CIMPRESS plc - Quarter Report: 2020 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

Form 10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	December 31, 2020
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 000-51539

_________________________________

Cimpress plc

(Exact Name of Registrant as Specified in Its Charter)

_________________________________


Ireland									98-0417483
(State or Other Jurisdiction of Incorporation or Organization)									(I.R.S. Employer Identification No.)

Building D, Xerox Technology Park A91 H9N9,

Dundalk, Co. Louth

Ireland

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: 353 42 938 8500

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Exchange on Which Registered

Ordinary Shares, nominal value of €0.01 per share

CMPR

NASDAQ Global Select Market

______________________________

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No þ

As of January 25, 2021, there were 26,003,676 Cimpress plc ordinary shares outstanding.

CIMPRESS PLC

QUARTERLY REPORT ON FORM 10-Q

For the Three and Six Months ended December 31, 2020

TABLE OF CONTENTS


						Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)						1
Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020						1
Consolidated Statements of Operations for the three and six months ended December 31, 2020 and 2019						2
Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2020 and 2019						3
Consolidated Statements of Shareholders' Equity (Deficit) for the three and six months ended December 31, 2020 and 2019						4
Consolidated Statements of Cash Flows for the six months ended December 31, 2020 and 2019						6
Notes to Consolidated Financial Statements						7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations						28
Item 3. Quantitative and Qualitative Disclosures About Market Risk						42
Item 4. Controls and Procedures						43

PART II OTHER INFORMATION
Item 1A. Risk Factors						44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						44
Item 6. Exhibits						45
Signatures						46

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CIMPRESS PLC

CONSOLIDATED BALANCE SHEETS

(unaudited in thousands, except share and per share data)


	December 31, 2020		June 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	36,883	$	45,021
Accounts receivable, net of allowances of $10,797 and $9,651, respectively	51,404		34,596
Inventory	85,932		80,179
Prepaid expenses and other current assets	84,965		88,608

Total current assets	259,184		248,404
Property, plant and equipment, net	332,824		338,659
Operating lease assets, net	149,851		156,258
Software and website development costs, net	82,581		71,465
Deferred tax assets	146,814		143,496
Goodwill	726,813		621,904
Intangible assets, net	212,078		209,228
Other assets	20,368		25,592
Total assets	$	1,930,513	$	1,815,006
Liabilities, noncontrolling interests and shareholders’ deficit
Current liabilities:
Accounts payable	$	236,540	$	163,891
Accrued expenses	291,039		210,764
Deferred revenue	41,913		39,130
Short-term debt	12,603		17,933
Operating lease liabilities, current	38,315		41,772
Other current liabilities	40,966		13,268

Total current liabilities	661,376		486,758
Deferred tax liabilities	30,941		33,811
Long-term debt	1,258,535		1,415,657

Operating lease liabilities, non-current	122,006		128,963
Other liabilities	157,076		88,187
Total liabilities	2,229,934		2,153,376
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests	65,510		69,106
Shareholders’ deficit:
Preferred shares, nominal value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding	—		—
Ordinary shares, nominal value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; 26,003,649 and 25,885,675 shares outstanding, respectively	615		615
Deferred ordinary shares, nominal value €1.00 per share, 25,000 shares authorized, issued and outstanding	28		28
Treasury shares, at cost, 18,076,978 and 18,194,952 shares, respectively	(1,368,723)		(1,376,496)
Additional paid-in capital	438,863		438,616
Retained earnings	638,883		618,437
Accumulated other comprehensive loss	(74,597)		(88,676)


Total shareholders' deficit	(364,931)		(407,476)
Total liabilities, noncontrolling interests and shareholders’ deficit	$	1,930,513	$	1,815,006

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited in thousands, except share and per share data)


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Revenue	$	786,145	$	820,333	$	1,372,645	$	1,454,292
Cost of revenue (1)	385,979		394,018		684,823		719,683
Technology and development expense (1)	65,036		64,427		123,525		127,594
Marketing and selling expense (1)	182,322		173,336		320,472		334,253
General and administrative expense (1)	42,979		51,910		84,791		95,533
Amortization of acquired intangible assets	13,453		13,150		26,758		26,168
Restructuring expense (1)	2,182		1,897		2,096		4,087


Income from operations	94,194		121,595		130,180		146,974
Other (expense) income, net	(17,198)		(9,040)		(25,952)		6,634
Interest expense, net	(30,141)		(15,701)		(60,657)		(30,788)

Income before income taxes	46,855		96,854		43,571		122,820
Income tax expense (benefit)	12,954		(93,795)		19,748		(87,680)
Net income	33,901		190,649		23,823		210,500
Add: Net income attributable to noncontrolling interest	(1,614)		(426)		(2,291)		(246)
Net income attributable to Cimpress plc	$	32,287	$	190,223	$	21,532	$	210,254
Basic net income per share attributable to Cimpress plc	$	1.24	$	7.04	$	0.83	$	7.41
Diluted net income per share attributable to Cimpress plc	$	1.22	$	6.81	$	0.82	$	7.19
Weighted average shares outstanding — basic	26,003,649		27,036,675		25,974,823		28,391,855
Weighted average shares outstanding — diluted	26,384,460		27,916,759		26,390,273		29,223,116

____________________________________________

(1) Share-based compensation is allocated as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Cost of revenue	$	34	$	97	$	134	$	185
Technology and development expense	1,215		2,043		3,406		3,777
Marketing and selling expense	754		533		2,439		(778)
General and administrative expense	3,240		5,652		7,547		9,891
Restructuring expense	—		108		—		772

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited in thousands)


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Net income	$	33,901	$	190,649	$	23,823	$	210,500
Other comprehensive income, net of tax:
Foreign currency translation gains, net of hedges	13,946		3,180		14,763		1,620
Net unrealized gains (losses) on derivative instruments designated and qualifying as cash flow hedges	3,802		6,131		7,638		(1,057)
Amounts reclassified from accumulated other comprehensive (loss) income to net income on derivative instruments	(3,226)		(1,145)		(5,297)		3,006


Loss on pension benefit obligation, net	—		—		(336)		—
Comprehensive income	48,423		198,815		40,591		214,069
Add: Comprehensive (income) loss attributable to noncontrolling interests	(2,877)		(1,122)		(4,980)		548
Total comprehensive income attributable to Cimpress plc	$	45,546	$	197,693	$	35,611	$	214,617

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(unaudited in thousands)


	Ordinary Shares			Deferred Ordinary Shares			Treasury Shares
	Number of Shares Issued	Amount		Number of Shares Issued	Amount		Number of Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity (Deficit)
Balance at June 30, 2019	44,080	$	615	—	$	—	(13,635)	$	(737,447)	$	411,079	$	537,422	$	(79,857)	$	131,812
Restricted share units vested, net of shares withheld for taxes	—	—		—	—		4	87		(259)		—		—		(172)
Grant of restricted share awards	—	—		—	—		(2)	(187)		—		—		—		(187)
Share-based compensation expense	—	—		—	—		—	—		5,164		—		—		5,164
Purchase of ordinary shares	—	—		—	—		(1,964)	(232,286)		—		—		—		(232,286)
Net income attributable to Cimpress plc	—	—		—	—		—	—		—		20,031		—		20,031
Adoption of new accounting standards	—	—		—	—		—	—		—		3,143		—		3,143
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		(3,037)		(3,037)
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		(70)		(70)
Balance at September 30, 2019	44,080	$	615	—	$	—	(15,597)	$	(969,833)	$	415,984	$	560,596	$	(82,964)	$	(75,602)
Restricted share units vested, net of shares withheld for taxes	—	—		—	—		1	55		(152)		—		—		(97)
Issuance of ordinary shares due to share option exercises, net of shares withheld for taxes	—	—		—	—		1	8		(2)		—		—		6
Issuance of deferred ordinary shares	—	—		25	28		—	—		—		—		—		28
Share-based compensation expense	—	—		—	—		—	—		8,228		—		—		8,228
Purchase of ordinary shares	—	—		—	—		(2,280)	(305,287)		—		—		—		(305,287)
Net income attributable to Cimpress plc	—	—		—	—		—	—		—		190,223		—		190,223
Redeemable noncontrolling interest accretion to redemption value	—	—		—	—		—	—		—		(5,493)		—		(5,493)
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		4,986		4,986
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		2,484		2,484
Balance at December 31, 2019	44,080	$	615	25	$	28	(17,875)	$	(1,275,057)	$	424,058	$	745,326	$	(75,494)	$	(180,524)

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)

(unaudited in thousands)


	Ordinary Shares			Deferred Ordinary Shares			Treasury Shares
	Number of Shares Issued	Amount		Number of Shares Issued	Amount		Number of Shares	Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity (Deficit)
Balance at June 30, 2020	44,080	$	615	25	$	28	(18,195)	$	(1,376,496)	$	438,616	$	618,437	$	(88,676)	$	(407,476)

Restricted share units vested, net of shares withheld for taxes	—	—		—	—		118	7,773		(13,366)		—		—		(5,593)

Share-based compensation expense	—	—		—	—		—	—		8,577		—		—		8,577
Net loss attributable to Cimpress plc	—	—		—	—		—	—		—		(10,755)		—		(10,755)
Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		1,765		1,765
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		(609)		(609)
Unrealized loss on pension benefit obligation, net of tax	—	—		—	—		—	—		—		—		(336)		(336)
Balance at September 30, 2020	44,080	$	615	25	$	28	(18,077)	$	(1,368,723)	$	433,827	$	607,682	$	(87,856)	$	(414,427)



Share-based compensation expense	—	—		—	—		—	—		5,036		—		—		5,036
Net income attributable to Cimpress plc	—	—		—	—		—	—		—		32,287		—		32,287
Redeemable noncontrolling interest accretion to redemption value	—	—		—	—		—	—		—		(1,086)		—		(1,086)

Net unrealized gain on derivative instruments designated and qualifying as cash flow hedges	—	—		—	—		—	—		—		—		576		576
Foreign currency translation, net of hedges	—	—		—	—		—	—		—		—		12,683		12,683

Balance at December 31, 2020	44,080	$	615	25	$	28	(18,077)	$	(1,368,723)	$	438,863	$	638,883	$	(74,597)	$	(364,931)

See accompanying notes.

CIMPRESS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited in thousands)


	Six Months Ended December 31,
	2020		2019
Operating activities
Net income	$	23,823	$	210,500
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	85,887		84,891

Share-based compensation expense	13,526		13,847
Deferred taxes	2,681		(105,575)




Unrealized loss on derivatives not designated as hedging instruments included in net income	32,545		7,548
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency	(3,132)		1,359

Other non-cash items	4,829		3,045

Changes in operating assets and liabilities:
Accounts receivable	(14,259)		(8,240)
Inventory	510		(10,680)
Prepaid expenses and other assets	78		(2,255)
Accounts payable	60,800		24,432
Accrued expenses and other liabilities	48,880		46,225
Net cash provided by operating activities	256,168		265,097
Investing activities
Purchases of property, plant and equipment	(16,790)		(28,094)

Business acquisitions, net of cash acquired	(36,395)		(4,272)

Capitalization of software and website development costs	(26,445)		(23,417)
Proceeds from the sale of assets	3,372		847




Other investing activities	(419)		1,120
Net cash used in investing activities	(76,677)		(53,816)
Financing activities
Proceeds from borrowings of debt	301,000		634,085



Payments of debt	(472,469)		(292,446)


Payments of debt issuance costs	(1,051)		—
Payments of purchase consideration included in acquisition-date fair value	(648)		—
Payments of withholding taxes in connection with equity awards	(5,592)		(462)
Payments of finance lease obligations	(3,275)		(5,364)
Purchase of noncontrolling interests	(5,063)		—

Purchase of ordinary shares	—		(537,573)
Proceeds from issuance of ordinary shares	—		6


Distribution to noncontrolling interest	(4,599)		(3,921)
Other financing activities	(57)		(1,715)
Net cash used in financing activities	(191,754)		(207,390)


Effect of exchange rate changes on cash	4,125		(2,253)

Net decrease in cash and cash equivalents	(8,138)		1,638
Cash and cash equivalents at beginning of period	45,021		35,279
Cash and cash equivalents at end of period	$	36,883	$	36,917
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	58,299	$	33,313
Income taxes	4,991		5,183
Non-cash investing and financing activities:
Property and equipment acquired under finance leases	150		140
Amounts accrued related to business acquisitions	45,369		2,831

See accompanying notes.

