Q2 2025 Cimpress PLC Earnings Call - Q&A
Okay.
Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Sempra second quarter fiscal year 2025 earnings call.
Speaker Change: I'll introduce Meredith Byrnes, Vice President of Investor Relations. Please go ahead.
Meredith Byrnes: Thank you Michelle and thank you for everyone. Joining us are with US today are Robert Keane, our founder Chairman and Chief Executive Officer, and Sean Quinn, EVP and Chief Financial Officer. We appreciate the time that you have dedicated to understand our results commentary and outlook. This live Q&A session will last about 45 minutes or so we got a letter.
Meredith Byrnes: And we will answer all both pre submitted and live question you can submit questions via the questions and answers box at the bottom left of the screen before we start I'll 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 the.
Meredith Byrnes: Documents, we published yesterday on our website. We also have published non-GAAP reconciliations for our financial results on our IR website, and we invite you to read all of them and now I will turn things over to Robert.
Robert Keane: Well, thank you Meredith and thanks to all of you who are joining us today as we covered in last nights release, we continue to progress against the objectives that I outlined in my letter to you and to all investors at the end of July.
Robert Keane: And which we also covered in detail in our September Investor Day.
Robert Keane: That being said our Q2 results were not what we were planning to deliver.
Robert Keane: And that was due to a number of different items with Sean is going to cover in a moment.
Robert Keane: But to be clear, we considered the financial results. We just delivered to be disappointing, we understand the underlying issues behind them.
Robert Keane: We are addressing those issues and we're doubling down to ensure that we continue.
Robert Keane: Continue to progress against what are very well established and communicated strategic and operational objectives and thats.
Robert Keane: Why we believe that in.
Robert Keane: In the coming quarters.
Robert Keane: Years, when we look back at the second quarter of this fiscal 'twenty five.
Robert Keane: It's going to be seen as turbulence, rather than a change of the upward financial path, which we have been on for the past several years.
Robert Keane: In our earnings document I outlined a number of examples.
Robert Keane: They give us confidence in our ability to grow our profits and our cash flow in the ways. We've described.
Speaker Change: Focused production hubs.
Robert Keane: The cost of goods that we produce.
Robert Keane: Also increased revenues via new product introduction are one example of that others are the pending launch of our upload and print business model in the U S.
Robert Keane: Another example is the high growth of <unk>.
Robert Keane: Highest value customers and their strong growth across all of a sudden for us.
Robert Keane: New growth categories. All of these exemplify the progress that we've made and.
Robert Keane: The opportunity we have ahead for the remainder of this fiscal year and beyond this fiscal year.
Robert Keane: If you haven't read that part of the earnings document yet I do strongly encourage you to do so and I look forward to taking your questions on these topics shortly.
Robert Keane: More details are also available in the September 10th Investor Day presentation.
Robert Keane: Alright.
Robert Keane: The all the things we're doing here described and those documents are activities that we believe are going to extend our competitive advantages and enable <unk> to continue our long track record of profitable growth.
Robert Keane: For years to come.
Robert Keane: And most of our businesses, we do face headwinds of slowing growth in some products.
Robert Keane: Products and channels. However, we have tailwind from higher growth product categories that are growing stronger every year and those tailwind.
Robert Keane: Are in areas of our market.
Robert Keane: Does it represent a much larger portion of our total addressable market than the market segments of our legacy products.
Speaker Change: I founded this business 30 years ago. This month and there are a lot that has stayed true over the last three decades.
First of all we continue to operate in a very large market that still has served primarily by traditional suppliers and competitors second our scale based competitive advantages.
Speaker Change: Multiple parts of our value chain and give us market leading capabilities.
Speaker Change: Importantly, our strategy remains constant to what we've been pursuing for the last several years and we are maintaining our what we call our focus on focus in other words, an execution rigor to capitalize on our opportunity financially.
Speaker Change: Speaking as I just mentioned before we do feel confident that having exited the turbulence of the past quarter. We can return to the financial path of our previously provided outlook and when you combine all of this together I'm very confident that as ever we have ability to grow our per share value over time.
Speaker Change: And with that I'd like to turn this over to you Sean to discuss some of the financial results and outlook in more detail.
Sean Quinn: Great. Thanks, a lot Robert and thanks to everyone that has joined US today, we did provide a lot of information in the in the document yesterday I'll try and keep my remarks brief. So we can get to the question. There's a lot of questions have come in.
Speaker Change: Got it.
Sean Quinn: We were disappointed with the Q2 results.
Speaker Change: Chris that's altered our outlook for the full year as we outlined last night.
Speaker Change: Robert commented on our strategic focus I'm going to turn to.
Speaker Change: To an overview of our financial results and let me just start a little bit more big picture as an overview.
Speaker Change: There are a lot of onetime items, including the lapping of significant benefits that we had last year, which frankly, there is more than normal and that does create some noise. We've quantified those things and so hopefully that was clear in what we've provided but.
Speaker Change: But beyond that the vast majority of what drove the weakness relative to our plan.
Speaker Change: Was in the United States and the biggest dollars are investor, but that was also present for a national tenant for billable side as well.
Speaker Change: And this said Theres a few things to call out first as we noted in the U S. Overall, we saw lower performance in organic search and that was impacted by changes to the Google algorithm and search engine results page in the U S that impacted new customer acquisition and that was most notable and business cards and consumer which in terms of customer cow.
Speaker Change: From a new customer acquisition perspective, those are the largest categories in Q2.
Speaker Change: For new customers, we've been optimizing now against those changes.
Speaker Change: In our December quarter, the revenue mix investor changes to about 25% of our bookings coming from the consumer category, that's actually a higher percentage in Europe than it is in North America.
Speaker Change: And we had planned for only slight growth in that category on the back of really two things one a strong holiday season last year and also the shortened holiday season. This year just in terms of the number of buying days between American Thanksgiving and Christmas.
