KCLarkin Posted May 5, 2016 Author Share Posted May 5, 2016 A few interesting articles: Attached: Cimpress CEO Robert Keane Shares Thoughts on Business Growth http://whattheythink.com/articles/78437-vistaprint-upload-print-market/ (read the comments - especially Mark Thompson) Cimpress_CEO_Robert_Keane_Shares_Thoughts_on_Business_Growth_-_WhatTheyThink.pdf Link to comment Share on other sites More sharing options...
AccentricInv Posted May 5, 2016 Share Posted May 5, 2016 A few interesting articles: Attached: Cimpress CEO Robert Keane Shares Thoughts on Business Growth http://whattheythink.com/articles/78437-vistaprint-upload-print-market/ (read the comments - especially Mark Thompson) Fyi, it doesn't seem the Robert Keane interview is attached. Would you mind please reattaching, this seems really interesting. No problem if not, can always pay the $5, but being a value investor you know... :) Thanks in advance! Link to comment Share on other sites More sharing options...
AccentricInv Posted May 5, 2016 Share Posted May 5, 2016 Thanks! Link to comment Share on other sites More sharing options...
KCLarkin Posted May 9, 2016 Author Share Posted May 9, 2016 Cimpress Shareholders: Cimpress will be holding an extraordinary meeting on May 27, 2016 to approve a new equity incentive plan. I believe this plan is both flawed and excessive. I urge you to vote no with your proxies. A few of the lowlights: - 11.5 million shares authorized (37% dilution) - Mr. Keane, who already owns 10% of the company, will be given up to 1.3 million shares under this plan. These shares could be worth $1.2 billion, assuming the top multiplier is earned. This is pure greed. If Cimpress used RSUs instead of PSUs, the potential upside would only be $500 M. Does the board really believe that Keane won't be motivated to perform for a mere $500M (on top of existing holdings that would be worth nearly $3.5 B)? - This plan uses PSUs similar to the ones used at Valeant. “This is one of the more unusual and leveraged shareholder aligned compensation packages we have ever seen,” said Bill Ackman. I believe this incentive plan caused much of the aggressive risk-taking at Valeant. Valeant's board is now reviewing its compensation policies in light of recent events. - Cimpress presents this plan as "shareholder-friendly" (so did Valeant). Presumably the shareholder-friendly part is the 7% hurdle rate. This is a mirage. If Cimpress fails to meet the hurdle, they will need to act to retain talent. Valeant, for example, has "handed out retention bonuses, boosted severance and added a new equity award to remaining managers, to persuade lower-level execs not to jump ship.” This compensation plan completely failed to protect Valeant shareholders. It's shocking to see Cimpress repeat the same mistake so soon after the Valeant blowup. Please vote no. Link to comment Share on other sites More sharing options...
TREVNI Posted May 10, 2016 Share Posted May 10, 2016 KC - I agree with you on two points, and I'd ask for some help understanding some others. The two I'm in agreement with are that the plan is excessive, and that Keane should not need some large payout to motivate him. On the former, I don't like that these are PSU's which are a complete transfer of wealth, rather than an option with a strike price. Regarding the latter, Keane already owns 10% of the company, worth hundreds of millions, what will another comma accomplish? You appear to have a better grasp than I do on the economics of PSU's vs. RSU's. Could you please give us your math on the $1.2bn vs $500 million payout? When you say that his shares could be worth $1.2bn, that implies a stock price north of $900/share. That's not a terrible result for the rest of the shareholders. While there is much not to love about this plan, there is much good being done at Cimpress. The communications to shareholders and the focus on per share value are far above what I typically see. I'd like to get some more clarification on this plan from management and possibly see it scaled back a bit. I don't think it's as egregious as you do, but I could be wrong. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 11, 2016 Author Share Posted May 11, 2016 Could you please give us your math on the $1.2bn vs $500 million payout? Here's my math: - 20% CAGR - 13 years (7 years of grants but PSUs don't convert to shares for another 6 years) - $963 share price after 13 years at 20% - 525,000 Units (Keane's maximum is 75k per year for 7 years) - $505M Value (without multiplier) - 2.5x Multiplier - $1.26 B Value (after "performance multiplier) To put this another way, an investor who bought 525,000 shares, would have $505M at the end. An employee who was gifted 525,000 PSUs, would have $1.26 B. This seems unfair and excessive. And yes, shareholders would be very happy with a $963 stock, but so would employees. Why do employees deserve an extra 2.5x multiplier on top of the shareholders 10x? Why isn't the 10x return sufficiently motivating? This plan gives management a 25x return when investors get a 10x return. Another way to think about this -- assuming maximum dilution: - 11.5 Million Shares - $963 share price - $11 B in equity compensation - 7 years of grants That's $1.6B per year worth of grants! They only had $1.5B in revenue last year! Link to comment Share on other sites More sharing options...