CIMPRESS PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited in thousands, except share and per share data)

1. Description of the Business

Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. Mass customization is a core element of the business model of each Cimpress business. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Cimpress plc, its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we cannot exercise significant influence, and the related equity securities do not have a readily determinable fair value, are accounted for using the cost method and are included in other assets on the consolidated balance sheets.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

Given the current and expected impact of the COVID-19 pandemic on our business, we evaluated our liquidity position as of the date of the issuance of these consolidated financial statements. Based on this evaluation, management believes, despite the ongoing impact of COVID-19 on our business, that our financial position, net cash provided by operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility, will be sufficient to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. For the debt covenants that have been temporarily suspended under the amendment and capital raise as described in Note 9, these covenants will be reinstated no later than the quarter ending December 31, 2021. Based on our current financial results and forecasted performance, we believe we will remain in compliance with these covenants upon reinstatement.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 in our consolidated financial statements included in the Form 10-K for our year ended June 30, 2020. There have been no material changes to our significant accounting policies during the three and six months ended December 31, 2020.

Other (Expense) Income, Net

The following table summarizes the components of other (expense) income, net:


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
(Losses) gains on derivatives not designated as hedging instruments (1)	$	(19,020)	$	(11,666)	$	(32,515)	$	7,691
Currency-related gains (losses), net (2)	1,809		2,645		5,884		(767)
Other gains (losses)	13		(19)		679		(290)
Total other (expense) income, net	$	(17,198)	$	(9,040)	$	(25,952)	$	6,634

_____________________

(1) Primarily relates to both realized and unrealized gains and losses on derivative currency forward and option contracts not designated as hedging instruments, as well as certain interest rate swap contracts that have been de-designated from hedge accounting due to their ineffectiveness.

(2) We have significant non-functional currency intercompany financing relationships that we may change at times and are subject to currency exchange rate volatility. The currency-related gains (losses), net for the three and six months ended December 31, 2020 and 2019 are primarily driven by this intercompany activity. In addition, we have certain cross-currency swaps designated as cash flow hedges, which hedge the remeasurement of certain intercompany loans, both presented in the same component above. The unrealized losses related to cross-currency swaps were $6,085 and $11,522 for the three and six months ended December 31, 2020, respectively, as compared to unrealized losses of $2,858 and $1,820 for the three and six months ended December 31, 2019, respectively.

Net Income Per Share Attributable to Cimpress plc

Basic net income per share attributable to Cimpress plc is computed by dividing net income attributable to Cimpress plc by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net income per share attributable to Cimpress plc gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”), warrants, and performance share units ("PSUs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.

The following table sets forth the reconciliation of the weighted-average number of ordinary shares:


	Three Months Ended December 31,		Six Months Ended December 31,
	2020	2019	2020	2019
Weighted average shares outstanding, basic	26,003,649	27,036,675	25,974,823	28,391,855
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/warrants	380,811	880,084	415,450	831,261
Shares used in computing diluted net income per share attributable to Cimpress plc	26,384,460	27,916,759	26,390,273	29,223,116
Weighted average anti-dilutive shares excluded from diluted net income per share attributable to Cimpress plc (1)	3,129	—	1,565	—

_____________________

(1) On May 1, 2020, we entered into a financing arrangement with Apollo Global Management, Inc., which included 7-year warrants with a strike price of $60 that have a potentially dilutive impact on our weighted average shares outstanding. For the three and six months ended December 31, 2020, the weighted average anti-dilutive effect of the warrants was 318,191 and 317,224 shares, respectively. Refer to Note 9 for additional details about the arrangement.

Recently Issued or Adopted Accounting Pronouncements

New Accounting Standards Adopted

In December 2019, the FASB issued Accounting Standards Update No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (ASU 2019-12), which modifies certain aspects of income tax accounting. We early adopted the standard on July 1, 2020. For the six months ended December 31, 2020, adopting ASU 2019-12 resulted in a $2,771 increased tax expense in our consolidated financial statements, related to the intraperiod allocation rules. Under the intraperiod allocation rules, an entity generally allocates total income tax expense or benefit by first determining the amount attributable to continuing operations and then allocating the remaining tax expense or benefit to items other than continuing operations. An exception existed that required an

entity with a loss from continuing operations to consider all components when determining the benefit from continuing operations. ASU 2019-12 removes this exception.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" (ASU 2016-13), which introduces a new accounting model for recognizing credit losses on certain financial instruments based on an estimate of current expected credit losses. We adopted the standard on its effective date of July 1, 2020. The standard did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform ("ASC 848"): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which contains optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. We elected to amend our hedge documentation, without dedesignating and redesignating, for all outstanding cash flow hedges by applying two practical expedients. We elected the expedient in ASC 848-50-25-2 to assert probability of the hedged interest payments regardless of any expected modification in terms related to reference rate reform. In addition, we elected to continue the method of assessing effectiveness as documented in the original hedge documentation and elect to apply the expedient in ASC 848-50-35-17, so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. The standard did not have a material impact on our consolidated financial statements.

During the three months ended December 31, 2020, the tax on Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Cuts and Jobs Act became applicable to our operations. The FASB has provided that companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI. We elected to account for GILTI as a period cost, as incurred. We do not expect GILTI to have a material impact on our consolidated financial statements.

3. Fair Value Measurements

We use a three-level valuation hierarchy for measuring fair value and include detailed financial statement disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

•Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:


	December 31, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets


Currency forward contracts	$	692	$	—	$	692	$	—

Total assets recorded at fair value	$	692	$	—	$	692	$	—

Liabilities
Interest rate swap contracts	$	(32,999)	$	—	$	(32,999)	$	—
Cross-currency swap contracts	(14,622)		—		(14,622)		—
Currency forward contracts	(41,764)		—		(41,764)		—
Currency option contracts	(4,274)		—		(4,274)		—
Total liabilities recorded at fair value	$	(93,659)	$	—	$	(93,659)	$	—


	June 30, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Interest rate swap contracts	$	4,462	$	—	$	4,462	$	—
Currency forward contracts	7,949		—		7,949		—
Currency option contracts	1,429		—		1,429		—
Total assets recorded at fair value	$	13,840	$	—	$	13,840	$	—

Liabilities
Interest rate swap contracts	$	(39,520)	$	—	$	(39,520)	$	—
Cross-currency swap contracts	(4,746)		—		(4,746)		—
Currency forward contracts	(8,519)		—		(8,519)		—
Currency option contracts	(38)		—		(38)		—
Total liabilities recorded at fair value	$	(52,823)	$	—	$	(52,823)	$	—

During the quarter ended December 31, 2020 and year ended June 30, 2020, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.

The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of December 31, 2020, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

As of December 31, 2020 and June 30, 2020, the carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximated their estimated fair values. As of December 31, 2020 and June 30, 2020, the carrying value of our debt, excluding debt issuance costs and debt premiums and discounts, was $1,315,372 and $1,482,177, respectively, and the fair value was $1,358,180 and $1,450,719, respectively. Our debt at December 31, 2020 includes variable-rate debt instruments indexed to LIBOR that resets periodically, as well as fixed-rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.

4. Derivative Financial Instruments

We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward and option contracts, to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, then the change in the fair value of the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. Additionally, any ineffectiveness associated with any effective and designated hedge is recognized within accumulated other comprehensive loss.

The change in the fair value of derivatives not designated as hedges is recognized directly in earnings as a component of other (expense) income, net.

Hedges of Interest Rate Risk

We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings as a component of interest expense, net.

Amounts reported in accumulated other comprehensive loss related to interest rate swap contracts will be reclassified to interest expense, net as interest payments are accrued or made on our variable-rate debt. As of December 31, 2020, we estimate that $10,446 will be reclassified from accumulated other comprehensive loss to interest expense during the twelve months ending December 31, 2021. As of December 31, 2020, we had ten outstanding interest rate swap contracts indexed to USD LIBOR, of which six of these instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through September 2025. As of December 31, 2020, we have determined that four of our hedges are no longer highly effective. These de-designated hedges have varying start dates and maturity dates through December 2025.


Interest rate swap contracts outstanding:	Notional Amounts
Contracts accruing interest as of December 31, 2020	$	500,000
Contracts with a future start date	50,000
Total	$	550,000

Hedges of Currency Risk

Cross-Currency Swap Contracts

From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the

contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.

Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. dollar. As of December 31, 2020, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,874, both maturing during June 2024. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro-denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.

Amounts reported in accumulated other comprehensive loss will be reclassified to other (expense) income, net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of December 31, 2020, we estimate that $2,176 of income will be reclassified from accumulated other comprehensive loss to interest expense, net during the twelve months ending December 31, 2021.

Other Currency Contracts

We execute currency forward and option contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. dollar.

As of December 31, 2020, we had five currency forward contracts designated as net investment hedges with a total notional amount of $149,604, maturing during various dates through April 2023. We entered into these contracts to hedge the risk of changes in the U.S. dollar equivalent value of a portion of our net investment in two consolidated subsidiaries that have the Euro as their functional currency. Amounts reported in accumulated other comprehensive loss are recognized as a component of our cumulative translation adjustment.

We have elected to not apply hedge accounting for all other currency forward and option contracts. During the three and six months ended December 31, 2020 and 2019, we have experienced volatility within other (expense) income, net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward and option contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.

As of December 31, 2020, we had the following outstanding currency derivative contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. dollar value of forecasted transactions or balances denominated in Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Euro, Indian Rupee, Mexican Peso, New Zealand Dollar, Norwegian Krone, Philippine Peso, Swiss Franc and Swedish Krona:

Notional Amount

Effective Date

Maturity Date

Number of Instruments

Index

$484,660

March 2019 through December 2020

Various dates through October 2024

602

Various

Financial Instrument Presentation

The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of December 31, 2020 and June 30, 2020. Our derivative asset and liability balances will fluctuate with interest rate and currency exchange rate volatility.


