Financial information provided by Financial Modeling Prep. Options data provided by Unusual Whales. Live transcripts provided by Quartr. Reported revenue and EPS data from Earnings powered by FinChat.io. All data is provided for informational purposes only, and is not intended for trading purposes or financial, investment, tax, legal, accounting or other advice.
With us today are Robert Keane, our Founder, Chairman and Chief Executive Officer and Sean Quinn, our EVP and Chief Financial Officer. We appreciate the time that you've dedicated to understanding our results, our commentary, and our outlook. This live Q and A session will last about forty five minutes or so and will answer both pre submitted and live questions. You can submit questions 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 yesterday on our website. We also have published non GAAP reconciliations for our financial results on our IR website. We invite you to read them. Now I will turn things over to Robert. Thanks, Meredith. And thank you to our investors for joining us today. I'm gonna start with some overall mark remarks then I'll pass it to Sean to cover our Q3 results and the tariff topic. Then we'll go to your questions As I noted in the earnings document, in the letter that was attached to that, which we published yesterday, In the third quarter, we remained focused on the exact same things we've been talking about through this year, That consistent focus and the operational progress which we've made gives me and gives us confidence that we can deliver attractive growth in per share cash flow over the coming years despite what is a pretty noisy backdrop right now.
11m 12s
At the highest level, there were a few themes to the quarter First, we continue to see strong growth in what we now refer to as elevated products. Examples of these are promotional products, apparel, signage, packaging and labels, Expanding into elevated products helps us serve customers with a higher lifetime value, because it both increases our share of wallet with existing customers, and helps us acquire new customers directly into these categories. For example, at Vista, the number of new customers acquired via signage, packaging, and labels in Q3, grew more than 10% over the prior year. And we think these markets have a lot of opportunity ahead of them. Another bright spot is [indiscernible] Cimpress fulfillment, which continues to grow quickly. This is when one business unit in Cimpress produces for another, and Cimpress fulfillment is both accelerating our rate of new product introductions and lowering our cost of goods. Likewise, at Pixar, Printings, we have their new production facility live in The US, on schedule. That facility is already fulfilling for Vista That's allowing for new product introductions, and access to lower cost production much of it which was outsourced in The US market And it's things we've honed in Europe and our upload and print businesses for quite some time.
12m 48s
Likewise, PixArt printing will soon be launching its US website at pixarprinting.com, over the coming month or two, that's gonna mark our entry into The US upload and print market. So we have a lot of strong progress throughout the company, On the other hand, as we've discussed over recent quarters, we do face headwinds in some of our legacy products and legacy channels that are reducing our consolidated growth rate. Of course, a lot of our time this past quarter was spent dealing with tariffs and the threat of future tariffs, the uncertainty of what that market that those tariffs are going to be. Teams across have responded with impressive velocity and are focusing on how to assess an ever changing situation to develop action plans action scenarios depending on what happens, and to reduce our impact on our customers and our shareholders. Based on what we know today, we have a good handle on that impact for tariffs. Have a relatively strong position and we're confident in our plans. To help you understand where we stand as of now, in an eight ks filing in early March, we provided a framework for how tariffs impact our business, and we have updated that information in last night's earnings document.
14m 16s
We certainly do not enjoy the volatility that tariffs are imposing on us or on our market That being said, it's often in times of volatility that we've shown that our competitive advantages can become even clearer. And we've always strived to build a transformational enduring business We value customer focus, innovation, learning from mistakes, data driven decision making, attracting and retaining great talent, driving for greater scale, [indiscernible] all of that is in service of disrupting a market so that we can profitably serve the world's small medium businesses which power so much of the economy. Now those traits which we've pursued for decades have served us well over our history including in multiple periods of adversity, That could be startup challenges long ago. It could be the global financial crisis. It could be the challenges of staying nimble as we get big, COVID pandemic, the post COVID supply chain challenges, through all of that, we've not only navigated those periods, of adversity, but we've extended our industry leadership we've leveraged our scale based advantages, and we've taken market share. So we're focused on doing the same thing here. And we look forward to the longer term because of that.
15m 46s
Response able to bring to this period of challenge and adversity from tariffs. Me now turn things over to Sean to go through our financial results and our tariff response as well as some outlook commentary.
16m 2s
Great. Thanks a lot, Robert, for that overview, and thanks, everyone, for joining us today. I'll just start with a brief overview of our financial results First, on the revenue side, our consolidated revenue grew 1% on a reported basis. And 3% on an organic constant currency basis. In Vista, we had 3% organic constant currency growth. And there, as Robert alluded to, key growth categories of promotional products, signage, packaging and labels. Those all grew at double digit rates, which is a continuation of the strength that we've seen there for some time. Being able to serve higher value customers, We also returned to 5% growth in the consumer products category after a disappointing decline. In the holiday focused Q2. Vista's performance remained strong in Europe, despite some macro headwinds there, which is good to see, and that's been the consistent trend as well. In The US, this is revenue and profitability continue to be affected by the organic search algorithm changes that we discussed during Q2 earnings, And those changes have had a more significant impact on the business cards and stationary product category which in total, that category declined 3% year over year. A slight improvement from the 4% decline last quarter.
