Q4 2023 Cimpress plc Earnings Call

July 27, 2023

Yeah.

Welcome to the Sun press quarter for fiscal year 2023 earnings call I'd like to introduce Meredith Byrnes, Vice President of Investor Relations and sustainability.

Thank you Abigail and thank you everyone for joining us and with US today are Robert Keane, our founder Chairman and Chief Executive Officer, and Sean Quinn, EVP and Chief Financial Officer, I Hope, you've all had a chance to read our earnings document and our annual letter to investors. Both published yesterday. We appreciate the time you've dedicated to understand our results.

Metairie and outlook. This live Q&A session will last 45 minutes to an hour and will answer both pre submitted end. My question you can submit questions live via the questions and answers box at the bottom left of your screen.

Before we start.

Note that in this session, we will make statements about the future. Our actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and in the documents, we published yesterday on our website.

Also have published non-GAAP reconciliations for our financial results and outlook on our IR website, where you can buy.

Got you to read them and now I will turn things over to Sean for some brief remarks before we take questions.

Sean.

Sean Thanks for Youre not muted.

If we have lost Sean will give them a few more moments. This is Robert speaking I'd be happy to jump in.

Absolutely Robert why don't you go forth, Okay, I apologize for the technical glitch, everyone. So thank you I'm, Robert Keane CEO and let me just start by saying as I said in the letter.

We had a strong finish to FY2023 we delivered results that were.

Alright.

Meaningfully above the profitability and net leverage guidance, we provided last quarter.

Outperformance was largely driven Vista, and our upload and print businesses our revenues on a consolidated basis grew 9% and organic constant currency or even as our upload and print businesses, we're lapping price increases.

And nearly 50% organic constant currency growth.

Last year in Q4 so.

A tough comp and we still grew the 9% constant currency.

Consolidated gross profit.

Gross profit excuse me.

It grew 11% excluding the impact of currency.

Paints, a very different picture compared to last year, when we had a sizable gross margin contraction given the impact of cost inflation.

Consolidated adjusted EBITDA grew $76 million.

Year over year to $114 million.

Which represents a increase of about 200% or over 200% we mentioned.

In yesterday's release, but puts us in perspective.

Last two quarters.

Yes.

Our trailing 12 month, adjusted EBITDA increased by $112 million.

And fiscal year 'twenty, three with adjusted EBITDA of $340 million and importantly, this improvement includes one full fiscal quarter of benefit from the $100 million of annualized cost reductions we've implemented.

And with just one quarter, we we see a lot of those opportunities ahead of us in cost reduction.

Adjusted free cash flow did decline year over year, despite our higher adjusted EBITDA and this was due to the restructuring payments. This year are connected to the cost reductions.

As well as working capital timing differences Q4 last year was very favorable in terms of working capital.

I'm not going to go through all the segments, but given the significance of the profitability expansion in Vista.

Let me share some of the highlights there versus revenue grew 12% on an organic constant currency basis.

With a nice balance across regions and across our core product categories. This.

This quarter's growth was supported by better pricing and also strong growth in new customers and new customer bookings.

<unk> segment, EBITDA grew $66 million year over year, which was by far the biggest contributor to our consolidated its impressive adjusted EBITDA growth and the profitability.

<unk> expansion in Vista was very well balanced with about a third coming from gross profit.

Third coming from advertising efficiency, and a third from lower operating costs.

We ended the quarter with cash and marketable securities of $173 million.

And that's after having spent $45 million to repurpose.

$52 million of notional value in our high yield bonds during the quarter.

As we've talked about in recent.

From a balance sheet perspective, we had been prioritizing liquidity and we were able to continue to do that while allocating significant capital to these higher returns.

Which also helped support our targeted reductions in net leverage.

We ended the fiscal year at a net leverage of three nine times.

EBITDA as defined by our credit agreement. This was ahead of our guidance.

Better than our guidance of being below four.

Five times, which we provided last quarter and just two quarters regarding net leverage was 552 times and we think our ability to lever. This quickly demonstrates the underlying profit and cash flow characteristics of our business model.

Moving to our outlook given our strong Q4 performance, we are raising our FY 'twenty for adjusted EBITDA guidance to be at least $420 million.

And we continue to expect to convert free cash flow at about 40% of EBITDA.

We also introduced organic constant currency revenue guidance of at least 6%, which reflects the lapping of the.

Price increases we had last year.

The cost reduction actions that we communicated in March drove $24 million of improvement in FY 'twenty. Three that's slightly ahead of what we had previously outlined and we expect they will drive another $76 million of incremental year over year fiscal year benefit in FY 'twenty four.

We now expect to bring net leverage to below three to five times.

By the end of fiscal 'twenty, four which is also ahead of the guidance we provided last quarter.

Given our raised EBITDA and the resulting cash flow guidance for FY 'twenty four.

And finally, I'd point out that I'd encourage you to read the annual letter, which we which I said every year when we step back from the quarter and our financials to assess our strategic performance, our capital allocation and to estimate our steady state free cash flow.

Consistent with the.

The direction you see in our reported financial results, you'll also see that our estimates.

Free cash flow have also increased and I'd encourage you to read that letter for more details.

Alright, now a lot has changed from a year ago, and we see that very positively reflected in our Q4 results, but importantly, Justin.

The tone and tenor of the teams and the operational focus of the teams, which we think bodes well for the coming year with that Meredith will open for questions. Let's just check if we were able to get Sean back on the line.

<unk> been able to get you on back on the line.

Hi.

So I think we are good for questions.

<unk>.

As a reminder to folks that are on the call you can submit questions.

Using the questions and answers box at the bottom left of your screen.

We also have received a number of pre submitted questions.

There were some overlapping areas so I'm going to use some representative question. So that we can get all of the topics that are on everybody's mind.

On the call.

So we're going to go to the first question that I am going to throw it over to Sean.

And this is why.

What specifically drove the outperformance in Q4 versus the previous previously communicated expectations.

Ferguson upload and print.

Yes, I'll take that Meredith Jimmy just make sure you can hear me alright, I can hear you. Okay am I apologize to everyone. My audio cut out a very opportune time so.

Yes in terms of the outperformance for Q4.

Most of the over performance was in Vista and finished the quarter there had been a strong.

Relative to what we were expecting.

And in terms of where that over performance was it really it was slightly better throughout the entire P&L.

Revenue growth was a little bit higher gross margins were a little bit higher AD spend a little bit lower and then we also had some additional operating cost savings from the recent cost actions. So.

And part of that is just some delay in backfill roles and so on so that was a little bit more favorable than we had expected as well.

I should also mentioned upload and print, though that was part of the over performance as well and that one.

In the print group segment was really concentrated on gross margins in terms of over performance and in the paper other segment was on higher revenue.

Excellent. Thank you so much John .

Im going to stick with you for the next question and this is about gross margin and to invest.

So gross margins were still down slightly year over year as we showed the growth.

For our revenue was.

Slightly higher than the growth for <unk>.

Martin This is why haven't they increase if pricing improved throughout the year.

Yes, very fair question.

Just to put this in perspective on a consolidated basis, we had gross margin expansion, but as we report gross margins in Vista, we did not although they were up sequentially from Q3.

In the last year quarter, So Q4 of FY 'twenty, two we had a benefit of a little under $8 million in gross profit from the gain on sale of land that was attached to a manufacturing.