	December 31, 2020
	Asset Derivatives							Liability Derivatives
	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet		Net amount		Balance Sheet line item	Gross amounts of recognized liabilities		Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives designated as hedging instruments
Derivatives in cash flow hedging relationships
Interest rate swaps	Other current assets / other assets	$	—	$	—	$	—	Other liabilities	$	(20,839)	$	—	$	(20,839)
Cross-currency swaps	Other assets	—		—		—		Other liabilities	(14,622)		—		(14,622)
Derivatives in net investment hedging relationships

Currency forward contracts	Other assets	—		—		—		Other current liabilities / other liabilities	(25,758)		—		(25,758)
Total derivatives designated as hedging instruments		$	—	$	—	$	—		$	(61,219)	$	—	$	(61,219)

Derivatives not designated as hedging instruments
Interest rate swaps	Other assets	$	—	$	—	$	—	Other liabilities	$	(12,160)	$	—	$	(12,160)
Currency forward contracts	Other current assets / other assets	772		(80)		692		Other current liabilities / other liabilities	(18,548)		2,542		(16,006)
Currency option contracts	Other current assets / other assets	—		—		—		Other current liabilities / other liabilities	(4,274)		—		(4,274)
Total derivatives not designated as hedging instruments		$	772	$	(80)	$	692		$	(34,982)	$	2,542	$	(32,440)


	June 30, 2020
	Asset Derivatives							Liability Derivatives
	Balance Sheet line item	Gross amounts of recognized assets		Gross amount offset in Consolidated Balance Sheet		Net amount		Balance Sheet line item	Gross amounts of recognized liabilities		Gross amount offset in Consolidated Balance Sheet		Net amount
Derivatives designated as hedging instruments
Derivatives in cash flow hedging relationships
Interest rate swaps	Other current assets / other assets	$	—	$	—	$	—	Other liabilities	$	(31,161)	$	—	$	(31,161)
Cross-currency swaps	Other assets	4,462		—		4,462		Other liabilities	(4,746)		—		(4,746)
Derivatives in net investment hedging relationships
Currency forward contracts	Other assets	—		—		—		Other current liabilities / other liabilities	(6,829)		—		(6,829)
Total derivatives designated as hedging instruments		$	4,462	$	—	$	4,462		$	(42,736)	$	—	$	(42,736)

Derivatives not designated as hedging instruments
Interest rate swaps	Other assets	$	—	$	—	$	—	Other liabilities	$	(8,359)	$	—	$	(8,359)
Currency forward contracts	Other current assets / other assets	9,702		(1,753)		7,949		Other current liabilities / other liabilities	(2,136)		446		(1,690)
Currency option contracts	Other current assets / other assets	1,699		(270)		1,429		Other current liabilities / other liabilities	(38)		—		(38)
Total derivatives not designated as hedging instruments		$	11,401	$	(2,023)	$	9,378		$	(10,533)	$	446	$	(10,087)

The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income for the three and six months ended December 31, 2020 and 2019:


	Amount of Net (Loss) Gain on Derivatives Recognized in Comprehensive Income
	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Derivatives in cash flow hedging relationships




Interest rate swaps	$	731	$	4,394	$	1,142	$	(196)
Cross-currency swaps	3,071		1,737		6,496		(861)
Derivatives in net investment hedging relationships

Currency forward contracts	(7,294)		(4,153)		(24,832)		8,565
Total	$	(3,492)	$	1,978	$	(17,194)	$	7,508

The following table presents reclassifications out of accumulated other comprehensive loss for the three and six months ended December 31, 2020 and 2019:


	Amount of Net Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income								Affected line item in the Statement of Operations
	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Derivatives in cash flow hedging relationships
Interest rate swaps	$	2,001	$	485	$	4,623	$	455		Interest expense, net
Cross-currency swaps	(5,525)		(2,026)		(10,292)		3,538			Other (expense) income, net
Total before income tax	(3,524)		(1,541)		(5,669)		3,993			Income before income taxes
Income tax	298		396		372		(987)			Income tax expense (benefit)
Total	$	(3,226)	$	(1,145)	$	(5,297)	$	3,006

The following table presents the adjustment to fair value recorded within the consolidated statements of operations for the three and six months ended December 31, 2020 and 2019 for derivative instruments for which we did not elect hedge accounting and de-designated derivative financial instruments that no longer qualify as hedging instruments.


	Amount of Gain (Loss) Recognized in Net Income									Affected line item in the Statement of Operations
		Three Months Ended December 31,				Six Months Ended December 31,
		2020		2019		2020		2019
Currency contracts		$	(19,496)	$	(11,666)	$	(32,964)	$	7,691		Other (expense) income, net
Interest rate swaps		476		—		449		—			Other (expense) income, net
Total		$	(19,020)	$	(11,666)	$	(32,515)	$	7,691

5. Accumulated Other Comprehensive Income (Loss)

The following table presents a roll forward of amounts recognized in accumulated other comprehensive income (loss) by component, net of tax of $500 for the six months ended December 31, 2020:


	Gains (losses) on cash flow hedges (1)		Losses on pension benefit obligation		Translation adjustments, net of hedges (2)		Total
Balance as of June 30, 2020	$	(30,078)	$	(1,399)	$	(57,199)	$	(88,676)
Other comprehensive income (loss) before reclassifications	7,638		(336)		12,074		19,376
Amounts reclassified from accumulated other comprehensive loss to net income	(5,297)		—		—		(5,297)
Net current period other comprehensive income (loss)	2,341		(336)		12,074		14,079
Balance as of December 31, 2020	$	(27,737)	$	(1,735)	$	(45,125)	$	(74,597)

________________________

(1) Gains (losses) on cash flow hedges include our interest rate swap and cross-currency swap contracts designated in cash flow hedging relationships.

(2) As of December 31, 2020 and June 30, 2020, the translation adjustment is inclusive of the effects of our net investment hedges, of which, unrealized losses of $4,323 and unrealized gains of $20,509, respectively, net of tax, have been included in accumulated other comprehensive loss.

6. Goodwill

The carrying amount of goodwill by reportable segment as of December 31, 2020 and June 30, 2020 was as follows:


	Vistaprint		PrintBrothers		The Print Group		All Other Businesses		Total
Balance as of June 30, 2020	$	150,846	$	129,764	$	155,197	$	186,097	$	621,904
Acquisitions (1)	71,401		—		—		—		71,401



Effect of currency translation adjustments (2)	6,939		12,098		14,471		—		33,508
Balance as of December 31, 2020	$	229,186	$	141,862	$	169,668	$	186,097	$	726,813

_________________

(1) On October 1, 2020, we acquired 99designs which is included in our Vistaprint reportable segment. Refer to Note 7 for additional details.

(2) Related to goodwill held by subsidiaries whose functional currency is not the U.S. dollar.

7. Business Combinations

On October 1, 2020, we acquired 99designs, Inc. and its subsidiaries ("99designs"), a global creative platform for graphic design. We acquired all outstanding shares of the company for a purchase price of $90,000, subject to a post-closing adjustment based on acquired cash, debt, and working capital as of the closing date. We paid $45,000 in cash at closing and will pay the remaining purchase consideration, including the post-closing adjustment, on February 15, 2022. The acquisition will be integrated into our Vistaprint business and provides a global platform that connects designers and clients, making it easier for small businesses to access both professional design services and marketing products in one place.

The table below details the consideration transferred to acquire 99designs:


Cash consideration (paid at closing)	$	45,000
Fair value of deferred payment	43,381
Final post closing adjustment	310
Total purchase price	$	88,691

We recognized the assets and liabilities on the basis of their fair values at the date of the acquisition with any excess of the purchase price paid over the fair value of the net assets recorded as goodwill, which is primarily attributable to the synergies that we expect to achieve through the acquisition. The goodwill balance has been attributed to the Vistaprint reportable segment and the portion of such goodwill balance that is deductible for tax

purposes is $20,257. Additionally, we identified and valued 99designs intangible assets which include their trade name, designer network, and developed technology.

Our preliminary estimate of the fair value of specifically identifiable assets acquired and liabilities assumed as of the date of acquisition is subject to change upon finalizing our valuation analysis, including certain valuation assumptions and tax matters. The final determination may result in changes in the fair value of certain assets and liabilities as compared to our preliminary estimates, which are expected to be finalized prior to the end of fiscal 2021.

The fair value of the assets acquired and liabilities assumed was:

Amount

Weighted Average Useful Life in Years

Tangible assets acquired and liabilities assumed:

Cash and cash equivalents

8,603

n/a

Accounts receivable, net

494

n/a

Prepaid expenses and other current assets

1,167

n/a

Property, plant and equipment, net

n/a

Other assets

142

n/a

Accounts payable

(220)

n/a

Accrued expenses

(6,679)

n/a

Deferred revenue

(5,806)

n/a

Other liabilities

(1,234)

n/a

Identifiable intangible assets

Trade name

1,550

2 years

Developed technology

13,400

3 years

Designer network

5,800

7 years

Goodwill

71,401

n/a

Total purchase price

88,691

n/a

99designs has been included in our consolidated financial statements starting on its acquisition date. The revenue and earnings of 99designs included in our consolidated financial statements for the three and six months ended December 31, 2020 are not material, and therefore no proforma financial information is presented. We utilized our credit facility to finance the acquisition. In connection with the acquisition, we incurred $682 and $1,183 in general and administrative expenses during the three and six months ended December 31, 2020, primarily related to legal, financial, and other professional services.

8. Other Balance Sheet Components

Accrued expenses included the following:


	December 31, 2020		June 30, 2020
Compensation costs	$	68,179	$	67,307
Income and indirect taxes (1)	75,875		53,161
Advertising costs (1)	46,507		14,746
Interest payable	7,397		8,359
Production costs (1)	12,049		7,012
Sales returns	5,993		5,166
Shipping costs (1)	12,657		5,080
Professional fees	3,016		3,452
Purchases of property, plant and equipment	523		1,685
Other	58,843		44,796
Total accrued expenses	$	291,039	$	210,764

_________________

(1) The increase in income and indirect taxes, advertising, production, and shipping costs is due to increased sales volumes during our peak holiday season in the second quarter of our fiscal year. Advertising cost accruals are also driven by increased investment in upper-funnel advertising in Vistaprint.

Other current liabilities included the following:


	December 31, 2020		June 30, 2020
Current portion of finance lease obligations	$	8,815	$	8,055
Short-term derivative liabilities	27,210		3,521


Other	4,941		1,692
Total other current liabilities	$	40,966	$	13,268

Other liabilities included the following:


	December 31, 2020		June 30, 2020
Long-term finance lease obligations	$	16,132	$	18,617
Long-term derivative liabilities	69,071		51,800


Other (1)	71,873		17,770
Total other liabilities	$	157,076	$	88,187

_____________________

(1) The increase in other long term liabilities is driven by the deferred payment related to the 99designs acquisition totaling $43,691. Refer to Note 7 for additional details.

9. Debt


	December 31, 2020		June 30, 2020
7.0% Senior unsecured notes due 2026	$	600,000	$	600,000
Senior secured credit facility	404,375		570,483
12.0% Second lien notes due 2025	300,000		300,000
Other	10,997		11,694
Debt issuance costs and debt premiums (discounts)	(44,234)		(48,587)
Total debt outstanding, net	1,271,138		1,433,590
Less: short-term debt (1)	12,603		17,933
Long-term debt	$	1,258,535	$	1,415,657

_____________________

(1) Balances as of December 31, 2020 and June 30, 2020 are inclusive of short-term debt issuance costs, debt premiums and discounts of $10,567 and $10,362, respectively.

Our Debt

Our various debt arrangements described below contain customary representations, warranties and events of default. As of December 31, 2020, the pre-existing financial maintenance covenants under our senior secured credit facility covenants are suspended, and we were in compliance with all financial and other covenants under the credit agreement as amended, the indenture governing our 2026 Notes, and the indenture governing our Second Lien Notes.

Senior Secured Credit Facility

On April 28, 2020, we entered into an amendment to our senior secured credit agreement to suspend our pre-existing maintenance covenants, including the total and senior secured leverage covenants and interest coverage ratio covenant, until the publication of our results for the quarter ending December 31, 2021, for which quarter the pre-amendment maintenance covenants will be reinstated. The covenant suspension period could end earlier at our election if we have total leverage equal to or lower than 4.75x annualized EBITDA for each of two consecutive quarters and are compliant with pre-amendment maintenance covenants.

During the covenant suspension period, we must comply with new maintenance covenants requiring EBITDA above zero in each of the quarters ending June 30, 2021 and September 30, 2021 and minimum liquidity (defined in the credit agreement as unrestricted cash plus unused revolver) of $50,000. The amendment increased pricing to LIBOR plus 3.25% during the covenant suspension period and to LIBOR plus 2.50% to 3.25% after the covenant suspension period, depending on our total leverage ratio, including a 0.75% floor for LIBOR borrowings. Additionally, as part of the amendment, the maturity date was changed from February 2025 to November 2024. The amendment to the senior secured credit agreement also reduced the credit facility from $1,551,419 to $1,000,000, made up of an $850,000 revolver and $150,000 term loan.

