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 its financial results for the second quarter of fiscal year 2019 and announced a leadership change at Vistaprint.
The company reports consolidated revenue growth of eight percent year-over-year in the second quarter and organic constant-currency revenue growth of sixth percent, compared to 32 percent and 11 percent, respectively, in the second quarter of fiscal year 2018. At Vistaprint, reported revenue growth was one percent and organic constant-currency revenue growth was three percent, and its consumer product bookings, which represent a larger percentage of bookings in the December quarter, declined by about two percent in constant currency.
Cimpress’s operating income was $90.6 million in the second quarter versus $72.7 million in the same period last year and adjusted net operating profit was $115.1 million versus $93.7 million last year. The company noted, however, that these figures mask underlying weakness since they include a reversal of $15.4 million in share-based compensation expense, a $12 million timing-related benefit of the adoption of a new accounting standard and the first-time inclusion of profits from BuildASign, an internet-based provider of canvas-print wall décor, business signage and other large-format printed products that it acquired in September 2018.
Cash flow from operations was $183.3 million and free cash flow was $154.8 million in the second quarter, growing year over year, respectively, from $160.4 million and $132.7 million. However, these increases were primarily driven by working capital favorability and the addition of BuildASign.
“We had a poor quarter, the worst in a long time,” said Robert S. Keane, founder, chairman and CEO, in a letter to investors. “As you will recall, we were also disappointed with our revenue growth last quarter. Our deteriorating performance over the past six plus months led to some serious soul searching about the root causes and what we will do about them. Many of our challenges are within our control. Others are external in nature: competitors that drive up the cost of advertising and drive down the price to customers, and key input costs such as paper are increasing. These challenges drive a need for urgency, focus and operational excellence.”
Regarding Vistaprint, Keane says, “I am proud of the progress Vistaprint has made over the past several years to passionately serve small-business owners with an increasingly broad and deep product assortment and materially improved customer service levels and net promoter scores. However, some of Vistaprint’s key foundational basics either have not progressed rapidly enough or have deteriorated while Vistaprint focused on evolving its customer value proposition.”
He cited shortcomings in customer experience, analytically-driven marketing, merchandising and pricing, and decision-making processes and tools. The company plans on addressing the issues with a focus on engineering, analytical marketing and operations.
In a letter to investors, Keane explained that Vistaprint CEO Trynka Shineman would be leaving Cimpress. Keane will be taking on the role of interim Vistaprint CEO until a permanent successor is named and Maarten Wensveen, Cimpress’ chief technology officer, is taking on the additional role as interim Vistaprint CTO until the company names a new permanent CTO. Keane says, “CEO Trynka Shineman and I have discussed the future of Vistaprint as well as her career goals and have decided that this is the right time for her to transition out of Cimpress. She and I have discussed this possibility for some time; it is not a result of our second quarter results. I sincerely thank Trynka for the lasting imprint she has made over the past 15 years and for leading Vistaprint to significantly better levels of customer satisfaction and a greatly increased product range.”
On National Pen, Keane’s letter highlighted that the distributor grew rapidly in fiscal year 2018 with strong financial results, and the company attempted to accelerate this momentum going into 2019 by investing more deeply into prospect marketing. This has not produced the financial returns the company was looking for and spending plans have been reduced accordingly in the last half of the year. Cimpress is continuing its previously planned investments in service center expansion and technology based on its mass customization platform.
“Across Cimpress our plan is to make decisions in the near term that are best for the long term, with a heightened sense of urgency regarding the importance of execution,” says Keane. “We are energized and hopeful about our plan to improve how we serve customers, create exciting career opportunities for our team members and grow our intrinsic value per share for many years to come.”
