Q2 2023 Cimpress PLC Earnings Call

January 26, 2023

Data and analytics.

Product ranges and the beginnings of a full spectrum of design capabilities and certainly the talent pool.

Hi to all of those capabilities.

That's why at this juncture, it's the right time for me to now pass the Baton to resistance, Chief Executive Officer, Florida, Baumgartner under Florian leadership and his strong executive team.

In fact, the measurable progress steadily towards north star to be the design and marketing partner for small businesses, while delivering the financial results.

Sorry.

Support what Sean has just outlined and the continued growth beyond that.

In my role.

CEO I look forward to spending my time supporting all of our business abilities to drive both higher level and.

Higher financial returns for our investors as we focus on delivering the guidance outlined in yesterday's release.

On growing the per share value of <unk> with that let's open up to questions.

Great. Thanks, Robert So as a reminder, you can submit questions. During this last webcast via the questions and answers box at the bottom left of the screen. Some of you have already found that thank you very much.

We received a significant number of pre submitted questions as well also thank you. So much we really do appreciate that.

There is some overlapping areas, which is good so theres going to be a couple of cases, where I will ask a representative question.

When you got from multiple people and then our answers we'll do our best to cover everybody's questions.

We will get to as many as we can and we will make sure that we get to a variety of topics that are on People's minds. So let's take our first question, which was the pre submitted one which is next in the last earnings document published in October you wrote quote as we published with our customer demand picture remains strong across impressed however.

Organic constant currency growth has slowed materially from the mid to high teens to the mid single digit what happened in November and December that change things for the worse Shaun do you want to take that one yeah I'll take that.

So thats right a lot of that impact is from is from Vista and so.

In October October was a stronger month for Vista than November and December .

One of the big drivers there is mix and particularly the mix of consumer just to put that in perspective.

Sumer and our October bookings was about 13% of our overall bookings in November was 31% at December 38%. So you can see the the weight really ramps up throughout the quarter.

And that really does have an impact on overall.

Overall growth kind of month month by month.

Especially given the fact that the consumer category declined slightly year over year. So.

So that's the big driver I think it is also worth noting that.

Just from an advertising perspective, and this and this is in our results from last night.

Our performance advertising was 13% of revenue.

This quarter it was 16% last year.

And we had made some choices, including through the high volume weeks to operate with tighter payback thresholds and stick to that.

However, we were also at a full pace of our full panel testing.

And in particular kind of the full the full rate of spend in our mid and upper funnel categories, where we were testing in certain markets. So AD spend did have some impact on that month by month profile as well, but product mix as the b.

Driver.

Outside of the Vista, there really was not one trend in some of our businesses there was acceleration in growth throughout the quarter and some others there is deceleration.

Great. Thank you Shawn.

Stick with you after the next question which was on.

Revenue growth was there a slowdown in growth in the Vista segment revenue ex consumer products.

And another person asked a similar question with constant currency growth rate for the business marketing product good quarter, yes, yes, it did slow slightly constant currency growth rate.

For just for the small business products was a little bit lower than Q1.

That number was a little bit over 7% growth in those categories. So ex consumer in the December quarter, and then just to kind of bring that all the way forward to today as I mentioned in the upfront remarks, our constant currency growth in January overall on a consolidated basis accelerated above the 9% year to date growth.

For that we reported for the six months to December vis theirs vista's bookings growth did accelerate in January as well Thats actually one.

One of the biggest components of that acceleration and that's also helped by less consumer in the mix as well.

Great. Okay. So sticking my consumer this may be one that you both want to weigh in on but let's start with Robert. So this is the second year in a row, where we have had poor performance in consumer products, which has historically been an important profit driver for the business two questions. Because this is consumer products offering still resonate with the consumer.

If yes, what gives you confidence and what steps are being taken today to avoid another poor seasonal period next year and if consumer products arent as important just impress moving forward due to changes in what the consumer wants and where our inability or unwillingness to meet the changes what structural changes need to happen to make the Q1.

In Q3, and Q4 relatively more profitable corners.

So thank you frankly this is a topic we just.

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Youre right. The consumer is an important part of this is profitability.

It's been traditionally that remains the case.

On it on an annual basis, it's roughly 20% or so of revenues although of course, it's higher in Q2.

Im wondering Sean and you can jump in and correct me, if I'm wrong, but I think there was I mean, you just mentioned a moment ago that performance advertising we've limited.

Pulled back last quarter, and 13% in the quarter versus 16% a year before so we have made some improvements.

Okay.

Of our top rated hydro paybacks.

If you go beyond that.

The core as we are focusing so much on our customers are where we have our biggest opportunity.

Consumer has had less focus and we.

We had to be clear in small.

Small businesses are to move that and that certainly has impacted things like our brand messaging, our go to market and resource allocation and generally again.

Thanks.

Okay.

Life all of this is traditional business was very discount driven.

As we.

We are away from discounts for consumers there has been a shift there.

That said, we have created a dedicated consumer team that looked good.

Added resources, so they can be focused on consumer around the year, rather than just seeing it as a holiday.

And that team has improved the product and service offering already this year.

We had planned for a flat year overall.

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<unk> got out.

$4 million although.

We did that with less advertising spend and as I just mentioned.

So the consumer category should also benefit from the improvements that we have been making and we'll be making.

It's hard to say so.

It can be getting to the ease of getting new products launched improved experiences.

Right for <unk>.

Version <unk>.

Integration of design services and many other things.

No.

Another thing that should over time help.

It is.

Operator, we are introducing our business for example promotional products.

Interesting use cases for consumers.

Drink wear and apparel are good examples and.

Consumer focused promotional products.

And have been performing well during holiday.

Being said, we do recognize that.

<unk> is a far.

And we see the competitive set there.

When holiday.

Season comes around really spiking up.

Counting.

Advertising goes up and.

And we did not we intentionally did not chase bookings, we really tried to be disciplined sticking to our turnover thresholds.

A couple of more comments I'd say, we do have some key products like holiday cards interpretations of announcements.

Are you seeing changes in behavior over time that will likely leading to overall market declines.

If you look at it.

All right.

Category.

We still feel there's great opportunity there.

It's important to us it's secondary.

Sure.

Business that comes from small business.

Going forward, we will keep pushing on having consumer benefit.

But its refrigerant across the site.

Sean do you want to add anything.

I think that covers covenant just to touch on I think there is part of the question wishes.

Things that we can do in other other quarters.

Two to change if we if we are going to not focus on consumer which is as you heard from Robert not the case. It's still is important it's just has been secondary.

And the answer there is basically everything that we're doing across Vista to support small businesses, how we serve them, how we partner with them and how we can serve them across their entire lifestyle lifecycle.

Lifecycle and in turn increase volume across the year and serving small business customers. In addition to improve.

Improvements that we can continue to make in consumer as well.

Great. Thank you both.

I'm going to I'm going to move into a couple of questions that we received on.

Both pricing and inflation, so we will start on the pricing front.

John how much pricing has been taken in Vista and in other businesses.

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So how much was overall inflationary pressure how much more pricing is there to take.

Over the course of the next 12 to 18 months.

Okay.

This is an important question and frankly, it's one that it's it's difficult to answer with precision because there are a lot of nuances here business by business market by market.

And there is all sorts of impacts of changes in volume and discount rate and mix and so on so let me.

Ill do my best to answer here. We're also thinking about how we can package this up as well.

Our March session.

I will meet to this but.

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All of our businesses have seen increased input costs, we've been talking about that for.

The last one.

Four quarters in particular five quarters.

Some have been impacted more than others. So just as an example of that things like energy costs.

In Italy, they have increased a lot in France.

They have it right. So there's things like that that will have an impact business by business.

There's there's also obviously depending on the.

The raw material profile for our businesses that has to be driver.

Some impacted more than others, some are more directly tied to commodity prices, including paper.

And.

And in other businesses, including for example, the National Pen they do a lot of sourcing from China.

There, we've actually seen and this is an overall market than we've seen meaningful decreases in things like inbound freight costs, which are more material for that business. So there's a lot of nuance here.

In our upload and print businesses and national Penn and to some extent and build a sign we've.

We've been able to largely offset those cost increases with price increases.

And.

And that remains the case through Q2 again differences business by business, but not fully offset but we've been able to largely offset those cost increases.

And of course, our largest business.

And that's where we've seen the most net impacts the timing of the ramp up in those cost increases we talked about last year coincided with our technology migration that we're doing some of our largest markets and delayed when we could start to put those pricing benefits in market.

We implemented broad based price increases back in June and then and then we continued from there we talked last quarter about some of the benefits we are seeing.

