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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
Form 10-Q
| | | | | | | | |
(Mark One) | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | March 31, 2024 |
or |
☐ | 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 plc
(Exact Name of Registrant as Specified in Its Charter)
_________________________________
| | | | | | | | | | | |
Ireland | | 98-0417483 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
First Floor Building 3, Finnabair Business and Technology Park A91 XR61,
Dundalk, Co. Louth,
Ireland
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: 353 42 938 8500
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol(s) | | Name of Exchange on Which Registered |
Ordinary Shares, nominal value of €0.01 per share | | CMPR | | NASDAQ Global Select Market |
______________________________
Securities registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ |
| | Smaller reporting company | ☐ | | |
| | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No þ
As of April 29, 2024, there were 25,450,907 Cimpress plc ordinary shares outstanding.
CIMPRESS PLC
QUARTERLY REPORT ON FORM 10-Q
For the Three and Nine Months Ended March 31, 2024
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIMPRESS PLC
CONSOLIDATED BALANCE SHEETS
(unaudited in thousands, except share and per share data)
| | | | | | | | | | | |
| March 31, 2024 | | June 30, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 154,338 | | | $ | 130,313 | |
Marketable securities | 6,499 | | | 38,540 | |
Accounts receivable, net of allowances of $8,068 and $6,630, respectively | 71,070 | | | 67,353 | |
Inventory | 96,319 | | | 107,835 | |
Prepaid expenses and other current assets | 113,952 | | | 96,986 | |
| | | |
Total current assets | 442,178 | | | 441,027 | |
Property, plant and equipment, net | 270,040 | | | 287,574 | |
Operating lease assets, net | 70,459 | | | 76,776 | |
Software and website development costs, net | 92,701 | | | 95,315 | |
Deferred tax assets | 9,435 | | | 12,740 | |
Goodwill | 779,263 | | | 781,541 | |
Intangible assets, net | 83,235 | | | 109,196 | |
Marketable securities, non-current | — | | | 4,497 | |
Other assets | 37,002 | | | 46,193 | |
Total assets | $ | 1,784,313 | | | $ | 1,854,859 | |
Liabilities, noncontrolling interests and shareholders’ deficit | | | |
Current liabilities: | | | |
Accounts payable | $ | 269,108 | | | $ | 285,784 | |
Accrued expenses | 271,093 | | | 257,109 | |
Deferred revenue | 49,838 | | | 44,698 | |
Short-term debt | 10,935 | | | 10,713 | |
Operating lease liabilities, current | 19,315 | | | 22,559 | |
Other current liabilities | 15,631 | | | 24,469 | |
| | | |
Total current liabilities | 635,920 | | | 645,332 | |
Deferred tax liabilities | 47,221 | | | 47,351 | |
Long-term debt | 1,590,676 | | | 1,627,243 | |
| | | |
Operating lease liabilities, non-current | 54,160 | | | 56,668 | |
Other liabilities | 79,591 | | | 90,058 | |
Total liabilities | 2,407,568 | | | 2,466,652 | |
Commitments and contingencies (Note 12) | | | |
Redeemable noncontrolling interests (Note 10) | 12,140 | | | 10,893 | |
Shareholders’ deficit: | | | |
Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding | — | | | — | |
Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 43,611,795 and 44,315,855 shares issued, respectively; 25,640,548 and 26,344,608 shares outstanding, respectively | 610 | | | 615 | |
| | | |
Treasury shares, at cost, 17,971,247 shares for both periods presented | (1,363,550) | | | (1,363,550) | |
Additional paid-in capital | 561,930 | | | 539,454 | |
Retained earnings | 206,295 | | | 235,396 | |
Accumulated other comprehensive loss | (41,303) | | | (35,060) | |
| | | |
| | | |
Total shareholders’ deficit attributable to Cimpress plc | (636,018) | | | (623,145) | |
Noncontrolling interests (Note 10) | 623 | | | 459 | |
Total shareholders' deficit | (635,395) | | | (622,686) | |
Total liabilities, noncontrolling interests and shareholders’ deficit | $ | 1,784,313 | | | $ | 1,854,859 | |
| | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Revenue | $ | 780,588 | | | $ | 742,164 | | | $ | 2,459,245 | | | $ | 2,290,781 | | | |
Cost of revenue (1) | 404,668 | | | 394,908 | | | 1,266,874 | | | 1,228,036 | | | |
Technology and development expense (1) | 83,790 | | | 78,287 | | | 238,081 | | | 230,485 | | | |
Marketing and selling expense (1) | 191,591 | | | 187,234 | | | 595,622 | | | 593,312 | | | |
General and administrative expense (1) | 54,254 | | | 52,578 | | | 151,388 | | | 156,441 | | | |
Amortization of acquired intangible assets | 6,919 | | | 11,239 | | | 25,986 | | | 35,951 | | | |
Restructuring expense (1) | 128 | | | 30,115 | | | 277 | | | 43,142 | | | |
| | | | | | | | | |
| | | | | | | | | |
Income (loss) from operations | 39,238 | | | (12,197) | | | 181,017 | | | 3,414 | | | |
Other (expense) income, net | (3,651) | | | 1,377 | | | 2,377 | | | 11,382 | | | |
Interest expense, net | (30,158) | | | (30,515) | | | (89,946) | | | (83,918) | | | |
Gain on early extinguishment of debt | — | | | — | | | 1,721 | | | — | | | |
Income (loss) before income taxes | 5,429 | | | (41,335) | | | 95,169 | | | (69,122) | | | |
Income tax expense | 10,610 | | | 8,475 | | | 35,527 | | | 143,969 | | | |