Asset and so that's why it was in gross profit. If you were to exclude that benefit last year Vista's gross gross margins actually did increase over last year.

And just to be clear that gain is also excluded from EBITDA as well, but if you exclude that this gross margin sort of in real terms did expand.

170 basis points versus Q4 last year.

We had pricing benefits throughout the year as we've been talking about and you see reflected in the Q4 results. We also had costs that continued to increase especially in the first after the year versus last year and it's only been recently in the last months that we've seen that cost pressure subside and then the start of.

Cost favorability, but that really that favorability really didn't have any material impact on Q4, there is more opportunity there as we get into Q into FY 'twenty four.

But definitely a favorable resulting year over year gross margin expansion will still as we go forward and this is the case in Q4 too.

Have some headwind from the areas of the Vista business that are growing.

Fast as from a category perspective, and specifically in our promotional products category. There's a lot of other good things coming from that but that is a little bit of headwind that we had in Q4 and we will continue to have as we get into next year as well.

Great. Thank you so much John Robert Im going to ask you a couple of questions that we got on the annual letter.

So the first first question.

So on page six of the shareholder letter you mentioned growth investments for FY 'twenty four are likely to be similar to the roughly $109 million that we spent in FY2023 is it safe to assume that the investments by business will be roughly the same.

Yes, that's correct.

And then next follow on question in this category within Vista, the investment areas have shifted over time with LTV based advertising and product development and marketing, making up most of the investment activity recently.

Are the investments you're underwriting today higher or lower than the ROI. You thought you were getting a few years ago.

I think they can be higher for different reasons. So let me break the.

Components, you mentioned up into.

With two different components. So first of all the lifetime value based advertising is.

Simply.

US recognizing that a portion of the advertising spend takes longer to payback than a year, but it is really instrumental in moving our brand perception.

And it also allows us to spend lower in.

Spend less in lower funnel channels. So they really go together.

Those two types of advertising and that also helps us.

In areas.

For example, a discounting where we've been able to significantly bring down our discounting over the past four years.

And it impacts our ability to serve higher value customers.

Which.

If you look at the last year, a lot of our growth came from higher average order values and the top decile or that we have in our business.

The second thing you mentioned was the grouping of product development and marketing.

Just for clarity the most of that is product development and data, there's a bit of marketing team.

Senior overhead there, but they represent.

This category represents the heart of.

Our efforts to improve our customer experience to drive.

Product experience driven growth and that's been an example of easier user experience more personalization, incorporating a broader set of design capabilities.

And all of those things.

If done well drive profitability downstream through our physical products. So the.

The incredible incremental margins at Vista are quite high and so better product experience through this product development.

Investment, while I can drive changes in average order value retention rates conversion rates, which can be really meaningful from a return perspective and.

I think also.

Comparing back to.

Several years ago or more today, we're well past our migration our teams who were working on the migration.

Now been organized into clear product domains, each product demand has multiple product teams.

<unk>.

A much higher percentage of the time is spent on understanding customer needs.

<unk> building new solutions for that.

Really the core of where we're focused on are an example of the core we're focused in terms of execution for FY 'twenty for a step way back to your question, Yes, I think.

They can be higher returns than we thought we would have gotten a few years ago.

Yes.

Thanks, Robert Robert Im going to stick with you for a couple of quick hits just clarifying questions. On this can you remind us what's in the other geographical segment for better so from a regional perspective, our breakdown that we provide is this where Japan was included hence the decrease yes.

Correct.

And pulled out of Japan.

Japan, and so that drove that decrease.

Shawn Meredith correctly, India is also in there, but thats growing.

Great and then.

We also exited by the way not national Penn exited Japan, so you'd see a similar decrease there as well.

Great.

On a related note how material is Vista corporate solutions to Vista overall.

It's about $50 million of annual revenues, but growth has been very strong over the last years and we expect it to continue to grow.

And that's it thank you.

Alright, so I am going to <unk>.

Shift into we had we actually had quite a few questions come in around the concept of pricing.

Backward looking and forward looking so we're going to combine all of these things into one topic and we're going to cover everybody's questions here.

No.

As we look forward into next year.

There's still an opportunity within Vista on the pricing side and in Q1 will still have some of that favre ability because we won't have fully laughed all the pricing changes that we've made over the last year, but even beyond that they're still they're still we believe opportunity on the pricing side, which I'd category.

Categorize as optimization, but that's still opportunity and we do expect that will continue to have <unk>.

Relatively higher growth in those hire a oh the categories, which from the next perspective, when you think about revenue growth is helpful.

In and upload a print in queue for her and you see this in the results we laugh the more sizeable pricing changes that we put in place last year.

And there were still some there were still some year over year of pricey favorite building Q4, but we've now lap those biggest changes so as we look ahead to FY 24 for upload and print.

We expect that the vast majority of their girls for this next year will come from volume so.

So it's different business by business.

If if I were to try and summarize it on a consolidated basis as we look forward to this next fiscal year.

We've given guidance of at least six per cent growth from a revenue perspective, I'd say about <unk>. It's about one third of that growth is from price or change the mix and about two thirds of that from volume keep in mind that six per cent at least six per cent guidance that we provided is lower than the growth that we just experienced in this last fiscal year.

You're just given that were lapping price increases we have of course back to that uhm into the guidance and then we haven't made any specific assumptions about prices coming down in fiscal 24 for the most part, but we do feel like we've left sufficient room in our planning and in this guidance as well if we were to experience some of that.

Fantastic. Thank you so much on alright, so we're squarely M T U outlook territory now and I have a couple of questions about the EBITDA targets for F. Y 24 that came in one is around what are the levers that brought our expectations from at least 400 <unk>.

That'd be provided last quarter to know at least 420 million and taking that a step further we've got someone who has done some work adjusted EBITDA. This year was $349 and that's F. Y 23, and you mentioned that you expect $429 next year cost savings alone would get.

At 415, and once we are just for the 20 million is expected currency movements, we'd be at 395 getting two for 20th seems very doable given it would assume six per cent growth with no margin expansion it seems unlikely.

Are we thinking about this the right way or are there certain unknown as that might make getting to the $429 not as straightforward.

Yeah, I'll answer both of those together and when I do I I gotta be actually quite specific because I think we've provided we've provided all these are most of these components in our guidance and so I'll do my best to kind of package them together for everyone. So just in terms of the the first part of the question, which was on the levers that allowed us to raise the guidance.

For F y 24.

If you recall back in January that was the first time with our queue to earnings release that we gave guidance for for fiscal 24 at at that time, We said, we would achieve at least $400 million <unk>.

And then in our call in late March we provide a lot of detail on how we how we will get there and then that guidance. We had bridge from our trying to hold on to use at the time to that 400, and so I'll try and keep that same framework as I go through this.

If you continue to fast for it in the timeline or actuals for 234 7 million higher than the high end of our guidance that we had provided and then at that time last quarter, we raised our cheap for guidance as well when we released when we will be starting his last quarter.

Our actual than four Q for that we reported yesterday, where then 20 million above the high end of our upward revised guidance range and so those are really the levers and that bridge that just mathematically get you to at least at $420 million.

If you take our exit right of EBITDA, which is $340 million and you do the math with the other guidance, which is to the point of the second question. There. Let me just walk walk you through that so starting point 340 million as we exit FY twenty-three.

We still have $76 million of our cost savings from what we communicated back of March better yet to be reflected interaction walls. So that'll be benefit for this next fiscal year.