17m 18s
The work that we've been doing there to optimize organic search for those changes did start to show improvement. Particularly in March relative to the first two months of the quarter. And you could see that that was evident in the VISTA U. S. Results in the month of March. Turning to profitability, consolidated adjusted EBITDA declined by $3,500,000 year over year A few things to point out from a profitability perspective. Gross profit was impacted by a $2,600,000 impairment charge related to the planned sale of a National Penn facility, which is backed out of EBITDA but impacts gross profit. That plant sale has been in progress for some time. But we met the conditions from an accounting perspective. To write down the book value this quarter. We also had around $1,100,000 in pre production start up costs and our cost of goods sold related to our new Pixar printing facility. In The United States. Which began taking orders in March. And if you exclude those two items, gross profit would have increased modestly during the quarter. Ad spend was flat as a percentage of revenue year over year. And we do continue to expect ad spend to be lower year over year in Q4 Just as a reminder, that's due to the elevated mid and upper funnel spend that we had for Vista in Q4 of last year.
18m 33s
And then finally, operating expenses that impact adjusted EBITDA were up about $3,000,000 year over year. And we do expect to continue to drive efficiencies in OpEx. Over time. And we've constrained OpEx in the current environment over the last quarter or so as well. On the tariff front, in the earnings document, as Robert mentioned, we updated our overview of impact. On the call last quarter, there were a lot of questions on this topic. And most of those questions related to our production in Canada or Mexico and how that was going to be impacted We estimate that the USMCA and the informational products exclusions that we've outlined cover about 90% of the relevant costs for products that have a country of origin Canada and Mexico. We also still benefit from the de minimis exemption for individual orders below $800 for those two countries And that's applicable for much of the remaining 10%. And so the impact for Canada and Mexico at this time remains minimal. Our primary exposure, as we outlined in last night's document, relates to the increased tariffs on Chinese sourced raw materials, particularly in the PPAG category, And here we've been hard at work as well identifying alternative sourcing, and other mitigation actions And it will take a few months for that to be fully implemented, but through the supply chain that we plan to take, we do expect to substantially reduce our exposure to less than $20,000,000 annually for direct sourced PPG materials from China.
20m 6s
We do plan to increase prices as well to at least partially offset increased costs where that's applicable. And then we can adjust that approach quickly if things change. Given the uncertainty of the tariff and trade environment and how that may or may not continue to change, and also any impact on demand where price increases are implemented We have withdrawn, as you would have seen last night, our guidance for FY 2025. And beyond. Generally speaking, our fourth quarter that we're now in is seasonally a higher profit and a higher cash flow quarter. And so while we do expect some near term impact from tariffs, we do expect also to finish the year with increased liquidity from where we ended Q3. And that puts us in a position to be able to take advantage of opportunities as we approach our next fiscal year, fiscal twenty six. We'll continue to balance capital deployment between organic growth investments reducing leverage, and then also taking advantage of what we believe is today an exceptional opportunity to repurchase our shares at attractive prices I'm sure we'll talk about that some more in the questions. And so with that, Meredith, why don't we turn it over to the questions?
21m 14s
Great. Thank you, Sean. As a reminder, you can submit questions during this webcast via the Questions and Answers box at the bottom left of the screen. We did receive a number of pre submitted questions, some in overlap areas. And so we'll combine some of these to make sure that we're thoroughly addressing what's on people's minds. And we look forward to your live questions as well, which are coming in as I speak. So I'm going to start with the tariff topic. I think we should start there. So my first question I'm going to throw to Robert. Which customer verticals do you consider most exposed to tariff impacts in their businesses and what percentage of revenue do they each represent?
21m 54s
Okay, we serve millions tens of millions of customers across an extremely diverse range of industries. We have very little concentration by end customer vertical. If you take a broad grouping of customer vertical, something like health care or, that's not our biggest vertical, as an example, a broad vertical like that represents no more than 7% or 8% of our revenue, but even within that, there's many dozens of sub verticals And so we don't regularly track this on a consolidated level. I think what's more helpful is to think of it from a category perspective as we've outlined in the earnings document the largest exposure for tariffs right now is for promotional products, apparel and gifts, what we call PTAG, Just given traditionally some of the product substrates, that we have there have come from China. [indiscernible] has been one of our faster growing product categories globally in The US for some time. It's also a large category. It's over 20% of consolidated revenue. The US portion itself is about 11% of global revenues. Now remember the gross margin there is lower than overall, so it's less than that from a gross profit perspective. Within that, only a subset of that has sourcing from China Much of the products that are in apparel comes from Southeast Asia or Central And South America.
23m 31s
Again, countries, of course, could be seeing tariffs imposed on them as well. But China is only a subset of that, and China is where the biggest tariffs are as of now. As we mentioned in our earnings document, The US tariffs are affecting will affect the whole of the promotional products and apparel industries, not just Cimpress, That being said, many of these products are seen as important cost effective marketing mechanisms for companies of all different sizes, and the products that do see increases to prices due to tariffs, we do believe there's some substitution that could happen. So if someone wants to give a promotional product don't necessarily need to give As an example, drinkware with their logo on it, they can give a product that also has their logo on it to their customers And that substitution may help us move from the highest tariff countries places like China, to other areas. So that replacement of lower tariff country products replacing something with a higher tariff rates is something we also could be pretty purposeful about our customer experience and our merchandising experience. It's also possible that there might be some trade down and quantity side size, or your number of items ordered, for products that have significant price increases, But we have actually always been very focused on having minimum order quantities of one or very low quantities compared to the competition, we think we'll be very well positioned to serve those needs.