Net (loss) income | (5,181) | | | (49,810) | | | 59,642 | | | (213,091) | | | |
Add: Net loss (income) attributable to noncontrolling interests | 1,203 | | | 484 | | | (961) | | | (1,676) | | | |
Net (loss) income attributable to Cimpress plc | $ | (3,978) | | | $ | (49,326) | | | $ | 58,681 | | | $ | (214,767) | | | |
Basic net (loss) income per share attributable to Cimpress plc | $ | (0.15) | | | $ | (1.88) | | | $ | 2.22 | | | $ | (8.19) | | | |
Diluted net (loss) income per share attributable to Cimpress plc | $ | (0.15) | | | $ | (1.88) | | | $ | 2.16 | | | $ | (8.19) | | | |
Weighted average shares outstanding — basic | 26,216,216 | | | 26,268,301 | | | 26,432,423 | | | 26,226,989 | | | |
Weighted average shares outstanding — diluted | 26,216,216 | | | 26,268,301 | | | 27,143,619 | | | 26,226,989 | | | |
____________________________________________
(1) Share-based compensation expense is allocated as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Cost of revenue | $ | 245 | | | $ | 42 | | | $ | 641 | | | $ | 411 | | | |
Technology and development expense | 5,692 | | | 2,500 | | | 15,601 | | | 9,808 | | | |
Marketing and selling expense | 3,318 | | | (323) | | | 8,625 | | | 3,888 | | | |
General and administrative expense | 9,142 | | | 5,023 | | | 23,632 | | | 15,157 | | | |
Restructuring expense | — | | | 1,492 | | | — | | | 2,141 | | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Net (loss) income | $ | (5,181) | | | $ | (49,810) | | | $ | 59,642 | | | $ | (213,091) | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation gains (losses), net of hedges | 1,394 | | | (1,526) | | | (4,446) | | | 1,412 | | | |
Net unrealized gains (losses) on derivative instruments designated and qualifying as cash flow hedges | 7,051 | | | (4,667) | | | 4,459 | | | 6,444 | | | |
Amounts reclassified from accumulated other comprehensive loss to net (loss) income for derivative instruments | (2,772) | | | (969) | | | (6,265) | | | (771) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Comprehensive income (loss) | 492 | | | (56,972) | | | 53,390 | | | (206,006) | | | |
Add: Comprehensive loss (income) attributable to noncontrolling interests | 1,450 | | | 414 | | | (952) | | | 3,076 | | | |
Total comprehensive income (loss) attributable to Cimpress plc | $ | 1,942 | | | $ | (56,558) | | | $ | 52,438 | | | $ | (202,930) | | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(unaudited in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | | | Treasury Shares | | | | | | | | |
| Number of Shares Issued | | Amount | | | | | | Number of Shares Issued | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
Balance at June 30, 2022 | 44,084 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 501,003 | | | $ | 414,138 | | | $ | (47,128) | | | $ | (494,922) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Restricted share units vested, net of shares withheld for taxes | 112 | | | — | | | | | | | — | | | — | | | (2,212) | | | — | | | — | | | (2,212) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 10,653 | | | — | | | — | | | 10,653 | |
Net loss attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | (25,441) | | | — | | | (25,441) | |
Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | | | | | — | | | — | | | — | | | (2,725) | | | — | | | (2,725) | |
| | | | | | | | | | | | | | | | | | | |
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | 13,822 | | | 13,822 | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (6,835) | | | (6,835) | |
| | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2022 | 44,196 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 509,444 | | | $ | 385,972 | | | $ | (40,141) | | | $ | (507,660) | |
Restricted share units vested, net of shares withheld for taxes | 15 | | | — | | | | | | | — | | | — | | | (158) | | | — | | | — | | | (158) | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 12,245 | | | — | | | — | | | 12,245 | |
Net loss attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | (140,000) | | | — | | | (140,000) | |
Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | | | | | — | | | — | | | — | | | 10,180 | | | — | | | 10,180 | |
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (2,513) | | | (2,513) | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | 14,595 | | | 14,595 | |
Balance at December 31, 2022 | 44,211 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 521,531 | | | $ | 256,152 | | | $ | (28,059) | | | $ | (613,311) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Restricted share units vested, net of shares withheld for taxes | 74 | | | — | | | | | | | — | | | — | | | (1,439) | | | — | | | — | | | (1,439) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 8,891 | | | — | | | — | | | 8,891 | |
Net loss attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | (49,326) | | | — | | | (49,326) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (5,636) | | | (5,636) | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (1,596) | | | (1,596) | |
| | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2023 | 44,285 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 528,983 | | | $ | 206,826 | | | $ | (35,291) | | | $ | (662,417) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED)
