Good morning, and thank you for standing by. Welcome to Cimpress' First Quarter Fiscal Year 2026 Earnings Follow-up Call. I would like to introduce Meredith Burns, Vice President of Investor Relations and Sustainability. Please go ahead.
Thank you, Michelle, and thank you all for being here today. I'm joined by Robert Keane, our Founder, Chairman and CEO, and Sean Quinn, EVP and CFO. We value the time you've taken to review our results, commentary, and outlook. This Q&A session will last about 45 minutes, during which we will address both pre-submitted and live questions. Before we get started, I want to remind you that we will be making forward-looking statements. Our actual results may vary significantly from those statements due to risk factors detailed in our SEC filings and the earnings document we released yesterday on our website. We also have non-GAAP reconciliations for our financial results available on our Investor Relations website, and we encourage you to review them. Now, I'll hand things over to Robert.
Thanks, Meredith, and thank you to our investors for joining today. Before Sean reviews the Q1 financial results, I’ll summarize several strategic and operational themes we discussed in our annual letter on July 29 and at our September Investor Day. I’ll give a few examples from the first quarter that highlight our progress in these areas. Firstly, elevated products are significantly improving Cimpress' per customer lifetime value, particularly at Vistaprint. Elevated products refer to those that customers find more valuable than our legacy offerings for brand building and business growth. It’s important to note that elevated products are generally still in the early stages of the market disruption curve, indicating ample opportunity for future market and share gains for Cimpress. These elevated products comprise a large percentage of categories such as signage, logo apparel, promotional products, packaging, labels, and multipage small format items like books and magazines. By offering these products, we are gaining customer trust for a larger share of their needs, leading to higher lifetime value customers. This includes both existing Cimpress customers and newly acquired ones. In the first quarter, Vistaprint saw double-digit revenue growth from promotional products, apparel, gifts, packaging, and labels compared to the previous year. During our September Investor Day, I shared an example of custom paper cups, which significantly multiplied one customer's lifetime value in gross profits. In Q1, Vistaprint optimized this new product offering, which resulted in a more than 50% increase in average item quantity. Additionally, we are leveraging our past and ongoing investments in our mass customization platform and expanding our scale in elevated product categories to reduce our cost of goods sold and speed up new product introductions. This activity is enhancing our competitive advantages in manufacturing, which is why we are investing heavily in our production operations this year. We are also consolidating volumes of similar products across multiple Cimpress businesses into focused production hubs, further reducing costs and increasing our return on capital investments. A crucial factor in this is MCP-enabled cross-Cimpress fulfillment. XCF links the fulfillment operations of each of our businesses with the customer-facing operations of our other businesses. This initiative contributed an additional $15 million in gross profit in our last fiscal year, and we are just beginning to see the benefits as we add layers of cross-Cimpress fulfillment-driven gross profits on top of last year’s results. Here are a few Q1 examples of how manufacturing excellence is driving cost reductions and customer benefits. All segments experienced double-digit or triple-digit growth in their cross-Cimpress fulfillment revenue this quarter, becoming a material part of the volume growth for Upload & Print, National Pen, and BuildASign segments, positively impacting their revenues. XCF is also crucial to Vistaprint as it rapidly expands into elevated products, thereby increasing share of wallet among its customer base. Regarding customer value, MCP's newest fulfillment software enabled Vistaprint to introduce next-day delivery for business cards in the U.S. last quarter. National Pen upgraded to the MCP shipping and logistics platform at its largest production facility, which improved its ability to predict delivery dates and enhanced the accuracy of related customer communications. This also facilitates network-wide optimization and smarter decision-making across Cimpress since National Pen is an important fulfillment partner for other businesses. Additionally, shared technology, organizational streamlining, and AI are helping us control operating expenses while enhancing customer value. For instance, in Q1, Exaprint transitioned its Spanish site to the MCP e-commerce infrastructure, laying the groundwork for migrating all of Exaprint's locations in the coming year, which will lower technology costs and enhance site functionality. In another Q1 highlight, Vistaprint introduced a generative AI chatbot, agent assist, and self-service features, collectively improving customer care efficiency by 6% year-over-year. Looking ahead, we have a promising financial future with a path to at least $600 million in EBITDA by FY '28, accompanied by significant deleveraging on our balance sheet. The cost reductions we implemented in the second half of fiscal '25 are already fostering operational expense leverage in both Vistaprint and National Pen. We see additional opportunities to achieve the expected $70 million to $80 million in annualized adjusted EBITDA improvements as we move toward the FY '28 targets. Parts of these savings will stem from further progress in cost of goods through manufacturing and supply chain excellence and from reducing operating expenses via organizational simplification and generative AI. Moreover, our technology modernization and the operational model it supports have matured, allowing the capabilities and strengths of each Cimpress business to be more extensible to one another, thanks to standardized and shared software services. Cross-Cimpress fulfillment is an early example of this shared approach, but over time, it will enable new ways to allocate resources for advertising and operating expenses to support revenue growth and efficiency. We are excited about the opportunities ahead to meet our long-term financial objectives and are actively working to strengthen our financial trajectory during this period. Now, I'll turn things over to Sean to discuss the financial results for the quarter and our outlook.