We've been given revenue guidance of at least six per cent growth.

If you look at our and this is in our reported results. If you look at our contribution margin on a consolidated basis for this last year.

Just as a starting point that was a little bit over 31%. So if you take the the 6% growth in our guidance or at least six per cent growth.

And you'd take let's call. It a roughly 30 per cent flow through on that in terms of our contribution margin. That's another 55 million or slightly more than that of benefit in FY 24 from the flow through of that growth.

So at that point, you're at just over 470 million.

You then have to factor in that we have approximately $20 million of currency headwinds. We expect next year. So that brings you down to $450 million.

And then the last pieces that there are normal inflationary increases in our operating costs things like merit increases on our compensation base or technology costs that either have an inflationary component or they go up with volume and so that has to be factored in as well and then that gets you to the at least $420 million and <unk>.

<unk> so to answer the question I think you're thinking about it the right way hopefully that walk through it makes it clear for everyone. You know kind of what the components of the guidance are.

Wonderful Thanks, Sean Alright, we're gonna stick with it the guidance here uhm with another opinion submit a question for the at least $429, an EBITDA and 40 per cent free cash flow conversion would you expect it to be Frank have our back halfway in it.

Yeah, we didn't give quarterly guidance as a as a clever way of trying to ask for it. We we have normal seasonality to our profitability and you can look back over many years and see some of those patterns Q2. So the December quarters, typically our strongest for profitability and then two for the June quarter is.

Usually the second highest in terms of profitability and that's a pattern that we do expect to continue and this next fiscal year.

In fiscal twenty-three it was actually the first time ever that our adjusted EBITDA in Q4 was higher than Q2 that won't be the norm uhm. So you can expect that more kind of typical pattern Q2, being we expect the highest quarter and thank you for the second highest.

So given that December quarter seasonality I think it's fair to assume that we expect adjusted he'd be said to be a little bit more front have waited to the point of the question keep in mind that the cost savings that we have will continue to come in throughout the year.

And that's gonna be mostly in our run rate by the time, we get to the end of the Q3.

And so because of that I would expect that the year over year growth in our adjusted EBITDA that year over year growth should be higher than the first half of the year because more of those cost savings will be impacting that that year over year comparison.

From a cash flow perspective, again, if you look at our historical cash flow patterns, you see some pretty typical patterns, they're quarter by quarter. Typically R. Q2, and Q4 are also the most favorable from a cash flow perspective, because it's the highest EBITDA quarters, but also given are working capital pattern.

And again, we expect that that to be the case for next year as well so that should be from a cash flow perspective, it's also slightly more front half loaded, but it really there it really depends on some of the timing of working capital.

Thanks, John .

Alright, I'm gonna stick with you can you speak to the longterm margin potential in the business could you get back to the Navy or high teams and if so how would you we get there.

Yeah, we haven't given guidance that far out, but if you maybe as a starting point just do the math on the guidance that we've provided for this next fiscal year that would yield about 13 per cent margin uhm. So I'm heading in the right direction relative to 11 per cent in FY twenty-three.

And what we've laid out for F Y 24, and you'll see this and Roberts letter as well is not certainly not the destination. That's just the next kind of point on the line and we expect to keep the trend of our results to continue favorably and therefore, we expect that there is continued margin expansion.

<unk> and the years that followed that so I think that's probably a specific is I'll be do I think we could get back to the mid high teams I think I think we certainly could and frankly the reason that we don't talk a lot about that is because some of that is dependent on the level of investment organic investment that we have in any given year.

<unk> and I think frankly, it can be a little bit misleading. If we were to have that target because that can fluctuate year by year, depending on organic investment levels. That's why we tend to focus more on the dollars a contribution as opposed to the margins.

Thanks, John Uhm, we've got our last question that that came in here advertising for best that so I can make with the question is how sustainable is the reduction in lower final advertising <unk> forget that which you can see in earnings document and also shot out for our financial and operating metrics spreadsheet.

Where you can see the <unk> uhm at these results as well yeah, I would I would encourage people to actually look at advertising spend altogether, because what were you more and more as we continue to shift the the mix of the channels that were that were using that <unk>.

<unk> between lower funnel and mid and upper funnel should continue to evolve I think that would be a very healthy thing we're doing a lot of experimentation there and so I would not look at lower funnel in any given quarter in isolation I would look at that in total.

If you do look at it in total you every year as a percentage of revenue are advertising is down quite a bit and there's about 700 basis points of margin leverage you over here.

I think last quarter I had said that I expect that 15% to 17% of revenue on an annual basis as a fair range to assume in queue for we happen to be at the low end of that we were 15% of revenue and I do think and I do think that that is sustainable to be at the 15% to 17%, which again is is lower than where we.

We've come from certainly if you look back kind of prior to the beginning of our transformation journey and Vista, we were at roughly 22% of revenue on a regular basis does 15% to 17% is I think is is absolutely sustainable and we'll see quarter by quarter of fluctuations.

And that but on an annual basis I think that's a fair arrange to continue to assume.

Thanks, John .

Mm. Okay quick cat are you done with cash restructuring payments after K for.

That is 8 million left largely to go out and Q1. Some of that is from the cost reductions that we outlined back in March which are focused on Vista are central teams and then some of that is some time ago. We had disclosed that natural Penn was migrating it's European manufacturing from Ireland, the Czech Republic, and that's coming to complete.

<unk> now and so Q1 will have some of the payments. There. So 8 million is what's left for F y 24.

Okay.

Alright, So uhm nice madder question here, what are the one or two biggest risks to meeting your guidance just a general recession.

I'll I'll take this one in rubber please jump in if you have anything to add.

Certainly a general recession would be would be wanted we fared well in the past in in recessions, but I think in general macro uncertainty would be on that list, but we can't control that and so I don't know <unk>.

Try and highlight one or two things that would be in our control.

<unk> just to take a step back we feel quite confident in our profitability in our casual guidance based on the plans we have and so there's always risk. We we've incorporated that to you for everything that we that we know in our plans we feel quite confident in that in that guidance and the plans that we have the support that.

That said I think the two biggest risks that are outside of the kind of general macro are on the revenue side of the equation and it would be one just making sure that we deliver the volume growth that we expect because you know we're lacking the pricing increases and so more of our growth will come from volume as I outlined earlier, we've brought.

On our revenue growth expectations because of that so again, we feel confident in our plans there, but that would be one risk and then the second one is just after a period of higher prices and there was a question that kind of was getting to this earlier your does any of that pricing benefit reverse if we see a more favorable cost environment over the next year.

I think so those are the two risks I think we we feel like we have plenty of levers when it comes to profitability in cash flow if any of those things where to happen input costs have stabilized and we think there's opportunity for that in FY 24 thinking about our advertising spend is now more focused we've driven a lot of efficient.

See there and we're continually experimenting so we feel good about the advertising spend line and then we have a lot of control of our operating expenses, which we have now reduced itself I think it really just really comes back to delivering the revenue or guidance is for at least six per cent growth that already reflects the fact that we were laughing price increases as I said, if there would it.

Be some reversal in pricing I think that will most likely be because costs are coming down and so from a profitability cash flow perspective, I think there's less risk.

Great. Thanks Man Alright, while we're talking about macro factors Robert this one's for you that far into one have you seen any softening in the business environment across the various countries <unk> operate.

Has there been any discounts or rollback surprising by you or your competitors.

