CMPR - Cimpress

[KCLarkin]

Older interviews with Keane:

http://www.beyond-print.de/en/2014/11/17/interview-robert-keane-ceo-vistaprint-online-print-giant-now-called-cimpress-mass-customization/

http://www.printweek.com/print-week/briefing/1150706/cimpress-seeks-advantages-of-scale

 

These provide some details on the Cimpress strategy, especially Upload-and-Print.

[KCLarkin]

FYI for those who are interested in Cimpress but waiting for a better price. The stock is down ~14% today on Q1 2017 earnings.

 

There is plenty of noise in the earnings, but nothing that indicates any permanent hit to IV. This type of move is fairly routine for Cimpress (given the high short interest). Personally, I'm waiting and hoping that it drops a bit more.

 

--

Update: Someone on twitter thinks that I said the high short interest "caused" the drop. That's not quite accurate. Rather, very large moves (both up and down) are common with this stock. Partly because of the float (and short) dynamics. But also because the company doesn't give guidance and seems to enjoy surprising the market.

 

[flesh]

Agree, good price here. Had an order fill at 81 this morning, fortunately.

 

It's frustrating but refreshing to see a company focus on the long term.

[Txvestor]

At the risk of sticking my neck out, i doubt it goes too much lower, the reason is they had bought back over 2.1M shares this year at an average price of $71, but hadn't bought any last quarter. At current and lower levels its likely they may resume purchases. The CEO is on record as having vowed to make disciplined capital allocation lessons in his letter to shareholders about 4mths ago.

I think low 80s is a buying opportunity for the long term oriented investor.

[flesh]

Was just thinking, is it, 40% current revenues is business cards?

 

If trump lowers taxes, reduces regulations on business/banks, capital and $ incentives will come back to small/micro businesses that still use business cards.

 

Could be meaningful, I'm not sure what % of business cards are in us vs row, perhaps the dollar strengthening could offset this tailwind.

 

 

[KCLarkin]

During October and November 2016, Cimpress purchased 593,763 of its own shares for $50 million inclusive of transaction costs, an average price per share of $84.22

 

http://ir.cimpress.com/mobile.view?c=188894&v=203&d=1&id=2228920

 

[Txvestor]

During October and November 2016, Cimpress purchased 593,763 of its own shares for $50 million inclusive of transaction costs, an average price per share of $84.22

 

http://ir.cimpress.com/mobile.view?c=188894&v=203&d=1&id=2228920

 

Sounds like they are brewing up a big beat quarter coming up, and went heavy on the stock pullback.

And there was mention on the last Q results that some of the revenue loss would be recaptured next quarter. Put that together with the undeniable uptick in small business confidence since the elections and the usually robust(for them) holiday season and I expect a good quarter.

Can't say I see the synergy in the national pen acquisition however. Their comment about the anticipated 15% IRR seemed a bit defensive, as Keane took a lot of criticism for prior capital allocation(mainy acquisitions vs share buybacks). Hopefully he has learnt his lesson and not repeating.

Management does have a strong incentive plan in to create value, so lets hope they are not piling on risk here. Their leverage sure has gone up.

 

[KCLarkin]

Synergies discussed in more detail here:

http://www.beyond-print.de/en/2016/12/12/cimpress-big-deal-marketing-mass-customization-segment/

 

They said they will de-lever quickly. I assume this means they expect EBITDA to bounce back.

[flesh]

Synergies discussed in more detail here:

http://www.beyond-print.de/en/2016/12/12/cimpress-big-deal-marketing-mass-customization-segment/

 

They said they will de-lever quickly. I assume this means they expect EBITDA to bounce back.

 

In addition to what's discussed in the article, I wonder if some of the 29 new worldwide locations become utilized for other printing/distribution centers to reduce shipping times across a wider range of products.

[KCLarkin]

http://www.printweek.com/print-week/news/1160010/cimpress-hiring-for-new-uk-site

 

Looks like they are building a new facility in the UK, in addition to the one planned for the US. Possibly an effort to reduce shipping times and costs. Or, less likely, a reaction to Brexit.

 

edit:

Looks like they cancelled this project:

http://www.printweek.com/print-week/news/1160014/cimpress-mothballs-start-up-site-plan

 

[AccentricInv]

Thanks for this.  On a side note, I can't emphasize enough how great the careers section is for finding out what a company's expansion plans / new initiatives are before they're bragged about to shareholders.

[AzCactus]

Wow, huge drop today. 

[Txvestor]

Looks like Q to Q noise. Revenues were a bit lighter than I expected.

However they are seeing 8-10% organic revenue growth with some

Potential for operational leverage. With their debt levels being up, it is

likely that the focus over the next 12mths will shift to operational

efficiencies. They mentioned decentralized management structure and

administrative headcount reductions of 160 etc. so that along with growing

revenues, in theory atleast should improve profitability. If they just

accomplish that, and pay down debt with cash flows, it will be quite value

accretive. The market seems to overreact in both directions with this

stock.