Those benefits were higher in the September quarter than they were in December because of the mix of consumer and the level also the level of discounting for holiday promotions any consumer just given the price sensitivity there and the fact that we had brought down our discount levels over the last two or three.

Years, there are more price conscious customer.

There is more price sensitivity on the consumer side and so we've done less in terms of the pricing benefits there.

And that has an impact given the mix in the December quarter. We had said back in our September Investor day that for Vista, we expected to deliver at least $20 million through pricing changes in FY2023.

There's again a lot of nuances to that but we're definitely we're on track to that for that we are on track to achieve more than that but the relative benefit in the December quarter was less than it was in the September quarter, I think as we get to the March quarter and that mix shifts back again.

More towards the small business products, we will see more benefit in Q3.

There is still room for improvement, especially on the vessel side to continue to optimize we have specific plans for that we have teams that are focused on that every day.

But I do take that the pace of that.

After especially after this fiscal year.

Is likely to slow.

So to the question of kind of what's left to go get I think I think the opportunity set is lower than it was over the last year just given the steps that we've already taken but there still is there still is opportunity and we monitor that very closely.

And then this one can be I think a quick follow up because you've already talked a bit about what we're seeing in terms of the cost inputs.

Lately, but inflation peaked in the late summer and has been gradually coming down but the gross margin pressure. This past quarter was more pronounced in two quarters ago 400 basis points of compression this quarter versus 202 quarters ago why is that.

Yes.

Just like anything.

We will experience the market over time.

And when it comes to how we buy we always seek to be below the market, but we have to move with the market over time, because a lot of that is underpinned by things like commodity pricing and so on.

But we don't we don't move exactly with the market. So we do we will.

We do see stabilization I mentioned that but we don't see cost overall coming down yet.

At least in most of our main input costs.

Although as I just mentioned in things like about freight are down quite a bit.

We're seeing stabilization elsewhere. So cost is still have an impact over the last six months because I think the question is referring to gross margins in the December quarter versus the June quarter.

Costco did have an impact although the shape of that is definitely improving.

<unk> mix again here is a big driver so in some of our businesses.

Gross gross margins did deep sorry did increase in the December quarter versus June and in some cases, they were lower but.

Again Vista has the biggest impact here in Vista, our gross margins were down about 400 basis points in.

In the December quarter versus June if you compare that back to Q3. There are really three drivers of that one is that like I said before consumers wherever we've done less on a net pricing basis, given the competitiveness there the price sensitivity and consumers much higher in the VIX in the December quarter.

Two business cards and stationery that category is.

Amongst our highest variable gross margins.

And that has a higher concentration in the June quarter, Theres, a little bit of seasonality there, but that was 32% of our bookings in the June quarter was 25% of our bookings in the December quarter, So again mix.

And then the other thing is that we did have we mentioned in the release, we did add $3 $1 million charge in Q2 that comes through gross profit and so thats about 70 points alone of that overall 400 basis points Delta.

So consumer consumer some.

Some of the business card mix, and then that charge has an impact as well.

Great. Thanks.

Robert we continue to grow head count at a time when results are weak and other businesses are entering cost saving mode. Given the macro uncertainty why does it makes sense to continue to add where we are adding.

Well first of all Mike.

Cost savings makes sense, given the macro uncertainty, we certainly talked about that in our prepared comments that we released.

Okay.

So some of the growth of head count comments, because we are growing in our upload and print businesses, but if I focus on Vista.

Hurdles that impact our operating expenses.

Our fixed cost.

So in the plan and customer care costs.

Okay.

For full year.

In the quarter, we also have significantly curtailed hiring.

And in the Cintra central teams as well.

And actually reduce those back in June .

Now.

We provide are still related to Vista, our head count is up but that is really because of the staffing for our seasonal peak.

Just.

Production facility in Canada, where there these roles are classified as permanent but you can see in our normal pattern.

In the March quarter.

Great.

Okay, So I'm going to ask one or two more questions on.

The quarterly results and then we're going to show up to a couple of other topics.

But this one is on geographic growth in Vista I get the economy isn't what we thought it would be no I have been hearing Europe is worse than the U S and here your European business continues to look great well the predominantly U S focused Vista continues to lag, especially in gross profit more context on any callout drivers.

What's good in Europe or bad in the U S would be helpful.

Sure Good question.

I started out by saying, our upload and print businesses.

Uhm.

Four plus years ago.

Really our push to more autonomy and more decentralization.

Yes.

The entire team and both of those businesses are just doing a great job, they're firing on all cylinders and we're just really proud of what they are doing.

Having a positive impact we do believe this market overall has room for consolidation and that we can leave that.

Yes.

Competitive market like the upload and print market in Europe . The fact, they were very well demonstrates that fleet.

No.

Vista, we are actually seeing higher constant currency growth outside of the U S compared.

Our.

We are doing in the U S. So that is true in Canada is through Europe , and its true in Australia.

Now.

Sumer.

Thank you.

Year over year down slightly overall, but there are a few markets where it grew stronger.

Syed.

I think the.

We really have to understand our customer sentiment they do.

Rob and some business oriented products, but again that changes market by market.

If I look at the ability to pay.

Crude prices that changes market to market and again I realize this comment on mixing.

Our upload and print and Vista, but we've been able to pass on it.

Quite a bit of pricing changes and upload and print earlier, we will be lapping some of those.

Casey Great moderating there.

Sean you May add a few more comments I guess the last thing is in the.

Supermarket is tough and competitive as I mentioned, we didn't chase revenues with advertising.

And in this order in the quarter.

That has a big impact, especially in the U S.

Do you have any other thoughts on the difference between Europe .

I think yes, I think you covered cover most of it we've seen I think the.

As you indicated.

A lot of the sort of differential growth in our upload and print businesses versus let's say in.

In North America is not necessarily a market specific there's other dynamics at play there, including the speed at which they have been able to operate crack into new product categories acquire new.

Customers, especially over the last two years take share.

And so there is market specific but also kind of business specific factors. There I think just in Vista.

Our absolute growth in revenue.

<unk> was basically roughly the same between Europe and.

North America in Q2, just kind of give you a sense of that of that weight.

And I think there's all sorts of dynamics here a lot of it does come down to also product mix you see that as a kind of a theme throughout this call.

Yes.

The performance of consumer had a little bit more weight on the on the U S. In particular than it did in Europe in terms of overall growth.

That said <unk> growth is stronger in North America as well in absolute dollars.

So all those things are all those things are at play all of these markets are in focus yes. The only other thing I'd say is there are a couple of European markets.

Have been very strong, especially France, France is also where we have been doing some of our full panel testing.

And that had differential performance this quarter as I referred to earlier so.

So I think Thats I think thats it.

Okay, I'm going to shift gears to some questions on liquidity and capital allocation.

So first one Sean is on the minority interest purchase this quarter.

What was the EBITDA multiple of that acquisition and what will that do to our core cash flow going forward if anything.

I'll I'll stop there and.

Yes sure so the.

The way that the way to this.

Arrangement that works, we had so there was a reciprocal put and call.

And the valuation for for that was it was a formulaic value valuation.

That had two main inputs to one was revenue growth in the other one was.

Revenue growth in order to determine the multiple and then unlevered free cash flow before tax to determine the actual the actual value.

So that's kind of that's how they work. These these.

<unk>.

Revenue growth last year, which was over 30%.

Actually 30% was the with the kind of the cap in terms of how that multiple table work.

But they also have really high free cash flow conversion. There we had some caps in terms of how that valuation was calculated.

Contribution of certain elements of of.

Cash flow the way I would the way I would think about this is that in terms of a multiple.

We paid between eight to nine times, the Unlevered free cash flow before tax on these businesses for for that.

The Noncontrolling interest.

These are businesses that continue to grow.

At rates that are amongst the highest.

Crossed impressed as a segment they are the highest over 20% year to date.

And going forward.

In terms of the impact on our future cash flow what that purchase means is that we will maintain almost all of the cash flow generated from those businesses, whereas before.

We only retained about 90% the other amount or roughly 11% we were paying out as effectively a dividend to those minority holders in the past. So we will retain more of the cash that they generate.

Great and just a quick follow up that we had this is a live question what other noncontrolling interests. Our last TV puts you asked is there what's the materiality of.

Of what's left essentially that.

Its pretty small now so you have a little over 1% of these print.

Brothers businesses that remains.

Otherwise we in addition to the print brothers put option that we settled.

There was also the purchase of Noncontrolling interest and build a sign so that's now cleared out all of this is disclosed in our 10-Q, we have.