The short answer is no to both of those questions.

From original perspective, Q4 was pretty balanced in terms of performance. There certainly is nothing singling it will see a change in that going forward.

We have not seen.

Signs of a broad weakness and we do not see the need to do more discounting a rollback pricing.

We do actively monitor competitive pricing and there's nothing that we see at this time.

We actually think there's still some price optimization available.

If in the future pricing levels will retract in any categories as our costs come down and as the input costs for the industry come down.

If that were to happen just as in the past when we had pricing.

Pressure from competitors, we would not give up market share since we believe it cannot last our competitors and <unk>.

We certainly would be seen in that situation any ways, where she can cost come down and so we might have a revenue impact, but much less of an impact in terms of gross profit or EBITDA. So quick summary is we don't see anything here, we continue to monitor monitor it has always but.

Cause that's a quick summary.

Thanks Robert.

Okay, let's get into some kept on vacation and capital structure questions now.

Shawn why don't you take this one why did you buy back Barnes verses loans and T for loans interest expense expense is likely higher due to the base rate.

Yeah. We we think this is a great use of capital the the wave average interest rate on our outstanding to alone be that was about 7.7%. If you include our swaps.

At the end of at the end of June here. So yes to the point of the question. The current rates are a bit higher for the term loans than the seven per cent coupon on our bonds.

But the bonds were trading at a deep discount that our loan. So the yield was much higher for those repurchases and if you just to put that in perspective during the window that we were buying.

Our bonds traded between 84, and 89 and our average purchase price was about 87.

The U S dollar <unk> turmoil b at during the same time period was trading in the 95 to 96 range. So again the discount on our bonds at the time was much higher <unk>.

Yoga maturity on our bomb repurchases that we did in queue for which again is referenced in the opening remarks, but we spent 45 million to buy 52 million of notional.

The yield on that was 12%.

Although if you were to assume that we refinance or bonds in advance of their maturity then you'll get higher you can make your own assumption there.

The bonds also mature two years before I turned one b and so you know maturity is something that we factor into those to get to those considerations as well, but again with thinks it's a great use of capital support started delevering and is very high yield.

Great. Thank you. So a couple of questions here on a related note. So what do you think it could be inadequate liquidity position <unk> you further boundary purchases as a capital allocation priority and are you expecting to buy the add <unk> further and what are the steps taken towards refinancing.

So sorry, there's a couple of different types of topics and that one but they're all related okay.

Well I think right now we have an adequate liquidity position, it's the cash and investments that we hold her in excess of what we view to be a minimum cash level and so you were adequate now and yeah, but we're gonna continue to build that liquidity or <unk>.

To say it another way you know we expect to continue to reduce our net debt in FY twenty-four.

Do we expect to do further bomb repurchases I will give the exact same answer that we've given probably for four quarters now which is.

Look at it regularly just like we look at any capital allocation opportunities.

Over the last year, we've prioritized, making sure that we have the building liquidity and we were able to.

Continue to do that in Q4, despite spending a significant capital embalm repurchases.

So it's really dependent on yield and other opportunities, but remains a priority for us to delever. So will remain focused on that and we'll continue to look at opportunities to buy bonds if that opportunities there.

In terms of steps taken towards refinancing just for everyone's benefit our bonds have a 2026 majority are turned won't be as 2028. So there's nothing that we need to be doing right now our focus will continue to be on delivering against the guidance that we.

Provided which implies continue delevering and continued reduction of our net debt and quite a bit of continued expansion of R. E. B the delivery on those things will put us in a good position to at the right time refinance our bonds, but there's nothing we need to be doing in the near term again, it's something that we look at continually.

We have views on when we should be doing that but I think delivering on our FY twenty-four plans will put us in a position to take advantage of market opportunities when they exist after that and so we'll keep an eye on that but nothing to report right now.

<unk>.

Robert I'm Gonna try this next one over to you what are your goals for leverage on a business and what would lead the board to Institute a dividend.

Okay.

For the first question, we've said in multiple places we yesterday that we expect to exit F. Y 24 wouldn't that leverage below 3.25 times are trailing 12 months EBITDA.

And beyond.

24 work.

We're gonna have.

Flexibility to deploy capital Opportunistically, depending on what we see then.

Obviously with the objective of increasing our our our per share intrinsic value.

Now we are all set we hope to expect to maintain leveraged similar or below our pre pandemic level. We don't have a specific leveraged target, but hopefully that commentary is helpful to you in terms of the direction and what we expect this year and beyond.

We do not have any plans to implement a dividend. We believe there's other uses of capital that are.

Better options for us so it'd be.

Not possible even outline what we would lead us to institute a dividend it's not in the picture and are capital allocation for the foreseeable future.

Thanks for <unk>.

John question for you where is the cash held how much is held in the U S and is truly available.

Our main banking partners just in terms of our deposit.

That's R. A G P M Bank of America HSBC city, so that's probably not that surprising for folks.

Uhm, we in terms of where our investments are reinvest our excess cash based on our investment policy, we have that investment policy prioritizes principal protection over everything else does that's first and foremost and then it also our policy is restrictions on things like weighted average maturity and so on.

Our investments are in money market funds government agencies, the highest credit corporate paper you can see more details on that in our disclosure in our case and choose the in terms of where the where where are caches held it's held in multiple jurisdictions, just given the footprint of our business and.

As an Irish company or cash doesn't have to be in the U S or moved to the U S to be available so that might be a little bit of different context, then who whoever was was asking the question. The the vast majority of our cash it is not trapped so it's available but again it doesn't have to be in the U S to be available.

Which I think is what the question was getting at we also have we use a notional cash flowing arrangements. So uhm that allows our cash to be more accessible even if it's not in the same location that at a given time.

Thanks Hon.

Robert what leverage level do you want to achieve before resuming stock buyback <unk>.

Well.

<unk> said, we need to get our leverage to three dot two five by the end of the year and after that we look at other allocation opportunity. So I think it's certainly that are below and we think our trajectory and our profits and cashflow.

Sure.

Continually all sudden we wanted to operate at our pre pandemic levels of leverage.

Great. Thanks, Alright, alright, so we've got we've got one more question here that came in and it was about a comment that we made in in the annual letter that you need Robert So in that annual letter you wrote that <unk> plans to bring mass customization model to new products and category what type of specific products in categories How're you.

Referencing.

So they're very.

Very much.

Line with what we've done for the last 30 years, where we've expanded these are physical typically printed or.

Other forms of personalization, so it can be promotional products packaging labels books.

Books catalogs magazines. These are all products you can see.

At least one or more of our sites alright today and then it's a question also just going.

And expanding the depth of our product offering in any given category and the.

The breath of that offering so it could be different variations available in terms of finishings.

Being competitive.

Multiple different levels of quantities <unk>, we're never gonna get into very high volume printing, but.

Expanding up into mid volumes, so it's nothing that would.

Surprise anyone who's familiar with what we've done over the last 30 years.

Thanks have right now I'm looking forward to a lot more innovation to come from all of our businesses on my front over the next years. So with that those are the questions that we had for the call. So Robert why don't you sinus off here with a T.

Partying remark.

Well. Thank you Meredith. Thank you Sean and of course, Thank you all for listening Alright, we finished up another fiscal year.

Where I think we've demonstrated our ability to deliver financial results that were in line with guidance, which when we gave it I know that people are saying well how are you going to expand that quickly and certainly delivering.

