash paid during the period for: | | | | | |
Interest | $ | 14,358 | | | $ | 9,078 | | | |
Income taxes | 7,767 | | | 352 | | | |
Non-cash investing and financing activities | | | | | |
| | | | | |
Property and equipment acquired under finance leases | 865 | | | 76 | | | |
Amounts accrued related to business acquisitions | 44,852 | | | 1,676 | | | |
See accompanying notes.
CIMPRESS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited in thousands, except share and per share data)
1. Description of the Business
Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. Mass customization is a core element of the business model of each Cimpress business. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.
Our Vistaprint business and reportable segment has begun evolving its brand architecture to "Vista". Brands like "VistaPrint" and "99designs by Vista" will operate within the "Vista" architecture. This move should help open customers' minds to allow us to serve a broader set of their needs across a wide range of products and solutions that includes design, social media and web presence as well as print. No changes were made to our internal organizational and reporting structure as a result of this rebranding, but we will refer to this reportable segment as "Vista" from here forward and throughout this document.
2.Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Cimpress plc, its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and the related equity securities do not have a readily determinable fair value, are accounted for using the cost method and are included in other assets on the consolidated balance sheets. Investments in entities in which we can either exercise significant influence or, in cases when the entity's structure is that of a limited liability company that maintains a specific ownership account and our investment is more than minor, are recognized as equity method investments. Our equity method investments are included in other assets on the consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.
Given the current and expected impact of the COVID-19 pandemic on our business we evaluated our liquidity position as of the date of the issuance of these consolidated financial statements. Based on this evaluation, management believes, despite the ongoing impact of COVID-19 on our business, that our financial position, net cash provided by operations combined with our cash and cash equivalents, borrowing availability under our revolving credit facility, and the April 2020 temporary maintenance covenant suspension and capital raise as described in Note 8, will be sufficient to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
Significant Accounting Policies
Our significant accounting policies are described in Note 2 in our consolidated financial statements included in the Form 10-K for our year ended June 30, 2020. There2021.
Revision of Prior Period Financial Statements
During the first quarter of fiscal 2022, we identified an immaterial error related to the presentation of revenue for one-to-one design service arrangements that overstated revenue and cost of revenue for the period from October 1, 2020 through June 30, 2021. On October 1, 2020 we acquired the 99designs business, which is presented as part of our Vista reportable segment, and after acquisition we recognized revenue on a gross basis as if we were the principal to the transactions. In the current quarter, we reconsidered the guidance of ASC 606-10-55-39 and confirmed we are the principal for contest arrangements; however, the one-to-one design service
portion of 99designs revenue is governed by different terms and conditions. We evaluated whether we have been nocontrol over these services before the design is transferred to the customer, as we leverage a network of third-party designers to fulfill this offering. The pricing and fulfillment responsibility aspects of the one-to-one design arrangements led us to conclude we are an agent to these specific transactions.
We referred to the Codification of SEC Staff Accounting Bulletins (“SAB”) Topics 1.M Materiality and 1.N Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements to assess the materiality of the error. When considering both quantitative and qualitative factors, we determined the impact of the error was not material changes to our significant accounting policiesfinancial statements in any period previously presented. This immaterial error did not have an impact on operating income, nor did it have an impact on our previously presented consolidated balance sheets or consolidated statements of cash flows. This error did not have an impact on the first quarter of fiscal year 2021, which is the comparative period presented in this report, however, we will revise the comparative period results in the Form 10-Q for the second and third quarters of the current fiscal year as well as the Form 10-K for fiscal year 2022. We will revise our previously reported results to present these transactions on a net basis, which will result in a decrease to revenue and cost of revenue of $5,241 and $5,489 for the second and third quarters of fiscal year 2021, respectively, and $16,552 for the fiscal year ended June 30, 2021.
Marketable Securities
We hold certain investments that are classified as held-to-maturity (HTM) as we have the intent and ability to hold them to their maturity dates. Our policy is to invest in the following permitted classes of assets: overnight money market funds invested in U.S. Treasury securities and U.S. government agency securities, U.S Treasury securities-specifically U.S Treasury bills, notes, and bonds, U.S. government agency securities, bank time deposits, commercial paper, corporate notes and bonds, and medium term notes. We generally invest in securities with a maturity of two years or less. As the investments are classified as held-to-maturity they are recorded at amortized cost and interest income is recorded as it is earned within interest expense, net.
We will continue to assess our securities for impairment when the fair value is less than amortized cost to determine if any risk of credit loss exists. As our intent is to hold the securities to maturity, we must assess whether any credit losses related to our investments are recoverable and determine if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We did not record an allowance for credit losses and we recognized no impairments for these marketable securities during three months ended September 30, 2021 and we had no marketable securities during the three months ended September 30, 2020.
The following is a summary of the net carrying amount, unrealized losses, and fair value of held-to-maturity securities by type and contractual maturity as of September 30, 2021 and June 30, 2021.
| | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Amortized cost | | | | Unrealized losses | | Fair value |
Due within one year or less | | | | | | | |
Commercial paper | $ | 64,478 | | | | | $ | (13) | | | $ | 64,465 | |
Corporate debt securities | 87,550 | | | | | (45) | | | 87,505 | |
Total due within one year or less | 152,028 | | | | | (58) | | | 151,970 | |
Due between one and two years | | | | | | | |
Corporate debt securities | 40,400 | | | | | (61) | | | 40,339 | |
Total held-to-maturity securities | $ | 192,428 | | | | | $ | (119) | | | $ | 192,309 | |
| | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Amortized cost | | | | Unrealized losses | | Fair value |
Due within one year or less | | | | | | | |
Commercial paper | $ | 74,463 | | | | | $ | (28) | | | $ | 74,435 | |
Corporate debt securities | 77,785 | | | | | (57) | | | 77,728 | |
Total due within one year or less | 152,248 | | | | | (85) | | | 152,163 | |
Due between one and two years | | | | | | | |
Corporate debt securities | 50,713 | | | | | (90) | | | 50,623 | |
Total held-to-maturity securities | $ | 202,961 | | | | | $ | (175) | | | $ | 202,786 | |
Other Income (Expense) Income,, Net
The following table summarizes the components of other income (expense) income,, net:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | | | 2020 | | 2019 | | |
(Losses) gains on derivatives not designated as hedging instruments (1) | | | | | $ | (13,495) | | | $ | 19,357 | | | |
Currency-related gains (losses), net (2) | | | | | 4,075 | | | (3,412) | | | |
Other gains (losses) | | | | | 666 | | | (271) | | | |
Total other (expense) income, net | | | | | $ | (8,754) | | | $ | 15,674 | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2021 | | 2020 | | | | | | |
Gains (losses) on derivatives not designated as hedging instruments (1) | $ | 13,327 | | | $ | (13,495) | | | | | | | |
Currency-related gains, net (2) | 9,350 | | | 4,075 | | | | | | | |
Other (losses) gains | (480) | | | 666 | | | | | | | |
Total other income (expense), net | $ | 22,197 | | | $ | (8,754) | | | | | | | |
_____________________
(1) Primarily relates to both realized and unrealized gains and losses on derivative currency forward and option contracts not designated as hedging instruments, as well as certain interest rate swap contracts that have been de-designated from hedge accounting due to their ineffectiveness.
(2) We have significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. The currency-related gains, (losses), net for the three months ended September 30, 2020 and 2019 are primarily driven by this intercompany activity.activity for the periods presented. In addition, we have certain cross-currency swaps designated as cash flow hedges which hedge the remeasurement of certain intercompany loans,loans; both are presented in the same component above. The unrealized lossesUnrealized gains related to cross-currency swaps were $5,437 for$3,288 during the three months ended September 30, 2020, as compared to2021 while there were unrealized gainslosses of $4,678 for$5,437 during the three months ended September 30, 2019.2020.
Net Income (Loss) Income Per Share Attributable to Cimpress plc
Basic net income (loss) income per share attributable to Cimpress plc is computed by dividing net income (loss) income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net income (loss) income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), warrants, and performance share units ("PSUs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.
The following table sets forth the reconciliation of the weighted-average number of ordinary shares:
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 |
Weighted average shares outstanding, basic | Weighted average shares outstanding, basic | | 25,945,998 | | | 29,747,035 | | | Weighted average shares outstanding, basic | | 26,072,249 | | | 25,945,998 | |
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants(1) | Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants(1) | | 0 | | | 782,437 | | | Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants(1) | | 511,564 | | | — | |
Shares used in computing diluted net (loss) income per share attributable to Cimpress plc | | 25,945,998 | | | 30,529,472 | | | |
Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress plc (1)(2) | | 450,089 | | | 0 | | | |
Shares used in computing diluted net income (loss) per share attributable to Cimpress plc | | Shares used in computing diluted net income (loss) per share attributable to Cimpress plc | | 26,583,813 | | | 25,945,998 | |
Weighted average anti-dilutive shares excluded from diluted net income (loss) per share attributable to Cimpress plc (2) | | Weighted average anti-dilutive shares excluded from diluted net income (loss) per share attributable to Cimpress plc (2) | | 18,447 | | | 450,089 | |
_____________________
(1) On May 1, 2020, we entered into a financing arrangement with Apollo Global Management, Inc., which included 7-year warrants with a strike price of $60 that have a potentially dilutive impact on our weighted average shares outstanding. For the three months ended September 30, 2021 and 2020, the weighted average anti-dilutivedilutive effect of the warrants was 409,561 and 316,257 shares. Refer to Note 8 for additional details about the arrangement.shares, respectively.
(2) InFor the periods in whichthree months ended September 30, 2020, we recognized a net loss is recognized,in the period and therefore presented the impact of share options, RSUs and warrants is not included as they arebeing anti-dilutive.
Recently Issued or Adopted Accounting Pronouncements
NewIssued Accounting Standards to be Adopted
In December 2019,May 2021, the FASB issued Accounting Standards Update No. 2019-12 "Income Taxes2021-04 "Earnings Per Share (Topic 740): Simplifying the Accounting for Income Taxes"260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)" (ASU 2019-12)2021-04), which modifies certain aspectsprovides authoritative guidance for the accounting for modifications or exchanges of income tax accounting. We early adopted thefreestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The standard is effective for us on July 1, 2020. For2022, and early adoption is permitted. We are assessing the period ended September 30, 2020, adopting ASU 2019-12 resulted in a $2,468 increased tax expense in our consolidated financial statements, related to the intraperiod allocation rules. Under the intraperiod allocation rules, an entity generally allocates total income tax expense or benefit by first determining the amount attributable to continuing operations and then allocating the
remaining tax expense or benefit to items other than continuing operations. An exception existed that required an entity with a loss from continuing operations to consider all components when determining the benefit from continuing operations. ASU 2019-12 removes this exception.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" (ASU 2016-13), which introduces a new accounting model for recognizing credit losses on certain financial instruments based on an estimate of current expected credit losses. We adopted the standard on its effective date of July 1, 2020. The standard did not have a material impact on our consolidated financial statements.
3. Fair Value Measurements
We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
| | | September 30, 2020 | | September 30, 2021 |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | Assets | | | | | | | | Assets | | | | | | | |
| Interest rate swap contracts | | Interest rate swap contracts | $ | 232 | | | $ | — | | | $ | 232 | | | $ | — | |
Cross-currency swap contracts | Cross-currency swap contracts | $ | 948 | | | $ | — | | | $ | 948 | | | $ | — | | Cross-currency swap contracts | 760 | | | — | | | 760 | | | — | |
Currency forward contracts | Currency forward contracts | 3,790 | | | — | | | 3,790 | | | — | | Currency forward contracts | 8,447 | | | — | | | 8,447 | | | — | |
| Currency option contracts | | Currency option contracts | 1,982 | | | — | | | 1,982 | | | — | |
Total assets recorded at fair value | Total assets recorded at fair value | $ | 4,738 | | | $ | — | | | $ | 4,738 | | | $ | — | | Total assets recorded at fair value | $ | 11,421 | | | $ | — | | | $ | 11,421 | | | $ | — | |
| Liabilities | Liabilities | | Liabilities | |
Interest rate swap contracts | Interest rate swap contracts | $ | (36,492) | | | $ | — | | | $ | (36,492) | | | $ | — | | Interest rate swap contracts | $ | (21,937) | | | $ | — | | | $ | (21,937) | | | $ | — | |
Cross-currency swap contracts | Cross-currency swap contracts | (7,814) | | | — | | | (7,814) | | | — | | Cross-currency swap contracts | (6,741) | | | — | | | (6,741) | | | — | |
Currency forward contracts | Currency forward contracts | (21,651) | | | — | | | (21,651) | | | — | | Currency forward contracts | (10,303) | | | — | | | (10,303) | | | — | |
Currency option contracts | Currency option contracts | (2,273) | | | — | | | (2,273) | | | — | | Currency option contracts | (1,150) | | | — | | | (1,150) | | | — | |
Total liabilities recorded at fair value | Total liabilities recorded at fair value | $ | (68,230) | | | $ | — | | | $ | (68,230) | | | $ | — | | Total liabilities recorded at fair value | $ | (40,131) | | | $ | — | | | $ | (40,131) | | | $ | — | |
| | | June 30, 2020 | | June 30, 2021 |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | Assets | | | | | | | | Assets | | | | | | | |
Interest rate swap contracts | $ | 4,462 | | | $ | — | | | $ | 4,462 | | | $ | — | | |
Currency forward contracts | Currency forward contracts | 7,949 | | | — | | | 7,949 | | | — | | Currency forward contracts | $ | 1,679 | | | $ | — | | | $ | 1,679 | | | $ | — | |
Currency option contracts | 1,429 | | | — | | | 1,429 | | | — | | |
Total assets recorded at fair value | Total assets recorded at fair value | $ | 13,840 | | | $ | — | | | $ | 13,840 | | | $ | — | | Total assets recorded at fair value | $ | 1,679 | | | $ | — | | | $ | 1,679 | | | $ | — | |
| Liabilities | Liabilities | | Liabilities | |
Interest rate swap contracts | Interest rate swap contracts | $ | (39,520) | | | $ | — | | | $ | (39,520) | | | $ | — | | Interest rate swap contracts | $ | (25,193) | | | $ | — | | | $ | (25,193) | | | $ | — | |
Cross-currency swap contracts | Cross-currency swap contracts | (4,746) | | | — | | | (4,746) | | | — | | Cross-currency swap contracts | (9,914) | | | — | | | (9,914) | | | — | |
Currency forward contracts | Currency forward contracts | (8,519) | | | — | | | (8,519) | | | — | | Currency forward contracts | (19,651) | | | — | | | (19,651) | | | — | |
Currency option contracts | Currency option contracts | (38) | | | — | | | (38) | | | — | | Currency option contracts | (3,080) | | | — | | | (3,080) | | | — | |
Total liabilities recorded at fair value | Total liabilities recorded at fair value | $ | (52,823) | | | $ | — | | | $ | (52,823) | | | $ | — | | Total liabilities recorded at fair value | $ | (57,838) | | | $ | — | | | $ | (57,838) | | | $ | — | |
During the quarterthree months ended September 30, 20202021 and year ended June 30, 2020,2021, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.
The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of September 30, 2020,2021, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.
As of September 30, 20202021 and June 30, 2020,2021, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximated their estimated fair values. As of September 30, 20202021 and June 30, 2020,2021, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $1,400,7871,751,534 and $1,482,177,$1,764,856, respectively, and the fair value was $1,377,987$1,803,480 and $1,450,719,$1,887,952, respectively. Our debt at September 30, 20202021 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as fixed-rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy.
As of September 30, 2021 and June 30, 2021 our held-to-maturity marketable securities were held at an amortized cost of $192,428and $202,961,respectively,while the fair value was $192,309and$202,786, respectively. The securities were valued using quoted prices for identical assets in active markets, which fall into Level 1 under the fair value hierarchy.