During the covenant suspension period, we have more restrictive limitations on certain activities and actions, including but not limited to:

•the incurrence of additional indebtedness and liens,

•the consummation of certain investments, including acquisitions,

•the making of restricted payments, including the purchases of our ordinary shares and payment of dividends.

As of December 31, 2020, we have drawn commitments under the credit facility of $404,375 as follows:

•Revolving loans of $260,000 with a maturity date of November 15, 2024

•Term loans of $144,375 amortizing over the loan period, with a final maturity date of November 15, 2024

As of December 31, 2020, the weighted-average interest rate on outstanding borrowings was 5.94%, inclusive of interest rate swap rates. We are also required to pay a commitment fee on unused balances of 0.35% to

0.50% depending on our total leverage ratio, and 0.50% during the covenant suspension period. We have pledged the assets and/or share capital of a number of our subsidiaries as collateral for our outstanding debt as of December 31, 2020.

Second Lien Notes

On May 1, 2020, we completed a private placement of $300,000 in aggregate principal of 12% second lien notes due 2025 (the "Second Lien Notes") and warrants to funds managed by affiliates of Apollo Global Management, Inc. (the "Apollo Funds"). These Second Lien Notes and warrants were issued at a discount of $6,000, resulting in net proceeds of $294,000. We used the proceeds to pay down a portion of the term loans under our senior secured credit facility and to pay fees and expenses incurred in connection with the financing and the above-described amendment.

The Second Lien Notes bear interest at 12% per annum, 50% of which can be paid-in-kind at our option, and mature on May 15, 2025. We may prepay the Second Lien Notes in whole or in part after the first anniversary with a 3% premium, after the second anniversary with a 1% premium, and after the third anniversary with no premium with proceeds from certain debt financings.

Each of Cimpress' subsidiaries that guarantees our obligations under our senior secured credit agreement guarantees the Second Lien Notes. The Second Lien Notes and the guarantees thereof rank equal in right of payment with existing and future senior indebtedness of Cimpress, including Cimpress' and the subsidiary guarantors' obligations under the senior secured credit agreement, and are secured by the same assets securing Cimpress' and the subsidiary guarantors' obligations under the senior secured credit agreement on a second lien basis subject to limited exceptions and the terms of the intercreditor agreement among Cimpress, the subsidiary guarantors, JPMorgan Chase Bank, N.A. as administrative agent under the senior secured credit agreement, and U.S. Bank National Association as collateral agent under the indenture for the Second Lien Notes.

The Apollo Funds also received 7-year warrants to purchase 1,055,377 ordinary shares of Cimpress, representing approximately 3.875% of our outstanding diluted ordinary shares at the time of issuance. Based on the terms of the purchase agreement, the two instruments exist separately and should be treated as separate securities; therefore the warrants are considered to be detachable.

The warrants have an exercise price of $60 per share, representing an approximately 17% premium to the 10-day volume weighted average price of our shares as of April 28, 2020. The warrants are classified as equity as they are strictly redeemable in our own shares, and they may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrant being exercised.

Senior Unsecured Notes

On February 13, 2020, we completed an additional offering of $200,000 in aggregate principal of 7.0% notes under the senior notes indenture between Cimpress plc and U.S. Bank National Association (as successor trustee to MUFG Union Bank, N.A.) at a premium of 105.25%. These notes were issued in addition to the existing principal balance under the indenture of $400,000, and are collectively referred to as the 2026 Notes. The net proceeds from this add-on offering were used to repay a portion of the indebtedness outstanding under our senior secured credit facility and related transaction fees and expenses.

We have the right to redeem, at any time prior to June 15, 2021, some or all of the 2026 Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the indenture, plus accrued and unpaid interest to, but not including, the redemption date. In addition, we have the right to redeem, at any time prior to June 15, 2021, up to 40% of the aggregate outstanding principal amount of the 2026 Notes at a redemption price equal to 107% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress. At any time on or after June 15, 2021, we may redeem some or all of the 2026 Notes at the redemption prices specified in the indenture, plus accrued and unpaid interest to, but not including, the redemption date.

Other Debt

Other debt consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments. As of December 31, 2020 and June 30, 2020, we had $10,997 and $11,694, respectively, outstanding for those obligations that are payable through March 2025.

10. Income Taxes

Our income tax expense was $12,954 and $19,748 for the three and six months ended December 31, 2020, respectively, compared to a benefit of $93,795 and $87,680 for the three and six months ended December 31, 2019, respectively. In the three months ended December 31, 2019, we recognized a discrete tax benefit of $114,114 related to Swiss Tax Reform. Excluding this benefit, tax expense would have decreased, primarily attributable to decreased pre-tax income for the three and six months ended December 31, 2020 as compared to the same prior year periods. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is higher for fiscal 2021 as compared to fiscal 2020, primarily due to increased non-deductible interest expense. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period.

During the six months ended December 31, 2020, our unrecognized tax benefits increased by $8,145, primarily due to tax positions taken in prior periods for which we have determined it is more likely than not that they will not be sustained upon audit. As of December 31, 2020, we had unrecognized tax benefits of $14,376, including accrued interest and penalties of $811. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. If recognized, $8,136 of unrecognized tax benefits would reduce our tax expense. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months in the range of $165 to $670 related to the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties.

We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2014 through 2020 remain open for examination by the IRS and the years 2014 through 2020 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns. We believe that our income tax reserves are adequately maintained, taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows.

11. Noncontrolling Interests

For some of our subsidiaries, we own a controlling equity stake, and a third party or key member of the business' management team owns a minority portion of the equity. The balance sheet and operating activity of these entities are included in our consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity. We recognize redeemable noncontrolling interests at fair value on the sale or acquisition date and adjust to the redemption value on a periodic basis with the offset to retained earnings in the consolidated balance sheet. If the formulaic redemption value exceeds the fair value of the noncontrolling interest, then the accretion to redemption value is offset to the net (income) loss attributable to noncontrolling interest in our consolidated statement of operations.

Redeemable Noncontrolling Interests

PrintBrothers

Members of the PrintBrothers management team hold a minority equity interest ranging from 11% to 12% in each of the three businesses within the segment. The put options associated with the redeemable noncontrolling interest are exercisable beginning in 2021, while the associated call options become exercisable in 2026. As of December 31, 2020, the redemption value was less than the carrying value, and therefore no adjustment was required. During the second quarter of fiscal 2021, we repurchased equity interests ranging from 0.56% to 1.15% in each of the three businesses for a total of $5,063.

All Other Businesses

On October 1, 2018, we acquired approximately 99% of the outstanding equity interests of BuildASign LLC. The remaining 1% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results through put and call rights and not solely within our control. As of December 31, 2020, the redemption value increased above the carrying value due to continued strong financial performance, resulting in an adjustment to the redeemable noncontrolling interest of $966, which was recognized as an adjustment to retained earnings.

The following table presents the reconciliation of changes in our redeemable noncontrolling interests:


	Redeemable noncontrolling interests
Balance as of June 30, 2020	$	69,106



Accretion to redemption value recognized in retained earnings	1,086
Net income attributable to noncontrolling interest	2,291
Distribution to noncontrolling interest	(4,599)
Purchase of noncontrolling interest	(5,063)

Foreign currency translation	2,689
Balance as of December 31, 2020	$	65,510

12. Segment Information

Our operating segments are based upon the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance.

As of December 31, 2020, we have numerous operating segments under our management reporting structure which are reported in the following five reportable segments:

•Vistaprint - Includes the operations of our global Vistaprint websites and our Webs-branded business, which is managed with the Vistaprint-branded digital business. Also included is our Vistaprint Corporate Solutions business which serves medium-sized businesses and large corporations, our 99designs business which was acquired on October 1, 2020, as well as a legacy revenue stream with retail partners and franchise businesses

•PrintBrothers - Includes the results of our druck.at, Printdeal, and WIRmachenDRUCK businesses

•The Print Group - Includes the results of our Easyflyer, Exaprint, Pixartprinting, and Tradeprint businesses

•National Pen - Includes the global operations of our National Pen business, which manufactures and markets custom writing instruments and promotional products, apparel and gifts

•All Other Businesses - Includes a collection of businesses grouped together based on materiality. With the exception of BuildASign, which is a larger and profitable business, the All Other Businesses reportable segment consists of two early-stage businesses that we continue to manage at a relatively modest operating loss.

◦BuildASign is an internet-based provider of canvas-print wall décor, business signage and other large-format printed products, based in Austin, Texas.

◦Printi is an online printing leader in Brazil, which offers a superior customer experience with transparent and attractive pricing, reliable service and quality.

◦YSD is a startup operation that provides end-to-end mass customization solutions to brands and intellectual property owners in China, supporting multiple channels including retail stores, websites,

WeChat and e-commerce platforms to enhance brand awareness and competitiveness and develop new markets.

Central and corporate costs consist primarily of the team of software engineers that is building our mass customization platform; shared service organizations such as global procurement; technology services such as hosting and security; administrative costs of our Cimpress India offices where numerous Cimpress businesses have dedicated business-specific team members; and corporate functions including our Board of Directors, CEO, and the team members necessary for managing corporate activities, such as treasury, tax, capital allocation, financial consolidation, internal audit and legal. These costs also include certain unallocated share-based compensation costs.

The expense value of our PSU awards is based on a Monte Carlo fair value analysis and is required to be expensed on an accelerated basis. In order to ensure comparability in measuring our businesses' results, we allocate the straight-line portion of the fixed grant value to our businesses. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated expense profile of the awards is recognized within central and corporate costs. All expense or benefit associated with our supplemental PSUs is recognized within central and corporate costs.

Our definition of segment EBITDA is GAAP operating income excluding certain items, such as depreciation and amortization, expense recognized for contingent earn-out related charges including the changes in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment, share-based compensation related to investment consideration, certain impairment expense, and restructuring charges. We do not allocate non-operating income, including realized gains and losses on currency hedges, to our segment results.

Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment. We do present other segment information to the CODM, which includes purchases of property, plant and equipment and capitalization of software and website development costs, and therefore include that information in the tables below.

Revenue by segment is based on the business-specific websites or sales channel through which the customer’s order was transacted. The following tables set forth revenue by reportable segment, as well as disaggregation of revenue by major geographic region and reportable segment.


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Revenue (1):
Vistaprint	$	436,317	$	433,305	$	765,608	$	776,476
PrintBrothers	121,806		126,617		221,918		235,907
The Print Group	76,204		87,699		142,641		159,957
National Pen	114,692		127,985		182,341		198,148
All Other Businesses	55,365		49,774		98,843		92,050
Total segment revenue	804,384		825,380		1,411,351		1,462,538
Inter-segment eliminations	(18,239)		(5,047)		(38,706)		(8,246)
Total consolidated revenue	$	786,145	$	820,333	$	1,372,645	$	1,454,292

_____________________

(1) Refer to the "Revenue by Geographic Region" tables below for detail of the inter-segment revenue within each respective segment.