Delivering those financial results alright wine with that guidance was important to me to others on the board and our senior leaders, we all have aligned economic incentives that are.

Consistent with the incentives or alignment, we would need for a long term shareholders. So as I've discussed in the annual letter, which we published last night, we certainly look forward to FY 24, alright, and that you were going to be very focused on improving our customer value prop.

Proposition further and gaining operational <unk> momentum and execution momentum.

Very clear strategy that we have a very large market. So I would want to get encourage you all to read that letter to understand how we think about capital allocation intrinsic value per share alright, and that really gives you complementary perspective.

In addition to the quarterly release, we also put out last night. So thank you very much for all your questions. Thank you for your interest in <unk> and we look forward to speaking to you and they're not too distant future.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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Welcome to the <unk> quarter for fiscal year 2023 earnings call.

Like to introduce Meredith Burns, Vice President of Investor Relations and sustainability.

Thank you have a gal and thank you everyone for joining us with US today are Robert team, our founder Chairman and Chief Executive Officer, and Sean Quinn E V. P N Chief Financial Officer, and I Hope you all had a chance to read our earnings document and our annual letter to investors. Both published yesterday. We appreciate the time you've dedicated to understand our results.

Commentary an outlet this life Q and a session will last 45 minutes to an hour and will answered those pre submit it and my questions. You can submit questions lies the other questions and answers box at the bottom left of your screen.

Before we start I'll note that in the session. We will make statements about the future. Our actual results may differ materially from these statements do two risk factors that are outlined in detail in our SEC filing and in the documents we published yesterday on our website. We also have published non-GAAP reconciliation for our financial results and outlook on our I R y.

<unk> leaned that you do read them and now I will turn things over to Sean for some brief remarks before we take questions.

John .

<unk> thanks for your not muted.

If we have lost Shawn it will give them a few more moments. This is Robert speaking I'd be happy to be chosen.

Absolutely elaborate wedding, you'll go for it okay I apologize for the technical whichever one uhm. So thank you I'm Robert keen CEO and let me just start by think as I said in the letter we had a strong finish to FY twenty-three we delivered results that were.

Meaningfully above the profitability of net leverage guidance, we provided last quarter.

I think this outperformance was largely driven vista and our upload and print businesses are revenues on a consolidated basis, because nine per cent in organic constant currency.

Even as our upload and print businesses were laughing price increases.

And nearly 50% organic kind of concurrency growth.

Last year in queue for so.

A tough comp and we silver the nine per cent constant currency.

Consolidated gross profit.

Gross profit excuse me grew 11%, excluding the impact of currency.

And that paints a very different picture compared to last year. When we had a sizeable gross margin contraction given the impact of cost inflation.

Consolidated adjusted EBITDA grew $76 million.

Year over year to $114 million, which represents a increase of about 200% or over 200 per cent we mention.

In yesterday's release, but to put this in perspective, the last two quarters.

Are trailing 12 month, adjusted EBITDA increased by $112 million to.

And fiscal year twenty-three with adjusted EBITDA of $340 million and importantly, this improvement includes one for fiscal quarter of benefit from $100 million annualized cost reductions we've implemented.

And with just one quarter, we we see a lot of those opportunities ahead of us in cost reduction.

Adjusted free cash flow <unk> decline year over year, despite our higher adjusted EBITDA and this was due to the restructuring payments this year connected to the cost reductions.

As well as working capital timing differences.

Two four last year was very favorable in terms of working capital.

Not gonna go through all of the segments, but given the significance of the profitability expansion in Vista.

Let me share some of the highlights they're vicious revenue grew 12% on an organic constant currency basis, with a nice balance across regions and across our core product categories.

This is segment EBITDA grew $66 million a year over year, which was by far the biggest contributor to our consolidated <unk> adjusted EBITDA growth and.

And the profitability expansion and Vista was very well balanced with about a third coming from gross profit a third coming from advertising efficiency and a third from lower operating costs.

We ended the quarter with cash and marketable securities of $173 million.

And that's after having spent $45 million to repurpose 50 $52 million, a notional value in our high yield bonds during the quarter as.

As we've talked about and <unk> calls from a balance sheet perspective, we had been prioritising liquidity and we were able to continue to do that while allocating significant capital to these higher returns.

We ended the fiscal year at a net leverage of 3.9 times.

EBITDA as defined by our credit agreement. This was ahead of our guidance are better than our guidance of being below for <unk>.

<unk> five times, which we provided last quarter and just two quarters regard that leverage was 5.52 times and.

And we think our ability to deal <unk> <unk> quickly demonstrate the underlying profit and cash flow characteristics of our business model.

Moving to our outlook given our strong Q for performance, we are raising our FY 24, adjusted EBITDA guidance to be at least $420 million and we continue to expect to convert free cash flow at about 40 per cent of EBITDA.

We also introduced organic constant currently revenue guidance of at least six per cent, which reflects the lapping of the.

Price increases we had last year.

The cost reduction actions that we communicated in March <unk> $24 million of improvement in F. Y 23, that's slightly ahead of what we'd previously outline and we expect they'll drive another $76 million of incremental year over year fiscal year benefit in F y 24.

We now expect to bring that leverage to below 3.25 times.

By the end of fiscal 24, which is also a head of the guidance we provided last quarter.

Given or raised EBITDA, and the resulting casual guidance for F y 24.

And finally, I'd point out that I would encourage you to read the annual letter, which we said, which I send every year when we step back from the quarter in a financial success, our strategic performance are capital allocation and to estimate are steady state free cash flow.

Ah consistent with the direction you see in our reported financial results. You'll also see that our estimates of steady state free cash flow have also increased and I would encourage you to read that letter for more details.

Alright, now a lot has changed from a year ago, and we see that very positively reflected in our queue for result, but important testing me.

Tone and tenor of the teams and the operational focus of the teams, which we think bodes well for the coming year with that <unk> wallpaper questions. Just check if we were able to get Sean back on the line, we have been able to get back on the line. So I think we are are good for questions Uhm. So.

As a reminder to folks that are on the call you can submit questions using the questions and answers box at the bottom not giving your screen. We also have received a number of pre submitted questions.

There were some overlapping area. So I'm gonna use some representative questions. So that we can get all of the topics that are on everybody's mind out on the Com alright. So we're gonna go to the first question that I am gonna throw over to Sean and this is what specifically drove the outperformance.

Q for versus the previous previously communicating expectations.

<unk> yeah.

Yeah, I'll take that marriage, let me just make sure you can hear me all right I can hear Ya, Okay, and my apologies to everyone. My audio cut out at a very inopportune time. So yeah in terms of the outperformance for Q4 most of the Overperformance wasn't Vista and the finished the quarter there finish strong relative to what we were expecting.

And in terms of where that Overperformance was it really it was slightly better throughout the entire P&L.

Revenue growth was a little bit higher gross margins were a little bit higher add spend a little bit lower and then we also had some additional operating cost savings from the recent cost actions, so and and part of that is just some delay in vaccine enrolled and so on so that was a little bit more more favorable than we had expected as well I should also mentioned upload a pretzel.

That was part of the Overperformance as well and that one in the prayer groups segment was really concentrated on gross margins in terms of Overperformance and in the proper other segment was on a higher revenue.

Excellent. Thank you so much and I'm gonna stick with you for the next question and this is about gross margins and <unk>. So gross margins assistant we're still down slightly here over here as we showed the gross mm for revenue, which at slightly higher than the growth for.

