Earnings Call Transcript - CMPR Q2 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Cimpress Second Quarter Fiscal Year 2025 Earnings Call. I will introduce Meredith Burns, Vice President of Investor Relations and Sustainability. Please go ahead.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you, Michelle, and thank you for everyone joining us. 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've dedicated to understanding our results, commentary, and outlook. This live Q&A session will last about 45 minutes or so; we got a lot of questions, and we'll answer both pre-submitted and live questions. 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 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, CEO

Thank you, Meredith, and thank you to everyone joining us today. As mentioned in last night's release, we continue to make progress on the goals outlined in my letter to investors at the end of July, which we discussed in detail during our September Investor Day. However, our Q2 results did not meet our expectations due to various factors, which Sean will address shortly. We view the financial results we just presented as disappointing. We recognize the underlying issues and are actively working to resolve them, while intensifying our efforts to advance our clearly defined strategic and operational goals. Thus, we believe that looking back on the second quarter of this fiscal year, it will be seen as a period of turbulence rather than a shift away from the upward financial trajectory we've been on for several years. In our earnings document, I highlighted several examples that instill confidence in our ability to grow profits and cash flow as described. These include focused production hubs, the cost of goods produced, and increased revenues from new product introductions. Additionally, we anticipate launching our Upload & Print business model in the U.S. and have seen significant growth among Vista's highest value customers across all of Cimpress in new growth categories. These examples illustrate our progress and the opportunities that lie ahead for the remainder of this fiscal year and beyond. I highly encourage you to read that section of the earnings document if you haven't already, and I am eager to answer your questions shortly. More detailed information is also available in the September Investor Day presentation. The activities outlined in those documents are aimed at enhancing our competitive advantages and ensuring Cimpress maintains its long history of profitable growth in the years ahead. While we are experiencing headwinds from slowing growth in certain products and channels, we also benefit from tailwinds in higher growth product categories that are becoming increasingly robust each year. These tailwinds are found in market areas that make up a larger share of our total addressable market compared to our legacy products. Having founded this business 30 years ago this month, many aspects remain consistent. We still operate in a vast market primarily served by traditional suppliers and competitors, and our scale-based competitive advantages across various parts of our value chain provide us with leading market capabilities. Importantly, our strategy remains consistent with what we have pursued for several years, and we are committed to execution to seize our opportunities. Financially, as mentioned earlier, we are confident that after overcoming the turbulence of the last quarter, we can get back on the financial trajectory we previously outlined. When considering all of this, I remain very confident in our ability to grow our per-share value over time. Now, I will turn it over to you, Sean, to discuss some of the financial results and outlook in more detail.