Speaker Change: In the U S. It was also less favorable environment than last year, just overall the cost of performance advertising with significantly higher.
Speaker Change: Nearly 50% higher.
Speaker Change: And the competitive intensity was also higher from discounting.
Speaker Change: From some of our some of our competitors, particularly in some of our legacy products for.
Speaker Change: For business cards and holiday cards in the U S. We do see market demand down.
Speaker Change: And Thats also factored into our multi year forecast. So there was not necessarily anything new there, but that was further accentuated by these other topics that I just mentioned that were particular, particularly there in Q2 as a point of reference business cards in Europe were stable year over year and consumer in Europe was slightly up versus last.
Speaker Change: Year, and actually a little bit ahead of our plan.
Speaker Change: Also as we turn to the month of January which is now nearly complete our consumer in North America is back to modest growth.
Speaker Change: And national Penn and builder side Theres, some specifics there tied to go to market channels.
Speaker Change: But overall, we don't see a dramatic change that cuts across the U S market. Despite the fact that that's where most of the weakness was in the quarter.
Speaker Change: So nothing new that that indicates that something has changed there were a number of specific drivers as we talked about at our September Investor day business cards, and consumer have been growing more slowly in the last years than other categories and in the case of business cards more recently.
Speaker Change: That slight decline, we do expect that to continue but there are other additional factors at play this quarter.
Speaker Change: As for the specific results our consolidated revenue grew 2% on both a reported basis and organic constant currency basis, but adjusted EBITDA declined just over $34 million, we were expecting a slight decline in adjusted EBITDA because of the extent of onetime benefits in last year's Q2 results, which is about $12 million last year.
Speaker Change: And we of course are copying those.
Speaker Change: But we also had the shortened holiday buying season, so we had factored that into our forecast.
Speaker Change: Beyond that we also had unfavorable one time impacts to our profitability this quarter as well that weighed on adjusted EBITDA by another nearly $5 million and we outlined those in the release last night.
Speaker Change: That leaves about $18 million of year over year EBITDA declines this quarter outside of those one time items and as previously outlined most of that coming from the U S market with weaker sales of consumer related holiday products like holiday cards at home decor, not just specific to Vista as well as year over year declines in business cards and Vista.
Speaker Change: Sinus promotional products and packaging categories had strong growth globally.
Speaker Change: That strength was not enough to overcome the weakness in those higher margin legacy products in the U S market and with that weakness concentrated in free channels like organic search the shortfall had a more direct impact on EBITDA than we would typically see given advertising spend and operating expenses increased year over year we.
Speaker Change: We have a lot of improvements in flight already in addition to the examples of progress against our strategic objectives that Robert outlined we will get to some of those in the questions.
Speaker Change: As for our outlook.
Speaker Change: Remain committed to multi year growth in revenue EBITDA and free cash flow. However in light of our Q2 financial results. We are resetting our expectations for the year to incorporate our Q2 underperforming for.
Speaker Change: For the second half of the year, we expect revenue in constant currencies to grow at least 4%.
Speaker Change: We expect adjusted EBITDA to be at least $220 million and adjusted free cash flow to be at least $50 million. We have initiated multiple actions to improve performance reduce operating expenses or slowed their growth and to optimize our pricing again, we'll get into some more of that and the question that's factored into our.
Speaker Change: Updated fiscal 2025 guidance.
Speaker Change: As as some prolonged effect from just some of the weakness that we experienced this past quarter.
Speaker Change: We also now expect to exit this year with net leverage of approximately 3.0 times, our trailing 12 trailing 12 months EBITDA as calculated under our credit agreement with.
Speaker Change: Do remain committed to our plans to reduce net leverage to our target of approximately two five times or below but that will be slightly delayed from our prior expectations.
Meredith Byrnes: With that Meredith, what's let's open it up for questions.
Speaker Change: Great. Thanks, Sean as a reminder, you can submit questions. During this webcast via the questions and answers box at the bottom left at the screen. We received a number of pre submitted questions and we're getting a lot of questions now to some.
Speaker Change: Some of them in overlapping areas, so I'm going to combine some of these to make sure that we're thoroughly addressing what's on People's minds.
Speaker Change: Let's take our first question, Sean I'm going to ask this question to you.
Speaker Change: To what do you attribute the underperformance and business cards and holiday cards should we be thinking about this as incremental secular pressure on those product lines what trends in these categories are baked into your multiyear outlook.
Speaker Change: Yes. Thanks.
Speaker Change: I'll touch on it a little bit of this.
Speaker Change: Remarks, just now, but it's an important topic I'll, let me try and get a little bit more specific I'll start on the consumer side. We said overall that Vista consumer revenue declined 3%. It was in the release last night.
Speaker Change: It's about $4 million when you play through the math year over year, and nearly 3 million of that was attributable to the Canadian postal strike, which is not indicative of normal market demand.
Speaker Change: And by the way, we see Canada kind of snap back to more normal expected performance once the strike was over.
Speaker Change: And equity in January we did have growth in part of that consumer category, but the main driver of the decline was holiday cards.
To a lesser extent calendars.
Speaker Change: Our covered this earlier, but there were a number of factors that play that impacted that the shorter holiday season higher cost performance advertising.
Speaker Change: I mentioned it was up 50% of the peak weeks in the U S.
Speaker Change: Competitive behavior was different than last year.
Speaker Change: As I said earlier that consumer products grew overall.
Speaker Change: Investors European markets, including from holiday cards.
Speaker Change: Holiday cards as a subcategory is more mature and we don't expect it to be a growth product based on market demand. We do have some credit card data that we have visibility to that indicates it was.
Speaker Change: There was decline for most of our competitors in the U S and that area of the season.
Speaker Change: At similar rates to ours.
Speaker Change: And some of those competitors, we're quite intense with discounting and in advertising, we can see that.