	Three Months Ended December 31, 2020
	Vistaprint		PrintBrothers		The Print Group		National Pen		All Other		Total
Revenue by Geographic Region:
North America	$	268,736	$	—	$	—	$	48,678	$	49,662	$	367,076
Europe	126,877		121,564		69,343		47,578		—		365,362
Other	40,033		—		—		8,699		4,975		53,707
Inter-segment	671		242		6,861		9,737		728		18,239
Total segment revenue	436,317		121,806		76,204		114,692		55,365		804,384
Less: inter-segment elimination	(671)		(242)		(6,861)		(9,737)		(728)		(18,239)
Total external revenue	$	435,646	$	121,564	$	69,343	$	104,955	$	54,637	$	786,145


	Six Months Ended December 31, 2020
	Vistaprint		PrintBrothers		The Print Group		National Pen		All Other		Total
Revenue by Geographic Region:
North America	$	500,831	$	—	$	—	$	78,999	$	88,606	$	668,436
Europe	204,125		221,505		129,721		68,182		—		623,533
Other	59,559		—		—		12,347		8,770		80,676
Inter-segment	1,093		413		12,920		22,813		1,467		38,706
Total segment revenue	765,608		221,918		142,641		182,341		98,843		1,411,351
Less: inter-segment elimination	(1,093)		(413)		(12,920)		(22,813)		(1,467)		(38,706)
Total external revenue	$	764,515	$	221,505	$	129,721	$	159,528	$	97,376	$	1,372,645


	Three Months Ended December 31, 2019
	Vistaprint		PrintBrothers		The Print Group		National Pen		All Other		Total
Revenue by Geographic Region:
North America	$	284,345	$	—	$	—	$	54,400	$	44,221	$	382,966
Europe	121,143		126,288		86,713		60,887		—		395,031
Other	25,292		—		—		11,732		5,312		42,336
Inter-segment	2,525		329		986		966		241		5,047
Total segment revenue	433,305		126,617		87,699		127,985		49,774		825,380
Less: inter-segment elimination	(2,525)		(329)		(986)		(966)		(241)		(5,047)
Total external revenue	$	430,780	$	126,288	$	86,713	$	127,019	$	49,533	$	820,333


	Six Months Ended December 31, 2019
	Vistaprint		PrintBrothers		The Print Group		National Pen		All Other		Total
Revenue by Geographic Region:
North America	$	531,430	$	—	$	—	$	95,942	$	79,627	$	706,999
Europe	195,601		235,335		158,539		83,200		—		672,675
Other	45,592		—		—		17,059		11,967		74,618
Inter-segment	3,853		572		1,418		1,947		456		8,246
Total segment revenue	776,476		235,907		159,957		198,148		92,050		1,462,538
Less: inter-segment elimination	(3,853)		(572)		(1,418)		(1,947)		(456)		(8,246)
Total external revenue	$	772,623	$	235,335	$	158,539	$	196,201	$	91,594	$	1,454,292

The following table includes segment EBITDA by reportable segment, total income from operations and total income before income taxes.


	Three Months Ended December 31,					Six Months Ended December 31,
	2020		2019			2020		2019
Segment EBITDA:
Vistaprint	$	112,331	$	138,858		$	202,488	$	226,161
PrintBrothers	16,457		16,459			26,172		27,236
The Print Group	12,569		18,105			24,752		31,739
National Pen	18,728		28,099			8,057		18,249
All Other Businesses	10,657		3,668			19,266		5,385
Total segment EBITDA	170,742		205,189			280,735		308,770
Central and corporate costs	(30,984)		(38,405)			(62,004)		(72,058)
Depreciation and amortization	(43,597)		(42,356)			(85,887)		(84,891)




Certain impairments and other adjustments	215		(936)			(568)		(760)
Restructuring-related charges	(2,182)		(1,897)			(2,096)		(4,087)


Total income from operations	94,194		121,595			130,180		146,974
Other (expense) income, net	(17,198)		(9,040)		—	(25,952)		6,634
Interest expense, net	(30,141)		(15,701)		—	(60,657)		(30,788)

Income before income taxes	$	46,855	$	96,854		$	43,571	$	122,820


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Depreciation and amortization:
Vistaprint	$	14,952	$	15,042	$	28,539	$	30,682
PrintBrothers	5,509		5,553		10,971		10,808
The Print Group	6,641		6,609		13,222		12,842
National Pen	6,255		5,523		12,322		11,104
All Other Businesses	4,391		5,888		10,259		11,861
Central and corporate costs	5,849		3,741		10,574		7,594
Total depreciation and amortization	$	43,597	$	42,356	$	85,887	$	84,891


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Purchases of property, plant and equipment:
Vistaprint	$	2,515	$	6,192	$	4,449	$	10,697
PrintBrothers	213		668		1,138		999
The Print Group	3,043		4,889		5,930		8,994
National Pen	1,372		761		2,824		2,777
All Other Businesses	1,014		595		1,968		2,370
Central and corporate costs	250		796		481		2,257
Total purchases of property, plant and equipment	$	8,407	$	13,901	$	16,790	$	28,094


	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
Capitalization of software and website development costs:
Vistaprint	$	4,429	$	4,357	$	11,416	$	9,779
PrintBrothers	185		291		591		622
The Print Group	433		424		663		875
National Pen	355		979		1,069		1,815
All Other Businesses	681		1,116		1,742		2,079
Central and corporate costs	5,558		3,779		10,964		8,247
Total capitalization of software and website development costs	$	11,641	$	10,946	$	26,445	$	23,417

The following table sets forth long-lived assets by geographic area:


	December 31, 2020		June 30, 2020
Long-lived assets (1):
United States	$	147,268	$	161,853
Netherlands	81,187		82,897
Canada	61,080		67,367
Switzerland	65,197		58,013
Italy	48,326		46,317
Jamaica	21,309		21,563
Australia	21,809		19,695
France	24,933		23,917
Japan	16,399		15,430
Other	97,686		94,922
Total	$	585,194	$	591,974

___________________

(1) Excludes goodwill of $726,813 and $621,904, intangible assets, net of $212,078 and $209,228, and deferred tax assets of $146,814 and $143,496 as of December 31, 2020 and June 30, 2020, respectively.

13. Commitments and Contingencies

Purchase Obligations

At December 31, 2020, we had unrecorded commitments under contract of $226,290, including third-party web services of $97,609, production and computer equipment purchases of $24,942, inventory and third-party fulfillment purchase commitments of $18,422, advertising of $17,750, professional and consulting fees of $8,374 and other unrecorded purchase commitments of $59,193.

Other Obligations

We deferred payments for several of our acquisitions resulting in the recognition of a liability of $45,369 in aggregate as of December 31, 2020. This balance includes the deferred payment related to the 99designs acquisition totaling $43,691. Refer to Note 7 for additional details.

Modification of Lease Obligations

On January 6, 2021, we entered into an arrangement that modifies the lease agreement for our Waltham, Massachusetts office location, which results in us retaining a small portion of the previously leased office space in exchange for a reduction to our monthly rent payments. As part of the agreement, we will pay $8,761 in two equal installments, which includes both an early termination penalty and the rent we would have otherwise paid for the terminated space through June 30, 2021. The first payment was made on January 6, 2021, and the remaining amount is due on April 1, 2021. We separately entered into a lease agreement for a new office location in Waltham, Massachusetts which will commence on June 1, 2021. As of December 31, 2020, the total remaining lease commitments through September 2026 were $67,953. Under the modified lease term, combined with the new lease arrangement, the total lease commitments through September 2026 will be $20,501, excluding the termination penalties included above.

Legal Proceedings

We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. For all legal matters, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred.

14. Restructuring Charges

Restructuring costs include one-time employee termination benefits, acceleration of share-based compensation, write-off of assets and other related costs including third-party professional and outplacement services. During the three and six months ended December 31, 2020, we recognized restructuring costs of $2,182 and $2,096, respectively, due to organizational changes within our The Print Group segment intended to streamline certain activities. During the three and six months ended December 31, 2019, we recognized restructuring charges of $1,897 and $4,087, respectively, related primarily to charges within our Vistaprint reportable segment.

The following table summarizes the restructuring activity during the six months ended December 31, 2020:


	Severance and Related Benefits		Other Restructuring Costs		Total
Accrued restructuring liability as of June 30, 2020	$	5,969	$	77	$	6,046
Restructuring charges	1,453		643		2,096
Cash payments	(3,961)		—		(3,961)
Non-cash charges (1)	—		(643)		(643)
Accrued restructuring liability as of December 31, 2020	$	3,461	$	77	$	3,538

(1) Non-cash charges primarily include the write-off of property, plant and equipment, net in The Print Group segment to streamline certain activities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about the anticipated growth and development of our businesses and revenues, the potential effects of the COVID-19 pandemic and our expectations with respect to our business and financial results during and after the pandemic, our expectations with respect to our market and market share during and after the pandemic, sufficiency of our liquidity position, our future compliance with our debt covenants, legal proceedings, and sufficiency of our tax reserves. Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including but not limited to flaws in the assumptions and judgments upon which our forecasts and estimates are based; the development, severity, and duration of the COVID-19 pandemic; our failure to anticipate and react to the effects of the pandemic on our customers, supply chain, markets, team members, and business; our inability to take the actions that we plan to take or the failure of those actions to achieve the results we expect; loss or unavailability of key personnel or our inability to recruit talented personnel to drive performance of our businesses; the failure of businesses we acquire or invest in to perform as expected; unanticipated changes in our markets, customers, or businesses; changes in the laws and regulations, or in the interpretation of laws and regulations, that affect our businesses; our failure to manage the growth and complexity of our business and expand our operations; our failure to maintain compliance with the covenants in our debt documents or to pay our debts when due; competitive pressures; general economic conditions; and other factors described in our Form 10-K for the fiscal year ended June 30, 2020 and the other documents that we periodically file with the SEC.

Executive Overview

Cimpress is a strategically focused group of more than a dozen businesses that specialize in mass customization, via which we deliver large volumes of individually small-sized customized orders for a broad spectrum of print, signage, photo merchandise, invitations and announcements, writing instruments, packaging, apparel and other categories. We invest in and build customer-focused, entrepreneurial mass customization businesses for the long term, which we manage in a decentralized, autonomous manner. We drive competitive advantage across Cimpress through a select few shared strategic capabilities that have the greatest potential to create Cimpress-wide value. We limit all other central activities to only those which absolutely must be performed centrally.

As of December 31, 2020, we have numerous operating segments under our management reporting structure that are reported in the following five reportable segments: Vistaprint, PrintBrothers, The Print Group, National Pen, and All Other Businesses. Refer to Note 12 in our accompanying consolidated financial statements for additional information relating to our reportable segments and our segment financial measures.

COVID-19

The pandemic and related restrictions continue to have a negative impact on our businesses, customers and the markets that we serve. Our year-over-year decline in reported revenue improved in the second quarter of fiscal 2021 as compared to the first quarter of fiscal 2021 due to favorable currency movements and acquisition timing; and otherwise it was flat compared to last quarter, despite sequentially intensified restrictions in various jurisdictions in which we sell our products. Even with the impacts of the pandemic, we continue to hire talent and make investments in technology, data, new product introduction, customer experience improvements, and branding that are designed to build on our competitive advantages and enable our businesses to grow as we come out of the pandemic. We don't know how long that will take, and while the promise of COVID-19 vaccinations gives us optimism, recently we see increasingly severe restrictions in many of our major markets that are impacting small business activity and our revenue. We continue to maintain flexibility in our cost structure, while at the same time increasing investment in areas we believe will generate high return on investment beyond the pandemic. We believe our financial results have been stronger through the pandemic than traditional offline competitors as a result of our diverse product portfolio and economically advantaged business model, which gives us confidence in our ability to grow as we come out of the pandemic.

Financial Summary

The primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress wide is our adjusted free cash flow before cash interest expense related to borrowing; however, in evaluating the financial condition and operating performance of our business, management considers a number of metrics including revenue growth, organic constant-currency revenue growth, operating income, adjusted EBITDA, cash flow from operations and adjusted free cash flow. A summary of these key financial metrics for the three and six months ended December 31, 2020 as compared to the three and six months ended December 31, 2019 follows:

Second Quarter Fiscal 2021

•Revenue decreased by 4% to $786.1 million.