The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.
4. Derivative Financial Instruments
We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. Additionally, any ineffectiveness associated with anyan effective and designated hedge is recognized within accumulated other comprehensive loss.
The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other income (expense) income,, net.
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net.
Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of September 30, 2020,2021, we estimate that $10,324$10,399 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending September 30, 2021.2022. As of September 30, 2020,2021, we had 1015 outstanding interest rate swap contracts indexed to USD LIBOR, threeof which seven of these instruments were not highly effective and therefore not designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2025. As of September 30, 2020, we have determined that three of our hedges are no longer highly effective.for hedge accounting. These de-designated hedges have varying start dates and maturity dates through December 2026.April 2028.
| | | | | | | | |
Interest rate swap contracts outstanding: | | Notional Amounts |
Contracts accruing interest as of September 30, 20202021 | | $ | 500,000 | |
Contracts with a future start date | | 50,000430,000 | |
Total | | $ | 550,000930,000 | |
Hedges of Currency Risk
Cross-Currency Swap Contracts
From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. As of September 30, 2020,2021, we had two2 outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,874,both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income (expense), net, as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of September 30,
2020, 2021, we estimate that $2,610$2,722 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending September 30, 2021.2022.
Other Currency Contracts
We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar.
As of September 30, 2020,2021, we had 54 currency forward contracts designated as net investment hedges with a total notional amount of $149,604,$118,203, maturing during various dates through April 2023.2023. We entered into these contracts to hedge the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three months ended September 30, 2021 and 2020, and 2019, we have experienced volatility within other income (expense) income,, net, in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
As of September 30, 2020,2021, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso, Swiss Franc and Swedish Krona:
| Notional Amount | Notional Amount | | Effective Date | | Maturity Date | | Number of Instruments | | Index | Notional Amount | | Effective Date | | Maturity Date | | Number of Instruments | | Index |
$466,969 | | December 2018 through September 2020 | | Various dates through October 2024 | | 586 | | Various | |
$557,175 | | $557,175 | | September 2019 through September 2021 | | Various dates through October 2024 | | 701 | | Various |
Financial Instrument Presentation
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of September 30, 20202021 and June 30, 2020.2021. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet line item | | Gross amounts of recognized assets | | Gross amount offset in Consolidated Balance Sheet | | Net amount | | Balance Sheet line item | | Gross amounts of recognized liabilities | | Gross amount offset in Consolidated Balance Sheet | | Net amount |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | |
Interest rate swaps | Other current assets / other assets | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Other liabilities | | $ | (29,106) | | | $ | 0 | | | $ | (29,106) | |
Cross-currency swaps | Other assets | | 948 | | | — | | | 948 | | | Other liabilities | | (7,814) | | | 0 | | | (7,814) | |
Derivatives in net investment hedging relationships | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other assets | | 0 | | | 0 | | | 0 | | | Other current liabilities / other liabilities | | (13,157) | | | 0 | | | (13,157) | |
Total derivatives designated as hedging instruments | | | $ | 948 | | | $ | 0 | | | $ | 948 | | | | | $ | (50,077) | | | $ | 0 | | | $ | (50,077) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Interest rate swaps | Other assets | | $ | — | | | $ | — | | | $ | — | | | Other liabilities | | $ | (7,386) | | | $ | 0 | | | $ | (7,386) | |
Currency forward contracts | Other current assets / other assets | | 4,784 | | | (994) | | | 3,790 | | | Other current liabilities / other liabilities | | (10,062) | | | 1,568 | | | (8,494) | |
Currency option contracts | Other current assets / other assets | | 0 | | | 0 | | | 0 | | | Other current liabilities / other liabilities | | (2,475) | | | 202 | | | (2,273) | |
Total derivatives not designated as hedging instruments | | | $ | 4,784 | | | $ | (994) | | | $ | 3,790 | | | | | $ | (19,923) | | | $ | 1,770 | | | $ | (18,153) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet line item | | Gross amounts of recognized assets | | Gross amount offset in Consolidated Balance Sheet | | Net amount | | Balance Sheet line item | | Gross amounts of recognized liabilities | | Gross amount offset in Consolidated Balance Sheet | | Net amount |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | |
Interest rate swaps | Other current assets / other assets | | $ | 0 | | | $ | 0 | | | $ | 0 | | | Other liabilities | | $ | (31,161) | | | $ | 0 | | | $ | (31,161) | |
Cross-currency swaps | Other assets | | 4,462 | | | 0 | | | 4,462 | | | Other liabilities | | (4,746) | | | 0 | | | (4,746) | |
Derivatives in net investment hedging relationships | | | | | | | | | | | | | | | |
Currency forward contracts | Other assets | | — | | | — | | | — | | | Other current liabilities / other liabilities | | (6,829) | | | 0 | | | (6,829) | |
Total derivatives designated as hedging instruments | | | $ | 4,462 | | | $ | 0 | | | $ | 4,462 | | | | | $ | (42,736) | | | $ | 0 | | | $ | (42,736) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Interest rate swaps | Other assets | | $ | — | | | $ | — | | | $ | — | | | Other liabilities | | $ | (8,359) | | | $ | 0 | | | $ | (8,359) | |
Currency forward contracts | Other current assets / other assets | | 9,702 | | | (1,753) | | | 7,949 | | | Other current liabilities / other liabilities | | (2,136) | | | 446 | | | (1,690) | |
Currency option contracts | Other current assets / other assets | | 1,699 | | | (270) | | | 1,429 | | | Other current liabilities / other liabilities | | (38) | | | 0 | | | (38) | |
Total derivatives not designated as hedging instruments | | | $ | 11,401 | | | $ | (2,023) | | | $ | 9,378 | | | | | $ | (10,533) | | | $ | 446 | | | $ | (10,087) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet line item | | Gross amounts of recognized assets | | Gross amount offset in Consolidated Balance Sheet | | Net amount | | Balance Sheet line item | | Gross amounts of recognized liabilities | | Gross amount offset in Consolidated Balance Sheet | | Net amount |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | |
Interest rate swaps | Other assets | | $ | 232 | | | $ | — | | | $ | 232 | | | Other liabilities | | $ | (20,827) | | | $ | 267 | | | $ | (20,560) | |
Cross-currency swaps | Other assets | | 760 | | | — | | | 760 | | | Other liabilities | | (6,741) | | | — | | | (6,741) | |
Derivatives in net investment hedging relationships | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other current assets / other assets | | — | | | — | | | — | | | Other current liabilities / other liabilities | | (7,886) | | | — | | | (7,886) | |
Total derivatives designated as hedging instruments | | | $ | 992 | | | $ | — | | | $ | 992 | | | | | $ | (35,454) | | | $ | 267 | | | $ | (35,187) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Interest rate swaps | Other assets | | $ | — | | | $ | — | | | $ | — | | | Other liabilities | | $ | (1,377) | | | $ | — | | | $ | (1,377) | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other current assets / other assets | | 11,498 | | | (3,051) | | | 8,447 | | | Other current liabilities / other liabilities | | (3,260) | | | 843 | | | (2,417) | |
Currency option contracts | Other current assets / other assets | | 2,170 | | | (188) | | | 1,982 | | | Other current liabilities / other liabilities | | (1,265) | | | 115 | | | (1,150) | |
Total derivatives not designated as hedging instruments | | | $ | 13,668 | | | $ | (3,239) | | | $ | 10,429 | | | | | $ | (5,902) | | | $ | 958 | | | $ | (4,944) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet line item | | Gross amounts of recognized assets | | Gross amount offset in Consolidated Balance Sheet | | Net amount | | Balance Sheet line item | | Gross amounts of recognized liabilities | | Gross amount offset in Consolidated Balance Sheet | | Net amount |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | |
Interest rate swaps | Other current assets / other assets | | $ | — | | | $ | — | | | $ | — | | | Other current liabilities / other liabilities | | $ | (23,527) | | | $ | 176 | | | $ | (23,351) | |
Cross-currency swaps | Other assets | | — | | | — | | | — | | | Other liabilities | | (9,914) | | | — | | | (9,914) | |
Derivatives in Net Investment Hedging Relationships | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other assets | | — | | | — | | | — | | | Other current liabilities / other liabilities | | (11,379) | | | — | | | (11,379) | |
Total derivatives designated as hedging instruments | | | $ | — | | | $ | — | | | $ | — | | | | | $ | (44,820) | | | $ | 176 | | | $ | (44,644) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
Interest rate swaps | Other assets | | $ | — | | | $ | — | | | $ | — | | | Other liabilities | | $ | (1,842) | | | $ | — | | | $ | (1,842) | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other current assets / other assets | | 1,796 | | | (117) | | | 1,679 | | | Other current liabilities / other liabilities | | (11,510) | | | 3,238 | | | (8,272) | |
Currency option contracts | Other current assets / other assets | | — | | | — | | | — | | | Other current liabilities / other liabilities | | (3,315) | | | 235 | | | (3,080) | |
Total derivatives not designated as hedging instruments | | | $ | 1,796 | | | $ | (117) | | | $ | 1,679 | | | | | $ | (16,667) | | | $ | 3,473 | | | $ | (13,194) | |
| | | | | | | | | | | | | | | |
The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income for the three months ended September 30, 20202021 and 2019:2020:
| | | | Amount of Net (Loss) Gain on Derivatives Recognized in Comprehensive Income (Loss) | | | | Amount of Net Gain (Loss) on Derivatives Recognized in Comprehensive Income | |
| | | Three Months Ended September 30, | | | | Three Months Ended September 30, | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Derivatives in cash flow hedging relationships | Derivatives in cash flow hedging relationships | | | | | | Derivatives in cash flow hedging relationships | | | | | |
| Interest rate swaps | Interest rate swaps | | $ | 411 | | | $ | (4,590) | | | Interest rate swaps | | $ | 519 | | | $ | 411 | | |
Cross-currency swaps | Cross-currency swaps | | 3,425 | | | (2,598) | | | Cross-currency swaps | | (2,444) | | | 3,425 | | |
Derivatives in net investment hedging relationships | Derivatives in net investment hedging relationships | | | | Derivatives in net investment hedging relationships | | | |
| Currency forward contracts | Currency forward contracts | | (17,538) | | | 12,718 | | | Currency forward contracts | | 3,492 | | | (17,538) | | |
Total | Total | | $ | (13,702) | | | $ | 5,530 | | | Total | | $ | 1,567 | | | $ | (13,702) | | |
The following table presents reclassifications out of accumulated other comprehensive loss for the three months ended September 30, 20202021 and 2019:2020:
| | | | Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | Affected line item in the Statement of Operations | | Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | Affected line item in the Statement of Operations |
| | | | Three Months Ended September 30, | | | | Three Months Ended September 30, | | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | | |
Derivatives in cash flow hedging relationships | Derivatives in cash flow hedging relationships | | | | | | | | Derivatives in cash flow hedging relationships | | | | | | |
Interest rate swaps | Interest rate swaps | | | $ | 2,622 | | | $ | (30) | | | Interest expense, net | Interest rate swaps | | $ | 2,497 | | | $ | 2,622 | | | Interest expense, net |
Cross-currency swaps | Cross-currency swaps | | | (4,767) | | | 5,564 | | | Other (expense) income, net | Cross-currency swaps | | 3,987 | | | (4,767) | | | Other income (expense), net |
Total before income tax | Total before income tax | | | (2,145) | | | 5,534 | | | (Loss) income before income taxes | Total before income tax | | 6,484 | | | (2,145) | | | Income (loss) before income taxes |
Income tax | Income tax | | | 74 | | | (1,383) | | | Income tax expense | Income tax | | (938) | | | 74 | | | Income tax expense |
Total | Total | | | $ | (2,071) | | | $ | 4,151 | | | | Total | | $ | 5,546 | | | $ | (2,071) | | | |
The following table presents the adjustment to fair value recorded within the consolidated statements of operations for the three months ended September 30, 20202021 and 20192020 for derivative instruments for which we did not elect hedge accounting and de-designated derivative financial instruments that no longer qualify as hedging instruments.
| | | Amount of Gain (Loss) Recognized in Net (Loss) Income | Affected line item in the Statement of Operations | | Amount of Gain (Loss) Recognized in Net Income (Loss) | Affected line item in the Statement of Operations |
| | | | Three Months Ended September 30, | | | | Three Months Ended September 30, | | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | | |
Currency contracts | Currency contracts | | | $ | (13,468) | | | $ | 19,357 | | | Other (expense) income, net | Currency contracts | | $ | 12,863 | | | $ | (13,468) | | | Other income (expense), net |
Interest rate swaps | Interest rate swaps | | | (27) | | | 0 | | | Other (expense) income, net | Interest rate swaps | | 464 | | | (27) | | | Other income (expense), net |
Total | Total | | | $ | (13,495) | | | $ | 19,357 | | | | Total | | $ | 13,327 | | | $ | (13,495) | | | |
5. Accumulated Other Comprehensive Income (Loss)Loss
The following table presents a roll forward of amounts recognized in accumulated other comprehensive income (loss)loss by component, net of tax of $105938 for the three months ended September 30, 20202021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) on cash flow hedges (1) | | | | Gains (losses) on pension benefit obligation | | Translation adjustments, net of hedges (2) | | Total |
Balance as of June 30, 2020 | $ | (30,078) | | | | | $ | (1,399) | | | $ | (57,199) | | | $ | (88,676) | |
Other comprehensive income (loss) before reclassifications | 3,836 | | | | | (336) | | | (609) | | | 2,891 | |
Amounts reclassified from accumulated other comprehensive loss to net (loss) income | (2,071) | | | | | — | | | — | | | (2,071) | |
Net current period other comprehensive income (loss) | 1,765 | | | | | (336) | | | (609) | | | 820 | |
Balance as of September 30, 2020 | $ | (28,313) | | | | | $ | (1,735) | | | $ | (57,808) | | | $ | (87,856) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gains (losses) on cash flow hedges (1) | | | | Losses on pension benefit obligation | | Translation adjustments, net of hedges (2) | | Total |
Balance as of June 30, 2021 | $ | (23,831) | | | | | $ | (1,735) | | | $ | (53,434) | | | $ | (79,000) | |
Other comprehensive income (loss) before reclassifications | (1,925) | | | | | — | | | (8,353) | | | (10,278) | |
Amounts reclassified from accumulated other comprehensive loss to net income (loss) | 5,546 | | | | | — | | | — | | | 5,546 | |
Net current period other comprehensive income (loss) | 3,621 | | | | | — | | | (8,353) | | | (4,732) | |
Balance as of September 30, 2021 | $ | (20,210) | | | | | $ | (1,735) | | | $ | (61,787) | | | $ | (83,732) | |
________________________
(1) Gains (losses) on cash flow hedges include our interest rate swap and cross-currency swap contracts designated in cash flow hedging relationships.
(2) As of September 30, 20202021 and June 30, 2020,2021, the translation adjustment is inclusive of the effects of our net investment hedges, of which unrealized gains of $2,971$3,492 and $20,509$1,457, respectively, net of tax, have been included in accumulated other comprehensive loss.
6. Goodwill
The carrying amount of goodwill by reportable segment as of September 30, 20202021 and June 30, 20202021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vistaprint | | PrintBrothers | | The Print Group | | | | All Other Businesses | | Total |
Balance as of June 30, 2020 | $ | 150,846 | | | $ | 129,764 | | | $ | 155,197 | | | | | $ | 186,097 | | | $ | 621,904 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Effect of currency translation adjustments (1) | 3,128 | | | 5,708 | | | 6,828 | | | | | 0 | | | 15,664 | |
Balance as of September 30, 2020 | $ | 153,974 | | | $ | 135,472 | | | $ | 162,025 | | | | | $ | 186,097 | | | $ | 637,568 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vista | | PrintBrothers | | The Print Group | | | | All Other Businesses | | Total |
Balance as of June 30, 2021 | $ | 225,147 | | | $ | 137,307 | | | $ | 164,220 | | | | | $ | 200,305 | | | $ | 726,979 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments | 172 | | | — | | | — | | | | | — | | | 172 | |
Effect of currency translation adjustments (1) | (1,599) | | | (3,452) | | | (4,130) | | | | | — | | | (9,181) | |
Balance as of September 30, 2021 | $ | 223,720 | | | $ | 133,855 | | | $ | 160,090 | | | | | $ | 200,305 | | | $ | 717,970 | |
_________________________________________
(1) Related to goodwill held by subsidiaries whose functional currency is not the U.S. dollar.