Sean Quinn, CFO

Great. Thanks a lot, Robert, and thanks to everyone that's joined us today. We did provide a lot of information in the document yesterday. I'll try and keep my remarks brief, just so we can get to the questions. There's a lot of questions that will come in. Bob, it’s very disappointing that Q2, and of course, that's altered our outlook for the full year as we outlined last night. Robert commented on our strategic focus. I'm going to turn to an overview of our financial results, and let me just start a little bit more big picture as an overview. And there are a lot of one-time items, including the lapping of significant benefits that we had last year, which frankly was 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 beyond that, the vast majority of what drove the weakness relative to our plan was in the United States. The biggest dollars are in Vista, but that was also present for National Pen for BuildASign as well. In Vista, there are 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 core algorithm and search engine results page in the U.S. That impacted new customer acquisition and that was most notable in business cards and consumer, which in terms of customer count from a new customer acquisition perspective, those are the largest categories in Q2 for new customers. We've been optimizing now against those changes. In our December quarter, the revenue mix in Vista changes to about 25% of our bookings coming from the consumer category. It's actually a higher percentage in Europe than it is in North America. 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. In the U.S., it was also a less favorable environment than last year just overall. The cost of performance advertising was significantly higher, nearly 50% higher, and the competitive intensity was also higher with discounting from some of our competitors, particularly in some of our legacy products. For business cards and holiday cards in the U.S., we do see market demand down, and that's 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 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 year and actually a little bit ahead of our plan. Also, as we turned to the month of January, which is now nearly complete, consumer in North America is back to modest growth. In National Pen and BuildASign, there are some specifics tied to go-to-market channels. But overall, we don't see a dramatic change that cuts across the US market, despite the fact that that's where most of the weakness was in the quarter, so nothing new that indicates 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 had a slight decline. We do expect that to continue, but there are other additional factors at play this quarter. 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 one-time benefits in last year's Q2 results, which is about $12 million last year. And we are copying those, but we also had the short holiday buying season, so we had factored that into our forecast. 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; we outlined those in the release last night. 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 US market with weaker sales of consumer-related holiday products like holiday cards and home decor, not just specific to Vista, as well as year-over-year declines in business cards in Vista. Signage, promotional products and packaging categories had strong growth globally. That strength was not enough to overcome the weakness in those higher-margin legacy products in the US 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 increase year-over-year. We have a lot of improvements in flight already in addition to the examples of progress against our strategic objectives that Robert will get to some of those in the questions. As for our outlook, we remain committed to multiyear growth in revenue, EBITDA, and free cash flow. However, in light of our Q2 financial results, we are setting our expectation for the year to incorporate our Q2 underperformance. For the second half of the year, we expect revenue in constant currencies to grow at least 4%. 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 slow their growth and to optimize our pricing. Again, we'll get into some more of that in the questions. That's factored into our updated fiscal 2025 guidance, as is some prolonged effect from just some of the weakness that we experienced this past quarter. We also now expect to exit this year with net leverage of approximately 3.0 times our trailing total bond EBITDA, as calculated under our credit agreement. We do remain committed to our plans to reduce net leverage to our target of approximately 2.5 times or below, but that will be slightly delayed from our prior expectations. With that, Meredith, let's open it up for questions.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Thanks, Sean. As a reminder, you can submit questions during this webcast via the questions-and-answers box at the bottom left of the screen. We’ve received a number of pre-submitted questions and we’re getting live questions now, a few. Some of them are in overlapping areas. So I am going to combine some of these to make sure that we’re thoroughly addressing what’s on some people’s minds. Let’s take our first question. Sean, I'm going to ask this question to you. To what do you attribute the underperformance in 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?

Sean Quinn, CFO

Yeah. I touched on a little bit of this in the remarks just now, but it's an important topic. 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% that was in the release last night. That'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. And by the way, we see Canada kind of snap back to more normal expected performance once that strike was over and including in January. We did have growth in part of that consumer category, but the main driver of the decline was holiday cards and to a lesser extent, calendars. I covered this earlier, but there were a number of factors at play that impacted that: the shorter holiday season, the higher cost of performance advertising. I mentioned, it was up 50% in the peak weeks in the US; competitive behavior was different than last year. As I said earlier, that consumer products grew overall in Vista's European markets, including from holiday cards. 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 there was a decline for most of our competitors in the US in that area of the season and that lower rates compared to ours. Some of those competitors are quite intense with discounting and advertising. We can see that. But in our multiyear outlook, we don't assume growth from those specific products. For BuildASign, sticking with consumer, we build a sign Canvas Print revenue is down year-over-year about $5 million. 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. And then since then, we've seen some decline; those are still relevant products. We have strong capabilities, but that was down year-over-year this quarter. Q2 is seasonally important for consumer, of course, but the weight of consumer does come down in the next during the rest of the year. So as we noted in our earnings document, outside of the holiday period, this has been growing revenue for consumer products modestly outside of the holiday period when it's not the concentration of holiday cards, calendars, Canvas Print, and so on. And we did see that continue in January once we're out of the holiday season. We're back to modest growth in consumer across this. We did receive another question. I just kind of touch on here, while we're on the consumer topic just around competitive behavior and on the marketing front, if we tighten marketing investment in response to higher advertising costs. And on the competitive behavior, it does change every year. Last year was overall a more benign environment, I would say. We set our plans in terms of 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 behavior changing that we view to be irrational when it comes to just thinking about the impact on unit economics. That's what we did from an ad spend perspective this year as well. The increase in our ad spend this quarter in North America was mostly in display and TV channels. So that was not specific to consumer. We held to our marginal return thresholds and that spend in performance channels was therefore a good return, but it didn't go as far as last year because the unit pricing was far higher. So it just had less impact overall in terms of especially new customer acquisition. The question asked about business cards as well. This business cards and stationery category was down about $5 million year-over-year in Q2 in the US. We don't think that there's any sort of sudden change in demand for that product that happened in Q2. We have been seeing pretty stable trends over many years, where our volumes were decreasing slowly over time, but that was being offset by more feature enhancements or change in order sizes as we attract different types of customers but also optimizing net pricing since discounts had come down from where they were some years ago. As I mentioned in my earlier remarks, in Q2, business cards in the US were also impacted by organic search. And I won't go into that again, but that definitely had an impact on business cards. We'll 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 and a number of other things, all with the goal to protect that profit pool. That's what we talked about at our Investor Day as well. Our H2 guidance that we've outlined does factor in modest growth in consumer for Vista, and we're back to that in January. It does factor in continued pressure in BuildASign in terms of their end market. And then for business cards and Vista, it 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. From a multiyear outlook perspective on business cards, we don't assume growth. We do factor in some modest consumer growth, as I said, outside of the holiday period.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you, Sean. Excellent. Okay. My next question, Robert, is for you. Why is it more sensible for Pixart Printing to enter the US market rather than expanding an existing Cimpress business with the infrastructure already established in the US into Upload & Print?