(unaudited in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | | | Treasury Shares | | | | | | | | |
| Number of Shares Issued | | Amount | | | | | | Number of Shares Issued | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
Balance at June 30, 2023 | 44,316 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 539,454 | | | $ | 235,396 | | | $ | (35,060) | | | $ | (623,145) | |
Issuance of ordinary shares due to share option exercises, net of shares withheld for taxes | 2 | | | — | | | | | | | — | | | — | | | 82 | | | — | | | — | | | 82 | |
| | | | | | | | | | | | | | | | | | | |
Restricted share units vested, net of shares withheld for taxes | 236 | | | — | | | | | | | — | | | — | | | (8,403) | | | — | | | — | | | (8,403) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 12,621 | | | — | | | — | | | 12,621 | |
Net income attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | 4,554 | | | — | | | 4,554 | |
Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | | | | | — | | | — | | | — | | | (330) | | | — | | | (330) | |
| | | | | | | | | | | | | | | | | | | |
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | 4,131 | | | 4,131 | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (3,693) | | | (3,693) | |
| | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2023 | 44,554 | | | $ | 615 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 543,754 | | | $ | 239,620 | | | $ | (34,622) | | | $ | (614,183) | |
Issuance of ordinary shares due to share option exercises, net of shares withheld for taxes | — | | | — | | | | | | | — | | | — | | | 6 | | | — | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | | | |
Restricted share units vested, net of shares withheld for taxes | 50 | | | 6 | | | | | | | — | | | — | | | (1,792) | | | — | | | — | | | (1,786) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 18,051 | | | — | | | — | | | 18,051 | |
Net income attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | 58,105 | | | — | | | 58,105 | |
Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | | | | | — | | | — | | | — | | | (135) | | | — | | | (135) | |
| | | | | | | | | | | | | | | | | | | |
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (10,216) | | | (10,216) | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | (2,385) | | | (2,385) | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2023 | 44,604 | | | $ | 621 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 560,019 | | | $ | 297,590 | | | $ | (47,223) | | | $ | (552,543) | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED)
(unaudited in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ordinary Shares | | | | Treasury Shares | | | | | | | | |
| Number of Shares Issued | | Amount | | | | | | Number of Shares Issued | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
Balance at December 31, 2023 | 44,604 | | | $ | 621 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 560,019 | | | $ | 297,590 | | | $ | (47,223) | | | $ | (552,543) | |
Issuance of ordinary shares due to share option exercises, net of shares withheld for taxes | 15 | | | — | | | | | | | — | | | — | | | 687 | | | — | | | — | | | 687 | |
Purchase and retirement of ordinary shares | (1,086) | | | (12) | | | | | | | — | | | — | | | (13,659) | | | (87,058) | | | — | | | (100,729) | |
Restricted share units vested, net of shares withheld for taxes | 79 | | | 1 | | | | | | | — | | | — | | | (3,882) | | | — | | | — | | | (3,881) | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | — | | | — | | | | | | | — | | | — | | | 18,765 | | | — | | | — | | | 18,765 | |
Net loss attributable to Cimpress plc | — | | | — | | | | | | | — | | | — | | | — | | | (3,978) | | | — | | | (3,978) | |
Redeemable noncontrolling interest accretion to redemption value | — | | | — | | | | | | | — | | | — | | | — | | | (259) | | | — | | | (259) | |
| | | | | | | | | | | | | | | | | | | |
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | 4,279 | | | 4,279 | |
Foreign currency translation, net of hedges | — | | | — | | | | | | | — | | | — | | | — | | | — | | | 1,641 | | | 1,641 | |
| | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2024 | 43,612 | | | $ | 610 | | | | | | | (17,971) | | | $ | (1,363,550) | | | $ | 561,930 | | | $ | 206,295 | | | $ | (41,303) | | | $ | (636,018) | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Operating activities | | | | | | | | | |
Net income (loss) | $ | 59,642 | | | $ | (213,091) | | | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | |
Depreciation and amortization | 116,103 | | | 121,567 | | | | | | | |
Share-based compensation expense | 48,499 | | | 31,405 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Deferred taxes | 1,070 | | | 115,984 | | | | | | | |
| | | | | | | | | |
Gain on early extinguishment of debt | (1,721) | | | — | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Unrealized (gain) loss on derivatives not designated as hedging instruments included in net income (loss) | (4,552) | | | 32,512 | | | | | | | |
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency | 378 | | | (6,972) | | | | | | | |
| | | | | | | | | |
Other non-cash items | 543 | | | 15,200 | | | | | | | |
| | | | | | | | | |