7. Other Balance Sheet Components
Accrued expenses included the following:
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
Compensation costs | Compensation costs | $ | 62,433 | | | $ | 67,307 | | Compensation costs | $ | 69,184 | | | $ | 73,861 | |
Income and indirect taxes | Income and indirect taxes | 55,062 | | | 53,161 | | Income and indirect taxes | 47,089 | | | 46,074 | |
Advertising costs (1) | Advertising costs (1) | 24,422 | | | 14,746 | | Advertising costs (1) | 25,538 | | | 35,093 | |
Interest payable (2) | Interest payable (2) | 28,340 | | | 8,359 | | Interest payable (2) | 13,002 | | | 2,399 | |
Shipping costs (3) | | Shipping costs (3) | 12,949 | | | 9,401 | |
Production costs | Production costs | 8,233 | | | 7,012 | | Production costs | 6,237 | | | 6,881 | |
Sales returns | Sales returns | 5,724 | | | 5,166 | | Sales returns | 6,332 | | | 5,636 | |
Shipping costs | 8,535 | | | 5,080 | | |
Professional fees | Professional fees | 3,838 | | | 3,452 | | Professional fees | 3,753 | | | 4,210 | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | 941 | | | 1,685 | | Purchases of property, plant and equipment | 3,748 | | | 1,110 | |
Other | Other | 46,293 | | | 44,796 | | Other | 73,329 | | | 62,848 | |
Total accrued expenses | Total accrued expenses | $ | 243,821 | | | $ | 210,764 | | Total accrued expenses | $ | 261,161 | | | $ | 247,513 | |
_________________________________________
(1) The increaseAdvertising cost accruals decreased from June 30, 2021 to September 30, 2021 due to a reduction in accruedupper-funnel advertising costs is primarily due to the expansion beyond first-order profitability targets used during the fourth quarter of fiscal 2020 for several ofwithin our businesses,Vista reportable segment as well as modest investment in upper-funnel advertising in our Vistaprint business.payments made during the current fiscal quarter.
(2) The increase inAccrued interest payable is dueincreased from June 30, 2021 to the additional offering of $200,000September 30, 2021 as payments of our 2026 Notes in the third quarter and $300,000 in Second Lien Notes issued during the fourth quarter of fiscal 2020. The interest on our 2026 Notes is payablesenior unsecured notes are due semi-annually on June 1515th and December 15 of15th each year and the interest on our Second Lien Notes is payable semi-annually on May 15 and November 15 of each year, with the first interest payment on November 15, 2020.year. Refer to Note 8 for further detail.additional details.
15(3) Shipping cost accruals increased from June 30, 2021 to September 30, 2021 primarily due to delayed invoicing from one of our larger shipping vendors that resulted in an increase in accruals and decrease to accounts payable.
Other current liabilities included the following:
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
Current portion of finance lease obligations | Current portion of finance lease obligations | $ | 8,149 | | | $ | 8,055 | | Current portion of finance lease obligations | $ | 31,454 | | | $ | 32,314 | |
Short-term derivative liabilities | Short-term derivative liabilities | 10,120 | | | 3,521 | | Short-term derivative liabilities | 12,193 | | | 20,530 | |
| Other | Other | 3,320 | | | 1,692 | | Other | 51,794 | | | 50,671 | |
Total other current liabilities | Total other current liabilities | $ | 21,589 | | | $ | 13,268 | | Total other current liabilities | $ | 95,441 | | | $ | 103,515 | |
Other liabilities included the following:
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
Long-term finance lease obligations | Long-term finance lease obligations | $ | 18,013 | | | $ | 18,617 | | Long-term finance lease obligations | $ | 17,214 | | | $ | 18,528 | |
Long-term derivative liabilities | Long-term derivative liabilities | 60,874 | | | 51,800 | | Long-term derivative liabilities | 32,403 | | | 41,074 | |
| Other | Other | 26,958 | | | 17,770 | | Other | 38,662 | | | 36,808 | |
Total other liabilities | Total other liabilities | $ | 105,845 | | | $ | 88,187 | | Total other liabilities | $ | 88,279 | | | $ | 96,410 | |
8. Debt
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
7.0% Senior unsecured notes due 2026 | $ | 600,000 | | | $ | 600,000 | | |
7.0% Senior notes due 2026 | | 7.0% Senior notes due 2026 | $ | 600,000 | | | $ | 600,000 | |
Senior secured credit facility | Senior secured credit facility | 489,767 | | | 570,483 | | Senior secured credit facility | 1,140,187 | | | 1,152,021 | |
12.0% Second lien notes due 2025 | 300,000 | | | 300,000 | | |
| Other | Other | 11,020 | | | 11,694 | | Other | 11,347 | | | 12,835 | |
Debt issuance costs and debt premiums (discounts) | Debt issuance costs and debt premiums (discounts) | (46,572) | | | (48,587) | | Debt issuance costs and debt premiums (discounts) | (21,850) | | | (22,450) | |
Total debt outstanding, net | Total debt outstanding, net | 1,354,215 | | | 1,433,590 | | Total debt outstanding, net | 1,729,684 | | | 1,742,406 | |
Less: short-term debt (1) | Less: short-term debt (1) | 22,666 | | | 17,933 | | Less: short-term debt (1) | 11,373 | | | 9,895 | |
Long-term debt | Long-term debt | $ | 1,331,549 | | | $ | 1,415,657 | | Long-term debt | $ | 1,718,311 | | | $ | 1,732,511 | |
_____________________
(1) Balances as of September 30, 20202021 and June 30, 20202021 are inclusive of short-term debt issuance costs, debt premiums and discounts of $10,549$3,475 and $10,362,$3,435, respectively.
Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of September 30, 2020, the pre-existing financial maintenance covenants under our senior secured credit facility covenants are suspended, and2021, we were in compliance with all financial and other covenants under theour amended and restated senior secured credit agreement as amended,("Restated Credit Agreement") and the indenture governing our 2026 Notes and the indenture governing our Second Lien Notes.(as defined below).
Senior Secured Credit Facility
On April 28, 2020,May 17, 2021, we entered into an amendment to oura Restated Credit Agreement consisting of the following:
•A senior secured credit agreement to suspend our pre-existing maintenance covenants, including the totalTerm Loan B with a maturity date of May 17, 2028 (the “Term Loan B”), consisting of:
◦a $795,000 tranche that bears interest at LIBOR (with a LIBOR floor of 0.50%) plus 3.50%, and
◦a €300,000 tranche that bears interest at EURIBOR (with a EURIBOR floor of 0%) plus 3.50%; and
•A $250,000 senior secured leverage covenants andrevolving credit facility with a maturity date of May 17, 2026 (the “Revolving Credit Facility”). Borrowings under the Revolving Credit Facility bear interest coverage ratio covenant, until the publicationat LIBOR (with a LIBOR floor of our results for the quarter ending December 31, 2021, for which quarter the pre-amendment maintenance covenants will be reinstated. The covenant suspension period could end earlier at our election if we have total leverage equal to or lower than 4.75x annualized EBITDA for each of two consecutive quarters and are compliant with pre-amendment maintenance covenants.
During the covenant suspension period, we must comply with new maintenance covenants requiring EBITDA above zero in each of the quarters ending June 30, 2021 and September 30, 2021 and minimum liquidity (defined in the credit agreement as unrestricted cash plus unused revolver) of $50,000. The amendment increased pricing to LIBOR plus 3.25% during the covenant suspension period and to LIBOR0%) plus 2.50% to 3.25% after the covenant suspension period,3.00% depending on our totalthe Company’s First Lien Leverage Ratio, a net leverage ratio, including a 0.75% floor for LIBOR borrowings. Additionally,calculation, as part ofdefined in the amendment, the maturity date was changed from February 2025 to November 2024. TheRestated Credit Agreement.
amendment to the senior secured credit agreement also reduced the credit facility from $1,551,419 to $1,000,000, made up of an $850,000 revolver and $150,000 term loan.
During the covenant suspension period, we have more restrictive limitations onThe Restated Credit Agreement contains covenants that restrict or limit certain activities and actions,transactions by Cimpress and our subsidiaries, including, but not limited to:
•to, the incurrence of additional indebtedness and liens,
•the consummation ofliens; certain fundamental organizational changes; asset sales; certain intercompany activities; and certain investments including acquisitions,
•the making ofand restricted payments, including the purchases of ourthe Company’s ordinary shares and payment of dividends. In addition, if any loans made under the Revolving Credit Facility are outstanding on the last day of any fiscal quarter, then we are subject to a financial maintenance covenant that the First Lien Leverage Ratio calculated as of the last day of such quarter does not exceed 3.25 to 1.00. As of September 30, 2021, we were in compliance with all covenants under our Restated Credit Agreement.
As of September 30, 2020,2021, we have drawn commitmentsborrowings under the credit facilityRestated Credit Agreement of $489,767 as follows:
•Revolving loans$1,140,187 consisting of $343,517 with a maturity date of November 15, 2024
•the Term loans of $146,250 amortizingLoan B, which amortizes over the loan period, with a final maturity date of November 15, 2024May 17, 2028. We have no outstanding borrowings under our Revolving Credit Facility as of September 30, 2021.
As of September 30, 2020,2021, the weighted-average interest rate on outstanding borrowings under the Restated Credit Agreement was 5.65%4.67%, inclusive of interest rate swap rates. We are also required to pay a commitment fee for our Revolving Credit Facility on unused balances of 0.35% to 0.5%0.45% depending on our total leverage ratio, and 0.5% during the covenant suspension period.First Lien Leverage Ratio. We have pledged the assets and/or share capital of a number of our subsidiaries as collateral for our outstanding debt as of September 30, 2020.
Second Lien Notes
On May 1, 2020, we completed a private placement of $300,000 in aggregate principal of 12% second lien notes due 2025 (the Second Lien Notes) and warrants to funds managed by affiliates of Apollo Global Management, Inc. (the "Apollo Funds"). These Second Lien Notes and warrants were issued at a discount of $6,000, resulting in net proceeds of $294,000. We used the proceeds to pay down a portion of the term loans under our senior secured credit facility and to pay fees and expenses incurred in connection with the financing and the above-described amendment.
The Second Lien Notes bear interest at 12% per annum, 50% of which can be paid-in-kind at our option, and mature on May 15, 2025. We may prepay the Second Lien Notes in whole or in part after the first anniversary with a 3% premium, after the second anniversary with a 1% premium, and after the third anniversary with no premium with proceeds from certain debt financings.
Each of Cimpress' subsidiaries that guarantees our obligations under our senior secured credit agreement will guarantee the Second Lien Notes. The Second Lien Notes and the guarantees thereof rank equal in right of payment with existing and future senior indebtedness of Cimpress, including Cimpress' and the subsidiary guarantors' obligations under the senior secured credit agreement, and will be secured by the same assets securing Cimpress' and the subsidiary guarantors' obligations under the senior secured credit agreement on a second lien basis subject to limited exceptions and the terms of the intercreditor agreement among Cimpress, the subsidiary guarantors, JPMorgan Chase Bank, N.A. as administrative agent under the senior secured credit agreement, and U.S. Bank National Association as collateral agent under the indenture for the Second Lien Notes.
The Apollo Funds also received 7-year warrants to purchase 1,055,377 ordinary shares of Cimpress, representing approximately 3.875% of our outstanding diluted ordinary shares at the time of issuance. Based on the terms of the purchase agreement, the two instruments exist separately and should be treated as separate securities; therefore the warrants are considered to be detachable.
The warrants have an exercise price of $60 per share, representing an approximately 17% premium to the 10-day volume weighted average price of our shares as of April 28, 2020. The warrants are classified as equity as they are strictly redeemable in our own shares, and they may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrant being exercised.2021.
Senior Unsecured Notes
On February 13, 2020, we completed an additional offering of $200,000We have issued $600,000 in aggregate principal of 7.0% notes under the senior notes indenture between Cimpress plc and U.S. Bank National Association (as successor trustee to MUFG Union Bank, N.A.Senior Notes due 2026 (the "2026 Notes") at a premium of 105.25%. These notes were issued in addition to the existing principal balance under the indenture of $400,000, and, which are collectively referred to as the 2026 Notes. The net proceeds from this add-on offering were used to repay a portion of the indebtedness outstanding under our senior secured credit facility and related transaction fees and expenses.
We have the right to redeem, at any time prior to June 15, 2021, some or all of the 2026 Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the indenture, plus accrued and unpaid interest to, but not including, the redemption date. In addition, we have the right to redeem, at any time prior to June 15, 2021, up to 40% of the aggregate outstanding principal amount of the 2026 Notes at a redemption price equal to 107% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress.unsecured. At any time on or after June 15, 2021, we may redeem some or all of the 2026 Notes at the redemption prices specified in the indenture that governs the 2026 Notes, plus accrued and unpaid interest to, but not including, the redemption date.
As of September 30, 2021, we have not redeemed any of the 2026 Notes.
Other Debt
Other debt consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments. As of September 30, 20202021 and June 30, 2020,2021, we had $11,020$11,347 and$11,694, $12,835, respectively, outstanding for those obligations that are payable through March 2025.January 2026.
9. Income Taxes
Our income tax expense was $6,794$9,381 and $6,115$6,794 for the three months ended September 30, 20202021 and 2019,2020, respectively. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is higher for fiscal 20212022 as compared to fiscal 20202021 primarily due to increased non-deductible interest expense.a less favorable mix of earnings. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period.
During the three months ended September 30, 2020, our unrecognized tax benefits increased by $7,133, primarily due to tax positions taken in prior periods for which we have determined it is more likely than not that they will not be sustained upon audit. As of September 30, 2020,2021 we had unrecognized tax benefits of $13,364,$15,400, including accrued interest and penalties of $495.$1,049. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. If recognized, $7,582$1,169 of unrecognized tax benefits would reduce our tax expense. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months in the range of $165$300 to $450$350 related to the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2014 through 20202021 remain open for examination by the IRS and the years 20142015 through 20202021 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns. We believe that our income tax reserves are adequately maintained 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 there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows.
10. Noncontrolling InterestsInterest
For some of our subsidiaries, we own a controlling equity stake, and a third party or key member of the business' management team owns a minority portion of the equity. The balance sheet and operating activity of these entities are included in our consolidated financial statements, and we adjust the net (loss) income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity. We recognize redeemable noncontrolling interests at fair value on the sale or acquisition date and adjust to the redemption value on a periodic basis with the offset to retained earnings in the consolidated balance sheet. If the formulaic redemption value exceeds the fair value of the noncontrolling interest, then the accretion to redemption value is offset to the net (income) lossincome attributable to noncontrolling interest in our consolidated statement of operations.
Redeemable Noncontrolling Interests
PrintBrothers
Members of the PrintBrothers management team hold a minority equity interest ranging from 12%11% to 13%12% in each of the three businesses within the segment. The put options associated with the redeemable noncontrolling interest have exercise windows for 90% of their minority equity interest to Cimpress in each quarter ending in December, with the first window occurring in fiscal year 2022. If the put options are exercisable beginning in 2021, whileexercised, then Cimpress may redeem the associatedremaining 10% minority equity interest concurrently with the put option exercise or on the first, second, or third anniversary of the put option exercise. Cimpress has call options become exercisable in 2026. Asfor the full amount of the minority equity interest with the first exercise window occurring during the second quarter of fiscal year 2027.
