16th Annual East Coast Ideas Conference, New York, NY

Welcome to the New York Ideas Investor Conference. I'm Philip Cooper with three-part advisors. Our next presentation comes from one of our investor relations clients, Simpris. Simpris is traded on the NASDAQ exchange, another ticker symbol, CMPR. They are a mass customization print business serving small and medium-sized businesses that fuel our economies. Presenting for the company today is Simpris's vice president of investor relations and sustainability, Meredith Burns.

Great. Thank you, Philip. Appreciate it. Hi, everybody. Welcome to folks that are here in the room and also to those that are on the webcast. Thank you for that introduction and thank you for hosting us to the team at Three-Part Advisors. I will be talking about CIMPRESS today and there will be times when I talk about the future in the presentation and probably your questions after the presentation those are based on our expectations as of now and they are it's possible that they will not come to fruition we have risks that you can find here on this slide but also in our sec filings on that you can access through our website and there are There are also non-GAAP measures that are in this presentation and you can find reconciliations to those measures to our GAAP measures on our website as well. All right, let's get started. So at Simpress, we help millions of businesses build brands, stand out, and grow via custom print and promotional products. This is a focus of ours for decades. The company was founded in 1995, and very early on, our founder and still chairman and CEO today, Robert Keene, identified a need that small businesses, just because they're small, doesn't mean that they shouldn't have access to look just as professional as a large company looks. But at the time that we started the company, they didn't have access to affordable, beautiful marketing materials in quantities that were right for them. And so over the last three decades, we've set out to change that. We've set out to change that through a variety of products. You may know our brand Vistaprint, which historically had been known for the first product that it launched, which is business cards. But we sell a very wide variety of these products in small format marketing materials like business cards or postcards or flyers, but also in signage, in promotional products and apparel, and increasingly the newest product category that we've gotten into, which is packaging. A quick level set for everybody is it's impressed by the numbers. In the trailing 12-month period to March, our annual revenue is $3.7 billion. That was with 4% organic constant currency revenue growth. generated 1.7 billion of gross profit in that trailing 12-month period, 461 million of adjusted EBITDA, and 123 million of adjusted free cash flow with a little bit of a heavier investment in some of our manufacturing capex during this current period. From a market perspective, and I'll get more into this in a second, it's a very large and fragmented market. We serve the market with largely our own production facilities. We have about 3 million square feet of production facilities in North America, Europe, Australia, India, and Brazil, and we have over 15,000 team members in 25 countries. We serve about 15 million customers annually, primarily businesses, but there are some consumers in the mix. It's pretty small as a percentage of our overall revenue, though, about 10%, so primarily business. We have 23,000 unique products offered with millions of variants when you add on sizes and finishing options and things like that, and we fulfill over 30 million orders annually. Down at the bottom of the slide, you can see the various reportable segments that we operate in and the brands that fall under those segments. Like I said before, Vistaprint is probably the one that most of you are most familiar with, But we also have great businesses in these other segments. The print brothers and the print group are in segments that we refer to as upload and print. The customer is a little bit more professional. Maybe they are a marketing department in a medium-sized business or a larger company, but they still have a need for relatively small quantities of things, and they'll come to those businesses. And then you also have National Pen, which is primarily in the promotional products space, largely writing instruments and hard goods, but some increasingly soft goods there. And then you have our other businesses, which are Build-A-Sign, which is based here in the U.S. and does a lot of signage applications, and then Princhy, which is a Brazilian business. So I mentioned a large and fragmented market. We think that the addressable space for us is about $100 billion annually, and it breaks down into the pie chart that you see on the right side of this slide where, you know, you've got these product categories that I mentioned before, small format marketing materials, signage, promotional products, apparel and gifts, and packaging and labels. This is obviously the commercial printing industry at large is much larger than $100 annually, but this is the part of the market that we see as ripe for disruption from companies with a mass customization model like our own, where customers want smaller quantities of this type of product, and they don't want to be told, hey, you can get that packaging, but you have to buy 50,000 quantity of it, and it's going to take you, you know, four to six weeks to get it in your hot little hands. Our small businesses don't want that. Over on the left side of the slide, you