Ham Hockers Posted May 11, 2016 Share Posted May 11, 2016 They continue to infuriate me with their charts. Look at the "Example PSU Grant Timeline." There is no useful information that can be gained from looking at that chart. Label the fucking Y-axis for Christ's sake Link to comment Share on other sites More sharing options...
TREVNI Posted May 16, 2016 Share Posted May 16, 2016 Thanks for that math. I think they've done a good job revising the plan - cutting the number of shares back and increasing Keane's threshold to 11%. While not perfect I think it's far, far above other companies' plans, and for that reason I'm changing my vote from "abstain" to "yes". I'd be curious to hear your reaction, KC. Link to comment Share on other sites More sharing options...
KCLarkin Posted May 16, 2016 Author Share Posted May 16, 2016 I think they've done a good job revising the plan - cutting the number of shares back and increasing Keane's threshold to 11%. The changes don't address my concerns. I believe the plan is deeply flawed and dangerous. I will be voting NO and urge you to reconsider. -- Valeant has a similar compensation plan. I had similar concerns with Valeant's plan which I posted in August 2015 (at the peak of VRX and before the blow-up). For me, this is the real red flag and the reason I didn't buy in size: So the way it works for Mike and Howard, the CEO and the CFO of the company, if over the period of their long-term incentive compensation grant, which are typically long-term periods, the company's share price, the total return does not equal or exceed 15%, they get no long-term incentive compensation. If it's above 15%, they get 100% of their PSUs vest. If it's above 30% compounded, they get 200%. If it's 45% compounded, they get 300%. At 60%, they get 400% of their PSU grant. So that, again, focused on IRR on a long-term basis. -- Bill Ackman I don't see how that doesn't go spectacularly wrong. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/valeant-pharmaceutilcals-international-inc-(vrx)/msg232088/#msg232088 -- Raising the hurdle rate actually makes things worse: If CMPR has steady 10.9% CAGR over the entire period, Keane's PSUs are worth $0. If CMPR has steady 11%, Keane's PSUs are worth $229M Keane now has even more incentive to "goose" the shares. As we saw with Valeant, shareholders are happy to overlook dangerous behaviour as long as the stock price climbs. Valeant's hurdle rate was 15%, by the way. -- This is a bad plan. I think it is well-intended, but ignores the Law of Unintended Consequences. And the company that pioneered this comp plan is currently in a 90% drawdown so these concerns aren't just theoretical. Before you vote yes for this plan, please read this article (and note that this was also written before the meltdown at Valeant): http://www.advisor.ca/investments/market-insights/is-bloated-exec-compensation-putting-companies-at-risk-192408 Link to comment Share on other sites More sharing options...
TREVNI Posted May 17, 2016 Share Posted May 17, 2016 I would venture that the recency of the Valeant debacle is "extra vivid" in your mind and you are drawing too close a comparison. What was Pearson's investment in Valeant in 2008 (actual question, not rhetorical)? Likely less than 10%. I'd venture that Keane has significantly diminished marginal propensity to take unneeded risk. He already is worth $200-$300 million. What's another few hundred million? The CMPR plan has nothing but PSUs. And they don't payout for 6 years. As long as the company continues to attract true shareholders, not renters of stocks, we'll be able to see what games, if any, are played. In the meantime, and taken as a whole, the management at Cimpress is worlds away from that which existed at Valeant. The facts I see point to a different conclusion than what you offer. We'll see what plays out over the next decade, and I very well could be wrong here. Question for you KC: What is your ideal plan? How do you align incentives while minimizing the risks you see in the current plan and plans at other companies? Link to comment Share on other sites More sharing options...