The table that kind of walks through that footnote. So you can refer there but but.

But the short story is that this is the vast majority of them great.

Great.

Okay.

Any updated thoughts on the liquidity thresholds at which point the company would be willing to deploy capital for bond repurchases, we had multiple questions on bond repurchases yes.

There is no specific number that we've given we will continue to not give a specific number.

We've said consistently over the last couple of quarters that our focus and our priority has been on.

Liquidity that remains the case.

That was especially and focus because we.

And we had previously disclosed that there was a high likelihood that we would be settling that put option that I just I just went through.

And so therefore necessitated a focus on liquidity versus taking advantage of things like the way that our bonds were trading.

Don't have any active plans to repurchase of our bonds liquidity remains the focus.

I think that as we as we execute on the things that we outlined in our guidance.

And we execute on our Delevering over the quarters ahead and throughout FY 'twenty four.

Then capital allocation opportunities start to open up but there are no plans to no active plans to buy our bonds.

Great.

So a couple of people notice, obviously that our first lien leverage was above the.

The leverage test if we were to have any amounts.

Amounts drawn at the end of the quarter.

There's been some questions on.

On a revolver so would we.

Think about extending the maturity of the revolver in the near term, what we think about amending.

The credit facility in order to get a waiver.

Multiple questions on that front, John yes. So.

The short answer to all of that is no.

The revolver matures in 2026, we arent actively looking to to extend that of course, as we get closer to that maturity, we will but.

But that's in the sort of 12 months to 18 months timeframe not in the next kind of three month timeframe.

And then as it relates to the first lien leverage so just to be sure. It's clear as you referenced in the question Meredith.

That only applies that test only applies to the extent that we have a drawn balance at the end of the quarter.

We have not had that we don't plan to have that we are just slightly above that first lien test, which is at 325 times, our first lien leverage.

However, if you think about the guidance that we provided last night as.

As we again as we start to March up that EBITDA expansion curve and also delever.

Then we would quickly be below that that first lien test. So so there is no active plans to either.

Seek an amendment, there or anything like that nor.

Look to extend the maturity, we don't need to do that now.

Great.

Okay, Robert I'm going to ask you a question.

Given increased deleverage will you consider issuing equity or monetizing in one or more division to reduce debt.

Well first of all I want to repeat what we said at our say our plan is to reduce low leverage net leverage through.

Adjusted EBITDA expansion and returning to historical high adjusted EBITDA levels and the cash flow that comes with it.

Full stop.

No.

Yes.

So divestiture is certainly something we understand and would consider if the right conditions are there and if we believe we are better off.

For other things.

But this is not something we would do without a lot of thought about the long term.

Capabilities of <unk>.

And certainly in the near term the environment right now is not really favorable to divestitures.

Great. Thank you.

So I'm going to hit one question. This is more of a strategic question before I move to the outlook section.

Thought worth asking.

How is the development of the mass customization platform changed your acquisition strategy. For example, it seems your recent tuck in acquisition.

Able to quickly implement several MTT product.

Easier and the technology games are relatively larger for smaller firms in the future could you see some press pursue several tuck in acquisitions annually compared to one large acquisition every few years as was the case for 2016 to 2018.

Well, it's a good question, let me start out by saying, we do not anticipate material M&A in the near term because of everything we've been pleased with.

The EBITDA expansion.

Net leverage down, but if you look at from a longer term perspective, yes. We do think there are a lot of advantages you can just summarize that.

And.

They are certainly in tuck in acquisitions as well as larger acquisitions.

It may not be so obvious, but we have made.

I don't know if you could tell me over the last five years six eight.

Hi.

<unk> are that are.

Or investments that are really relatively small often well undertake.

That have gone very well.

Rough number before I go on yes, that's right Robert.

Okay great.

Going back to MCP at this time, our focus is very much an internal leveraging and the businesses. We have a great. What exactly is that in January and Pixar printing, which is the largest part of print group and <unk> group is doing very well, including fixed are doing very well.

Yes.

Pixar printing migrated, Italy, and Italy is their largest revenue country.

And of glass.

That migrated to Mcps e-commerce tools, they've migrated, France, and Spain, and the UK and others.

Previously and that migration.

So again, we're really leveraging MCT.

Assets, we have today.

As to future M&A.

The caveat occurred.

Right now.

<unk>.

The size really.

It depends.

Okay.

Kim.

Okay.

Vertical integration into our supplier and they are relatively easy.

It's easy, but relatively easy to extract value from those.

For those long term.

Great Okay.

Okay, Sean quick one for you how much cash do you need to run the business.

Yes.

We haven't we haven't provided a specific number of kind of a minimum cash.

So I'll say.

At the end of December its $130 million of liquidity.

That is sufficient.

Including any sort of working capital outflows that we normally seasonally have in Q3.

So that remains sufficient that revolver or is there too if we needed during the quarter in terms of just movement of cash around around the business and kind of timing there.

But but that liquidity is sufficient and then we expect that to build over time.

Given the guidance that we released so so no specific number there, but liquidity that we have is sufficient again, including any outflows from working capital in Q3.

Great.

So, let's get into let's get into the outlook.

First on revenue.

You called out that overall trends have improved in January anything more to call out there.

Can you give us a sense of how much constant currency revenue growth has accelerated relative to the first half of the year.

Yes.

So we didn't give a specific number but we said it was higher than 9% we were at 5% consolidated organic constant currency in Q2, so that's the acceleration.

And it's about 9%.

I think the thing that I would I would call out as.

As really Vista in those numbers there was improvement elsewhere, two relative to Q2, but Vista was really the the one to call out.

And I do think as we as we track through the March quarter.

There's a few things at play there one is.

Last January and February there was quite a bit of.

The COVID-19 impact on demand, especially in Europe.

So that will have some impact just in terms of the comps.

And then as I mentioned before too we had the site launch of our U S market.

In the roughly the third week of February last year, and as we talked about throughout last year. When we did those migrations. They would have an initial impact.

On revenue and then we would grow grow from there so.

So we will be lapping all of that which will help to support higher growth rates as well and then the last thing is just again from us from a mix perspective.

This.

Acceleration and growth in January is helped by the fact that the mix shifts back to small business products and they've been growing more strongly.

Great. So you all but answered. This next question with that one but I just wanted to be very clear for everybody does the previously provided guidance for Vista revenue growth to accelerate in FY2023 versus FY 'twenty two's FX neutral rate of 5% still stands it does great.

Hey.

Now we've had many many many pre submitted questions about the guidance that we gave yesterday from an EBITDA perspective.

Everybody wants details how do we get there.

What is that going to look like in FY2023 what is that going to look like in FY 'twenty four where are the costs going to come out are they kind of come out of the advertising or are they going to come out of operational expenses, where where are these things coming from and what is the map to get there.

Robert do you want to take this one sure.

I'll jump in and Sean feel free to jump in obviously.

Okay.

That we have in March.

<unk> Investor Day, which we have said we wanted to give you a lot more details and Vic.

Victor asking we can talk to.

Although certainly we have begun our scenario developments and planning before we have not completed that work and so it would be premature to give you a lot of.

A detailed answers.

Thank you Larry.

We certainly believe there is an opportunity here and we're going to.

Worked through those different scenarios.

And how much revenue growth we're seeing.

We do expect.

<unk> said to have revenue growth.

Yeah.

That EBITDA bogey of 400 million.

Fiscal 'twenty four will require substantial cost reductions.

In addition to that revenue growth.

So.

I think the framework to thank you Bob.

Internally, we're saying, yes, we.

Are not simply cutting costs, where getting the goal of getting to $400 million alone. We believe that we can.

Okay.

Staying or do more with less we can drive efficiency performance our simplification.

And that.

Tightening down.

If it's done right. It can really lead to some significant acceleration beyond that.

No one like any.

In any business certainly we don't like to do the same breath infection.

We have done this in the past for the long term shareholders, who benefited us.

When these are done the best.

We had very much achieved.

Dual objectives.

Saving costs.

The velocity of the business. So again, we certainly look forward to giving you more details in our midyear.

Midyear strategy.

On March 21.

Thank you Ron or John do you want to add maybe just add two things.

I think the meta point here is there is a lot more that we will share in March but yeah.

Yes, I think.

Some of the thread of questions.

If I were a divestiture.

Why now and Robert alluded to this to some extent, but I think.

Our view is the.

Profitability has been impacted by external factors over the last year.

Year two years.

And we just feel because of our commitment to expanding EBITDA and the ways that we talked about and also delevering.