•Revenue decreased by 9% when excluding the impact of currency fluctuations and acquisitions ("organic constant-currency revenue growth," a non-GAAP financial measure).

•Operating income decreased by $27.4 million to $94.2 million.

•Adjusted EBITDA (a non-GAAP financial measure) decreased by $42.1 million to $143.4 million.

Year to Date Fiscal 2021

•Revenue decreased by 6% to $1,372.6 million.

•Organic constant-currency revenue decreased by 10%.

•Operating income decreased by $16.8 million to $130.2 million.

•Adjusted EBITDA decreased by $33.1 million to $231.9 million.

•Cash provided by operating activities decreased by $8.9 million to $256.2 million.

•Adjusted free cash flow (a non-GAAP financial measure) decreased by $0.7 million to $212.9 million.

For the second quarter of fiscal year 2021, our revenue declined year-over-year as the COVID-19 pandemic continues to negatively impact our results. These results vary by segment because each business has different product mix and customers with unique challenges. Revenue from event-driven and some small business products continued to decline, partially offset by revenue from new products introduced in reaction to the pandemic such as face masks (about 5% of total revenue for the quarter) and consumer products in Vistaprint and BuildASign that in total grew 6% year-over-year, excluding invitations and announcements which is an event-driven category.

For the second quarter of fiscal 2021, operating income decreased by $27.4 million, due to the gross profit decline driven by the decrease in revenue described above. Additionally, we incurred $4.5 million of expense for pandemic-related products, most notably for disposable masks in National Pen, for which pricing and demand have dropped. The negative impact of the pandemic on demand was partially offset by variable cost controls and fixed cost savings, but the gross margin profile of our revenue mix was unfavorable compared to last year particularly in Vistaprint, and advertising and operating expenses increased with increased investments in talent and strategic projects. Operating income benefited from $4.0 million of COVID-19-related government incentives, primarily to offset wages for manufacturing and customer service team members in countries where demand decreased but roles were maintained.

Adjusted EBITDA decreased year-over-year, primarily due to the gross profit decrease described above. Adjusted EBITDA excludes restructuring charges and share-based compensation expense, and includes the realized gains or losses on our currency derivatives intended to hedge adjusted EBITDA. The net year-over-year impact of currency on consolidated adjusted EBITDA was negative by approximately $4.0 million.

Consolidated Results of Operations

Consolidated Revenue

Our businesses generate revenue primarily from the sale and shipment of customized manufactured products. To a much lesser extent (and primarily in our Vistaprint business) we provide digital services, website design and hosting, and email marketing services, as well as generate a small percentage of revenue from order referral fees and other third-party offerings. For additional discussion relating to segment revenue results, refer to the "Reportable Segment Results" section included below.

Total revenue and revenue growth by reportable segment for the three and six months ended December 31, 2020 and 2019 are shown in the following table:


In thousands	Three Months Ended December 31,					Currency Impact:	Constant- Currency	Impact of Acquisitions/Divestitures:	Constant- Currency Revenue Growth
	2020		2019		% Change	(Favorable)/Unfavorable	Revenue Growth (1)	(Favorable)/Unfavorable	Excluding Acquisitions/Divestitures (2)
Vistaprint (3)	$	436,317	$	433,305	1%	(3)%	(2)%	(4)%	(6)%
PrintBrothers	121,806		126,617		(4)%	(7)%	(11)%	—%	(11)%
The Print Group	76,204		87,699		(13)%	(6)%	(19)%	—%	(19)%
National Pen	114,692		127,985		(10)%	(3)%	(13)%	—%	(13)%
All Other Businesses	55,365		49,774		11%	3%	14%	—%	14%
Inter-segment eliminations	(18,239)		(5,047)
Total revenue	$	786,145	$	820,333	(4)%	(3)%	(7)%	(2)%	(9)%


In thousands	Six Months Ended December 31,					Currency Impact:	Constant- Currency	Impact of Acquisitions/Divestitures:	Constant- Currency Revenue Growth
	2020		2019		% Change	(Favorable)/Unfavorable	Revenue Growth (1)	(Favorable)/Unfavorable	Excluding Acquisitions/Divestitures (2)
Vistaprint (3)	$	765,608	$	776,476	(1)%	(2)%	(3)%	(2)%	(5)%
PrintBrothers	221,918		235,907		(6)%	(6)%	(12)%	(1)%	(13)%
The Print Group	142,641		159,957		(11)%	(5)%	(16)%	—%	(16)%
National Pen	182,341		198,148		(8)%	(2)%	(10)%	—%	(10)%
All Other Businesses	98,843		92,050		7%	3%	10%	—%	10%
Inter-segment eliminations	(38,706)		(8,246)
Total revenue	$	1,372,645	$	1,454,292	(6)%	(2)%	(8)%	(2)%	(10)%

_________________

(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period’s average exchange rate for each currency to the U.S. dollar. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.

(2) Constant-currency revenue growth excluding acquisitions/divestitures, a non-GAAP financial measure, excludes revenue results for businesses in the period in which there is no comparable year-over-year revenue. Our reportable segments-related growth is inclusive of inter-segment revenues, which are eliminated in our consolidated results.

(3) The Vistaprint segment includes revenue from our 99designs business since its acquisition date of October 1, 2020.

We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP.

Consolidated Cost of Revenue

Cost of revenue includes materials used by our businesses to manufacture their products, payroll and related expenses for production and design services personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production and design costs, costs of free products and other related costs of products our businesses sell.


In thousands	Three Months Ended December 31,						Six Months Ended December 31,
	2020			2019			2020			2019
Cost of revenue	$	385,979		$	394,018		$	684,823		$	719,683
% of revenue	49.1		%	48.0		%	49.9		%	49.5		%

For the three and six months ended December 31, 2020, consolidated cost of revenue decreased by $8.0 million and $34.9 million, respectively, due to reduced demand-dependent cost of goods sold including third-party fulfillment, material, and shipping costs which decreased across several of our segments that continued to be impacted by the COVID-19 pandemic. For the three and six months ended December 31, 2020, we realized approximately $2.5 million and $5.6 million, respectively, of wage offset benefits from government incentives in locations where demand decreased materially but roles were maintained. These decreases were partially offset by $4.5 million and $5.5 million of expense during the three and six months ended December 31, 2020, respectively, related to losses associated with the decline in market demand and pricing for disposable masks.

Consolidated Operating Expenses

The following table summarizes our comparative operating expenses for the following periods:


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Technology and development expense	$	65,036		$	64,427		1%	$	123,525		$	127,594		(3)%
% of revenue	8.3		%	7.9		%		9.0		%	8.8		%
Marketing and selling expense	$	182,322		$	173,336		5%	$	320,472		$	334,253		(4)%
% of revenue	23.2		%	21.1		%		23.3		%	23.0		%
General and administrative expense	$	42,979		$	51,910		(17)%	$	84,791		$	95,533		(11)%
% of revenue	5.5		%	6.3		%		6.2		%	6.6		%
Amortization of acquired intangible assets	$	13,453		$	13,150		2%	$	26,758		$	26,168		2%
% of revenue	1.7		%	1.6		%		1.9		%	1.8		%
Restructuring expense	$	2,182		$	1,897		15%	$	2,096		$	4,087		(49)%
% of revenue	0.3		%	0.2		%		0.2		%	0.3		%

Technology and development expense

Technology and development expense consists primarily of payroll and related expenses for employees engaged in software and manufacturing engineering, information technology operations and content development, as well as amortization of capitalized software and website development costs, including hosting of our websites, asset depreciation, patent amortization, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue.

Technology and development expenses increased by $0.6 million for the three months ended December 31, 2020 and decreased by $4.1 million for the six months ended December 31, 2020, as compared to the prior comparative periods. The increase for the second quarter of fiscal 2021 was due to fluctuations in currency exchange rates. Both periods benefited from decreases in costs from our fiscal 2020 reorganization of our central technology and Vistaprint teams as well as continued reductions in discretionary spend including travel and training expenses.

Marketing and selling expense

Marketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support and public relations activities; direct-mail advertising costs; and third-party payment processing fees. Our Vistaprint, National Pen and BuildASign businesses have higher marketing and selling costs as a percentage of revenue as compared to our PrintBrothers and The Print Group businesses.

Our marketing and selling expenses during the three months ended December 31, 2020 increased by $9.0 million as compared to the prior comparative period, driven primarily by increased spend in our Vistaprint business due to further expanded return on advertising spend targets, as well as increased brand sponsorships and upper-funnel advertising investment along with associated agency fees. These increases were partially offset by reductions in advertising across several of our other businesses as they continue to control advertising spend levels in line with demand.

For the six months ended December 31, 2020, marketing and selling expenses decreased by $13.8 million, as compared to the prior year. The decrease from the prior comparative period is primarily due to the year-over-year reduction in advertising spend in our Vistaprint business, which is partially offset by progressive increases in upper-funnel advertising investments. We also recognized a decrease in marketing costs in our National Pen business of $7.9 million, primarily due to pandemic-related initiatives to lower costs, which included reductions to direct mail prospecting activities and cost savings from initiatives intended to reduce costs in service centers.

General and administrative expense

General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance and payroll and related expenses of employees involved in executive management, finance, legal, strategy, human resources and procurement.

For the three and six months ended December 31, 2020, general and administrative expenses decreased by $8.9 million and $10.7 million, respectively, as compared to the prior comparative periods, primarily due to lower professional fees as a result of the non-recurrence of costs related to strategic projects in our Vistaprint business, as well as the Cimpress' cross-border merger to Ireland in fiscal year 2020. For both periods, we also realized lower share-based compensation costs and discretionary spend.

Amortization of acquired intangible assets

Amortization of acquired intangible assets consists of amortization expense associated with separately identifiable intangible assets capitalized as part of our acquisitions, including customer relationships, trade names, developed technologies, print networks, and customer and referral networks.

Amortization of acquired intangible assets increased by $0.3 million and $0.6 million for the three and six months ended December 31, 2020, respectively as compared to the three and six months ended December 31, 2019. The increase is driven by the acquisition of 99designs, as discussed in Note 7 in our accompanying consolidated financial statements, partially offset by the reduction of amortization expense in our BuildASign business as certain intangible assets became fully amortized during the current quarter.

Restructuring expense

Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes employee-related termination costs, third party professional fees and facility exit costs.

During the three and six months ended December 31, 2020, we recognized restructuring expense of $2.2 million and $2.1 million, respectively, due to actions taken in The Print Group reportable segment which are intended to streamline certain activities within the segment. We recognized restructuring expense of $1.9 million and $4.1 million, respectively in the three and six months ended December 31, 2019 due to prior year actions taken in our Vistaprint business.

Other Consolidated Results

Other (expense) income, net

Other (expense) income, net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging programs and ability to qualify for hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we execute certain currency derivative contracts that do not qualify for hedge accounting.

The following table summarizes the components of other (expense) income, net:


In thousands	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
(Losses) gains on derivatives not designated as hedging instruments	$	(19,020)	$	(11,666)	$	(32,515)	$	7,691
Currency-related gains (losses), net	1,809		2,645		5,884		(767)
Other gains (losses)	13		(19)		679		(290)
Total other (expense) income, net	$	(17,198)	$	(9,040)	$	(25,952)	$	6,634

The decrease in other (expense) income, net was primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments, of which our Euro and British Pound contracts are the most significant exposures that we economically hedge. We expect volatility to continue in future periods, as we do not apply hedge accounting for most of our derivative currency contracts.

We also experienced currency-related gains due to currency exchange rate volatility on our non-functional currency intercompany relationships, which we may alter from time to time. The impact of certain cross-currency swap contracts designated as cash flow hedges is included in our currency-related gains (losses), net, offsetting the impact of certain non-functional currency intercompany relationships.