25m 21s
Great.
25m 21s
Thank you, Robert. Okay, a couple questions in similar areas, Sean. This is going to be for you. It's take me a bit to get through the questions, so stick with me, guys. The letter indicates that after supply change chain changes that will take several months, there will be $20,000,000 remaining in China COGS. Subject to tariffs. Is it reasonable to expect that based on a 145% tariff rate, the associated tariff expense on the remaining $20,000,000 will be about $30,000,000 How much of this China tariff expense was included in the disclosure in the March 8 that tariff impacts would be less than $10,000,000 In other words, how much is incremental relative to your expectations before the Liberation Day tariffs? What is the current annualized level of China COGS that is planned to be shifted to other countries, and what level of charges do you expect to incur in the interim? And in areas where you've already raised prices in response to tariffs, what has been the impact on order volumes? And we had a similar live question that covers most of those same topics, the one that gets added with the live question, does the $20,000,000 of exposure to China post mitigation efforts account for exposures from third party suppliers?
26m 44s
And if not, what is that total exposure to China, including third party suppliers?
26m 50s
Okay.
26m 53s
Yeah. Let me, do my best. Meredith, keep me honest if I haven't picked up on some part of that. So [indiscernible] China sourcing, the math that was in the question is is correct, broadly correct, but there was I need to give a few caveats. So with the $20,000,000 of COGS that's connected to our direct sourcing in China, after we, you know, make changes to our supply chain, that's the number that was referenced in the document last night, yeah, 29,000,000 would be the additional cost. That's just a 45% times times the 20. That's not necessarily the net impact on us, though. So we have to be careful about that. One, we expect to have pricing changes to at least partially offset the tariffs So that's one. Two, that could lead to lower volume on those particular products. But we also wouldn't accept losses on the sale of of of any of our any of our goods. So yeah, the net impact, would, you know, would not would not be the the $20,000,000. We also will have and I think Robert alluded to this, we'll have alternative products available. And so we believe that there's opportunity to reduce exposure either through being able to provide our customers with different products that solve that particular use case or continuing to evolve our supply chain.
28m 16s
And we think that $20,000,000 is not the end state. That is just where we can get to over the next month and then we can continue to optimize after that. But course, the environment will be changing. So things will just take a little bit more time. I think, you know, keep in mind that where we're where we are after our changes still sourcing product from China it's likely that competitors are for the same reason because of availability of those particular products or other reasons. But the this represents, like, a a really small portion of our products Our overall COGS for the last twelve months through March was about $1,700,000,000. And so, to put it in perspective, it's a very small portion of our product portfolio. In terms of trying to figure out how much of this incremental to what we outlined in the eight ks, In the eight k, we had talked about impact of $10,000,000 or less. And in that, there was a small amount of impact from the Chinese tariffs. The two things that have moved here to combine and drive a larger impact than that [indiscernible] one, of course, the tariff rate increase for China to 145%.
29m 31s
And then the second one is the elimination of the de minimis exemption for Chinese sourced goods And we're not in that yet. That's planned to take effect on May 2. Those aren't finished products that are imported from China. But the materials that we import for China where that's relevant are still impacted by the de minimis exemption because these particular products maintain their country of origin China designation even though they may be decorated in North America. And so that's why de minimis is still relevant for us on the China part of it.
30m 8s
We haven't disclosed the current amount of the annual cost in terms of our prior sourcing from China And the reason that we didn't do that is because we've already begun to take action So that number would no longer be relevant. But I think it's fair to say that that number would be would have been substantially higher than the 20,000,000 that we that we referenced. Finally, just for pricing actions, there was a question about what are we seeing in terms of impact on demand. We've so far only had to do this for a very limited set of products. As of today. And that's because the de minimis exemption the removal of the de minimis exemption for China has not happened yet and so we don't really have any data to share there in terms of what we're seeing on impact on demand from those price changes. On the live question, there was reference to a question on like fill rates and availability, and we're not seeing any impact there in terms of availability as yet. And so we don't expect material impact there from everything that we can see today. And then from a 3PREF perspective, it is correct that we will have, some exposure from 3PF as well that not part of the $20,000,000 number.
31m 30s
The reason that we didn't specifically quantify that is that's a bit tougher because we don't have full visibility to changes that our three PFs are making in their supply chain as well, which is a very active topic. And so it's impossible to fully quantify that, but there will be some impact there too. I would categorize that piece of it similarly in terms of [indiscernible] are impacted. We will also address any increases there with price to at least partially mitigate any impact And then we also there too will address with alternative sourcing, and those conversations are very much active today. And then the last thing I'd say is just the what we can see from for many of our three PS in that space generally there was a forward buying of inventory prior to tariffs going into a place. And so we're in a period where that inventory is still being run out. And generally there's been postponement of new buys. And so we're in a period now where that impact of any increased costs hasn't been felt yet. And it's probably unlikely until June in most cases that that would start. And then we'll go from there with all the other actions that we've outlined.