Speaker Change: But in our multiyear outlook, we don't assume growth from those specific products for.
Speaker Change: <unk> assigned sticking with consumer for bill to sign canvas prints revenues down year over year about $5 million.
Speaker Change: And this is part of a trend we've seen really since going back to the pandemic there was a pretty tremendous acceleration of demand in those products.
Speaker Change: And then since then.
Speaker Change: We've seen some decline those are still relevant products, we have strong capabilities, but but.
Speaker Change: But that was down year over year this quarter.
Speaker Change: Q2 seasonally important for a consumer of course, but these these the weight of consumer does come down in the mix during the rest of the year. So as we noted in our earnings document outside of the holiday period.
It has been growing revenue per consumer products modestly outside of the holiday period, when it's not the concentration of holiday cards calendars.
Speaker Change: Canvas prints and so on and we did see that continue in January once we're out of the holiday season, we are back to modest growth in consumer.
Speaker Change: Across the system.
Speaker Change: We did receive another question I, just kind of touch on here while were on the consumer topic just around.
Speaker Change: Competitive behavior and.
Speaker Change: On the marketing front, if we tightened marketing investment in response to higher advertising costs.
Speaker Change: And on the competitive behavior.
Speaker Change: Does change every year last year was overall, a more benign environment I would say.
Speaker Change: We set our plans in terms of promotions.
Speaker Change: Promotions that we run in our advertising and so on for the season and then we make adjustments along the way, but we don't chase if we see.
Speaker Change: Your behavior changing that we view to be irrational when it comes to just thinking about the impact on unit economics.
Speaker Change: That's what we did from an AD spend perspective, this year as well as the increase in our AD spend this quarter.
Speaker Change: In North America was mostly in display and TV channel. So that was not specific to consumer.
Speaker Change: So our marginal return thresholds and that's been in performance channels was therefore could return, but it didn't go as far as last year, because the unit pricing was far higher so just have less less impact overall in terms of especially new customer acquisition.
Speaker Change: The question I asked about business cards as well this is business cards and stationery category was down about $5 million year over year in Q2 in the U S. We don't think that there is any sort of sudden change in demand for that product that happened in Q2, we had been seeing.
Speaker Change: Pretty stable trends over many years, where are our bodies were decreasing slowly over time, but that was being offset by.
Speaker Change: More feature enhancements are change in order sizes as we attract different types of customers, but also optimizing net pricing discounts had come down from where they were some years ago as I mentioned in my.
Speaker Change: In my earlier remarks, and Q2 business cards in the U S were also impacted by organic search.
Speaker Change: And I won't go into that again, but that definitely had an impact on our business cards.
Speaker Change: We continue to make improvements and optimizations in that category, whether it be in the product offering how we merchandise design services and how that's integrated into the offering acquisition offers in a number of other things all with the goal to protect that profit pool that is what we talked about at our Investor day as well.
Speaker Change: As to guidance that we've that we've outlined.
Speaker Change: Does factor in modest growth in consumer for Vista, and we're back to that in January It does factor in continued pressure and build assign it.
Speaker Change: In terms of their end market.
Speaker Change: And then for business cards, and Vista does factor in a decline that's a bit more modest than what we saw in Q2 and by the way. That's also consistent with what we're seeing so far in January bookings.
Speaker Change: From a multiyear outlook perspective on business cards, we don't assume growth.
Speaker Change: We do factor in some modest consumer growth as I said outside of the holiday period.
Sean Quinn: Thank you Sean.
Speaker Change: Excellent. Okay. My next question Robert is going to be for you.
Speaker Change: Why does it makes sense why does it make more sense to have Pixar printing enter the U S market versus extending an existing <unk> business with infrastructure already built state side into upload and print.
Speaker Change: Well at the highest level.
Speaker Change: Our strong success, we've had in Europe with the upload and print business model has taught us that it is very complementary to other segments, we have in <unk>.
Speaker Change: This national pen, So let me explain that a little bit.
Speaker Change: Speaking about two different perspectives first let me talk to the customer need we are addressing with upload and print.
Speaker Change: And then I will turn more specifically to the production infrastructure that youre asking about.
Speaker Change: For the customer value that we need to deliver.
Speaker Change: Of course, all the simplest segments produce mass customized print.
Speaker Change: But the customers and the customer needs are typically different across our reporting segments.
Speaker Change: They are concentric circles, they overlap each other but in general.
Speaker Change: We serve different customers that we've spoken about for many years.
Speaker Change: Give a quick synopsis of the upload and print customers.
Speaker Change: These are people, who feel comfortable using professional graphic design tools, you can think of something like adobe illustrator or Adobe in design.
Speaker Change: And they use that.
Speaker Change: And the skills they have to create complex graphic design that is inherently more complex products like packaging booklet catalogs very large format signage and other products.
And beyond the graphic design.
Speaker Change: We often have higher quantity orders.
Speaker Change: They are still low by industry standards, but they are higher than vistaprint.
Speaker Change: So a focused business unit or business segment is very helpful. In understanding these needs and serving them.
Speaker Change: They differ from customers.
Speaker Change: They typically come to Vista national pen or builder side.
Speaker Change: First and foremost why we want to enter the market.
Speaker Change: Is to serve those customer needs.
Speaker Change: Now as to the production operations or infrastructure.
Speaker Change: Let me step back and we've talked about this for many many years, but the mass customization of print the economic.
Speaker Change: And operational.
Speaker Change: Skill, we've developed depends on aggregating together very large numbers of very similar orders in highly specialized production lines and so you gave a lot of repetitive production operations, because we aggregate all of these orders together.
Speaker Change: And that specialization has a bunch of different factors it can be by.
Speaker Change: Quantity someone typically order 10, or 100 versus 1000 or 5000 or something.
Speaker Change: By decoration type embroidery versus laser versus print versus different types of print sometime.
