Sean Quinn - Executive Vice President and Chief Financial Officer Meredith Burns - Vice President, Investor Relations Robert Keane - President and Chief Executive Officer.

Youssef Squali - Cantor Fitzgerald & Co. Matthew Thornton - SunTrust Robinson Humphrey Brian Fitzgerald - Jefferies & Company Christopher Merwin - Barclays Capital Naved Khan - Cantor Fitzgerald & Co. Kevin Kopelman - Cowen Group, Inc..

Ladies and gentlemen, welcome to the Cimpress Fiscal Year 2017 First Quarter Q&A Earnings Conference Call. My name is Cayley and I will be your operator for today. This call is being hosted by Robert Keane, President and CEO; and Sean Quinn, Executive Vice President and CFO.

As noted in the Safe Harbor statements at the beginning of the earnings presentation, comments may include forward-looking statements including statements regarding revenue and earnings guidance, and actual results may differ materially.

Risks that could impact those statements are described in the documents that are periodically filed with the Securities and Exchange Commission. We turn now to Sean Quinn for opening remarks..

Thank you, Cayley. Hello, everyone. And thanks for joining us this morning. Before we take your questions, I would like to make just a few brief comments about our results this quarter. We know that there are a lot of moving pieces here.

And while we’ve talked about most of these at the start of the year and at our August Investor Day, we empathize that this is difficult to evaluate the quarter on first read of the material. So let me just explain how we see things. Overall, we had a solid quarter on multiple fronts.

Our revenue performance was in line with our expectations, but we did have some discrete items creating roughly 400 basis points of year over year headwinds to our organic constant currency growth; including two topics that we’ve talked about before, which is a loss of two partner relationships and our Vistaprint shipping price reduction, and one new item, which was a flood in our largest facility during the last two days of the quarter, caused by extreme weather that shifted some revenue into Q2.

After taking account of the revenue timing from the flood, Vistaprint performance was right on track with our expectations. And we continue to be proud of the work the team is doing to support millions of micro-businesses around the world. The customer trends for the Vistaprint business that we have talked about in recent quarters remain intact.

Our upload and print businesses grew in line with expectations at the portfolio level. However, our organic upload and print growth this quarter slowed with some fluctuations by business and the expected entry of some slower-growing FY15 acquisitions into the organic number this quarter.

If we had owned all the upload and print businesses for more than a year, the constant currency growth of this portfolio for the quarter would have been higher than the organic growth. Our all other business unit’s revenue declined due to the loss of certain partner revenue. This was expected and we described it to you in the past.

The year-over-year decline was more pronounced this quarter versus Q4 of fiscal 2016, primarily because we had some revenue from these partners during Q4. Our Albumprinter and corporate solutions businesses grew this quarter, if you exclude the revenue from the lost partners in the prior-year period.

And our most of world businesses continued to grow quickly off of a small base. Finally, our profitability declined significantly in this quarter for the reasons outlined in earnings documents. But again, most of this was expected.

The material expense that was not planned is related to the earn-out for the WIRmachenDRUCK acquisition, where performance has been strong and so the value of the earn-out has increased, which we see as a positive. Adjusted NOPAT, which excludes the impact of the earn-out, is progressing on track with our expectations for the year.

So in short, we know there’s a lot to sort through here, but we are happy with our results in start to fiscal 2017, especially as we execute on our substantial planned and promising organic investments that we believe will increase our long-term value. And with that, we’ll take your questions..

[Operator Instructions] Our first question comes from the line of Youssef Squali with Cantor Fitzgerald. Your line is open..

Good morning and thank you very much. Couple questions, I guess, Sean, I want to drill down a little bit on what you just said. Again, trying to bridge the numbers, the growth numbers, between VBU growth in the June quarter, that 12% and the 8% reported in Q1, so 200 basis points was related to the flooding.