KCLarkin Posted May 17, 2016 Author Share Posted May 17, 2016 My biggest problem with this plan is that they are treating it like a silver bullet rather than just one part of a comprehensive plan. It makes no sense to extend TSR-based performance awards to 600-1700 employees. Cimpress justifies this by saying that it would encourage employees to turn off the lights! The share price is the output. You need to reward the input. -- Both Berkshire Hathaway and Constellation Software have great incentive plans. Managers are rewarded for things under their control rather than the share price. These company's don't use any equity plans and they have exceptional long-term performance. Berkshire Hathaway: You reward Ted and Todd for their stock-picking. You reward Ajit for his underwriting quality. You reward Matt Rose based on the railroad's operating efficiency. Constellation Software: The objective of our annual incentive bonus is to reward employees for working towards our goal of increasing shareholder value. We believe that shareholder value is created by managing two financial components over the long term: profitability and growth. As such, our corporate bonus plan, which compensates employees at all levels of our organization, is based upon return on invested capital (“ROIC”) and net revenue growth. The company performance factor for Operating Group executive officers is based upon the performance of their respective Operating Group. The President, CFO, and other head office employees’ company performance factor is based upon the performance of the Corporation as a whole. In considering the implications of the risks associated with the Corporation’s annual incentive bonus structure, the ... Committee was satisfied that the counterbalance between ROIC and net revenue growth and the requirement to invest 75% of their after tax incentive bonus into Common Shares mitigates the risk that a Named Executive Officer would take inappropriate or excessive risks in respect of the Corporation’s operations. -- Cimpress prefers their LTI scheme because they don't want "short-term" thinking. But the only way to achieve long-term performance is through short-term execution. You build the moat day-by-day. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted May 19, 2016 Share Posted May 19, 2016 My biggest problem with this plan is that they are treating it like a silver bullet rather than just one part of a comprehensive plan. It makes no sense to extend TSR-based performance awards to 600-1700 employees. Cimpress justifies this by saying that it would encourage employees to turn off the lights! The share price is the output. You need to reward the input. -- Both Berkshire Hathaway and Constellation Software have great incentive plans. Managers are rewarded for things under their control rather than the share price. These company's don't use any equity plans and they have exceptional long-term performance. Berkshire Hathaway: You reward Ted and Todd for their stock-picking. You reward Ajit for his underwriting quality. You reward Matt Rose based on the railroad's operating efficiency. Constellation Software: The objective of our annual incentive bonus is to reward employees for working towards our goal of increasing shareholder value. We believe that shareholder value is created by managing two financial components over the long term: profitability and growth. As such, our corporate bonus plan, which compensates employees at all levels of our organization, is based upon return on invested capital (“ROIC”) and net revenue growth. The company performance factor for Operating Group executive officers is based upon the performance of their respective Operating Group. The President, CFO, and other head office employees’ company performance factor is based upon the performance of the Corporation as a whole. In considering the implications of the risks associated with the Corporation’s annual incentive bonus structure, the ... Committee was satisfied that the counterbalance between ROIC and net revenue growth and the requirement to invest 75% of their after tax incentive bonus into Common Shares mitigates the risk that a Named Executive Officer would take inappropriate or excessive risks in respect of the Corporation’s operations. -- Cimpress prefers their LTI scheme because they don't want "short-term" thinking. But the only way to achieve long-term performance is through short-term execution. You build the moat day-by-day. +100 I vote against nearly all comp plans but this is awful. I definitely agree with KC, the plan makes no sense for any company. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted May 19, 2016 Share Posted May 19, 2016 is it bad enough for you to sell your shares? Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted May 19, 2016 Share Posted May 19, 2016 is it bad enough for you to sell your shares? I don't know the answer. I probably won't research CMPR in the future if it passes. I don't own CMPR but I obviously like FICO a lot despite their comp plan. I can see an argument to give them a chance. This plan in particular seems dangerous for all the reasons KC mentioned and after watching VRX play out. At least for FICO, they are competing with the biggest tech/financial companies for the brightest PhDs each year. They are somewhat forced to have a generous comp plan (so they say). I don't understand why CMPR needs this kind of incentive. I haven't validated the 600-1,500 employees metric, but if true that seems egregious. It makes you question whether you are being treated as a partner. With this plan, you could be right about the direction of the underlying business yet still get inadequate returns for the risk taken. I would think the key question is, do you have any better ideas now, assuming CMPR is worth less than before with a plan like this? Link to comment Share on other sites More sharing options...
