Welcome to the Cimpress Q1 Fiscal Year 2024 Earnings Call. I will introduce Meredith Burns, Vice President of Investor Relations and Sustainability..

Thank you, Tanya, and thank you, everyone, for joining us. With us today are Robert Keane, our Founder, Chairman and Chief Executive Officer; and Sean Quinn, EVP and Chief Financial Officer. I hope you've all had a chance to read our earnings document published yesterday.

We appreciate the time you have dedicated to understand our results, commentary, and outlook. This live Q&A session will last 45 minutes to an hour, and we'll answer both pre-submitted and live questions. You can submit questions live via the questions and answers box at the bottom left of your screen.

Before we start, I'll note that in this session, we will make statements about the future. Our actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and in the documents we published yesterday on our website.

We also have published non-GAAP reconciliations for our financial results and outlook on our IR website. We invite you to read them. And now I will turn things over to Sean for some brief remarks before we take questions.

Sean?.

Thanks a lot Meredith, and thanks to everyone who has joined us today. Before we take questions, I'll just highlight a few key points from the financial results and also the updated outlook that we published yesterday. First of all, we delivered solid results in the first quarter.

Consolidated revenue grew 8% on a reported basis and 4% on an organic constant currency basis. Growth did vary by segment and it was also reduced by approximately 200 basis points from year-over-year revenue timing changes. Consolidated profits were very strong. Adjusted EBITDA grew $43 million year-over-year in Q1 to $89 million.

Adjusted EBITDA margin was up from 6.5% last year to 11.7% this year. This benefited from gross margin expansion from leverage and advertising spend and reduced operating expenses. Adjusted EBITDA expansion over the last three quarters has been very significant.

Our trailing 12-month adjusted EBITDA at the end of September was $383 million, and that compares to $228 million at the end of December, a 68% increase in just nine months and still with a significant benefit from our prior cost reductions yet to impact those reported results.

Adjusted free cash flow for the quarter increased significantly year-over-year by just over $63 million with a higher adjusted EBITDA and also a significantly more favorable in net working capital compared to the year ago period, which was helped by returns to more normalized inventory patterns. I won't go through all of the segments here today.

But given the significance of the profitability expansion in Vista, let me just share some highlights there. This is revenue grew 6% on an organic constant currency basis. Overall, revenue growth was driven by approximately even contribution from growth in orders and then higher average order values.

The higher average order value is driven by both product mix and pricing. Revenue grew across geographic markets and across product lines with the fastest growth continuing to come from our promotional products apparel and gifts category, signage and packaging and labels.

There's a lot of investor focus on Europe these days, and I'll note that for Vista, growth in Europe was quite strong in Q1.

Vista segment EBITDA grew $44 million versus last year, which similar to last quarter was driven by a balanced mix of revenue growth, gross margin expansion, lower advertising spend as a percentage of revenue, which decreased and materially lower operating costs as a result of the cost reductions that we announced back in March.

Importantly, in Vista, We're also seeing continued improvements in per customer value, which is a trend that's been in place for the past several years. But we're now also doing that while growing the customer base year-over-year, which grew by more than 100,000 customers in the first quarter.

That was primarily driven by new customer growth and those new customers generated record levels of in-quarter variable gross profit per customer when compared to past Q1 new customer cohorts.

There are many small improvements that contribute to this and there remains a lot of opportunity for more of these improvements, which can have a meaningful impact on our overall customer experience, conversion rate, and financial results, and that's where our focus is.

From a balance sheet perspective, we ended the quarter with cash and marketable securities of $148 million, even after we purchased $21 million notional value of our 7% senior notes, for just under $20 million. Net leverage decreased sequentially to just over 3.5 times trailing 12-month EBITDA as defined by our credit agreement.

As we talked about on recent calls, from a balance sheet perspective, we've been prioritizing reduction in net leverage and that's happening at a good pace. Moving to our outlook.

Given our strong Q1 profitability and cash flow performance, we're raising our FY 2024 adjusted EBITDA guidance to at least $425 million, and we continue to expect that to convert to free cash flow at approximately 40%. Our organic constant currency revenue guidance of at least 6% remains unchanged.