I was wondering if you maybe can parse out the rest for us. And more importantly, tell us what’s reversible this quarter and what’s likely to remain the headwind for a while.

And then, also on the upload and print business, how much of that decline is actually from the anniversarying of the slower growing acquisitions versus the weaker performance at some specific businesses? Because the growth rate went from 21% in the prior quarter to 12%, that is a pretty steep decline.

Just trying to figure out, because I think you guys also are talking about - you believe that you can sustain double-digits growth. So just historically or several quarters ago, we thought that business could be kind of at 20% grow for a while. I don’t know if that is in the card now considering the 12%.

So just if you can help parse out for us some of these moving parts that will be really helpful. Thanks..

Sure. Yes, thanks for your questions, Youssef. So, I’ll start out on the Vistaprint business. As you say, as it is reported, the constant currency growth sequentially slowed from about 12% to 8%. And as you also mentioned, part of that was due to the flooding. Maybe just spend a moment on that.

We did have a flood in our largest production facility, which is in North America, which happened the last two days of the quarter. And the reason we mentioned is, because it did push some of our revenue into Q2.

First and foremost, I think, we were happy to report that, one, all of our employees were safe; and, two, there was very minimal impact to our customers, because of the great job that the team did up there. But that did have about a 200 basis point drag on growth.

In terms of comparing directly from Q4 to Q1, there is really nothing else to point out specifically, other than the investments that we’re making in shipping, which as we said at the beginning of the year we expect that to have about 100 basis point drag on growth for the year.

We are not going to report exactly what that is each quarter, but I think order of magnitude it is fair to assume something like that for Q1. And I think the other thing to mention is that, what we’re trying - our aim is to get the Vistaprint business back to consistent double-digit growth.

And along that path we expect to see some fluctuations and not a consistent number quarter to quarter. And the team is working very hard to do that. And we are very encouraged by the continued progress we see there.

And so nothing else to kind of bridge that sequential deceleration, but we’re very happy with the work that the team on the Vistaprint side did this quarter and it was consistent with our expectations..

So any rebound on that is likely to take, some - a few quarters as you work through the price - the shipping headwind and the other things that you talked about?.

Well, the shipping headwind, Youssef, we expect to be there throughout the year as we make those investments, right. And we’ve put some brackets around that at about a 100 basis points of headwind. And you’re aware of all the other great things that we are doing in the business.

When you look at the various metrics that we normally talk about each quarter, whether it’s gross profit per customer or new customer count that’s grown now for two quarters in a row, there is a lot of good stuff happening underneath these numbers. And like I said, from quarter to quarter you’re going to see fluctuations in growth.

And our aim is to get this business to be a consistent double-digit grower..

With consistent not meaning exactly the same growth rate every single quarter, because that’s just not a reasonable expectation..

Yes..

Yes, yes, thanks for that..

So, maybe just to turn it over to upload and print, so as you pointed out there, Youssef, as well a deceleration in the organic growth. Let me try and frame this overall, which is just kind of repeat some of the things that we’ve talked about in the past.

The first is that, we said over the last probably a year plus, that some of the faster growers in this portfolio we do expect the growth will moderate over time, naturally. Two, we have said that, when the 2015 acquisitions come into the organic growth, that will be a drag as we enter this quarter that we just reported on now.

And then third, we’ve said that as a portfolio, so not organic versus inorganic, but just as a group, that we think that this group of companies can grow at double-digits for the foreseeable future. And we still feel very comfortable with all that.

When we think about upload and print this quarter, as we’ve said in our materials that we released last night, the results from a top-line perspective were consistent with our expectations overall. Yes, there are some puts and takes in there.

But the way we managed this is on an overall basis, and so internally, we don’t think about organic versus inorganic. We think about it as a portfolio. We have one leader, Kees, who you all met at our Investor Day, who leads that portfolio and it’s very much run that way.