Changes in operating assets and liabilities, net of effects of businesses acquired: | | | | | | | | | |
Accounts receivable | (6,429) | | | (4,840) | | | | | | | |
Inventory | 7,006 | | | (2,595) | | | | | | | |
Prepaid expenses and other assets | 4,960 | | | (5,071) | | | | | | | |
Accounts payable | (11,464) | | | (44,994) | | | | | | | |
Accrued expenses and other liabilities | 11,592 | | | 29,369 | | | | | | | |
Net cash provided by operating activities | 225,627 | | | 68,474 | | | | | | | |
Investing activities | | | | | | | | | |
Purchases of property, plant and equipment | (44,425) | | | (37,486) | | | | | | | |
Proceeds from the sale of subsidiaries, net of transaction costs and cash divested | — | | | (4,130) | | | | | | | |
Business acquisitions, net of cash acquired | — | | | (498) | | | | | | | |
| | | | | | | | | |
Capitalization of software and website development costs | (43,379) | | | (44,181) | | | | | | | |
Proceeds from the sale of assets | 6,419 | | | 1,864 | | | | | | | |
| | | | | | | | | |
Purchases of marketable securities | — | | | (84,030) | | | | | | | |
Proceeds from maturity of held-to-maturity investments | 36,676 | | | 60,110 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Net cash used in investing activities | (44,709) | | | (108,351) | | | | | | | |
Financing activities | | | | | | | | | |
Proceeds from borrowings of debt | 886 | | | 48,264 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Payments of debt | (11,783) | | | (57,947) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Payments for purchase of 7% Senior Notes due 2026 | (24,471) | | | — | | | | | | | |
| | | | | | | | | |
Payments of debt issuance costs | — | | | (51) | | | | | | | |
Payments of purchase consideration included in acquisition-date fair value | — | | | (7,100) | | | | | | | |
Payments of withholding taxes in connection with equity awards | (14,069) | | | (3,809) | | | | | | | |
Payments of finance lease obligations | (7,501) | | | (6,017) | | | | | | | |
Purchase of noncontrolling interests | (65) | | | (95,567) | | | | | | | |
| | | | | | | | | |
Purchase of ordinary shares | (100,729) | | | — | | | | | | | |
Proceeds from issuance of ordinary shares | 775 | | | — | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Distributions to noncontrolling interests | (549) | | | (3,652) | | | | | | | |
Other financing activities | — | | | 113 | | | | | | | |
Net cash used in financing activities | (157,506) | | | (125,766) | | | | | | | |
Effect of exchange rate changes on cash | 613 | | | 3,580 | | | | | | | |
| | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | 24,025 | | | (162,063) | | | | | | | |
Cash and cash equivalents at beginning of period | 130,313 | | | 277,053 | | | | | | | |
Cash and cash equivalents at end of period | $ | 154,338 | | | $ | 114,990 | | | | | | | |
See accompanying notes.
CIMPRESS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited in thousands)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Supplemental disclosures of cash flow information | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | |
Interest | $ | 90,556 | | | $ | 70,796 | | | | | | | |
Income taxes | 39,307 | | | 23,494 | | | | | | | |
Cash received during the period for: | | | | | | | | | |
Interest | 11,208 | | | 8,008 | | | | | | | |
Non-cash investing and financing activities | | | | | | | | | |
Property and equipment acquired under finance leases | 4,440 | | | 14,405 | | | | | | | |
Amounts accrued related to property, plant and equipment | 7,699 | | | 9,045 | | | | | | | |
Amounts accrued related to capitalized software development costs | 240 | | | 116 | | | | | | | |
| | | | | | | | | |
See accompanying notes.
CIMPRESS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited in thousands, except share and per share data)
1. Description of the Business
Cimpress is a strategically focused collection of businesses that specialize in print mass customization, through which we deliver large volumes of individually small-sized customized orders of printed materials and related products. Our products and services include a broad range of marketing materials, business cards, signage, promotional products, logo apparel, packaging, books and magazines, wall decor, photo merchandise, invitations and announcements, design and digital marketing services, and other categories. Mass customization is a core element of the business model of each Cimpress business and is a competitive strategy which seeks to produce goods and services to meet individual customer needs with near mass production efficiency.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Cimpress plc, 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 cannot exercise significant influence, and for which the related equity securities do not have a readily determinable fair value, are included in other assets on the consolidated balance sheets; otherwise the investments are recognized by applying equity method accounting. Our equity method investments are included in other assets on the consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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, share-based compensation, 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.