Robert Keane, CEO

At a high level, our success in Europe with the Upload & Print business model has shown us that it complements other segments in Cimpress, such as Vista and National Pen. Let me elaborate by addressing two perspectives. First, I’ll discuss the customer needs we meet with Upload & Print, and then I’ll focus on the production infrastructure you inquired about. In terms of customer value, all Cimpress segments deliver mass customized print, but the customer needs vary across our reporting segments. They overlap to some extent, but generally serve different customer types that we’ve identified over the years. The Upload & Print customers are individuals who are comfortable using professional graphic design tools, like Adobe Illustrator or InDesign. They use their skills to create complex designs needed for products such as packaging, booklets, catalogs, large signage, and more. Beyond graphic design, these customers often make higher quantity orders, which, while still low by industry standards, are larger than those typical for Vistaprint. Establishing a focused business unit or segment is essential for understanding and addressing these distinct customer needs. Now, regarding our production operations, we've discussed for years that the mass customization of print relies on aggregating large numbers of similar orders in specialized production lines. This setup results in repetitive production operations as we combine these orders. That specialization encompasses various factors, such as order quantity and decoration type, and even proximity to customers or suppliers. While all our operations focus on mass customization, the specifics differ between businesses. For instance, Vista generally deals with smaller, simpler orders that are often shipped together. In contrast, Upload & Print addresses larger order quantities—still small compared to traditional competitors—and more complex products. These Upload & Print products reflect the type of production lines we are establishing in our new facility in Pennsylvania. There is certainly overlap, and that overlap has been increasing over time, which is why we are emphasizing the concepts we've discussed regarding Cimpress fulfillment. We are increasingly moving toward focused production hubs to further consolidate volumes and gain the advantages I mentioned earlier. To clarify, the new Pixartprinting facility in the US will produce for Vista and National Pen, while National Pen, BuildASign, and Vista will also fulfill orders for Pixartprinting in the US. I hope this explains our approach to entering the market with this successful brand and business and the operational footprint we’ve chosen.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Thank you, Robert. I'm looking forward to seeing that launch and grow in Q4. Next question is for Sean. Sean, we were surprised by the low growth experienced by both National Pen and all other businesses this past quarter. For National Pen, 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 of BuildASign and Print G?