Speaker Change: Sometimes by proximity to the customer that helps with shipping our proximity to suppliers and all of that specialization means that the production lines. Although it's all mass customization of print do vary between our different businesses.
Speaker Change: For example, this.
Speaker Change: Is generally focused on smaller orders are relatively simple to produce products.
Speaker Change: And with orders that are where we very often ship multiple items put together in the same box and ship together.
Speaker Change: Her hand, upload and print businesses.
Speaker Change: Tend to focus on larger order quantities again still small compared to traditional competitors and more complex products and so.
Speaker Change: That second product the upload and print products.
Speaker Change: Representing the type of production lines, which we are building out in our new Pennsylvania facility.
Speaker Change: That being said there is definitely overlap I mentioned, the concentric circles and that overlap in some ways is growing over time, which is why we are pushing forward with the.
Speaker Change: Concepts, you've heard us talk about of cross infrastructure filament and why we are moving more and more towards focused production hubs for.
Speaker Change: Further aggregate volumes and get some of the benefits I just spoke about.
Speaker Change: To be clear the new Pixar premium facility in the U S will produce products for Vista National Likewise National pen build a sign and Pixar printing I'm sorry.
Speaker Change: National Penn build design and Vista will fulfill for Pixar printing in the U S.
Speaker Change: Hopefully that helps you understand again, why we're entering the market with.
Speaker Change: This.
Speaker Change: Very successful brand in business, but also why we've chosen the operational footprint that we've described.
Speaker Change: Great. Thank you Robert.
Speaker Change: Looking forward to seeing that launch and grow and in Q4.
Speaker Change: Next question is for Sean.
Speaker Change: Sean.
Speaker Change: We were surprised by the low growth experienced by both national pen and all other businesses. This past quarter for National Penn How material is their mail order business and is that the main headwind facing that business for all other businesses. What are the current growth and profit dynamics for each delta signing punchy.
Speaker Change: Yes.
Speaker Change: I'll touch on each of these.
Speaker Change: Businesses briefly and I'll start with National Penn, We have been and we've talked about this for.
Speaker Change: The last few quarters at least now we've been reducing our direct mail advertising spend of national pen.
Speaker Change: And that's really focused around optimizing for profitability in that channel and of course, when you do that.
Speaker Change: <unk> had some impact on revenue.
Speaker Change: And it was a little lower growth.
Speaker Change: In any case and then that has further impact on revenue, but we're optimizing for profitability from.
Speaker Change: From a profitability perspective, we do also like in National Pen, we often see some timing differences in profitability because of the timing of mailings in that channel, we take the cost when we when the mailings happen and not when they have an impact this early and so.
Speaker Change: Quarter to quarter, you see some different year over year trends in Q1.
Speaker Change: We were favorable year over year in that regard, we see some of the opposite of that in Q2, just in terms of the weight of channels ecommerce call cells and then now the cross impressed fulfillment for that National Peds doing all of those are growing well.
Speaker Change: And now those together or are larger than direct mail and direct mail is about 25% of national Penn revenue from a channel perspective.
Speaker Change: Then the combination of E Commerce, Telesales and cross impressed fulfillment.
Speaker Change: It's about 60% for National Pen and then the remainder is their distributor business for larger accounts.
Speaker Change: Q2, the profit impact was.
Speaker Change: Weaker from direct mail sales. There was also some product mix and higher inbound freight costs as we called out in the release.
Speaker Change: I'll build assigned build assigned.
Speaker Change: Continue to see growth in sinus products.
Speaker Change: That was in Q2 offset by the declines that we saw and I outlined earlier and home decor, which is consumer focused in the holiday quarter that impact from home decor is bigger that's what drove the year over year decline this quarter in their standalone business in terms of them serving end customers. The fulfillment for Vista that theyre doing as part of the cross.
Speaker Change: Suppressed fulfillment had.
Speaker Change: <unk> had significant growth and so at a segment level you still do see year over year slight growth, but in their standalone business that was a decline in a.
Speaker Change: A lot of the growth driven from across our press fulfillment outside of the December quarter for builder side, we expect that the ramp is and cross the press fulfillment.
Speaker Change: We'll continue and that will continue to be a more dominant trend in the overall revenue number.
Speaker Change: Does it build assigned strong production capabilities in signage in particular and also home decor products. We're moving most production volumes for Vista is U S business to build aside.
Speaker Change: And that not only saves costs and.
Speaker Change: And increase the rate at which Vista can introduce new products with a lot of focus there, but it's also freed up production space and Vista for.
Speaker Change: For new product introduction, which allows us to avoid future Capex and then lead into these more focused production hubs that Robert was talking about earlier.
Speaker Change: For <unk> just quickly purchase small in our overall results.
Speaker Change: <unk> been putting the ingredients in place for our next chapter of growth, including necessary technology platform, which is not unlike what most of our businesses have had to do at some point in time.
Speaker Change: And then also expansion into new categories, which is really modeled after the success that we've had in our European upload and print businesses and so theyre not recreating the wheel there, but if.
Speaker Change: If you will importing some of the.
Speaker Change: Some of the capabilities that we have seen be successful in Europe.
<unk> operating near breakeven sometimes higher.
Speaker Change: But this quarter some of the some of these bigger changes that we're rolling out.
Speaker Change: <expletive> do cause some discrete.
Speaker Change: Disruption, but they open up opportunity for them and what is still a large and relatively untapped market.
Speaker Change: Those new capabilities have a lot of opportunity for growth.
Speaker Change: It's going to take a few quarters to get ramped up, especially from a production efficiency perspective.
Speaker Change: Great. Thank you, Sean I'm going to stick with you for the next one this is a question that we got from multiple people and so this is sort of a more <unk>.
Speaker Change: Bind question here so on.
