Cimpress Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

cmpr-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

Form 10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	September 30, 2020
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 000-51539

_________________________________

Cimpress plc

(Exact Name of Registrant as Specified in Its Charter)

_________________________________


Ireland									98-0417483
(State or Other Jurisdiction of Incorporation or Organization)									(I.R.S. Employer Identification No.)

Building D, Xerox Technology Park A91 H9N9,

Dundalk, Co. Louth

Ireland

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: 353 42 938 8500

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Ordinary Shares, nominal value of €0.01 per share

CMPR

NASDAQ Global Select Market

______________________________

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No þ

As of October 26, 2020, there were 26,003,649 Cimpress plc ordinary shares outstanding.

CIMPRESS PLC

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2020

TABLE OF CONTENTS


						Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)						1
Consolidated Balance Sheets as of September 30, 2020 and June 30, 2020						1
Consolidated Statements of Operations for the three months ended September 30, 2020 and 2019						2
Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2020 and 2019						3
Consolidated Statements of Shareholders' Equity (Deficit) for the three months ended September 30, 2020 and 2019						4
Consolidated Statements of Cash Flows for the three months ended September 30, 2020 and 2019						5
Notes to Consolidated Financial Statements						6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						25
Item 3. Quantitative and Qualitative Disclosures About Market Risk						37
Item 4. Controls and Procedures						38

PART II OTHER INFORMATION
Item 1A. Risk Factors						39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						39
Item 6. Exhibits						40
Signatures						41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CIMPRESS PLC

CONSOLIDATED BALANCE SHEETS

(unaudited in thousands, except share and per share data)


	September 30, 2020		June 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	40,229	$	45,021
Accounts receivable, net of allowances of $10,328 and $9,651, respectively	47,549		34,596
Inventory	91,504		80,179
Prepaid expenses and other current assets	82,408		88,608

Total current assets	261,690		248,404
Property, plant and equipment, net	330,309		338,659
Operating lease assets, net	146,557		156,258
Software and website development costs, net	77,595		71,465
Deferred tax assets	146,807		143,496
Goodwill	637,568		621,904
Intangible assets, net	200,493		209,228
Other assets	21,010		25,592
Total assets	$	1,822,029	$	1,815,006
Liabilities, noncontrolling interests and shareholders’ deficit
Current liabilities:
Accounts payable	$	211,087	$	163,891
Accrued expenses	243,821		210,764
Deferred revenue	36,390		39,130
Short-term debt	22,666		17,933
Operating lease liabilities, current	39,426		41,772
Other current liabilities	21,589		13,268

Total current liabilities	574,979		486,758
Deferred tax liabilities	33,057		33,811
Long-term debt	1,331,549		1,415,657

Operating lease liabilities, non-current	119,817		128,963
Other liabilities	105,845		88,187
Total liabilities	2,165,247		2,153,376
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests	71,209		69,106
Shareholders’ deficit:
Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding	—		—
Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; 26,003,649 and 25,885,675 shares outstanding, respectively	615		615
Deferred ordinary shares, nominal value €1.00 per share, 25,000 shares authorized, issued and outstanding	28		28
Treasury shares, at cost, 18,076,978 and 18,194,952 shares, respectively	(1,368,723)		(1,376,496)
Additional paid-in capital	433,827		438,616
Retained earnings	607,682		618,437
Accumulated other comprehensive loss	(87,856)		(88,676)


Total shareholders' deficit	(414,427)		(407,476)
Total liabilities, noncontrolling interests and shareholders’ deficit	$	1,822,029	$	1,815,006

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited in thousands, except share and per share data)


	Three Months Ended September 30,
		2020		2019
Revenue		$	586,500	$	633,959
Cost of revenue (1)		298,844		325,665
Technology and development expense (1)		58,489		63,167
Marketing and selling expense (1)		138,150		160,917
General and administrative expense (1)		41,812		43,623
Amortization of acquired intangible assets		13,305		13,018
Restructuring expense (1)		(86)		2,190