Interest expense, net

Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, debt discounts, interest related to finance lease obligations and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swap contracts.

Interest expense, net increased by $14.4 million and $29.9 million during the three and six months ended December 31, 2020, as compared to the prior comparable periods. This is primarily due to the additional $200.0 million offering of our 7% senior unsecured notes in February 2020 and issuance of our $300.0 million 12% second lien notes in May 2020.

Income tax expense


In thousands	Three Months Ended December 31,						Six Months Ended December 31,
	2020			2019			2020			2019
Income tax expense (benefit)	$	12,954		$	(93,795)		$	19,748		$	(87,680)
Effective tax rate	27.6		%	(96.8)		%	45.3		%	(71.4)		%

Income tax expense for the three and six months ended December 31, 2020 increased as compared to the prior year primarily attributable to the discrete tax benefit of $114.1 million related to Swiss Tax Reform recorded in the three months ended December 31, 2019. Excluding this benefit, tax expense would have decreased, primarily attributable to decreased pre-tax income for the three and six months ended December 31, 2020 as compared to the same prior year periods. Excluding the effect of discrete tax adjustments, our estimated annual effective tax rate is higher for fiscal 2021 as compared to fiscal 2020 primarily due to increased non-deductible interest expense. Our effective tax rate continues to be negatively impacted by losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period.

We believe that our income tax reserves are adequately maintained by taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain and therefore there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows. Refer to Note 10 in our accompanying consolidated financial statements for additional discussion.

Reportable Segment Results

Our segment financial performance is measured based on segment EBITDA, which is defined as operating income plus depreciation and amortization; plus share-based compensation expense related to investment consideration; plus earn-out related charges; plus certain impairments; plus restructuring related charges; less gain on purchase or sale of subsidiaries.

Vistaprint


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Reported Revenue	$	436,317		$	433,305		1%	$	765,608		$	776,476		(1)%
Segment EBITDA	112,331			138,858			(19)%	202,488			226,161			(10)%
% of revenue	26		%	32		%		26		%	29		%

Segment Revenue

Vistaprint's reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 3% and 2%, respectively. When excluding the benefit from the recent acquisition of 99designs, Vistaprint's organic constant-currency revenue decline was 6% for the three months ended December 31, 2020 and 5% for the six months ended December 31, 2020. The revenue decline was primarily driven by the impact of the pandemic on customer demand, partially offset by the sale of pandemic-related products, such as face masks. During the second quarter of fiscal 2021, heightened pandemic-related restrictions in certain countries negatively impacted revenue for some business products and event-related consumer products like invitations and announcements, while Vistaprint delivered growth in photo products and other holiday products.

Segment Profitability

For the three and six months ended December 31, 2020, the decrease to Vistaprint's segment EBITDA was primarily due to a decline in gross profit driven by the revenue decrease described above, as well as a revenue mix shift to lower margin products during the second quarter of fiscal 2021. This was combined with increased investment in advertising which included expanded return on advertising spend targets and progressive increases in upper-funnel advertising investments (including related agency fees) and brand-based sponsorships. Additionally, an increase in operating expenses was driven by continued hiring and increased spend related to customer experience, partially offset by technology savings from our fiscal 2020 restructuring and reduced spend for consulting projects compared to the prior year periods. For the three and six months ended December 31, 2020, Vistaprint received $2.4 million and $4.9 million, respectively in government incentives to offset wages in locations where demand decreased materially but roles were maintained. Vistaprint's segment EBITDA was positively impacted by currency movements for both periods presented.

PrintBrothers


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Reported Revenue	$	121,806		$	126,617		(4)%	$	221,918		$	235,907		(6)%
Segment EBITDA	16,457			16,459			—%	26,172			27,236			(4)%
% of revenue	14		%	13		%		12		%	12		%

Segment Revenue

PrintBrothers' reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 7% and 6%, respectively, resulting in a constant-currency revenue decline, excluding the impact of acquisitions, of 11% and 13%, respectively. The revenue decline was due to impacts from COVID-19, as the pandemic continued to have a negative effect on demand in the quarter, though less so than our upload and print businesses serving southern European and UK markets.

Segment Profitability

PrintBrothers' segment EBITDA decreased slightly during the three and six months ended December 31, 2020 as compared to the prior comparative periods, due primarily to the revenue declines described above. A portion of the decline in segment EBITDA driven by the revenue decline was partially offset by discretionary cost controls and government incentive program benefits of $0.9 million and $1.8 million for the three and six months ended December 2020, respectively. PrintBrothers' segment EBITDA was positively impacted by currency movements for both periods presented.

The Print Group


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Reported Revenue	$	76,204		$	87,699		(13)%	$	142,641		$	159,957		(11)%
Segment EBITDA	12,569			18,105			(31)%	24,752			31,739			(22)%
% of revenue	16		%	21		%		17		%	20		%

Segment Revenue

The Print Group's reported revenue decline for the three and six months ended December 31, 2020 was positively affected by currency impacts of 6% and 5%, respectively, resulting in a decrease in revenue on a constant-currency basis of 19% and 16%, respectively. The revenue decline was due to impacts from the COVID-19 pandemic as these trends worsened when compared to the first quarter of fiscal year 2021, due to new lockdowns in the geographies that these businesses serve. These businesses benefited from the introduction of new products relevant to the pandemic and leveraged by other Cimpress businesses in Europe, which increased inter-segment sales that are included in segment results but eliminated at the consolidated level.

Segment Profitability

The Print Group's segment EBITDA decreased during the three and six months ended December 31, 2020, as compared to the prior comparative periods, primarily driven by the revenue decline described above. This was partially offset by discretionary cost controls, benefits from government incentives totaling $0.7 million and $1.3 million, respectively, and efficiency gains from leveraging our mass customization platform to shift production to lower-cost sources. The Print Group's segment EBITDA was positively impacted by currency movements for both periods presented.

National Pen


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Reported Revenue	$	114,692		$	127,985		(10)%	$	182,341		$	198,148		(8)%
Segment EBITDA	18,728			28,099			(33)%	8,057			18,249			(56)%
% of revenue	16		%	22		%		4		%	9		%

Segment Revenue

National Pen's reported revenue decrease for the three and six months ended December 31, 2020 was positively affected by currency impacts of 3% and 2%, respectively, resulting in constant-currency revenue decline of 13% and 10%, respectively. This performance is slightly worse than year-over-year revenue results during the first quarter of fiscal year 2021, but still significantly better than the results during the height of pandemic impact in the fourth quarter of fiscal year 2020. National Pen executed well on its holiday peak in light of the pandemic, but revenue was muted compared to last year. National Pen's sales to larger businesses continue to be negatively impacted due to cancelled trade shows and other large-scale events. Product sales to other Cimpress businesses continued to supplement some of the lost volume from lower demand.

Segment Profitability

The decrease in National Pen's segment EBITDA for the three and six months ended December 31, 2020 was due to the revenue decline described above. The impacts of lower revenue on National Pen's fixed cost base negatively impacted profitability this quarter in comparison to the year ago periods, partially offset by reduced variable cost, advertising and discretionary spend. National Pen was negatively impacted by the sale of disposable masks at a loss, as well as the recognition of an inventory reserves to reduce the carrying value of all remaining disposable masks held in inventory to current market prices of $4.4 million and $5.4 million, respectively, for the three and six months ended December 31, 2020. National Pen's segment EBITDA was positively impacted by currency movements for both periods presented.

All Other Businesses


In thousands	Three Months Ended December 31,							Six Months Ended December 31,
	2020			2019			2020 vs. 2019	2020			2019			2020 vs. 2019
Reported Revenue (1)	$	55,365		$	49,774		11%	$	98,843		$	92,050		7%
Segment EBITDA (1)	10,657			3,668			191%	19,266			5,385			258%
% of revenue	19		%	7		%		19		%	6		%

___________________

(1) Our All Other Businesses segment includes the results of our VIDA acquisition from July 2, 2018 through the divestiture date of April 10, 2020.

This segment consists of BuildASign, which is a larger and profitable business, and two small, rapidly evolving early-stage businesses through which Cimpress is expanding to new markets. These early-stage businesses continue to have operating losses as previously described and as planned.

Segment Revenue

All Other Businesses' constant-currency revenue excluding the impact of acquisitions increased by 14% and 10% for the three and six months ended December 31, 2020, respectively. This was primarily driven by continued growth at BuildASign, whose home décor and pandemic-focused signage products continued to generate strong results. In addition, the business benefited from higher volumes of political signage in comparison to the prior year due to the 2020 election season in the United States. BuildASign's strong stand-alone execution is compounded by the business increasingly leveraging our mass customization platform to drive new product introduction and improve customer experience. Revenue also grew year-over-year in our smaller Printi and YSD businesses.

Segment Profitability

Within the All Other Businesses segment, each business improved its profitability for the three and six months ended December 31, 2020 as compared to the comparable periods, with the overall improvement primarily driven by revenue growth and advertising efficiency in BuildASign. Printi and YSD reduced losses through revenue growth and improved efficiency. Our divestiture of loss-making VIDA in the fourth quarter of fiscal year 2020 also contributed to year-over-year profit improvements in the second quarter.

Central and Corporate Costs

Central and corporate costs decreased by $7.4 million and $10.1 million during the three and six months ended December 31, 2020, respectively, as compared to the prior year periods, due to lower professional fees, share-based compensation expense and discretionary spend, including travel and training costs.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data


In thousands	Six Months Ended December 31,
	2020		2019
Net cash provided by operating activities	$	256,168	$	265,097
Net cash used in investing activities	(76,677)		(53,816)
Net cash used in financing activities	(191,754)		(207,390)

At December 31, 2020, we had $36.9 million of cash and cash equivalents and $1,315.4 million of debt, excluding debt issuance costs, and debt premiums and discounts. Under the terms of our April 28, 2020 credit facility amendment, we are required to use cash balances in excess of $100.0 million, if any, to repay the revolving loans under our senior secured credit facility.

The cash flows during the six months ended December 31, 2020 related primarily to the following items:

Cash inflows:

•Net income of $23.8 million

•Adjustments for non-cash items of $136.3 million primarily related to positive adjustments for depreciation and amortization of $85.9 million, share-based compensation costs of $13.5 million and unrealized currency-related losses of $29.4 million

•The changes in operating assets and liabilities were a source of cash during the period, driven by increases in accounts payable and accrued expenses, largely driven by our seasonally strong second quarter

Cash outflows:

•Payments of debt of $171.5 million, net of borrowings and inclusive of debt issuance costs

•Acquisition of 99designs for $36.4 million, net of cash acquired and excluding the deferred payment and post-closing adjustment that are payable February 15, 2022

•Internal and external costs of $26.4 million for software and website development that we have capitalized

•Capital expenditures of $16.8 million of which the majority related to the purchase of manufacturing and automation equipment for our production facilities and computer and office equipment

•Payment of withholding taxes in connection with share awards of $5.6 million

•Purchase of noncontrolling interest of $5.1 million and distribution to noncontrolling interest holders of $4.6 million

•Payments for finance lease arrangements of $3.3 million

Additional Liquidity and Capital Resources Information. During the six months ended December 31, 2020, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. As of December 31, 2020, a portion of our cash and cash equivalents were held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $40.4 million. We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows.

We have historically allocated a material amount of capital to purchases of our ordinary shares and corporate acquisitions. The April 2020 amendment to our credit facility prohibits us from repurchasing our shares and limits acquisitions for the period in which the financial maintenance covenants associated with our senior secured credit facility are suspended.