Speaker Change: In the letter you called out that you are taking multiple actions to improve performance flash reduce opex and optimize pricing can you unpack that a bit and provide some color in terms of how we should be thinking in terms of the quantitative impact of these actions and have you already baked that into your revised targets for the year are these plans are still being developed.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: A number of questions on this and some live questions or to the.
Speaker Change: I think if you take if you take a step back and you look at.
Speaker Change: The second half of last year.
Speaker Change: About 90% of our of our adjusted EBITDA from it from a segment EBITDA perspective came from Vista, and upload and print so that's where the vast majority of the.
Profit came from last year, we expect.
Speaker Change: That roughly that would continue this year not that specific percentage, but thats, where the weight of it would be.
Speaker Change: So I'll focus on those two first and upload and print.
Speaker Change: There was some year over year puts and takes in Q2, but like those businesses have been executing well investing in new product introduction driving efficiency gains Robert outlined bringing the model to the North America market.
Speaker Change: We're going to continue on that path in the back half of FY 'twenty five and beyond so we just stay the course there in terms of our plans.
Speaker Change: Those businesses in aggregate, we're quite close to the plan that we set out in Q2. So we continue the course there.
Speaker Change: In terms of the actions we've already taken a number of actions or put things at flight, there's more being worked on very actively.
Speaker Change: And that raises across cost efficiency relative to our prior plans.
Speaker Change: Prioritization of product Roadmaps focused on the areas that we need to have the most impact relative to where we were seeing some of the sources of weakness in Q2.
Speaker Change: Some reallocation of our AD spend from a channel perspective again in response to where we see the biggest need and the biggest impact as well.
Speaker Change: <unk> optimization and I could go on there's other examples too.
Speaker Change: I think it's worth noting that we had already planned if you just think about the first half of the year versus the second half of the year, we had already planned for.
Coming into the year that the year over year profile of our advertising spend would.
Speaker Change: Would be lower in the second half of the year than it was in the first half of the year.
Speaker Change: So that will have an impact as well just in terms of year over year profitability that was already a more favorable setup for the second half of the year than the first half of the year.
Speaker Change: That includes some.
Speaker Change: Large brand partnerships that we had last year, if you recall.
Speaker Change: We won't have those in <unk>. This year just as one example of one of the drivers of that.
Speaker Change: We're not embarking in Vista or <unk>.
Speaker Change: And upload credits that we stay the course, there we're not embarking on major changes or major cost reduction programs, it's really about driving focus and urgency against the areas, where we see the most opportunity of course, we're driving cost controls along the way and so that is absolutely a focus but it's not in the form of a large restructuring.
Speaker Change: Sure reactions.
Speaker Change: For National patent build assigned said smaller part of our overall profitability in the second half of the year, where theyre focused especially is on continuing to grow fulfillment.
Speaker Change: Vista in North America, having been executing well to find opportunities for scale based efficiency gains, but also new product introduction.
Speaker Change: Seen clear examples of that that will continue in the second half of the year and of course there'll be focused on making sure from a cost perspective, we continue to optimize as well we.
Speaker Change: We haven't specifically quantified what the aggregate impact of all of that is.
Speaker Change: But it is baked into the at least framework of guidance that we provided for that for the second half of the year.
Speaker Change: Thank you Sean.
Robert Keane: Okay Robert.
Speaker Change: The next question is for you it's on a lot of People's minds.
Robert Keane: <unk>.
Robert Keane: I've been getting this question.
Robert Keane: It's tariffs are put in place on Canadian goods, and if the de minimus exemption on imports to the U S is repealed and the ask or ask or does recognize that those are both big F.
Robert Keane: How might the company responds what percentage of the company's U S revenues come from the Ontario facility and how much of this could be shifted to other U S plants, how much do you estimate it would cost to recreate the Ontario facility in the U S and how long would it take.
Robert Keane: And.
Robert Keane: What is your U S manufacturing footprint in Canada accommodate the volumes that you are currently producing in Canada and Mexico.
Okay. Thank you all I know theres a lot of questions. So first.
Speaker Change: First of all I'll step back and assure you that we've.
Robert Keane: Obviously been aware of this for a long time.
Robert Keane: Even before knowing the election results.
Robert Keane: And we spend a significant amount of time doing scenario planning and as Youre, saying Youre one of the questions. These are big Ifs.
Robert Keane: No one knows what's happening.
Robert Keane: Or what will happen.
Robert Keane: And because there's so many unknowns I can outline specific plan unplanned, but we can provide you with some context and some of the background tracks, which you are asking for it so.
Robert Keane: Let me start with the facilities we have.
Robert Keane: Our North American production is across Canada, the U S and Mexico and the U S. We have four facilities.
Robert Keane: The <unk>.
Robert Keane: Reno, Nevada.
Robert Keane: Tennessee, Austin, Texas and Indiana.
Robert Keane: Have a.
Speaker Change: Additional facility as we mentioned, which we're fitting out outside of Pittsburgh, Pennsylvania.
Robert Keane: And.
Robert Keane: You add up all those five fulfillment facilities, and it's a little bit less than 400000 square feet of production space.
Robert Keane: Yeah.
Robert Keane: I believe and I could be wrong, but I think every one of those are leased and they are in places where we could lease more.
Robert Keane: So it's not a capital expense, if we would expand them.
Robert Keane: Our Canadian and Mexican facilities.
Robert Keane: One our Canadian facility.
Robert Keane: We leased the Mexican facilities are collectively about 800000 square feet.
Robert Keane: So roughly double the U S facilities.
Robert Keane: Windsor is our biggest facility and.
Robert Keane: We look at that given today roughly two thirds of our North American production space is in Mexico and Canada.
Robert Keane: Facilities that we have now or that we're about to open up in Pennsylvania wouldn't in their current form be able to handle this volume without expansion.
Robert Keane: That being said in the case of I'll call. It the worst case of Trump tariffs or taxes.