For gross.

Gross margin in this why haven't the increase if pricing improved throughout the year.

Yeah, a very fair question and just to put this in perspective on a consolidated basis, we add gross margin expansion, but as we report gross margins and just we did not although they were up sequentially from Q3.

In in the last year quote are so cute for a F. Y 22, we had a benefit of little under $8 million in gross profit from the gain on the sale of land that was attached to a manufacturing asset and so that's why it was in gross profit. If you were to exclude that benefit last year. This is gross gross <unk>.

<unk> actually did increase over last year.

And just to be clear that gain is also excluded from from EV does well, but if you exclude that this is gross margin sort of in real terms did expand about 170 basis points versus Q4 last year.

We had pricing benefits throughout the year as we've been talking about and you see reflected in the queue for results. We also had cough that continued to increase especially in the first half of the year versus last year and it's only been recently in the last months that we've seen that cost pressure subside and then the start of.

Cost favor ability, but that really that favor ability really didn't have any material impact on on queue for there's more opportunity there as we get into <unk> into FY twenty-four, but but definitely a favorable result, seeing year over year gross margin expansion will still as we go forward and this was the case in queue for too.

Have some headwind from the areas of the Vista business that are growing the fastest from a category perspective, and specifically in our promotional products category. There's a lot of other good things coming from that but that is a little bit of headwind that we had in queue for and will continue to have as we get into next year as well.

Great. Thank you so much on Robert I'm Gonna ask you a couple of questions that we got on the annual letter and so the first first question.

So on page six of the shareholder letter you mentioned growth investments for F. Y 24 are likely to be similar to the roughly $109 million that we spend tonight by 23.

Is it safe to assume that the investment business will be roughly the same.

Yes, that's that's correct Alright, and then next follow up question in its category within Vista.

<unk> areas had shifted over time with L. T V based advertising and product development and marketing, making up most of the investment activity recently or the investment your underwriting today higher or lower than the <unk> thought you were getting a few years ago.

I think they can be higher for different reasons. So let me break the components you mentioned up into.

The two different components. So first of all of a lifetime value based advertising is.

Simply.

US recognizing that a portion of the advertising spend takes longer to pay back than a year, but it is really instrumental in moving our brand perception and it also allows us to spend lower in.

Spend less and lower funnel channels. So they really go together that so there's two types of advertising and that also helps us in areas. For example of discounting where we've been able to significantly breakdown of discounting over the past four years and.

<unk>, our ability to serve higher valued customers.

Which if you look at the last year a lot of our growth came from higher average order values and.

The top <unk> that we have in our business.

The second thing you mentioned was the grouping of product development and marketing.

Just for clarity the most of that is product development and data, there's a bit of marketing team senior overhead there, but the represents.

This category represents the heart of.

Our efforts to improve our customer experience to drive.

Product experience driven growth and that'd be an example of easier user experience more personalization, incorporating a broader set of design capabilities.

And all of those things.

If done well drive profitability downstream through our physical products. So.

Incredible incremental margins Vista are quite high and so better product experience.

Through this product development and.

Investment, while I can drive changes in average order value retention rates conversion rate, which can be really meaningful from a return perspective and.

I think also.

Comparing backed up several years ago or more today, we're well past her migration our teams who were working on the migration I have now been organized into clear product domains. Each product to me has local product teams.

And.

A much higher percentage of the time is spent on understanding customer needs and building new solutions for that and that's.

Really the core of where we're focused on our it's a as an example of the core we're focused in terms of execution for F. Y 24, So a step way back to your question, Yes, I think.

They can be higher returns and we thought we would have gotten a few years ago.

Thanks, Robert Robert I'm Gonna stick with you for a couple of quick hits I'm just.

Clarifying questions on this can you remind us what's in the other geographical segment for Victor So from a regional perspective are are breakdown that that we provide is this where Japan was included hence the decreased yes, correct, we pulled out of Japan, and so that drove that deep.

Kris.

<unk>, Shawn or Meredith currently India's ultimately there, but that's growing right.

And then we also exited by the way <unk> Nashville Pan exited Japan, so you'd see similar decrease there as well.

Great and on a related note how material is this that corporate solutions to get the overall.

It's about $50 million Daniel revenues, but growth has been very strong over the last year and we expect it to continue to grow.

Fantastic. Thank you.

Alright, so I'm gonna shift into we had we actually had quite a few questions come in around the concept of pricing them, both backward looking and forward looking so we're gonna combine all of these things into one topic and we're gonna cover everybody's questions here. So.

Representative questions can you can you touch on pricing and volume <unk> My business on price do you expect increases will stick or are they transitory and nature and help us understand and your 6% at least 6% organic constant currency revenue growth guidance for off by 24, what have you assumed in terms of.

Volume price and macro impact.

Yeah, I'll take this one Meredith and.

Is it the answer is quite nuance because there are different different circumstances in each of our businesses in terms of when they took pricing increases when we're lacking that and so on and so I'll stick with Vista and upload them grumpy because that represents the vast majority of our revenue and then I'll share some thoughts about that fly 24 as well.

Invest in queue for Ah.

About half of our growth was from pricing and then we also had strong volume growth in two of our highest average order value categories as well.

As we look forward into next year.

Categorize as optimization, but that's still opportunity and we do expect that will continue to have.

Relatively higher growth in those hire a oh the categories, which from index perspective, when you think about revenue growth is helpful.

And and upload a print in queue for her and you see this in the results we laughed a more sizeable pricing changes that we put in place last year and there were still some there were still some year over your pricey favorite building Q4, but we've now lap those biggest changes so as we look ahead to FY 24 for upload and print we expect.

That the vast majority of their girls for this next year will come from volume.

So it's different business by business.

If if I were to try and summarize it on a consolidated basis as we look forward to this next fiscal year.

We've given guidance of at least six per cent growth from a revenue perspective, I'd say about <unk>. It's about one third of that growth is from price or change the mix and about two thirds of that from volume keep in mind that 6% at least six per cent guidance that we provided is lower than the growth that we just experienced in this last fiscal.

<unk> just given that were lapping price increases we have of course back to that into the guidance and then we haven't made any specific assumptions about prices coming down in physical 24 for the most part, but we do feel like we have less sufficient room in our planning and in this guidance as well if we were to experience some of that.

Fantastic. Thank you so much on alright, so we're squarely into outlook territory now and I have a couple of questions about the EBITDA targets for F. Y 24 that came in one is around what are the levers that brought our expectations from at least 400 <unk>.

That'd be provided last quarter to know at least 420 million and taking that a step further we've got someone who has done some work adjusted EBITDA. This year was 340 million. So that's F Y 23, and you mentioned that you expect $429 next year cost savings alone with <unk>.

At 415, and once we are just for the 20 million is expected currency movements, we'd be at 395 getting two for 20th seemed very doable given it would assume six per cent growth with no margin expansion, which seems unlikely.

Are we thinking about this the right way or are there certain unknown does that might make getting to the $429 not as straightforward.

<unk> for FY 24, if.

If you recall back in January that was the first time with our queue to earnings release that we gave guidance for for physical 24 at that time, we said, we would achieve at least $400 million <unk>.

And then in our call in late March we provide a lot of detail on how we how we would get there and then that guidance. We had bridge from our I'm trying to put him on T. B S. At the time to that 400, and so I'll try and keep that same framework as I go through this.