During the three months ended September 30, 2020,2021, the redemption value was less thanof a PrintBrothers business increased above the carrying value and therefore nodue to strong financial performance during the first quarter of the current fiscal year as well as the lapping of a period more severely impacted by the pandemic, resulting in an adjustment to the redeemable noncontrolling interest of $7,592, which was required.recognized as an adjustment to retained earnings since the redemption value remains below the estimated fair value.
All Other Businesses
On October 1, 2018, we acquired approximately 99% of the outstanding equity interests of Build A SignBuildASign LLC. The remaining 1% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results through put and call rights and not solely within our control. As of September 30, 2020,2021, the redemption value of the noncontrolling equity interest was less than the carrying value, and therefore no adjustment was required.
On April 23, 2021, we acquired 81% of the outstanding equity interests of a US-based company that provides production expertise and sells into a growing product category. The remaining 19% is considered a redeemable noncontrolling equity interest as it is redeemable for cash based on future financial results through put and call rights and not solely within our control. On the acquisition date, we recognized the redeemable noncontrolling interest at fair value of $4,370. As of September 30, 2021, the redemption value was less than the carrying value, and therefore no adjustment was required.
The following table presents the reconciliation of changes in our redeemable noncontrolling interests:
| | | | | | | | | | | |
| | Redeemable noncontrolling interests | | | |
Balance as of June 30, 20202021 | | $ | 69,10671,120 | | | | |
| | | | | |
| | | | | |
| | | | | |
Accretion to redemption value recognized in retained earnings (1) | | 7,592 | | | | |
Net income attributable to noncontrolling interest | | 6771,738 | | | | |
| | | | | |
| | | | | |
| | | | | |
Foreign currency translation | | 1,426 (857) | | | | |
Balance as of September 30, 20202021 | | $ | 71,20979,593 | | | | |
_________________
(1) Accretion of redeemable noncontrolling interests to redemption value recognized in retained earnings is the result of the estimated redemption amount being greater than carrying value but less than fair value. Refer above for additional details.
11. Segment Information
Our operating segments are based upon the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance.
As of September 30, 2020,2021, we have numerous operating segments under our management reporting structure which are reported in the following 5 reportable segments:
•VistaprintVista - IncludesVista is the operationsparent brand of our global Vistaprint websitesmultiple offerings including VistaPrint, VistaCreate, 99designs by Vista, and our Webs-branded business, which is managed with the Vistaprint-branded digital business. Also included is our VistaprintVista Corporate Solutions, business which serves medium-sized businessestogether represent a full-service design, digital and large corporations, as well as a legacy revenue stream with retail partnersprint solution,
elevating small businesses’ presence in physical and franchise businessesdigital spaces and empowering them to achieve success.
•PrintBrothers - Includes the results of our druck.at, Printdeal, and WIRmachenDRUCK businessesbusinesses.
•The Print Group - Includes the results of our Easyflyer, Exaprint, Pixartprinting, and Tradeprint businessesbusinesses.
•National Pen - Includes the global operations of our National Pen business, which manufactures and markets custom writing instruments and promotional products, apparel and giftsgifts.
•All Other Businesses - Includes a collection of businesses grouped together based on materiality:materiality. With the exception of BuildASign, which is a larger and profitable business, the All Other Businesses reportable segment consists of two smaller businesses that we continue to manage at a relatively modest operating loss and the addition of a newly acquired company that provides supply chain expertise and sells into a growing product category.
◦BuildASign is an internet-based provider of canvas-print wall décor, business signage and other large-format printed products, based in Austin, Texas. In the fourth quarter of fiscal year 2021, we closed a small acquisition under BuildASign in a new product category.
◦Printi is an online printing leader in Brazil, which offers a superior customer experience with transparent and attractive pricing, reliable service and quality.
◦YSD is a startup operation that provides end-to-end mass customization solutions to brands and intellectual property owners in China, supporting multiple channels including retail stores, websites, WeChat and e-commerce platforms to enhance brand awareness and competitiveness and develop new markets.
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 hosting and security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs.
For awards granted under our 2016 Performance Equity Plan, the PSUThe expense value of our PSU awards is based on a Monte Carlo fair value analysis and is required to be expensed on an accelerated basis. In order to ensure comparability in measuring our businesses' results, we allocate the straight-line portion of the fixed grant value to our businesses. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated expense profile of the awards is recognized within central and corporate costs. All expense or benefit associated with our supplemental PSUs is recognized within central and corporate costs.
Our definition of segment EBITDA is GAAP operating income excluding certain items, such as depreciation and amortization, expense recognized for contingent earn-out related charges including the changes in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment, share-based compensation related to investment consideration, certain impairment expense, and restructuring charges. We include insurance proceeds that are not recognized within operating income. We do not allocate non-operating income, including realized gains and losses on currency hedges, to our segment results.
With the exception of BuildASign, which is a larger and profitable business, the All Other Businesses reportable segment consists of two early-stage businesses that we continue to manage at a relatively modest operating loss.
Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment. We do present other segment information to the CODM, which includes purchases of property, plant and equipment and capitalization of software and website development costs, and therefore include that information in the tables below.
Revenue by segment is based on the business-specific websites or sales channel through which the customer’s order was transacted. The following tables set forth revenue by reportable segment, as well as disaggregation of revenue by major geographic region and reportable segment.
| | | | Three Months Ended September 30, | | | | Three Months Ended September 30, | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Revenue: | Revenue: | | | | | | Revenue: | | | | | |
Vistaprint (1) | | $ | 329,291 | | | $ | 343,171 | | | |
Vista | | Vista | | $ | 349,480 | | | $ | 329,291 | | |
PrintBrothers (2) | PrintBrothers (2) | | 100,112 | | | 109,290 | | | PrintBrothers (2) | | 125,357 | | | 100,112 | | |
The Print Group (3) | The Print Group (3) | | 66,437 | | | 72,258 | | | The Print Group (3) | | 72,820 | | | 66,437 | | |
National Pen (4) | National Pen (4) | | 67,649 | | | 70,163 | | | National Pen (4) | | 69,264 | | | 67,649 | | |
All Other Businesses (5) | All Other Businesses (5) | | 43,478 | | | 42,276 | | | All Other Businesses (5) | | 47,871 | | | 43,478 | | |
Total segment revenue | Total segment revenue | | 606,967 | | | 637,158 | | | Total segment revenue | | 664,792 | | | 606,967 | | |
Inter-segment eliminations(1) | Inter-segment eliminations(1) | | (20,467) | | | (3,199) | | | Inter-segment eliminations(1) | | (7,193) | | | (20,467) | | |
Total consolidated revenue | Total consolidated revenue | | $ | 586,500 | | | $ | 633,959 | | | Total consolidated revenue | | $ | 657,599 | | | $ | 586,500 | | |
_____________________
(1) Vistaprint segment revenues includeRefer to the "Revenue by Geographic Region" tables below for detail of the inter-segment revenue within each respective segment. The decrease of $422 and $1,328inter-segment eliminations is the result of significant cross-business transactions in the first quarter of fiscal 2021 associated with the fulfillment of masks in response to the pandemic. Demand for this product was far lower in the three months ended September 30, 2020 and 2019, respectively.
(2) PrintBrothers segment revenues include inter-segment revenue of $171 and$243 for the three months ended September 30, 2020 and 2019, respectively.
(3) The Print Group segment revenues include inter-segment revenue of $6,059 and $432 for the three months ended September 30, 2020 and 2019, respectively.
(4) National Pen segment revenues include inter-segment revenue of $13,076 and$981for the three months ended September 30, 2020 and 2019, respectively.
(5) All Other Businesses segment revenues include inter-segment revenue of $739 and $215 for the three months ended September 30, 2020 and 2019, respectively. Our All Other Businesses segment includes the revenue from our VIDA acquisition from July 2, 2018 through the divestiture date of April 10, 2020.current quarter.
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Vistaprint | | PrintBrothers | | The Print Group | | National Pen | | All Other | | Total | | Vista | | PrintBrothers | | The Print Group | | National Pen | | All Other | | Total |
Revenue by Geographic Region: | Revenue by Geographic Region: | | | | | | | | | | | | Revenue by Geographic Region: | | | | | | | | | | | |
North America | North America | $ | 232,095 | | | $ | 0 | | | $ | 0 | | | $ | 30,321 | | | $ | 38,944 | | | $ | 301,360 | | North America | $ | 244,449 | | | $ | — | | | $ | — | | | $ | 41,038 | | | $ | 41,308 | | | $ | 326,795 | |
Europe | Europe | 77,248 | | | 99,941 | | | 60,378 | | | 20,604 | | | 0 | | | 258,171 | | Europe | 71,533 | | | 125,128 | | | 71,155 | | | 20,851 | | | — | | | 288,667 | |
Other | Other | 19,526 | | | — | | | — | | | 3,648 | | | 3,795 | | | 26,969 | | Other | 32,796 | | | — | | | — | | | 3,533 | | | 5,808 | | | 42,137 | |
Inter-segment | Inter-segment | 422 | | | 171 | | | 6,059 | | | 13,076 | | | 739 | | | 20,467 | | Inter-segment | 702 | | | 229 | | | 1,665 | | | 3,842 | | | 755 | | | 7,193 | |
Total segment revenue | Total segment revenue | 329,291 | | | 100,112 | | | 66,437 | | | 67,649 | | | 43,478 | | | 606,967 | | Total segment revenue | 349,480 | | | 125,357 | | | 72,820 | | | 69,264 | | | 47,871 | | | 664,792 | |
Less: inter-segment elimination | Less: inter-segment elimination | (422) | | | (171) | | | (6,059) | | | (13,076) | | | (739) | | | (20,467) | | Less: inter-segment elimination | (702) | | | (229) | | | (1,665) | | | (3,842) | | | (755) | | | (7,193) | |
Total external revenue | Total external revenue | $ | 328,869 | | | $ | 99,941 | | | $ | 60,378 | | | $ | 54,573 | | | $ | 42,739 | | | $ | 586,500 | | Total external revenue | $ | 348,778 | | | $ | 125,128 | | | $ | 71,155 | | | $ | 65,422 | | | $ | 47,116 | | | $ | 657,599 | |
| | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 |
| | Vistaprint | | PrintBrothers | | The Print Group | | National Pen | | All Other | | Total | | Vista | | PrintBrothers | | The Print Group | | National Pen | | All Other | | Total |
Revenue by Geographic Region: | Revenue by Geographic Region: | | | | | | | | | | | | Revenue by Geographic Region: | | | | | | | | | | | |
North America | North America | $ | 247,085 | | | $ | 0 | | | $ | 0 | | | $ | 41,542 | | | $ | 35,406 | | | $ | 324,033 | | North America | $ | 232,095 | | | $ | — | | | $ | — | | | $ | 30,321 | | | $ | 38,944 | | | $ | 301,360 | |
Europe | Europe | 74,458 | | | 109,047 | | | 71,826 | | | 22,313 | | | 0 | | | 277,644 | | Europe | 77,248 | | | 99,941 | | | 60,378 | | | 20,604 | | | — | | | 258,171 | |
Other | Other | 20,300 | | | — | | | — | | | 5,327 | | | 6,655 | | | 32,282 | | Other | 19,526 | | | — | | | — | | | 3,648 | | | 3,795 | | | 26,969 | |
Inter-segment | Inter-segment | 1,328 | | | 243 | | | 432 | | | 981 | | | 215 | | | 3,199 | | Inter-segment | 422 | | | 171 | | | 6,059 | | | 13,076 | | | 739 | | | 20,467 | |
Total segment revenue | Total segment revenue | 343,171 | | | 109,290 | | | 72,258 | | | 70,163 | | | 42,276 | | | 637,158 | | Total segment revenue | 329,291 | | | 100,112 | | | 66,437 | | | 67,649 | | | 43,478 | | | 606,967 | |
Less: inter-segment elimination | Less: inter-segment elimination | (1,328) | | | (243) | | | (432) | | | (981) | | | (215) | | | (3,199) | | Less: inter-segment elimination | (422) | | | (171) | | | (6,059) | | | (13,076) | | | (739) | | | (20,467) | |
Total external revenue | Total external revenue | $ | 341,843 | | | $ | 109,047 | | | $ | 71,826 | | | $ | 69,182 | | | $ | 42,061 | | | $ | 633,959 | | Total external revenue | $ | 328,869 | | | $ | 99,941 | | | $ | 60,378 | | | $ | 54,573 | | | $ | 42,739 | | | $ | 586,500 | |
The following table includes segment EBITDA by reportable segment, total income from operations and total income (loss) before income taxes.taxes:
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Segment EBITDA: | Segment EBITDA: | | | | | | Segment EBITDA: | | | | | |
Vistaprint | | $ | 90,157 | | | $ | 87,303 | | | |
Vista | | Vista | | $ | 68,039 | | | $ | 90,157 | | |
PrintBrothers | PrintBrothers | | 9,715 | | | 10,777 | | | PrintBrothers | | 16,283 | | | 9,715 | | |
The Print Group | The Print Group | | 12,183 | | | 13,634 | | | The Print Group | | 14,389 | | | 12,183 | | |
National Pen | National Pen | | (10,671) | | | (9,850) | | | National Pen | | (8,048) | | | (10,671) | | |
All Other Businesses | All Other Businesses | | 8,609 | | | 1,717 | | | All Other Businesses | | 4,891 | | | 8,609 | | |
Total segment EBITDA | Total segment EBITDA | | 109,993 | | | 103,581 | | | Total segment EBITDA | | 95,554 | | | 109,993 | | |
Central and corporate costs | Central and corporate costs | | (31,020) | | | (33,653) | | | Central and corporate costs | | (35,272) | | | (31,020) | | |
Depreciation and amortization | Depreciation and amortization | | (42,290) | | | (42,535) | | | Depreciation and amortization | | (44,432) | | | (42,290) | | |
| Certain impairments and other adjustments | Certain impairments and other adjustments | | (783) | | | 176 | | | Certain impairments and other adjustments | | 780 | | | (783) | | |
Restructuring-related charges | Restructuring-related charges | | 86 | | | (2,190) | | | Restructuring-related charges | | 309 | | | 86 | | |
| Total income from operations | Total income from operations | | 35,986 | | | 25,379 | | | Total income from operations | | 16,939 | | | 35,986 | | |
Other (expense) income, net | | (8,754) | | | 15,674 | | | |
Other income (expense), net | | Other income (expense), net | | 22,197 | | | (8,754) | | |
Interest expense, net | Interest expense, net | | (30,516) | | | (15,087) | | | Interest expense, net | | (25,688) | | | (30,516) | | |
| (Loss) income before income taxes | | $ | (3,284) | | | $ | 25,966 | | | |
Income (loss) before income taxes | | Income (loss) before income taxes | | $ | 13,448 | | | $ | (3,284) | | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | | | 2020 | | 2019 | | |
Depreciation and amortization: | | | | | | | | | |
Vistaprint | | | | | $ | 13,587 | | | $ | 15,640 | | | |
PrintBrothers | | | | | 5,462 | | | 5,255 | | | |
The Print Group | | | | | 6,581 | | | 6,233 | | | |
National Pen | | | | | 6,067 | | | 5,581 | | | |
All Other Businesses | | | | | 5,868 | | | 5,973 | | | |
Central and corporate costs | | | | | 4,725 | | | 3,853 | | | |
Total depreciation and amortization | | | | | $ | 42,290 | | | $ | 42,535 | | | |
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Purchases of property, plant and equipment: | | | | | | |
Vistaprint | | $ | 1,934 | | | $ | 4,505 | | | |
Depreciation and amortization: | | Depreciation and amortization: | | | | | |
Vista | | Vista | | $ | 16,403 | | | $ | 13,587 | | |
PrintBrothers | PrintBrothers | | 925 | | | 331 | | | PrintBrothers | | 5,234 | | | 5,462 | | |
The Print Group | The Print Group | | 2,887 | | | 4,105 | | | The Print Group | | 6,584 | | | 6,581 | | |
National Pen | National Pen | | 1,452 | | | 2,016 | | | National Pen | | 5,908 | | | 6,067 | | |
All Other Businesses | All Other Businesses | | 954 | | | 1,775 | | | All Other Businesses | | 5,042 | | | 5,868 | | |
Central and corporate costs | Central and corporate costs | | 231 | | | 1,461 | | | Central and corporate costs | | 5,261 | | | 4,725 | | |
Total purchases of property, plant and equipment | | $ | 8,383 | | | $ | 14,193 | | | |
Total depreciation and amortization | | Total depreciation and amortization | | $ | 44,432 | | | $ | 42,290 | | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | | | 2021 | | 2020 | | |
Purchases of property, plant and equipment: | | | | | | | | | |
Vista | | | | | $ | 2,478 | | | $ | 1,934 | | | |
PrintBrothers | | | | | 1,512 | | | 925 | | | |
The Print Group | | | | | 1,428 | | | 2,887 | | | |
National Pen | | | | | 1,188 | | | 1,452 | | | |
All Other Businesses | | | | | 1,515 | | | 954 | | | |
Central and corporate costs | | | | | 503 | | | 231 | | | |
Total purchases of property, plant and equipment | | | | | $ | 8,624 | | | $ | 8,383 | | | |
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Capitalization of software and website development costs: | Capitalization of software and website development costs: | | | | | | Capitalization of software and website development costs: | | | | | |
Vistaprint | | $ | 6,987 | | | $ | 5,422 | | | |
Vista | | Vista | | $ | 7,572 | | | $ | 6,987 | | |
PrintBrothers | PrintBrothers | | 406 | | | 331 | | | PrintBrothers | | 232 | | | 406 | | |
The Print Group | The Print Group | | 230 | | | 451 | | | The Print Group | | 426 | | | 230 | | |
National Pen | National Pen | | 714 | | | 836 | | | National Pen | | 678 | | | 714 | | |
All Other Businesses | All Other Businesses | | 1,061 | | | 963 | | | All Other Businesses | | 1,184 | | | 1,061 | | |
Central and corporate costs | Central and corporate costs | | 5,406 | | | 4,468 | | | Central and corporate costs | | 5,547 | | | 5,406 | | |
Total capitalization of software and website development costs | Total capitalization of software and website development costs | | $ | 14,804 | | | $ | 12,471 | | | Total capitalization of software and website development costs | | $ | 15,639 | | | $ | 14,804 | | |
The following table sets forth long-lived assets by geographic area:
| | | September 30, 2020 | | June 30, 2020 | | September 30, 2021 | | June 30, 2021 |
Long-lived assets (1): | Long-lived assets (1): | | | | Long-lived assets (1): | | | |
United States | United States | $ | 153,484 | | | $ | 161,853 | | United States | $ | 104,990 | | | $ | 107,868 | |
Netherlands | Netherlands | 79,211 | | | 82,897 | | Netherlands | 75,345 | | | 75,996 | |
Canada | Canada | 64,133 | | | 67,367 | | Canada | 63,029 | | | 60,779 | |
Switzerland | Switzerland | 62,304 | | | 58,013 | | Switzerland | 69,738 | | | 68,880 | |
Italy | Italy | 44,267 | | | 46,317 | | Italy | 45,029 | | | 47,776 | |
France | | France | 24,333 | | | 25,417 | |
Jamaica | Jamaica | 21,777 | | | 21,563 | | Jamaica | 20,139 | | | 20,550 | |
Australia | Australia | 20,094 | | | 19,695 | | Australia | 20,101 | | | 21,298 | |
France | 23,770 | | | 23,917 | | |
Japan | Japan | 15,840 | | | 15,430 | | Japan | 14,512 | | | 14,891 | |
Other | Other | 90,592 | | | 94,922 | | Other | 95,652 | | | 96,063 | |
Total | Total | $ | 575,472 | | | $ | 591,974 | | Total | $ | 532,868 | | | $ | 539,518 | |
___________________
(1) Excludes goodwill of $637,568$717,970 and $621,904,$726,979, intangible assets, net of $200,493$171,944 and $209,228, and$186,744, deferred tax assets of $146,807146,431 and $143,496$149,618, and marketable securities, non-current of $40,400 and $50,713 as of September 30, 20202021 and June 30, 2020,2021, respectively.