Income from operations		35,986		25,379
Other (expense) income, net		(8,754)		15,674
Interest expense, net		(30,516)		(15,087)

(Loss) income before income taxes		(3,284)		25,966
Income tax expense		6,794		6,115
Net (loss) income		(10,078)		19,851
Add: Net (income) loss attributable to noncontrolling interest		(677)		180
Net (loss) income attributable to Cimpress plc		$	(10,755)	$	20,031
Basic net (loss) income per share attributable to Cimpress plc		$	(0.41)	$	0.67
Diluted net (loss) income per share attributable to Cimpress plc		$	(0.41)	$	0.66
Weighted average shares outstanding — basic		25,945,998		29,747,035
Weighted average shares outstanding — diluted		25,945,998		30,529,472

____________________________________________

(1) Share-based compensation is allocated as follows:


	Three Months Ended September 30,
		2020		2019
Cost of revenue		$	100	$	88
Technology and development expense		2,191		1,734
Marketing and selling expense		1,685		(1,311)
General and administrative expense		4,307		4,239
Restructuring expense		—		664

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited in thousands)


	Three Months Ended September 30,
		2020		2019
Net (loss) income		$	(10,078)	$	19,851
Other comprehensive income, net of tax:
Foreign currency translation gains (losses), net of hedges		817		(1,560)
Net unrealized gains (losses) on derivative instruments designated and qualifying as cash flow hedges		3,836		(7,188)
Amounts reclassified from accumulated other comprehensive (loss) income to net (loss) income on derivative instruments		(2,071)		4,151


Loss on pension benefit obligation, net		(336)		—
Comprehensive (loss) income		(7,832)		15,254
Add: Comprehensive (income) loss attributable to noncontrolling interests		(2,103)		1,670
Total comprehensive (loss) income attributable to Cimpress plc		$	(9,935)	$	16,924

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(unaudited in thousands)


	Ordinary Shares			Deferred Ordinary Shares			Treasury Shares
	Number of Shares Issued	Amount		Number of Shares Issued	Amount		Number of Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity (Deficit)
Balance at June 30, 2019	44,080	$	615	—	$	—	(13,635)	$	(737,447)	$	411,079	$	537,422	$	(79,857)	$	131,812
Restricted share units vested, net of shares withheld for taxes	—	—		—	—		4	87		(259)		—		—		(172)
Grant of restricted share awards	—	—		—	—		(2)	(187)		—		—		—		(187)
Share-based compensation expense	—	—		—	—		—	—		5,164		—		—		5,164
Purchase of ordinary shares	—	—		—	—		(1,964)	(232,286)		—		—		—		(232,286)
Net income attributable to Cimpress plc	—	—		—	—		—	—		—		20,031		—		20,031
Adoption of new accounting standards	—	—		—	—		—	—		—		3,143		—		3,143
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		(3,037)		(3,037)
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		(70)		(70)
Balance at September 30, 2019	44,080	$	615	—	$	—	(15,597)	$	(969,833)	$	415,984	$	560,596	$	(82,964)	$	(75,602)

Balance at June 30, 2020	44,080	$	615	25	$	28	(18,195)	$	(1,376,496)	$	438,616	$	618,437	$	(88,676)	$	(407,476)

Restricted share units vested, net of shares withheld for taxes	—	—		—	—		118	7,773		(13,366)		—		—		(5,593)

Share-based compensation expense	—	—		—	—		—	—		8,577		—		—		8,577
Net loss attributable to Cimpress plc	—	—		—	—		—	—		—		(10,755)		—		(10,755)
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		1,765		1,765
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		(609)		(609)
Unrealized loss on pension benefit obligation, net of tax	—	—		—	—		—	—		—		—		(336)		(336)
Balance at September 30, 2020	44,080	$	615	25	$	28	(18,077)	$	(1,368,723)	$	433,827	$	607,682	$	(87,856)	$	(414,427)

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited in thousands)