Marketable Securities
We hold certain investments that are classified as held-to-maturity as we have the intent and ability to hold them to their maturity dates. Our policy is to invest in the following permitted classes of assets: overnight money market funds invested in U.S. Treasury securities and U.S. government agency securities, U.S. Treasury securities, U.S. government agency securities, bank time deposits, commercial paper, corporate notes and bonds, and medium-term notes. We invest in securities with a remaining maturity of two years or less. As the investments are classified as held-to-maturity, they are recorded at amortized cost and interest income is recorded as it is earned within interest expense, net.
We will continue to assess our securities for impairment when the fair value is less than amortized cost to determine if any risk of credit loss exists. As our intent is to hold the securities to maturity, we must assess whether any credit losses related to our investments are recoverable and determine if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We did not record an allowance for credit losses and we recognized no impairments for these marketable securities during the three and nine months ended March 31, 2024 and 2023.
The following is a summary of the net carrying amount, unrealized losses, and fair value of held-to-maturity securities by type and contractual maturity as of March 31, 2024 and June 30, 2023.
| | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Amortized cost | | | | Unrealized losses | | Fair value |
Due within one year: | | | | | | | |
| | | | | | | |
Corporate debt securities | $ | 2,500 | | | | | $ | (11) | | | $ | 2,489 | |
U.S. government securities | 3,999 | | | | | (18) | | | 3,981 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total held-to-maturity securities | $ | 6,499 | | | | | $ | (29) | | | $ | 6,470 | |
| | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| Amortized cost | | | | Unrealized losses | | Fair value |
Due within one year: | | | | | | | |
Commercial paper | $ | 15,982 | | | | | $ | (10) | | | $ | 15,972 | |
Corporate debt securities | 16,298 | | | | | (190) | | | 16,108 | |
U.S. government securities | 6,260 | | | | | (69) | | | 6,191 | |
Total due within one year | 38,540 | | | | | (269) | | | 38,271 | |
Due between one and two years: | | | | | | | |
Corporate debt securities | 1,498 | | | | | (35) | | | 1,463 | |
U.S. government securities | 2,999 | | | | | (66) | | | 2,933 | |
Total due between one and two years | 4,497 | | | | | (101) | | | 4,396 | |
Total held-to-maturity securities | $ | 43,037 | | | | | $ | (370) | | | $ | 42,667 | |
Ordinary Shares
During the three months ended March 31, 2024, we repurchased 1,085,574 of our ordinary shares on the open market and through privately negotiated transactions for $100,729. The repurchased shares were immediately retired after repurchase and therefore have been classified as authorized and unissued shares as of March 31, 2024. The retirement of ordinary shares resulted in a reduction to the nominal value of our ordinary shares outstanding and additional paid in capital in proportion to the amount of total shares outstanding, with the remaining repurchase value recognized as a reduction to retained earnings.
Other (Expense) Income, Net
The following table summarizes the components of other (expense) income, net:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Gains (losses) on derivatives not designated as hedging instruments (1) | $ | 9,071 | | | $ | (2,428) | | | $ | 3,715 | | | $ | 2,021 | | | |
Currency-related (losses) gains, net (2) | (12,434) | | | 4,187 | | | (2,071) | | | 10,217 | | | |
Other (losses) gains | (288) | | | (382) | | | 733 | | | (856) | | | |
Total other (expense) income, net | $ | (3,651) | | | $ | 1,377 | | | $ | 2,377 | | | $ | 11,382 | | | |
_____________________
(1) Includes realized and unrealized gains and losses on derivative currency forward and option contracts not designated as hedging instruments. For contracts not designated as hedging instruments, we realized losses of $349 and $838 for the three and nine months ended March 31, 2024, respectively, and realized gains of $4,876 and $35,864 for the three and nine months ended March 31, 2023, respectively. Refer to Note 4 for additional details relating to our derivative contracts.
(2) Currency-related (losses) gains, net primarily relates to significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. In addition, we have a cross-currency swap designated as a cash flow hedge which hedges the remeasurement of an intercompany loan. Refer to Note 4 for additional details relating to this cash flow hedge.