 

[flesh]

Looks like Q to Q noise. Revenues were a bit lighter than I expected.

However they are seeing 8-10% organic revenue growth with some

Potential for operational leverage. With their debt levels being up, it is

likely that the focus over the next 12mths will shift to operational

efficiencies. They mentioned decentralized management structure and

administrative headcount reductions of 160 etc. so that along with growing

revenues, in theory atleast should improve profitability. If they just

accomplish that, and pay down debt with cash flows, it will be quite value

accretive. The market seems to overreact in both directions with this

stock.

 

Looks like the shipping cost reductions/currency hit revenues. More of the same, bet we'll see 25-50 m share repurchases this qtr. This is now my largest position and the cheapest equity I own that doesn't involve a mediocre business.

[KCLarkin]

Wow, huge drop today.

 

FCF (TTM) is down 40% from the peak. So a 12% drop in the stock price is actually pretty mild. Especially since they just had two back-to-back "messy" quarters.

 

But I want to discuss something else, especially as a way to interpret the restructuring plan. It took almost the entire earnings call before I really understood the motivation behind the restructuring.

 

First, a couple "bearish" comments on the quarter from Twitter:

 

From the CEO with a black belt in BS: "We need to create new adjustments to our almost nonexistant earnings" Not action of healthy co

-- @spacewalk0

 

"ZOMG DID YOU SEE HOW MANY BUZZWORDS THE CEO USED?!?! HE SAID 'INTRINSIC VALUE PER SHARE'!!!!"

-- @spacewalk0

 

This scepticism is healthy but misplaced. The bearish interpretation is that Keane is a charlatan that is using value investor "dog whistles" to boost the stock price. Fortunately, Keane has a long track record so it is very easy to see if the actions match the words.

 

If you were a CEO whose goal is to maximize "intrinsic value per share", you would do the following:

- focus on "per share" value rather than market cap (e.g. buyback shares)

- buyback shares opportunistically (when they are are cheaper than intrinsic value) rather than dollar cost averaging, offsetting dilution, or signalling.

- set ROIC hurdle rates that exceed WACC

- Focus on invested capital (not just revenue or EPS growth)

- make acquisitions based on ROIC (rather than "accretion", "strategic", "growth" or similar motivations)

- Focus on long-term results over short-term profits

 

Based on everything we know, it is very clear that Keane is acting in a way consistent with "intrinsic value per share". So the bearish skepticism is misplaced.

 

Now, just because Keane is generally acting in a way consistent with "intrinsic value per share" doesn't mean he will be successful. He might be overpaying for buybacks. He might make bad acquisitions. The long term record so far is mixed, though I would argue above average.

 

So the bearish sentiment above is misguided.

 

--

 

So how do we interpret the "restructuring"? If you believe that Keane is a charlatan, you interpret this to mean that the business is in significant trouble. And that Keane is trying to disguise this trouble in a buzzword-laden press release.

 

I actually think the press release reflects a slightly different problem. Fuzzy thinking. But that is pretty much universal among executives (with few notable exceptions such as Bezos, Buffett, Leonard), so I will give it a pass.

 

--

 

So what is the motivation behind this restructuring? If you are trying to ensure ROIC > WACC, you need to measure ROIC for your major investments. The legacy structure from when the company was just VistaPrint made that impossible. The centralized structure made it impossible to assign overhead costs accurately to the appropriate business units. And the overhead was so large compared to business unit level costs, that the ROICs were basically meaningless.

 

Now, this restructuring seems like a pretty large hammer to fix what was essentially an accounting issue. And there will likely be unintended consequences.

 

--

 

But it does reflect some fuzzy thinking. Specifically, if you are now making Trynka the CEO of VistaPrint and are able to assign a specific ROIC to each business unit, the recent compensation plan changes are bonkers. They just got rid of cash bonuses. And stock-based compensation is now based purely on Total Shareholder Return. So how do you incentivize (or hold accountable) the "CEO" of a business unit, when there is no compensation for individual performance?

 

The TSR approach made some sense when it was impossible to track individual performance. But now they can track individual ROIC and the new compensation plan makes this largely irrelevant.

 

--

 

The bears on Twitter, think bulls are "drinking the kool-aid":

 

It doesn't matter. $CMPR will always have its fans, those that will drink this kool-aid and see $88 as an opportunity to BTFD.

-- Oreo

this clown thinks he's Warren Buffett Jr.

