21st Annual Needham Technology, Media, & Consumer Conference, New York, NY

Good afternoon, everyone. My name is Stephanos Press from Needham Research. Welcome to the 21st TMT Consumer Conference. It's my pleasure to introduce Simpress, and today we have Meredith Burns, the VP of Investor Relations. So we'll start with the presentation and then move to Q&A. Great. Thank you.

Thank you so much. I'd like to thank the Needham team for hosting us here. I'm here with Colin Sprague, who is on my Investor Relations team as well at Simpress. And we're here to talk about Simpress, the leader in print mass customization, and I'd also like to say hello to people that are on the webcast as well. All right, so before we get started, I'm definitely going to talk about the future today. It's in the slides, so we are going to have some conversation about our expectations, and sometimes what those expectations are may not actually come to pass because of risk factors that are outlined here on this slide, but also in much more detail in our SEC filings, including our 10K and subsequent SEC filings from time to time. We also have non-GAAP measures in this presentation, and you can find reconciliations to those non-GAAP measures on our investor relations website at ir.sympress.com. Okay, let's get started. As I said, Sympress is the leader in web-to-print mass customization. What that means from a customer perspective is that we can help millions of businesses and do help millions of businesses build their brands, stand out, and grow via custom, print, and promotional products. So you can see some examples here. These are real customers with real products that our businesses sell out in the wild. Many of our customers are small business customers or medium-sized business customers that have a need to look professional just like big companies do, but they have smaller sized budgets and they need quantities that are right sized for their type of business. We have at Simpress a long history of market disruption that drives our financial results. What these two charts show on the left side is revenue, on the right side is adjusted EBITDA over the 20 year period since our initial public offering and actually I'm just looking at this now. they actually start in 2011. So it is not the 20-year period since our IPO. But in any event, we're showing a long history of revenue growth. The darker blue bars on each of these charts, here comes that forward-looking information, are our expectations. On the revenue chart, you can see our expectations for reported revenue growth for the current fiscal year that ends in June of 9% to 10% reported revenue growth. That is influenced by some acquisition growth and also currency benefits. The expectation that we have for organic constant currency growth for this fiscal year is 45%. And then on the right side with adjusted EBITDA, you actually have two darker blue bars. The first is for $465 million in EBITDA that we expect in this fiscal year that ends here in June. and then in the FY28 column here on the right side of the slide is our minimum expectation for adjusted EBITDA for FY28. We introduced this framework at the beginning of the year and we have reiterated it each quarter subsequently, and that is for at least $600 million in adjusted EBITDA. I'll go into more detail on that longer-term framework later on in the presentation. So we are, as I mentioned, the leader in a large market. It is a $100 billion market in North America, Europe, and Australia. And that $100 billion market is the part of the market that is actually ripe for mass customization to come in and disrupt the market. It's small quantities of custom things. It's medium quantities of custom things. What it is not is the commercial printing industry at large for large corporates. That is not the part of the market that we play in. We started in this industry with small format marketing materials like business cards or postcards or flyers. And you can see in the pie chart on this slide, that is about 25% of the overall $100 billion market. And then you also have these other product categories that we have grown into over time by bringing the mass customization paradigm to new product categories like signage, like promotional products, apparel and gifts, and also packaging and labels. And I'll go into a bit more detail about that in a minute. One of the things that is interesting to think about, and maybe you can't see because it's a little bit detailed, is over on the left side of this slide, it talks about the relative penetration between the different types of products that are in this market space. And you can see the one that is sort of furthest along in terms of web-to-print penetration of this market is called business ID, business identity. that is things like business cards those have been in market longest we think of them as more legacy products for us small businesses and medium-sized businesses are still using these products but they're buying them in lower quantities than they did before albeit with higher quality than they than they were before and so there are some nice features and finishing options that they are willing to pay a little bit more for but it's not where the bulk of our future growth is going to come from. That bulk of our future growth is coming from, as I mentioned before, us bringing this paradigm to more and more product categories over time. And so the less mature parts of this market are also the parts of the market where web-to-print players like Simpress have the least penetration today, and that is in areas like packaging, books, catalogs, magazines, sophisticated signage, and promotional products and apparel and gifts. So this is a very fragmented market. If you think about like who are our competitors, still today after over two decades, three decades in this business, we have the bulk of the market still being served by the tens of thousands of small