Uhm, if you continue to fast for it in the timeline or actual is 4234 7 million higher than the high end of our guidance that we have provided and then at that time last quarter, we raised our queue for guidance as well when we released when we really started this last quarter.

Our actual then 424 that we reported yesterday were then 20 million above the high end of our upward revised guidance range and so those are really the levers and that bridge that just mathematically get you to at least at $420 million.

If you take our exit right of EBITDA, which is $340 million and you do the math with the other guidance, which is to the point of the second question. There Uhm. Let me just walk walk you through that so starting points ran or 40 million as we exit FY twenty-three we.

We still have $76 million of our cost savings from what we communicated back of March better yet to be reflected interactions. So that'll be benefit for this next fiscal year.

We've been given revenue guidance of at least six per cent growth.

If you look at our and this is in our reported results. If you look at our contribution margin on a consolidated basis for this last year.

Just as a starting point that was a little bit over 31%. So if you take the the 6% growth in our guidance or at least six per cent growth.

And you'd take let's call it a roughly 30% flow through on that in terms of our contribution margin. That's another 55 million or slightly more than that of benefit in F. Y 24 from the flow through of that growth.

So at that point, you're at just over $470 million.

Then have to factor in that we have approximately $20 million of currency headwinds. We expect next year. So that brings you down to $450 million.

And then the last pieces that there are normal inflationary increases in our operating costs things like merit increases on our compensation base or technology costs that either have an inflationary component or they go off with volume and so that has to be factored in as well and then that gets you to the at least $420 million in this neck.

Fiscal year, so to answer the question I think you're thinking about it the right way hopefully that walk through it makes it clear for everyone. You know kind of what the components of the guidance are.

Wonderful Thanks, Sean Alright, we're gonna stick with it the guidance here Uhm with another please submit a question for the at least $429, an EBITDA and 40 per cent free cash flow conversion would you expect it to be Frank have our back have waited.

Yeah, we did get quarterly guidance of this is a clever way of trying to ask for it.

We we have normal seasonality to our profitability and you can look back.

Over many years and see some of those patterns Choo Choo. So the December quarter is typically our strongest for profitability and then two for the June quarter is usually the second highest in terms of profitability and that's a pattern that we do expect to continue and this next fiscal year.

So given that December quarter seasonality I think it's fair to assume that we expect adjusted you've used it to be a little bit more front have waited to the point of the question keep in mind that the cost savings that we have will continue to come in throughout the year.

And that's going to be mostly.

In our run rate by the time, we get to the end of Q3, and so because of that I would expect that the year over year growth in our adjusted EBITDA that year over year growth should be higher than the first half of the year because more of those cost savings will be impacting that that year over year comparison.

Because it's the highest EBITDA quarters, but also given are working capital patterns and again, we expect that that to be the case for next year as well so that should be from a cash flow perspective, it's also slightly more front half loaded, but it really there it really depends on some of the timing of working capital.

Right.

Thanks, John .

Alright, I'm gonna stick with you can you speak to the longterm margin potential in the business could you get back to the mid or high teams and if so how would you we get there.

Yeah, we haven't.

Given guidance that far out, but if you maybe as a starting point just do the math on the guidance that we've provided for this next fiscal year that would yield about 13 per cent EBITDA margin uhm. So I'm heading in the right direction relative to 11 per cent in FY twenty-three.

And what we've laid out for F Y 24, and you will see this and Roberts letter as well is not certainly not the destination. That's just the next kind of point on the line and we expect the trend of our results to continue favorably and therefore, we expect that there is continued margin expansion opportunity.

<unk> and the years that followed that.

So I think that's probably as specific as I'll be do I think we could get back to the mid high teams I think I think we certainly could and frankly the reason that we don't talk a lot about that is because some of that is dependent on the level of investment organic investment that we have in any given year and I think frankly.

Can be a little bit misleading, if we were to have that target because that can fluctuate year by year, depending on organic vegetable levels. That's why we tend to focus more on the dollars a contribution as opposed to the margins.

Thanks, John .

We've got a lot of question that that came in here an advertising for bed desk. So I can make with the question is how sustainable is the reduction in lower final advertising and.

For Victor which you can see in earnings document and also shot out for our financial and operating metrics spreadsheet, where you can see the <unk> at these results as well yeah, I would I would encourage people to actually look at advertising spend altogether, because what we're yeah.

More and more as we continue to shift the mix of the channels that were that were using that mixed between lower funnel and mid and upper funnel should continue to evolve I think that would be a very healthy thing we're doing a lot of experimentation there and so I would not look at lower funnel in any given quarter in isolation I would look at that in total.

That said if you do look at it in total you every year as a percentage of revenue are advertising is down quite a bit and there's about 700 basis points of margin leverage you over here.

Come from certainly if you look back kind of prior to the beginning of our transformation journey and Vista, we were at roughly 22% of revenue on a regular basis. This 15% to 17% is I think is is absolutely sustainable and we'll see quarter by quarter of fluctuations in that but on an annual basis I think that's a fair range to continue to the soup.

Thanks, John Uhm, Okay quick.

Are you done with cash restructuring payments after T for.

8 million left largely to go out and Q1 some of that is from the cost reductions that we outlined back in March which are focused on visited our central teams and then some of that is some time ago. We had disclosed that natural Penn was migrating it's European manufacturing from Ireland, the Czech Republic, and that's coming to completion.

Now and so Q1 will have some of the payments. There. So 8 million is what's left for FY 24.

Okay.

Alright, so uhm.

Nice madder question here, what are the one or two biggest risks to meeting your guidance just a general recession.

I'll I'll take this one and Robert please jump in if you have anything to add I certainly a general recession would be would be wanted we fared well in the past in in recessions, but I think in general macro uncertainty would be on that list, but we can't control that and so.

Try and highlight one or two things that would be in our control.

Just to take a step back we feel quite confident in our profitability in our cash flow guidance based on the plans we have and so there's always risk. We we've incorporated that to you for everything that we that we know in our plans we feel quite confident in that in that guidance and the plans that we have the support that.

That said I think the two biggest risks that are outside of the kind of general macro.

Or on the revenue side of the equation and it would be one just making sure that we deliver the volume growth that we expect because you know we're lacking the pricing increases and so more of our growth will come from volume as I outlined earlier, we brought down our revenue growth expectations because of that so again, we feel confident in our plans there.

But that would be one risk and then the second one is just after a period of higher prices and there was a question that kind of was getting to this earlier your does any of that pricing benefit reverse if we see a more favorable cost environment over the next year.

I think so those are the two risks I think we we feel like we have plenty of levers when it comes to profitability in cash flow if any of those things where to happen input cost at stabilized and we think there's opportunity for that in FY twenty-four speaking about our advertising spend is now more focused we've driven a lot of efficient.

See there and we're continually experimenting so we feel good about the advertising spend mine and then we have a lot of control of our operating expenses, which we've now reduced itself I think it really just really comes back to delivering the revenue or guidance is for at least six per cent growth that already reflects the fact that we were lapping price increases as I said, if there were to.

B some reversal in pricing I think that will most likely be because costs are coming down and so from a profitability cash flow perspective, I think there's less than.

Alright, Thanks Man Alright, while we're talking about macro factors. Robert This one for you that far into one have you seen any softening in the business environment across the various countries that <unk> operates.

Has there been any discounts or rolled back the pricing by you or your competitors.