Net (Loss) Income Per Share Attributable to Cimpress plc
Basic net (loss) income per share attributable to Cimpress plc is computed by dividing net (loss) income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), warrants, and performance share units ("PSUs"), 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, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Weighted average shares outstanding, basic | 26,216,216 | | | 26,268,301 | | | 26,432,423 | | | 26,226,989 | | | |
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants (1)(2) | — | | | — | | | 711,196 | | | — | | | |
Shares used in computing diluted net (loss) income per share attributable to Cimpress plc | 26,216,216 | | | 26,268,301 | | | 27,143,619 | | | 26,226,989 | | | |
Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress plc (1) | 955,594 | | | 3,161,275 | | | 127,229 | | | 3,045,675 | | | |
___________________(1) In the periods in which a net loss is recognized, the impact of share options, RSUs and warrants is excluded from shares used in computed diluted net (loss) income per share as it is anti-dilutive. Any equity awards that have a performance condition are not included in dilutive or anti-dilutive shares until the performance condition is met.
(2) On May 1, 2020, we entered into a financing arrangement which included 7-year warrants to purchase 1,055,377 of our ordinary shares with a strike price of $60 that have a potentially dilutive impact on our weighted average shares outstanding. For the three and nine months ended March 31, 2024, the average market price of our ordinary shares was higher than the strike price of the warrants. The weighted average anti-dilutive effect of the warrants was 309,000 for the three months ended March 31, 2024 (anti-dilutive due to our net loss position), and the weighted average dilutive effect of the warrants was 184,608 for the nine months ended March 31, 2024. For the three and nine months ended March 31, 2023, the average market price of our ordinary shares was lower than the strike price of the warrants; therefore, the total 1,055,377 outstanding warrants were considered anti-dilutive.
Share-based Compensation
Total share-based compensation costs were $18,397 and $48,499 for the three and nine months ended March 31, 2024, respectively, as compared to $8,734 and $31,405 for the three and nine months ended March 31, 2023.
During the current fiscal year, we issued PSUs (the "2024 PSUs") as part of our long-term incentive program. The 2024 PSUs include both a service and performance condition, and the related expense is recognized using an accelerated expense attribution over the requisite service period for each separately vesting portion of the award. The performance condition for these awards is based on one-year financial targets for fiscal year 2024 revenue, adjusted EBITDA, and unlevered free cash flow. Actual shares issued for each grant will range from 0% to 160% of the number of 2024 PSUs granted based on the attainment of the performance condition. Share-based compensation expense for these awards is recognized on an accelerated basis using the grant date fair value and our estimated attainment percentage of the related performance condition. Until the performance condition is measured during the first fiscal quarter following the end of fiscal year 2024, changes in the estimated attainment percentages may cause expense volatility since a cumulative expense adjustment will be recognized in the period a change occurs.
Assets Held for Sale
During the first quarter of fiscal year 2024, we began marketing our customer service facility located in Montego Bay, Jamaica for sale as part of the ongoing efforts to optimize our real estate footprint with many of our team members in Jamaica operating under a remote-first model. We continue to classify the facility as held for sale, which has a carrying value of $16,595 recognized within prepaid expenses and other current assets in the consolidated balance sheet as of March 31, 2024. We have not recognized any losses on the planned sale of these
assets. The sale of this facility has subsequently closed during April 2024, resulting in net cash proceeds of $16,785 and an immaterial gain on the sale.
Recently Issued or Adopted Accounting Pronouncements
Adopted Accounting Standards
Supply Chain Finance Programs
In September 2022, the FASB issued Accounting Standards Update No. 2022-04 "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations" (ASU 2022-04), which provides authoritative guidance about expanded disclosure requirements for supply chain finance programs. The new standard requires disclosure of the key terms of outstanding supply chain finance programs and a rollforward of the related amounts due to suppliers participating in these programs. The adoption of the new disclosure requirements was effective during the first quarter of fiscal year 2024, except for a rollforward of activity within supply chain finance programs, which is effective as part of our annual disclosures for fiscal year 2025. The adoption of the new standard did not have an impact on our consolidated financial statements.
We facilitate a voluntary supply chain finance program through a financial intermediary, which provides certain suppliers the option to be paid by the financial intermediary earlier than the due date of the applicable invoice. The decision to sell receivables due from us is at the sole discretion of both the suppliers and the financial institution. Our responsibility is limited to making payment on the terms originally negotiated with each supplier, regardless of whether a supplier participates in the program. We are not a party to the agreements between the participating financial institution and the suppliers in connection with the program, we do not receive financial incentives from the suppliers or the financial institution, nor do we reimburse suppliers for any costs they incur for participating in the program. There are no assets pledged as security or other forms of guarantees provided for the committed payment to the financial institution.
All unpaid obligations to our supply chain finance provider are included in accounts payable in the consolidated balance sheets, and payments we make under the program are reflected as a reduction to net cash provided by operating activities in the consolidated statements of cash flows. The outstanding obligations with our supply chain finance provider that are included in accounts payable in our consolidated balance sheets as of March 31, 2024 and June 30, 2023 were $52,555 and $44,522, respectively.