That we need to do this through things that we can control really drive this two things that we control and yes. We also expect revenue growth as well to contribute to that.

But we really need to drive this through things, we control and as Robert said, we think that there is.

Opportunities to do that and do that in ways that are supportive of yet of course, not just getting to $400 million across growth beyond that.

There was one other question there was reference to.

Like how should how should one think about this should we look back to what we did back in the pandemic as a guide to the actions that we might take and I would say there of course, what we had what we went through during the pandemic is informative.

But I think this playbook is quite is quite different in its context. There we were trying to very quickly.

Reduce costs wherever we could with the primary motive being make sure. We protect liquidity. This is a very different context, we've been investing a lot.

We've made significant improvements, including in our largest business.

Also with the re platforming, which has a really really significant impact on that business and how we can operate and so now we need to take a step back look at both the investments that we've made some of those that are longer duration and make some assessment about.

Should we bring some of those in make some choices there, but also how can we operate in different ways and how can we and where can we operate more efficiently and so from that perspective, I think it's a different playbook than what we went through in 2020, but of course, that's always informative in terms of what's possible.

Yes, Sean I fell 7% agree with that.

Those.

Goes back to almost 2018 or so.

And certainly in the financial crisis, the global financial crisis in 2708.

We've done similar things.

Thank you.

Okay quick one Sean does getting down to three five times net leverage involved actively paying down debt or mostly driven by EBITDA expansion and cash generation.

It evolves.

So first of all I mean this is all on a net leverage basis. So in terms of paying down debt that doesn't necessarily factor into the into the math because cash generation.

You just increase the liquidity on the balance sheet funded liquidity does have an impact on that leverage as well.

So there's not an assumption of what will be pay down debt or not that's stuff that we will consider going back to a prior question would you refresh your bonds for example.

So therefore most of this is driven through EBITDA expansion and then the resulting.

Cash generation.

Great. Okay. So I've had a couple of follow up questions and we had a pre submitted question really around what should people take from the fact that we have decided to pull back on costs.

So.

This one particular person I read the comment on cost cuts driving profit improvement as a view that revenue growth is likely to be less than previously modeled and as such cost controls.

We needed to meet the need to $400 million bogie can you confirm on that on that front just be very clear.

Well I think in terms of this year and there was a prior question about being above 5% constant currency growth.

Quarter versus our prior guidance and I said that that was still the case.

So I don't think from a near term perspective that there is a necessarily that tight of a correlation between cost reductions and growth over time that may be the case, including that I mentioned before looking at where we have sort of.

Longer term investments that are have longer term payback, some where we might look to make some different choices. So those things can impact growth in the years ahead.

But I wouldn't see them as directly connected and also I think in terms of the why go back to what I said in reference to.

One of the recent questions.

I think to why here really is.

That we were committed to EBITDA expansion, we're committed to delevering.

And we can't just rely on revenue growth, which is subject to factors that some of which are outside of our control and so we really feel like we need to.

To do this even more so kind of boosted through things that are in our control and that's really the main thrust of the Lai.

Thanks, Sean Okay, I'm going to try to sneak in two more questions before we end. This call. So first one for Robert given the mix shift in Vista will Vista margins go back to where they were or will margins be lower than previous years, even after recouping higher input costs and currency headwinds et cetera, due to the mix shift.

Yes, I think so.

We're talking about and the margins, we're talking about but if I think of segment EBITDA, we certainly believe that.

Mr can achieve those 20 grand scale overtime gross margins have shifted and we think that those are more permanent.

Often come with lower gross margins often come with higher lifetime value customers. So we think it's a factor that we can manage.

Great, Okay, and then Sean.

I'm going to go back to the liquidity topic here from an outlook perspective.

And from a very near term perspective, so short term liquidity looks tight without access to the revolver, especially in that there are likely to be restructuring cost surround the announced cost control coupled with a seasonally weak working capital period.

Because I think <unk> normally see something like $60 million in working capital Burn. In addition to normal expenses. It feels like liquidity could get very tight next quarter can you comment on how the company thinks about that.

How do we think about it yes, yes sure so yes.

Yes.

Just kind of going back to that picture of what FY 'twenty. Three was was planned so it looked like in terms of first half of the year margin compression in the second half of the year as we exit EBITDA expansion.

If you think about that and apply it to our liquidity also to our leverage like it was always our expectation that.

We have increasing leverage in the first and second quarter.

And then we would start to March down that curve, we had prior commentary that we expect it to delever from last year's levels that was before the non controlling interest payments. So.

So relative to Q3 as I said before we have sufficient liquidity to $230 million of the end of December .

We do seasonally have working capital outflows in Q3.

Plan for that.

And the plan had been and continues to be that Q3 would be the low point and then we'd be marching up from there as it relates to.

As it relates to the impact of restructuring costs typically those are paid over time and so the way to think about that is as we experience EBITDA savings the cash flow savings attached to that will be on a delay because we will still be will still be paying out those restructuring costs.

A number of months.

While we are starting to experience the EBIT EBITDA benefits. So that's how we're thinking about that so that doesn't that doesn't.

For the most part doesn't lead to something like one one time large cash outflow, but rather.

The sustained kind of cash outflows that we already have in our run rate for longer than we will have those things in our in our EBITDA hopefully hopefully that sets the picture for everyone.

Thanks, Sean.

Alright, we are almost that time, Robert any parting remarks.

Well first of all thank you everyone for the time that you have all of us are public.

Published quarterly results the questions that you've asked and the time you.

Put into this call as well.

We said we are optimistic about the future of <unk>.

Specifically within <unk>.

<unk> about the opportunity for us to demonstrate hopefully to come out of this sustained period of investment and return.

To our traditional early.

Barclays hurdle of adjusted EBITDA and beyond.

We look forward to you all joining us on March 21st half year.

And until then have a great day.

Great.

And a half.

Operator.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Welcome to this impressive second quarter fiscal year 2023 earnings call I would now introduce Meredith Byrnes, Vice President of Investor Relations and sustainability. Please go ahead.

Thank you Catherine and thank you everyone for joining us today after positive investor feedback from our Q4 FY 'twenty two public earnings call. We have decided to reinstate quarterly public earnings call and we will continue that as long as they continue to be useful to investor understanding of our financial and operating performance.

With us today are Robert Keane, our founder Chairman and Chief Executive Officer, and Sean Quinn, EVP and Chief Financial Officer.

Hope you've all had a chance to read our earnings document we really do appreciate the time that you have dedicated to understanding our results commentary and outlook is live Q&A session will last 45 minutes to an hour.

A question you can submit questions via the.

A question and answers box on the bottom left of the screen.

Before we start I will note that in this session, we're likely to 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 that we published yesterday on our website you might you to read them and now I will turn things over to Sean and Robert for some brief remarks before we take questions.

Great. Thanks, a lot Meredith and thanks to everyone for joining us today I'm just going to start by highlighting a few key points from the results that we published yesterday, along with our outlook.

As we outlined back in our September Investor day, the fiscal year results for this year, we're going to be carrier characterized by margin compression in the first half of the year as we annualize the impact of cost inflation that accelerated in the second half of last year also as we annualize the impact of last year's investments in Vista, and we experienced some unfavorable.

Shifts in our product mix from a margin perspective.

And we said that as we exit this fiscal year, we expect to be on a path to expanding our EBITDA pull through margin expansion through revenue growth.

All of this remains the case in our second quarter results reflect this.

Total revenue grew in constant currencies across all segments, including growth in revenue from new customers in the Vista businesses last quarter, However, constant currency revenue growth slowed from the first quarter.

Revenue from consumer products was down slightly and has more weight this quarter, particularly in the months of November and December .

That being said in January month to date as mix shifts back our organic constant currency revenue growth has accelerated back above the 9% consolidated growth rate that we reported for the six months ended December and over the remainder of the fiscal year.

We're going to be Comping last year's this site migrations to our new tech platform and large marketing, it's like the U S like in France, and Germany that we expect to support higher year over year growth as well.

From a cost perspective across impressed we see signs that our year over year pressure on many input costs are stabilizing and in some case cases costs are starting to decrease.

<unk> gross profit did weigh on our year over year results and it is still impacted by both increased input costs net of the pricing increases that we've taken as we're still lapping cost increases that accelerated in the second half of last year, but also product mix shifts, particularly in the Vista business.

Also had an unfavorable impact.

Look at it in total consolidated gross profit declined year over year by $36 million about $22 million of that decline was from unfavorable currency fluctuations on our gross profit that are offset throughout the rest of the P&L, including from our hedging gains.

Of that remaining $14 million of operational decline in gross profit.