12. Commitments and Contingencies
Purchase Obligations
At September 30, 2020,2021, we had unrecorded commitments under contract of $193,650,$250,458, including third-party web services of $114,533 and$100,652, inventory and third-party fulfillment purchase commitments of $29,288. In addition, we had purchase commitments for professional and consulting fees$55,731, software of $19,153,$52,957, advertising of $10,078, production and computer equipment purchases of $3,800,$10,047, professional and consulting fees of $7,958, and other unrecorded purchase commitments of$26,876. $13,035.
Other Obligations
We deferred payments for several of our acquisitions resulting in the recognition of a liability of $1,676 in aggregate$44,852 as of September 30, 2020.2021, of which $44,423 relates to the 99designs acquisition and is payable in February 2022.
Legal Proceedings
We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. For all legal matters, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred.
13. Restructuring Charges
Restructuring costs include one-time employee termination benefits, acceleration of share-based compensation, write-off of assets and other related costs including third-party professional and outplacement services. During the three months ended September 30, 2020,2021 we recognized a benefit to restructuring benefitexpense of $86$309 due to a changechanges in estimate from actions taken in the fourth quarter of fiscal 2020 in our Vistaprintprior period estimates within The Print Group reportable segment.
The following table summarizes the restructuring activity during the three months ended September 30, 20202021. All activity was related to employee termination benefits.
| | | | | | | | | | | | | | | | | |
| Severance and Related Benefits | | Other Restructuring Costs | | Total |
Accrued restructuring liability as of June 30, 2020 | $ | 5,969 | | | $ | 77 | | | $ | 6,046 | |
Restructuring charges | (86) | | | — | | | (86) | |
Cash payments | (2,515) | | | — | | | (2,515) | |
| | | | | |
Accrued restructuring liability as of September 30, 2020 | $ | 3,368 | | | $ | 77 | | | $ | 3,445 | |
| | | | | |
| | | | | | | | | |
| | | | | Accrued restructuring liability |
Balance as of June 30, 2021 | | | | | $ | 402 | |
Restructuring charges | | | | | (309) | |
| | | | | |
Non-cash charges | | | | | 11 | |
Balance as of September 30, 2021 | | | | | $ | 104 | |
| | | | | |
14. Subsequent Events
On October 1, 2020, under the terms of the Agreement and Plan of Merger dated as of September 28, 2020 among Cimpress USA Incorporated, a Delaware corporation ("Parent"), Cactus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent, 99designs, Inc., a Delaware corporation ("99designs"), and Shareholders Representative Services, as the security holders' representative,2021, Cimpress acquired 99designsDepositphotos Inc. for $90,000,$84,782, subject to a post-closing adjustment based on acquired cash, debt, and working capital as of the closing date. $45,000$75,669 of the purchase price was paid at closing and the remainder will be paidis payable on February 15, 2022.October 1, 2022, subject to any necessary adjustments. Cimpress used its existing credit facilityavailable cash balance to fund the transaction. 99designs providesDepositphotos is a globalmarketplace for high-quality, royalty-free images, videos, vectors, illustrations, and music. Its subsidiary, Crello, is an online graphic design platform that connects designerswhere anyone can create visuals for social media and clients, and the acquisitionwebsites. These businesses will make it easier for small businesses to access both professional design services and great marketing products in one place.be managed within our Vista reportable segment.
Item 2.7. 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 revenues, the potential effects of the COVID-19 pandemic and the actions we are taking to address the pandemic, our expectations with respect to 99designs,our business and demand for our products post-pandemic, the anticipated impacts of global supply chain disruptions on our business, our expectations for the brand evolution of Vista, the anticipated effects of our investments in our business including the hiring of talented personnel, sufficiency of our liquidity position, legal proceedings, and sufficiency of our tax reserves. Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements. 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 the COVID-19 pandemic;pandemic and the timing and pace of economic recovery; our failure to anticipate and react to the effects of the pandemic on our customers, supply chain, markets, team members, and business; our inability to takemake the actionsinvestments that we plan to takemake or the failure of those actionsinvestments to achieve the results we expect; our failure to execute on the transformation of the Vista business; loss or unavailability of key personnel or our inability to recruit talented personnel to drive performance of our businesses; the failure of businesses we acquire or invest in to perform as expected; unanticipated changes in our markets, customers, or businesses; 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 and expand our operations; 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 our Form 10-K for the fiscal year ended June 30, 2020this Report and the other documents that we periodically file with the SEC.
Executive Overview
Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.
As of September 30, 2020,2021, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vistaprint,Vista, PrintBrothers, The Print Group, National Pen, and All Other Businesses. Refer to Note 11 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.
COVID-19
Our near-term outlookVistaprint business and reportable segment has changed significantly in lightintroduced a new parent brand "Vista", which reflects our ongoing transformation into the expert design and marketing partner for small businesses around the world. This new parent brand encompasses VistaPrint, 99designs by Vista and VistaCreate. This move should help open customers' minds to allow us to serve a broader set of the COVID-19 pandemictheir needs across a wide range of products and the negative impact it has had,solutions that includes design, social media and may continueweb presence as well as print. No changes were made to have, on our customersinternal organizational and financial results. It is difficult to predict how the pandemic will continue to impact our results and what the duration will be. The pandemic has affected all of our businesses to varying degrees, and we expect this volatility to be reflected in our financial results as government restrictions are implemented on an ongoing basis that impact business activity in geographies we serve. We have seen partially offsetting benefitsreporting structure as a result of this rebranding, but we will refer to this reportable segment as "Vista" from here forward and throughout this document.
COVID-19
The pandemic continues to drive some volatility, but its overall impact on Cimpress has lessened as compared to the first quarter of fiscal year 2021. Customer demand trends are nearing pre-pandemic levels and gross profit, including the relatively small impact of acquisitions, has increased above the pre-pandemic first quarter of fiscal year 2020. Before considering increased growth investment, particularly in Vista, the combination of recovering gross profit and cost savings from actions taken during the pandemic drove increased adjusted EBITDA compared to the pre-pandemic period.
Supply chain delays are a developing facet of pandemic impacts which has created both challenges and opportunities for Cimpress businesses. Each of our shiftreportable segments has seen material cost increases of product substrates like paper, production materials like aluminum plates, freight and shipping charges and a more competitive labor market. Our scale-based shared strategic capabilities and supplier relationships provide competitive advantage for our businesses to weather these challenges. Through data capabilities, our businesses are regularly testing new pricing approaches, and in focus to products and product templatesevery business there has been some form of pricing increases that are relevantmostly offsetting the increased costs.
We continue to hire talent and make investments in the current environment such as face masks. Additionally, we have executedtechnology, data, new product introduction, customer experience improvements, and branding that are designed to build on a number of actionsour competitive advantages and drive sustainable growth in response to the pandemic in order to help mitigate the overall impact to our financial results. We have taken these actions to help better position our businesses for future success and give them the ability to remain focused on protecting investmentsas we were making prior tocome out of the pandemic. These actions include, but are not limitedWe continue to raising additional capital and reducing costs.
maintain flexibility in our cost structure, while at the same time increasing investment in areas we believe will generate high return on investment.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 cash interest expense related to borrowing;expense; 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. A summary of these key financial metrics for the three months ended September 30, 20202021 as compared to the three months ended September 30, 20192020 follows:
First Quarter Fiscal 2021Year 2022
•Revenue decreasedincreased by 7%12% to $586.5$657.6 million.
•Revenue decreasedConstant-currency revenue (a non-GAAP financial measure) increased by 10%11% and by 9% when excluding acquisitions completed in the impact of currency fluctuations and acquisitions ("organic constant-currency revenue growth", a non-GAAP financial measure)last four quarters.
•Operating income increasedincome decreased by $10.6 $19.0 million to $36.0$16.9 million.
•Adjusted EBITDA (a non-GAAP financial measure) increaseddecreased by $9.0$20.9 million to $88.5$67.6 million.
•Diluted net income (loss) per share attributable to Cimpress plc increased to income per share in the first quarter of fiscal 2022 of $0.09 from a loss per share of $0.39 in the comparative period.
•Cash provided by operating activities increaseddecreased by $42.8$69.1 million to $105.7$36.6 million.
•Adjusted free cash flow (a non-GAAP financial measure) increaseddecreased by $46.3$70.2 million to $82.5$12.3 million.
For the first quarter of fiscal year 2021, our2022, the increase in reported revenue declined year over yearis primarily due to the recovery of demand, as the COVID-19 pandemic continues to negatively impact our results, but the decline was less severe in the first quarter of fiscal year 2021 than in the fourth quarter of fiscal year 2020. The launch of new products in response to the pandemic suchon our businesses has lessened, as face masks, accountswell as the benefit from the addition of 99designs revenue, which was acquired on October 1, 2020, and is included in our Vista business. We continue to experience strong demand for 8%newer fast-growing product categories, while the impacts of totalthe pandemic continue to have a negative effect for certain marketing material products. Demand recovery in our Upload and Print businesses lagged behind our other businesses in prior quarters but reported strong revenue forgrowth this quarter. Currency exchange fluctuations had a positive effect during the first quarter of fiscal year 2021.current quarter.
For the three months ended September 30, 2020,2021, operating income decreased by $19.0 million, primarily due to increased by $10.6 million, despiteinvestments and discretionary costs as we compare against a period that had strict cost control measures in place when the declinepandemic had a more severe impact on our businesses, as well as increased advertising, primarily in revenue described above.our Vista business. These increased costs include higher compensation costs as we have hired additional team members to support key initiatives, mainly in Vista and our central technology team, while the timing of our annual merit cycle contributed to increased compensation costs. The related decreaseincrease in advertising spend includes a return of performance-based advertising to gross profit wasmore normalized levels, as well as a smaller increase in upper-funnel advertising spend in Vista. These cost increases coupled with a reduction in government wage incentives have more than offset the profit increase driven by a material reduction in advertising spend across our businesses in response to reduced demand but also as a result of continued improvement in performance advertising efficiency in Vistaprint. We also realized benefits from the continued reduction in discretionary spend, including travel and training costs, as well as the cost savings from the prior-year reorganization of our Vistaprint and central technology teams. Additionally, we recognized a reduction to restructuring costs year over year. In our All Other Businesses segment, our BuildASign business continued to show strong results, delivering revenue and profit improvement as their home decor and pandemic-related products grewhigher revenue.
Adjusted EBITDA decreased year over year, while net investments in our early-stage businessesprimarily for the same reasons operating income decreased.
Adjusted EBITDA increased as compared to the three months ended September 30, 2019, due to our cost mitigation efforts, despite the revenue and gross profit decline. Adjusted EBITDA excludes restructuring charges and share-based compensation expense, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA, and theEBITDA. The net year-over-year impact of currency on consolidated adjusted EBITDA was negative.unfavorable by approximately $4.0 million.
Diluted net income (loss) per share attributable to Cimpress plc increased to income per share of $0.09 during the three months ended September 30, 2021 from a loss per share of $0.39 during the three months ended September 30, 2020. The increase is primarily due to currency exchange rate volatility that resulted in positive year-over-year unrealized currency impacts, as well as decreased interest expense due to our debt refinancing during the fourth quarter of fiscal 2021.