Accounting Standards to be Adopted
In December 2023, the FASB issued Accounting Standards Update No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" (ASU 2023-09), which provides authoritative guidance about expanded annual disclosure requirements for the income tax rate reconciliation and income taxes paid by jurisdiction. The expanded disclosure requirements will be effective starting with our annual report for the fiscal year ending June 30, 2026. Early adoption is permitted, but we do not intend to early adopt this standard.
In November 2023, the FASB issued Accounting Standards Update No. 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" (ASU 2023-07), which requires enhanced disclosures about significant segment expenses and introduces a reconciliation between segment revenue and segment profitability metrics. The expanded disclosure requirements will be effective starting with our annual report for the fiscal year ending June 30, 2025, as well as each interim period thereafter. Early adoption is permitted, but we do not intend to early adopt this standard.
3. Fair Value Measurements
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. 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, 2024 |
| Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
Interest rate swap contracts | $ | 18,645 | | | $ | — | | | $ | 18,645 | | | $ | — | |
| | | | | | | |
Currency forward contracts | 4,120 | | | — | | | 4,120 | | | — | |
Currency option contracts | 45 | | | — | | | 45 | | | — | |
Total assets recorded at fair value | $ | 22,810 | | | $ | — | | | $ | 22,810 | | | $ | — | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
Cross-currency swap contracts | $ | (918) | | | $ | — | | | $ | (918) | | | $ | — | |
Currency forward contracts | (497) | | | — | | | (497) | | | — | |
Currency option contracts | (3,365) | | | — | | | (3,365) | | | — | |
Total liabilities recorded at fair value | $ | (4,780) | | | $ | — | | | $ | (4,780) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
Interest rate swap contracts | $ | 19,218 | | | $ | — | | | $ | 19,218 | | | $ | — | |
| | | | | | | |
Currency forward contracts | 2,301 | | | — | | | 2,301 | | | — | |
Currency option contracts | 990 | | | — | | | 990 | | | — | |
Total assets recorded at fair value | $ | 22,509 | | | $ | — | | | $ | 22,509 | | | $ | — | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
Cross-currency swap contracts | $ | (1,777) | | | $ | — | | | $ | (1,777) | | | $ | — | |
Currency forward contracts | (4,485) | | | — | | | (4,485) | | | — | |
Currency option contracts | (3,055) | | | — | | | (3,055) | | | — | |
Total liabilities recorded at fair value | $ | (9,317) | | | $ | — | | | $ | (9,317) | | | $ | — | |
During the nine months ended March 31, 2024 and year ended June 30, 2023, 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 risks 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 counterparties' 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, 2024, 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.
As of March 31, 2024 and June 30, 2023, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximated their estimated fair values. As of March 31, 2024 and June 30, 2023, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $1,615,037 and $1,653,989, respectively, and the fair value was $1,621,136 and $1,604,190, respectively. Our debt at March 31, 2024 includes variable-rate debt instruments indexed to Term SOFR and Euribor that reset periodically, as well as fixed-rate debt instruments. 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.
As of March 31, 2024 and June 30, 2023, our held-to-maturity marketable securities were held at an amortized cost of $6,499 and $43,037, respectively, while the fair value was $6,470 and $42,667, respectively. The securities were valued using quoted prices for identical assets in active markets, which fall into Level 1 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
We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If a derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. We have designated one intercompany loan as a net investment hedge, and any unrealized currency gains and losses on the loan are recorded in accumulated other comprehensive loss. Additionally, any ineffectiveness associated with an effective and designated hedge is recognized within accumulated other comprehensive loss.
The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other (expense) income, net.
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. 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 contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net. Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt.
As of March 31, 2024, we estimate that $4,671 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending March 31, 2025. As of March 31, 2024, we had eleven effective outstanding interest rate swap contracts that were indexed to Term or Daily SOFR.
Our interest rate swap contracts have varying start and maturity dates through April 2028.
| | | | | | | | |
Interest rate swap contracts outstanding: | | Notional Amounts |
Contracts accruing interest as of March 31, 2024 (1) | | $ | 245,000 | |
Contracts with a future start date | | 430,000 | |
Total | | $ | 675,000 | |
________________________
(1) Based on contracts outstanding as of March 31, 2024, the notional value of our contracted interest rate swaps accruing interest will fluctuate between $215,000 and $380,000 through April 2028 based on layered start dates and maturities.
Hedges of Currency Risk
Cross-Currency Swap Contracts
We execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedged currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. As of March 31, 2024, we had one outstanding cross-currency swap contract designated as a cash flow hedge with a total notional amount of $58,478, maturing during June 2024. We entered into the cross-currency swap contract to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income, net as interest payments are accrued or paid, and upon remeasuring the intercompany loan. As of March 31, 2024, we estimate that $399 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending March 31, 2025.