That was really from our Vista business all of our other businesses had constant currency growth in gross profit.

So for Vista. In addition to increased input cost year over year as I mentioned before gross margins were impacted by product mix as we had constant currency decreases in consumer and in digital product bookings, which represented a combined $7 million decline those are categories that have high variable gross.

Margins.

We had very strong constant currency bookings growth of over $16 million and our promotional products apparel and gift category and that has very strong customer economics, but it has lower variable gross margins.

Sticking with Vista, our full funnel advertising test that we outlined back in September generated differential performance, new customer count and new customer bookings. Both grew this quarter overall for Vista and that was helped by markets, where we had been testing mid and upper funnel advertising spend and new customer growth was one of the specific outcomes. We were looking for.

To deliver.

As previously disclosed it was always our plan that the spend behind that testing will be frontloaded in the first half of the year that remains the case and we will now use the learnings from this testing to continue to evolve and test our channel mix going forward.

In the quarter, we actually decreased our performance advertising spend year over year in Vista and that includes during the consumer driven holiday peak.

Following actions that we took to reduce operating costs as we entered the fiscal year. We took some further actions this quarter to contain our operating costs.

Operating expenses, excluding restructuring charges were up only modestly year over year in constant currencies. Despite the significant investments we've made in Vista throughout last year that we're still lapping and despite continued growth in our businesses.

On the net income and EPS side, we had sizable losses, there due mainly to noncash drivers, including the establishment of a $116 million valuation allowance that drove tax expense in our P&L, but it doesn't have an impact on our cash taxes that was a reversal of a tax benefit that we reported back in fiscal 2020.

For net operating losses that arent available to us until 2025 to 2030, we still expect to use a large portion of those nols, but we arent able to support maintaining that deferred tax asset based on the U S. GAAP Roes.

<unk> given the weakening of the U S dollar against our largest currencies since last quarter, we had unrealized losses from currency hedges that flow through our P&L and affect net income.

Moving onto cash flow last quarter. We told you we increased our safety stock of certain raw materials to mitigate supply chain disruptions, especially related to risks related to energy disruption in Europe . We.

We started to work this inventory down in Q2, and actually we had cash inflows from inventory as a result, when we would typically see cash outflows in our December quarter.

We expect to continue to work that inventory down in the back half of FY2023 as well.

From a working capital perspective, we didn't see as large of an overall benefit as we have in recent years due to the lower sequential increases in our cost base given some of the actions that we've taken and therefore, we also should not experience as significant of an outflow as we go into the third quarter.

During Q2, we did pay $95 $6 million to acquire a noncontrolling interest in our businesses $91 million of that was for the settlement of a put option for over 90% of the Noncontrolling interest in the businesses in our print brother segment, which has been our fastest growing segment.

Last quarter, we told you that we are preparing for that likelihood so that actually happened and those payments reduced our liquidity, which was down sequentially, although still sufficient at $213 million.

Net leverage increased this quarter, we did expect an increase given the lower year over year EBITDA. The settlement of the put options in the Noncontrolling interest payments overall of course had an impact on our net leverage that alone drove about half of the increase in that leverage from last quarter as of December at the end of December our net lever.

<unk> was $5 five two times and our first lien net leverage was 334 times.

Finally, let me just say a few words about the guidance that we provided in last night's release as I said earlier in our past commentary. We described an expectation for margin compression in the first half of the year for all the reasons I outlined and profitability expansion as we were exiting the fiscal year with growth in the years ahead, we are committed to expanding profitability we're committed to.

Delevering the balance sheet I previously mentioned that revenue growth in January has accelerated but we will not rely on revenue growth alone to drive those profit improvements.

Taken multiple steps over the last year to contain or reduce costs, but over the remainder of the fiscal year. We plan to take further steps to significantly reduce our cost base in support of expanding profitability as we exit the fiscal year as I noted or we noted in our release last night in light of anticipated cost reduction measures, we expect that we'll be able.

To return to our prior fiscal year high adjusted EBITDA of $400 million in fiscal 2024. That's next year. This higher adjusted EBITDA combined with the expected free cash flow generation would bring that leverage levels to approximately three five times or below.

We have a.

At mid year strategy update planned for investors on March 21.

And there we will share more details on the steps that we're going to take.

To drive that profitability expansion, including cost reductions.

And the associated net leverage improvement.

Now I'll hand things over to Robert to say, a few words about the Vista CEO transition that was referenced in the document last night.

Thanks, Sean and good morning to everyone, who is calling in today.

Given the guidance as Sean just outlined I also wanted to understand.

Thank you.

Important just in for us overall.

When I returned to Vista four years ago.

Right, but also areas that needed really significant attention in order to transform the business for the coming decades.

In 2019, I expected that will take a couple of years to establish a strong foundation for vista's future.

And pass the Baton to Vista's next CEO .

The pandemic slowed down our progress for time, and we have been focused on.

Multiple multiple major multiyear investments.

These included re platforming, but thats the technology.

Hey.

Brand positioning had been highly dependent on deep discounts.

Better serving higher value customers.

The work upon which we can revitalize this is traditional strength in design and service.

Thanks.

And thanks to the great talent with Vista already had two new talent, we attracted over the last four years.

Contributions from Stifel.

Right.

Alright.

Good day.

Substantial growth.

I told you at the Investor Day in September the Vista was ready to run.

That certainly remains true today.

Withstanding the fact that macro conditions are causing us to look at significant cost reductions for the coming months.

Mr. <unk> will be able to improve how it serves customers. Thanks to the strong foundations, we have built across technology data and analytics market.

Product ranges and the beginnings of a full spectrum of design capabilities and certainly the talent pool.

Hi to all of those capabilities.

That's why at this juncture. It is the right time for me to now pass the baton to resistance.

Chief Executive Officer Florian Baumgartner.

Under <unk> leadership.

His strong executive team.

Notable progress steadily towards north star to be the design and marketing partner for small businesses, while delivering the financial results.

Our August part what Sean has just outlined.

The continued growth beyond that.

In my role.

Yes.

I look forward to spending my time supporting all of our business abilities to drive both higher level are you.

And our higher financial returns for our investors as we focus on delivering the guidance outlined in yesterday's release.

On growing the per share value of <unk> with that let's open up to questions.

We received a significant number of pre submitted questions as well also thank you. So much we really do appreciate that.

There is some overlapping areas, which is good so theres going to be a couple of cases, where I will ask a representative question.

Now when you got from multiple people and then our answers we'll do our best to cover everybody's questions.

As many as we can and we will make sure that we get to a variety of topics that are on People's minds.

Let's take our first question, which was the pre submitted one which is that in the last earnings document published in October you wrote quote as we published with our customer demand picture remains strong across impressed however.

That's right a lot of that impact is from is from Vista and so.

In October October was a stronger month for Vista than November and December .

One of the big drivers there is mix.

In particular, the mix of consumer just to put that in perspective.

Consumer in our October bookings was about 13% of our overall bookings in November was 13, 1% at December 38%. So you can see the the way it really ramps up throughout the quarter.

And that really does have an impact on overall.

Overall growth kind of month month by month.

Especially given the fact that the consumer category declined slightly year over year. So.

So that's the big driver I think it is also worth noting that.

Just from an advertising perspective, and this and this is in our results from last night.

Our performance advertising was 13% of revenue.

This quarter it was 16% last year.

And we had made some choices, including through the high volume weeks to operate with tighter payback thresholds and stick to that.

<unk>, we were also at a full pace of our full panel testing.

Driver.

Outside of the Vista, there really was not one trend in some of our businesses there was acceleration in growth throughout the quarter and some others there is deceleration.

Great. Thank you Shawn.

Stick with you after the next question which is on.

Revenue growth was there a slowdown in growth in the Vista segment revenue ex consumer products.

And another person asked a similar question with constant currency growth rate for the business marketing product. This quarter, yes, yes, it did slow slightly constant currency growth rate.

For just for the small business products was a little bit lower than Q1.

For that we reported for the six months to December vis theirs. This is bookings growth did accelerate in January as well Thats actually one.

One of the biggest components of that acceleration and that's also helped by less consumer in the mix as well.

Great. Okay. So sticking my consumer this may be one that you both want to weigh in on but let's start with Robert. So this is the second year in a row, where we have had poor performance in consumer products, which has historically been an important profit driver for the business. Two questions does this is consumer products offering still resonate with the consumer.

In Q3, and Q4 relatively more profitable corners.

So thank you frankly this is a topic we thought early.

Youre right. The consumer is an important part of this is profitability and.

It's been traditionally that remains.

Case.

