Cimpress Plc Q1 FY2025 earnings call

• Continually improving customer experience, e.g., improvements in file revision, design creation, and file upload processes. - Driving efficiency, quality, and delivery speed across the value chain, with team members showing continuous improvement and capital investment in production facilities. - Growing lifetime customer value through more complex products and customer experience improvements, with packaging categories like flexible packaging and corrugated packaging growing over 25% annually. - Vista continuing to build momentum with modern technology, product development, and repositioning away from discount-driven image. - Shared strategic capabilities deeply integrated into operations, helping drive customer value and competitive advantage.

Consolidated revenue grew 6% on reported and organic constant-currency basis. Segment-wise, Upload & Print, National Pen, and all other businesses saw increased segment EBITDA with higher gross margins and lower advertising as a percentage of revenue in some cases. Vista had organic constant-currency revenue growth of 8%. For example, in Vista, organic constant-currency revenue growth of 8% translated to 6% gross profit growth, but advertising spend grew about 12% year-over-year.

• Consolidated revenue grew 6% on reported and organic constant-currency basis. Adjusted EBITDA declined slightly in Q1 due to operating expenses increasing, but no change to multiyear guidance. - Confident in delivering growth in revenue, adjusted EBITDA, and free cash flow. - Balance sheet improvements made, including successful high yield notes offering and extending revolving credit facility maturity. - Allocated $168 million to share repurchases in trailing 12 months through September and plan to continue if prices remain attractive, aiming for net leverage at or below ~2.75 times trailing 12-month EBITDA by end of fiscal '25 if repurchasing shares. - Confident in preparations for holiday peak season in Q2.

• Actual results may differ materially from future statements due to risk factors outlined in SEC filings. - Currency volatility impacts on other income/expense, with realized and unrealized currency gains/losses affecting financials. - Working capital can fluctuate quarter-to-quarter due to timing differences and discrete items. - Leverage constraints and potential trade-offs in capital allocation.

Q: What makes you confident enough to make such high levels of growth investments and share repurchases?

A: Robert Keane said growth investments are confident due to strong performance in customer value, competitive advantage, and financial results. Cash flow per share after growth investments is robust relative to share price. Share repurchases make sense when share price is attractive relative to free cash flow per share after growth investments, and they're deployed within a clear leverage policy.

Q: We suspect that you agree that the returns associated with repurchasing our shares today are materially more attractive than they were a few weeks ago. Will this impact what sorts of investment activities we prioritize given the 2.75 times leverage constraint that's been communicated?

A: Robert Keane said yes, and if share price stays attractive, they plan to invest north of $100 million in share repurchases this fiscal year while aiming for ~2.75 times leverage or below. There are trade-offs to consider, but high conviction in planned CapEx, software development, talent, recruitment, and advertising projects, and consistency in operational execution is important.

Q: What makes you confident enough to make such high levels of growth investments and share repurchases?

A: Robert Keane explained about growth investments being based on strong financial results and cash flow per share, and share repurchases being attractive relative to share price and within leverage policy.

Q: Sean, please help me understand the $18 million quarter-over-quarter swing in other income/expense? What are the main components of that line, and how do they flow through to adjusted free cash flow?

A: Sean Quinn said the line is mostly driven by realized and unrealized currency gains and losses. Realized currency gains/losses from hedges are included in adjusted EBITDA and flow to cash flow. Unrealized gains/losses don't impact free cash flow in the quarter but will be realized over time. Overall, expected currency impact on adjusted EBITDA to be approximately neutral for full year '25.

Q: We were surprised at how much of a use of cash our payables consumed last quarter. What drove this large use of cash? Second question related to the above. We know that there has been some noise in our working capital over the past few years. Would you mind reminding us which quarters you expect receivables, inventory and payables will continue to be sources or wish quarters they will be used as cash, for example, inventory continuing to be a source in Q2, et cetera? And the last question, at Investor Day, you predicted working capital to be a source of cash for the full year, though less so than it was in FY '24. Have the Q1 results altered your view? And if yes, what has changed?

A: Sean Quinn said no structural changes in working capital. Q1 had inventory ramp up for holiday preparation and one-off payables impacts. Expect working capital inflows in Q2 and Q4, outflows in Q1 and Q3. Still expect working capital inflows for full year '25, less than FY '24, with timing differences and one-off items driving Q1's cash use.

Q: In Q4 FY '24, you said you planned to increase CapEx in 2025, but the cash outflow for PP&E was lower this quarter. Have your plans changed, or will those investments still happen just later in the year?

A: Robert Keane said plans are still to have those investments, with quarter-to-quarter fluctuations common, and testing of capital equipment can delay cash out.

Q: We would have assumed that sales for BuildASign would have increased materially this quarter as a result of the election cycle. However, sales in North America for all other businesses, which we perhaps incorrectly assume our BuildASign, increased only marginally relative to last year, are election cycle is not that big of a sales driver for this business? And, out of curiosity, why was there a spike in intersegment revenue for all other business segment in Q1 FY '25 relative to Q1 FY '24?

A: Robert Keane said election cycle had a positive impact on signage revenue for BuildASign but was a helpful increment, not major. Rapid growth in intersegment revenue comes from collaboration for cross end press fulfillment between Vista and BuildASign, shifting production volume for certain categories to drive cost savings and free up production space.

Q: At the Investor Day, you discussed a modest multi-year revenue decline in the combined business cards and consumer products categories. You mentioned consumer products growing for the last five quarters and have previously discussed business cards growing at low single-digits rate due to customers finding different use cases for business cards. Do you think the modest decline in these combined product categories can be reversed, or should we think of this as a modest ongoing revenue headwind?

A: Robert Keane said they think they can stop the modest decline and plan for roughly flat revenues in these categories. Vista is protecting profitability through improved customer experiences, product ranges, etc. Sean Quinn added about noise in historical comparisons and focus on high-growth complex products.