Consolidated Results of Operations
Consolidated Revenue
Our businesses generate revenue primarily from the sale and shipment of customized manufactured products. ToWe also generate revenue, to a much lesser extent (and onlyprimarily in our VistaprintVista business) we provide, from digital services, graphic design services, website design and hosting, and email marketing services, as well as generate 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, 20202021 and 20192020 are shown in the following table:
| In thousands | In thousands | Three Months Ended September 30, | | Currency Impact: | | Constant- Currency | | Impact of Acquisitions/Divestitures: | | Constant- Currency Revenue Growth | In thousands | Three Months Ended September 30, | | Currency Impact: | | Constant- Currency | | Impact of Acquisitions/Divestitures: | | Constant- Currency Revenue Growth |
| | 2020 | | 2019 | | % Change | | (Favorable)/Unfavorable | | Revenue Growth (1) | | (Favorable)/Unfavorable | | Excluding Acquisitions/Divestitures (2) | | 2021 | | 2020 | | % Change | | (Favorable)/Unfavorable | | Revenue Growth (1) | | (Favorable)/Unfavorable | | Excluding Acquisitions/Divestitures (2) |
Vistaprint | $ | 329,291 | | | $ | 343,171 | | | (4)% | | (1)% | | (5)% | | —% | | (5)% | |
Vista | | Vista | $ | 349,480 | | | $ | 329,291 | | | 6% | | (1)% | | 5% | | (3)% | | 2% |
PrintBrothers | PrintBrothers | 100,112 | | | 109,290 | | | (8)% | | (5)% | | (13)% | | (2)% | | (15)% | PrintBrothers | 125,357 | | | 100,112 | | | 25% | | (1)% | | 24% | | —% | | 24% |
The Print Group | The Print Group | 66,437 | | | 72,258 | | | (8)% | | (4)% | | (12)% | | —% | | (12)% | The Print Group | 72,820 | | | 66,437 | | | 10% | | (2)% | | 8% | | —% | | 8% |
National Pen | National Pen | 67,649 | | | 70,163 | | | (4)% | | (1)% | | (5)% | | —% | | (5)% | National Pen | 69,264 | | | 67,649 | | | 2% | | —% | | 2% | | —% | | 2% |
All Other Businesses (3) | All Other Businesses (3) | 43,478 | | | 42,276 | | | 3% | | 3% | | 6% | | —% | | 6% | All Other Businesses (3) | 47,871 | | | 43,478 | | | 10% | | —% | | 10% | | (5)% | | 5% |
Inter-segment eliminations | Inter-segment eliminations | (20,467) | | | (3,199) | | | Inter-segment eliminations | (7,193) | | | (20,467) | | |
Total revenue | Total revenue | $ | 586,500 | | | $ | 633,959 | | | (7)% | | (2)% | | (9)% | | (1)% | | (10)% | Total revenue | $ | 657,599 | | | $ | 586,500 | | | 12% | | (1)% | | 11% | | (2)% | | 9% |
_________________
(1) 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.
(2) 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.
(3) The All Other Businesses segment includes revenue from our VIDA business from its acquisition date of July 2, 2018 through its divestiture date of April 10, 2020.
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 | In thousands | | Three Months Ended September 30, | In thousands | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Cost of revenue | Cost of revenue | | $ | 298,844 | | | $ | 325,665 | | | Cost of revenue | | $ | 338,989 | | | $ | 298,844 | | |
% of revenue | % of revenue | | 51.0 | % | | 51.4 | % | | % of revenue | | 51.5 | % | | 51.0 | % | |
For the three months ended September 30, 2020,2021, consolidated cost of revenue decreasedincreased by $26.8$40.1 million, primarily due to reducedthe addition of cost of revenue from our 99designs business that is included from the acquisition date of October 1, 2020. We also realized increases in demand-dependent cost of goods sold including third-party fulfillment, material, and shipping costs which decreased across several of our segments that continuedas revenue continues to berecover while the prior comparative period was more negatively impacted by the COVID-19 pandemic. During the current quarter, we experienced impacts from global supply chain disruptions that resulted in cost increases of product substrates like paper, production materials like aluminum plates, freight and shipping charges and a more competitive labor market. The majorityoverall impact of our costincreased costs, net of revenue is variable with revenue which, in additionpricing and manufacturing efficiency actions, were not material to fixed cost savings contributed to flat year-over-year gross margins forprofit during the first quarter of fiscal 2022. We expect these impacts from global supply chain disruptions to continue to cause inflationary pressure, cost volatility, and pockets of product availability challenges for the remainder of the fiscal year 2021 despite pandemic-driven reductions in order volumes. We realized approximately $3.1 million of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained.and possibly beyond that.
Consolidated Operating Expenses
The following table summarizes our comparative operating expenses for the following periods:
| In thousands | In thousands | | Three Months Ended September 30, | | In thousands | | Three Months Ended September 30, | |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Technology and development expense | Technology and development expense | | $ | 58,489 | | | $ | 63,167 | | | Technology and development expense | | $ | 67,277 | | | $ | 58,489 | | |
% of revenue | % of revenue | | 10.0 | % | | 10.0 | % | | % of revenue | | 10.2 | % | | 10.0 | % | |
Marketing and selling expense | Marketing and selling expense | | $ | 138,150 | | | $ | 160,917 | | | Marketing and selling expense | | $ | 174,697 | | | $ | 138,150 | | |
% of revenue | % of revenue | | 23.6 | % | | 25.4 | % | | % of revenue | | 26.6 | % | | 23.6 | % | |
General and administrative expense | General and administrative expense | | $ | 41,812 | | | $ | 43,623 | | | General and administrative expense | | $ | 46,548 | | | $ | 41,812 | | |
% of revenue | % of revenue | | 7.1 | % | | 6.9 | % | | % of revenue | | 7.1 | % | | 7.1 | % | |
Amortization of acquired intangible assets | Amortization of acquired intangible assets | | $ | 13,305 | | | $ | 13,018 | | | Amortization of acquired intangible assets | | $ | 13,458 | | | $ | 13,305 | | |
% of revenue | % of revenue | | 2.3 | % | | 2.1 | % | | % of revenue | | 2.0 | % | | 2.3 | % | |
Restructuring expense(1) | Restructuring expense(1) | | $ | (86) | | | $ | 2,190 | | | Restructuring expense(1) | | $ | (309) | | | $ | (86) | | |
% of revenue | % of revenue | | 0.0 | % | | 0.3 | % | | % of revenue | | 0.0 | % | | 0.0 | % | |
|
_____________________
(1) Refer to Note 13 in our accompanying consolidated financial statements for additional details relating to restructuring expense.
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.
DuringTechnology and development expenses increased by $8.8 million for the three months ended September 30, 2020, technology and development expenses decreased by $4.7 million,2021, as compared to the prior year.comparative period. This was mainlyincrease is primarily driven by decreasedhigher compensation costs due to increased investment from hiring and the timing of our annual merit cycle, mainly in the Vista business and our central technology and Vistaprint teams of $1.8 millionand$1.3 million, respectively, driven by our fiscal year 2020 reorganization, as well as a reductiongroup. We also realized other cost increases in discretionary spend including travel and training expenses.as tighter cost control measures were in place during the prior comparative period when the effects of the pandemic were more severe.
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 Vistaprint,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.businesses due to differences in the customers that they serve.
Our marketing and selling expenses decreased by $22.8 million duringFor the three months ended September 30, 2020,2021, marketing and selling expenses increased by $36.5 million, as compared to the prior year.fiscal quarter. The decreaseincrease from the prior comparative period is primarily due to the year-over-year reductionincrease of advertising and marketing spend in our Vista business of $27.9 million. The increase was driven primarily by self-imposed restrictions on advertising spend during the prior comparative period, whereas the current quarter reflects more normalized spend levels with increased payback thresholds, as well as an increase in upper-funnel brand spend. In addition, many of our other businesses have increased advertising spend in our Vistaprint business of $17.5 million, as a result of the effects of the pandemic online with demand, as well as continued efficiency gains from improved usage of data and tooling. We also recognized a decrease in marketing costs inincluding our National Pen business of $8.5 million, primarily due to pandemic-related initiatives to lower costs, which included reductions tohas increased direct mail prospecting activities and cost savings from initiatives intended to reduce costs in service centers.volumes ahead of their seasonally significant second quarter.
General and administrative expense
General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance and payroll and related expenses of employees involved in executive management, finance, legal, strategy, human resources and procurement.
For the three months ended September 30, 2020,2021, general and administrative expenses decreasedincreased by $1.8$4.7 million, as compared to the priorprior-year period, primarily due to lower professional feesthe lack of $1.5 milliontemporary cost-control measures from the year-ago period that drove a year-over-year increase in corporate costs, as a result of the non-recurrence of costs relatedwell as increases to Cimpress' cross-border merger to Ireland in fiscal year 2020.
Amortization of acquired intangible assets
Amortization of acquired intangible assets consists of amortization expense associated with separately identifiable intangible assets capitalized as part of our acquisitions, including customer relationships, trade names, developed technologies, print networks, and customer and referral networks.
Amortization of acquired intangible assets increased by$0.3 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
Restructuring expense
Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes employee-related termination costs, third party professional fees and facility exit costs. During the three months ended September 30, 2020 we recognized a restructuring benefit of $0.1 million due to a change in estimates from actions taken in the fourth quarter of fiscal year 2020, while we recognized restructuring expense of $2.2 million in the three months ended September 30, 2019.long-term incentive program.
Other Consolidated Results
Other income (expense) income,, net
Other income (expense) income,, net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting.
The following table summarizes the components of other income (expense) income,, net:
| | | | | | | | | | | | | | | | | |
In thousands | | | Three Months Ended September 30, |
| | | | | 2020 | | 2019 | | |
(Losses) gains on derivatives not designated as hedging instruments (1) | | | | | $ | (13,495) | | | $ | 19,357 | | | |
Currency-related gains (losses), net (2) | | | | | 4,075 | | | (3,412) | | | |
Other gains (losses) | | | | | 666 | | | (271) | | | |
Total other (expense) income, net | | | | | $ | (8,754) | | | $ | 15,674 | | | |
| | | | | | | | | | | | | | | | | |
In thousands | | | Three Months Ended September 30, |
| | | | | 2021 | | 2020 | | |
Gains (losses) on derivatives not designated as hedging instruments | | | | | $ | 13,327 | | | $ | (13,495) | | | |
Currency-related gains, net | | | | | 9,350 | | | 4,075 | | | |
Other (losses) gains | | | | | (480) | | | 666 | | | |
Total other income (expense), net | | | | | $ | 22,197 | | | $ | (8,754) | | | |
The decreaseincrease in other (expense) income (expense), net iswas primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, inof which our Euro and British Pound contracts are the most significant exposures that we economically hedge. We also recognize the impact from de-designated interest swap contracts that are no longer highly effective, which resulted in unrealized losses during the current period. We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts.
We also experienced currency-related gains due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter from time to time. The impact of certain cross-currency swap contracts designated as cash flow hedges is 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 and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swap contracts.
Interest expense, net increaseddecreased by $15.4$4.8 million during the three months ended September 30, 2020,2021, as compared to the prior comparable period.year quarter. This is primarily due to our Term Loan B refinancing during the additional $200.0 million offeringfourth quarter of fiscal 2021 that resulted in a reduction to our 7% senior unsecured notes in February 2020 and issuance ofweighted-average interest rate on our $300.0 million 12% second lien notes in May 2020.
Income tax expense
| In thousands | In thousands | | Three Months Ended September 30, | In thousands | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
Income tax expense | Income tax expense | | $ | 6,794 | | | $ | 6,115 | | | Income tax expense | | $ | 9,381 | | | $ | 6,794 | | |
Effective tax rate | Effective tax rate | | (206.9) | % | | 23.6 | % | | Effective tax rate | | 69.8 | % | | (206.9) | % | |
Income tax expense for the three months ended September 30, 20202021 increased as compared to the prior year primarily attributable to discrete items. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is higher for fiscal 2021 as compared to fiscal 2020 primarilyperiod due to increased non-deductible interest expense. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognizepre-tax profits and a tax benefit in the current period.less favorable mix of earnings year over year.
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 discussion.
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; plus share-based compensation expense related to investment consideration; plus earn-out related charges; plus certain impairments; plus restructuring related charges; less gain on purchase or sale of subsidiaries.
VistaprintVista
| In thousands | In thousands | | Three Months Ended September 30, | | | In thousands | | Three Months Ended September 30, | | |
| | | 2020 | | 2019 | | | 2020 vs. 2019 | | | | 2021 | | 2020 | | | 2021 vs. 2020 | |
Reported Revenue | Reported Revenue | | $ | 329,291 | | | $ | 343,171 | | | | (4)% | | Reported Revenue | | $ | 349,480 | | | $ | 329,291 | | | | 6% | |
Segment EBITDA | Segment EBITDA | | 90,157 | | | 87,303 | | | | 3% | | Segment EBITDA | | 68,039 | | | 90,157 | | | | (25)% | |
% of revenue | % of revenue | | 27 | % | | 25 | % | | | | % of revenue | | 19 | % | | 27 | % | | | |
Segment Revenue
Vistaprint'sVista's reported revenue declinegrowth for the three months ended September 30, 20202021 was positively affected by a currency impact of 1%. When excluding the benefit from the recent acquisition of 99designs, Vista's organic constant-currency revenue growth was 2%. Vista's growth was driven by product categories such as packaging, labels, signage and promotional products, partially offset by other small business product categories that continue to experience lingering pandemic impacts. In addition, revenue related to face masks has declined significantly as the effects of the pandemic have declined, contributing only 1% of Vista's revenue in the current quarter as compared to 11% in the prior comparative period. Results in North America and Australia continue to perform closer to pre-pandemic levels than in Europe.
Segment Profitability
For the three months ended September 30, 2021, segment EBITDA declined $22.1 million largely driven by increased organic investments that support Vista's multi-year transformation journey to become the expert design and marketing partner to the world's small businesses. Vista's advertising spend also increased, driven in part by expanded performance advertising spend payback thresholds, which were more constrained during the prior-year period when the effects of the pandemic were more severe. Upper-funnel advertising increased slightly year-over-year to 1% of Vista revenue. Operating expenses also grew year over year due to the addition of 99designs, which is not included in the comparative period due to the timing of the acquisition. These increases to spend were partially offset by growth in gross profit year-over-year.
PrintBrothers
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2021 | | 2020 | | | | 2021 vs. 2020 | | |
Reported Revenue | | | | | | | $ | 125,357 | | | $ | 100,112 | | | | | 25% | | |
Segment EBITDA | | | | | | | 16,283 | | | 9,715 | | | | | 68% | | |
% of revenue | | | | | | | 13 | % | | 10 | % | | | | | | |
Segment Revenue
PrintBrothers' reported revenue growth for the three months ended September 30, 2021 was positively affected by a currency impact of 1%, resulting in a constant-currency revenue declinegrowth of 5%24%. The revenue decline was primarilyThis increase is driven by the impactsigns of the pandemic on customer demand, partially offset by the saleoverall economic recovery for our businesses in many of pandemic-relatedour European geographies and leveraging new products such as face masks.
Segment Profitability
For the three months ended September 30, 2020, the increase to Vistaprint's segment EBITDA was primarily due to a reduction to, and improved efficiency of, advertising spend. This was combined with the benefits realized from management of variable costsintroduced in line with the reduced demand, lower professional and consulting fees as compared to the prior year, and the efficiencies gained through the technology reorganization in the fourth quarter of the prior year. This decrease was partially offset by increased hiring for critical roles and increased spend related to customer experience in anticipation of the upcoming holiday season. Vistaprint received $2.5 million in government incentives to offset wages in locations where demand decreased materially but roles were maintained. Vistaprint's segment EBITDA was positively impacted by currency movements during the quarter.
