Cimpress plc

Welcome to the SimPress Q1 FY27 earnings call. I'm Meredith Burns, Vice President of Investor Relations and Sustainability. Thank you everyone for joining us. With us today are Robert Keane, 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 or so, and we'll 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 earnings document we published yesterday on our IR website. We've also published non-GAAP reconciliations for our financial results on our IR website. We invite you to read them. And now I will turn things over to Robert.

Thanks Meredith and thank you all for joining us today. As I noted in my letter to last night's earnings release, first quarter fiscal 27 financial results were below our expectations. That being said, we remain confident in the financial results we'll deliver for the full fiscal year because as we mentioned at the start of the fiscal year and as we reiterated at our investor day, we set our fiscal 27 public guidance below the plan we're working towards The first quarter has not changed our view that we will deliver that significant profit and cash flow growth in fiscal 27 and that the expansion will continue in fiscal 28 and beyond. That said, the world is uncertain and we are able to achieve deeper cost reductions because of the strong progress on the efficiency foundations which we have been working on for the past year. So we're accelerating cost reduction measures as an insurance plan for meeting our financial goals. Put simply, we remain confident in our fiscal 27 guidance and our board, our executives, and the leaders of our businesses and central teams are all aligned on that. And we all take seriously the guidance commitments we've made to our shareholders and debt holders. Now, let me spend some time on examples of the many areas of progress We're making and are excited about consistent with the themes we laid out in our September 30th investor day. This all gives us further confidence that we are doing the right thing to deliver amazing customer value while also driving to our financial targets. First, we are growing high value customer wallet share through elevated products. In Vistaprint in Q1, we grew variable gross profit per customer 7% year over year. and the variable gross profit from customers who generate more than $650 in annual VGP grew by 15%. Also in Q1 versus the same quarter last year, our packaging business BoxUp grew its revenues with external customers by 16% while also more than doubling its cross-Sympress fulfillment revenue to Vistaprint. Vistaprint in turn is using the BoxUp product range to grow its own high value packaging customers. These examples illustrate a fundamental transition of SimPress's per customer lifetime value which we've been speaking about for the past several years. We are successfully building on our foundational capabilities that traditionally addressed only a relatively small portion of our total addressable market. We are becoming a branding partner to our customers thanks to our expanded product range, improved site merchandising, and service tailored to high value customer needs. We are earning customer trust for a much larger portion of the small business marketing wallet, which means they become much higher lifetime value customers for SimPress. That is an important tailwind for our future of healthy growth. Although the headwinds from our legacy products and our traditional base of small low LTV customers are currently offsetting tailwinds from high value customers, the mix of our gross profit is shifting steadily towards high LTV customers. A second theme from our investor day was that our investments are widening our manufacturing and supply chain advantage. For example, in Vistaprint and the European operations, we went live with a new production line that has slashed the cost of producing beautiful full color corrugated boxes. In the US, Pixar Printing has launched and is growing fast with booklets, catalogs, magazines, and roll labels produced in its new Pennsylvania facility. And we are rapidly increasing the output of two new production facilities in Mexico that combine highly productive state-of-the-art capital equipment with low-cost operations. Third, we are developing new channels to reach customers. A great example of our new channel development is our strategic partnership with Canva, which we continue to nourish by launching in new geographic markets and especially by growing the product footprint and through our work to create a deep technology integration for the benefit of Canva customers and our production volumes. Fourth, we are gaining confidence in the benefits we are and will drive from the closer collaboration between Vistaprint, National Pen, and BuildAside. This collaboration includes anticipated OPEX savings from moving to a shared technology platform, the acceleration of our momentum in promotional products, apparel and signage, and optimization of advertising spend across the brands of these three businesses. We expect to see additional and significant financial benefits of this tighter collaboration in the coming quarters. Fifth, we are applying AI to drive growth and efficiency. We see AI becoming a significant tailwind for Sempress. By democratizing design, it is expanding the online opportunity for customized physical marketing products. We are making focused investments in LLM discoverability and agentic commerce efforts to make us faster and lower cost while expanding the top of our funnel. And AI is helping us become more efficient in all of our operations, which is enabling us to achieve and accelerate our planned cost reductions. Six, our tuck-in acquisitions are on track to deliver the value that we discussed at our investor day. Region acquisitions in our upload and print segments performed in line with our expectations and positively contributed to our reported growth rate. Print Brothers grew revenues by 28% on a reported basis, while the print group grew 13%. To close, the Q1 headline numbers reflected specific headwinds, but do not change our conviction for the fiscal year or for our long-term trajectory, which is firmly on track. We have clear plans across our teams to achieve fiscal 27 and fiscal 28 strategic and financial goals and we remain positive on our prospects for growing per share cash flows anchored by a durable scale-based and innovation forward competitive advantage in the mass customization of print. With that I'll hand it over to Sean to walk through the financial results and outlook.