In terms of your specific question on the organic growth and how much of the decline was as a result of the inclusion of the 2015 acquisition, there is a little less than half that is from the inclusion of the 2015 acquisition. The remainder is fluctuations in the growth of the other businesses..

Okay. Thank you..

Thanks, Youssef..

Thank you. And our next question comes from the line of Matthew Thornton with SunTrust. Your line is open..

Hey, good morning, guys, and thanks for taking the questions, a couple if I could. I guess, first just on the shipping reductions. I know it was a roughly $5 million profit impact in the quarter, and it’s about $20 million for the full year. I guess the question is how do we think about linearity of that, because I know the U.S.

starts to roll out in January? So how do we think about the linearity of that? And is there any assumed revenue benefit offset in that $20 million impact? And then just secondly on the flooding impact in the quarter, obviously, it’s transitory.

As we think about the December quarter and the recouping of the revenue, is there any timing mismatch between the revenue and the expense, meaning, did you recognize expenses in the September quarter and thus that revenue recovered in the December quarter comes in at a higher margin or all margins? Any color there would be greatly appreciated..

Absolutely, thanks for the questions, Matt. So, just on the first one for shipping and in terms of linearity, so as you mentioned, the profit impact was $4.9 million for this quarter. And we said we expected it to be $20 million for the year. You might infer from that that it is linear, but I think that that is not going to be the case.

There is assumed in our net investment numbers, the benefit of additional revenue that we would get as we see repeat rates increase, conversion rate increase. That said, I think the bigger impact in terms of the profile of the investment throughout the year is going to be the timing and extent of the roll-outs.

And so what you saw in Q1 was a continuation of the work that we’ve done in the UK, but really turning up France and Germany. And in the US, we’ve done extensive testing. But we don’t plan to roll out there fully until January. So the profile of this may be lumpy as we progress throughout the year.

And we are also learning a lot as we do this and we’re going to adjust accordingly. We still do think that the $20 million of net investment for the year is where we’re heading. So no change there, overall, but we don’t expect it’s necessarily going to be evenly profiled throughout the quarters.

On the other question related to flooding, Matt, you are absolutely right that some of the cost for those orders has already happened. And so the flow-through in Q2 will be - will not have to include things like the advertising expense that would have been incurred related to that revenue.

And so when you think about the impact of that, the full gross profit will flow through in Q2 without some of those other variable costs that would normally be attached to that.

Likewise in Q1, that’s one of the reasons that our advertising as a percentage of revenue for the Vistaprint business was a little higher, because we did have that advertising spend, but we didn’t have the related revenue. The timing of that will flow-through in Q2..

Thank you. And our next question comes from the line of Brian Fitzgerald with Jefferies. Your line is open..

Thanks, guys. A couple questions, I guess, first one is can you give us an update on the progress that has been made in terms of integration of the MCP platform, or the various brands, what percentage of orders we’re transacting through the platform? And what does the ramp look like going through the coming quarters? Thanks..

Thanks, Brian, Robert here. So we remain confident with what we had set out as the original plans for the year. We are transacting at much higher rates than we were even two, three months ago. But it still remains a minority - a small minority of our overall transactions that went through in the past quarter.

The objective of getting through a majority of transactions by the end of the fiscal year remains and we feel comfortable with that. So we are right on track and there is a lot going on. And we are very much in a - the same place we expected to be when we spoke to you in August at the Investor Day..

Got it, thanks..

Thank you..

Thanks, Brian..

Thank you. [Operator Instructions] Our next question comes from the line of Chris Merwin with Barclays. Your line is open..

Hi, thank you. So I just had a couple, I guess, first on shipping.

So in the markets, I guess, where you tested that, can you quantify for us what the impact to retention has been so far? And sort of as we look a year ahead, like once you start to lap the impact of that rollout, is that right away when we start to see that drag turn into accretion for profitability? And then just as it relates to gross margins, it looks like they were down little more than 600 basis points year-on-year.

I know a lot of that was expected just from the mix shift to upload and print.