Great. Thanks a lot, Robert, and thank you to everyone for joining us today on the call. As we noted in last night's release, our first quarter marked a strong start to the fiscal year. Our revenue growth rate improved sequentially, exceeding our annual guidance range. When you couple that with strong profitability, this provides a good foundation for achieving or exceeding our fiscal 2026 financial objectives. So let me walk through some of the details. Our consolidated Q1 revenue grew 7% on a reported basis and 4% on an organic constant currency basis. For those that joined us for our September Investor Day, there I had said our organic constant currency growth at that time was tracking to about 5% that was in September. We ended at 4.4% with backlog a little higher than we had planned. So we maintained that pace. The main sources of growth in the quarter were from Vista and our PrintBrothers segment. In Vista, we drove continued strength in elevated products and specifically within promotional products, apparel and gifts, and packaging and labels, which each grew significantly year-over-year. Turning to our legacy products, there in the business cards and stationery category, we declined 1% this quarter in constant currency versus a 4% decline in Q1 of last year. So that was an improvement as well. We're benefiting from the work that we've done over the last year to improve the offering, but also to optimize after the organic search algorithm changes that we experienced last year, as well as the passing of the anniversary of the reallocation of some of our advertising spend away from that category based on incrementality testing that we had done. Turning to our other segments. Upload & Print delivered solid growth through customer growth and also order volume growth. Reported growth there was 15% and constant currency growth was 8% combined. In National Pen and BuildASign, the revenue growth was driven through their growing role as a key fulfillment partner for Vista. Turning to profitability, our adjusted EBITDA increased $10.9 million year-over-year. That was our highest ever EBITDA for Q1 period. It was an 11% improvement over our previous high, which was in Q1 of fiscal '24, and it was a 12% increase over last year. So strong profitability result for the quarter. In Q1, gross profit dollars grew 5% on a consolidated basis from the continued success that we've seen in elevated products, as I mentioned previously, and gross margins at the same time contracted 80 basis points, partially due to the ongoing product mix shift that we've been talking about for some time now. In Vista, as we continue to move Vistaprint to be the preferred print provider for a broad set of customer needs, especially with high-value small business customers. It's important that we're able to acquire and grow the wallet share of these customers. Robert referred to this a bit earlier. We added a new metric for Vistaprint in the earnings document, also in our financial and operating metrics spreadsheet that we published on our IR site, which is our variable gross profit per customer as one way for investors to be able to understand our progress over time and also sort of look back at how that's trended over the last years. As noted in our release, that variable gross profit per customer grew 7% year-over-year. Nearly all of this growth in Q1 is coming from our top 2 customer deciles and in particular, the top decile, which we think is a positive signal relative to the areas of our strategic focus. The net impact of tariffs on our gross profit was minimal this quarter. I see a question just come in on that, so we'll cover that in a bit in some more detail. We were able to offset almost all impact through pricing adjustments. Our largest tariff exposure remains at our National Pen business, and we continue to focus on mitigation there through pricing and supply chain optimization. We also continue to execute against our plan to drive advertising efficiency. Advertising spend as a percent of revenue was down 80 basis points. Lastly, currency had a $2.9 million benefit to our adjusted EBITDA during the quarter as well, and we do expect to have some further year-over-year currency benefits over the remainder of the year. Adjusted free cash flow improved year-over-year, too, but was an outflow of $17.8 million, driven by the typical seasonality of our net working capital, but also planned higher capital expenditures and capitalized software expense versus the prior year. From a balance sheet perspective, our net leverage at the end of Q1 was 3.1x trailing 12-month EBITDA as calculated under our credit agreement. That's flat from last quarter, and our liquidity position remains strong with cash and cash equivalents just over $200 million at the end of the quarter and our $250 million revolving credit facility remained undrawn at the end of the quarter as well. Turning to our guidance, we've reiterated our expectations for the fiscal year, which is that we expect revenue growth of 5% to 6% or 2% to 3% organic constant currency revenue growth, net income of at least $72 million and adjusted