Sean Quinn, CFO

I will briefly discuss each of these businesses, starting with National Pen. Over the past few quarters, we have been reducing our direct mail advertising spend in National Pen to enhance profitability in that area. While this optimization impacts revenue, it is important to prioritize profitability, especially since direct mail was already a lower growth channel. Consequently, this has further affected revenue. Additionally, timing differences in profitability can occur due to the timing of mailings; costs are recognized when mailings take place, which may show different year-over-year trends quarter to quarter. Although Q1 showed favorable growth year-over-year, Q2 reflects some challenges. Looking at the channel weight, e-commerce, call sales, and cross-Cimpress fulfillment are all growing significantly, and together they now comprise a larger share of National Pen's revenue than direct mail, which accounts for approximately 25%. In Q2, profit from direct mail sales was weaker, influenced by product mix and increased inbound freight costs, as mentioned in the release. Regarding BuildASign, we have observed continued growth in signage products, although Q2 was offset by declines in the home decor category, which is consumer-focused. This impact was more pronounced in the holiday quarter, leading to a year-over-year decline in their stand-alone business when serving end customers. However, the cross-Cimpress fulfillment they are providing has experienced significant growth. At a segment level, there is still slight year-over-year growth, but in their stand-alone business, there was a decline primarily driven by cross-fulfillment growth. We anticipate that outside the December quarter, there will be a ramp-up in cross-Cimpress fulfillment, becoming a more dominant trend in overall revenue due to BuildASign's strong capabilities in production and signage, as well as home decor products. Most production volumes for Vista's US business are being shifted to BuildASign, which will reduce costs, enhance Vista’s speed in introducing new products, and free up production space for new introductions, ultimately helping us avoid future capital expenditures. For Print G, while their contribution to our overall results is small, they are laying the groundwork for a new growth phase, including necessary technology upgrades similar to those our other businesses have implemented. They are also expanding into new categories, following the successful model of our European Upload and Print businesses. Print G is currently operating near breakeven or sometimes slightly above. However, the significant changes being implemented this quarter may cause some temporary disruptions, but they will create opportunities in a large, still relatively untapped market. There is considerable potential for growth with the new capabilities, although it may take a few quarters to ramp up, particularly in terms of production efficiency.

Meredith Burns, Vice President of Investor Relations and Sustainability

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 combined question here. In the letter, you called out that you're taking multiple actions to improve performance/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? Or are these plans still being developed?

Sean Quinn, CFO

Yes, there were several questions about this, and a couple of live inquiries as well. When looking back at the second half of last year, approximately 90% of our adjusted EBITDA from a segment perspective came from Vista and Upload & Print, which contributed most of our profits. We believe this trend will continue this year, although the specific percentage may vary. I will focus on these two segments first. In Upload & Print, there are various factors to consider for Q2, yet these businesses have performed well, focusing on new product introductions and efficiency gains. Robert mentioned that we are bringing the model to the North American market, and we plan to pursue this strategy throughout the latter half of FY 2025 and beyond. We are sticking to our plan here, and the overall performance of these businesses is closely aligned with our Q2 goals. Regarding Vista, we've implemented several actions and continue to work actively on additional improvements. This includes enhancing cost efficiency compared to our previous plans and refining our product roadmap to target areas needing the most attention, particularly where we observed weaknesses in Q2. We are reallocating our advertising spending based on where we identify the greatest need and potential impact, alongside pricing optimization, among other initiatives. It's important to note that we entered the year with a plan anticipating that our advertising spend would be lower in the second half compared to the first half, which will also affect year-over-year profitability. This setup is more favorable for the second half, especially since we won’t have some major brand partnerships that we had in the previous year. We are not initiating major changes or cost-cutting programs in Vista or Upload & Print; instead, we’re concentrating our efforts on areas with the greatest opportunities while maintaining cost controls. This ongoing focus is not about large restructuring but about driving urgency in key areas. For National Pen and BuildASign, they represent a smaller portion of our overall profitability in the latter half of the year, where the focus remains on growing fulfillment for Vista in North America and finding opportunities for efficiency gains through scale and new product introductions. We’ve seen positive results in this regard, and we will maintain this approach moving forward while also ensuring continued cost optimization. Although we haven't fully quantified the overall impact of our efforts, it is incorporated into the guidance framework we've provided for the second half of the year.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you, Sean. Okay. Robert, next question is for you. It's on a lot of people's minds. We have been getting this question. If tariffs are put in place on Canadian goods and if the de minimis exemption on imports to the U.S. is repealed and the asker does recognize that those are both big ifs, how might the company respond? What percentage of the company's US revenues come from the Ontario facility and how much of this could be shifted to other US plants? How much do you estimate it would cost to recreate the Ontario facility in the US and how long would it take? And what is your US manufacturing footprint, and can it accommodate the volumes that you're currently producing in Canada and Mexico?