--@Drakewithaview

 

Again, I think the bears are misguided. Keane acts consistently with sound capital allocation principles. He just doesn't have the mental horsepower or operating skills of a true world class owner operator. But that's no sin. A modestly above average business with a modestly above average capital allocator will do fine.  And I think that's why the shorts continue to get burned on this stock.

 

NOTES:

* The above, assigns most of the "blame" on Keane. In reality, the board (Prescott Partners) and the ex-CFO probably play(ed) a big role in the capital allocation decisions.

** None of the above addresses  valuation. Based on trailing GAAP earnings, the stock is overvalued. Based on company estimates of "steady state FCF", it is undervalued. Until execution improves it is impossible to tell whether bulls or bears are right on current price.

 

 

 

[flesh]

What I haven't heard from the bears is why the steady state fcf illustrated in the investor day isn't legit? You can debate about what steady state is but I'd love to see the thesis that the current multiple is above mid teens....if it's not above that, in this market, why is this such a good short? Does anyone have a good argument for why the low end of the investor day steady state fcf is not legit? If your answer is print is slowly dying you'd be correct in that assertion but wrong on what that means for cmpr. I'm getting a 8-12x steady state fcf multiple growing 10-15%/year with a widening moat.

 

If anyone has any ttm short thesis I'd love to see it. I haven't seen any that are recent.

 

 

 

 

[Astrea]

KCLarkin, I tend to agree with you that it looks a little like fuzzy thinking but it is probably simply an evolutionary process and I like the direction. I think decentralisation could work well for a company like CMPR. As for the long term incentive compensation tied to share price, my understanding is that they will determine the number of units granted each year based on the achievement of shorter-term metrics and milestones that will be established for each team member and which will be aligned to business unit objectives. So there should be an element of incentive tied to business unit performance (i.e. number of units granted each year) and an element tied to overall company performance (i.e. share price over time).

[valueinvestor]

Maybe an interesting thought experiment: If you had the chance to purchase all of CMPR, what would be the highest price you'll be able to offer? At the moment, CMPR is trading at 14x OE/EV (if you agree with Matthias Riechert's valuation) ex-National Pen, and if not, it is below the $84.22 price where they repurchased stock.

[MrB]

Wow, huge drop today.

 

FCF (TTM) is down 40% from the peak. So a 12% drop in the stock price is actually pretty mild. Especially since they just had two back-to-back "messy" quarters.

 

But I want to discuss something else, especially as a way to interpret the restructuring plan. It took almost the entire earnings call before I really understood the motivation behind the restructuring.

 

First, a couple "bearish" comments on the quarter from Twitter:

 

From the CEO with a black belt in BS: "We need to create new adjustments to our almost nonexistant earnings" Not action of healthy co

-- @spacewalk0

 

"ZOMG DID YOU SEE HOW MANY BUZZWORDS THE CEO USED?!?! HE SAID 'INTRINSIC VALUE PER SHARE'!!!!"

-- @spacewalk0

 

This scepticism is healthy but misplaced. The bearish interpretation is that Keane is a charlatan that is using value investor "dog whistles" to boost the stock price. Fortunately, Keane has a long track record so it is very easy to see if the actions match the words.

 

If you were a CEO whose goal is to maximize "intrinsic value per share", you would do the following:

- focus on "per share" value rather than market cap (e.g. buyback shares)

- buyback shares opportunistically (when they are are cheaper than intrinsic value) rather than dollar cost averaging, offsetting dilution, or signalling.

- set ROIC hurdle rates that exceed WACC

- Focus on invested capital (not just revenue or EPS growth)

- make acquisitions based on ROIC (rather than "accretion", "strategic", "growth" or similar motivations)

- Focus on long-term results over short-term profits

 

Based on everything we know, it is very clear that Keane is acting in a way consistent with "intrinsic value per share". So the bearish skepticism is misplaced.

 

Now, just because Keane is generally acting in a way consistent with "intrinsic value per share" doesn't mean he will be successful. He might be overpaying for buybacks. He might make bad acquisitions. The long term record so far is mixed, though I would argue above average.

 

So the bearish sentiment above is misguided.

 

--

 

So how do we interpret the "restructuring"? If you believe that Keane is a charlatan, you interpret this to mean that the business is in significant trouble. And that Keane is trying to disguise this trouble in a buzzword-laden press release.

 

I actually think the press release reflects a slightly different problem. Fuzzy thinking. But that is pretty much universal among executives (with few notable exceptions such as Bezos, Buffett, Leonard), so I will give it a pass.

 

--

 

So what is the motivation behind this restructuring? If you are trying to ensure ROIC > WACC, you need to measure ROIC for your major investments. The legacy structure from when the company was just VistaPrint made that impossible. The centralized structure made it impossible to assign overhead costs accurately to the appropriate business units. And the overhead was so large compared to business unit level costs, that the ROICs were basically meaningless.