32m 55s
Thanks, Sean. Super helpful. I'm going to stick with you for this next question. Post liberation day, April 2, have you given any thought to offsetting tariff and demand related impacts by cutting costs? At what point would you do so? [indiscernible] as a general response, would say, yes. We, you know, we've given it thought we could and would reduce costs as needed And I mentioned in the earlier remarks today we have put some constraints in place But if we were not able to mitigate increased cost or we saw a drop in demand, then we would make adjustments. And I think I think that we've shown our ability to do that in the past. And so hopefully that that's been clear over the last many years. As we disclosed each quarter and the spreadsheet that we publish on our IR site, we do have a significant amount of cost that's either variable or semi variable in nature. And so we can flex that to the extent that we're seeing impact on demand for certain products and again we've done that in the past. As it relates to growth investments, and we've indicated this in the release as well, we are maintaining a high bar there, but we have not made any significant changes there.
34m 6s
We think it's important to to maintain consistency there where we have conviction And then, you know, given the fact that we're in the depths of our FY20 planning right now, just cost awareness is certainly an important topic that we're focused on.
34m 24s
Great.
34m 25s
Thanks Sean. One more for you here as we shift away from the tariff topic, at least for now. Can you please give an update on revenue growth in April? To the extent that you're seeing revenue softness thus far in the quarter? Is it limited to U. S. Based customers or not? And a related question, can you comment on each segment's revenue performance for the month of April versus last year and what trends have you noticed?
34m 50s
Yeah. We we, try to stay away from that generally, but I understand the importance of that question in the current environment. We certainly don't get into segment by segment. On an interim basis, but maybe it's just a few things that I can provide. We're not gonna provide a specific update on April, but the, I mean, I do actually just to start, there is it's it's a little complicated by the fact that there's been shift in timing of holidays, with the Easter holiday, relative to last year. And then, and that that that has an impact on on on bookings and how backlog moves and so on. By the way, I should mention that last year was a leap year, so there was you know, that was actually a negative in q three, which we didn't necessarily call out. But, you know, if you if you were to normalize for the holiday timing, I would describe April as stable to the trends that we were seeing in March. And I would say that, across regions. So I I think that would be the way I would characterize April.
35m 56s
Thank you, Sean. Okay, Robert, this next question is for you. This is the second quarter in a row where we have been surprised by the very low growth at National Penn. Beyond what you shared in the earnings release, about the reductions of mail order advertising, what else is driving the lackluster growth here?
36m 15s
There really is not much to add beyond what we published last night. Where the growth is happening is in the e commerce channel and in cross Cimpress fulfillment, especially I would say, fulfilling for both Vista and our upload and print business. Businesses. You can see in our disclosures that excluding [indiscernible] Europe is growing and it's North America where the headwinds and National Penn are leading to the low overall growth That is in the mail order channel, and we are just not seeing enough returns here to justify the past levels of direct mail advertising So we've reduced that and that has been a drag on revenues this year. Thanks, Robert.
37m 9s
I'm going to stick with you for the next couple of questions here. So historically, your business has held up well during economic downturns as people turn to side hustles, and in doing so, need the products that our businesses provide. Is there any reason to believe that this time it's different?
37m 28s
Well, specific circumstances of each downturn that we've seen over the past decades have been, of course, different from each other. But generally speaking, Cimpress has outperformed the overall market printing and similar products during those downturns. For the reasons you bring up, the rise of self employment, that comes out of necessity as well as larger companies moving to lower quantities than they had [indiscernible] and print mass customization players like us are very well suited to address that shift. As we enter down or as if we enter a down here, we would expect to see some of this play out again. That doesn't mean that we're immune to some economic slowdown or muted profitability. But as a company with global operations, with scale advantages, a diverse product and customer set, as well as a strong balance sheet and liquidity we are able to navigate that quite well. And then there are some, as Sean alluded to, and one of the private prior questions, cost levers which we could pull and we've done that in the past when needed.
38m 50s
Thanks, Robert. Could you please provide any noteworthy observations on demand trends for our largest submarkets, namely small format, signage, promotional products and apparel, packaging and labels.
39m 6s
Well, as I mentioned in my prepared remarks, the overall observation is that these products, which we now call elevated products, are products that customers typically consider to be more sophisticated, they're newer to the mass customization paradigm, which we master so well. They typically have more complex production operations and more complex design processes, and they are all growing rapidly across Cimpress' different businesses. These are products that often have higher order values, They have very often replenishment needs that are higher than average They include products that our customers see as part of simply delivering their own products to our customers' customers, as opposed to being a discretionary expense For example, once we become part of a customer's packaging, that requires ongoing purchases for the customer to ship their product. And customers of these elevated products typically have higher lifetime value than Cimpress' average. And higher retention rates. So they're desirable for us to continue to crack the code on building, both supply chain manufacturing capabilities that are competitive, [indiscernible] our customers want. That ranges from very small quantities to pretty large quantities. And importantly, for us to help our customers with the more complicated graphic design needs which we refer to as design enablement.