We recognize there's some macroeconomic uncertainty in most parts of the world, and we'll of course be monitoring that as it relates to future revenue commentary. Our expectation is still to end the year with net leverage that is below 3.25 times. So, that also remains unchanged.

And with that, Meredith, why don't we open it up for questions?.

You bet. Thanks Sean. [Operator Instructions] So we'll get to as many as we can and make sure we get to a variety of top it around people's minds. So the first question, is I'm going to throw it to Sean. So on a reported basis, Vista Europe grew at 17% year-over-year, which we assume translates to 8% to 9% once FX effects are removed.

Are we thinking about this the right way? And if so, what is driving faster organic constant currency growth in Europe versus North America?.

Yes. Thanks. Just so everyone knows on the call, we publish financial and operating metrics each quarter, which we post on our Investor Relations site and that's where the data is that would have prompted this question. The constant currency revenue growth in Vista Europe, as actually just above 10%.

So it was a little higher than the math that whomever asked the question was doing. And that was indeed higher than North America, but both regions perform well. I would say that even beyond just the revenue growth in Europe being just above 10%, gross profit grew at a higher rate there and contribution profit grew at an even higher rate.

And so, again, overall, a very strong quarter for Vista, but also in particular in Europe. At a category level, there's two areas to call out in terms of where, performance was, or growth was higher in Europe and that would be in packaging and labels and also in marketing materials.

Those two categories happen to be the ones that benefit the most from leveraging new product introduction, from fulfillment from other Cimpress businesses in Europe, which there's not that same opportunity in North America.

The combination of the technology migration that we did last year, which just to keep in mind, there were the latest markets to be migrated were a few of our large European markets. So, kind of the benefit of that is a little bit delayed. And there's also organizational changes that we put in place back in March.

And I think the combination of technology migration and those organizational changes has allowed the team, to have more focus in Europe and also to move more quickly to have customer impact in those markets versus a year ago.

There were pretty meaningful improvements in customer credit rates that was notable in Europe, due to a lot of the work of our customer care teams that's beneficial to revenue. That was also a good trend in North America, just a little bit better in Europe.

And then I would say we've also been able to take the learnings from other markets, both from an advertising spend perspective, but also in areas like pricing, or how we're thinking about promotionality, and bring those to, some of our European markets in ways that we haven't before and that is that is definitely having an impact.

So, in general, I would say it's primarily, micro factors rather than macro factors that delivered the differential performance..

Great. Thank you, Sean. All right. So, we're going to stick with revenue here and we've had several questions trying to really sort of pick apart the differential growth rates by segments, and some of the, the timing impacts there.

So, I'll ask one question and touch on the other, other questions that came in on this and you can cover all of them at once in detail. So, in a lot of ways, it was a strong quarter, but revenue growth rates declined sequentially in all segments and are lower than your annual growth expectation.

What were the key contributing factors to that? And given your continued confidence in the annual growth rate, was the decline this quarter expected? And then the other questions around this are really getting at, the growth rates in our Upload and Print businesses, and why there was a difference between those two groups?.

Yes. Okay. I'll do my best here. Yes, first of all, agree with the overall sentiment we believe that it was a strong quarter. Profitability and cash flow were quite strong. But there was some variability in the revenue growth. So, I'll dive into that.

There's I had mentioned in the opening remarks, there's about 200 basis points of timing impacts too that that are a drag on consolidated growth rate. Over half of that, we'll benefit revenue in the remainder of the year. As backlog normalizes, there's really nothing to that other than timing. So, just know that that had some impact.

And then I would also just keep in mind that the expectations that we set coming into the year was that we were going to have lower growth, and particularly in our Upload and Print businesses as we lap pricing changes from last year and so on.

In terms of how we performed versus our expectations, generally speaking, let's say Vista was right on plan, other than the timing impact that I outlined, we feel good about the quarter there. The fact that per customer value continue to improve while customer counts also grew, as I noted, I think is a is a good signal as well.

So, System was right on track and solid quarter. And Upload and Print, those, both of those segments within Upload and Print, each grew over 20% in Q1 last year in constant currency. So, we're lapping that, we're lapping pricing, increases. So, it's still a tough comp.

But relative to expectations, there, I'd say it's a little bit more of a nuanced story and you kind of have to get down to the country category channel level to better understand that. There are, in certain markets, we're seeing either stable or increasing orders.

