Cimpress plc

Welcome to SEMPRE's Third Quarter Fiscal Year 2024 Earnings Call. I will introduce Meredith Burns, Vice President of Investor Relations and Sustainability. Thank you, Amber, and thank you, everyone, for joining us. With us today on the call are Robert Keene, Founder, Chairman, and Chief Executive Officer, and Sean Quinn, EVP and Chief Financial Officer. We appreciate the time that you've dedicated to understand our results, commentary, and outlook. This live Q&A session will last about 45 minutes and will answer both pre-submitted and live questions. You can submit questions live via the questions and answers box at the bottom left of the screen. Before we start, I'll note that in this session we will make statements about the future. Our actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and the documents we published yesterday on our website. We also have published non-GAAP reconciliations for our financial results and outlook on our IR website, along with historical financial results. We invite you to read them. And now I'll turn things over to Sean.

Great. Thanks a lot, Meredith. And thanks to everyone who's joined us today or on a recording. Before we take any questions that you have, I'm just going to highlight a few key points from our earnings document that we published yesterday. Sympress delivered strong results in the third quarter. Consolidated revenue grew 5% on a reported basis and 4% on an organic constant currency basis. The timing of the Easter holiday, which was at the end of Q3 this year versus Q4 last year, had about $6 million of impact or 80 basis points of negative impact on consolidated organic revenue growth for the quarter. So the underlying consolidated revenue growth trends were consistent with what we've seen year to date. Adjusted EBITDA grew $25 million year-over-year in Q3 to $94 million, and our adjusted EBITDA margins were up nearly 300 basis points to just over 12% this year, driven by continued gross margin expansion but also operating expense efficiency. From a segment perspective, we saw an improved trend for our upload and print businesses and also for National Pen, both despite a tough Q3 comp for those businesses And growth in all other businesses remain flat where there are puts and takes beneath the surface consistent with the last few quarters. We had a pre-submitted question on that, so we'll get into a little bit of detail there. In Vista, if you take the Easter timing out of the mix, revenue growth was a continuation of the trends in the first half of the year, so very strong. Vista continues to grow the value of its customer cohorts through growth in both customer count but also per customer value. we've also had year-over-year growth in the value of the new customer acquisition cohort again this quarter which is a pattern that's been in place for six quarters now adjusted free cash flow was an outflow of 16.6 million dollars this quarter we do typically have an outflow in q3 just due to our seasonal working capital patterns there was a 3.8 million year-over-year increase in that outflow versus last year despite the improved adjusted ebitda And that was a function of the quarterly variability of working capital versus last year. Q2 was very favorable this year, if you recall. And importantly, our year-to-date adjusted free cash flow is up over $155 million versus last year. During the third quarter and also in April, together we repurchased a total of 1.3 million shares for $120 million at an average price of $93 per share. That's a reduction of about 5% of our shares outstanding. These repurchases were done within the limitation that we disclosed last quarter that we would still exit FY24 with net leverage at or below approximately 3.0 times trailing 12-month EBITDA, and that still remains our expectation. Our liquidity position remains strong. We ended the quarter with cash and marketable securities of $160.8 million, full access to our $250 million revolving credit facility. And during the month of April, we also received net proceeds of $16.8 million for the sale of our building in Jamaica that had previously been classified as health for sale. Our net leverage at the end of Q3 was 3.0 times trailing 12 month EBITDA as defined by our credit agreement. And that compares to net leverage of 4.8 times one year ago. With these continued strong results and just one quarter left in the fiscal year, we're confident in our ability to meet or exceed our prior guidance that we shared in last quarter's earnings document. As we also discussed in the earnings document that we published last night, we provided detailed near-term guidance over the past five quarters because we had plans to dramatically improve our profitability and our cash flow, and we felt that it was appropriate or it was also necessary for us to be more specific about those expectations that we had. With these improvements now reflected in our actual results going forward, we will replace the near-term guidance with multi-year guidance commentary. So let me just walk through that commentary that we provided for FY25 and beyond in last night's release. First, we expect to grow organic constant currency revenue at mid-single digit rates, possibly a little higher. We expect to grow adjusted EBITDA slightly faster than revenue. And we expect the annual conversion rate of adjusted EBITDA to adjusted pre-cash flow to be in the range of 45% to 50% with fluctuations from one year to the next. Finally, we disclosed a new leverage policy in our earnings document yesterday evening. We think it's really important to have this information for investors. It's so important for our capital allocation philosophy and decisions and what you can all expect in the coming years. And so we think it's a really useful piece of information, but also a useful input for modeling along with the multi-year outlook commentary that we shared last night and I just went through. So that new leverage policy is to target net leverage at approximately 2.5 times or below with the possibility to take net leverage up to as high as approximately 3.0 times from time to time for investments that we think have good returns, but also with a clear path to deliver to the target of approximately 2.5 times or below. We believe we could reach this 2.5 times net leverage target in FY25. However, if we continue to have attractive opportunities for share repurchases next fiscal year, as we have recently, we expect to exit FY25 with net leverage at or below approximately 2.75 We're still in the process of finalizing our plans for next year, but just to set expectations as we look to next year and subject to all the commentary that's already been provided, we do expect our OpEx investments to continue at roughly the current rate. We expect higher CapEx in FY25 just based on opportunities that we see for both new product introduction but also efficiency improvements. We continue to not expect material M&A, and we'll consider share and debt repurchases depending on price. and subject to the specific net leverage constraint that I outlined. So, with that, Meredith, let's open it up for questions.

You bet. Thanks, Sean. As a reminder, you can submit questions during this webcast via the questions and the answers box at the bottom left of the screen. We received a number of pre-submitted questions, and so I will ask those questions now, and we'll pepper the live questions in as they start to come in. So, we're going to kick off with a question on the quarter. So, Sean, EBITDA was up $25 million year-over-year. You grew revenue in gross margins, and you had expected Q3 to benefit from about $25 million of year-over-year cost savings. How come EBITDA didn't grow more than $25 million?