Numbers on it on an annual basis, it's roughly 20% or so of revenues although of course, it's higher in Q2.

One thing, Sean and you can jump in and correct me, if I'm wrong, but I think there was I mean, you just mentioned a moment ago the performance advertising we've limited alright.

Pulled back last quarter, and 13% in the quarter versus 16% the year before so we have made some.

Okay.

Cap rate with hydro paybacks.

But if you go beyond that.

The core as we are focusing so much on all customers are where we have our biggest opportunity.

Consumer has had less focus and we.

We had to be clear internally across small business or to move that and that certainly has impacted things like our brand messaging, our go to market and resource allocation and generally again.

Thanks.

Our business like all of this is traditional business was very discount driven.

<unk>.

We currently.

Away from discounts for consumers.

There has been a shift there.

Third we have created a dedicated consumer team that look.

They've added.

<unk> added resources. So they can be focused on consumer around the year, rather than just seeing it as a holiday.

And that team has improved the product and surface offering already this year.

We had planned for a flat year overall.

<unk>.

<unk> got out.

$4 million although.

We did that with less advertising spend and as I just mentioned.

So the consumer category should also benefit from the improvements that we have.

<unk> been making and we'll be making.

It's hard to say so.

It can be getting to the ease of getting new products launched improved experiences.

Right for <unk>.

Version <unk>.

Integration of design services and many other things.

Now.

Another thing that should over time help consumer is.

We're introducing for business for example promotional products.

Interesting use cases for consumers.

Drink wear in apparel.

Good examples and.

Our consumer focused promotional products.

And has been performing well during holiday.

Being said, we do recognize that.

Tumor is a far.

And we see the competitive set there.

When holiday.

Season comes around really spiking up.

Counting.

Advertising goes up and.

And we did not we intentionally did not chase bookings are we really tried to be disciplined sticking to our turnover thresholds.

A couple of more comments I'd say, we do have some key products like holiday cards interpretations of announcements.

Are you seeing changes in behavior over time that will likely leading to overall market declines.

If you look at consumer.

All right.

Category.

We still feel there's great opportunity there.

Again, it's important to us than second.

Secondarily.

Each of our business that comes from small business.

But going forward, we will keep pushing on having consumer benefit leapfrogged base refrigerant across the site.

Sean do you want to add anything.

I think that covers covenant just to touch on I think there is part of the question wishes.

The things that we can do in other other quarters.

Two to change if we if we are going to not focus on consumer which is as you heard from Robert.

Not the case, it's still is important it's just has been secondary.

And the answer there is basically everything that we're doing across system to support small businesses, how we serve them, how we partner with them and how we can serve them across their entire lifestyle lifecycle.

Lifecycle and in turn increase volume across the year and serving small business customers. In addition to improve.

Improvements that we can continue to make in consumer as well.

Great. Thank you both.

I'm going to I'm going to move into a couple of questions that we received on.

Both pricing and inflation, so we will start on the pricing front.

John how much pricing has been taken in Vista and in other businesses.

Also how much was overall inflationary pressure how much more pricing is there to take.

Over the course of the next 12 to 18 months.

Okay.

This is an important question and frankly, it's one that it's it's difficult to answer with precision because there are a lot of nuances here business by business market by market.

And there is all sorts of impacts of changes in volume and discount rate and mix and so on so let me.

Ill do my best to answer here. We're also thinking about how we can package this up as well.

March session.

I will meet to this but.

<unk>.

All of our businesses have seen increased input costs, we've been talking about that for.

The last of the <unk>.

Four quarters in particular five quarters.

Some have been impacted more than others. So just as an example of that things like energy costs.

In Italy, they have increased a lot in France.

They have it right. So there's things like that that will have an impact business by business.

There's there's also obviously depending on the.

The raw material profile for our businesses that has to be driver.

Some impacted more than others, some are more directly tied to commodity prices, including paper.

And.

And in other businesses, including for example, the National Pen they do a lot of sourcing from China.

We've actually seen and this is an overall market that we see meaningful decreases in things like inbound freight costs, which are more material for that business. So there's a lot of nuance here.

Our upload and print businesses and national Penn and to some extent and build a sign.

We've been able to largely offset those cost increases with price increases.

And.

And that remains the case through Q2 again differences business by business, but not fully offset but we've been able to largely offset those cost increases.

<unk> of course, our largest business.

That's where we've seen the most net impact the timing of the ramp up in those cost increases we talked about last year coincided with our technology migration that we're doing some of our largest markets that delayed when we could start to put those pricing benefits in market.

We implemented broad based price increases back in June and then and then we continued from there we talked last quarter about some of the benefits we are seeing.

Years is there more price conscious customer.

There is more price sensitivity on the consumer side and so we've done less in terms of the pricing benefits there.

More towards the small business products, we will see more benefit in Q3.

There is still room for improvement, especially on the vessel side to continue to optimize we have specific plans for that we have teams that are focused on that every day.

But I do take that the pace of that.

After especially after this fiscal year.

Is likely to slow.

And then this one can be I think a quick follow up because you've already talked a bit about what we're seeing in terms of the cost inputs.

Lately, but inflation peaked in the late summer and has been gradually coming down but the gross margin pressure. This past quarter was more pronounced in two quarters about 400 basis points of compression this quarter versus 202 quarters ago why is that.

Yes.

Just like anything.

We will experience the market over time.

And when it comes to how we buy we always seek to be below the market, but we have to move with the market over time, because a lot of that is underpinned by things like commodity pricing and so on.

But we don't we don't move exactly with the market. So we do we will.

We do see stabilization I mentioned that but we don't see cost overall coming down yet at.

At least in most of our main input costs.

Although IP as I just mentioned in things like about freight are down quite a bit and.

And we're seeing stabilization elsewhere. So cost is still have an impact over the last six months because I think the question is referring to gross margins in the December quarter versus the June quarter. So Costco did have an impact although the shape of that is definitely improving.

Product mix again here is a big driver so in some of our businesses.

Gross gross margins did DSO did increase in the December quarter versus June and in some cases, they were lower but.

Again Vista has the biggest impact here in Vista, our gross margins were down about 400 basis points in.

In the December quarter versus June if you compare that back to Q3. There are really three drivers of that one is that like I said before consumers, where we've done less on a net pricing basis, given the competitiveness there the price sensitivity and consumers much higher in the VIX in the December quarter.

Two business cards and stationery that category is.

Amongst our highest variable gross margins.

And then the other thing is that we did have we mentioned in the release, we had a $3 $1 million charge in Q2 that comes through gross profit and so thats about 70 points alone of that overall 400 basis points Delta.

So consumer consumer some.

Some of the business card mix, and then that charge has an impact as well.

Great. Thanks.

Well first of all Mike.

Cost savings makes sense, given the macro uncertainty, we certainly talked about that in our prepared comments that we released.

Okay.

So some of the growth of head count comments, because we are growing in our upload and print businesses, but if I focus on Vista.

Hurdles that impact our operating expenses.

Our fixed cost.

So in the plan and customer care costs.

Okay.

Per year.

This quarter, we also have significantly curtailed hiring.

Yes.

And in the simpler a central team as well.

We actually reduce those back in June .

And if we provide are still related to Vista, our head count is up but that is really because of the staffing for our seasonal peak.

The largest <unk>.

Production facility in Canada, where there these roles are classified as permanent but you can see.

And our normal pattern.

Yes.

The March quarter.

Great.

Okay, So I'm going to ask one or two more questions on.

<unk> quarterly results and then we're going to show up to a couple of other topics.

But this one is on geographic growth.

Endesa I get the economy isn't what we thought it would be no I have been here in Europe is worse than the U S and here your European business continues to look great well the predominantly U S focused Vista continues to lag, especially in gross profit more context on any callout drivers on what's good in Europe or bad in the U S would be helpful.

Sure Good question.

I'd start out by saying, our upload and print businesses.

More four plus years ago.

Really.

Two more autonomy and more decentralization.

Yes.

Tire teams in both of those businesses are just doing a great job, they're firing on all cylinders and we're just really proud of what they are doing.

And then having a positive impact.

Do believe this market overall has room for consolidation and then we can leave that.

Yes.

Competitive market like the upward market in Europe . The fact that we are doing well.

Administrative that fleet.

Now at.

So we are actually seeing higher constant currency growth outside of the U S compared.

Sure.

We are doing in the U S. So that is true in Canada, it's through Europe , and its true in Australia.

Now.

Consumer revenue.

Yes.

Year over year down slightly overall, but there are a few markets where it grew stronger.

The U S.

I think.