But some indication of customers purchasing lower quantities per order, in some categories. So, a little bit of a trade down there in some categories. We also, saw softer revenue trends in our reseller channels, which just from an overall Cimpress perspective, is relatively small.

It's roughly mid-single-digits percentage of revenue for, overall for Cimpress, but it does impact the growth for some of these businesses in the Upload and Print group. And that's one reason that growth was lower for print group.

Within Upload and Print just because there's more concentration on a relative basis, in the reseller channel, especially in France. That is a trend that's been present for some time. And it's a trend that, has benefited the Cimpress overall in the long-term.

A bucking way on growth in the near-term for some individual businesses to have more concentration there. So, we do expect that will continue to be somewhat of a headwind, to near-term growth for those businesses that have more concentration and resellers.

I think important to note that, in Upload and Print, despite lower overall growth segment EBITDA still grew year-over-year, and that was helped by, lower input costs that we've experienced so far this quarter. And we expect that to be a feature for the remainder of the year as well. I'm not going to get through all the other segments.

I think those are the most notable takeaways As we've mentioned in the question we held our revenue guidance for the year.

There will be variability as we go throughout the year in terms of growth rates by quarter as we lap pricing and also as we previously said, we expect the growth rate in the December quarter in Vista to be weighed down, somewhat by, consumer concentration during the holiday peak.

But based on what we've seen, we still felt confident leaving the revenue guidance untouched..

Thanks Sean. One more quick question for you, Sean on revenue.

Can you elaborate on the backlog that provided a $4.3 million drag on revenues during the quarter? Was it isolated to one product category or was this something, that was broad based -- not within Vista?.

Yes. We always have fluctuations in the backlog, which is the orders that we've received, but we haven't yet shipped. There's really nothing to read into on that one and not specific to a category.

Those fluctuations have to do with things like, what, what, what's the last calendar day of the quarter end, but also things like timing of promotions as we cross the quarter end or seasonality and we don't try and manage that in any natural ways as we as we end the quarter. From an economic standpoint, all that really doesn't matter.

In Vista, we receive the cash, upfront from customers. And it's just that there was a higher level of orders not yet shipped in the last day of the quarter. So, that'll come into revenue when they do ship, and that's really it. But it does impact growth rate, year-over-year..

Thanks, Sean. Okay. Let's get Robert, involved here. And, we've got some questions on the Vista, customer additions.

So, the 100,000 customer additions referenced in the earnings document, could you add some additional context such as what the percentage increase was, what the percentage of the total? And then, very similar question you specifically noted that Vista grew its customer base year-over-year by more than 100,000 customers.

Does this represent a recent quarterly high for new Vista customer additions? What is the size of the total Vista customer base currently?.

Okay. Well, thanks for the question. First of all, two words were used there. One is customer base and customer additions. So, it really is customer base that we referred to, repeat customers plus new customers or, in other words, plus customer additions. So, it was good growth. New customers drove that growth.

They the number of new customers grew 13% versus the same quarter of the prior year. Repeat customers were still down slightly year-over-year, but that is a trailing metric after the new customer acquisitions. And the trend in repeat customer count also improved sequentially. So, we have overall growth in the customer base.

We don't go into a lot of the details that you asked about specifically, but let me give some additional context. First of all, It's very important to keep in mind the customer count on its own is not the metric we seek to grow. We certainly wanted to grow, but it's not the only metric.

It's important to know that we care most of all about the profitability per cohort and to get to that, you need to also look at how much gross profit per customer we are generating, what's that worth over the life of a customer expressed in NPV terms, and what's the cost of customer acquisition relative to that lifetime value.

So, it's a factor in the equation, but it's not the, the, the top number we're looking at.

And that focus on economic value holistically, is why compared to going back five years or so in our history, for the last multiple years, we have seen, a reduction in customer count as we've moved away from the prior value proposition, which was based on very deep discounts towards higher value customers.

And in some of our multiple investor days over the last couple of years, we've shown charts and data, how We've greatly reduced economically negative results in our lowest decile or deciles, and we've strongly grown gross profit customer overall and in our top deciles, and very much driven by our top deciles.