PrintBrothers
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2020 | | 2019 | | | | 2020 vs. 2019 | | |
Reported Revenue | | | | | | | $ | 100,112 | | | $ | 109,290 | | | | | (8)% | | |
Segment EBITDA | | | | | | | 9,715 | | | 10,777 | | | | | (10)% | | |
% of revenue | | | | | | | 10 | % | | 10 | % | | | | | | |
Segment Revenue
PrintBrothers' reported revenue decline for the three months ended September 30, 2020 was positively affected by a currency impact of 5%, resulting in constant-currency revenue decline, excluding the impact of acquisitions, of 15%. The revenue decline was due to impacts from COVID-19, as the pandemic continued to have a negative effect on demand in the quarter.
Segment Profitability
PrintBrothers' segment EBITDA decreased during the three months ended September 30, 2020 as compared to the prior comparative period, due primarily to the revenue declines as described above. A portion of the decline in segment EBITDA, as driven by the revenue decline, was partially offset by discretionary cost controls and benefits received of $0.9 million from government incentive programs.
The Print Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2020 | | 2019 | | | | 2020 vs. 2019 | | |
Reported Revenue | | | | | | | $ | 66,437 | | | $ | 72,258 | | | | | (8)% | | |
Segment EBITDA | | | | | | | 12,183 | | | 13,634 | | | | | (11)% | | |
% of revenue | | | | | | | 18 | % | | 19 | % | | | | | | |
Segment Revenue
The Print Group's reported revenue decline for the three months ended September 30, 2020 was positively affected by a currency impact of 4%, resulting in a decrease in revenue on a constant-currency basis of12%. The revenue decline was due to impactsrecent years. We also benefited from the COVID-19 pandemic, but these trends improved as compared to the fourth quartertiming of fiscal year 2020, as a resultelections in Germany, which drove sales of fewer lockdowns in the geographies that these businesses servesignage products, flyers and as these businesses launched new products relevant to the pandemic and leveraged by other Cimpress businesses in Europe, which increased inter-segment sales that are included in segment results but eliminated at the consolidated level.
Segment Profitability
The Print Group's segment EBITDA decreasedduring the three months ended September 30, 2020, as compared to the prior period, primarily driven by the revenue decline described above. This was partially offset by discretionary cost controls, benefits from government incentives totaling $0.6 million, and efficiency gains from leveraging our mass customization platform to shift production to lower-cost sources.
National Pen
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2020 | | 2019 | | | | 2020 vs. 2019 | | |
Reported Revenue | | | | | | | $ | 67,649 | | | $ | 70,163 | | | | | (4)% | | |
Segment EBITDA | | | | | | | (10,671) | | | (9,850) | | | | | 8% | | |
% of revenue | | | | | | | (16) | % | | (14) | % | | | | | | |
brochures.
Segment Profitability
The increase in PrintBrothers' segment EBITDA during the three months ended September 30, 2021, as compared to the prior period, was driven by increases in gross profit due to the constant-currency revenue growth described above, continued introductions of new products and improved efficiencies.
The Print Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2021 | | 2020 | | | | 2021 vs. 2020 | | |
Reported Revenue | | | | | | | $ | 72,820 | | | $ | 66,437 | | | | | 10% | | |
Segment EBITDA | | | | | | | 14,389 | | | 12,183 | | | | | 18% | | |
% of revenue | | | | | | | 20 | % | | 18 | % | | | | | | |
Segment Revenue
National Pen'sThe Print Group's reported revenue decrease for the three months ended September 30, 20202021 was positively affected by a currency impact of 1%2%, resulting in an increase in revenue on a constant-currency basis of8% due to signs of overall economic recovery in many of the European countries in which we compete and leveraging new products introduced in recent years. During the quarter we benefited from the timing of elections in Italy, which drove demand for signage products, flyers and brochures.
Segment Profitability
The increase in The Print Group's segment EBITDA during the three months ended September 30, 2021, as compared to the prior year, resulting in constant-currencywas primarily driven by the revenue declinegrowth described above. In addition, The Print Group continues to benefit from the introduction of 5%. Revenue decreased due to the impact of the pandemic; in particular, the year-over-year decline in National Pen's corenew products was most evident in its sales to larger businesses due to cancelled trade shows and other large-scale events. National Pen's e-commerce and direct mail channels experienced more resiliency on a relative basis as a result of year-over-year gains in advertising spend efficiency. This revenue decline was partially offset by sales of pandemic-related products sold directly to customerswith higher margins, as well as improved efficiencies as the group better leverages its combined capabilities.
National Pen
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2021 | | 2020 | | | | 2021 vs. 2020 | | |
Reported Revenue | | | | | | | $ | 69,264 | | | $ | 67,649 | | | | | 2% | | |
Segment EBITDA | | | | | | | (8,048) | | | (10,671) | | | | | (25)% | | |
% of revenue | | | | | | | (12) | % | | (16) | % | | | | | | |
Segment Revenue
National Pen's reported and constant-currency revenue growth was 2% as compared to the prior comparative period. The business has seen improvements in results due to businesses reopening and a return of in-person events in some markets, largely offset by a decline in revenue from pandemic-related products including masks produced on behalf of other Cimpress businesses. Mask revenue, including the portion produced on behalf of other Cimpress businesses, decreased as a percentage of total National Pen revenue from 20% in the prior comparative period to 6% in the current quarter.
Segment Profitability
The decreaseincrease in National Pen's segment EBITDA for the three months ended September 30, 20202021 was due in part to the top-line revenue increase described above, as well as improvements in gross profit driven by a normalized mix of products and decline described above. The impacts of lower revenue onin lower-margin pandemic-related products. National Pen's fixedsegment EBITDA was also benefited by lower operating expense from permanent cost base negatively impacted profitability this quarter in comparison toreductions made since the year ago period, partially offset by reduced variable cost, advertising and discretionary spend.onset of the pandemic.
All Other Businesses
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2020 | | 2019 | | | | 2020 vs. 2019 | | |
Reported Revenue (1) | | | | | | | $ | 43,478 | | | $ | 42,276 | | | | | 3% | | |
Segment EBITDA (1) | | | | | | | 8,609 | | | 1,717 | | | | | 401% | | |
% of revenue | | | | | | | 20 | % | | 4 | % | | | | | | |
___________________
(1) Our All Other Businesses segment includes the results of our fiscal 2019 acquisition, BuildASign from October 1, 2018, and our VIDA acquisition from July 2, 2018 through the divestiture date of April 10, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | Three Months Ended September 30, | | | | |
| | | | | | | 2021 | | 2020 | | | | 2021 vs. 2020 | | |
Reported Revenue | | | | | | | $ | 47,871 | | | $ | 43,478 | | | | | 10% | | |
Segment EBITDA | | | | | | | 4,891 | | | 8,609 | | | | | (43)% | | |
% of revenue | | | | | | | 10 | % | | 20 | % | | | | | | |
This segment consists of BuildASign, which is a larger and profitable business, and two small, rapidly evolving early-stage businesses through which Cimpress is expandingthat we continue to new markets. These businesses are subject to high degrees of riskmanage at a relatively modest operating loss as previously described and weplanned. We expect thatfluctuations in growth as each of their business models will rapidly evolve in function of future trialscustomer feedback, testing, and entrepreneurial pivoting. These early-stage businesses continue to have operating losses as previously described and as planned.
Segment Revenue
Constant-currencyAll Other Businesses' constant-currency revenue, excluding the impact of acquisitions, increased by 6%5% during the three months ended September 30, 2021. This increase was driven by recovery of demand for both our Printi business in Brazil and signage products offered by BuildASign. Organic constant-currency revenue growth was lower sequentially in this reportable segment as we lapped the increased demand for home decor products in the comparable prior year period.
Segment Profitability
The decrease in segment EBITDA for the three months ended September 30, 2020. This2021 was primarily driven by continued growth at BuildASign, even during the pandemic, with strong performance in home decor and pandemic-related signage products. In addition, the business benefited from higher volumes of political signage in comparison to the prior year due to the 2020 U.S. presidential election and down-ballot races. This was partially offset by pandemic-driven decreases in revenue in our Printi and YSD businesses.
Segment Profitability
Within the All Other Businesses segment, each business improved its profitability for the three months ended September 30, 2020 as compared to the prior year, with the overall improvement primarily driven by revenue growth and advertising efficiency in BuildASign. Printi and YSD reduced losses despite the pandemic-related drop in demand through improved efficiency. Our divestiturea combination of loss-making VIDAfactors including that in the fourth quarteryear-ago period BuildASign had pulled back on advertising and other operating expenses, the cost of fiscalperformance advertising has increased from its pandemic low point last year, 2020 also contributed to year-over-year profit improvements in the currentand inflation on input costs including shipping, materials and labor put pressure on profits this quarter.
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 hosting and security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the
team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs.
Central and corporate costs decreasedincreased by $2.6$4.3 million during the three months ended September 30, 20202021, as compared to the prior year, due to the lack of temporary cost-control measures from the year-ago period which drove a decreaseyear-over-year increase in technology related expenses of $1.8 million primarily due to the prior-year reorganization ofcorporate costs and investments in our mass customization platform, and an uplift in demand drove higher central technology team, combined with lower professional fees of $1.5 million and a reduction in travel related expenses, partially offset by increases to share-based compensation of $2.9 million.operating costs year over year.
Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data | | | | | | | | | | | | | |
In thousands | Three Months Ended September 30, |
| 2021 | | 2020 | | |
Net cash provided by operating activities | $ | 36,567 | | | $ | 105,681 | | | |
Net cash used in investing activities | (13,181) | | | (21,084) | | | |
Net cash used in financing activities | (10,351) | | | (91,979) | | | |
| | | | | | | | | | | | | |
In thousands | Three Months Ended September 30, |
| 2020 | | 2019 | | |
Net cash provided by operating activities | $ | 105,681 | | | $ | 62,905 | | | |
Net cash used in investing activities | (21,084) | | | (29,363) | | | |
Net cash used in financing activities | (91,979) | | | (33,005) | | | |
At September 30, 2020, we had $40.2 million of cash and cash equivalents and $1,400.8 million of debt, excluding debt issuance costs, and debt premiums and discounts. Under the terms of our April 28, 2020 credit facility amendment, we are required to use cash balances in excess of $100.0 million, if any, to repay the revolving loans under our senior secured credit facility.
The cash flows during the three months ended September 30, 20202021 related primarily to the following items:
Cash inflows:
•Net income of $4.1 million
•Adjustments for non-cash items of $63.4$28.4 million primarily related to positive adjustments for depreciation and amortization of $42.3$44.4 million and share-based compensation costs of $8.3$11.0 million, which were partially offset by negative adjustments for unrealized currency-related gains of $25.4 million and unrealized currency-related lossesdeferred taxes of $9.7 million.$1.1 million
•The changes in operatingProceeds from the maturity of held-to-maturity securities of $10.0 million
•Proceeds from the sale of assets and liabilitiesof $1.7 million
•Total net working capital impacts of $4.1 million were a source of cash during the period, driven by an increase in accountscash. Accounts payable and accrued expenses. This was driven by increased spend in operating expenses, cost of goods sold and external marketing costs, as a result of the increase in revenue as compared to the fourth quarter of fiscal year 2020,expense inflows were partially offset by an outflow from the prior deferral of supplierinventory, accounts receivable and rent payments negotiated in response to the pandemic.other asset outflows
Cash outflows:
•Net loss of $10.1 million
•Payments of debt of $83.7 million, net of borrowings and inclusive of debt issuance costs
•Internal and external costs of $14.8$15.6 million for software and website development that we have capitalized
•Capital expenditures of $8.4$8.6 million of which the majority related to the purchase of manufacturing and automation equipment for our production facilities and computer and office equipment
•Payments for debt of $4.1 million
•Payment of withholding taxes in connection with share awards of $5.6$2.6 million
•Payments for finance lease arrangements of $1.6$2.5 million
•Financing fees of $1.1 million from our fourth quarter fiscal year 2021 credit facility amendment that we have capitalized
Additional Liquidity and Capital Resources Information. At September 30, 2021, we had $193.2 million of cash and cash equivalents, $192.4 million of marketable securities and $1,751.5 million of debt, excluding debt issuance costs and debt premiums and discounts. During the three months ended September 30, 2020,2021, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. We expect to finance our future operations through our cash, investments, operating cash flow and borrowings under our debt arrangements.
As of September 30, 2020,2021, 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 $38.3$44.6 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.
We have historically allocated a material amount of capital to purchases of our ordinary shares and corporate acquisitions. The April 2020 amendment to our credit facility prohibits us from repurchasing our shares and limits acquisitions for the period in which the financial maintenance covenants associated with our senior secured credit facility are suspended.
Debt. As of September 30, 2020,2021, we had aggregate loan commitments fromhave borrowings under our amended and restated senior secured credit facility totaling $996.3 million. Theagreement dated as of May 17, 2021 (the "Restated Credit Agreement") of $1,140.2 million consisting of the Term Loan B, which amortizes over the loan commitments consistedperiod, with a final maturity date of revolving loan borrowings of $343.5May 17, 2028. Our $250.0 million and term loans of $146.3 million. We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. Asrevolver under our Restated Credit Agreement has $244.0 million unused as of September 30, 2020,2021. There are no drawn amounts on the amount available for borrowing underrevolver, but our senior securedoutstanding letters of credit facility wasreduce our unused balance. Our unused balance can be drawn at any time so long as follows:
| | | | | |
In thousands | |
| September 30, 2020 |
Maximum aggregate available for borrowing | $ | 996,250 | |
Outstanding borrowings of senior secured credit facility | (489,767) | |
Remaining amount | 506,483 | |
Limitations to borrowing due to debt covenants and other obligations (1) | (4,049) | |
Amount available for borrowing as of September 30, 2020 (2) | $ | 502,434 | |
_________________
(1) As of September 30, 2020, our pre-existing financial maintenance covenants are suspended and we are in compliance with our debt covenants.
Senior Unsecured Notes. Our $600.0 million of 7.0% Senior Notes due 2026 bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the new restrictions in place, with the primary maintenance covenant during the suspension period that we must maintain liquidity above $50.0 million. Refer to Note 8 in our accompanying consolidated financial statements for further descriptionnotes is payable semi-annually on June 15 and December 15 of the restrictions in place during the covenant suspension period.each year.
(2) Share purchases, dividend payments, and corporate acquisitions are subject to more restrictive covenants, and therefore we may not be able to use the full amount available for borrowing for these purposes.
Debt CovenantsCovenants.. The April 2020 amendment toRestated Credit Agreement and the indenture that governs our senior secured facility suspended7.0% Senior Notes due 2026 contain covenants that restrict or limit certain activities and transactions by Cimpress and our pre-existing financial maintenancesubsidiaries. As of September 30, 2021, we were in compliance with all covenants until December 31, 2021, includingunder our Restated Credit Agreement and the total and senior secured leverage covenants and interest coverage ratio covenant.indenture governing our 2026 Notes. Refer to Note 8 in our accompanying consolidated financial statements for additional information.
Other DebtDebt.. Other debt primarily consists of term loans acquired through our various acquisitions or used to fund certain capital investments. As of September 30, 2020,2021, we had $11.0$11.3 million outstanding for other debt payable through March 2025.January 2026.