Other Currency Hedges
We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar. These contracts or intercompany loans may be designated as hedges to mitigate the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.
As of March 31, 2024, we have one intercompany loan designated as a net investment hedge with a total notional amount of $315,002 that matures in May 2028.
We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and nine months ended March 31, 2024 and 2023, we experienced volatility within other (expense) income, net, in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
In most cases, we enter into these currency derivative contracts, for which we do not apply hedge accounting, in order to address the risk for certain currencies where we have a net exposure to adjusted EBITDA, a non-GAAP financial metric. Adjusted EBITDA exposures are our focus for the majority of our mark-to-market currency forward and option contracts because a similar metric is referenced within the debt covenants of our amended and restated senior secured credit agreement (refer to Note 8 for additional information about this agreement). Our most significant net currency exposures by volume are the Euro and the British Pound (GBP). Our
adjusted EBITDA hedging approach results in addressing nearly all of our forecasted Euro and GBP net exposures for the upcoming twelve months, with a declining hedged percentage out to twenty-four months. For certain other currencies with a smaller net impact, we hedge nearly all of our forecasted net exposures for the upcoming six months, with a declining hedge percentage out to fifteen months.
As of March 31, 2024, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were primarily used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, Canadian Dollar, Czech Koruna, Danish Krone, Euro, GBP, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso, Swiss Franc and Swedish Krona:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional Amount | | Effective Date | | Maturity Date | | Number of Instruments | | Index |
$671,510 | | June 2022 through March 2024 | | Various dates through March 2026 | | 642 | | Various |
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, 2024 and June 30, 2023. Our derivative asset and liability balances fluctuate with interest rate and currency exchange rate volatility.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 |
| Asset Derivatives | | Liability Derivatives |
| 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 |
| | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | |
Interest rate swaps | Other current assets / other assets | | $ | 18,645 | | | $ | — | | | $ | 18,645 | | | Other current liabilities / other liabilities | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | Other current assets | | — | | | — | | | — | | | Other current liabilities | | (918) | | | — | | | (918) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | $ | 18,645 | | | $ | — | | | $ | 18,645 | | | | | $ | (918) | | | $ | — | | | $ | (918) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other current assets / other assets | | $ | 5,262 | | | $ | (1,142) | | | $ | 4,120 | | | Other current liabilities / other liabilities | | $ | (806) | | | $ | 309 | | | $ | (497) | |
Currency option contracts | Other current assets / other assets | | 102 | | | (57) | | | 45 | | | Other current liabilities / other liabilities | | (3,431) | | | 66 | | | (3,365) | |
Total derivatives not designated as hedging instruments | | | $ | 5,364 | | | $ | (1,199) | | | $ | 4,165 | | | | | $ | (4,237) | | | $ | 375 | | | $ | (3,862) | |
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| June 30, 2023 |
| Asset Derivatives | | Liability Derivatives |
| 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 |
| | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | | | | | | |
Interest rate swaps | Other current assets / other assets | | $ | 19,341 | | | $ | (123) | | | $ | 19,218 | | | Other current liabilities / other liabilities | | $ | — | | | $ | — | | | $ | — | |
Cross-currency swaps | Other current assets | | — | | | — | | | — | | | Other current liabilities | | (1,777) | | | — | | | (1,777) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments | | | $ | 19,341 | | | $ | (123) | | | $ | 19,218 | | | | | $ | (1,777) | | | $ | — | | | $ | (1,777) | |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Currency forward contracts | Other current assets / other assets | | $ | 2,873 | | | $ | (572) | | | $ | 2,301 | | | Other current liabilities / other liabilities | | $ | (6,074) | | | $ | 1,589 | | | $ | (4,485) | |
Currency option contracts | Other current assets / other assets | | 990 | | | — | | | 990 | | | Other current liabilities / other liabilities | | (3,055) | | | — | | | (3,055) | |
Total derivatives not designated as hedging instruments | | | $ | 3,863 | | | $ | (572) | | | $ | 3,291 | | | | | $ | (9,129) | | | $ | 1,589 | | | $ | (7,540) | |
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The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive loss, net of tax, for the three and nine months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Derivatives in cash flow hedging relationships | | | | | | | | | |
Interest rate swaps | $ | 5,623 | | | $ | (4,007) | | | $ | 3,673 | | | $ | 7,681 | | | |
Cross-currency swaps | 1,428 | | | (660) | | | 786 | | | (1,237) | | | |
Derivatives in net investment hedging relationships | | | | | | | | | |
| | | | | | | | | |
Intercompany loan | 4,985 | | | (3,418) | | | 1,441 | | | (9,102) | | | |
Currency forward contracts | — | | | — | | | (1,080) | | | — | | | |
Total | |