local print shops that you see in your neighborhoods and towns and cities every day. And that has been a very slow and steady decline for those types of players in the space over decades. And we would expect that that would continue to happen. They are ceding share because they're subscale players. They're ceding share to scaled players like us and also others that use this web-to-print model to acquire a lot of customers and then push those orders through standardized production processes so that we can give them the benefit of scaled operations that a large corporate might get. So web-to-print mass customization is, as you can tell, is very special to us. It is a model that we invented. And what it is, is really trying to break the trade-off that has typically happened between the concept of the quantities that you are producing something in and the price that you have to pay per unit order to deliver that. And so what web-to-print mass customization is, is producing custom products even in small quantities, but with the quality and reliability and affordability that you would get from a mass-produced item. And so that is something that, you know, is very important to us. And customers care about it. They don't necessarily know that that's what it is that's driving the economic engine behind our business and also helping them build their brands and stand out and grow. But they care about it because we are giving them the products with their beautiful designs that they have designed, their logos, their brand building designs with fast turnaround, with a really broad choice of the types of products that we offer, with low prices, with high quality, with the convenience of ordering online and getting it delivered right to your house in quantities that are right for small businesses. So that's why customers care. And it's not easy to do. If you can imagine, you know, serving millions and millions of the world's small businesses is a wonderful thing and it's gratifying, but it's hard because there are millions and millions of different companies with different design aesthetics and different brands and different logos and different needs all out there. And so serving them well at scale is hard. And it is really achieved through combining scaled capabilities across marketing and manufacturing and software and design, customer service, and product development. All of that has to come together and be orchestrated together in order to do a great job at this and delight our customers every day. This next slide shows a bit of a view into our reportable segments. And so we have these five reportable segments. The one that most investors are familiar with and is our largest brand. It represents a little over half of our revenue is Vistaprint. And Vistaprint is the organic, the purely organic part of our business. It's the company that our founder, Robert Keene, founded and developed over time into this business. The other segments that you see on this chart are businesses that we have acquired over time. Even though Vistaprint is the largest, all of these other businesses are driving great profits. They're driving great cash flows as well and have grown over time since we bought them. And so together, we are $3.6 billion of revenue as of the trailing 12-month period ended in March in these different segments. We tend to operate our businesses in a bit of a decentralized manner so that each business can focus on the needs of their distinct customer base so that we can actually serve a wider variety of customers. The small businesses that Vista serves have different needs than the agencies and graphic designers and medium-sized businesses that our upload and print businesses in the Print Brothers segment and the print group are serving. So we like to have that autonomy in how we run our businesses in order to ensure that they're able to move fast in service of customers. At the same time, we have some centralized capabilities that each of our businesses can tap into, and that drives some of the scale advantages that I've been talking about that we orchestrate and come together in order to deliver what we deliver on the economic side of the equation. And in fact, recently, we made an announcement where in our Vistaprint business, our national pen business, and our build-a-sign business, we're bringing those businesses a little bit closer together in order to share more capabilities in manufacturing and marketing and engineering so that we can be more efficient. and also have much more ability to launch new products quickly at a more cost-effective model. So that's an area where we are going to be leaning into some of those shared services between those three businesses. Over on the right side of the slide is our geographic distribution. We're pretty evenly split between North America and Europe, and then the remaining 4% of the revenue that isn't North America and Europe is in Australia, Brazil, and India. All right, moving on. So what have we been up to as a business over the course of the last several years? We have made some transformational investments in our business, particularly in our Vistaprint business, but really in many of our businesses and also at the center building what we call our mass customization platform. And we have, over the course of the last six years, seven years, been through a pretty major technological transformation in the Vistaprint business, but also in some of our other businesses as well. And that replatforming activity has enabled us to completely modernize our tech stack and to be AI ready to make sure that we are taking advantage of opportunities that are available today that were not available when we started building these platforms a long time ago and really helping us to enable our businesses working together more effectively, enabling us to lower costs, et cetera, and driving some advantages across the value chain. One of the things that