Robert Keane, CEO

Thank you all for joining. I understand there are many questions. Firstly, I want to assure you that we've been aware of these issues for some time, even before the election results. We've dedicated significant effort to scenario planning. As you've pointed out, the situation involves many uncertainties, and I can't provide specific plans. However, I can share some background information. Our North American production covers facilities in Canada, the US, and Mexico. In the US, we operate four facilities located in Reno, Nevada, Tennessee, Austin, Texas, and Indiana. Additionally, we are outfitting a facility near Pittsburgh, Pennsylvania. Together, these five sites encompass nearly 400,000 square feet of production space, and as far as I know, all are leased, providing us flexibility for future expansion without major capital costs. In Canada, we own our facility, while our facilities in Mexico total about 800,000 square feet, approximately double that of our US facilities, with Windsor being our largest site. Currently, around two-thirds of our North American production space is in Mexico and Canada. The facilities we currently have or will soon open in Pennsylvania would need expansion to handle increased volume. In the worst-case scenario of heightened tariffs, we would not face the challenge of purchasing new equipment; rather, we would focus on relocating existing equipment, training new teams, or expanding facilities. While I personally view such an extreme scenario as unlikely, it is part of our scenario planning. We have experience moving facilities when necessary. For instance, we recently transitioned our Irish operations to the Czech Republic and shifted a significant portion of our Canadian production to Mexico for large-format items. Similar moves have occurred in Tennessee. This experience means we would not incur duplicative capital expenditures but would simply relocate our investments. You asked about the de minimis exemption under Section 321, which allows lower-value orders to be imported tariff-free. We're aware of the ongoing discussions about this exemption under the Biden administration. If changes do occur, we have plans in place to adapt, though these are still in our planning stages. If the Section 321 exemption were completely eliminated, it would significantly impact us temporarily until we adjust our production strategies. Pricing adjustments would be an option if we have the market power to do so. The potential changes in tariffs might give us leverage in pricing across different products. I realize I'm addressing many hypotheticals, which reflects the current volatile state of the US economy regarding imports. However, I want to reiterate that we are systematically analyzing various scenarios and preparing for potential outcomes.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you, Robert. I'm going to stick with you for the next question. It's a quicker one. In reviewing past transcripts, in the May 2 call, management said of the new customer acquisition cohort for Vista, it was the sixth quarter in a row of growth. But cohorts were not mentioned in this last quarter's announcement. Are you seeing a decline in new customer cohorts? And if so, what is driving that?

Robert Keane, CEO

In Q2, the customer cohort at Vista experienced a slight decline, yet it continues to show growth when assessed over the past 12 months. We don't provide cohort data every quarter, so this was not an intentional omission. In Q2, we discussed various specific impacts related to our channels. We don't perceive this as a long-term shift in cohort growth. For those unfamiliar, we define the value of a cohort based on the gross profit generated from customers acquired in a specific quarter or year, which we analyze over the first quarter of acquisition or a longer span, such as one or two years. Our efforts to enhance customer value, particularly at Vista although it applies to Cimpress as well, stem from various areas and the underlying trends remain steady. I expect us to maintain the long-term trend of core expansion. While I’m not making any predictions, it’s important to note that a cohort is a measure of value over time, beginning with the first-quarter gross profit and the rate of growth from repeat business. We have generally improved this growth rate as we attract higher-value customers, and I anticipate this trend will persist. Therefore, even if a cohort starts at a lower value, it can still catch up due to a steeper growth rate. This particular quarter did have unique characteristics we’ve mentioned, which may affect this observation. However, we expect the overall trend of increasing cohort value to continue going forward.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you very much, Robert. Okay, Sean. Next one for you. Vista Print 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? Are customers harder to reach? Do they need to see an advertisement more times to make a purchase decision? And if so, why?