40m 52s
And there's a clear need for these products, and offering them alongside our more legacy products helps us capture more wallet share of the highest value customers and does help us drive leverage of our advertising and our operating expense. Now, the products we're talking about fall into the categories you just mentioned, signage, promotional products, apparel, packaging, labels, And even within some of the small format marketing materials, there are pockets of fast growing products for us like books, catalogs, and magazines. That are elevated compared to simple rectangles on paper, like a flyer or a holiday card or a business card. And then there are some parts of these categories that are growing slower decline and we consider those largely to be legacy products like business cards, of course, but holiday cards, and the mail order channel at National Pen for writing instruments.
41m 58s
Thank you, Robert. Next question. Can you please describe the competitive landscape in the complex products, which as we're talking about on this call, the elevated products [indiscernible] Versus the legacy products, for example, business card segments. What is the specific gross margin differential between the two broader product lines? And why can't Cimpress price the complex products higher to get higher margins?
42m 25s
Okay, there's a lot of similarity in what I'll say here with the last question, but yes, there's often a gross margin difference on the various product categories, but it's not always. For example, signage, packaging, labels, depending on the type of subcategory, are often having gross margins that can be similar to some of our legacy materials. Promotional products and apparel do tend to have a lower gross margin, but they also rank among some of our most valuable product categories in terms of how much absolute gross profit we generate per customer, which is very distinct from the percentage gross margin. So when you think about gross margin, which you can think of describing a percentage, but not absolute monetary value, I would give you a very simple example. If we make 40% a relatively low gross margin for us, on a $200 promotional product order. We earn $80 in gross profit. If we make 70% gross margin on a $50 business card order, We earn $35 in gross profit. They have different gross margin rates, but the cash flow from the PPAG products are actually quite attractive. So we're not solving for our gross margin percentage, we're solving to improve first and foremost, the value we deliver to customers, which then translates to the gross profit per customer, And, of course, a high percentage gross margin improves our gross profit, but if volume drops because of high pricing, and that does not necessarily help.
44m 20s
So it's the total revenue times the gross margin that matters, And growing gross profit dollars in a way that delights customers and strengthens their loyalty increases their lifetime value, can be great at driving leverage elsewhere in the P and L. For example, in advertising costs, we have higher value across our customers or in technology costs and other areas. So our businesses look at pricing. There's a question you had about why not price higher based on what competitors are pricing. And we test around the elasticity of demand to figure out where to price a product. At any given quantity. So there's been no recent changes of any significance in the competitive landscape to either traditional local printers who still serve the majority of this market or with online players, but it is a competitive space and we certainly want to ensure we've never become complacent Just because we're the largest online mass customer day customization player in print. And the only one with international operations like we have doesn't mean that we are in any way taking this for granted. So we constantly look at pricing and the overall value proposition. That's why you will hear us talking about strengthening our scale advantages, why we're excited about the years of investment we've made in the replatforming investments we're making as an example right now bring our upload and print production capabilities into the North American market.
46m 6s
And all of that should help make it easier to further grow our scale advantages and deliver ever better customer value. Going back to competitors, there are great competitors out there. They're nimble. They're focused. And so we have to constantly strive every day to serve our customers better. That's the way to win a big market. We're never gonna have the market to ourselves.
46m 31s
Thanks, Robert. Okay, Sean, this next question is for you, and it's along a similar vein, I think people can incorporate what they've heard from Robert answering the last few questions for part of the answer to this one. What gives management confidence that there's not a fundamentally negative change to the long term gross margin profile of the business? And then, you know, some new places to add some commentary. How would Cimpress fail in executing on the transformation to higher lifetime value products? And what specific guardrails are in place to avoid such pitfalls.
47m 11s
Sure. Yeah, I'd say there's some similarities there to what Robert just outlined. I think mean, in general, and this question comes up with some frequency In general, as Robert said too, we we don't focus on gross margin, focus on gross profit. I mean, interestingly, and I'll I'll kinda get back to some of the you know, more recent evolution. But, you know, if you take a step back we used to get this question oftentimes. When we started to acquire into our what is now our upload and print portfolio. And our upload and print portfolio for a variety of reasons has structurally different gross margins. They're lower than what are at least at the time when we started to acquire into this is what our gross margins were at the time. So they were kind of gross margin dilutive. And we got a lot of questions about that. Well, those businesses have grown their gross profit very significantly. They've grown their profit dollars very significantly and they've grown their cash flow. Very significantly. And if you look at it in terms of the return on invested capital, as we outlined in some of our annual letters, those businesses that we acquired and upload in print have generated more cash than the invested capital we put in.