We also, over that multi year period, have really reduced value destructive advertising. We've greatly reduced, discounting, and we have focused on higher value products not we've done price increases, but even more so, we've moved to higher value products, before price increases. And Q1 was a continuation of all those trends.

Gross profit per customer in this most recent quarter's acquisition cohort was higher than it ever has been in the first quarter of any year. The improvement in repeat customers of course, helps and we're happy about that and we are also focusing on driving repeat business by giving better value to these customers.

And finally, in terms of increasing the number of customers going forward, we're optimistic about this. There's a lot that's gone into this. It's not just what we've done in the past one or two quarters.

It goes back to the multi-year repositioning of the brand, the increasing awareness of our product breadth, accelerating into growth, areas of higher value products like promotional products, improving the customer experience.

And they've had an earlier impact on value per customer, but they clearly now are improving our ability to acquire more customers. And so we're looking forward to seeing that continue..

Thanks Robert. Really exciting development in Vista. All right, Sean, next question for you. We thought our Upload and Print businesses were nearing the end of an investment cycle, but we were surprised to see the uptick in capital expenditures this past quarter.

What investments are we making here? And do we expect these to moderate?.

Yes. Yes, this is a good question. The growth investment in our Upload and Print businesses in recent years has been relatively low, but, you're right to note that, this past quarter from a CapEx perspective, it was definitely a high CapEx quarter for these businesses. And that's not a new run rate.

The equipment purchases that we make in those businesses. And in particular, in the Print group, which is, as more vertically integrated than the Print segment, can be a little bit lumpy over time. And there happened to be some large piece of equipment that were purchased this quarter.

There was also within that, about $2 million of facilities related CapEx, which that doesn't occur often and so that's sort of a sort of a one off. But the rest of it is Print Production Equipment, those are investments that have clear payback and return thresholds, that have to be met. And some of that's maintenance CapEx as well.

So, it wouldn't necessarily be captured in the growth investments that we that we outlined each year. So, yes, higher, intensity CapEx quarter for these businesses. That's not a new run rate and there is some lumpiness there. There's no change to our CapEx guidance for the year.

And so that might be helpful in terms of when you look at the CapEx guidance that we provided for the full year and back off Q1, it would imply that, the rest of the year, it does not have that level of intensity. And so the quarterly run rate for the next three quarters will be lower..

Thanks Sean. And also thanks to the person who asked that question, who is clearly looking at the detail in our financial and operating metrics that we posted on our website. All right. Next question, Sean, input costs are trending better than expected.

Any additional color to share, where are you seeing the biggest benefits?.

Yes. In general, input cost environment definitely continues to improve. We talked about this back at Investor Day a bit. I would say even since then, it's improved some. Paper costs have been coming down after what was very sharp increases that we experienced over the last two years. And that's happening more quickly in Europe.

The pace of the decrease is happening more quickly in Europe than in North America, and that's definitely benefited gross margins. In markets where energy costs have really spiked last year, those are -- those costs are down meaningfully just as a point of reference in Italy, which was one of the countries where there was the most intense increase.

The cost per kilowatt hour is less than half of what it was in Q1 last year. So, down quite a bit. Inbound freight costs are down meaningfully as well. So, those are probably the three that I would highlight.

But as we noted in the release, the changes have been slightly more favorable than what we had planned for at the beginning of the year, and that's also now incorporated into our guidance..

Great thank you. All right. One quick one here, and then we'll move into some outlook questions.

So, can you provide an update on the cost reduction initiatives, Sean?.

Yes, we gave quite a bit of detail back in March in our call back then and when we had made those changes. And just for recall, the total benefit that we had expected from the cost reductions was about $100 million. Some of that we got in FY 2023.

And there's another $75 million of that $100 million, which was a year-over-year benefit that we expected to get this fiscal year, which is roughly evenly split between the first three quarters. We're on track with what we previously outlined.

As we entered the year, the changes as related to any headcount impact, those changes had already been made prior to the beginning of the year. And then any decisions on things that were non-compensation reductions, those decisions were also made.

So, it's really just a matter of the passage of time for us to see the remaining benefit over the next two quarters. So, maybe just to put it plainly, we're on track..

Great. Thank you. All right. Sean, a few quarters ago, we talked about how the consumer category remained important for Vista so much so that a dedicated team has been formed to focus on the category. With the all-important holiday season around the quarter, can you please give us an update on the outlook for consumer.

