Cimpress Fiscal Year Q1 Financials Show Revenue Decline, Solid Cash Flow
Cimpress, the Dutch parent company of Waltham, Massachusetts-based distributor Vistaprint (PPAI 565755) and San Diego, California-based distributor National Pen Co. LLC (PPAI 107176), has released financial results for its fiscal 2019 first quarter, ending September 30, reporting that its revenue growth for the quarter was down five percent due to currency changes and the net result of acquisitions and divestitures.
“In the first quarter of fiscal year 2019, we delivered disappointing revenue growth, solid cash flows and good progress on our operational initiatives relative to our own expectations,” says Robert Keane, Cimpress’ founder and CEO. “As our public documents and investor events make clear, we focus on the long term and we do not believe that one quarter's financial results – whether good or bad – make or break a great company. In the past quarter we advanced as planned on many important technology, product, customer service and cost-reduction initiatives, and we executed the largest acquisition in our company's history. Those things being said, our first quarter revenue performance was nonetheless disappointing, with growth lower than what we should have achieved given the investments we have been making and the size of our market opportunity.”
The company reports that in the quarter it delivered growth below expectations for its largest reporting segments, Vistaprint and Upload and Print, and only just above the bottom of the range for National Pen. Keane says, “Via initiatives underway across Cimpress, we are working to resolve the underlying issues and to deliver the revenue growth expectations previously outlined in [his annual letter to investors, sent August 1].”
Consolidated revenue at the company grew five percent year-over-year, and organic constant-currency revenue grew eight percent, compared to 27 percent and 12 percent, respectively, in the quarter. Operating income and adjusted net operating profit both decreased year-over-year, which was the net result of negative and positive factors including the accelerated expense timing of $14 million in National Pen due to the adoption of a new accounting standard. Operating income was additionally impacted by the non-recurrence of a one-time gain of $47.5 million related to the divestiture of the Albumprinter business in the year-ago period. Positive factors for both measures included year-over-year growth in gross profit, net restructuring savings, currency benefits and efficiency in operating expenses.
Vistaprint reported revenue of $337 million and growth of six percent in first quarter, compared to revenue of $319 million and growth of 11 percent one year earlier. Drivers of the slower constant-currency growth included a decline in new customer bookings due in part to marketing experimentation, increasing mobile traffic that negatively impacts conversion rates, the effects from the expanded roll out of a major technology change, and lower growth rates for some newer products as the company works to optimize their profitability. Despite weaker revenue growth, profits in first quarter increased by $16.4 million year-over-year, and the profit margin was up 440 basis points due to approximately $8 million, year-over-year, in operating expense savings from a November 2017 restructuring initiative; progress in improving the gross margin of products that have been recently introduced; and slightly favorable currency movements.
For National Pen, revenue grew across channels and geographies in the quarter due to efforts to improve marketing performance and increase marketing and prospecting investment. Profits declined year-over-year by $19.2 million during the first quarter, driven primarily by an accounting change which caused the company to recognize $14 million of advertising expense in the current period that it would have recognized in later periods under the previous accounting standard. Additionally, there was a substantial increase in advertising expense due to changes in both the volume of customer acquisition marketing, as well as typical year-over-year fluctuations in the timing of mail campaigns that drove higher spend in the current period compared to the year-ago period.