can see that there is definitely some differences in terms of how penetrated we are with, you know, bringing an online model to customers in this part of the market, and this is some research that came from a third party source within the last couple of years where the one that is furthest along in terms of penetration is still only about 30% penetrated, but that is a business identity product, so that would be things like business cards. That is much more mature. We've been selling those things via an online model with mass customization for almost 30 years, and so that is a bit more mature. But then you can see as you go down the list that you get into some of these newer applications and they're hardly online at all today, and that's where we see a lot of opportunity for future growth. All right. I've mentioned mass customization a couple of times, so it's finally time to talk about what it is. So this is the concept where we want to produce custom products even in small quantities with the reliability and quality and affordability that you would get if you were mass producing something because there's usually a trade off in these things where if you want a very small number of custom things, you're going to pay a lot for it. And if you want a very large number of custom things, all right, you can pay the unit cost much lower. So we want to break that curve that naturally happens there. This is something that our customers care deeply about because it helps them build their brands. It allows them to have a broad choice of products with a fast turnaround. It allows for low prices compared to traditional sources of these things. It gives them high quality and it gives them the convenience of e-commerce and in quantities that are right for them, as I mentioned before. So, I mean, it was really for this customer that we invented this mass customization model for print. And how we do it is tricky. It's very hard to do because you actually have to be good at a lot of disciplines and orchestrate that across your customer base in order to get the benefits. You can't just say, hey, I have this printing equipment and I usually serve large customers and now I'm going to go serve small customers. How are you going to acquire the millions of customers that you need in order to get the economics that you need to get that look more like your large customer economics? Actually, they're better than the large customer economics. But you need to be great at manufacturing. You have to have software. You have to have the ability to help customers with designs. You need to have broad reach and great brand equity. And you need to have great service operations to serve millions of customers a year all over the world. And you need to think forward about product development and really making sure that you are serving those customers in the best way possible. Doing that well has enabled these financial results over time where we have a long history of market disruption and what you see here on the left side is revenue, on the right side is adjusted EBITDA, and the lighter blue bars are actuals, the The darker blue bars are our guidance. For revenue, we've just got our guidance to this fiscal year that we're in right now. We're actually in our fourth quarter. That is for 9% to 10% reported revenue growth. And that will bring us over $3.7 billion of revenue in this year. The organic constant currency growth rate that we have guided to is 4% to 5%. getting a decent headwind or sorry excuse me tailwind from currency this year and we also have acquired a few businesses and then on the EBITDA side you see two bars so one is for this year which is at least 465 million in revenue that we just raised our guidance on with this last earnings announcement for the March quarter and then we also have this longer term target which is to have EBITDA of at least $600 million with 45% free cash flow conversion for our FY28. And I'll get into how we expect to get there in the coming slides. One thing that I think it's important for potential investors to understand about the company is that our focus is on per share value creation. About 30% of the equity value of Simpress is represented on our board of directors. That's between our founder, chairman, and chief executive officer, and also our largest shareholder has a representative that we invited to take a board seat over 10 years ago and has been a wonderful, wonderful partner. We have a history of organic investments that range. I talked about all of those different disciplines that you have to be good at and orchestrate well together. So it's technology, it's manufacturing, design, customer service, marketing. And all of that drives scale-based competitive differentiation and the financial track record that I showed on the earlier slide. We also allocate capital to M&A. That has allowed us to, in some cases, expand our addressable market. There are some times that we will go out and specifically acquire a company that has a specific product capability, for example. In newer areas like packaging, that has definitely been the case for a couple of our tuck-in acquisitions recently. And then there are also some acquisitions that we've done that have brought us production capabilities or allowed us to vertically integrate in ways that help us get more efficient. The tuck-ins that we've done recently have a post-synergy base case return on capital of 20% plus, and we feel really good about the ability to get those synergies And they're very obvious synergies in terms of bringing our purchasing power, also aggregating orders