The main issues that we really have to understand our customer sentiment they do.

<unk>.

Thank you.

Rob and some business oriented products, but again that changes market by market.

If I look at the ability to pass on prices that changes market to market and again I realize this comment I'm mixing.

Upload and print and Vista.

We've been able to.

Are you gave quite a bit of pricing changes in upload and print earlier, we will be lapping some of those rates.

Rates moderating there.

Sean you May add a few more comments I guess the last thing is in the U S supermarket is tough and competitive as I mentioned, we didn't chase revenues with advertising.

And in this quarter.

That's the big impact, especially in the U S.

Do you have any other thoughts on the difference between Europe .

I think yes, I think you covered cover most of it we've seen I think.

As you indicated.

A lot of the sort of differential growth in our upload and print businesses versus let's say in.

In North America is not necessarily market specific there's other dynamics at play there, including the speed at which they've been able to operate crack into new product categories acquire new.

Customers, especially over the last two years take share.

And so there is market specific but also kind of business specific factors. There I think just in Vista.

Our absolute growth in revenue.

<unk> was basically roughly the same between Europe and.

North America in Q2, just to kind of give you a sense of that of that weight.

And I think there's all sorts of dynamics here a lot of it does come down to also product mix do you see that as a kind of a theme throughout this call.

Yes.

The performance of consumer had a little bit more weight on the U S. In particular than it did in Europe in terms of overall growth.

That said TPG growth is stronger in North America as well in absolute dollars.

All those things are all those things are at play all of these markets are in focus.

The other thing I'd say is there are a couple of European markets.

It had been very strong, especially France, France is also where we have been doing some of our full panel testing.

That had differential performance this quarter as I referred to earlier so.

I think that's I think that's it great.

Great.

I'm going to shift gears to some questions on liquidity and capital allocation.

So first one Sean is on the minority interest purchase this quarter what was the EBITDA multiple of that acquisition.

Due to our core cash flow going forward if anything.

I'll I'll stop there and.

Yes sure so.

So the way that the way to this.

Arrangement that works, we had so there was a reciprocal put and call.

Valuation for for that was it was a formulaic valueless valuation.

That had two main inputs to one was revenue growth in the other one was revenue growth in order to determine the multiple and then unlevered free cash flow before tax to determine the actual the actual value.

So that's kind of that's how they work. These these businesses had.

<unk> had revenue growth last year, which was over 30%.

I actually 30% was the with the kind of the cap in terms of how that multiple table worked.

But they also have really high free cash flow conversion. There we had some caps in terms of how that valuation was calculated because of.

Contribution of certain elements of.

Cash flow.

I would the way I would think about this is that in terms of a multiple.

We paid between eight to nine times, the Unlevered free cash flow before tax on these businesses for for that.

So the Noncontrolling interest.

These are businesses that continue to grow.

At rates that are amongst the highest.

Across impressed as a segment they are the highest over 20% year to date.

And going forward.

In terms of the impact on our future cash flow what that purchase means is that we will maintain almost all of the cash flow generated from those businesses, whereas before we only retained about 90% the other.

Now they were roughly 11% we were paying out as effectively a dividend to those minority holders in the past. So we will retain more of the cash that they generate.

Great and just a quick follow up that we had this is a live question what other noncontrolling interests. Our last TV puts you asked is there what's the materiality of.

Essentially yes.

Its pretty small now so you have a little over 1% of these.

Brothers businesses that remains.

Otherwise we in addition to the pre brothers put option that we settled.

There was also the purchase of Noncontrolling interest and build a sign so that's now cleared out all of this is disclosed in our 10-Q, we have.

The table that kind of walks through that footnote. So you can refer there, but but the short story is that this is the vast majority of them great.

Great.

Okay.

Any updated thoughts on the liquidity thresholds at which point the company would be willing to deploy capital for bond repurchases, we had multiple questions on bond repurchases yes.

There is no specific number that we've given we will continue to not give a specific number.

We've said consistently over the last couple of quarters that our focus and our priority has been on.

On liquidity that remains the case.

That was especially and focus because we.

And we had previously disclosed that there was a high likelihood that we would be settling that put option that I just I just went through.

And so therefore necessitated a focus on liquidity versus taking advantage of things like the way that our bonds were trading.

Don't have any active plans to repurchase of our bonds liquidity remains the focus.

I think that as we as we execute on the things that we outlined in our guidance.

And we execute on our Delevering over the quarters ahead and throughout FY 'twenty four.

Then capital allocation opportunities start to open up but there are no plans to no active plans to buy our bonds.

Great.

So a couple of people notice, obviously that our first lien leverage was above.

The leverage test if we were to have any amounts.

Amounts drawn at the end of the quarter.

So theres been some questions on.

On a revolver so would we.

Think about extending the maturity of the revolver in the near term, what we think about amending.

The credit facility in order to get a waiver.

Multiple questions on that front, John yes, so the short answer to all of that is no.

The revolver matures in 2026, we arent actively looking to extend that of course as we get closer to that maturity, we will but.

But that's in the sort of 12 to 18 month timeframe not in the next kind of three month timeframe.

And then as it relates to the first lien leverage so just to be sure. It's clear as you referenced in the question Meredith.

That only applies that test only applies to the extent that we have a drawn balance at the end of the quarter.

We had not had that we don't plan to have that we are just slightly above that first lien test, which is at $3. Two five times, our first lien leverage.

However, if you think about the guidance that we provided last night as we again as we start to March up that EBITDA expansion curve and also delever.

Then we would quickly be below that that first lien test.

So there is no active plans to either.

Seek an amendment to or anything like that nor.

Look to extend the maturity, we don't need to do that now.

<unk>.

Okay, Robert I'm going to ask your question.

Given increased leverage will you consider issuing equity or monetizing one or more division to reduce debt.

Well first of all I want to repeat what we said in our fleet can you say.

Our plan is to reduce low leverage net leverage through.

Adjusted EBITDA expansion and returning.

Hi, its adjusted EBITDA levels, and the cash flow that comes with it kind of full stop.

No.

Okay.

So divestiture is certainly something we understand and would consider if the right conditions are there and if we believe we're better off.

Okay.

But this is not something we would do without a lot of thought about the long term capabilities of cintra.

And certainly in the near term the environment right now is not really favorable to divestitures.

Great. Thank you.

So I'm going to hit one question. This is more of a strategic question before I move to the outlook section.

I thought worth asking.

How is the development of the mass customization platform changed your acquisition strategy. For example, it seems your recent tuck in acquisition.

To quickly implement several MTP product if.

If it's easier and the technology games are relatively larger for smaller firms in the future could you see some press pursue several tuck in acquisitions annually compared to one large acquisition every few years as was the case from 2016 to 2018.

Well, it's a good question, let me start out by saying, we do not anticipate material M&A in the near term because I think we've been Danielle <unk>.

EBITDA expansion, bringing net leverage down, but if you look at from a longer term perspective, yes. We do think there are a lot of advantages you can do that.

And.

They are certainly in tuck in acquisitions as well as larger acquisitions.

Okay.

It may not be so obvious, but we have made.

I don't know if you could tell me over the last five years six eight.

All indications are that are.

Or investments that are really relatively small often well under $10 million.

That have gone very well.

Rough number before I go on yes, that's right Robert.

Okay great.

Going back to MCP at this time, our focus is very much an internal leveraging and the businesses. We have a great sporting events in January and Pixar printing, which is the largest part of <unk> group and <unk> group is doing very well, including fixed are doing very well.

Pixar pretty migrated, Italy, and Italy as their largest revenue country.

And of glass.

That migrated to Mcps e-commerce tools, they've migrated, France, and Spain, and the UK and others.

Previously and that migration.

So again, we're really leveraging MCT.

Assets, we have today.

As to future M&A.

Okay.

Our current profit.

Right now.

The size really.

Dependents.

Right.

Ken.

Okay.

Our.

Vertical integration into our supplier and they are relatively easy.

It's easy, but relatively easy to extract value from those.

For those long term.

Great Okay.

Okay, Sean quick one for you how much cash do you need to run the business.

Yes.

We haven't we haven't provided a specific number of <unk>.

Minimum cash.

So I'll say.

At the end of December it's $113 million of liquidity.

That is sufficient.

Putting any kind of working capital outflows that we normally seasonally have in Q3.

So that remains sufficient that revolver or is there too if we needed during the quarter in terms of just movement of cash around around the business and kind of timing there.

But but that liquidity is sufficient and then we expect that to build over time.

Given the guidance that we released so so no specific number there, but liquidity that we have is sufficient again, including any outflows from working capital in Q3.