But would you mind just quantifying what was one-time in that number? And then just as a continuation of that, as we look through the year, wondering when’s the point when maybe we start to fully lap all of the mix-shift changes to the business, such that we see more kind of year-to-year stability in gross margin? Just sort of trying to figure out when that flattens out.

Thank you..

Great, Chris. It’s Sean. Thanks for your questions. So with shipping, let me try and just tell you about some of the data that we have seen. And I won’t be maybe as specific as you were asking for, but part of this is that we are early in this cycle and so we are collecting a lot of data and learning a lot.

And so we can’t be too specific about exactly what we think the outcomes are a year from now. But overall, what I would say is that in the three markets where we’ve rolled out pricing reductions, which is UK, France and Germany, we are seeing good things. And the results do differ by market.

But we’re happy, most of all to see that there are material improvements in customer satisfaction, so we actually have a specific question within our MPS tracking on shipping. And we see a positive correlation to the results there relative to [indiscernible] to conversion rates and also repeat rates. The extent of those is different by market.

And so, because we are early on, I think we need more time to see that play out, before we can be more specific about how we see the impact over a year or a couple year period. But we’re happy with the results we see.

And it gives us even more confidence to continue on the path that were on, which is why we’re going to continue with the nearly $20 million of investment that we had this year. Relative to gross margin, year-over-year - I mean, you said it, Chris that most of this is mix.

If you - obviously, we didn’t have WIRmachenDRUCK in the Q1 period last year, and so that has an impact. And then even some mix within upload and print portfolio this quarter, in and of itself has some impact. So mix is definitely the main driver. And currency is also had some impact.

So if you look at our results, we had about $2 million of realized gains on our hedging, which is below the line. So it is not neutralized within gross profit. And that does - because our pound revenue is generally fulfilled with euro production that is a drag on gross margin as reported this quarter versus the last year period..

The other one-time issues, you’ve got the backlog change for the Vistaprint business unit with the flooding that happened there. So the production costs were in Q1, but the revenue will be in Q2. So there is an impact there.

There’s also sort of an added impact there, where we - because it happened right at the end of the quarter and we wanted to minimize disruption to our customers, so we did end up running some shifts over the weekend in order to try to fulfill as many orders on-time as possible. But in order to really do that, we needed to expedite shipping.

And so there is a bit more shipping costs in there that won’t be offset by revenue. But it’s probably pretty small, but it would have an impact in gross margin as well. And then, of course, the partner revenue loss from a year-over-year perspective and even from a sequential perspective, plays a role in the gross margin as well..

All right. Great. Thank you..

Thanks, Chris..

Thank you. And we have a follow-up from the line of Matthew Thornton with SunTrust. Your line is open..

Hey, good morning, guys. Two quick housekeeping ones, probably for Sean here. I guess on the upload and print portfolio, I know you’ve talked about the like-for-like growth being above the reported organic growth. I think last quarter, you had put in line with the organic growth at about 21%.

I was wondering if you’d be willing to quantify kind of what that number is this quarter relative to the 12% organic. And then just secondly, cash taxes, I think they were only at a $28 million, $29 million annualized run rate in the quarter. How do we expect that - I know that they’re expected to be up significantly year-on-year.

How do we think about maybe the linearity of cash taxes throughout the year as well? Any color there is helpful. Thanks, guys..

Yes, thanks, Matt. Yes, so on the upload and print, you’re right on the - that we said that the overall growth, higher than the organic. Beyond that, Matt, we don’t want to share any growth for specific business or get in the habit of doing that. It is very much internally managed as a portfolio.

And so if we were to give that, then we’d start to either give or infer what the specific growth is for certain businesses. We want to stay away from that and give you all commentary consistent to how we manage it, so nothing else that I can share there.

On the cash taxes so - yes, just looking back to what we said at the beginning of the year, we do expect cash taxes to be significantly higher this year. And there are two main drivers of that. One is that we had an $8.5 million tax refund last year that won’t repeat.