48m 20s
They're still growing very nicely. They still have very attractive profit generation and cash flow generation and so, yeah, it's would be difficult to argue that just because there was you know gross margin dilution that that was not a good thing like it was definitively good use of capital and those are great businesses they're just different. And so, you know, I think if if everything was held constant, coming back to, like, the the more recent, you know, product mix evolution, Yeah. If you had constant order size, you had constant repeat rate, constant cost of customer acquisition, constant growth opportunity, and so on. Of course, then you wouldn't you wouldn't pursue lower gross margins, right? It would be better to have higher gross margins. But the reality is everything isn't constant. And Robert just did some math too on the different differences by category. Think the upload and print example is another example And the reality is that where we started at least in Vista was small format products, and those are relatively simple design, relatively low order values. And once they got to scale, they also had high gross margins a variety of reasons, and that's a great thing.
49m 25s
You know, as as things evolve, technology evolve, design capabilities evolve, production equipment evolve, all parts of the value chain. More complex products from a production design standpoint, started to become possible and be possible to be done in small quantities. And so as that has happened, many of those markets are very large and are still newer to come into an online marketplace. And so there's a nice growth opportunity there. And those products have, just have some characteristics that are different. The order sizes tend to be larger. As Robert noted, they tend to serve customers that oftentimes have a larger amount of annual spend. The repeat patterns are different. Things like packaging, you know, the repeat patterns are different. And that's where the growth opportunity is. So we're focused on growing gross profit and contribution profit dollars in those categories. We think that's a a good thing. How would we fail was part of the question. And there's certainly plenty of ways that we could fail. But I think fundamentally, it would be if we're not serving these high value customers really well in a way that makes them customers for life. And, you know, I don't know what specific guardrails I would call out to avoid pitfalls, but I think, frankly, I think that in terms of guardrails, that goes back to how we run the business.
50m 44s
Every day. And in these categories, especially as we've pushed deeper into them, We have very clear objectives laid out, key results laid out around those initiatives. We have KPIs that we track so we can establish how we're making progress and where we need to get better. We have clear areas that we've been investing in to attract and retain those customers. And that can range from things like expanding our expert services, which we've talked about in various investor days, providing more assurance, How do we take friction out of the experience? How do we have more dedicated customer care to handle high value use cases? And then, you know, all the things that we're doing from a CapEx perspective as well. To have both new product introduction, but also to to be the low cost producer in in some of these categories that are newer. And And of course, could list a number of other things. And so think really it comes down to the mechanisms that we use to run the business every day and monitor performance. And then making sure that we're talking to customers and getting feedback that informs our progress.
52m 6s
Hey, Meredith. I just wanna I see that.
52m 8s
Sorry about that. About that. Thank you very much. I was on mute.
52m 12s
A lot of questions coming in to the Yeah.
52m 15s
No, I was talking, was reading the next question, and I was on mute. Sorry about that, guys. So, we're going to shift to a question on CapEx. For you, Sean. CapEx is higher this year, which is what you told us expect at the beginning of the year. How long do you think this investment cycle will take? A few more quarters, or is this a multi year affair?
52m 37s
Yeah. The the vast majority of the increase that we've had is in is in our, VISTA business and then in the the print group.
52m 45s
Segment.
52m 46s
And for the Print Group, you know, we were just talking about the the new US facility. That includes the initial build out of that new facility. And then also, of course, the equipment for that facility. And that one I would characterize as very much a multi year plan. We'll be increasing the capacity of that facility. We'll be increasing the capabilities that that facility has for the next years. And we'll be doing that you know, as our trajectory of volumes and and revenue are also ramping And I think, you know, that's that over over time as we continue to put more CapEx into that facility, that will be while that revenue is increasing given that the facility just went live. So far the CapEx that we've had there you know, has not been generating revenue and gross profit, you see that flowing through yet. So that's one that I would say is a overall multi year effort. For the rest, would characterize the CapEx as primarily ongoing choices that we have rather than you know, multiyear investment cycle that's, like, preordained in any way. And, yeah, there's there's maintenance CapEx that we have. There's replacement replacement CapEx for efficiency and over our history, like, you can see that that can have some waves to it.
54m 8s
And then we do have some larger pieces of equipment that are being replaced with new technology this year. But on the growth investment side of things, I think, as an example, we have some sizable CapEx expansion of our packaging range. Which is something that we're excited about. We see starting to impact our results. We think there's more opportunities like that if we're seeing success success. But those are all decisions that you will be able to evaluate over time based on the returns that we're generating on similar investments. And so you know, it's not necessarily a a multiyear investment. We'll take those you know, one at a time. As we go and can evaluate progress. We're still right now in the process of finalizing our fiscal twenty six plans. And, you know, each year we go through, especially on the CapEx side, very much a bottoms up assessment of where we're investing in CapEx. And we evaluate that each year. Both on individual products, but then also taking a step back in the aggregate and making sure that that total number makes sense relative to other opportunities. And I would say just generally that these CapEx projects have in general, high and predictable returns.
55m 18s
And so we'd wanna do them if we're confident that it's a high probability outcome.
55m 25s
Great.
55m 25s
Thank you, Sean. I'm going to move on to a question sort of related in thinking capital allocation and different types of capital allocation that we can make. So, given the current stock price of $40 to $45 a share, how does the company think about share buybacks versus internal investments and debt pay down? We know from prior calls that the company targets 12 plus percent for OpEx and CapEx, given where Cimpress is trading from a cash flow yield perspective, will CapEx in FY 'twenty six be more muted to capitalize on the opportunity to repurchase [indiscernible] what's management's expectation regarding timing to resume repurchasing shares assuming no appreciation in share price?