It would not be a question of buying new capital equipment. It would be a question of moving the capital equipment training up new teams.
Robert Keane: To expand that facility, we do not.
Robert Keane: <unk>.
Robert Keane: Deny or ignore the fact that thats a possibility I think it's it's.
Robert Keane: Personally I think it's an unlikely possibility it would be that extreme but we are taking that into our scenario planning.
Robert Keane: Now.
Robert Keane: To the extent, we ended up doing moving facilities, we do have quite a bit of experience doing that as an example, and again we are not planning. This we're planning.
Robert Keane: Planning for scenarios and.
Robert Keane: Once we have more details we would decide what we would do more details about what actually happens in terms of the new tariff taxes.
Robert Keane: I think that the.
Speaker Change: Let me start with some of our experiences we recently moved our Irish facility to the Czech Republic.
Robert Keane: For National Pen.
Robert Keane: Recently moved to very large amount of our production operations from Canada to Mexico for large format production.
Robert Keane: And I can go into other examples.
Robert Keane: Tennessee, we moved facilities and we also moved part of the tendency facilities production out.
Robert Keane: To Mexico, So we have experienced moving facilities and.
Robert Keane: We've done that for years.
Robert Keane: We would not be duplicating capex again, we'd be shifting it now you asked a question about the de Minimis exception or junction excuse me under section 301 for.
Robert Keane: For those who are not familiar with it allows smaller value orders to be.
Robert Keane: Imported without with exemptions to tariffs are theres, a lot of questions, including under the burden of administration.
Robert Keane: A question of looking into that.
Robert Keane: And so we've been aware that for quite some time to the extent that that changes.
Robert Keane: Us.
Robert Keane: We do.
Robert Keane: Do have plans to build a work around that.
Robert Keane: In place right now, but again in our scenario planning.
Robert Keane: If $3 21 was.
Robert Keane: Worst case permanently eliminated for all products.
Robert Keane: It would have a material impact on us in the near term until we were able to shift production resources.
Robert Keane: And we would obviously consider things like pricing passing that pricing through to customers to the extent, we have pricing power and I think that a lot of these <unk>.
<unk>, we're talking about in tariffs could give us pricing power in different parts of our.
Robert Keane: Our product line.
I realize im touching on many different.
Robert Keane: Hypotheticals, because that is where we are right now and that's where I think the entire U S economy that works with imports is right now, but again I'll go back to what I said at the beginning.
Robert Keane: We're spending a lot of time on this understanding different scenarios and quote Unquote War gaming.
Robert Keane: What would happen under different.
Robert Keane: Scenarios.
Robert Keane: Thank you Robert.
Speaker Change: I'm going to stick with you for the next question to quicker one.
Speaker Change: In reviewing past transcripts and the main second call management said of the new customer acquisition cohort for Vista.
Speaker Change: The six quarter in a row of growth, but cohorts was not mentioned in this this last quarter's announcement are you seeing a decline in new customer cohorts and if so what is driving that.
Speaker Change: So, yes, actually Q2 customer cohort at Vista was down slightly it's continuing to grow on a trailing 12 month basis, we don't give our cohort data every quarter so that.
Speaker Change: That wasn't an intentional was not an intentional.
Speaker Change: Omission.
Sean Quinn: I mentioned earlier in Q2, we and Sean talked about all of these are there are a number of different.
Speaker Change: Specific impacts in Q2.
Sean Quinn: Related to our channels.
Sean Quinn: And we don't see that as a longer term.
Sean Quinn: Change to the cohort growth.
Sean Quinn: The cohort growth just for those who are not familiar we define the value of the cohort is the gross profit we generate from customers acquired in a given quarter or given year.
Sean Quinn: And we can look at that gross profit over the first quarter of acquisition or over a longer period like a one or two year period.
Sean Quinn: And.
Sean Quinn: The improvements we've been making in here I'm, focusing specifically on Vista, which was the question, but it is true across <unk>.
Sean Quinn: Is to grow customer value.
Sean Quinn: That comes from a number of different areas, but the underlying trends. We see is this to remain.
Sean Quinn: Consistent and so I certainly expect this to.
Sean Quinn: US to continue the long term trend of cohort expansion.
Sean Quinn: Partly.
Sean Quinn: Certainly not making a prediction here but.
Sean Quinn: Have to understand that.
Sean Quinn: Our cohort because.
Sean Quinn: Measure of value over time.
Sean Quinn: <unk>.
Sean Quinn: First quarter value of gross profit, but then there is the slope at which that grows over time to repeat business and we've generally increased the slope of <unk>.
Sean Quinn: Cohort value growth.
Sean Quinn: Which it increases as you move into the future as we move to higher value customers interest and I, certainly expect that to continue which again without getting into specifics of the Q2 cohort.
Sean Quinn: It means that sometimes that you can start at a lower value, but still catch up to others because of higher.
A steeper slope.
Sean Quinn: Particular quarter did have the unique characteristics again, we've talked about in this call. So that may or may not be the case, but overall that should be the case and we don't expect to change from the general trend we've been seeing an increase in the value of each cohort going forward.
Speaker Change: Thank you. Thank you very much Robert.
Sean Quinn: Okay. Sean next one for you Vistaprint advertising spend as a percentage of revenue has increased year over year for the past three quarters. What is driving that is it also due to your competitors as a follow up is there inflation on advertising costs, our customers harder to reach do they need to see an advertisement more times to make them.
Speaker Change: Purchase decision and if so why.
Sean Quinn: Yes.
Sean Quinn: I think I covered some of this earlier.
Sean Quinn: Maybe just a.
Sean Quinn: To add onto that.
Sean Quinn: Yes, I think there is.
Sean Quinn: A number of things in this question.
Sean Quinn: There is in Q2.
Sean Quinn: Certainly there were impacts from the free channels that I mentioned before but we did plan to.