And then two is, we have fortunately a great portfolio of upload and print businesses that are growing and profitable and at higher tax rate jurisdictions and so the cash taxes there naturally go up.

Yes, it is difficult to imply a full year run rate off of the actual cash taxes that we paid this year, because the timing of the cash payments doesn’t necessarily follow how we booked that, like it would from a P&L perspective, where we have to do that. So you can’t infer anything for the run rate there.

So I would just link back to the comments that we made at the beginning of the year, which is for the full year, we do expect that they will be significantly higher. And when we report our Q, you’ll also see at the bottom of our cash flow, the actual cash taxes that we paid, which is different than the way we think about it for the NOPAT taxes.

So that’s also a number that would be relevant to look at..

Thank you. And we have a follow-up from the line of Youssef Squali with Cantor Fitzgerald. Your line is open..

Yes. Thank you. It’s actually Naved Khan from - on Youssef’s line. Just to follow-up on the - I think Sean, you talked about weakness in the British pound and how that also impacted the profitability.

I’m just thinking, with the British pound sort of staying at levels that are significantly below where they were six months ago, are you thinking of repricing products for that market? Or how are you - are you willing to live at lower profits just for the UK? And then I had a question on Exagroup, so I think two or three quarters ago you guys had come out and talked about seeing some sort of a slow down because of competitive pressures there.

I’m just wondering if there is any update on that front..

Great. Thanks, Naved. So first on the pound, so the short answer is no, we are not thinking about repricing. But let me just explain kind of how those results impact us and how we think about that more broadly, which is that we do have an active currency hedging program.

And when - for our hedging, we seek to minimize the volatility in our EBITDA, so that’s the objective of our hedging program. And we - in that program, we go out over an 18-month period and average in each quarter.

So as we sit here today, we have full visibility to what our FY 2017 pound rates are from an EBITDA perspective and also for partially for FY 2018, assuming we hit our forecast rate. So the $2 million of realized gains that we took in Q1, most of that was from the pound. So it just gives you an order of magnitude of the impact of the pound.

And in Q2, given it is a big revenue quarter for us and the fact that the pound went down in early October, you may see that impacts. But again, for FY 2017, we are covered in terms of that volatility because of our active hedging program. Eventually, we will have to deal with the structurally lower rates to the extent that they persist.

One of the things that we have an opportunity to possibly do is to look to shift some of our cost base for that pound revenue to pounds so that there is a natural offset. So that’s something that we think about and would actively look to do..

I’d just add a little bit to that. Robert, jumping in on that. Naved, if you look at our traditional Vistaprint business, we have very high gross margins, as you know, in that business. A portion of the COG is shipping and most of that shipping is the last portion of the delivery. It’s not in the bulk shipping into the UK.

It’s getting it to the individual customer, which then is pound denominated. So the - then we have other components which are dollar-based, because we buy commodities in dollars. We have euro-based costs, so there are many different moving parts. We also have offsetting advantages in different parts of the world - in Japan, obviously Australia.

There’s many moving parts, it is very hard to draw a conclusion overall. So we do try to stay focused on the brand side. So in this case, for instance, a brand selling in the UK on what works best in light of the market conditions. And we don’t mandate that down. We don’t have specific changes to make, as Sean mentioned.

Where we have a lower gross margin, which is in our UK upload and print business, we have our Scottish facility and with a slight bit of humor here, until Scotland leaves England and goes back to the euro, we will - or goes to the euro, which I think is at least 10 years out, if ever.

And all kidding aside, we have a pound based production facility for our upload and print business..

Maybe just the last thing, I’ll mention there is - just to round out is, the Tradeprint acquisition, which Robert has just referenced, we actually financed that with pound debt. And so we - the economics of that deal are protected from a dollar standpoint. So the next question you had was on Exagroup and whether or not there is any update there.