We actually did have multiple questions on holiday outlook and that one is representative..

Yes, sure. So I'll give some overall comments here. We're going to give a specific holiday outlook, but it's an important part of the year. From a consumer perspective, it has come down overall in the mix, Cimpress overall to less than 10% of our overall revenue.

But the December quarter is an important one from a consumer perspective, particularly in Vista, but then also in BuildASign as well.

In Vista consumer revenue has declined in the last few years and some of that is just from behavior change that happened through the pandemic, especially in invitations and announcements, that's probably the most pronounced.

And what we've said recently is that the profit pool for consumer in Vista is a very important one, and it's one that we definitely want to protect. And while there's opportunity for growth there, first and foremost, we want to protect that profit pool. I think the question referenced to a dedicated team.

We've always had a team focused on that category. But over the last year, we've also added some specific product teams there so that they can continue to make focused improvements in the experience and also drive new product introduction that's targeted at that customer segment.

We've talked at our Investor Day about just the pace of new product introduction overall starting to increase. And many of those products are relevant for consumer use cases as well. They just need different content or different merchandising like in drinkware or apparel.

So the category will benefit from overall new product introduction will also benefit from overall experience improvements on the site. And as noted in our prior remarks, we're seeing that happen, and that will benefit consumers as well.

Many of the new products that we've launched, especially in the photo products, home decor, some of our apparel gifts are showing nice growth. Although in Q1, our consumer overall was basically flat year-over-year.

We do expect that from an overall perspective in the December quarter that consumer will still put some pressure on the Vista growth rate, as we mentioned back in Investor Day. But there's a lot of improvements that we've been able to make over the last year.

So, the team has done a really nice job there in the planning, just had a review the other day on all that work and the client for the peak season basically starts now. So, while consumer it's not our primary focus from a brand perspective, it is still really important.

And frankly, we're also uniquely equipped to serve customers across both small business categories and consumer categories. And when we look at the customer -- our customer value metrics, those hybrid customers, small business and consumer are very valuable for us.

There's a lot of creative that we've used in our mid and upper funnel channels that we're repositioning this time of year to be relevant for consumer again. And that just like we were doing for all of our brand advertising is really trying to demonstrate the breadth of the product offering.

And so you should see that over the next few weeks and months here through the holiday season. So, we feel good about our plans. We've made a lot of improvements, and we're excited about the weeks ahead here..

Thanks Sean. All right. Robert, a question for you.

Have you seen any signs of prices softening in any of your end markets?.

No, nothing broad-based. All of our businesses are constantly testing pricing. So, there are some places where prices decreased there are also areas where they went up. So, I'd say no, this is normal in the course of testing and optimizing at this point. All right..

Thank you.

All right Sean, to give the market increased confidence in achieving a 2024 EBITDA guidance, are there any KPIs that you'd be willing to share?.

Yes, sure. Well, I'm not sure what well KPIs would be helpful in that regard. Hopefully, even throughout the call so far, there's been more granularity provided that is helpful and provides confidence. We don't normally give such specific guidance like we have in the last quarters.

But back in the March quarter, we provided guidance, which we beat and then we raised the expectation for the June quarter, we exceeded that, and we increased our guidance for FY 2024. And we just delivered strong Q1 EBITDA results, also cash flow results and increase our guidance for the full year.

So, again, hopefully, you should get confidence from that as well. But I think it's not KPIs, but here's the math that I would focus on in terms of confidence in the full year guidance. As I said in my opening remarks, as of September, we have $383 million of FY 2024 adjusted EBITDA.

I said in a response to an earlier question that we're on track with the cost reductions that we previously outlined. So if you do the math on that, those cost reductions, we said $75 million of benefit in FY 2024, roughly ratably over the first three quarters.

So, there's still $50 million to come a benefit that will come into the run rate over the next two quarters. And then we said that we have currency headwinds this year of about $20 million for the year. $3.5 million of that was in Q1. So there's $16.5 million left to go there.

So, if you just add all that up, you need to -- we need to deliver just under $10 million of the EBITDA expansion over the remaining three quarters of the year from the flow-through of growth to get to at least $425 million. That's not KPIs.