Sean Quinn: The increased advertising spend also in Q1, if you go back to Q1, you can see that too that was consistent with our plans and as I mentioned earlier. Our plan also was that in the second half of the year that year over year growth in advertising spend would be would be less.
Sean Quinn: I think stepping back like way back for a second over.
Sean Quinn: Over the last year as we've said in a number of different public forums that the range of advertising spend.
Sean Quinn: As a percentage of revenue would be in that 15% to 17% on an annual basis.
Sean Quinn: We were operating on the low end of that actually sometimes even slightly below that.
Sean Quinn: And then but.
Sean Quinn: We said that that would that would vary quarter by quarter year by year, and so I think we're still kind of in that range. We have added more spend into our.
Sean Quinn: Mid and upper funnel.
Sean Quinn: Panels.
Sean Quinn: In some regions from from time to time, so over the aggregate of this year that's the case.
Sean Quinn: It doesn't really show through so much.
Consolidated basis, this quarter, but thats one of the drivers and so that will change quarter to quarter, but I think we're still in this.
Sean Quinn: This range that we expected and in that will that will come down likely in Q3 and Q4 as a point of comparison in terms of the increased advertising costs or the inflation potential inflation that causes that.
Sean Quinn: In Q2 in the U S cost per click.
Sean Quinn: During the peak holiday weeks was up about 50% for in the consumer category Thats, a huge increase that was not something that we see across the board and actually as a point of comparison in Europe cost per click was actually down and so these things change from time to time I think the direction of travel.
Sean Quinn: In the cost of advertising in performance channels.
Sean Quinn: As an upward one.
Sean Quinn: But there we're continuing to work on efficiency and again, that's a multiyear trend. So I don't think theres anything necessarily to to read into that.
Sean Quinn: In the back half of the year, we will see a slightly different picture again, consistent with what we had planned coming into the year.
Sean Quinn: Yeah.
Speaker Change: Thanks, John another one for you what was the $12 million of one time favorable items in the year ago period.
Sean Quinn: Yes.
Sean Quinn: I'll, probably wont list out all of them, but these are all things that we disclosed last year as well. So it's not like these are kind of new things that we that we discovered.
Sean Quinn: I would just add a couple a couple of examples and there were some of these that impact the cost of goods sold and therefore impacted gross margin favorably last year some of them are in opex.
Sean Quinn: A few examples we had.
Sean Quinn: Refund last year because of a ruling that we got that was $3 million that favorably impacted versus cost of goods sold last year.
Sean Quinn: We had some government subsidies.
Sean Quinn: That we received that was.
Sean Quinn: Kind of in the aftermath of Covid. Some of these things shaking out in Europe that favorably impacted pre.
Sean Quinn: Brothers.
Sean Quinn: A few million dollars last year, we had some cogs timing differences, we called out last year and pro brothers as well that had a favorable impact. So I won't go through all of them, but they were kind of at these discrete things we don't.
Sean Quinn: I'd like to think we hold the bar high there in terms of the things that we would call out.
Sean Quinn: These again they are all things that we disclosed that are kind of one off and cros.
Sean Quinn: Cogs and opex, but that adds up to $12 million year over year.
Sean Quinn: Then as I said earlier and we've called out in the release there was another $5 million of impact liquidity from the Canadian postal strike in this year's Q2 as well.
Speaker Change: Great. Thanks, Sean.
Speaker Change: I'm going to skip to Robert for this next question.
Speaker Change: Robert.
Speaker Change: What gives you confidence in this visibility to reignite growth in the U S and how should we think about the business card business from here on in.
Speaker Change: As to what gives us confidence.
Speaker Change: All the things we've highlighted.
Speaker Change: Certainly today, but also in our July.
Speaker Change: At her to investors in the September Investor Day presentation.
Speaker Change: In summary, the growth of the.
Speaker Change: More complicated, but very important and very large product categories, which we've talked about for years.
Speaker Change: And that includes.
Speaker Change: Vista growing in that.
Speaker Change: Traditionally they were more in our upload and print businesses I'd also say just to appoint a confidence is just his continued success.
Speaker Change: Improving its value proposition.
Speaker Change: Across the board, but especially with higher value customers and again, what we've spoken about for multiple years the importance and the success. This is having in serving.
Speaker Change: Customers that are in the top couple of decile and the value of those top decile.
Speaker Change: Dividual customers in those top decile is growing over time.
Speaker Change: As the business cards, we spoken quite a bit about it today.
I won't repeat all of that for time, but.
Speaker Change: Or is pricing something Sean said, just a few moments ago, which is we don't see this as a.
Speaker Change: We see Q2's drop not a fundamental change that suddenly after years of slow growth or a slight decline there was a rapid decline in the market, we see it as more a variety of short term.
Speaker Change: Factors and we do not plan on that market growing, but we do think that it's going to be.
Speaker Change: Turning to its multi year slow steady.
Speaker Change: Move away as society moves away from using that product just like in the past there has been a slow steady weight move away from people, sending Christmas or other holiday cards.
Speaker Change: Okay, so going back to what give us confidence I think that in the U S. We have those tail winds which are.
Speaker Change: Quite strong, especially when you get out of the second quarter in terms of reigniting growth I'd actually reframe it slightly in this week.
Speaker Change: We grew 8% for each of the two quarters before this last quarter and last year, we grew in Q2, 9%.
Speaker Change: So again, there's always variation year to year.
Speaker Change: We are addressing specific drivers from this last quarter as we've talked about today.
Speaker Change: And.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: I think it will give us confidence in the <unk>.
Speaker Change: Revenues overall, not just Vista.
Robert Keane: Thanks Robert.
Speaker Change: Sean next one for you.
Sean Quinn: Can you unpack the updated second half FY 'twenty five guidance as it pertains to Vista, how are you thinking about the growth cadence throughout the remainder of the year and which businesses are most impactful to the second half of FY 'twenty five outlook and the growth rates that you expect to see in the second half.