EBITDA of at least $450 million. We expect operating cash flow of approximately $310 million and adjusted free cash flow of approximately $140 million. We expect net leverage to decrease slightly by the end of the fiscal year, and we expect to drive more significant decreases in our net leverage in fiscal '27 and fiscal '28 as we execute on our multiyear plans. That all while still being able to allocate capital to the repurchase of shares along the way. Q1 results position us well to meet or exceed these FY '26 expectations that we've reiterated. At our September Investor Day, we also discussed and Robert referred to this earlier, our outlook through fiscal '28. Part of the reason we did that is that's the first full year that we expect to see approximately $70 million to $80 million of benefits from efficiency gains that we described at the start of the year. The successful execution of our plans would result in Cimpress delivering at least $200 million of net income and at least $600 million of adjusted EBITDA in fiscal '28 with approximately 45% conversion of adjusted EBITDA to adjusted free cash flow. As Robert said, we have goals and aspirations to chart an even stronger financial course over this time period. With that, why don't we turn it over to questions, Meredith?
So our first question is for Robert. Congratulations on a strong quarter. How was consolidated revenue only up 4% on an organic constant currency basis if Vista was up 5%, PrintBrothers up 8%, Print Group up 8%, National Pen up 8%, and all other businesses up 8%, again, all on an organic constant currency basis? I'm sure I'm missing something.
Thank you for the question. It's a good question, and it's also important to understand one of the core parts of our strategy. This is due to cross-Cimpress fulfillment where businesses get revenues and profits from fulfilling for each other. But that revenue for a business selling to another Cimpress segment is eliminated in our consolidated results. You can see that at the table at the top of Page 5 of last night's release. This is the intersegment eliminations line just above the total revenue line. Our segment reporting follows our internal management reporting to incentivize our teams to drive cross-Cimpress fulfillment. Now let me step back again and just touch on cross-Cimpress fulfillment and say why we're so excited about this because it is very beneficial to Cimpress as a whole. This change in how we do the internal accounting and financial incentives has been one of the pillars of driving this growth because it incentivizes teams to look beyond their own business. We're channeling very strong manufacturing and supply chain capabilities that come from a given part of Cimpress towards other parts of Cimpress who have customers and customer bases who want those products. This is happening in many different directions, including Vistaprint supporting other parts of Cimpress. But it's happening most significantly where National Pen, BuildASign, and Upload & Print are fulfilling for Vistaprint and helping Vistaprint drive into elevated products and the service of high-value customers. So we do expect this to continue to increase, and it's a great example where we are leveraging synergies across all of Cimpress.
Thank you, Robert. Next question is for Sean. Sean, what is the current status of your dealings with Spruce House, who filed as an activist over the summer? Have you talked to them?
Sure. We have been in contact with Spruce House, and we value their input. We also value the feedback from all our shareholders and debt holders, many of whom we have communicated with over the past quarter. As mentioned in our annual letter in July, we feel that the current share price does not reflect our true value. Our main focus is on executing the plans we presented in September at our Investor Day and reiterated recently. We believe these efforts can shift that perspective. We appreciate all feedback from our investors on how we can achieve this.
Great. Thank you. Sean, I'm going to stick with you. So a question, on the fiscal 1Q guide, which you reiterated, I think that's for the fiscal year that we reiterated. Can you unpack a bit more how the first quarter of '26 results position you for the remainder of the year and how you're thinking about the shape of the year?
Yes, we didn't provide quarter-by-quarter guidance, but our revenue growth rate is clearly ahead of the annual growth range we set. We're off to a good start. While visibility into EBITDA pacing is less clear, our Q1 results were strong enough to suggest we're on track to meet the at least $450 million benchmark. This is why we describe Q1 as a solid foundation for achieving or exceeding our full-year plans. The main point is that we're off to a good start and feel confident about meeting or surpassing our guidance. Q2 is crucial, and we need to maintain our execution through this quarter and the rest of the year. After we finish Q2 strong, we'll update everyone in a few months. The key takeaway is that we're off to a good start, and we're ahead of what's needed to meet our full-year guidance.