KCLarkin Posted May 27, 2016 Author Share Posted May 27, 2016 http://open.cimpress.io This is interesting. I haven't heard them discuss "Cimpress Open" before. They've talked about the general concept but I didn't expect a beta service so quickly. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted June 7, 2016 Share Posted June 7, 2016 CMPR Q&A at Cowen & Cowen Technology Conference. CMPR-US-20160602-1844950-C.pdf Link to comment Share on other sites More sharing options...
flesh Posted June 7, 2016 Share Posted June 7, 2016 New plan approved. CimpressN_4.pdf Link to comment Share on other sites More sharing options...
KCLarkin Posted June 14, 2016 Author Share Posted June 14, 2016 If I need 100k mail pieces printed/mailed I need the following. Obviously, there is a lot packed into your question. If I have time later, I will try to make some comments. But they are targeting much smaller orders. The list pricing for flyers at Pixartprinting is for only 100-20,000 units. I suspect the sweet spot is 100-5000 units. Average Order Value for Upload & Print is $110. Update: My comment above is for Upload & Print. You seem to be referring to something else. I'm not aware of any specific plans for Cimpress to get into the business you mentioned. Link to comment Share on other sites More sharing options...
Oreo Posted September 21, 2016 Share Posted September 21, 2016 IMO, some fairly important news today in an adjacent market, where Amazon Print is going after Shutterfly. Cards are next on the menu. From where I sit, if one is long CMPR in any meaningful size, it would be a good idea to lighten up. Do flame away. Link to comment Share on other sites More sharing options...
Guest roark33 Posted September 21, 2016 Share Posted September 21, 2016 I don't own CMPR, but I am not sure I agree with you that this is natural next step for amazon. Cards are much more business-oriented, high touch, etc. Printing pictures is consumer focused, which is much more in Amazon's wheelhouse. I have never invested in CMPR because who the hell uses business cards anymore. But oh well.... Link to comment Share on other sites More sharing options...
KCLarkin Posted September 22, 2016 Author Share Posted September 22, 2016 From where I sit, if one is long CMPR in any meaningful size, it would be a good idea to lighten up. Amazon and Cimpress are currently working together on business cards. Seems like partnering is the right move for Amazon. But Amazon doesn't have a history of being loyal and faithful partners. There is certainly some risk for CMPR. This was discussed earlier in the thread. Link to comment Share on other sites More sharing options...
AccentricInv Posted October 10, 2016 Share Posted October 10, 2016 Just noticed today that they're hiring for the first US production facility in Reno. This should help with their initiative to lower shipping costs. Guess this is what they alluded to at the analyst day... Link to comment Share on other sites More sharing options...
AccentricInv Posted October 10, 2016 Share Posted October 10, 2016 Called the Reno Chamber of Commerce, and found the proposal they made to Nevada. Looking at $270M revs, $13M in capex and 50-150 new employees over the next two years. There's some interesting data points in there if anyone's interested.Cimpress_Reno_Facility_Details.pdf Link to comment Share on other sites More sharing options...
glorysk87 Posted October 10, 2016 Share Posted October 10, 2016 Really good work Accentric. Link to comment Share on other sites More sharing options...
jawn619 Posted October 10, 2016 Share Posted October 10, 2016 Really good work Accentric. +1 Link to comment Share on other sites More sharing options...
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