Contractual Obligations
Contractual obligations at September 30, 20202021 are as follows:
| In thousands | In thousands | Payments Due by Period | In thousands | Payments Due by Period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Operating leases, net of subleases (1) | Operating leases, net of subleases (1) | $ | 128,151 | | | $ | 28,676 | | | $ | 35,842 | | | $ | 27,414 | | | $ | 36,219 | | Operating leases, net of subleases (1) | $ | 96,401 | | | $ | 30,074 | | | $ | 43,593 | | | $ | 16,852 | | | $ | 5,882 | |
Purchase commitments | Purchase commitments | 193,650 | | | 99,739 | | | 79,097 | | | 14,814 | | | — | | Purchase commitments | 250,458 | | | 138,118 | | | 83,639 | | | 28,701 | | | — | |
Senior unsecured notes and interest payments | Senior unsecured notes and interest payments | 852,000 | | | 42,000 | | | 84,000 | | | 84,000 | | | 642,000 | | Senior unsecured notes and interest payments | 810,000 | | | 42,000 | | | 84,000 | | | 684,000 | | | — | |
Second lien notes and interest payments | 481,500 | | | 37,500 | | | 72,000 | | | 372,000 | | | — | | |
Other debt and interest payments (2) | 623,352 | | | 65,196 | | | 94,242 | | | 463,914 | | | — | | |
Senior secured credit facility and interest payments (2) | | Senior secured credit facility and interest payments (2) | 1,470,201 | | | 65,624 | | | 124,757 | | | 118,654 | | | 1,161,166 | |
Other debt | | Other debt | 11,347 | | | 3,414 | | | 5,478 | | | 2,045 | | | 410 | |
Finance leases, net of subleases (1) | Finance leases, net of subleases (1) | 22,629 | | | 7,063 | | | 10,018 | | | 4,361 | | | 1,187 | | Finance leases, net of subleases (1) | 56,901 | | | 29,694 | | | 7,778 | | | 5,472 | | | 13,957 | |
Other | Other | 1,676 | | | 931 | | | 745 | | | — | | | — | | Other | 44,852 | | | 44,852 | | | — | | | — | | | — | |
Total (3) | Total (3) | $ | 2,302,958 | | | $ | 281,105 | | | $ | 375,944 | | | $ | 966,503 | | | $ | 679,406 | | Total (3) | $ | 2,740,160 | | | $ | 353,776 | | | $ | 349,245 | | | $ | 855,724 | | | $ | 1,181,415 | |
___________________
(1) Operating and finance lease payments included above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses which are not includedreflected in these payments.the contractual obligations above.
(2) Other debtSenior secured credit facility and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash.
We have excluded the effect of interest rate swaps of $1.1 million within the more than five years category above as that period extends beyond the term of our debt and the interest rate swaps do not yet offset contractual interest payments.
(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$13.3 $9.2 millionas of September 30, 20202021 have been excluded from the contractual obligations table above. For further information on uncertain tax positions, seeSee Note 9 in our accompanying consolidated financial statements.statements for further information on uncertain tax positions.
Operating Leases.Leases. We rent office space under operating leases expiring on various dates through 2034. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit in the amount of $2.1 million.$2.0 million in the aggregate.
Purchase Commitments. At September 30, 2020,2021, we had unrecorded commitments under contract of $193.7$250.5 million. Purchase commitments consisted of third-party web services of $114.5$100.7 million, software of $53.0 million, inventory and third-party fulfillment purchase commitments of $29.3$55.7 million, advertising of $10.1 million, commitments for professional and consulting fees of $19.2$8.0 million, production and computer equipment purchases of approximately $3.8$10.0 million and other unrecorded purchase commitments of $26.9$13.0 million.
Senior Unsecured Notes and Interest Payments. Our 7.0% senior unsecured notes due$600.0 million of 2026 Notes bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the notes is payable semi-annually on June 15 and December 15 of each year and has been included in the table above.
Second Lien Notes and Interest Payments. Our 12.0% senior secured notes due 2025 bear interest at a rate of 12.0% per annum and mature on May 15, 2025. Interest on the notes is payable semi-annually on May 15 and November 15 of each year and has been included in the table above. At our option, we may elect to pay interest on up to 50.0% of the then outstanding principal amount of the notes as paid-in-kind and applied to the outstanding principal balance of the notes.
Other DebtSenior Secured Credit Facility and Interest Payments. At September 30, 2020,2021, the term loansTerm Loan B of $146.3$1,140.2 million outstanding under our credit agreementRestated Credit Agreement had repayments due on various dates through November 15, 2024, with the revolving loans outstandingMay 17, 2028, and we did not have any amounts drawn under our $343.5 million revolving credit facilityRevolving Credit Facility due on November 15, 2024.May 17, 2026. Interest payable included in this table is based on the interest rate as of September 30, 2020,2021, and assumes all LIBOR-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 and all Prime rate based revolving loan amounts will be paid within a year. Interest payable includes the estimated impact of our interest rate swap agreements. schedule.
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, and asinvestments. As of September 30, 20202021, we had$11.0 $11.3 million outstanding for those obligations that have repayments due on various dates through March 2025.January 2026.
Finance Leases.We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2027.2034. The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at September 30, 2020,2021 is $19.8$33.7 million, net of accumulated depreciation of $41.4$38.6 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, 20202021 amounts to $26.2$48.7 million.
Other ObligationsObligations.. Other obligations include deferred payments related to previous acquisitions of $1.7$44.9 million in the aggregate. This balance includes the deferred payment related to the 99designs acquisition totaling $44.4 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. Adjusted EBITDA is defined as GAAP operating income plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less interest expense related to our Waltham, Massachusetts office lease less gain on purchase or sale of subsidiaries.
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, as we have become more acquisitive over recent years 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. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Adjusted free cash flow is the primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress-wide. Adjusted free cash flow is defined as net cash provided by 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 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, 20202021 and 2019:2020:
| In thousands | In thousands | | Three Months Ended September 30, | In thousands | | Three Months Ended September 30, |
| | | 2020 | | 2019 | | | | 2021 | | 2020 | |
GAAP operating income | GAAP operating income | | $ | 35,986 | | | $ | 25,379 | | | GAAP operating income | | $ | 16,939 | | | $ | 35,986 | | |
Exclude expense (benefit) impact of: | Exclude expense (benefit) impact of: | | | | Exclude expense (benefit) impact of: | | | |
Depreciation and amortization | Depreciation and amortization | | 42,290 | | | 42,535 | | | Depreciation and amortization | | 44,432 | | | 42,290 | | |
| Share-based compensation expense (1) | Share-based compensation expense (1) | | 8,283 | | | 4,750 | | | Share-based compensation expense (1) | | 11,006 | | | 8,283 | | |
| Certain impairments and other adjustments(1) | Certain impairments and other adjustments(1) | | 783 | | | (176) | | | Certain impairments and other adjustments(1) | | (780) | | | 783 | | |
Restructuring-related charges | Restructuring-related charges | | (86) | | | 2,190 | | | Restructuring-related charges | | (309) | | | (86) | | |
| Realized gains on currency derivatives not included in operating income | | 1,217 | | | 4,838 | | | |
Realized (losses) gains on currency derivatives not included in operating income (2) | | Realized (losses) gains on currency derivatives not included in operating income (2) | | (3,672) | | | 1,217 | | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 88,473 | | | $ | 79,516 | | | Adjusted EBITDA | | $ | 67,616 | | | $ | 88,473 | | |
_________________
(1) The adjustmentCertain impairments and other adjustments includes gains or losses on disposal of property, plant and equipment, net of cash received, as well as routine impairments of capitalized software.
(2) These realized (losses) gains include only the impacts of currency derivatives for share-based compensation expense excludes the portion of share-based compensation expense includedwhich we do not apply hedge accounting. See Note 4 in restructuring related charges, if any, to avoid double counting.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 three months ended September 30, 20202021 and 2019:2020:
| | | | | | | | | | | | | | | | | |
In thousands | | | Three Months Ended September 30, |
| | | | | 2020 | | 2019 | | |
Net cash provided by operating activities | | | | | $ | 105,681 | | | $ | 62,905 | | | |
Purchases of property, plant and equipment | | | | | (8,383) | | | (14,193) | | | |
| | | | | | | | | |
Capitalization of software and website development costs | | | | | (14,804) | | | (12,471) | | | |
| | | | | | | | | |
Adjusted free cash flow | | | | | $ | 82,494 | | | $ | 36,241 | | | |
| | | | | | | | | | | | | | | | | |
In thousands | | | Three Months Ended September 30, |
| | | | | 2021 | | 2020 | | |
Net cash provided by operating activities (1) | | | | | $ | 36,567 | | | $ | 105,681 | | | |
Purchases of property, plant and equipment | | | | | (8,624) | | | (8,383) | | | |
| | | | | | | | | |
Capitalization of software and website development costs | | | | | (15,639) | | | (14,804) | | | |
| | | | | | | | | |
Adjusted free cash flow | | | | | $ | 12,304 | | | $ | 82,494 | | | |
_________________
(1) The decrease of net cash provided by operating activities was driven by the decrease in operating income as described earlier in this section, as well as unfavorable year-over-year impacts from changes in working capital due to significant cash preservation measures in place during the prior comparative period.
Item 3.7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash, cash equivalents and debt.
As of September 30, 2020,2021, our cash and cash equivalents consisted of standard depository accounts which are held for working capital purposes.purposes, money market funds, and marketable securities with an original maturity of less than 90 days. We do not believe we have a material exposure to interest rate fluctuations related to our cash and cash equivalents.
As of September 30, 2020,2021, we had $489.81,140 million of variable-rate debt. As a result, we have exposure to market risk for changes in interest rates related to these obligations. In order to mitigate our exposure to interest rate changes related to our variable rate debt, we execute interest rate swap contracts to fix the interest rate on a portion of our outstanding or forecasted long-term debt with varying maturities. As of September 30, 2020,2021, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps, would result in an immateriala $4.0 million impact to interest expenseover the next 12 months.
Currency Exchange Rate Risk. We conduct business in multiple currencies through our worldwide operations but report our financial results in U.S. dollars. We manage these currency risks through normal operating activities and, when deemed appropriate, through the use of derivative financial instruments. We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes. The use of derivatives is intended to reduce, but does not entirely eliminate, the impact of adverse currency exchange rate movements. A summary of our currency risk is as follows:
•Translation of our non-U.S. dollar revenues and expenses: Revenue and related expenses generated in currencies other than the U.S. dollar could result in higher or lower net income when, upon consolidation, those transactions are translated to U.S. dollars. When the value or timing of revenue and expenses in a given currency are materially different, we may be exposed to significant impacts on our net income and non-GAAP financial metrics, such as adjusted EBITDA.
Our currency hedging objectives are targeted at reducing volatility in our forecasted U.S. dollar-equivalent adjusted EBITDA in order to protectmaintain stability on our incurrence-based debt covenants. Since adjusted EBITDA excludes non-cash items such as depreciation and amortization that are included in net income, we may experience increased, not decreased, volatility in our GAAP results due to our hedging approach. Our most significant net currency exposures by volume are in the Euro and British Pound.
In addition, we elect to execute currency derivatives contracts that do not qualify for hedge accounting. As a result, we may experience volatility in our consolidated statements of operations due to (i) the impact of unrealized gains and losses reported in other income (expense) income,, net, on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other income (expense) income,, net, whereas the offsetting economic gains and losses are reported in the line item of the underlying activity, for example, revenue.
•Translation of our non-U.S. dollar assets and liabilities: Each of our subsidiaries translates its assets and liabilities to U.S. dollars at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of accumulated other comprehensive loss on the consolidated balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities.
We have currency exposure arising from our net investments in foreign operations. We enter into currency derivatives to mitigate the impact of currency rate changes on certain net investments.
•Remeasurement of monetary assets and liabilities: Transaction gains and losses generated from remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of a subsidiary are included in other income (expense) income,, net, on the consolidated statements of operations. Certain of our subsidiaries hold intercompany loans denominated in a currency other than their functional currency. Due to the significance of these balances, the revaluation of intercompany loans can have a material impact on other income (expense) income,, net. We expect these impacts may be volatile in the
future, although our largest intercompany loans do not have a U.S. dollar cash impact for the consolidated group because they are either 1) U.S. dollar loans or 2) we elect to hedge certain non-U.S. dollar loans with cross-currency swaps.swaps and forward contracts. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets denominated in currencies other than the functional currencies at the balance sheet dates to compute the impact these changes would have had on our income before taxes in the near term. The balances are inclusive of the notional value of any cross-currency swaps designated as cash flow hedges. A hypothetical decrease in exchange rates of 10% against the functional currency of our subsidiaries would have resulted in an increasea change of $9.5$0.9 millionand $35.5$9.5 million, on our income (loss) before income taxes for the years ended three months ended September 30, 20202021 and 2019,2020, respectively.
Item 4.9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020.2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020,2021, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20202021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information required by this item is incorporated by reference to the information set forth in Item 1 of Part I, “Financial Statements - Note 12 — Commitments and Contingencies,” in the accompanying notes to the consolidated financial statements included in this Report.
Item 1A. Risk Factors
We are updatingThere have been no material changes with respect to the COVID-19-related risk factorfactors we disclosed in our Form 10-K for the fiscal year ended June 30, 2020 as follows:
The COVID-19 pandemic has had a major adverse impact on our operations, financial results, customers, markets, and employees, and these impacts could continue.
The COVID-19 pandemic has negatively impacted our business in a number of material ways, including, but not limited to, the following:
•material declines in demand for our products and services, leading to major adverse effects on our revenue, earnings, cash flows, and other financial results
•disruptions in our operations, including at times many of our employees being subject to shelter-in-place orders and other safety measures restricting them from leaving their homes
•large investments of time and resources as our management team focuses on mitigating the effects of the pandemic on our business operations while protecting the health of our employees
We cannot predict how the COVID-19 pandemic will develop, how long it and its impacts on economic activity and our business, operations, and markets will continue, or whether the pandemic will lead to a prolonged economic downturn. Although the pandemic may continue to materially adversely impact our operations, financial results, customers, markets, and employees, the extent of the impacts will depend on future developments that are highly uncertain and impossible to predict.
Depending on the duration and development of the pandemic, including additional "waves" of increased infection rates and new or reinstated government restrictions, we could see additional impacts in the future. For example, in reaction to the surge in online ordering, our primary delivery provider in North America, UPS, has implemented new surcharges and provided shipping thresholds that may not be sufficient to handle our potential volume during our peak holiday shopping season. As a result of greater competition for shipping capacity, we may not be able to mitigate these surcharges and reduced thresholds by engaging additional shipping partners. Constraints on our shipping capacity and higher shipping costs may result in higher expenses, delayed shipments, lost sales, and damage to our reputation and brands that may have a material adverse effect on our business and results of operations.
Although we have amended our senior secured credit facility to suspend our financial maintenance covenants for a period of time, if the adverse effects of the COVID-19 pandemic on our financial results continue, we could have difficulty complying with our credit facility covenants once they are reinstated, which could have a number of negative effects on our business and operations, ranging from limitations on our ability to borrow under the facility to causing us to default under our indebtedness.
2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 25, 2019, we announced that our Board had authorized us to repurchase up to 5,500,000 of our issued and outstanding ordinary shares on the open market (including block trades), through privately negotiated transactions, or in one or more self-tender offers. This repurchase program expires on May 22, 2021, and we may suspend or discontinue our share repurchases at any time.
On April 28, 2020, we entered into an amendment to our senior secured credit agreement, which suspended our financial maintenance covenants in addition to prohibiting us from repurchasing shares during the suspension period. Refer to Note 8 for additional information. We did not purchase any of our ordinary shares during the three months ended September 30, 2020.
Item 6. Exhibits and Financial Statement Schedules
| | | | | | | | |
Exhibit No. | | Description |
| | Amendment to Agreement Limiting PSU Awards dated September 28, 2020 between Cimpress plc and Robert Keane is incorporated by reference to our Current Report on Form 8-K filed with the SEC on September 30, 2020 |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13a-14(a)/15d-14(a), by Chief Executive Officer |
| | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13a-14(a)/15d-14(a), by Chief Financial Officer |
| | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer |
101 | | The following materials from this QuarterlyAnnual Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Statements of Shareholder's Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
October 29, 202028, 2021 Cimpress plc
| | | | | | | | |
| By: | /s/ Sean E. Quinn |
| | Sean E. Quinn |
| | Chief Financial Officer (Principal Financial and Accounting Officer) |
.