into standardized production flows, things like that. We have also allocated capital over time to sherry purchases. Since 2009, we have reduced our share count by 50%. So that is something that we have been opportunistic about and at times have aggressively repurchased our shares because we are focused on that per share value creation. And then the successful execution of our financial targets are expected to reduce our net leverage to, we're at three times right now, two and a half times trailing 12-month EBITDA by the end of our fiscal 27 and two times by the end of 2028 and we still think that that will leave some room for some of this type of capital allocation that i talked about on the slide so those investments those places that we have allocated capital to are the foundation for for that guidance that I gave for FY28 and we have really been gaining traction along several areas here. I think the first thing that is super important to understand is that our technology platform is modern. Though we started the company in 1995 and we moved online in 1999, the first generation of the technology stack has been replaced with all modern technology, and that has enabled multiple things. It has enabled Vistaprint, in particular, our largest business, to get back to the business of launching new products for customers. It has enabled them to personalize the customer experience in ways that people expect to see in 2026. And it also has allowed all of our businesses to access each other's product capabilities and production capabilities. And that then allows us, instead of just optimizing our manufacturing within a plant, it allows us to optimize our manufacturing across our region. And so right now that is something that is allowing us to get more efficient in our cogs and it will also allow us to launch new products. I mentioned business cards earlier and business cards are great and beloved but they are no longer growing. It is not going to be the future source of growth for our business which is why it's really good that we have continued to launch new products in what we call elevated product categories or elevated products where the product itself is something that was hard to access for small businesses before something got unlocked from a technology and manufacturing perspective or from a design perspective. And so we've been able to launch packaging like you can see some packaging on this slide here but also more complicated signage applications like trade show backdrops or canopy tents or things like that and do it in ways that are more efficient than where folks currently access these products. That then allows us to capture more wallet share with our customers and that is something that, we have some metrics in our earnings documents, in our investor presentations that you can see where we really are driving wallet share gains with higher value customers, particularly in the Vista business, but this happens in our other businesses as well. And it also allows us to attract new customers more efficiently because the lifetime value of that customer that we're acquiring is going to be higher than it was two years ago, five years ago, certainly 10 years ago. And then lastly, but super importantly, I've talked about manufacturing a bit here. It is our economic engine. It's very important that we continue to have a really broad selection of products that are high quality and that we continue to launch new products and we drive the cost of manufacturing down. That moat that we have built on the manufacturing side is not going to be negatively impacted by AI. In fact, we think that on a net basis, as AI continues to drive the democratization of design, that was happening before AI, but it has accelerated, and it is just easier and easier for people to come up with something beautiful that is a great design. They wanna put that on more stuff. So we make our money on the actual physical production of things and selling those to customers. So the idea that AI will cause more people to have more designs that they love, we think is a positive thing for us. If you look at our segment in GeoMix, here you have our different segments on the left side of the slide. Vistaprint is just a little over half of our overall revenue. That is organic business that Robert started all those years ago and it is growing and it is a fantastic business and from a branding perspective it's probably the one that you are most familiar with. The next two segments here are in what we call upload and print and these are businesses where the customer, as I mentioned before, is a little bit more professional and maybe Maybe the quantities are a little bit higher, but they're still lower than you'd get with a commercial printer. These are businesses that we acquired into starting in 2014, like really 2014 through 2017 time period, and then we've done some small vertical integration or product capability tuck-in since then. These have the cash flows that we have generated cumulatively from these acquisitions has already surpassed the amount of money that we paid to acquire them, and they still have a lot of growth opportunity in the future, so these have been great investments for us. National Penn is about 11% of revenue, as I mentioned, that's in the promotional product space, and our all other businesses is about 6% of revenue. We have traditionally managed these businesses mostly autonomously, and in fact in some cases we really like to see some ownership of the businesses, particularly in that Print Brothers segment where there is ownership of about nine plus percent of all of the businesses in that group by the folks that are running that segment. And that we think really aligns their interests and their behavior with what's right for long-term investors for the company as well. But there are a couple of places where the customer base is a little bit more similar than not between Fistaprint, National Pen, and Build-A-Sign. And so in those businesses, we are looking at ways to work more efficiently across and really help tap into pools of expertise or capabilities like telesales or advertising or technology where we think that over time we can get more efficient and a better customer result by thinking across those businesses as opposed to purely business by business. Oh, sorry, and just from a GEO perspective, 46% is North America, 50% in Europe, and 4% is in Australia, Brazil, and India. From a balance sheet perspective, we have no near-term maturities on our debt. In fact, we just refinanced last week. We closed on a $1.1 billion term loan B, and that is out to 2033. We also have a $525 million high yield bond, which is out to 2032, and so no near-term maturities on the debt. You can see the net leverage ratio here. As I mentioned earlier, it's at three times, but we have a policy and a financial plan that will help us take that under two and a half or two times over the coming two years. All right, I mentioned our outlook earlier, so I'm not gonna spend a ton of time here. This is the outlook that we updated as of our last earnings announcement on April 29th. The revenue growth this year is high. Higher than you should expect when you look at reported revenue growth. Part of that is currency, part of that is M&A. The organic constant currency growth expectation for this year is four to 5%. From a profitability perspective, we expect net income of at least 87 million and adjusted EBITDA of at least 465 million. And then from a cash flow perspective, operating cash flow of around 300 million and adjusted free cash flow of a little, between 130 and 135 million. As I mentioned earlier, we are making some significant investments this year, more significant than normal in capex in manufacturing in order to drive future efficiencies. So our capex this year is gonna be a bit over 100 million, which is gonna equate to about 3% of revenue. Our maintenance capex is about 1.5% of revenue. so it's a little bit elevated this year. And then this is the framework for FY28, where at that time we still expect our revenue to be growing in mid single digits as from an organic constant currency perspective. We expect that profitability to be at least 600 million of adjusted EBITDA and 45% of that EBITDA to convert into free cash flow, So that would be at least $270 million of free cash flow. How we get there is a combination of some cost efficiencies that, you know, all the things that I've been talking about can drive for us and we expect will drive for us. On the COG side, on the manufacturing side, that's a material piece of it. There's also a material piece from OPEX that's driven by just both efficiency gains but also AI usage that can help us drive more efficiency in our OPEX base and then also in our advertising base as well. And then from a cash flow perspective by FY28, we would expect the slightly elevated capex that we have now as a percentage of revenue to come down a bit as we complete some of these chunkier investments in manufacturing. There's about 70 to 80 million of savings that we expect to get that's required to achieve these results. We have already announced some restructuring of 11 million annualized to get there. And we've given examples of where we're making progress on the COG side, where we're making progress on the AI side. You should expect us to continue to flush that out as we execute over the course of the next year such that exiting FY27, we would have this annualized savings of 70 to 80 million. And then the remainder of what's required, what you have to believe to get to the $600 million. Some of it is some of the M&A that we've done since we launched this longer-term target. Some of it is some benefit from having the startup costs that are impacting our profitability last year and this year roll off as we with some of these new manufacturing locations as we scale them up. Some of it is currency benefit and then the amount that you actually need of organic flow through on a contribution profit perspective is actually fairly low given all of those other things in order to get to 600. We say it's at least 600. We haven't updated that number. We have continued to reiterate that number, and we have also talked about the fact that as we've executed through this year, it just makes that number that's required for the organic flow through to be smaller, and so you don't have to believe as much. The biggest piece to believe is the savings, and we are hyper-focused on that. that we do, everything that we talk about internally, everything that we talk about with the board is like here's the progress that we're making on the projects that are going to get us to these numbers. And then as I mentioned earlier, that leverage policy is to get below two and a half times and we think we can get there exiting FY27. And then if that, you know, FY28 plays out as we expect it to just based on those minimum numbers, we would see that net leverage come below two times, depending on whether there's any chunky capital allocation in that period of time, but in a significantly different position than we are today. All right. With that, I think we have a few minutes for questions if you have them.