	Three Months Ended September 30,
	2020		2019
Operating activities
Net (loss) income	$	(10,078)	$	19,851
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	42,290		42,535

Share-based compensation expense	8,283		5,414
Deferred taxes	(32)		(960)




Unrealized loss (gain) on derivatives not designated as hedging instruments included in net (loss) income	14,628		(14,527)
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency	(4,958)		5,028

Other non-cash items	3,192		1,365

Changes in operating assets and liabilities:
Accounts receivable	(12,448)		(6,595)
Inventory	(3,111)		(6,410)
Prepaid expenses and other assets	2,523		737
Accounts payable	38,684		(11,038)
Accrued expenses and other liabilities	26,708		27,505
Net cash provided by operating activities	105,681		62,905
Investing activities
Purchases of property, plant and equipment	(8,383)		(14,193)

Business acquisitions, net of cash acquired	—		(4,272)

Capitalization of software and website development costs	(14,804)		(12,471)
Proceeds from the sale of assets	2,103		670




Other investing activities	—		903
Net cash used in investing activities	(21,084)		(29,363)
Financing activities
Proceeds from borrowings of debt	99,000		277,785



Payments of debt	(182,726)		(74,392)


Payments of debt issuance costs	(410)		—
Payments of purchase consideration included in acquisition-date fair value	(648)		—
Payments of withholding taxes in connection with equity awards	(5,592)		(359)
Payments of finance lease obligations	(1,592)		(2,719)


Purchase of ordinary shares	—		(231,883)




Other financing activities	(11)		(1,437)
Net cash used in financing activities	(91,979)		(33,005)


Effect of exchange rate changes on cash	2,590		(4,582)

Net decrease in cash and cash equivalents	(4,792)		(4,045)
Cash and cash equivalents at beginning of period	45,021		35,279
Cash and cash equivalents at end of period	$	40,229	$	31,234
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	9,078	$	9,384
Income taxes	352		4,472
Non-cash investing and financing activities:
Property and equipment acquired under finance leases	76		—
Amounts accrued related to business acquisitions	1,676		2,645

See accompanying notes.

CIMPRESS PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited in thousands, except share and per share data)

1. Description of the Business

Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. Mass customization is a core element of the business model of each Cimpress business. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Cimpress plc, its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and the related equity securities do not have a readily determinable fair value, are accounted for using the cost method and are included in other assets on the consolidated balance sheets.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

Given the current and expected impact of the COVID-19 pandemic on our business we evaluated our liquidity position as of the date of the issuance of these consolidated financial statements. Based on this evaluation, management believes, despite the ongoing impact of COVID-19 on our business, that our financial position, net cash provided by operations combined with our cash and cash equivalents, borrowing availability under our revolving credit facility, and the April 2020 temporary maintenance covenant suspension and capital raise as described in Note 8, will be sufficient to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 in our consolidated financial statements included in the Form 10-K for our year ended June 30, 2020. There have been no material changes to our significant accounting policies during the three months ended September 30, 2020.

Other (Expense) Income, Net

The following table summarizes the components of other (expense) income, net:


	Three Months Ended September 30,
		2020		2019
(Losses) gains on derivatives not designated as hedging instruments (1)		$	(13,495)	$	19,357
Currency-related gains (losses), net (2)		4,075		(3,412)
Other gains (losses)		666		(271)
Total other (expense) income, net		$	(8,754)	$	15,674

_____________________

(1) Primarily relates to both realized and unrealized gains and losses on derivative currency forward and option contracts not designated as hedging instruments, as well as certain interest rate swap contracts that have been de-designated from hedge accounting due to their ineffectiveness.

(2) We have significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. The currency-related gains (losses), net for the three months ended September 30, 2020 and 2019 are primarily driven by this intercompany activity. In addition, we have certain cross-currency swaps designated as cash flow hedges, which hedge the remeasurement of certain intercompany loans, both presented in the same component above. The unrealized losses related to cross-currency swaps were $5,437 for the three months ended September 30, 2020, as compared to unrealized gains of $4,678 for the three months ended September 30, 2019.