The short answer is no to both of those questions.

From original perspective, Q4 was pretty balanced in terms of performance. There certainly is nothing singling it will see a change in that going forward.

We have not seen.

Signs of a broad weakness and we do not see the need to do more discounting a rollback pricing we.

We do actively monitor competitive pricing and there's nothing that we see at this time.

We actually think there's still some price optimization available.

If in the future pricing levels will retract in any categories as our costs come down and as the input costs for the industry come down.

If that were to happen just as in the past when we had pricing.

Pressure from competitors, we would not give up market share since we believe it cannot last our competitors and <unk>.

We certainly would be seen in that situation any way foreseen costs come down and so we might have a revenue impact, but much less of an impact in terms of gross profit or EBITDA. So quick summary is we don't see anything here, we continue to monitor it monitor it has always but.

That's a quick summary.

Thanks Robert.

Okay, let's get into some kept on vacation and capital structure questions now.

Shawn why don't you take this one why did you buy back Barnes verses loans in queue for loans interest expense expense is likely higher due to the base rate.

Yeah. We we think this is a great use of capital the the wave average interest rate on our outstanding to alone be that was about 7.7%. If you include our swaps.

At the end of at the end of June here. So yes to the point of the question. The current rates are a bit higher for the term loans than the seven per cent coupon on our bonds.

But the bonds were trading at a deep discount that our loan. So the yield was much higher for those repurchases and if you just to put that in perspective during the window that we were buying.

Our bonds traded between 84, and 89 and our average purchase price was about 87.

The U S dollar charge a lot of turmoil b at during the same time period was trading in the 95 to 96 range. So again, a discount on our bonds at the time was much higher <unk>.

Yoga maturity on our bomb repurchases that we did in queue for which again is referenced in the opening remarks, but we spent 45 million to buy 52 million a notional.

The yield on that was 12%.

Although if you were to assume that we refinance or bonds in advance of their maturity then you'll get higher you can make your own assumption there.

The bonds also mature two years before our terminal B and so maturity is something that we factor into those to get to those considerations as well, but again with things as great use of capital support started delevering and is very high yield.

Great. Thank you. So a couple of questions here on a related note. So what do you need to be inadequate liquidity position <unk> you further boundary purchases as a capital allocation priority and are you expecting to buy the add <unk> further and what are the steps taken towards refinancing.

So sorry, there's a couple of different types of topics and that one but they're all related okay.

Well I think right now we have an adequate liquidity position, it's the cash investments that we hold her in excess of what we view to be a minimum cash level and so you have adequate now and yeah, but we're going to continue to build that liquidity or <unk>.

To say it another way you know we expect to continue to reduce our net debt in FY twenty-four.

Do we expect to do further bomb repurchases I will give the exact same answer that we've given probably for four quarters, now which is which.

Look at it regularly just like we look at any capital allocation opportunities over the last year, we've prioritized, making sure that we have the building liquidity and we were able to continue to do that in Q4, despite spending a significant capital on binary purchases. So.

So it's really dependent on yield and other opportunities, but remains a priority for us to delever. So will remain focused on that and uhm, we'll continue to look at opportunities to buy bonds if that opportunities there.

In terms of the steps taken towards refinancing just for everyone's benefit our bonds have a 2026 majority are trembling b as 2028, so there's nothing that we need to be doing right now our focus will continue to be on delivering against the guidance that we've.

Provided which implies continue delevering and continued reduction of our net debt and quite a bit of continued expansion of art <unk> delivery on those things will put us in a good position to at the right time refinance our bonds, but there's nothing we need to be doing in the near term again, it's something that we look at continually.

<unk>.

Robert I'm Gonna throw this next one over to you what are your goals for leverage in that business and what would lead the board to Institute a dividend.

Okay.

For the first question, we've said in multiple places we yesterday that we expect to exit F. Y 24 wouldn't that leverage below 3.25 times are trailing 12 months EBITDA.

And beyond F Y 24 <unk>.

We're gonna have.

Flexibility to deploy capital Opportunistically, depending on what we see then.

Obviously with the objective of increasing our our our per share intrinsic value.

We do not have any plans to implement a dividend. We believe there's other uses of capital that are.

Better options for us so it'd be you know not possible even outline what we would lead us to institute a dividend it's not in the picture in our capital allocation for the foreseeable future.

Thanks for <unk>.

John question for you where is the cash held how much is held in the U S and is truly available.

Our main banking partners just in terms of our deposits are G. P. M Bank of America HSBC City. So you know, that's probably not that surprising for folks.

We in terms of where our investments are uhm reinvest our excess cash based on the investment policy, we have that investment policy prioritizes principal protection over everything else does that first and foremost and then it also our policy is restrictions on things like weighted average maturity and so on.

Our investments are in money market funds government agencies, the highest credit corporate paper you can see more details on that in our disclosure in our case and choose.

The in terms of where the where where are caches held it's held in multiple jurisdictions, just given the footprint of our business and as an Irish company or cash doesn't have to be in the U S or moved to the U S to be available so that might be a little bit different context, then who whoever was was asking the question.

The the vast majority of our cash it is not trapped so it's available but again it doesn't have to be in the U S to be available.

Thanks Hon.

Robert what leverage level do you want to achieve before resuming stock buyback Angela <unk>.

Well.

We've said, we need to get our leverage to three dot two five by the end of the year and after that we look at other application opportunity. So I think it's certainly that are below and we think our trajectory and our profits and cash flow.

Sure.

Continually we've all said we wanted to operate at our pre pandemic levels of leverage.

You're referencing.

So they're very.

Very much in line with what we've done for the last 30 years, where we've expanded these are physical typically printed or.

Other forms of personalization, so it can be promotional products packaging labels.

Books catalogs magazines. These are all products you can see.

At least one or more of our site right today and then it's a question also just going.

And expanding the depth of our product offering in any given category and the.

The breath of that offering so it could be different variations available in terms of finishings.

Being competitive.

Multiple different levels of quantities <unk>, we're never gonna get into very high volume printing, but.

Expanding up into mid volumes, so it's nothing that would.

Surprise anyone who's familiar what we've done over the last 30 years.

Thanks have right now I'm looking forward to a lot more innovation to come from all of our businesses on my friends over the next years. So with that those are the questions that we had for the call. So Robert why don't you sinus off here with a T.

Partying remark.

Well. Thank you Meredith. Thank you Sean and of course, Thank you all for listening Alright, we finished up another fiscal year.

Where I think we've demonstrated our ability to deliver financial results were in line with guidance, which when we gave it I know that people are saying well how are you going to expand that quickly and certainly delivering.

Delivering those financial results alright wine with that guidance was important to me to others on the board and our senior leaders, we all have aligned economic incentives that are.

Consistent with the incentives or alignment, we would need for a long term shareholders. So as I've discussed in the annual letter, which we published last night, we certainly look forward to it by 24, Alright, and that you were going to be very focused on improving our customer value prop.

Proposition further and gaining operational <unk> momentum and execution momentum.

Very clear strategy that we have in a very large market. So I wouldn't want to get encourage you all to read that letter to understand how we think about capital allocation intrinsic value per share.

And that really gives you complementary perspective.

In addition to the quarterly <unk> Ah release, we also put out last night. So thank you very much for all your questions. Thank you for your interest in <unk> and we look forward to speaking to you and they're not too distant future.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Q4 2023 Cimpress plc Earnings Call

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