Speaker Change: Yes.
Speaker Change: Earlier I talked about.
Speaker Change: How vista upload and print make up the vast majority of our segment EBITDA last year in the second half of the year and how we expect that would be similar for this year.
Speaker Change: But we're not going to give.
Speaker Change: Specific segment level guidance for the back half of the year, but.
Speaker Change: Alright.
Speaker Change: The growth be.
Speaker Change: Thank you too.
Speaker Change: And we are expecting more meaningful year over year, EBITDA growth and Vista as well in the second half of the year.
Speaker Change: Mentioned earlier that year over year AD spend profile had already been planned to be.
Speaker Change: Higher year over year increase in H, one compared to <unk> and so that is one of the drivers there too that helps that.
Speaker Change: One of the drivers of that.
As I mentioned too is just that we had a significant brand partnership last year and there was also the media directed at that and we don't have that in the <unk>. This year. So that's just one of many drivers there.
Speaker Change: For upload and print I would expect to see more of what we've been seeing.
Speaker Change: In terms of trends for for growth and profitability for national tenant build aside.
Speaker Change: I would continue to expect to see more of their growth coming from cross impressed fulfillment.
Speaker Change: It continues to ramp and be a more material part of what drives their revenue.
Speaker Change: Great.
Speaker Change: Next question also for Sean.
Speaker Change: <unk> keeping question why why did the weighted average share count go up sequentially by 730 8-K, despite the 533 K and share repurchases. This quarter. Yes. This is a little bit more of a kind of a technical thing.
Speaker Change: Our weighted average shares outstanding decreased it actually if you compare to last year, our weighted average diluted shares.
Speaker Change: Our down.
Speaker Change: Our shares outstanding are down.
Speaker Change: Down by over I think over $1.6 million in shares year over year.
Speaker Change: The sequential increase that you referred to is really an accounting topic.
Speaker Change: You have a loss in your GAAP net income, which we did in Q1, largely because of unrealized losses that we had on our currency hedges.
Speaker Change: We're required to use our basic shares as our diluted shares because otherwise you.
Speaker Change: Youre effectively reducing your GAAP EPS, if you have a loss per share. So that's that's just a rule.
Speaker Change: So that's a little bit nuanced in terms of the actual trends like the actual diluted shares outstanding yes. It has come down with the repurchases and if you look at the basic shares outstanding that we have youll.
Speaker Change: Youll see that sequential decrease because of the repurchases.
John: Great John sticking with you again here.
Speaker Change: <unk> undertook.
Speaker Change: The basis point repricing and upsize of its term loan in early December which closed on December 17th.
Speaker Change: Certain lenders may be frustrated with lower prices today with management not aware of the severity of the decline in EBITDA that far into the quarter, how was EBITDA tracking in October and November.
Speaker Change: Yes, I understand the question.
Speaker Change: In Q2, which is as unique to Q2.
Speaker Change: Holiday peak is concentrated period of time of course, and then the extent of our year over year profit impact.
Speaker Change: This year, especially combined with the fact that it was a condensed buying period.
Speaker Change: Really not known until we close the books for December because December has had the biggest the biggest impact.
Speaker Change: Certainly relative to what we had planned.
Speaker Change: December had the biggest impact relative to those plans and again with the shift of the holiday season that was more so the case this year and becomes harder to forecast.
Speaker Change: How that how that's going to profile from a consumer perspective, so relative to early December.
Speaker Change: The results were worse than we had expected.
Speaker Change: And worse than what we were forecasting at that time.
Speaker Change: Great.
Speaker Change: Lastly, I have a question here given the three one times net leverage versus your target of two five times combined with the weaker year over year EBITDA do you anticipate buying stock if it remains in the 70 well the board we evaluated leverage policy <unk> target if the stock declines into.
Speaker Change: The <unk> or lower Sean.
Sean Quinn: Sean why don't you take that one yes.
Speaker Change: Yes, we ended.
Speaker Change: With three one times.
Speaker Change: Leverage net leverage.
Speaker Change: Our fiscal 'twenty guidance now shows that we'd have a slate.
Speaker Change: Increase to EBITDA again, we've used this at least framework so using that at least framework. It implies a slight increase to EBITDA in the back half of the year. So EBITDA expansion also $50 million of free cash flow at least in the back half of the year.
Speaker Change: Most of that would be used to bring the leverage back to the approximately three points Youre at times that we've talked about in our guidance.
Speaker Change: In the U S. So at those levels. There is some room for share repurchase, but we wouldn't expect it to be material.
Speaker Change: That will be somewhat dependent on our actual results relative to that guidance.
We obviously can't comment on hypotheticals for what the board might decide the future, but there is no. There is no plan of changing that leverage policy.
Speaker Change: As we sit here today.
Speaker Change: Thank you, Sean Alright, with that Robert I'm going to hand, the call back over to you to wrap things up.
Robert Keane: Okay. Thank you Meredith, let me summarize by saying, we're continuing to execute on the plans and strategic plans and operational plans, we laid out in September and our Investor day.
Robert Keane: Although our Q2 results were not good there are so many signs of progress happening across census, today that we do.
Robert Keane: See those Q2 results is an undesirable on.
Robert Keane: Wanted, but certainly addressable short term turbulence and we do not see them as a change to our overall trajectory.
Robert Keane: So.
Robert Keane: By staying focused on our plans by focusing on focus on execution, we do expect to continue to deliver.
Robert Keane: Improvements to the value that we deliver to our customers.
Robert Keane: <unk> will in turn.
Robert Keane: To support growth year on year in our financial results.
Robert Keane: And the long term trajectory.
Robert Keane: We've discussed so many times so let me wrap up by saying Thank you to our investors for joining the call and two continuing to entrust your capital with us.
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