But basically, in order to be confident in our guidance, you need to believe that we can deliver just under $10 million of improvement outside of cost reductions that we announced in March and outside of currency impact, whether that be from growth, efficiency, so on. We remain confident.

Obviously, that should -- hopefully, that's understood from the fact that we increased our guidance. But that's the math that I would do to get comfortable..

Great. Thank you. So a couple of other questions here. One of which was pre-submitted and one of which came in live.

Sean, can you walk us through the puts and takes of the FY 2024 guide, which calls for at least 8% year-over-year reported growth and 6% year-over-year FX-neutral growth and what is baked into the guide in terms of the macro? And another revenue question, I still don't understand how you get to 6% constant currency revenue growth for the full year if 1Q was 4%, and you're seeing Q2 was a tough comp.

2H, you'd have to have -- there's some math here.

You have to have 16% constant currency comp in Q3 and 9% comp in Q4, what am I missing, raising EBITDA guidance by $5 million is great, but did 1Q outperform more than $5 million? Were there any pushouts of expenses from 1Q into the rest of the year?.

Okay. A lot there. Let me try and cover all that. So, just in terms of puts and takes, the first question and influence the macro. I walk through that bridge to get to our EBITDA guidance just now. And then the cash flow guidance just flows from that because it's -- we're talking about cash flow conversion off of that EBITDA.

From a macro perspective, we don't make specific predictions and frankly, we don't have any better ability to forecast macro than people on this call. And so the way that I would think about it in terms of the puts and takes in the FY 2024 guide and also the macro.

I think it's helpful if you actually start from the bottom of the P&L and work your way upwards. And starting with OpEx after the cost reductions and the focusing of investment that we did last year. We feel good about our OpEx levels. Those are well under control and will continue to be managed very closely.

From an advertising spend perspective, there, we made some decisions around focus last year as well. We continue to experiment there. Those decisions are all within our control. So, we feel good about that. From a cost of goods sold perspective, as I mentioned in response to an earlier question as well, input cost environment is improving.

We do expect to experience those improved levels for the remainder of the year. So we feel good about that as well. And then it comes down to revenue and that's frankly where I'd say we attempt to be appropriately realistic about the environment that we're in. But of course, there's always macro risk to some extent.

In terms of all the math to get back to 6% constant currency growth. The question is referring to what we'll be comping through the rest of the year. And yes, we do expect there to be some pressure on Vista growth from consumer. We've talked about that. There's nothing new in the December quarter.

But other than that, I'm not going to walk through quarter-by-quarter revenue guidance or by segment. But we feel comfortable that we can still get to that level. Keep in mind also that there are some of these timing impacts in Q1 as well. And more than half of that will flip into revenue over the rest of the year. So that helps.

And then as we get to -- towards the back end of the year, and it actually becomes an easier comp in parts of our business, and so that will influence growth rate in parts of our business as well. So listen, I think overall, is there a risk? There always is because there's always uncertainties from a macro perspective.

But we've tried to be realistic about our expectations. Hopefully, the way that we've performed over recent quarters as we've given this guidance also kind of shows that that's how we're acting and we're trying to be realistic.

Things can change, but we're going to try to be realistic, and we'll keep everyone updated on how we're doing against those expectations..

Thanks Sean. All right. A question on Vista profitability. With Vista, adjusted EBITDA margins coming in at 19% for the quarter.

How should we think about the potential upside to your previously provided color at Investor Day, which calls for 16% to 18% margins in FY 2024?.

Yes. The Q1 results position us well within the context of that range that we talked about. I think the one variable, just to keep in mind there is advertising spend as a percentage of revenue was at the low end of the range that we had provided in terms of annual spend. I think it was a little bit under 15%, 14.5% or so.

And so that's one variable just to take into account from a margin perspective. We do expect that will fluctuate quarter-to-quarter. But yes, I think the Q1 results position us well within the context of that range..

Thank you. All right. Question for you, Robert. What percentage of annual revenue or EBITDA is from business cards only, excluding stationery and everything else, just business cards. Not much of the market still thinks impress as things of Cimpress as the business card company. I know it's been decreasing.

And I hope that the asker knows that, that's as a percentage of revenue. So, I believe it's helpful to disclose that. It's literally the first question I get when I bring up Cimpress..