Thanks Robert and thanks everyone for joining us for the call today. I'll start off with a quarter. It was a quarter that we did not meet expectations as Robert alluded to. Revenue was $934 million, up 8% on a reported basis with organic constant currency growth of 2%. That 2% was below our expectations. The difference between our reported growth and organic constant currency growth comes from the token acquisitions that we've done recently. Vistaprint's organic constant currency growth was 2% with strength in promotional products, apparel, marketing materials, and packaging. And just to note, the backlog in Vistaprint was elevated at the end of the quarter, which we do expect to help revenue in Q2. Uploaded print grew reported revenue 23% combined with organic growth of 4% combined. And our all other businesses segment grew 17% led by Build-A-Sign and the Canva Partnership, which is growing quickly but not material yet to our consolidated results. Adjusted EBITDA was $89.8 million, down 9% from a year ago. Most of that decline came from the cost of continuing to build out our North American manufacturing network, where startup costs were $5.9 million higher year over year. In addition, we absorbed $4.2 million of duties and tariffs on certain goods sold to the U.S. customers, and we had $1.8 million of higher energy-related input costs net of pricing. We also had $1.4 million of impact from the non-recurrence of a compensation benefit in the year-ago period, and then those headwinds there from a cost perspective were partly offset by seven and a half million dollars of IEPA tariff refunds that were related to prior periods. As we noted in last night's release, we expect the year over year impact of both manufacturing startup costs, but also the new Canadian tariffs to reduce in the second half of this year. And then from a segment perspective, I just wanted to point out that the new duties and tariffs, the cost there weighed primarily on Vistaprint, but the refund benefits were almost exclusively in National PIN. On cash, operating cash flow improved $3.9 million to $28.9 million for the quarter, driven by $10 million of lower network and capital outflows and also lower cash interest. And adjusted free cash flow was an outflow of $9.3 million. That was an improvement of $8.5 million versus last year, reflecting the operating cash flow improvement, but also lower capital expenditures and capitalized software. Turning to the balance sheet, net leverage at the end of the quarter was 3.2 times trailing 12 months EBITDA as calculated under our credit agreement. That's up slightly from the 2.9 times at the end of fiscal 26, and the primary reason for that increase is the SAXA print acquisition that closed the beginning of July. And I should note that that leverage calculation does not reflect the expected proceeds from the sale-leaseback of the acquired facility as part of that acquisition. we ended the quarter with 120 million dollars of cash and 35 million dollars drawn on our 250 million dollar revolver which we used to partially fund the acquisition so liquidity remains strong and as a reminder we have no material debt maturities until fiscal 2033. let me turn to the outlook now we're maintaining our fiscal 27 guidance which is reported revenue growth of at least seven percent organic constant currency growth of at least three percent adjusted EBITDA of at least $520 million and adjusted free cash flow of approximately $200 million. For fiscal 28, we continue to target 4% to 6% organic constant currency growth, at least $615 million of adjusted EBITDA and approximately 45% conversion of that EBITDA to adjusted free cash flow. In September, when we had our investor day, I had walked through a bridge. That bridge, starting with our fiscal 26 adjusted EBITDA of $459 million and walking across to the at least $520 million for fiscal 27 guidance. And that included tuck-in M&A, which is contributing $18 to $21 million. It included currency contribution of $5 to $10 million. and about $25 million of in-year cost savings. Startup costs, which as we noted, weighed on the Q1 results are a larger year over year headwind in Q1 and also in Q2. And then that will start to reduce in the second half of the year. And also at the same time, our cost savings and the benefit from recent acquisitions will be building through the remainder of the year. The organic growth piece of that bridge which was the minimum that we need to achieve our guidance is the part that we need to see improve and we're hard at work to do that which brings me to cost actions and given the first quarter results we're behind our plans and it is a dynamic operating environment we're accelerating our cost reduction plan and these actions in our in our view are an insurance policy against the risk of organic growth lagging The reason we're able to do that and go deeper there is because of the efficiency foundations that have been put in place over the last year. From a revenue growth perspective, it's important to note that in the quarterly phasing for this year, which is not part of our guidance, we didn't give quarterly revenue growth. But just in that quarterly phasing, we did plan for lower growth in our second quarter, the quarter that we're now in, the December quarter. and there are two reasons for that the first is an expected year-over-year decline in the consumer category for Vistaprint and the second one is that we've been reducing advertising spend at national pen particularly in direct mail which is the right trade-off and we continue to to see that but seasonally that has the most year-over-year impact on revenue for national pen in q2 on the balance sheet our path to delivering has not changed we continue to expect net leverage to be approximately two and a half times as we finish this year and meaningfully below 2.0 times at the end of fiscal 28 subject to capital allocation choices that we may make. And as we reach those lower leverage levels, we expect to have more flexibility in how we allocate capital, including share repurchases. The initiatives that drive that fiscal 27 and fiscal 28 profit growth, they're in motion. We expect that growth to build from Q2 through the rest of fiscal 27 and into fiscal 28. and the management team and our board are very focused on these targets. We're confident in our ability to deliver them. And so with that, let's turn to your questions. Meredith.