Net (Loss) Income Per Share Attributable to Cimpress plc

Basic net (loss) income per share attributable to Cimpress plc is computed by dividing net (loss) income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), warrants, and performance share units ("PSUs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.

The following table sets forth the reconciliation of the weighted-average number of ordinary shares:


	Three Months Ended September 30,
		2020	2019
Weighted average shares outstanding, basic		25,945,998	29,747,035
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants		—	782,437
Shares used in computing diluted net (loss) income per share attributable to Cimpress plc		25,945,998	30,529,472
Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress plc (1)(2)		450,089	—

_____________________

(1) On May 1, 2020, we entered into a financing arrangement with Apollo Global Management, Inc., which included 7-year warrants with a strike price of $60 that have a potentially dilutive impact on our weighted average shares outstanding. For the three months ended September 30, 2020, the weighted average anti-dilutive effect of the warrants was 316,257 shares. Refer to Note 8 for additional details about the arrangement.

(2) In the periods in which a net loss is recognized, the impact of share options, RSUs and warrants is not included as they are anti-dilutive.

Recently Issued or Adopted Accounting Pronouncements

New Accounting Standards Adopted

In December 2019, the FASB issued Accounting Standards Update No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (ASU 2019-12), which modifies certain aspects of income tax accounting. We early adopted the standard on July 1, 2020. For the period ended September 30, 2020, adopting ASU 2019-12 resulted in a $2,468 increased tax expense in our consolidated financial statements, related to the intraperiod allocation rules. Under the intraperiod allocation rules, an entity generally allocates total income tax expense or benefit by first determining the amount attributable to continuing operations and then allocating the

remaining tax expense or benefit to items other than continuing operations. An exception existed that required an entity with a loss from continuing operations to consider all components when determining the benefit from continuing operations. ASU 2019-12 removes this exception.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" (ASU 2016-13), which introduces a new accounting model for recognizing credit losses on certain financial instruments based on an estimate of current expected credit losses. We adopted the standard on its effective date of July 1, 2020. The standard did not have a material impact on our consolidated financial statements.

3. Fair Value Measurements

We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

•Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:


	September 30, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets

Cross-currency swap contracts	$	948	$	—	$	948	$	—
Currency forward contracts	3,790		—		3,790		—

Total assets recorded at fair value	$	4,738	$	—	$	4,738	$	—

Liabilities
Interest rate swap contracts	$	(36,492)	$	—	$	(36,492)	$	—
Cross-currency swap contracts	(7,814)		—		(7,814)		—
Currency forward contracts	(21,651)		—		(21,651)		—
Currency option contracts	(2,273)		—		(2,273)		—
Total liabilities recorded at fair value	$	(68,230)	$	—	$	(68,230)	$	—


	June 30, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Interest rate swap contracts	$	4,462	$	—	$	4,462	$	—
Currency forward contracts	7,949		—		7,949		—
Currency option contracts	1,429		—		1,429		—
Total assets recorded at fair value	$	13,840	$	—	$	13,840	$	—

Liabilities
Interest rate swap contracts	$	(39,520)	$	—	$	(39,520)	$	—
Cross-currency swap contracts	(4,746)		—		(4,746)		—
Currency forward contracts	(8,519)		—		(8,519)		—
Currency option contracts	(38)		—		(38)		—
Total liabilities recorded at fair value	$	(52,823)	$	—	$	(52,823)	$	—

During the quarter ended September 30, 2020 and year ended June 30, 2020, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.

The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of September 30, 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

As of September 30, 2020 and June 30, 2020, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximated their estimated fair values. As of September 30, 2020 and June 30, 2020, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $1,400,787 and $1,482,177, respectively, and the fair value was $1,377,987 and $1,450,719, respectively. Our debt at September 30, 2020 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as fixed-rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.