it is helping us do is launch products more quickly. So we are tapping into new growth and profit pools by launching these products. We call them elevated products. We call them that because they are the type of products that customers value very highly. They are also a little bit more complex to produce, or maybe they're more complex to think about the design. You can see some packaging applications on this slide here. And that is a little bit tricky to get right. And so if we can make that easy for our customers, it really helps them elevate their brands and elevate their relationship with their customers. One of the sort of byproducts of doing that new product introduction is that it is allowing us to capture more wallet share with our customers. It is also allowing us to acquire new customers on a broader set of products, a more diversified set of products, which is a good thing. You know, we often get a question, oh, you know, how much of your business is still business cards, right? Because Vistaprint was known for decades as being the place that you go and you get your business cards when you're a small business. We do still sell those, and we sell a lot of them, and we sell them profitably, and they're beautiful. But it's not where the future growth of that business is coming from. It's coming from these elevated products, and they really are allowing us to capture more wallet share with these customers. And then finally, on the manufacturing and supply chain front, we have advantages that we are basically doubling down from an investment perspective in right now to strengthen our moat. And it is, I think, important to know that though some areas of our value chain will be disrupted by AI, like, you know, design is changing, or the way that we're going to market in the future is changing because of AI. The core competitive advantage that we have in manufacturing and our supply chain excellence is not going to be disrupted by AI. So we have a net positive influence from AI coming into the world because it won't disrupt the core advantage, and it can also make us more efficient in other parts of our business. So I talked about elevated products. These are some examples on this slide where you can see some packaging applications here. You can see booklets, catalogs, magazines, drinkware, apparel. There's wrapping paper, custom wrapping paper, all sorts of applications, signage, stickers. And these are products that are growing very fast for us, and our customers love them. And so we have been investing in this in order to, again, help penetrate into that wallet share. I'm going to give you an example of that now. These are Vistaprint numbers. We see this type of thing across our businesses, but really in Vistaprint because of its history and where it came from with the most price-sensitive small businesses to where it is now, serving all small businesses, but really doing a much, much better job of serving the needs of more demanding small businesses and higher value customers. The difference over time, and this is showing a four-year period of time, the difference over time is the most noticeable within our Vistaprint business. So what you have here, this is data that we showed at our Investor Day presentation back in September. It's not new. But over on the left side, what you see is three customer groups. On the left is the top two deciles of customers by variable gross profit per customer. And so what that means is it's the total variable gross profit in those two deciles. So the top 20% of our customers are generating $750 million of variable gross profit for Vistaprint. Then you have the bottom eight deciles. So that's the rest. So that's obviously a lower number. But then we're calling out specifically over on the right side of this chart the top two centiles. So this is a subset of that $750 million of variable gross profit, and there you can see that that is a little shy of $300 million of variable gross profit, just coming from the top 2% of our customers. And it is true that essentially the top 2% are generating the same amount of total variable gross profit as our bottom eight deciles. And you can see the growth over that four-year period of time. And then on the right, this is just a chart with the same three customer groups, but it's showing variable gross profit per customer. And that's where you can really see how the top two centiles are standing out, where the variable gross profit per customer per year in those top two centiles averages about $1,400 per customer. So we're still not talking about, like, huge customers, right? this is Vistaprint, where the average order value is about $90. And so you still have small customer needs, and you still have to have all of that, you know, great marketing and technology and manufacturing in order to deliver these custom products in the right quantities for those small businesses. But there's a big difference between, you know, $1,400 of variable gross profit per customer and the $300 or so from the top two deciles and the much smaller amount from the bottom eight deciles. So just an illustration showing over the last four years how we've been steadily growing and that is really thanks to two things, the elevated products that we've been launching and also improvements that we have made to the customer experience in the Vista Business, which is a direct outcome of that technology migration that we did several years ago. And of course, as I mentioned before, we continue to focus on manufacturing excellence. These are pictures from within our manufacturing facilities with some of the existing, you know, more legacy oriented products, but also some of the newer products that we have launched recently. You can see paper bags here. There's also some nice stickers and labels in one of the pictures as well. And this is something that is important to us. It's a core competitive advantage. We want to continue to