 

Now, this restructuring seems like a pretty large hammer to fix what was essentially an accounting issue. And there will likely be unintended consequences.

 

--

 

But it does reflect some fuzzy thinking. Specifically, if you are now making Trynka the CEO of VistaPrint and are able to assign a specific ROIC to each business unit, the recent compensation plan changes are bonkers. They just got rid of cash bonuses. And stock-based compensation is now based purely on Total Shareholder Return. So how do you incentivize (or hold accountable) the "CEO" of a business unit, when there is no compensation for individual performance?

 

The TSR approach made some sense when it was impossible to track individual performance. But now they can track individual ROIC and the new compensation plan makes this largely irrelevant.

 

--

 

The bears on Twitter, think bulls are "drinking the kool-aid":

 

It doesn't matter. $CMPR will always have its fans, those that will drink this kool-aid and see $88 as an opportunity to BTFD.

-- Oreo

this clown thinks he's Warren Buffett Jr.

--@Drakewithaview

 

Again, I think the bears are misguided. Keane acts consistently with sound capital allocation principles. He just doesn't have the mental horsepower or operating skills of a true world class owner operator. But that's no sin. A modestly above average business with a modestly above average capital allocator will do fine.  And I think that's why the shorts continue to get burned on this stock.

 

NOTES:

* The above, assigns most of the "blame" on Keane. In reality, the board (Prescott Partners) and the ex-CFO probably play(ed) a big role in the capital allocation decisions.

** None of the above addresses  valuation. Based on trailing GAAP earnings, the stock is overvalued. Based on company estimates of "steady state FCF", it is undervalued. Until execution improves it is impossible to tell whether bulls or bears are right on current price.

 

KCLarkin, what do you make of the recent restructuring? Another year, another restructuring? Brings to mind Buffett's comments about cutting costs and breathing. Seems to be never ending.

[KCLarkin]

KCLarkin, what do you make of the recent restructuring? Another year, another restructuring? Brings to mind Buffett's comments about cutting costs and breathing. Seems to be never ending.

 

It's consistent with my theory that Keane has a Bezos-complex. They launched some ambitious, risky, and expensive projects (notably MCP). But to staff these short-term projects, they hired full-time permanent employees. So what happens when you either complete the project or scale back your ambitions? You either need to fire people or give them new projects.

 

They were too ambitious with MCP. And they have debt covenants that prevent maintaining last years investment levels. And their shipping price reductions were killing margins. So this was inevitable. And much needed. Tryka (Vistaprint CEO) seems competent, so I think she is a positive influence. Hopefully, they will scale back their investments to a more sustainable level.

 

[MrB]

KCLarkin, what do you make of the recent restructuring? Another year, another restructuring? Brings to mind Buffett's comments about cutting costs and breathing. Seems to be never ending.

 

It's consistent with my theory that Keane has a Bezos-complex. They launched some ambitious, risky, and expensive projects (notably MCP). But to staff these short-term projects, they hired full-time permanent employees. So what happens when you either complete the project or scale back your ambitions? You either need to fire people or give them new projects.

 

They were too ambitious with MCP. And they have debt covenants that prevent maintaining last years investment levels. And their shipping price reductions were killing margins. So this was inevitable. And much needed. Tryka (Vistaprint CEO) seems competent, so I think she is a positive influence. Hopefully, they will scale back their investments to a more sustainable level.

Helpful thanks.

[kab60]

It's an interesting Company to follow, and both organizations as well as people hopefully learn from their mistakes and grow over time (look at how many mistakes Bezos have made), but consider where the stock would be if they'd stuck with Vistaprint and bought back shares opportunistically instead of doing M&A (I'm not sure where it would be, but jeeez they have made a lot of mistakes. At least they admit that much.).

[flesh]

Where's the middle finger emoticon for the shorts?

[AzCactus]

Where's the middle finger emoticon for the shorts?

 

+1

[KCLarkin]

Where's the middle finger emoticon for the shorts?

 

I'm struggling to understand the magnitude of this move. The quarter was mostly in-line with Q1 and the expectations laid out by management. A couple of notable things exceeded my expectations:

- National Pen dramatically outperformed my expectations. I was expecting this to be a 3-5% growth business. Based on guidance and profitably, it seems like this will be a smart acquisition

- With the sale of AlbumPrinter, they were able to reduce debt much quicker than I expected.

- Resumed share repurchases sooner than I expected

 

Otherwise, Vistaprint, Upload & Print, and Other all performed similar to Q1. The quarter was certainly good but the stock was already strong going into the quarter. Seems like the short interest is still excessively high and current owners are very strong hands. The shorts appear to have a death wish.

 

P.s. I purchased a large position in 2014. It grew to a 10% position. Wisely, I sold half the position last week. Where's the middle finger emoticon for my mirror?