Sean Quinn, CFO

Yes, I discussed some of this earlier and would like to add more detail. There are several factors to consider in this question. In the second quarter, we did experience impacts from the free channels mentioned before. We also planned to increase advertising spend in the first quarter, which aligns with our earlier projections. As noted, our strategy anticipated that the year-over-year growth in advertising spend for the second half of the year would be lower. Historically, we've indicated that our advertising spend as a percentage of revenue would fall within the 15% to 17% range annually, and we've been operating at the lower end of that spectrum, occasionally even below it. There are variations from quarter to quarter and year to year, but we remain within that expected range. Throughout this year, we've allocated more spend to our mid- and upper-funnel channels in certain regions sporadically. While this may not be immediately apparent in the consolidated figures for this quarter, it is one of the contributing factors. This trend is likely to continue in the upcoming quarters, and we anticipate a decrease in Q3 and Q4 for comparison purposes. Regarding the increased advertising costs and the potential inflation impact in the second quarter, the cost per click in the US during peak holiday weeks surged by about 50% in the consumer category, which is a significant rise. However, this is not a uniform trend, as in Europe, the cost per click actually declined. Advertising costs and performance channel trends generally show an upward trajectory, and we are continually focusing on efficiency, which is a multi-year endeavor. There isn't anything alarming about this for the latter half of the year, as we expect a somewhat different scenario aligned with our initial plans for the year.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thanks, Sean. Another one for you. What was the $12 million of one-time favorable items in the year ago period?

Sean Quinn, CFO

Yes. I won't list all of them, but these are things we disclosed last year, so they aren't new discoveries. For example, some impacted the cost of goods sold and therefore positively affected gross margin last year. There were also some operating expenses involved. One example is a VAT refund we received last year from a ruling, which positively affected Vista's cost of goods sold by $3 million. Additionally, we received government subsidies as a result of COVID, which positively impacted PrintBrothers by a few million last year. We also noted some timing differences in cost of goods sold for PrintBrothers that had a favorable effect. While I won't go through all the details, these discrete items contributed to a total of $12 million year-over-year. Moreover, as previously mentioned in the release, there was another $5 million impact from the Canadian postal strike in this year's second quarter as well.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Thanks, Sean. I'm going to skip to Robert for this next question. Robert, what gives you confidence in Vista's ability to reignite growth in the US? And how should we think about the business card business from here on in?

Robert Keane, CEO

What gives us confidence includes all the points we've discussed today, as well as our July letter to investors and the September Investor Day presentation. In summary, it's the growth of the more complex, significant product categories we've talked about over the years, including Vista, which is expanding beyond its traditional Upload & Print businesses. Vista's continued success in enhancing its value proposition, particularly for higher value customers, is also a source of confidence. We've highlighted the importance of Vista serving its top customers, whose value is increasing over time. Regarding business cards, we've discussed this extensively today, so I won't reiterate everything, but I will summarize by saying, as Sean mentioned earlier, we do not view the Q2 decline as a fundamental shift after years of slow growth. Instead, we see it as driven by short-term factors, and while we do not expect that market to grow, we believe it will gradually return to a slow, steady decline as society moves away from using that product, similar to the decline in sending holiday cards. Returning to what gives us confidence, in the US, we have strong tailwinds, especially as we approach the end of the second quarter. To reframe our growth strategy, Vista grew by 8% in each of the two quarters prior to this last quarter, and last year we saw a 9% growth in Q2. There is always year-to-year variation, but we are addressing the specific challenges from this past quarter, which I believe will enhance our overall confidence in Cimpress revenues, not just Vista.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thanks, Robert. Sean, next one for you. Can you unpack the updated second half FY 2025 guidance as it pertains to Vista? How are you thinking about the growth cadence at Vista throughout the remainder of the year? And which businesses are most impactful to the second half of FY 2025 outlook and the growth rates that you expect to see in the second half?