Okay. Well, thanks for the question. First of all, let me be very clear. Variable gross profit, gross profit and contribution profit after advertising of business cards are all up in absolute dollars versus FY 2018 before we started this whole transformation of Vista.

They were all-time highs in fiscal 2023, and they were Q1 historical highs this quarter. And it's very close to that from a revenue perspective. There's some differences there. And I realize that the Investor Day, we gave a category that included stationary. But if you looked at just business cards, what I just said is true.

So, business cards revenue and business, our gross profit continue to grow in absolute dollar amounts that's true FY 2023 versus FY 2022, it's true this past quarter versus the first quarter of FY 2023. Now, the growth is in low single digits each year, and we think it's going to continue like that.

But we also recognize it's a market which is declining overall, but we're taking share. Now, for many years, we spent a lot of advertising reinforcing Vistaprint, not Cimpress is print as a discount business company. So that was a perception, and we have moved way with that over the last multiple years.

And so we still get some of that perception in the universe of investors. But although we don't disclose, in fact, we don't even calculate EBITDA by product, which was a question, I think, we do calculate the gross profit numbers and variable contribution profit I just described. And now couple of more thoughts on this.

inside Cimpress, obviously, Visa has the most significant revenue gross profit from business cards. But we do see them -- they're about 25% plus or minus of revenue base, as I mentioned, other than during the pandemic, which they did fall, but they have consistently grown.

Why are they growing? I think one, people are using them in new -- our customers are using them in new use cases. QR codes are becoming very popular, which it's a very easy way to get someone to your website or your digital presence.

We have greatly increased the quality and the depth and breadth of our business card offering in terms of all the variations. And we're finding that customers are buying much smaller volumes of business cards, but at much higher end products, which is leading to both order and value growth.

And because we're selling it at higher price points and higher gross profits than our traditional lead products, if you think of a very traditional Vistaprint approach 5, 10 years ago, it was 250 or 500 basic business cards with constant deep discounting often a $10 or $9.99 business cards for 50% off. We've moved away from that.

So, I'd also say that some of these questions that investors have asked me come from a corporate setting. And I think it's a different way people operate in a corporate setting versus a small business, we could use it again for loyalty cards in a store. It's a box insert for small e-commerce or other product sellers. I mentioned QR codes.

And so the trends are very different. Overall, other businesses have far less revenue from the business cards National Pen and builds basically nothing in Upload and Print, it's closer to 5%..

Great. Thank you, Robert. Robert, I'll stick with you for the next question, which is about the Wix partnership.

How do you think about digital offerings contribution to the business throughout the course of the year? And where do you think it can grow over the medium term?.

Okay. I'm pretty sure your question is about financial contribution, but I just want to give the context of value proposition contribution. I just mentioned QR codes, we recognize, of course, in this world, the physical digital connection of small business brands is important and in mid-larger businesses.

So having the Wix partnership at Vista is very important to be relevant in that world because design and marketing activities very much transcend that physical digital divide. Or increasingly are removing that device.

Now financially, we think we have an opportunity to grow in the Wix partnership because we're now fully migrated off of our legacy product we have in Zero. We're focused on optimizing the experience of the Wix product, which is an excellent product for customers in the small business space. And we think we're offering our customers a product.

They like more, but importantly, the retention is strong in customer cash flows for us even after split the split we do with Wix are better. And we're looking at very successful increases in retention rates. So, again -- so far, the transition has been the focus off of the old product we have.

Now, that it's done, the team that's working on this is shifting their focus to building from here. These are very valuable customers for us. The product is very relevant in today's world, and we're optimistic..

Thank you, Robert. All right. Let's shift to Sean. Can you remind us of our software capitalization policy? I love it.

Do you expect capitalized software to remain at current levels or moderate given the Vista re-platforming is behind us? And if a moderation is expected, would those outflows no longer be incurred or would they shift back into the income statement?.

Yes. We expect capitalized software to be either flat or slightly lower this year than it was last year. Last year's level was $58 million. And that's -- last year's level was down from FY 2022, which was a high of $65 million.

From the -- in terms of the income statement part of the question, if you're asking about the GAAP income statement, the costs that we capitalize get amortized into the P&L over three years.