56m 8s
Yeah. Sure. First of all, it's absolutely a trade off that we think about frequently. It features in our discussions with the board, with our across the management team. So, you know, it's it's absolutely a regular feature of of our discussions. Specifically on FY '26 CapEx, we're still as I said on the prior question, we're still working through our plans there. But as I said too there, do this bottoms up and we're evaluating individual projects and returns on those But then we also look at that in the aggregate too and are looking at the returns on those things versus share repurchases. And so that's something that will be factored in, but we're still you know, we're still finalizing the plans on f y '26 CapEx.
56m 54s
I'd say, you know, just generally, we'll evaluate the relative returns on all this stuff And we do have a bias to internal investments like CapEx Some of the examples I mentioned, like expansion of packaging or you know, the expansion of uploader print to The United States, you know, we think that those are high probability outcomes, then those are things that we're gonna wanna do. They're beneficial from a growth perspective. They have attractive returns on the capital that we're investing there, And then we're looking at all this stuff also with kind of a wraparound it of a view towards our net leverage target as well. Right? [indiscernible] we've been actively managing that over the last years. I think you know, I think I've managed that in a good good direction. The fact that we didn't buy shares in February and March was largely a function of just making sure that we had to handle the tariff situation It was a situation that was constantly evolving. And frankly, was one that was quite complex. And once we felt like we had established sufficient clarity We updated through that eight ks in early March. But, you know, like, these things take time, and and we wanna make sure that we have a handle on things.
58m 8s
And so kinda that's where our focus was. And then we also, of course, you know, have our stated plan to deliver so that was in the back of our mind as well. But those are trade offs that we're going to continue to actively consider. Including in q four. But also as we move into FY '26. And we're in a situation where we have a strong balance sheet, we have strong liquidity, we're in a quarter where, as we said in the earnings document last night, we expect to be increasing that liquidity in Q4 because it's seasonally a quarter where we have higher profitability and cash flow. So we'll be prepared to to seize opportunities, and, you know, we'll stay nimble there. But we'll be considering that across across the spectrum of these capital allocation choices.
58m 56s
Thanks Sean. Okay, we've got a couple questions come in about our decisions to withdraw guidance. Sean, I'll stick with you on this one. Please provide color on the rationale for pulling the long term guidance. Is it solely due to the tariff uncertainty or has something else fundamentally changed? About management's view of the go forward business opportunity And another very similar question, but more like thinking about, hey, there's only one more quarter left. In the year, considering that we're already one month in, is there really that little visibility over the next few months?
59m 31s
Sure. Yeah. I mean, as I said in my prepared remarks, and and as I could completely get to, focus on this topic and the question But as I said, it was given the uncertainty of tariff and trade environment, and then any potential continued changes on that front, which we have seen on a pretty regular basis. And then also any impact on demand where that might be relevant, that we withdrew our guidance. And so yes, it is specifically related to the uncertainty of the tariff and trade environment and any related impact Now I completely get it like, hey, we're sitting here May 1, and there's only two months left. And but, you know, like, we we just we're trying to forecast and then communicate to all of you what the next two months are gonna be. Like, we just don't think it's that that helpful of an exercise given the the uncertainties that do exist. And so you know, we're we feel like we have a good handle on the impact in terms of what's in our control We've attempted to lay that out We hope quite clearly, including in the eight ks that we provided in early March, but then also the updates that we've you know, that we provided last night.
1h 45s
And then we had long term guidance in place and including over the last three months, frankly, and I'm not so sure that long term guidance over the last three months provided anyone more certainty when the tariff discussion became the focus. And so, we're gonna continue to operate the business as we have. We've communicated a lot on our long term focus is, what our objectives are. And so hopefully that's been clear. And none of that changes. That's where we're going to continue to focus. And then, you know, we'll have an opportunity three months from now, you know, to update you on our progress.
1h 1m 20s
Thanks, Sean. Robert, gonna switch to you on this next one. Did you reevaluate your leverage target during the quarter? What's driving the net 2.5 times leverage target? Seems unusually low, is the target independent of where the stock price is trading at?
1h 1m 41s
Well, no, we've not changed the net leverage target. We've talked in the past about why we came up with that. Target and everyone's gonna have different views on this. We have shown our ability to delever but also to flex the variability of our cost structure in the past. So we could argue that we could handle higher leverage but we've discussed this extensively. And the main reason is that when there's volatility, we wanna be able to stay focused on doing the right things and not have to do anything unnatural because of leverage. That target is independent of where the share price is. Because the policy does provide flexibility to increase for the right opportunities, and that very much includes share repurchases, which as we said, today and last night, consider to be very attractive. Right now. The reality is it will take us longer than we originally envisioned, to get to that 2.5. Because of the opportunities you're alluding to in others, but we still view this as an appropriate destination again, for the reasons I just discussed.