Thank you, Sean. All right. Next question, I'll stick with you, Sean. Can you speak to the impact of tariffs during the quarter? Was it something that had an initial shock and then normalized throughout the quarter? Or was the overall impact relatively muted?
Yes, sure. A lot happening and continues to happen on this front. I think the headline here is that, as I mentioned briefly in my remarks earlier, the impact of tariffs was pretty minimal, less than $1 million on a net basis for the quarter. There was not any sort of strangeness in the profile of how that happened in the quarter. One of the changes during the quarter was the removal of the minimis exemption, and we didn't see anything of any material nature there as a result of that change, which is good to see. We continue to be very focused on our risk mitigation efforts. The overall picture really hasn't changed from what we outlined even back in April, and we've updated since then, which is that, there are a large part of our revenue base in terms of things that are fulfilled outside of the United States for United States customers that are excluded or exempted under IEEPA, but also USMCA. That broad coverage still exists. We feel quite good about where we're positioned right now. That doesn't change the fact that we'll continue to ensure from a supply chain perspective that we're doing everything we can in terms of risk mitigation. But really, no overall change to our position from what we would have updated three months ago. We feel good about our position and yes, very minimal impact in the quarter.
Thanks, Sean. All right. So, Sean, we've had a couple of questions about the holiday quarter as well. So is there a framework that you can provide for how to think about the upcoming holiday season? Past experience has shown that competition for holiday-related consumer products has put pressure on your revenue growth as others try to compete more forcefully on price? How are you thinking about the business' position heading into the holiday season, especially the consumers?
Sure. Yes, there's a lot here. It's obviously a very important time of the year for us, and there's a lot of planning that goes into it. Last year, we had a number of headwinds that were from a macro perspective or outside of our control. We also experienced just structurally how the calendar was set up, leading to the most unfavorable situations, also a presidential election, which tends to be unfavorable as it distracts from some of the buying season, especially the early part of the buying season. Then we faced organic search changes, which were a real headwind last year as well. Fast forward to this year and how those things have changed: there continues to be some volatility from a macro perspective, making it impossible to know exactly what impact, if any, it can have on consumer behavior, but also things like the postal system in Canada, for example. Structurally, it's looking better than last year. We have one extra buying day. We feel good about the progress we've made in the organic search channel, which has been showing very nice results even heading into the holiday season. So we're confident in our plans as we head into this critical period. The team is ready to execute. I think we're lapping what were some structural headwinds from last year and other headwinds that we feel like we've addressed. So we feel good heading into the holiday season.
Excellent. Thank you, Sean. I'm going to stick with you again, and this is a question that I don't think you've seen yet. So why was tax expense so high at $17.8 million, eating up most of the $24.4 million income before tax? Can we expect high tax rates in the future?
Yes. Listen, I think our GAAP tax expense and our GAAP tax rate are difficult to understand quarter-by-quarter because of a number of factors, both in our structure and how the accounting rules require us to handle certain things quarter-by-quarter, especially with the seasonality of our profitability. So the headline is tax expense increased due to our year-over-year increase in profitability. I would encourage you to focus more on cash taxes because it's a more straightforward story and easier to model those economic drivers in relation to our profitability. Cash taxes were lower than the P&L expense, but they're higher year-over-year. We talked about this in some of our remarks at the end of July that we expected cash taxes to be higher this year. One of the principal drivers is that we received some refunds last year that won't repeat. That was one of the drivers for Q1. But we do expect for the full year, our cash taxes will increase, also driven by profitability increases that we expect this year.
Great. Thank you. That is all of the pre-submitted and live questions that we have received. I'm going to turn things back to Robert to wrap the call up.
Right. Thank you, Meredith. As I hope you've heard, Cimpress is off to a great start for fiscal '26, and we are progressing in the three key areas that I discussed briefly today, which we've covered in much more detail both in our Investor Day and in the July letter. First, elevated products are driving a step function improvement to Cimpress' per lifetime customer value, especially in Vistaprint. Second, we are capitalizing on our past and ongoing investments in our mass customization platform and our growing scale in elevated product categories to reduce our cost of goods sold and increase the velocity of new product introductions. Third, shared technology, organizational delayering, simplification and artificial intelligence are helping us to constrain operating expenses while improving the value that we deliver to our customers. Finally, we have a strong financial future with a clear path to fiscal '28 EBITDA of at least $600 million, accompanied by very significant debt deleveraging. Thank you to our investors for joining the call, and thank you for continuing to entrust your capital with Cimpress. Have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.