And so that reduction in the capitalized software levels from what was that high of $65 million in FY 2022, down to what will be approximately the same as last year, probably a little bit lower to $58 million. That difference will benefit the P&L over time because the amortization happens over time. So that founds a little delayed.

My guess is that the question might be trying to get at whether that reduction effectively would reduce our EBITDA because the cost of those team members is just no longer capitalizable, or is there a true reduction and that won't have any impact on EBITDA.

And the answer there is that the reduction from those FY 2022 levels is primarily due to the cost reductions that we did in FY 2023, which did focus where we're investing, but also did take advantage of areas where we could make changes post re-platforming. And so you shouldn't expect the cases that are here at swing back as to EBITDA..

Great. Thank you. All right. So, we've had a live question here. And I think Robert or Sean will do a great job answering it.

How are you leveraging technology data and AI and Gene learning to improve customer experiences and drive growth across your lines of business?.

Yes. So, one, we're doing a lot. I'll give a few examples now. I'd really encourage you to go to our most recent Investor Day, it's all online at our IR site where both the slides. But if you look at the script or watch the video, you really get a good sense in much more detail that I can go into today. But let me just touch a few points.

Data is very important. Martin, our CTO at the group level, [Indiscernible] at the Vista level and you spoke about technology and data in a great extent.

We have literally millions of enrichment where we improve the quality of data at our customers and over 80 billion specific events that happen in upload and order payment, et cetera, which all goes into our data systems. We use machine learning in many different areas.

We started at three, four, five years ago in early examples of how do you make graphic uploads higher resolution, how do you do background knockouts over time that's gotten much broader than what we were doing back in FY 2020. And today, we're doing things like having insights into the designs.

Our customers are uploading AR-powered ten-fleet galleries, the AI information or capabilities we have behind things like logo maker are all based to getting machine learning. We're moving into generative AI work for suggesting graphic design improvements, design quality insurance, customer service and a lot of other ways.

So, again, that's a brief and rapid list of some of the things we're doing. I'd encourage you to look at our Investor Day to get more detail..

Fantastic. Thank you, Robert. All right. We have one more question that is on capital allocation. So, Sean, get ready, would you consider buying back term loan B seeing that the total interest on TLB is higher than the bonds, which are 7% fixed? We had a couple of questions like that..

Sure. And we've had a couple of questions like this in recent quarters. So the answer will be very consistent with what we've said in recent quarters. As of -- at the end of September, the weighted average interest rate on our term loan B that was just under 8%, 7.9%, inclusive of swaps. And so the non-hedged portion of that was higher.

So, yes, the current rates are higher for our term loans, which were at variable rate, and that's higher than the 7% coupon on our bonds. But our bonds were trading at a deeper discount our loans. So, when you look at the yield, the yield has been much higher for bond repurchases. That was the case in Q1.

To put that in perspective, during the window that we were buying in Q1, our bonds traded between 93% and 94%, and our average purchase price was 93.6% or so. And the U.S. dollar tranche of our term loan B traded closer to part. So that discount was not there. The yield to maturity on our bond repurchases in Q1 averaged a little bit under 10%.

Although if you assume that we refinance our bonds in advance of the maturity, then the actual yield goes up from there. The bonds also mature two years before the term will be. So, we take term into account when we're trying to make these decisions as well.

It's not out of the question that we would buy term loan B, but these are some of the factors that we consider, most notably yield and term. There are some others too. And so we'll continue to look at that and also the direction of interest rates, which obviously is an important input to this..

Thank you, Sean. All right. That brings us to the end of our questions and I'm going to hand things over to Robert to wrap-up..

Okay. Thank you, Meredith. Thank you to all the investors for joining the call and continuing to entrust your capital with us. We look forward to delivering during this second quarter, which is our holiday peak as well as the rest of the fiscal year. We're off to a very good start.

We're excited to be leveraging a stronger set of tools and capabilities to deliver great customer experiences stronger really than we've had in years.

We are also financially excited to continue on the path to grow our profit and cash flow, very much in line with what we've been speaking about for the last year and to continue as we do so, nonetheless, to invest in the development of new capabilities, new customer value propositions that will continue to build our intrinsic value per share.

Thank you again for your time, and have a great day..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect..