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EX-32.1 - CEO & CFO CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 - CIMPRESS N.V.ex3213311510-q.htm
EX-31.1 - CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CIMPRESS N.V.ex3113311510-q.htm
EX-10.1 - CREDIT AGREEMENT AMENDMENT NO.3 - CIMPRESS N.V.ex101creditagreementamendm.htm
EX-31.2 - CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - CIMPRESS N.V.ex3123311510q.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to               
Commission file number 000-51539
___________________
Cimpress N.V.
(Exact Name of Registrant as Specified in Its Charter)
____________________
The Netherlands
 
98-0417483
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.) 
Hudsonweg 8
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 31-77-850-7700
____________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). See definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
 
Smaller reporting company  o
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o     No þ
As of April 24, 2015, there were 32,804,114 of Cimpress N.V. ordinary shares, par value 0.01 per share, outstanding.
 




CIMPRESS N.V.
QUARTERLY REPORT ON FORM 10-Q
For the Three and Nine Months Ended March 31, 2015

TABLE OF CONTENTS
 
 
Page
 
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 2015 and June 30, 2014
Consolidated Statements of Operations for the three and nine months ended March 31, 2015 and 2014
Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2015 and 2014
Consolidated Statements of Cash Flows for the nine months ended March 31, 2015 and 2014
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II OTHER INFORMATION
 
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signatures



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CIMPRESS N.V.
CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands, except share and per share data)

March 31,
2015

June 30,
2014
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
134,212


$
62,508

Marketable securities
7,987

 
13,857

Accounts receivable, net of allowances of $286 and $212, respectively
22,028


23,515

Inventory
13,334


12,138

Prepaid expenses and other current assets
44,587


45,923

Total current assets
222,148


157,941

Property, plant and equipment, net
391,761


352,221

Software and web site development costs, net
18,645


14,016

Deferred tax assets
12,646


8,762

Goodwill
283,567


317,187

Intangible assets, net
80,488


110,214

Other assets
31,861


28,644

Total assets
$
1,041,116


$
988,985

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
46,321


$
52,770

Accrued expenses
142,526


121,177

Deferred revenue
25,229


26,913

Deferred tax liabilities
830


2,178

Short-term debt
11,884


37,575

Other current liabilities
7,851


888

Total current liabilities
234,641


241,501

Deferred tax liabilities
24,462


30,846

Lease financing obligation
70,587


18,117

Long-term debt
418,594


410,484

Other liabilities
44,207


44,420

Total liabilities
792,491


745,368

Commitments and contingencies (Note 15)





Redeemable noncontrolling interests (Note 13)
12,698


11,160

Shareholders’ equity:
 


 

Preferred shares, par value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding



Ordinary shares, par value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; and 32,790,444 and 32,329,244 shares outstanding, respectively
615


615

Treasury shares, at cost, 11,290,183 and 11,751,383 shares, respectively
(408,220
)

(423,101
)
Additional paid-in capital
320,270


309,990

Retained earnings
438,754


342,840

Accumulated other comprehensive (loss) income
(116,475
)

2,113

Total shareholders’ equity attributable to Cimpress N.V.
234,944


232,457

Noncontrolling interest
983

 

Total shareholders' equity
235,927

 
232,457

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,041,116


$
988,985

See accompanying notes.

1



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
 
Three Months Ended
March 31,

Nine Months Ended March 31,
 
2015

2014

2015

2014
Revenue
$
339,901


$
286,185


$
1,113,738


$
932,081

Cost of revenue (1)
125,540


100,903


412,381


317,482

Technology and development expense (1)
48,311


42,434


138,841


127,555

Marketing and selling expense (1)
120,795


109,118


371,680


335,679

General and administrative expense (1)
40,914


28,491


109,748


85,195

Income from operations
4,341


5,239


81,088


66,170

Other income (expense), net
8,291


(116
)

30,282


(8,151
)
Interest expense, net
(3,131
)

(1,725
)

(9,508
)

(4,868
)
Income before income taxes and loss in equity interests
9,501


3,398


101,862


53,151

Income tax provision
1,576


999


7,658


7,819

Loss in equity interests


1,058




2,704

Net income
7,925


1,341


94,204


42,628

Add: Net loss attributable to noncontrolling interests
686

 
34

 
1,710

 
34

Net income attributable to Cimpress N.V.
$
8,611

 
$
1,375

 
$
95,914


$
42,662

Basic net income per share attributable to Cimpress N.V.
$
0.26


$
0.04


$
2.95


$
1.30

Diluted net income per share attributable to Cimpress N.V.
$
0.25


$
0.04


$
2.85


$
1.24

Weighted average shares outstanding — basic
32,694,354


33,249,419


32,537,940


32,921,016

Weighted average shares outstanding — diluted
34,180,563


34,356,990


33,637,567


34,425,288

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Cost of revenue
$
17

 
$
55

 
$
62

 
$
193

Technology and development expense
1,032

 
1,022

 
2,961

 
5,900

Marketing and selling expense
465

 
876

 
1,437

 
4,153

General and administrative expense
5,124

 
3,639

 
14,304

 
11,604


See accompanying notes.



2



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited in thousands)

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Net income
$
7,925

 
$
1,341

 
$
94,204

 
$
42,628

Other comprehensive income (loss), net of tax:

 

 

 

Foreign currency translation gain (loss)
(40,592
)
 
(227
)
 
(115,143
)
 
10,764

Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges
(1,036
)
 
(70
)
 
(1,057
)
 
(138
)
Amounts reclassified from accumulated other comprehensive income to net income on derivative instruments
201




630

 

Unrealized gain (loss) on available-for-sale-securities
(546
)
 
6,283

 
(5,266
)
 
6,283

Unrealized gain (loss) on pension benefit obligation
39




(26
)
 

Comprehensive income (loss)
(34,009
)
 
7,327

 
(26,658
)
 
59,537

Add: Comprehensive loss attributable to noncontrolling interests
1,561

 
88

 
3,984

 
88

Total comprehensive income (loss) attributable to Cimpress N.V.
$
(32,448
)
 
$
7,415

 
$
(22,674
)
 
$
59,625


See accompanying notes.








3



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
 
Nine Months Ended March 31,
 
2015

2014
Operating activities
 


 

Net income
$
94,204


$
42,628

Adjustments to reconcile net income to net cash provided by operating activities:
 


 

Depreciation and amortization
69,756


49,346

Share-based compensation expense
18,764


21,850

Excess tax benefits derived from share-based compensation awards
(2,686
)

(5,467
)
Deferred taxes
(8,666
)

(10,954
)
Loss in equity interests


2,704

Unrealized (gain) loss on derivative instruments included in net income
(7,435
)

2,655

Change in fair value of contingent consideration
14,890

 

Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency
(15,932
)

983

Other non-cash items
3,126


729

Changes in operating assets and liabilities excluding the effect of business acquisitions:
 


 

Accounts receivable
(855
)

2,293

Inventory
(2,201
)

352

Prepaid expenses and other assets
18,064


(9,217
)
Accounts payable
(5,049
)

7,979

Accrued expenses and other liabilities
16,434


(7,835
)
Net cash provided by operating activities
192,414


98,046

Investing activities
 


 

Purchases of property, plant and equipment
(50,105
)

(53,999
)
Proceeds from sale of assets

 
137

Business acquisitions, net of cash acquired
(22,997
)
 

Purchases of intangible assets
(201
)

(202
)
Purchase of available-for-sale securities

 
(4,629
)
Capitalization of software and website development costs
(12,517
)

(7,339
)
Investment in equity interests


(4,994
)
Net cash used in investing activities
(85,820
)

(71,026
)
Financing activities
 


 

Proceeds from borrowings of debt
218,500


109,000

Proceeds from issuance of senior notes
275,000

 

Payments of debt
(512,251
)

(145,796
)
Payments of debt issuance costs
(6,373
)
 
(1,354
)
Payment of contingent consideration included in acquisition-date fair value
(7,021
)
 

Payments of withholding taxes in connection with share awards
(4,297
)

(8,400
)
Payments of capital lease obligations
(4,315
)
 

Excess tax benefits derived from share-based compensation awards
2,686


5,467

Proceeds from issuance of ordinary shares
10,967


4,274

Capital contribution from noncontrolling interest
4,160

 
4,821

Issuance of dividend to noncontrolling interest
(118
)
 

Net cash used in financing activities
(23,062
)

(31,988
)
Effect of exchange rate changes on cash and cash equivalents
(11,828
)

1,448

Net increase (decrease) in cash and cash equivalents
71,704


(3,520
)
Cash and cash equivalents at beginning of period
62,508


50,065

Cash and cash equivalents at end of period
$
134,212


$
46,545

See accompanying notes.


4




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited in thousands)

 
Nine Months Ended
March 31,
 
2015
 
2014
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
7,366

 
$
4,061

Income taxes
10,629

 
12,659

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Capitalization of construction costs related to financing lease obligation
$
59,790

 
$
8,397

Property and equipment acquired under capital leases
9,762

 

See accompanying notes.


5



CIMPRESS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited in thousands, except share and per share data)

1. Description of the Business
We are a technology and manufacturing-driven company that aggregates, via the Internet, large volumes of individually small, customized orders for a broad spectrum of print, signage, apparel and similar products. We produce those orders in highly automated, capital and technology intensive production facilities in a manner that we believe makes our production techniques significantly more competitive than those of traditional suppliers. We bring our products to market via various brands that deliver marketing products and services to the small business and home and family markets. These brands include Vistaprint, our leading global brand for micro business marketing products and services, as well as brands we have acquired that serve the needs of various market segments including resellers, small and medium businesses with differentiated service needs, and consumers purchasing products for personal use.
On November 14, 2014, pursuant to our shareholders’ approval, we amended our articles of association to change our name to Cimpress N.V. and began trading on The Nasdaq Stock Market under the "CMPR" ticker symbol shortly after.
2. Summary of Significant Accounting Policies
Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals, considered necessary for a fair statement of the results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included.
The consolidated financial statements include the accounts of Cimpress N.V., its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we can exercise significant influence, but do not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the consolidated balance sheets.

Operating results for the three and nine months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015 or for any other period. The consolidated balance sheet at June 30, 2014 has been derived from our audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2014 included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, advertising expense and related accruals, share-based compensation, accounting for business combinations, variable interest entities and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

6



Foreign Currency Translation
Our non-U.S. dollar functional currency subsidiaries translate their assets and liabilities denominated in their functional currency to U.S. dollars at current rates of exchange in effect at the balance sheet date, and revenues and expenses are translated at average rates prevailing throughout the period. The resulting gains and losses from translation are included as a component of accumulated other comprehensive (loss) income. Transaction gains and losses and remeasurement of assets and liabilities denominated in currencies other than an entity’s functional currency are included in other income (expense), net in our consolidated statements of operations. The following table summarizes the components of other income (expense), net:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Gains (losses) on derivative instruments (1)
$
5,756

 
$
(1,086
)
 
$
13,398

 
$
(7,526
)
Currency related gains (losses), net (2)
2,535

 
970

 
16,884

 
(625
)
Total other income (expense), net
$
8,291

 
$
(116
)
 
$
30,282

 
$
(8,151
)
_____________________
(1) Includes both realized and unrealized gains (losses) on derivative instruments.
(2) We have significant non-functional currency intercompany financing relationships subject to currency exchange rate volatility primarily due to changes in our corporate entity operating structure, effective October 1, 2013, which required us to alter our intercompany transactional and financing activities. The net currency related gains for the three and nine months ended March 31, 2015 are substantially driven by this intercompany activity.
Net Income Per Share Attributable to Cimpress N.V.
Basic net income per share attributable to Cimpress N.V. is computed by dividing net income attributable to Cimpress N.V. by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net income per share attributable to Cimpress N.V. gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”) and restricted share awards ("RSAs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.

The following table sets forth the reconciliation of the weighted-average number of ordinary shares:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Weighted average shares outstanding, basic
32,694,354

 
33,249,419

 
32,537,940

 
32,921,016

Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/RSAs
1,486,209

 
1,107,571

 
1,099,627

 
1,504,272

Shares used in computing diluted net income per share attributable to Cimpress N.V.
34,180,563

 
34,356,990

 
33,637,567

 
34,425,288

Weighted average anti-dilutive shares excluded from diluted net income per share attributable to Cimpress N.V.
39,265

 
906,850

 
380,136

 
916,209

Share-Based Compensation
During the three and nine months ended March 31, 2015, we recorded share-based compensation expense of $6,638 and $18,764, respectively, and $5,592 and $21,850 during the three and nine months ended March 31, 2014, respectively. As of March 31, 2015, there was $40,759 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, net of estimated forfeitures. This cost is expected to be recognized over a weighted average period of 2.8 years.
Recently Issued or Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03,"Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," (ASU 2015-03), which requires an entity to present debt issuance costs related to recognized debt liability in the balance sheet as a direct deduction from the carrying amount of that debt liability. The new standard is effective for us on July 1, 2016 and early adoption is permitted. The standard requires the application on a retrospective

7



basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of the standard. We do not expect it to have a material impact.
In February 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-02,"Consolidation (Topic 810): Amendments to the Consolidation Analysis," (ASU 2015-02) which places more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (for example, debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations. The new standard is effective for us on July 1, 2016. The standard permits early adoption and the use of a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently evaluating the effect ASU 2015-02 will have on our consolidated financial statements but do not expect it to have a material impact.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09,"Revenue from Contracts with Customers," (ASU 2014-09) which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has issued a proposal to defer the effective date to January 1, 2018, which would result in an effective date for us of July 1, 2018, with early application permitted. The standard permits the use of either the retrospective or cumulative catch-up transition method. We are currently evaluating the adoption method and effect that ASU 2014-09 will have on our consolidated financial statements but do not expect it to have a material impact.
3. Fair Value Measurements
The following table summarizes our investments in available-for-sale securities:
 
March 31, 2015
 
Amortized Cost Basis
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
4,007

 
$
3,980

 
$
7,987

Total investments in available-for-sale securities
$
4,007

 
$
3,980

 
$
7,987

 
June 30, 2014
 
Amortized Cost Basis
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
4,611

 
$
9,246

 
$
13,857

Total investments in available-for-sale securities
$
4,611

 
$
9,246

 
$
13,857


________________________
(1) On February 28, 2014, we purchased shares in our publicly traded Japanese joint venture partner. Refer to Note 13 for further discussion of the separate joint business arrangement.
We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

8



The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
March 31, 2015
 
Total
 
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$
7,987

 
$
7,987

 
$

 
$

Currency forward contracts
7,067

 

 
7,067

 

Total assets recorded at fair value
$
15,054

 
$
7,987

 
$
7,067

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(1,402
)
 
$

 
$
(1,402
)
 
$

Currency forward contracts
(42
)
 

 
(42
)
 

Contingent consideration
(17,936
)
 

 

 
(17,936
)
Total liabilities recorded at fair value
$
(19,380
)
 
$

 
$
(1,444
)
 
$
(17,936
)

 
June 30, 2014
 
Total
 
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$
13,857

 
$
13,857

 
$

 
$

Currency forward contracts
382

 

 
382

 

Total assets recorded at fair value
$
14,239

 
$
13,857

 
$
382

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(745
)
 
$

 
$
(745
)
 
$

Currency forward contracts
(806
)
 

 
(806
)
 

Contingent consideration
(16,072
)
 

 

 
(16,072
)
Total liabilities recorded at fair value
$
(17,623
)
 
$

 
$
(1,551
)
 
$
(16,072
)
During the three and nine months ended March 31, 2015 and the year ended June 30, 2014, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.     
The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.     
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of March 31, 2015, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

9



During the three months ended March 31, 2015, we amended the terms of our contingent consideration arrangement related to our fiscal 2014 acquisition of Printdeal (formerly known as People & Print Group). The original terms provided for contingent consideration payable based upon the achievement of an initial calendar year 2014 earnings before interest, taxes, depreciation and amortization (EBITDA) margin threshold but ultimately payable based on revenue and EBITDA performance for calendar year 2015. We amended the terms and will pay a fixed amount of €15,000, of which €8,000 was paid in March 2015 ($8,271 based on the exchange rate as of the date of payment) and the remaining €7,000 ($7,564 based on the exchange rate as of March 31, 2015) is payable during the fourth quarter of fiscal 2016.
Our fiscal 2014 acquisition of Pixartprinting provided for contingent consideration payable based on the achievement of revenue and EBITDA performance metrics for calendar year 2014. Based on Pixartprinting's 2014 results, we will pay the maximum amount achievable of €9,600 ($10,372 based on the exchange rate as of March 31, 2015) during the fourth quarter of fiscal 2015.
The contingent consideration obligations are measured at fair value and are based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes and probabilities for the contingent consideration. We assess these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized within general and administrative expenses in the consolidated statements of operations during the period in which the change occurs. As both the Printdeal and Pixartprinting contingent liabilities are no longer variable, we do not expect any additional adjustments to fair value prior to payment.
The following table represents the changes in fair value of Level 3 contingent consideration:
 
Current liabilities: contingent consideration
 
Long-term liabilities: contingent consideration
 
Total contingent consideration
Balance at June 30, 2014
$
6,276

 
$
9,796

 
$
16,072

Fair value adjustment
13,810

 
1,080

 
14,890

Cash payments
(8,271
)
 

 
(8,271
)
Foreign currency impact
(1,443
)
 
(3,312
)
 
(4,755
)
Balance at March 31, 2015
$
10,372

 
$
7,564

 
$
17,936

    
As of March 31, 2015 and June 30, 2014, the carrying amounts of our cash and cash equivalents, accounts receivables, accounts payable, and other current liabilities approximated their estimated fair values. As of March 31, 2015 and June 30, 2014 the carrying value of our debt was $430,478 and $448,059, respectively, and the fair value was $440,433 and $460,098, respectively. Our debt includes a variable rate debt instrument indexed to LIBOR that resets periodically and a fixed rate debt instrument. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.
4. Derivative Financial Instruments
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage differences in the amount of our known or expected cash payments related to our debt. Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the derivative agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive (loss) income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We de-designate a derivative when we determine that the hedge relationships are no longer highly effective or that the forecasted transaction is no

10



longer probable. If a derivative is deemed to be ineffective, the ineffective portion of the change in fair value of the derivative is recognized directly in earnings, as a component of other income (expense). The portion of gain or loss on the derivative instrument previously recorded in accumulated other comprehensive (loss) income remains in accumulated other comprehensive (loss) income until the the forecasted transaction is recognized in earnings. During the three and nine months ended March 31, 2015, two interest rate derivative instruments were de-designated. As of March 31, 2015, the amount of unrecognized loss included in accumulated other comprehensive (loss) income for de-designated cash flow hedge instruments is $160. During the three and nine months ended March 31, 2014 we did not hold any interest rate derivative instruments that were determined to be ineffective.
Amounts reported in accumulated other comprehensive (loss) income related to interest rate swap contracts will be reclassified to interest expense as interest payments are accrued or made on our variable-rate debt. As of March 31, 2015, we estimate that $771 will be reclassified from accumulated other comprehensive (loss) income to interest income during the twelve months ending March 31, 2016. As of March 31, 2015, we had nine outstanding interest rate swap contracts indexed to one-month LIBOR. These instruments include seven interest rate swap contracts that were designated and two interest rate swap contracts that were de-designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates from June 2015 through June 2019. Since the start date of certain contracts has not yet commenced and contracts have been de-designated, the notional amount of our outstanding contracts is in excess of the variable-rate debt being hedged as of the balance sheet date.
Interest rate swap contracts outstanding:
 
Notional Amounts
Contracts accruing interest as of March 31, 2015
 
$
230,000

Contracts with a future start date
 
105,000

Total
 
$
335,000

Hedges of Currency Risk
We execute currency forward contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar. We use currency derivatives, specifically currency forward contracts, to manage this exposure. We did not elect hedge accounting for our current currency forward contract activity, as we performed an analysis to evaluate the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. However, we may elect to apply hedge accounting in future scenarios. The change in the fair value of currency forward contracts is recognized directly in earnings, as a component of other income (expense), net. During the three and nine months ended March 31, 2015 and 2014, we have experienced volatility within other income (expense), net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting.
    As of March 31, 2015, we had the following outstanding currency forward contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. Dollar value of forecasted transactions denominated in Canadian Dollar, Danish Krone, The Euro, Great British Pound, Indian Rupee, New Zealand Dollar, Norwegian Krone, Swedish Krona, and Swiss Franc:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$164,562
 
June 2014 through March 2015
 
Various dates through September 2016
 
286
 
Various

11



Financial Instrument Presentation
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of March 31, 2015 and June 30, 2014:
 
March 31, 2015

Asset Derivatives

Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item

Gross amounts of recognized assets

Gross amount offset in consolidated balance sheet

Net amount

Balance Sheet line item

Gross amounts of recognized liabilities

Gross amount offset in consolidated balance sheet

Net amount
Interest rate swaps
Other non-current assets

$


$


$


Other current liabilities / other liabilities

$
(1,231
)

$


$
(1,231
)
Total derivatives designated as hedging instruments


$


$


$




$
(1,231
)

$


$
(1,231
)
















Derivatives not designated as hedging instruments















Interest rate swaps
Other non-current assets
 
$

 
$

 
$

 
Other current liabilities / other liabilities
 
$
(171
)
 
$

 
$
(171
)
Currency forward contracts
Other current assets / other assets

8,877


(1,810
)

7,067


Other current liabilities / other liabilities

(46
)

4


(42
)
Total derivatives not designated as hedging instruments


$
8,877


$
(1,810
)

$
7,067




$
(217
)

$
4


$
(213
)

June 30, 2014

Asset Derivatives

Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item

Gross amounts of recognized assets

Gross amount offset in consolidated balance sheet

Net amount

Balance Sheet line item

Gross amounts of recognized liabilities

Gross amount offset in consolidated balance sheet

Net amount
Interest rate swaps
Other non-current assets

$


$


$


Other current liabilities / other liabilities

$
(771
)

$
26


$
(745
)
Total derivatives designated as hedging instruments


$


$


$




$
(771
)

$
26


$
(745
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets

$
410


$
(28
)

$
382


Other current liabilities

$
(1,058
)

$
252


$
(806
)
Total derivatives not designated as hedging instruments


$
410


$
(28
)

$
382




$
(1,058
)

$
252


$
(806
)

12



The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive income for the three and nine months ended March 31, 2015 and 2014:
Derivatives in Hedging Relationships
Amount of Gain (Loss) Recognized in Comprehensive (Loss) Income on Derivatives (Effective Portion)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
In thousands
2015
 
2014
 
2015
 
2014
Currency contracts that hedge revenue

 

 

 
(107
)
Currency contracts that hedge cost of revenue

 

 

 
59

Currency contracts that hedge technology and development expense

 

 

 
70

Currency contracts that hedge general and administrative expense

 

 

 
12

Interest rate swaps
(1,036
)
 
(132
)
 
(1,057
)
 
(456
)
 
$
(1,036
)
 
$
(132
)
 
$
(1,057
)
 
$
(422
)
The following table presents reclassifications out of accumulated other comprehensive (loss) income for the three and nine months ended March 31, 2015 and 2014:
Details about Accumulated Other
Comprehensive (Loss) Income Components
Amount Reclassified from Accumulated Other Comprehensive (Loss) Income to Net Income Gain/(Loss)
 
Affected line item in the
Statement of Operations
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
In thousands
2015
 
2014
 
2015
 
2014
 
 
Currency contracts that hedge revenue
$

 
$

 
$

 
$
(120
)
 
Revenue
Currency contracts that hedge cost of revenue

 

 

 
(112
)
 
Cost of revenue
Currency contracts that hedge technology and development expense

 

 

 
122

 
Technology and development expense
Currency contracts that hedge general and administrative expense

 

 

 
11

 
General and administrative expense
Interest rate swaps
(268
)
 
(78
)
 
(840
)
 
(232
)
 
Interest expense, net
Total before income tax
(268
)
 
(78
)
 
(840
)
 
(331
)
 
Income (loss) before income taxes and loss in equity interests
Income tax
67

 
16

 
210

 
47

 
Income tax provision
Total
$
(201
)
 
$
(62
)
 
$
(630
)
 
$
(284
)
 
 
The following table presents the adjustment to fair value recorded within the consolidated statements of operations for derivative instruments for which we did not elect hedge accounting, as well as the effect of our de-designated derivative financial instruments that no longer qualify as hedging instruments in the period:
Derivatives not classified as hedging instruments
Amount of Gain (Loss) Recognized in Income
 
Location of Gain (Loss) Recognized in Income (Ineffective Portion)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
In thousands
2015
 
2014
 
2015
 
2014
 
 
Currency contracts
$
5,770

 
$
(1,086
)
 
$
13,412

 
$
(7,526
)
 
Other income (expense), net
Interest rate swaps
(14
)
 

 
(14
)
 

 
Other income (expense), net
 
$
5,756

 
$
(1,086
)
 
$
13,398

 
$
(7,526
)
 
 
  

13



5. Accumulated Other Comprehensive (Loss) Income
The following table presents a roll forward of amounts recognized in accumulated other comprehensive (loss) income by component, net of tax of $218, for the nine months ended March 31, 2015:

Gains (losses) on cash flow hedges
 
Gains (losses) on available for sale securities
 
Losses on pension benefit obligation
 
Currency translation adjustments
 
Total
Balance as of June 30, 2014
(803
)
 
9,246

 
(2,724
)
 
(3,606
)
 
2,113

Other comprehensive (loss) income before reclassifications
(1,057
)
 
(5,266
)
 
(26
)
 
(112,869
)
 
(119,218
)
Amounts reclassified from accumulated other comprehensive (loss) income to net income
630

 

 

 

 
630

Net current period other comprehensive (loss) income
(427
)
 
(5,266
)
 
(26
)
 
(112,869
)
 
(118,588
)
Balance as of March 31, 2015
$
(1,230
)
 
$
3,980

 
$
(2,750
)
 
$
(116,475
)
 
$
(116,475
)
6. Waltham and Lexington Lease Arrangements
In July 2013, we executed a lease agreement to move our Lexington, Massachusetts, USA operations to a yet to be constructed facility in Waltham, Massachusetts, USA. The Waltham lease will commence upon completion of the building, scheduled for the first quarter of fiscal 2016, and will extend eleven years from the commencement date. We expect to pay approximately $131,769 in cash ratably over the initial 11-year term of the lease, starting in September 2015.
Concurrent with the Waltham lease negotiations, we amended our current Lexington lease, as both leases are held with the same landlord. The amendment to the Lexington lease contained a contingent feature to shorten the current term of the lease to coincide with the rent commencement date of the Waltham lease, and a second contingent feature to adjust the remaining annual rental amounts. Both of the arrangements were contingent upon the lessor obtaining certain building permits for the Waltham lease. During the quarter ended March 31, 2014, the lessor obtained all of the requisite building permits for the Waltham building construction.
For accounting purposes, we are deemed to be the owner of the Waltham building during the construction period and, accordingly, as of March 31, 2015 we have recorded $73,167 of construction project costs incurred by the landlord as an asset with a corresponding financing obligation. The asset is included as construction in progress in property, plant and equipment, net in the consolidated balance sheet. Once the construction is completed, we will evaluate the Waltham lease in order to determine whether or not the lease meets the criteria for "sale-leaseback" treatment.
Although we will not begin making cash lease payments until the lease commencement date, a portion of the Waltham lease obligation attributable to the land is treated for accounting purposes as an operating lease that commenced during the second quarter of fiscal 2014. We bifurcate our future lease payments pursuant to the lease into (i) a portion that is allocated to the building and (ii) a portion that is allocated to the land on which the building is being constructed, which will be recorded as rental expense during the construction period. We recognized non-cash rent expense of $375 and $1,125 in our consolidated statements of operations for the land operating lease during the three and nine months ended March 31, 2015.
7. Business Combinations
Acquisition of FotoKnudsen
On July 1, 2014, we acquired 100% of the outstanding shares of FotoKnudsen AS, a Norwegian photo product company focused primarily on the Norwegian markets. At closing, we paid €14,045 ($19,224 based on the exchange rate as of the date of acquisition) in cash, subject to certain post-acquisition escrow adjustments. We utilized proceeds from our credit facility to finance the acquisition. In connection with the acquisition, we incurred transaction costs related to investment banking, legal, financial, and other professional services of $394 which were recorded during the year ended June 30, 2014 in general and administrative expenses. No additional transaction costs were recorded during the nine months ended March 31, 2015.

14



The excess of the purchase price paid over the fair value of FotoKnudsen’s net assets was recorded as goodwill, which is primarily attributable to cost synergies expected from manufacturing efficiency opportunities and the value of the workforce of FotoKnudsen. Goodwill is not expected to be deductible for tax purposes, and has been attributed to our Albumprinter reporting unit that is part of the All Other Business Units reportable segment. The revenue and earnings included in our consolidated financial statements since the acquisition date are not material. Actual and pro forma results of the operations have not been presented because the effects are not material to the consolidated financial statements. The final fair value of the assets acquired and liabilities assumed was:
 
 
 
Weighted Average
 
Amount
 
Useful Life in Years
Tangible assets acquired and liabilities assumed, net:
$
(1,748
)
 
n/a
Identifiable intangible assets:
 
 
 
Customer relationships
5,615

 
6
Trade name
2,869

 
6
Developed technology
734

 
2
Goodwill
11,754

 
n/a
Total purchase price
$
19,224

 
 
8. Goodwill and Acquired Intangible Assets
Goodwill
The carrying amount of goodwill by segment as of June 30, 2014 and March 31, 2015 is as follows:
 
Vistaprint Business Unit
 
All Other Business Units
 
Total
Balance as of June 30, 2014 (1)
$
138,007

 
$
179,180

 
$
317,187

Acquisitions (2)


18,970


18,970

Adjustments

 
(122
)
 
(122
)
Effect of currency translation adjustments (3)
(12,534
)
 
(39,934
)
 
(52,468
)
Balance as of March 31, 2015
$
125,473

 
$
158,094

 
$
283,567

_________________
(1) Our segment reporting has been revised as of July 1, 2014 and, as such, we have re-allocated our goodwill by segment for the period ended June 30, 2014. See Note 14 for additional details.
(2) See Notes 7 and 12 for additional details.
(3) Relates to goodwill held by subsidiaries whose functional currency is not the U.S. Dollar.
We perform our annual goodwill impairment test on January 1 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For our annual impairment test as of January 1, 2015, we evaluated each of our five reporting units with goodwill individually. We considered the timing of our most recent fair value assessment and associated headroom, the actual operating results as compared to the cash flow forecasts used in those fair value assessments, the current long-term forecasts for each reporting unit, and the general market and economic environment of each reporting unit. Our qualitative assessment for fiscal 2015 determined that there was no indication that the carrying value of any of our reporting units exceeded its fair value. Our annual analysis requires significant judgment, including the identification and aggregation of reporting units and the amount and timing of expected future cash flows. While we believe our assumptions are reasonable, actual results could differ from our projections.

15



Acquired Intangible Assets
Acquired intangible assets amortization expense for the three and nine months ended March 31, 2015 was $4,719 and $16,803, respectively, and $2,228 and $6,885 for the three and nine months ended March 31, 2014, respectively. Amortization expense has increased significantly in fiscal 2015 due to the acquisitions of Printdeal, Pixartprinting and FotoKnudsen.
9. Accrued Expenses
Accrued expenses included the following:
 
March 31, 2015
 
June 30, 2014
Compensation costs
$
44,411

 
$
46,375

Income and indirect taxes (1)
30,314

 
23,190

Advertising costs
19,746

 
19,299

Shipping costs
4,954

 
4,104

Purchases of property, plant and equipment
4,612

 
3,687

Professional costs
2,101

 
2,224

Other (2)
36,388

 
22,298

Total accrued expenses
$
142,526

 
$
121,177

_____________________
(1) The increase in income and indirect taxes is principally a result of the timing of payment of income and indirect taxes.
(2) The increase is primarily due to the increase in the short-term portion of the contingent consideration liability of $4,096, as well as an increase in certain liability based equity awards of $3,097 as of March 31, 2015.
10. Debt

March 31, 2015

June 30, 2014
7% Senior unsecured notes due 2022
$
275,000


$

Senior secured credit facility (1)
155,478

 
426,859

Uncommitted credit facility


21,200

Total debt outstanding
430,478


448,059

Less short-term debt (1)
11,884

 
37,575

Long-term debt
$
418,594


$
410,484

_____________________
(1) Balances as of March 31, 2015 are inclusive of short-term and long-term debt discounts of $116 and $406, respectively.
Indenture and Senior Unsecured Notes due 2022
On March 24, 2015, we completed a private placement of $275,000 in aggregate principal amount of 7% senior unsecured notes due 2022 (the “Notes”). We issued the Notes pursuant to a senior notes indenture dated as of March 24, 2015 among Cimpress N.V., our subsidiary guarantors, and MUFG Union Bank, N.A., as trustee (the "Indenture"). We used the proceeds from the Notes to pay outstanding indebtedness under our unsecured line of credit and our senior secured credit facility and for general corporate purposes.
The Notes bear interest at a rate of 7% per annum and mature on April 1, 2022. Interest on the Notes is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2015, to the holders of record of the Notes at the close of business on March 15 and September 15, respectively, preceding such interest payment date.

The Notes are senior unsecured obligations and rank equally in right of payment to all our existing and future senior unsecured debt and senior in right of payment to all of our existing and future subordinated debt. The Notes are effectively subordinated to any of our existing and future secured debt to the extent of the value of the

16



assets securing such debt. Subject to certain exceptions, each of our existing and future subsidiaries that is a borrower under or guarantees our senior secured credit facilities will guarantee the Notes.
The Indenture contains various covenants, including covenants that, subject to certain exceptions, limit our and our restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase shares or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate or transfer or dispose of substantially all of our consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.
At any time prior to April 1, 2018, we may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the Indenture, plus, in each case, accrued and unpaid interest to, but not including, the redemption date. In addition, at any time prior to April 1, 2018, we may redeem up to 35% of the aggregate outstanding principal amount of the Notes at a redemption price equal to 107.0% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress. At any time on or after April 1, 2018, we may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest to, but not including, the redemption date.
JP Morgan Credit Facility
On September 23, 2014, we entered into amendment no. 2 to our credit agreement, which increased the aggregate loan commitments of our existing lenders to a total of $850,000 and extended the maturity date of all our borrowings under the credit agreement to September 23, 2019. As of March 31, 2015, we have a senior secured credit facility of $846,000 as follows:
Revolving loans of $690,000 with a maturity date of September 23, 2019
Term loan of $156,000 amortizing over the loan period, with a final maturity date of September 23, 2019
Under the terms of our credit agreement, borrowings bear interest at a variable rate of interest based on LIBOR plus 1.50% to 2.25% depending on our leverage ratio, which is the ratio of our consolidated total indebtedness to our consolidated EBITDA, as defined by the credit agreement. As of March 31, 2015, the weighted-average interest rate on outstanding borrowings was 2.69%, inclusive of interest rate swap rates. We must also pay a commitment fee on unused balances of 0.225% to 0.400% depending on our leverage ratio. We have pledged the assets and/or share capital of several of our subsidiaries as collateral for our outstanding debt as of March 31, 2015.
Our credit agreement contains financial and other covenants, including but not limited to limitations on (1) our incurrence of additional indebtedness and liens, (2) the consummation of intercompany activities or certain fundamental organizational changes, for example acquisitions, (3) investments and restricted payments including the amount of purchases of our ordinary shares or payments of dividends, and (4) the amount of consolidated capital expenditures that we may make in each of our fiscal years through June 30, 2019. The credit agreement also contains financial covenants calculated on a trailing twelve month, or TTM, basis that:
our total leverage ratio, which is the ratio of our consolidated total indebtedness (*) to our TTM consolidated EBITDA (*), will not exceed 4.50 to 1.00.
our senior secured leverage ratio, which is the ratio of our consolidated senior secured indebtedness (*) to our TTM consolidated EBITDA (*), will not exceed 3.25 to 1.00.
our interest coverage ratio, which is the ratio of our consolidated EBITDA to our consolidated interest expense, will be at least 3.00 to 1.00.
(*) The definitions of EBITDA, consolidated total indebtedness, and consolidated senior secured indebtedness are maintained in our credit agreement included as an exhibit to our Form 8-K filed on February 13, 2013, as amended by amendments no. 1 and no. 2 to the credit agreement included as exhibits to our Forms 8-K filed on January 22, 2014 and September 25, 2014.
Our credit agreement also contains customary representations, warranties and events of default. As of March 31, 2015, we were in compliance with all financial and other covenants under the credit agreement.

17



Additional line of credit
We have an uncommitted line of credit with Santander Bank, N.A, and under the terms of the agreement we may borrow up to $25,000 at any time, with a maturity date of up to 90 days from the loan origination date. Under the terms of our uncommitted line of credit, borrowings bear interest at a variable rate of interest that may change from time to time. As of March 31, 2015, there were no outstanding borrowings under this line of credit.
11. Income Taxes
Income tax expense was $1,576 and $7,658 for the three and nine months ended March 31, 2015, respectively, as compared to $999 and $7,819 for the same prior year periods. The changes are primarily attributable to an increase in consolidated pre-tax income for both the three and nine months ended March 31, 2015 as compared to the same prior year periods, offset by tax benefits resulting from changes to our corporate entity operating structure that became effective on October 1, 2013. We made the changes to our corporate entity operating structure, which included transferring our intellectual property among certain of our subsidiaries, primarily to align our corporate entities with our evolving operations and business model. Additionally, our tax expense for the nine months ended March 31, 2015 was further reduced due to a reduction in our net liability for unrecognized tax benefits that we recognized during the three months ended December 31, 2014.
Our consolidated annual effective tax rate is primarily impacted by changes in the amount and geographical mix of consolidated pre-tax income. For fiscal 2015, we are forecasting a lower consolidated annual effective tax rate as compared to fiscal 2014, primarily as a result of an increase to and more favorable geographical mix of consolidated pre-tax earnings and greater tax benefits recognized as a result of the changes to our corporate entity operating structure described above. We expect our cash paid for income taxes for fiscal 2015 to be higher than our income tax expense as a result of non-cash tax benefits relating to tax losses for which the cash benefit is expected to occur in a future period.     
     As of March 31, 2015, we had a net liability for unrecognized tax benefits included in the balance sheet of approximately $4,984, including accrued interest of $90. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. Of the total amount of unrecognized tax benefits, approximately $2,282 will reduce the effective tax rate if recognized.
It is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time. We believe we have appropriately provided for all tax uncertainties.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2012 through 2014 remain open for examination by the United States Internal Revenue Service (“IRS”) and the years 2006 through 2014 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns.
One of our U.S. subsidiaries, Cimpress USA Incorporated (formerly known as Vistaprint USA, Incorporated) has received Notices of Assessment from the Massachusetts Department of Revenue ("DOR") related to the tax years 2006 to 2008 and 2010 to 2011. The Notices contain adjustments to taxable income for these years. The issue in dispute is whether the DOR has the right to impute royalty income to Cimpress USA in the years at issue associated with the use of certain intangible property by Vistaprint Limited, even though that intangible property was transferred for a lump-sum payment to Vistaprint Limited in an earlier year that is closed to adjustment by virtue of the governing statute of limitations. The matter was recently under review by the DOR Office of Appeals. In July 2014, we received a Letter of Determination from the Office of Appeals rejecting our Application for Abatement and upholding the DOR’s original assessments. In August 2014, we filed a petition to have our case heard by the Massachusetts Appellate Tax Board. At this time, the hearing for our case has not yet been set. We continue to believe that the DOR’s position has no merit, and we intend to contest these assessments to the fullest extent possible.
Additionally, Cimpress USA has been under audit by the IRS for the 2012 and 2013 tax years. This audit was concluded in March 2015 with no material tax adjustments.     

18



We believe that our income tax reserves associated with these matters are adequate and that the positions reported on our tax returns will be sustained on their technical merits. However, the final resolution is uncertain and there is a possibility that the final resolution could have a material impact on our financial condition, results of operations or cash flows.
12. Variable Interest Entities ("VIE")
VIE of Which We are the Primary Beneficiary
Investment in Printi LLC
On August 7, 2014, we made a capital investment in Printi LLC, which operates in Brazil. This investment provides us access to a new market and the opportunity to drive longer-term growth in Brazil. We paid $5,360 in cash for preferred shares and made a $2,850 capital contribution resulting in a 41.6% equity interest in Printi with call options to increase our ownership incrementally over a 9-year period by purchasing equity interests either directly from Printi or from certain employee shareholders. We expect to exercise the first contingent call option in the fourth quarter of fiscal 2015 which would increase our ownership to 49.99% by June 30, 2015.
Based upon the level of equity investment at risk, Printi is considered a variable interest entity. The shareholders share profits and voting control on a pro-rata basis. While we do not manage the day to day operations of Printi, we do have the unilateral ability to exercise participating voting rights for specific transactions and as such no one shareholder is considered to be the primary beneficiary. However, certain significant shareholders cannot transfer their equity interests without our approval and as a result are considered de facto agents on our behalf in accordance with ASC 810-10-25-43.
In aggregating our rights, as well as those of our de facto agents, the group as a whole has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses and the right to receive benefits from the entity. In situations where a de facto agency relationship is present, one party is required to be identified as the primary beneficiary and the evaluation requires significant judgment. The factors considered include the presence of a principal/agent relationship, the relationship and significance of activities to the reporting entity, the variability associated with the VIE's anticipated economics and the design of the VIE. The analysis is qualitative in nature and is based on weighting the relative importance of each of the factors in relation to the specifics of the VIE arrangement. Upon our investment we performed an analysis and concluded that we are the party that is most closely associated with Printi, as we are most exposed to the variability of the economics and therefore considered the primary beneficiary.
As we are the primary beneficiary, our consolidated financial statements include the accounts of Printi from August 7, 2014. The results are immaterial to our consolidated statements of operations for the three and nine months ended March 31, 2015. We have recognized the assets and liabilities on the basis of their fair values at the date of our investment, with any excess of the purchase price paid over the fair value of the net assets recorded as goodwill. Of the total purchase price of $5,360, $7,469 was allocated to goodwill, $2,465 to noncontrolling interests, $697 to acquired intangible assets and $341 to net liabilities.
We have call options to increase our ownership in Printi incrementally over a nine-year period with certain employee shareholders. As the employees' restricted stock in Printi is contingent on post-acquisition employment, share-based compensation will be recognized over the four year vesting period. The awards are considered liability awards and will be marked to fair value each reporting period. In order to estimate the fair value of the award as of March 31, 2015, we utilized a lattice model with a Monte Carlo simulation. The current fair value of the award is $5,808 and we have recognized $999 in general and administrative expense for the nine months ended March 31, 2015.

19



VIE of Which We are Not the Primary Beneficiary
Namex Limited
In the fourth quarter of fiscal 2014, we disposed of our investment in Namex Limited and its related companies, as discussions with management identified different visions in the execution of the long-term strategic direction of the business. Prior to the sale, our investment was accounted for using the equity method, as the investment was considered a VIE and we were not the primary beneficiary. We recorded in net income a proportionate share of the earnings or losses of Namex, as well as related amortization, with a corresponding increase or decrease in the carrying value of the investment. For the three and nine months ended March 31, 2014, we recorded a loss of $1,058 and $2,704, respectively, attributable to Namex in our consolidated statement of operations.
13. Noncontrolling Interests
In certain of our strategic investments we have purchased a controlling equity stake, but there remains a minority portion of the equity that is owned by a third party. The balance sheet and operating activity of these entities are included in our consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity.
Redeemable noncontrolling interests
On April 3, 2014 we acquired 97% of the outstanding corporate capital of Pixartprinting S.p.A. The remaining 3% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results and not solely within our control. The redeemable noncontrolling interest was recorded at its fair value as of the acquisition date and will be adjusted to its redemption value on a periodic basis, if that amount exceeds its fair value. As of March 31, 2015, the redemption value is less than carrying value and therefore no adjustment has been made.
We own a 51% controlling interest in a joint business arrangement with Plaza Create Co. Ltd., a leading Japanese retailer of photo products, to expand our market presence in Japan. During fiscal 2014, we contributed $4,891 in cash and $1,100 in assets, and Plaza Create made an initial capital contribution of $4,818 in cash and $955 in assets. We have a call option to acquire the remaining 49% of the business if Plaza Create materially breaches any of its contracts with us. If we materially breach any of our contracts with Plaza Create, Plaza Create has an option to put their shares to us. As the exercise of this put option is not solely within our control, the noncontrolling equity interest in the business is presented as temporary equity in our consolidated balance sheet. As of March 31, 2015, it is not probable that the noncontrolling interest will be redeemable.
Noncontrolling interest
On August 7, 2014, we made a capital investment in Printi LLC as described in Note 12. The noncontrolling interest was recorded at its estimated fair value as of the investment date. The net income (loss) of the operations allocated to the noncontrolling interest considers our stated liquidation preference in applying the income or loss to each party.

20



The following table presents the changes in our noncontrolling interests for the nine months ended March 31, 2015:
 
 
Redeemable noncontrolling interests
 
Noncontrolling interest
Balance as of June 30, 2014
 
$
11,160

 
$

Capital contribution from noncontrolling interest
 
4,160

 

Acquisition of noncontrolling interest
 

 
2,465

Dividend paid to noncontrolling interest
 
(118
)
 

Net loss attributable to noncontrolling interest
 
(430
)
 
(1,280
)
Foreign currency translation
 
(2,074
)
 
(202
)
Balance as of March 31, 2015
 
$
12,698

 
$
983

14. Segment Information
During the first quarter of fiscal 2015 we revised our internal management organizational and reporting structure to better align to our strategy of delivering mass customized products to multiple customer segments via various brands. Our operating segments are based upon our internal organization structure, the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance. The CODM measures and evaluates the performance of our operating segments based on revenue and income (loss) from operations. We have identified several operating segments under our new management reporting structure which are reported in the following two reportable segments:
Vistaprint Business Unit - Aggregates the operations of our core Vistaprint-branded business in the North America, Europe, Australia and New Zealand markets, and our Webs-branded business, which is managed with the Vistaprint-branded digital business in the previously listed geographies.
All Other Business Units - Includes the operations of our Albumprinter, Printdeal, Pixartprinting, and Most of World business units. Our Most of World business unit is focused on our emerging market portfolio, including operations in Brazil, India and Japan. These business units have been combined into one reportable segment based on materiality.
Consistent with our historical reporting, the cost of our global legal, human resource, finance, facilities management, software and manufacturing engineering, and the global component of our IT operations functions are generally not allocated to the reporting segments and are instead reported and disclosed under the caption "Corporate and global functions." Corporate and global functions is a cost center and does not meet the definition of an operating segment. We have revised our presentation of all prior periods presented to reflect our revised segment reporting.
There are no internal revenue transactions between our operating segments, and we do not allocate non-operating income to our segment results. All intersegment transfers are recorded at cost for presentation to the CODM, for example, we allocate costs related to products manufactured by our global network of production facilities to the applicable operating segment. There is no intercompany profit or loss recognized on these transactions.
The following factors, among others, may limit the comparability of income from operations by segment:
We do not allocate support costs across operating segments or corporate and global functions.
Some of our recently acquired business units are burdened by the costs of their local finance, HR, and other administrative support functions, whereas other business units leverage our global functions and do not receive an allocation for these services.
Our All Other Business Units reporting segment includes our Most of World business unit, which has operating losses as it is in its early stage of investment relative to the scale of the underlying business.

21



Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment.
Revenue by segment is based on the business unit-specific websites through which the customer’s order was transacted. The following tables set forth revenue and income from operations by reportable segment.
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Vistaprint Business Unit
$
280,577

 
$
267,706

 
$
908,521

 
$
868,351

All Other Business Units
59,324

 
18,479

 
205,217

 
63,730

Total revenue
$
339,901

 
$
286,185

 
$
1,113,738

 
$
932,081

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
Income (loss) from operations:
 
 
 
 
 
 
 
Vistaprint Business Unit
$
75,071

 
$
64,563

 
$
267,553

 
$
237,816

All Other Business Units
(6,144
)
 
(5,143
)
 
(8,999
)
 
(14,774
)
Corporate and global functions
(64,586
)
 
(54,181
)
 
(177,466
)
 
(156,872
)
Total income from operations
$
4,341

 
$
5,239

 
$
81,088

 
$
66,170

Enterprise Wide Disclosures:
The following tables set forth revenues by geographic area and groups of similar products and services:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 

 
 

United States
$
177,268

 
$
155,056

 
$
532,243

 
$
485,765

Non-United States (1)
162,633

 
131,129

 
581,495

 
446,316

Total revenue
$
339,901

 
$
286,185

 
$
1,113,738

 
$
932,081

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 

 
 

Physical printed products and other (2)
$
322,564

 
$
266,447

 
$
1,059,805

 
$
871,218

Digital products/services
17,337

 
19,738

 
53,933

 
60,863

Total revenue
$
339,901

 
$
286,185

 
$
1,113,738

 
$
932,081

___________________
(1) Our non-United States revenue includes the Netherlands, our country of domicile. Revenue earned in any other individual country other than the United States was not greater than 10% of consolidated revenue for the periods presented.
(2) Other revenue includes miscellaneous items which account for less than 1% of revenue.

22



The following tables set forth long-lived assets by geographic area:
 
March 31,
2015
 
June 30,
2014
Long-lived assets (3):
 

 
 

Netherlands
$
91,504

 
$
106,918

Canada
99,991

 
100,369

United States
106,718

 
49,037

Australia
26,790

 
35,367

Switzerland
38,060

 
31,201

Jamaica
24,269

 
25,431

Italy
24,077

 
20,356

Bermuda
6,727

 
7,570

India
8,456

 
6,958

Other
15,675

 
11,674

Total
$
442,267

 
$
394,881

___________________
(3) Excludes goodwill of $283,567 and $317,187, intangible assets, net of $80,488 and $110,214 and deferred tax assets of $12,646 and $8,762 as of March 31, 2015 and June 30, 2014, respectively.
15. Commitments and Contingencies
Lease Commitments
We have commitments under operating leases for our facilities that expire on various dates through 2026, including the Waltham lease arrangement discussed in Note 6. Total lease expense, net of sublease income for the three and nine months ended March 31, 2015 was $4,087 and $12,886, respectively, and $3,727 and $10,122, for the three and nine months ended March 31, 2014.
We also lease certain machinery and plant equipment under both capital and operating lease agreements that expire at various dates through 2017. The aggregate carrying value of the leased equipment under capital leases included in property, plant and equipment, net in our consolidated balance sheet at March 31, 2015, is $15,545, net of accumulated depreciation of $3,584; the present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at March 31, 2015 amounts to $11,847.
Purchase Obligations
At March 31, 2015, we had unrecorded commitments under contract of $26,385, which were principally composed of inventory purchase commitments of approximately $2,276, production and computer equipment purchases of approximately $14,185, and other unrecorded purchase commitments of $9,924.
Other Obligations
We have an outstanding installment obligation of $14,133 related to the fiscal 2012 intra-entity transfer of the intellectual property of our subsidiary Webs, Inc., which results in tax being paid over a 7.5 year term and has been classified as a deferred tax liability in our consolidated balance sheet as of March 31, 2015.
Legal Proceedings
We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred.


23



16. Subsequent Events

On April 15, 2015, Vistaprint Italy S.R.L., a wholly owned subsidiary of Cimpress N.V., completed its previously announced acquisition of 70% of the shares of Exagroup SAS, a French simplified joint stock company, for a purchase price of €91,305 ($97,012 based on the exchange rate as of the date of acquisition), subject to a post-closing adjustment based on Exagroup's working capital and debt, pursuant to the Share Purchase Agreement dated March 2, 2015 among Bruno Dematté, Nicolas Dematté, Marise Dematté, New Deminvest, Kara Invest, and CM-CIC Investissement, as sellers, and Vistaprint Italy as the buyer. All shareholders of Exagroup sold the entirety of their Exagroup holdings to Vistaprint Italy at the closing, with the exception of Nicolas Dematté and Marise Dematté (the “Remaining Shareholders”), who each retained a 15% ownership interest in Exagroup.

At the closing, Vistaprint Italy and each of the Remaining Shareholders entered into reciprocal put and call options with respect to the 30% of Exagroup shares held by the Remaining Shareholders, pursuant to which each of the Remaining Shareholders has the right to put his or her Exagroup shares to Vistaprint Italy for a period of 30 days beginning on April 15, 2019. If one or both of the Remaining Shareholders does not exercise his or her put option, then Vistaprint Italy has the right to exercise our call option on such Remaining Shareholder's Exagroup shares for a period of 30 days beginning on January 10, 2020. If the put or call options are exercised, the aggregate purchase and sale price for such shares will be between €39,000 and €47,000, depending on Exagroup’s achievement of certain revenue targets for calendar year 2017.

On April 17, 2015, Vistaprint Italy completed its previously announced acquisition of 100% of the share capital of druck.at Druck-und Handelsgesellschäft mbH, a limited liability company under Austrian law, for a total purchase price of €23,300, including €20,000 ($21,537 based on the exchange rate as of the date of acquisition) paid in cash at closing and a deferred payment of €3,300 ($3,554 based on the exchange rate as of the date of acquisition) to be paid in cash or ordinary shares of Cimpress N.V., at our option, in 2017 at the earliest.

We utilized proceeds from our various debt sources to finance the acquisitions. In connection with the acquisitions, we incurred transaction costs related to investment banking, legal, financial, and other professional services of approximately $652 and $1,201 during the three and nine months ended March 31, 2015, which have been recorded in general and administrative expenses.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    
This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about anticipated income and revenue growth rates, future profitability and market share, new and expanded products and services, geographic expansion and planned capital expenditures. Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth in this “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Report. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the United States Securities and Exchange Commission.
Executive Overview
On November 14, 2014, pursuant to our shareholders’ approval, we amended our articles of association to change our name to Cimpress N.V. and began trading on The Nasdaq Stock Market under the "CMPR" ticker symbol shortly after. Cimpress, the world leader in mass customization, is a technology and manufacturing-driven company that aggregates, via the Internet, large volumes of individually small, customized orders for a broad spectrum of print, signage, apparel and similar products. We produce those orders in highly automated, capital and technology intensive production facilities in a manner that we believe makes our production techniques significantly

24



more competitive than those of traditional suppliers. We bring our products to market via various brands that deliver marketing products and services to the small business, and home and family markets. These brands include Vistaprint, our leading global brand for micro business marketing products and services, as well as brands that we have acquired that serve the needs of various market segments, including resellers, small and medium businesses with differentiated service needs, and consumers purchasing products for personal use.
In July 2014 we changed our internal management reporting structure from geographic-based segments to brand-based segments, resulting in the Vistaprint Business Unit and the All Other Business Units reportable segments. The Vistaprint Business Unit represents our core Vistaprint brand focused on the North America, Europe, Australia and New Zealand markets, and our Webs branded business, which is managed with the Vistaprint-branded digital business. The All Other Business Unit is an aggregation of the smaller branded businesses in our portfolio - Albumprinter, Printdeal (formerly known as People & Print Group), Pixartprinting, and Most of World business units.
For the three and nine months ended March 31, 2015, we reported consolidated revenue of $339.9 million and $1,113.7 million, respectively, representing in each case 19% reported revenue growth over the same period in the prior year. Our constant-currency revenue growth was 26% and 23%, respectively, for the three and nine months ended March 31, 2015. Constant-currency revenue growth, excluding the revenue of businesses and brands acquired in the last twelve months, was 11% and 8%, respectively, for the three and nine months ended March 31, 2015.
Diluted earnings per share for the three and nine months ended March 31, 2015 was $0.25 and $2.85, respectively, increasing from $0.04 and $1.24 in the same prior year periods. This increase was driven by revenue performance of our Vistaprint brand as well as our other brands, advertising efficiency and significant gains recognized from currency movements in the respective periods principally as a result of changes in the fair value of our derivative instruments for which we have not elected hedge accounting and currency gains on non-functional currency activity, principally from intercompany transactional and financing relationships. These gains were partially offset by continued investments in product quality and software development in our core business, as well as investments in markets in which we seek to develop a long-term presence such as India, Japan and Brazil. We believe investments such as these, as well as our other key initiatives, will collectively enable us to scale and strengthen our competitive position and enhance long-term shareholder value. In addition, we recognized $7.5 million and $14.9 million of expense, respectively, during the three and nine months ended March 31, 2015 for changes in the contingent consideration liabilities associated with our acquisitions of Printdeal and Pixartprinting.
Our long-term aspiration is to maintain and strengthen our leadership position in mass customization globally through the following three focus areas:
What we are passionate about: empowering millions of people to make an impression. We strive to make it easy and affordable for our customers to communicate through customized physical products the thoughts, messages, and sentiments that are important to them. Our products help enable small businesses to grow, families to share memories, and teams and associations to build community.

Where we can be best in the world: computer-integrated manufacturing. Computer-integrated manufacturing harnesses the power of computers and software to control the entire production process to make manufacturing faster, less error-prone, more flexible, and lower cost.

What drives our economic engine: large scale in small quantities. Traditional production economics result in per-unit production costs that are low when items are produced in high quantities, however per-unit production costs are high when items are produced in low quantities. By centrally aggregating and producing millions of customer orders via our technology and manufacturing scale, we are able to achieve per-unit economics much closer to traditional high-volume applications, but we deliver to customers an individual customized product in very small volumes. This enables us to achieve higher gross margins than traditional printing companies while at the same time offer lower prices to our customers.

We ask investors and potential investors in Cimpress to understand the three upper-most priorities by which we endeavor to make all decisions, including investment decisions. Often we make decisions in service of these

25



priorities that could be considered non-optimal were they to be evaluated based on other criteria such as (but not limited to) near- and mid- term cash flow, EBITDA, EPS, and non-GAAP EPS. Our three priorities are:

Leadership: being the world leader in mass customization, a discipline that lies at the intersection of what we are passionate about, where we can be the best in the world, and what drives our economic engine.

Long-termism: multi-decade, mutual success for the benefit of the following stakeholders: customers, team members, society, and our long-term investors.

Intrinsic value per share: the free cash flow per share that, in our best judgment, will occur between now and the long-term future, appropriately discounted to reflect our cost of capital.
Results of Operations
The following table presents our operating results for the periods indicated as a percentage of revenue:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015
 
2014
As a percentage of revenue:
 
 
 
 
 

 
 

Revenue
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of revenue
36.9
 %
 
35.3
 %
 
37.0
 %
 
34.1
 %
Technology and development expense
14.2
 %
 
14.8
 %
 
12.5
 %
 
13.7
 %
Marketing and selling expense
35.5
 %
 
38.1
 %
 
33.4
 %
 
36.0
 %
General and administrative expense 
12.1
 %
 
10.0
 %
 
9.9
 %
 
9.1
 %
Income from operations
1.3
 %
 
1.8
 %
 
7.2
 %
 
7.1
 %
Other income (expense), net
2.4
 %
 
 %
 
2.7
 %
 
(0.9
)%
Interest expense, net
(0.9
)%
 
(0.6
)%
 
(0.8
)%
 
(0.5
)%
Income before income taxes and loss in equity interests
2.8
 %
 
1.2
 %
 
9.1
 %
 
5.7
 %
Income tax provision
0.5
 %
 
0.3
 %

0.6
 %

0.8
 %
Loss in equity interests
 %
 
0.4
 %
 
 %

0.3
 %
Net income
2.3
 %
 
0.5
 %
 
8.5
 %

4.6
 %
Add: Net loss attributable to noncontrolling interests
0.2
 %
 
 %
 
0.2
 %
 
 %
Net income attributable to Cimpress N.V.
2.5
 %
 
0.5
 %
 
8.7
 %
 
4.6
 %

In thousands
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015 vs. 2014
 
2015
 
2014
 
2015 vs. 2014
Revenue
$
339,901

 
$
286,185

 
19%
 
$
1,113,738

 
$
932,081

 
19%
Revenue
We generate revenue primarily from the sale and shipping of customized manufactured products, and by providing digital services, website design and hosting, and email marketing services, with a smaller percentage of revenue coming from order referral fees and other third-party offerings.
Vistaprint Business Unit    
Revenue for the three and nine months ended March 31, 2015 increased 5% in each period to $280.6 million and $908.5 million, respectively, compared to the three and nine months ended March 31, 2014 as the Vistaprint Business Unit experienced growth from the higher expectations market segment and increases in average order value. We continue to experience improved revenue growth trends in the U.S., U.K. and German markets where we made major pricing and channel marketing changes in fiscal 2014. In addition we have seen year over year improvement in our customer Net Promoter Score™ (which polls our customers on their willingness

26



to recommend us to friends and colleagues based on a score of 0 to 10). Our reported revenue growth was negatively affected by currency impacts during the three and nine months ended March 31, 2015 of 6% and 3%, respectively, resulting in constant-currency revenue growth of 11% and 8%, respectively.
We believe that although our current revenue growth rate remains below our historical levels, we are starting to see a reversing of the major headwinds caused by our transformation efforts of our customer value proposition in our largest business, the Vistaprint brand. This multi-year transformation began in 2011 and is intended over time to improve customer loyalty and long-term returns through improvements to pricing consistency and transparency, site experience, customer communications, product selection, product quality, merchandising, marketing messaging and customer service. Although some of these efforts continue to create revenue headwinds in certain markets we have started to realize benefits from these investments through improved customer retention rates and our increased Net Promoter Score.
All Other Business Units
Revenue for the three and nine months ended March 31, 2015 increased to $59.3 million and $205.2 million, respectively from $18.5 million and $63.7 million in the prior comparable period, primarily due to the addition of aggregate revenues of the recently acquired Printdeal, Pixartprinting and Fotoknudsen businesses of $40.9 million and $136.9 million, respectively. We also experienced continued growth in our Albumprinter brand, as well as our small, but rapidly growing business in India.
Total revenue by reportable segment for the three and nine months ended March 31, 2015 and 2014 are shown in the following table:
In thousands
Three Months Ended March 31,
 
 
 
Currency
Impact:
 
Constant-
Currency
 
Impact of Acquisitions:
 
Constant- Currency Revenue Growth
 
2015
 
2014
 
%
Change
 
(Favorable)/Unfavorable
 
Revenue Growth (1)
 
(Favorable)/Unfavorable
 
Excluding Acquisitions (1)
Vistaprint Business Unit
$
280,577

 
$
267,706

 
5%
 
6%
 
11%
 
—%
 
11%
All Other Business Units
59,324

 
18,479

 
221%
 
16%
 
237%
 
(227)%
 
10%
Total revenue
$
339,901

 
$
286,185

 
19%
 
7%
 
26%
 
(15)%
 
11%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In thousands
Nine Months Ended March 31,



Currency
Impact:

Constant-
Currency

Impact of Acquisitions:
 
Constant-Currency Revenue Growth
 
2015

2014

%
Change

(Favorable)/Unfavorable

Revenue Growth (1)

(Favorable)/Unfavorable
 
Excluding Acquisitions (1)
Vistaprint Business Unit
$
908,521


$
868,351


5%

3%

8%

—%
 
8%
All Other Business Units
205,217


63,730


222%

7%

229%

(223)%
 
6%
Total revenue
$
1,113,738


$
932,081


19%

4%

23%

(15)%
 
8%
___________________
(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period’s average exchange rate for each currency to the U.S. dollar. We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP. Constant-currency revenue growth excluding acquisitions excludes revenue results for businesses and brands acquired during the last twelve months, primarily the Printdeal, Pixartprinting and Fotoknudsen acquisitions.

27



Operating Expenses
The following table summarizes our comparative operating expenses for the period:
In thousands
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2015
 
2014
 
2015 vs. 2014
 
2015
 
2014
 
2015 vs. 2014
Cost of revenue
$
125,540

 
$
100,903

 
24%
 
$
412,381

 
$
317,482

 
30%
% of revenue
36.9
%
 
35.3
%
 
 
 
37.0
%
 
34.1
%
 
 
Technology and development expense
$
48,311

 
$
42,434

 
14%
 
$
138,841

 
$
127,555

 
9%
% of revenue
14.2
%
 
14.8
%
 
 
 
12.5
%
 
13.7
%
 
 
Marketing and selling expense
$
120,795


$
109,118

 
11%
 
$
371,680

 
$
335,679

 
11%
% of revenue
35.5
%
 
38.1
%
 
 
 
33.4
%
 
36.0
%
 
 
General and administrative expense
$
40,914

 
$
28,491

 
44%
 
$
109,748