1h 2m 59s
Thanks, Robert. So, related topic, because you mentioned leverage as a guardrail. Share repurchases and their other capital allocation? So we've had a a couple questions on share repurchases from different angles. One of them, what drove the halt in stock purchases If you loved it at $69 a share, why not $59 or $49 And then the other side of that coin that just came in live, you know, to be able to cope with potentially really bad economic conditions, for example, a deep recession without raising expensive new capital, and given your negative working capital, should you not be cautious with the buybacks, and avoid a rerun of pre COVID buybacks, which with hindsight were too aggressive. Sean, if you want to take that one.
1h 3m 43s
Yeah, and seeing the live questions come in like that, yeah, there's obviously different perspectives on this and depending on kind of where you sit in the in the market and We mentioned in the earnings that we purchased a little under $4,000,000 in January. And then we didn't do anything in in February, March, and as I previously mentioned as well. Reason for that was because you know, we wanna make sure we had a good handle on what was a pretty complex and dynamic topics still is. And and so we didn't do any share repurchases And so maybe going to the second question first, you know, I think that behavior indicates that we are yeah, we are being thoughtful about when uncertainty increases, making sure that not putting ourselves in a position where we're tying up liquidity that might be needed and we end up having to, you know, raise expensive capital or something like that. We were far far like, we we far far away from that, but we, course, have learned from we experienced in the in the pandemic. So that led us to be to not act in February and March. And so to to that question, I think you can see our behavior factoring those things in.
1h 4m 59s
The other side of it, terms of, you know, we bought at 69, why not, the lower levels? You know, we bought just under $4,000,000 in January, not particularly a huge sum. And then know, once the once the executive actions sorry, executive orders came across, that February, happened to be just after our last earnings release, You know, we we didn't do anything further after that. And, again, we felt it was important to first prioritize making sure that we have appropriate handle on the situation and, you know, from what we've outlined, you know, we think that we do. And we'll go forward from there.
1h 5m 37s
Thanks Sean. All right, we've got time for one more question and a sign off from Robert. So, Robert, other than stock repurchases, what other factors are you focused on to increase the likelihood that the price of Cimpress's shares will better reflect our true intrinsic value.
1h 5m 56s
Okay, first and foremost, and way ahead of share repurchases, is constantly improving the value we deliver to our customers. Markets change, customer needs change, they evolve, and improving that customer value on an ongoing basis is absolutely the most important driver of a great future So that's where we are focused. In the end, success there will drive free cash flow per share and that's what matters. Really that's what we're we're focused on. Next, we do recognize the consistency of results and leverage levels are aspects that we think have an impact. On the stock price. And so we certainly want to be aware of that and we've spoken about it in the past And then in the end, it really comes down to is how we allocate capital on where we can invest it or or or pay down debt or use it in the different uses of capital deployment that we can control. So we do try to be transparent and consistently communicate with all of our shareholders, all of our debt holders about where we are focused, where we're investing, what we're getting, in return for that. And how those things can impact again, our share value over time and share value for me is really the underlying ability to generate cash per share after everything, after taxes, after interest, etcetera.
1h 7m 30s
And then our share price will move around that. We don't like where it is right now, but we just have to keep growing the the core cash flow capabilities of the business. And if that's not appropriately reflected in our share price, we certainly will look to take advantage of that ourselves. So with that, let me wrap up the call. Thank you very much. For your time today. You know, we continue to execute on exactly the same strategy we've talked about with you last September at the Investor Day. We talked about you with you before that. And to navigate this very strange environment of terrorists that we are all across the economy trying to deal with. There are a lot of good signs of strategic progress happening across Cimpress. I'm very confident that we're going to continue to strengthen how we deliver value to our customers We are facing, as we've talked about in the past, some headwinds in some legacy products but there are huge markets where we're growing fast, and we are, despite the current period of tariff adversity, we we feel very comfortable that that transition is going to continue to be a success.
1h 8m 44s
So let me wrap up by saying thank you to all of you for joining the call. Thank you for continuing to entrust your capital with us, and have a great day.
1h 8m 54s
And this concludes the program, and you may now disconnect.
Key Insights
Consolidated revenue grew 1% on a reported basis and 3% on an organic constant currency basis in Q3, with double-digit growth in key categories like promotional products, signage, packaging, and labels; Vista's new customer acquisition in signage, packaging, and labels grew over 10% year-over-year.
The company faces headwinds in legacy products and channels, particularly in the U.S. due to organic search algorithm changes impacting business cards and stationery (down 3% YoY), while European performance remains strong.
Tariffs, especially on Chinese-sourced raw materials, present ongoing challenges; Cimpress expects to reduce direct China COGS exposure to less than $20M annually, with price increases planned to partially offset costs. The impact from Canada and Mexico remains minimal due to exemptions.
Consolidated adjusted EBITDA declined by $3.5M YoY, impacted by a $2.6M impairment charge and $1.1M in startup costs for the new Pixartprinting U.S. facility; operating expenses impacting adjusted EBITDA rose by $3M YoY, but ad spend was flat as a percentage of revenue.
Due to tariff and trade environment uncertainty, Cimpress has withdrawn FY2025 and long-term guidance; however, Q4 is expected to be seasonally stronger with increased liquidity, and the company will continue to balance capital deployment between organic growth, debt reduction, and opportunistic share repurchases.