4. Derivative Financial Instruments

We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. Additionally, any ineffectiveness associated with any effective and designated hedge is recognized within accumulated other comprehensive loss.

The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other (expense) income, net.

Hedges of Interest Rate Risk

We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net.

Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of September 30, 2020, we estimate that $10,324 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending September 30, 2021. As of September 30, 2020, we had ten outstanding interest rate swap contracts indexed to USD LIBOR, of which seven of these instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through December 2025. As of September 30, 2020, we have determined that three of our hedges are no longer highly effective. These de-designated hedges have varying start dates and maturity dates through December 2026.


Interest rate swap contracts outstanding:	Notional Amounts
Contracts accruing interest as of September 30, 2020	$	500,000
Contracts with a future start date	50,000
Total	$	550,000

Hedges of Currency Risk

Cross-Currency Swap Contracts

From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.

Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. As of September 30, 2020, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,874, both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.

Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income, net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of September 30,

2020, we estimate that $2,610 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending September 30, 2021.

Other Currency Contracts

We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar.

As of September 30, 2020, we had five currency forward contracts designated as net investment hedges with a total notional amount of $149,604, maturing during various dates through April 2023. We entered into these contracts to hedge the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.

We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three months ended September 30, 2020 and 2019, we have experienced volatility within other (expense) income, net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.

As of September 30, 2020, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso and Swedish Krona:

Notional Amount

Effective Date

Maturity Date

Number of Instruments

Index

$466,969

December 2018 through September 2020

Various dates through October 2024

586

Various

Financial Instrument Presentation

The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of September 30, 2020 and June 30, 2020. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.


	September 30, 2020
	Asset Derivatives							Liability Derivatives
	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet		Net amount		Balance Sheet line item	Gross amounts of recognized liabilities		Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives designated as hedging instruments
Derivatives in cash flow hedging relationships
Interest rate swaps	Other current assets / other assets	$	—	$	—	$	—	Other liabilities	$	(29,106)	$	—	$	(29,106)
Cross-currency swaps	Other assets	948		—		948		Other liabilities	(7,814)		—		(7,814)
Derivatives in net investment hedging relationships

Currency forward contracts	Other assets	—		—		—		Other current liabilities / other liabilities	(13,157)		—		(13,157)
Total derivatives designated as hedging instruments		$	948	$	—	$	948		$	(50,077)	$	—	$	(50,077)

Derivatives not designated as hedging instruments
Interest rate swaps	Other assets	$	—	$	—	$	—	Other liabilities	$	(7,386)	$	—	$	(7,386)
Currency forward contracts	Other current assets / other assets	4,784		(994)		3,790		Other current liabilities / other liabilities	(10,062)		1,568		(8,494)
Currency option contracts	Other current assets / other assets	—		—		—		Other current liabilities / other liabilities	(2,475)		202		(2,273)
Total derivatives not designated as hedging instruments		$	4,784	$	(994)	$	3,790		$	(19,923)	$	1,770	$	(18,153)


	June 30, 2020
	Asset Derivatives							Liability Derivatives
	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet		Net amount		Balance Sheet line item	Gross amounts of recognized liabilities		Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives designated as hedging instruments
Derivatives in cash flow hedging relationships
Interest rate swaps	Other current assets / other assets	$	—	$	—	$	—	Other liabilities	$	(31,161)	$	—	$	(31,161)
Cross-currency swaps	Other assets	4,462		—		4,462		Other liabilities	(4,746)		—		(4,746)
Derivatives in net investment hedging relationships
Currency forward contracts	Other assets	—		—		—		Other current liabilities / other liabilities	(6,829)		—		(6,829)
Total derivatives designated as hedging instruments		$	4,462	$	—	$	4,462		$	(42,736)	$	—	$	(42,736)

Derivatives not designated as hedging instruments
Interest rate swaps	Other assets	$	—	$	—	$	—	Other liabilities