Yeah. Right. Okay. So the question for the folks on the webcast is about how we think about

debt and whether the two-and-a-half times trailing 12-month EBITDA policy is an optimal level of debt to have, do we need to have that in order to get to our FY28 targets? I think I got those right. So how we think about it is we don't get some tax benefit from having our leverage at the same level, so it's not really around optimizing. in that way. It's more about where we feel comfortable operating post-pandemic. I would say that, you know, this policy, I would say it was, this policy was three times before the pandemic and we've shifted that down having learned the things that we learned during the pandemic and also taking feedback from investors during that period of time as well, and the 30% of the shares that are represented on our board are very aligned with this. What we do from a capital allocation perspective is we look at all of the opportunities to allocate capital to things that we think will have good returns. Sometimes that's share repurchase, sometimes it's M&A, sometimes it's good old-fashioned organic investment, but in a world where our profitability is much higher and therefore the cash can build up on the balance sheet, this will naturally come down. Interest levels will be about the same. So it's not required to get the leverage down in order to deliver those financial results. It's the other way around is how we how we think about it yes sure the question is around talking about the priorities for capital allocation between a sherry purchase M&A and organic investment I mean our view is that as long as we have great opportunities to invest organically in good returning activities that benefit our customers and our shareholders we want to take those opportunities as much as is reasonable in terms of what you can accomplish in a year. And we can do that through the cash flow that we generate as a company. So that's not really a place that we need to take debt on in order to make those investments, even in a deep investment year. But that is a priority for us because we still see a ton of opportunity to keep launching new products, keep pushing on those wallet share gains with higher value customers. Then from an M&A perspective, the current view on that front is nothing transformational. It's really that we have these opportunities to acquire in places that are highly rational, have these great returns, are really nice additions to the portfolio, either from an efficiency perspective or a product perspective, but they're going to be relatively small and nothing transformational. And, you know, the amount that you can get done in a year depends on where you're doing it, but it has helped us that, you know, in having the organizational structure that we have, these things get led by our businesses as opposed to, like, some central team that, you know, is thinking about, like, how to, you know, justify their salary. It's really about, like, can this tuck-in acquisition add value to this segment or to this business and how much do we need to pay for it and then help them get it over the line. And then from a share repurchase perspective, you know, obviously it has featured quite significantly in our capital allocation over time. That will continue to be the case and it will continue to be opportunistic. There will be some times where we are, sometimes where we're not. And it is really just the measure that we use to look at the other types of capital that we could allocate and say, like, should we spend the money, the next dollar here, or should we spend the next dollar repurchasing a share?

So. Yeah, so the question for the folks on the webcast is,

is our thinking on geographic expansion even to places like Canada and Mexico. So I would say that the answer differs slightly depending on whether you're talking about markets that we serve versus where we operate. In our North American, that's 46% of our total revenue. Much of that revenue is in the U.S. because of the size of the market. though, is a pretty decent-sized market for our Vistaprint business. Mexico is there, but it is a little bit smaller. So U.S. is really the biggest market there. However, where we operate to serve the customers that are in the North American market is much more distributed. We have our largest production facility in Canada, just across the river from Detroit, Michigan and Windsor. We also have a few production facilities in Mexico and then we also have some production in the U.S. as well. So I guess what I would say is that, you know, in terms of adding new geographies from a market perspective, that is not going to be a major focus for us. There was a period of time where we were pushing into some Asian markets. We We also still have our Brazilian acquisition that we made, which is now sort of operating at break-even and it will scale from here, it's a good little company. And it is, when we look at where we could choose to spend our time in terms of creating value, it is much better for us to optimize what we have and to spend time in the markets that we already are successful in because we think that there's a lot of runway than there is in figuring out new markets and how to push into them. We did, about 10 or 12 years ago, try to get into the Chinese market, for example. You just have to operate very differently there, especially in the printing industry, and ultimately we pulled out because it was not paying back the way we expected it to. Thank you so much, everyone.