The only update I would share is that business is on track with our reset expectations and so nothing else to report there..

Okay. Thank you..

Thanks, Naved..

Thank you. And our next question comes from the line of Kevin Kopelman with Cowen and Company. Your line is open..

Hi, thanks a lot. Can you just give us an update on the M&A landscape and your appetite for doing acquisitions? Thanks..

Hi, Kevin, Robert here. We obviously don’t speak about our M&A pipeline. We speak to many, many different companies and we have for years. And we don’t have a specific objective to do a given number or given value in any given period. It’s really, we try to be very picky. And so sometimes that can be quite lumpy.

There could be long stretches where we don’t do something or spurts where we do quite a few. But other than that, we continue to see that as a valid use of capital allocation or a destination for our allocated capital, but no different than what we have seen in the past or what we have talked about for the last year or so..

Okay, thanks.

And then I apologize if you already covered it, but what changed at WMD that caused the change in expectation for earn-out?.

Yes, great. Kevin, it is Sean. So there are really two factors there. One is more of an accounting exercise - actually, let me step back. There was about $15 million that we took through the P&L this quarter, which was for the change in the earn-out liability.

About $9 million of that is an accounting exercise related to an amendment to that agreement, which we talked about in Q4 and knew about. It doesn’t change any of the economics of that. The other part of it is related to really just the continued strong performance of that business.

And so each quarter, we need to update our valuation of that earn-out and use valuation models that are required. And in so doing, the valuation has gone up based on their performance. So overall, we see this earn-out as a positive. We actually want them to achieve it. The economics of it are obviously good for the seller and good for us as well.

And so we want them to get there and we see valuation increases as a positive thing..

Just a quick correction, that was $7 million related to the amendment and $9 million related to the change in fair value..

Thanks, Meredith. Sorry, I had those backwards..

Okay, thanks a lot..

Thanks, Kevin..

So, I have a quick question that was pre-submitted. And we’ve talked a little bit already about the flooding situation. But the question that I got from somebody that we didn’t quite cover yet, which was around whether or not redundancy would help us in a situation like this flooding? And what we’re doing to look at improving our redundancy there..

I can respond, Robert here. We obviously look a lot at to what degree we should have multiple production facilities. As we’ve spoken quite a bit about - we are going into a world where we have a combination of outsourcing and internal production, more so than we have in the past.

This - it is always a trade-off between the cost of multiple production facilities and the insurance advantages of - in the costs there. So we don’t have any material changes to our plans based on this flooding. And I think the flooding shutdown the area where our facility is from a state of emergency for about 48 hours.

It is something that happens very rarely in that area. We are certainly not in a flood zone there. It was somewhat of a freak storm. And we feel that - we’ve had, as all business have different things happen in our production facilities. We’ve had unfortunately a fire about a year ago. We’ve had a flood here.

Our first concern is always our safety of our employees. The second one is to keep the customers happy. And then we insure ourselves against the losses there. So, no plans to change our overall philosophy there..

The only thing I would add too is that when transactions are flowing over our platform and you also over time have an expanded network of fulfillers, including third-parties. When these things happen, you do also have an increased opportunity to route to different places.

And to some extent we do that in our holiday season, as we see volumes increase, right? So we don’t have capacity - we don’t plan our capacity through everything internally in one place, we spread that out.

And likewise, in the event of a severe incident, we would have an opportunity to do the same as our platform continues to mature and our network of fulfillers also continues to mature..

Thank you. And I’m showing no further questions at this time. I would like to turn the call back to Mr. Keane for closing remarks..

Thank you, everyone, for joining us for this quarter’s call. I would just echo what Sean said at the beginning of the call. Despite many moving pieces, we are happy with the way the quarter ended. And we are confident of what we are doing over the coming three quarters to the remainder of the fiscal year.

So we look forward to speaking to you again soon. Thank you for your time..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone, have a wonderful day..