Price	130.51	EPS	4
Shares	31	P/E	31
MCap	3,984	P/FCF	21
Net Debt	1,133	EBIT	200
TEV	5,118	TEV/EBIT	26
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-10-29
10-K	2020-06-30	Filed 2020-08-11
10-Q	2020-03-31	Filed 2020-05-06
10-Q	2019-12-31	Filed 2020-01-30
10-Q	2019-09-30	Filed 2019-10-31
10-K	2019-06-30	Filed 2019-08-09
10-Q	2019-03-31	Filed 2019-05-02
10-Q	2018-12-31	Filed 2019-01-31
10-Q	2018-09-30	Filed 2018-11-01
10-K	2018-06-30	Filed 2018-08-10
10-Q	2018-03-31	Filed 2018-05-03
10-Q	2017-12-31	Filed 2018-02-01
10-Q	2017-09-30	Filed 2017-11-03
10-K	2017-06-30	Filed 2017-08-11
10-Q	2017-03-31	Filed 2017-04-27
10-Q	2016-12-31	Filed 2017-01-30
10-Q	2016-09-30	Filed 2016-10-28
10-K	2016-08-12	Filed 2016-08-12
10-Q	2016-03-31	Filed 2016-04-28
10-Q	2015-12-31	Filed 2016-01-29
10-Q	2015-09-30	Filed 2015-10-30
10-K	2015-06-30	Filed 2015-08-14
10-Q	2015-03-31	Filed 2015-04-30
10-Q	2014-12-31	Filed 2015-01-30
10-Q	2014-09-30	Filed 2014-10-30
10-K	2014-06-30	Filed 2014-08-15
10-Q	2014-03-31	Filed 2014-04-30
10-Q	2013-12-31	Filed 2014-01-31
10-Q	2013-09-30	Filed 2013-10-30
10-K	2013-06-30	Filed 2013-08-15
10-Q	2012-12-31	Filed 2013-02-01
10-Q	2012-09-30	Filed 2012-10-26
10-K	2012-06-30	Filed 2012-08-15
10-Q	2012-03-31	Filed 2012-04-27
10-Q	2011-12-31	Filed 2012-02-01
10-Q	2011-09-30	Filed 2011-10-28
10-K	2011-06-30	Filed 2011-08-17
10-Q	2011-03-31	Filed 2011-04-29
10-Q	2010-12-31	Filed 2011-01-28
10-Q	2010-09-30	Filed 2010-10-29
10-K	2010-06-30	Filed 2010-08-27
10-Q	2010-03-31	Filed 2010-04-30
10-Q	2009-12-31	Filed 2010-01-29

8-K	2020-10-28	Earnings, Exhibits
8-K	2020-10-01	Other Events, Exhibits
8-K	2020-09-28	Officers, Exhibits
8-K	2020-07-29	Earnings, Exhibits
8-K	2020-06-12
8-K	2020-05-05
8-K	2020-05-01
8-K	2020-04-28
8-K	2020-03-31
8-K	2020-02-13
8-K	2020-02-11
8-K	2020-02-10
8-K	2020-02-10
8-K	2020-01-29
8-K	2019-11-22
8-K	2019-11-12
8-K	2019-11-05
8-K	2019-10-30
8-K	2019-10-25
8-K	2019-10-11
8-K	2019-09-17
8-K	2019-08-12
8-K	2019-07-26
8-K	2019-05-01
8-K	2019-02-12
8-K	2019-02-12
8-K	2019-01-29
8-K	2019-01-09
8-K	2019-01-07
8-K	2018-12-20
8-K	2018-11-13
8-K	2018-10-31
8-K	2018-10-01
8-K	2018-09-23
8-K	2018-08-01
8-K	2018-06-26
8-K	2018-06-14
8-K	2018-06-01
8-K	2018-05-29
8-K	2018-05-02
8-K	2018-04-25
8-K	2018-01-31

EX-31.1	ex31109302020.htm
EX-31.2	ex31209302020.htm
EX-32.1	ex32109302020.htm

CMPR 10Q Quarterly Report

Cimpress Earnings 2020-09-30