strengthen it. And the way that we've been doing that is by really taking advantage of the fact that we've gone through this technology migration. We can now connect all of our businesses together. We have connected our businesses together through our mass customization platform and therefore we can think differently about how we optimize across our network of manufacturing facilities. So you know it's always been important to us to optimize within either a production cell or a value stream or a plant but now because these businesses are all connected to each other we can optimize over that broader footprint within regions. And so we have been growing the amount of fulfillment that different SIN press businesses do on behalf of each other. So that's either when somebody is fulfilling for another brand or somebody is procuring a product to sell to their customers. And so that has been growing. That's what's showing on this chart. Last year in FY25, that generated an extra $15 million of variable gross profit in the form of COGS reductions for, you know, across Simpress. And that's still pretty small compared to our overall COGS, but it is growing, and it's growing more rapidly since we have connected all of these businesses to our mass customization platform. It is allowing us to think about, you know, how do we have certain facilities and certain production flows that really specialize in a certain type of product. We call them focused production hubs so that we can drive as much volume as possible in a region through those focused production hubs and lower the unit cost of production for all Simpress businesses. So that's really where our focus has been, and it's starting to pay off. And it is a big part of our plans in FY28 to grow our profitability even stronger. We do have also a strong balance sheet and liquidity. On the left side of this chart, you can just see the components of our net debt. We do have public debt in the form of term loan B and also high-yield notes. Just as a side note, we did launch refinancing of our term loan B this morning, and that is really being opportunistic on notes that mature in 2028. Being able to extend the maturity, that's what we're looking to do with that refinance, And that launched this morning. And then over on the right side, you see our net leverage ratio. That's something that we have brought down coming out of the pandemic and the disruption that was caused with the pandemic and also that period of heavier organic investment that we were making there. More recently, we've kept that net leverage flatter, but we are on a path to delevering to two and a half times trailing 12-month EBITDA or below, and we think we can actually get lower than that in FY28, and that is while leaving room for capital allocation like share repurchases and also M&A. I'll just also note here while we're hanging out on this slide that we have completed some really interesting M&A recently that has been tuck-in in nature, some vertical integration within our upload and print businesses or some additional volumes that we can add to our production facilities in order to really drive capacity utilization and some good outcomes there. We did yesterday announce an acquisition that was not included in our last earnings announcement of a couple of companies that had been owned by Sayway. They still are, actually, because this isn't going to close for a little while. But it was a definitive agreement announcement for SaxoPrint and ViaPrinto, and that is expected to close in the first half of our fiscal year 27. There's some regulatory hurdles that we need to jump through there, and that is a really interesting acquisition because it comes with it a really state-of-the-art manufacturing capability from SaxoPrint in Germany, and that is something that we are going to boost the volumes that we are sending to that facility from other Simpress businesses, and then we'll also be able to have those two brands launch new products from other Simpress businesses, and so that cross-Simpress fulfillment is going to come into play there and will drive the profitability and the cash flows much higher than that of the standalone business alone. Okay, getting to our outlook, this is our FY26 commentary. This was just reiterated, sorry, it was just raised on our earnings announcement on April 29th. Our revenue growth is 9% to 10% from a reported perspective. That's with currency benefit. It's also with some M&A benefit. Organic constant currency growth also was raised to 4% to 5%. Then profitability, at least $87 million of net income and at least $465 million of adjusted EBITDA. And then from a free cash flow perspective, operating cash flow of approximately $298 to $303 million, and then free cash flow, just a free cash flow of $130 to $135 million. And then I talked about this FY28 number, so we'll give a little bit more details here. This is something that we introduced in September at our Investor Day, although we talked about the savings that we expect to result in this a little bit earlier than that at the start of this fiscal year. And we wanted to give this frame just in order to help people understand where all of these investments that we've been making from a CapEx perspective or from a customer experience perspective, from a new product introduction perspective, what is that actually going to help us yield? And so we've given this framework for a level of minimum profitability. We continue to say this is an at least number from an EBITDA perspective, 600 million at least in FY28. That compares to the 465 that we guided for this year and the 433 million that we generated last year of EBITDA. So good growth on that front. And then with free cash flow conversion of about 45% from that adjusted EBITDA. So if we do 600 million, it would be about 270 million of adjusted free cash flow and you know there are some different pillars that help us get there we've talked