Sean Quinn, CFO

Yes. Earlier, I discussed how Vista and Upload & Print represented the majority of our segment EBITDA last year and in the second half of the year, and we anticipate this trend to continue this year. While we won't provide specific segment-level guidance for the latter half of the year, we expect to see growth in the second quarter and more significant year-over-year EBITDA growth in Vista during the second half. I mentioned previously that the planned year-over-year ad spend is set to be higher in the first half compared to the second half, which contributes to this expectation. One factor influencing this is that we had a notable brand partnership last year that included media support, which we won't have in the second half this year. That’s one of several factors affecting this. For Upload & Print, I anticipate seeing continued trends of growth and profitability on the national tenability side. I expect a larger share of their growth to come from cross-Cimpress fulfillment as it develops and becomes a more substantial contributor to their revenue.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Next question also for Sean, a housekeeping question. Why did the weighted average share count go up sequentially by $738,000 despite the $533,000 in share repurchases this quarter?

Sean Quinn, CFO

Yes. This is somewhat technical. Our weighted average shares outstanding decreased, and compared to last year, our weighted average diluted shares are down by over 1.6 million shares year-over-year. The sequential increase you mentioned is really an accounting issue. When there is a loss in our GAAP net income, as we experienced in Q1 mainly due to unrealized losses on our currency hedges, we must use our basic shares for our diluted calculations. Otherwise, it would effectively lower our GAAP EPS if there's a loss per share. So that's just the rule. In terms of the actual trend, yes, diluted shares outstanding have decreased due to repurchases. If you look at the basic shares outstanding, you'll notice that sequential decrease because of the repurchases.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Sean, sticking with you. Again, here, Cimpress undertook a 50 basis point repricing and upside of its term loan in early December, which closed on November 17. 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 is EBITDA tracking in October and November?

Sean Quinn, CFO

Yes. I understand the question. In Q2, which is unique to Q2, the holiday peak is a concentrated period of time, of course. The extent of our year-over-year profit impact this year, especially combined with the fact that it was a condensed buying period, was really not known until we closed the books for December, because December had the biggest impact. Certainly, relative to what we had planned, December had the biggest impact relative to those plans. Again, with the shift of the holiday season, that was more so the case this year, and it becomes harder to forecast how that's going to profile from a consumer perspective. So relative to early December, certainly, the results were worse than we had expected and worse than what we were forecasting at that time.

Meredith Burns, Vice President of Investor Relations and Sustainability

Great. Last question. Here, given the 3.1 times net leverage versus your target of 2.5 times, combined with the weaker year-over-year EBITDA, do you anticipate buying stock if it remains in the '70s? Will the Board reevaluate its leverage policy and/or target if the stock declines into the 60s or lower? Sean, why don't you take that one?

Sean Quinn, CFO

Yes, we ended with 3.1 times leverage, net leverage. Our fiscal '25 guidance now shows that we have a slight 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 of $50 million of free cash flow at least in the back half of the year. Most of that would be used to bring the leverage back to the approximately 3.0 times that we've talked about in our guidance, ending the year. So at those levels, there is some room for share repurchase, but we wouldn't expect it to be material. That would be somewhat dependent on our actual results relative to that guidance. We obviously can't comment on hypotheticals for what the Board might decide in the future, but there's no plan of changing that leverage policy as we sit here today.

Meredith Burns, Vice President of Investor Relations and Sustainability

Thank you, Sean. All right. With that, Robert, I'm going to hand the call back over to you to wrap things up.

Robert Keane, CEO

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 on our Investor Day. Although our Q2 results were not good, there are so many signs of progress happening across Cimpress today that we do see those Q2 results as an undesirable unwanted, but certainly addressable short-term turbulence, and we do not see them as a change to our overall trajectory. So by staying focused on our plans, by focusing on focus and execution, we do expect to continue to deliver improvements to the value that we deliver to our customers. That will in turn continue to support growth year-on-year in our financial results and the long-term trajectory that we've discussed so many times. So let me wrap up by saying, thank you to our investors for joining the call and for continuing to entrust your capital with us.