Great.

So, let's get into let's get into the outlook.

First on revenue.

You called out that overall trends have improved in January anything more to call out there.

Can you give us a sense of how much constant currency revenue growth has accelerated relative to the first half of the year.

Yes.

So we didn't give a specific number but we said it was higher than 9% we were at 5% consolidated organic constant currency in Q2, so that's the acceleration.

And it is above 9%.

I think the thing that I would I would call out as.

As really Vista and those numbers there was improvement elsewhere, two relative to Q2, but Vista was really the the one to call out.

And I do think as we as we track through the March quarter.

There's a few things that play there one is.

Last January and February there was quite a bit of COVID-19.

Covid impact on demand, especially in Europe .

So that'll have some impact just in terms of the comps.

And then as I mentioned before too we had the site launch of our U S market.

In the roughly the third week of February last year, and as we've talked about throughout last year. When we did those migrations. They would have an initial impact.

Revenue and then we would grow grow from there so so.

We will be lapping all of that which will help to support higher growth rates as well and then the last thing is just again from us from a mix perspective.

This.

Acceleration and growth in January is helped by the fact that the mix shifts back to small business products and they've been growing more strongly.

Great.

All of that answered. This next question with that one but I just wanted to be very clear for everybody does the previously provided guidance for Vince or revenue growth to accelerate in FY2023 versus FY 'twenty two's FX neutral rate of 5% still stands it does alright great.

Okay.

We've had many many many pre submitted questions about the guidance that we gave yesterday from an EBITDA perspective.

Everybody wants details how do we get there.

Is that going to look like in FY2023 what is that going to look like in FY 'twenty four where are the costs going to come out or are they kind of come out of the advertising or are they going to come out of operational expenses, where where are these things coming from and what is the map to get there Rob.

Robert do you want to take this one.

Sure I'll jump in and.

And feel free to jump in obviously, if you are.

That we have in March.

Investor Day, which we have said we wanted to give you a lot more details and thats, whereas Victor asking we can talk to you.

Although certainly we have begun our scenario developments and planning before we have not completed that work and so it would be premature.

To give you a lot of.

Detailed answers.

Thanks, Larry.

We certainly believe there is an opportunity here and we're going to.

It worked through those different scenarios.

And how much revenue growth we're seeing.

We do expect.

<unk> said to have revenue growth.

Uh huh.

That EBITDA bogey of 400 million in fiscal 'twenty, four will require substantial cost reductions.

In addition to that revenue growth.

So.

I think the framework for thinking about this.

Internally, we're saying yes.

Are not simply cutting costs with the goal of getting to 400 million alone. We believe that we can.

Okay.

Sonya do more with less we can drive efficiency performance our simplification.

And that.

Tightening down.

If it's done right. It can really lead to some significant acceleration beyond that.

No one likes to see.

In any business certainly we don't like to do the same breath infection Vista, we have done this in the past for the long term.

<unk> holders who benefited us.

These were done the best.

We had very much achieved.

Dual objectives of.

Saving costs.

The velocity of the business. So again, we certainly look forward to giving you more details in our.

Midyear strategy update.

March 'twenty one.

Thank you Ron or John do you want to.

Maybe just add two things.

I think the meta point here is there's a lot more that we will share in March but yeah.

Yes, I think.

Some of the threat of questions.

If I were a divestiture.

Why now and Robert alluded to this to some extent, but I think.

Our view is like the <unk>.

Profitability has been impacted by external factors over the last.

Year two years.

And we just feel because of our commitment to expanding EBITDA and the ways that we talked about and also delevering.

That we need to do this through things that we can control really drive this through things that we control and yes. We also expect revenue growth as well to contribute to that.

But we really need to drive this through things, we control and as Robert said, we think that there is.

Opportunities to do that and do that in ways that are supportive of yet of course, not just getting to $400 million across growth beyond that.

There was one other question there was reference to.

But I think this playbook is quite is quite different and its context. There we were trying to very quickly.

Reduce costs wherever we could with the primary motive being make sure. We protect liquidity. This is a very different context, we've been investing a lot.

We've made significant improvements, including in our largest business in this.

Yeah, Hey, Sean I can.

I agree with that.

Sure.

Back to almost 2018 or so.

And certainly.

Financial crisis, the global financial crisis of 2708.

We've done similar things.

Thank you.

Okay quick one Sean does getting down to three five times net leverage involve actively paying down debt or mostly driven by EBITDA expansion and cash generation.

It evolves.

Well so first of all I mean this is all on a net leverage basis. So in terms of paying down debt that doesn't necessarily factor into the into the math because cash generation.

Just increases in liquidity on the balance sheet funded liquidity does have an impact on that leverage as well.

So there's not an assumption of what will be pay down debt or not that's stuff that we will consider going back to a prior question of would you refresh your bonds for example.

So therefore most of this is driven through EBITDA expansion and then the resulting.

Cash generation.

Great. Okay. So I've had a couple of follow up questions and we had a pre submitted question really around what should people take from the fact that we have decided to pull back on costs.

So.

And this one particular person I read the comment on cost cuts driving profit improvement as a view that revenue growth is likely to be less than previously modeled and as such cost control tools.

We needed to meet the need to $400 million bogey can you confirm on that on that Brian just be very clear.

Well I think in terms of this year and there was a prior question about being above 5% constant currency growth.

This quarter, which was our prior guidance and I said that was still the case.

Where we have sort of longer term investments that are have longer term payback, some where we might look to make some different choices. So those things can impact growth in the years ahead, but.

But I wouldn't see them as directly connected and also I think in terms of the why go back to what I said in reference to.

One of the recent questions.

I think the Y here really is.

That we were committed to EBITDA expansion, we're committed to delevering.

And we can't just rely on revenue growth, which is subject to factors that some of which are outside of our control and so we really feel like we need to.

Do this even more so kind of boosted through things that are in our control and that's really the main thrust of the Lai.

Thanks, Sean.

I'll try to sneak in two more questions before we end. This call. So first one is for Robert given the mix shift in Vista will Vista margins go back to where they were or will margins be lower than previous years, even after recouping higher input costs and currency headwinds et cetera, due to the mix shift.

Yes, I think.

We're talking about and the margins, we're talking about but if I think of segment EBITDA, we certainly believe that.

Just to can achieve those two agreements.

Over time, our gross margins have shifted and we think that those are more permanent.

Often.

Our gross margins often come with higher lifetime value customers. So we think it is a factor that we can manage.

Great, Okay, and then Sean.

Im going to go back to the liquidity topic here from an outlook perspective.

And from a very near term perspective short term liquidity looks tight without access to the revolver, especially in that there are likely to be restructuring cost surround the announced cost control coupled with a seasonally weak working capital period and this person says I think it <unk> normally see something like $60 million of working capital Burn in addition to norm.

<unk> expenses it feels like liquidity could get very tight next quarter can you comment on how the company thinks about that.

How do we think about it yes, yes sure so yes.

Yes.

If you just kind of going back to that picture of what FY 'twenty. Three was was planned so it looked like in terms of first half of the year margin compression in second half of the year as we exit EBITDA expansion.

If you think about that and apply it to our liquidity also to our leverage like it was always our expectation that.

We have increasing leverage in the first and second quarter.

And then we would start to March down that curve, we had prior commentary that we expect it to delever from last year's levels that was before the non controlling interest payments. So.

So relative to Q3 as I said before we have sufficient liquidity to $230 million at the end of December .

We do seasonally have working capital outflows in Q3.

Plan for that.

And the plan had been and continues to be that Q3 would be the low point and then we'd be marching up from there as it relates to.

A number of months.

While we are starting to experience the EBITDA EBITA benefit. So that's how we think about that so that doesn't that doesn't.

For the most part doesn't lead to something like one one time large cash outflow, but rather yes.

The sustained kind of cash outflows that we already have in our run rate for longer than we will have those things in our in our EBITDA. So hopefully hopefully that sets the picture for everyone.

Thanks, Sean.

Alright, we are almost that time, Robert any parting remarks.

Well first of all thank you everyone for the time that you have all of us.

Published quarterly results the questions that you've asked and the timing.

Put into this call.

We said we are optimistic about the future of <unk> of this specifically within <unk>.

And about the opportunity for us to demonstrate hopefully to come out of this sustained period of investment and return to.

To our traditional early.

So historical levels of adjusted EBITDA and beyond.

We look forward to you all joining us on March 'twenty or first half year.

And until then have a great day.

Great.

And a half.

Operator.

This concludes today's conference call. Thank you for participating you may now disconnect.

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