about some of them today but one of one of those sort of in aggregate is the concept of about 70 million to 80 million of savings or EBITDA efficiencies that will come through from a combination of these COGS benefits that I talked about from our focus production hubs and across them press fulfillment, from advertising efficiencies that we can get as we continue to penetrate into higher value customers and capture more wallet share and amortize the acquisition cost of those customers. And then also OPEX leverage that comes in the form of being more efficient about how we are delivering our results as we scale and as we apply AI and other types of automation and technology to our business. And so that $70 to $80 million comes across all of those. COGS is going to be a meaningful piece of that. We've already actioned about $11 million of annualized cost savings on the OPEX side as well. That all is contemplated in this $70 to $80 million number. Now getting from $465 million to $600 million is going to take a little bit more than that. We have some bridging items that we have been talking about this year in the form of plant startup costs that are going to run off in the form of some M&A that we've done that we've tucked in that comes with profits in the form of some currency benefit that we've had. And then, you know, really with this framework, what we talk about there is, all right, well, what do you have to believe about the flow through profitability from our organic growth in order to get to that 600 million? And all year, that number keeps getting lower and lower. We are not aspiring only to deliver that type of flow through. It would actually be pretty disappointing to us if our incremental margins were as low as what would be implied there. But this is an exercise in helping people get comfortable with the growth that we see coming when, you know, that is a bit of a different result from what we've had as we were investing and coming out of the pandemic. Last slide is just to talk about our leverage policy, which is to target net leverage at or below approximately two and a half times trailing 12-month EBITDA. We may from time to time increase to about three times for investments that we believe will have a good return but also have a clear path to deliver back under two and a half times or below. Now we are on this path. Our expectation is that we will exit FY27 at two and a half times or below. So that is next fiscal year. This fiscal year, we expect to be at three still. And then if we achieve the minimum target for FY28, and you like play that forward in terms of how much EBITDA growth is that, how much free cash flow growth is that, and what does that yield in terms of cash on hand, that would actually allow us to delever meaningfully below two times by the end of FY28, subject to capital allocation choices that we may make along the way, but in any event, in concert with the leverage policy that is on this slide. So with that, I am happy to take any questions. I hope that you agree that

it's an exciting time at Simpress and happy to answer questions that you've got. Yeah, you bet.

Yeah. So question is on the puts and takes of AI. I did not mean to give an impression that AI would be a net headwind. We actually think that AI is a net tailwind for the company, but there are some parts of our offering and how we do business that are going to be disrupted. So design is one of those areas where, you know, many of our customers, not all, are not professional designers and they need help with that. I agree with you that as it becomes easier and easier for regular folks and small business owners to design beautiful things with the help of AI or with the help of AI-assisted design agents, that will be a positive for our core value proposition, which is putting those beautiful designs on physical things and getting those to those customers. So I do think that there's a glide path there around how does that change? How quickly does it change? How do we make sure that we're managing that appropriately and just helping customers wherever they are along that journey? But yes, I agree on the manufacturing side that it is a win because democratization of design has been a huge tailwind for us even though it wasn't AI generated before. It was technology enabled before. But yeah, that is a help. I think it's also a help in many areas across our P&L where we can get more efficient. And we're already seeing good examples of this in marketing. We are using generative AI to develop marketing campaigns and rendering scenes with products in them, and it's drastically cutting down the amount of time and resources that we need to create beautiful campaigns or merchandising products on our site, etc. We have also started to use it to begin to personalize the customer experience from ads to email to the site experience that they have with us as well, which is very exciting pretty early, but very exciting. In other areas, from a software perspective, our engineers have been growing their use and experimenting quite a bit, but now really putting into production some AI enablements that allow them to automate certain steps along the way of product development, testing, QA, etc. And in our GNA functions and in analytics, we have great capabilities in terms of really getting more efficient at analyzing data, using that data to make great decisions, and just get more efficient generally. AI will be a piece of the savings that will help us get to that $600 million. We haven't given specific guidance there in terms of the amount in total that we expect to reduce. I will say that the $11 million of annualized costs that we've recently taken out, some of that has been in these areas where we're already seeing good benefits from applying AI to drive efficiency. Other questions? Well, thank you very much, everybody, for joining us, and we'll see you around. We're marketing a lot this quarter.