Debt. As of December 31, 2020, we had aggregate loan commitments from our senior secured credit facility totaling $994.4 million. The loan commitments consisted of revolving loan borrowings of $260.0 million and term loans of $144.4 million. We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. As of December 31, 2020, the amount available for borrowing under our senior secured credit facility was as follows:


In thousands
	December 31, 2020
Maximum aggregate available for borrowing	$	994,375
Outstanding borrowings of senior secured credit facility	(404,375)
Remaining amount	590,000
Limitations to borrowing due to debt covenants and other obligations (1)	(4,950)
Amount available for borrowing as of December 31, 2020 (2)	$	585,050

_________________

(1) As of December 31, 2020, our pre-existing financial maintenance covenants are suspended and we are in compliance with the new restrictions in place, with the primary maintenance covenant during the suspension period that we must maintain liquidity above $50.0 million. Refer to Note 9 in our accompanying consolidated financial statements for further description of the restrictions in place during the covenant suspension period.

(2) Share purchases, dividend payments, and corporate acquisitions are subject to more restrictive covenants, and therefore we may not be able to use the full amount available for borrowing for these purposes.

Debt Covenants. The April 2020 amendment to our senior secured facility suspended our pre-existing financial maintenance covenants until December 31, 2021, including the total and senior secured leverage covenants and interest coverage ratio covenant. Refer to Note 9 in our accompanying consolidated financial statements for additional information.

Other Debt. Other debt primarily consists of term loans acquired through our various acquisitions or used to fund certain capital investments. As of December 31, 2020, we had $11.0 million outstanding for other debt payable through March 2025.

Contractual Obligations

Contractual obligations at December 31, 2020 are as follows:


In thousands	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases, net of subleases (1) (2)	$	154,721	$	37,085	$	54,324	$	33,877	$	29,435
Purchase commitments	226,290		121,172		89,243		15,875		—
Senior unsecured notes and interest payments	831,000		42,000		84,000		84,000		621,000
Second lien notes and interest payments	462,000		36,000		72,000		354,000		—
Other debt and interest payments (3)	520,394		51,548		88,050		380,796		—
Finance leases, net of subleases (1)	20,304		6,729		9,651		3,123		801
Other	45,369		943		44,426		—		—
Total (4)	$	2,260,078	$	295,477	$	441,694	$	871,671	$	651,236

___________________

(1) Operating and finance lease payments included above include only amounts which are fixed under lease agreements. Our leases may also incur variable expenses, which are not included in these payments.

(2) On January 6, 2021, we amended our Waltham lease agreement to reduce the amount of space leased. As part of the agreement, we will pay $8.8 million in two equal installments, which includes both an early termination penalty and the rent we would have otherwise paid for the terminated space through June 30, 2021. We have separately entered into a lease agreement for a new office space in Waltham, Massachusetts, which will commence on June 1, 2021. The amended lease terms, combined with the new lease agreement, will result in a reduction to total lease commitments of $47.5 million, exclusive of the termination penalty. Refer to Note 13 in our accompanying consolidated financial statements for additional details.

(3) Other debt and interest payments include the effects of interest rate swaps, whether they are expected to be payments or receipts of cash. We have excluded the effect of interest rate swaps of $0.6 million within the more than five years category above as that period extends beyond the term of our debt and the interest rate swaps do not yet offset contractual interest payments.

(4) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of $8.1 million as of December 31, 2020 have been excluded from the contractual obligations table above. For further information on uncertain tax positions, see Note 9 in our accompanying consolidated financial statements for additional details.

Operating Leases. We rent office space under operating leases expiring on various dates through 2034. The terms of certain lease agreements require security deposits in the form of bank guarantees and letters of credit in the amount of $2.1 million.

Purchase Commitments. At December 31, 2020, we had unrecorded commitments under contract of $226.3 million. Purchase commitments consisted of third-party web services of $97.6 million, production and computer equipment purchases of $24.9 million, inventory and third-party fulfillment purchase commitments of $18.4 million, advertising of $17.8 million, commitments for professional and consulting fees of $8.4 million and other unrecorded purchase commitments of $59.2 million.

Senior Unsecured Notes and Interest Payments. Our senior unsecured notes due 2026 bear interest at a rate of 7.0% per annum and mature on June 15, 2026. Interest on the notes is payable semi-annually on June 15 and December 15 of each year and has been included in the table above.

Second Lien Notes and Interest Payments. Our senior secured notes due 2025 bear interest at a rate of 12.0% per annum and mature on May 15, 2025. Interest on the notes is payable semi-annually on May 15 and November 15 of each year and has been included in the table above. At our option, we may elect to pay interest on up to 50.0% of the then outstanding principal amount of the notes as paid-in-kind and applied to the outstanding principal balance of the notes.

Other Debt and Interest Payments. At December 31, 2020, the term loans of $144.4 million outstanding under our credit agreement had repayments due on various dates through November 15, 2024, with the revolving loans outstanding under our $260.0 million revolving credit facility due on November 15, 2024. Interest payable included in this table is based on the interest rate as of December 31, 2020, and assumes all LIBOR-based revolving loan amounts outstanding will not be paid until maturity, but that the term loan amortization payments will

be made according to our defined schedule and all Prime rate based revolving loan amounts will be paid within a year. Interest payable includes the estimated impact of our interest rate swap agreements.

In addition, we have other debt which consists primarily of term loans acquired through our various acquisitions or used to fund certain capital investments, and as of December 31, 2020 we had $11.0 million outstanding for those obligations that have repayments due on various dates through March 2025.

Finance Leases. We lease certain machinery and plant equipment under finance lease agreements that expire at various dates through 2027. The aggregate carrying value of the leased equipment under finance leases included in property, plant and equipment, net in our consolidated balance sheet at December 31, 2020, is $60.5 million, net of accumulated depreciation of $41.6 million. The present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at December 31, 2020 amounts to $24.9 million.

Other Obligations. Other obligations include deferred payments related to previous acquisitions of $45.4 million in the aggregate.This balance includes the deferred payment related to the 99designs acquisition totaling $43.7 million. Refer to Note 7 in our accompanying consolidated financial statements for additional details.

Additional Non-GAAP Financial Measures

Adjusted EBITDA and adjusted free cash flow presented below, and constant-currency revenue growth and constant-currency revenue growth excluding acquisitions/divestitures presented in the consolidated results of operations section above, are supplemental measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted EBITDA is defined as GAAP operating income plus depreciation and amortization plus share-based compensation expense plus proceeds from insurance plus earn-out related charges plus certain impairments plus restructuring related charges plus realized gains or losses on currency derivatives less interest expense related to our Waltham, Massachusetts office lease less gain on purchase or sale of subsidiaries.

Adjusted EBITDA is the primary profitability metric by which we measure our consolidated financial performance and is provided to enhance investors' understanding of our current operating results from the underlying and ongoing business for the same reasons it is used by management. For example, as we have become more acquisitive over recent years we believe excluding the costs related to the purchase of a business (such as amortization of acquired intangible assets, contingent consideration, or impairment of goodwill) provides further insight into the performance of the underlying acquired business in addition to that provided by our GAAP operating income. As another example, as we do not apply hedge accounting for certain derivative contracts, we believe inclusion of realized gains and losses on these contracts that are intended to be matched against operational currency fluctuations provides further insight into our operating performance in addition to that provided by our GAAP operating income. We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Adjusted free cash flow is the primary financial metric by which we set quarterly and annual budgets both for individual businesses and Cimpress-wide. Adjusted free cash flow is defined as net cash provided by operating activities less purchases of property, plant and equipment, purchases of intangible assets not related to acquisitions, and capitalization of software and website development costs that are included in net cash used in investing activities, plus the payment of contingent consideration in excess of acquisition-date fair value and gains on proceeds from insurance that are included in net cash provided by operating activities, if any. We use this cash flow metric because we believe that this methodology can provide useful supplemental information to help investors better understand our ability to generate cash flow after considering certain investments required to maintain or grow our business, as well as eliminate the impact of certain cash flow items presented as operating cash flows that we do not believe reflect the cash flow generated by the underlying business.

Our adjusted free cash flow measure has limitations as it may omit certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, adjusted free cash flow does not incorporate our cash payments to reduce the principal portion of our debt or cash payments for business acquisitions. Additionally, the mix of property, plant and equipment purchases that we choose to finance may change over time. We believe it is important to view our adjusted free cash flow measure only as a complement to our entire consolidated statement of cash flows.

The table below sets forth operating income and adjusted EBITDA for the three and six months ended December 31, 2020 and 2019:


In thousands	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
GAAP operating income	$	94,194	$	121,595	$	130,180	$	146,974
Exclude expense (benefit) impact of:
Depreciation and amortization	43,597		42,356		85,887		84,891

Share-based compensation expense (1)	5,243		8,325		13,526		13,075

Certain impairments and other adjustments	(215)		936		568		760
Restructuring-related charges	2,182		1,897		2,096		4,087


Realized (losses) gains on currency derivatives not included in operating income	(1,578)		10,408		(361)		15,246
Adjusted EBITDA	$	143,423	$	185,517	$	231,896	$	265,033

_________________

(1) The adjustment for share-based compensation expense excludes the portion of share-based compensation expense included in restructuring related charges, if any, to avoid double counting.

The table below sets forth net cash provided by operating activities and adjusted free cash flow for the three and six months ended December 31, 2020 and 2019:


In thousands	Six Months Ended December 31,
		2020		2019
Net cash provided by operating activities		$	256,168	$	265,097
Purchases of property, plant and equipment		(16,790)		(28,094)

Capitalization of software and website development costs		(26,445)		(23,417)

Adjusted free cash flow		$	212,933	$	213,586

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. Our exposure to interest rate risk relates primarily to our cash, cash equivalents and debt.

As of December 31, 2020, our cash and cash equivalents consisted of standard depository accounts which are held for working capital purposes. We do not believe we have a material exposure to interest rate fluctuations related to our cash and cash equivalents.

As of December 31, 2020, we had $404.4 million of variable-rate debt. As a result, we have exposure to market risk for changes in interest rates related to these obligations. In order to mitigate our exposure to interest rate changes related to our variable rate debt, we execute interest rate swap contracts to fix the interest rate on a portion of our outstanding or forecasted long-term debt with varying maturities. As of December 31, 2020, a hypothetical 100 basis point increase in rates, inclusive of our outstanding interest rate swaps, would result in an immaterial impact to interest expense over the next 12 months.

Currency Exchange Rate Risk. We conduct business in multiple currencies through our worldwide operations but report our financial results in U.S. dollars. We manage these currency risks through normal operating activities and, when deemed appropriate, through the use of derivative financial instruments. We have policies governing the use of derivative instruments and do not enter into financial instruments for trading or speculative purposes. The use of derivatives is intended to reduce, but does not entirely eliminate, the impact of adverse currency exchange rate movements. A summary of our currency risk is as follows:

•Translation of our non-U.S. dollar revenues and expenses: Revenue and related expenses generated in currencies other than the U.S. dollar could result in higher or lower net income when, upon consolidation, those transactions are translated to U.S. dollars. When the value or timing of revenue and expenses in a given currency are materially different, we may be exposed to significant impacts on our net income and non-GAAP financial metrics, such as adjusted EBITDA.

Our currency hedging objectives are targeted at reducing volatility in our forecasted U.S. dollar-equivalent adjusted EBITDA in order to protect our debt covenants. Since adjusted EBITDA excludes non-cash items such as depreciation and amortization that are included in net income, we may experience increased, not decreased, volatility in our GAAP results due to our hedging approach. Our most significant net currency exposures by volume are in the Euro and British Pound.

In addition, we elect to execute currency derivatives contracts that do not qualify for hedge accounting. As a result, we may experience volatility in our consolidated statements of operations due to (i) the impact of unrealized gains and losses reported in other (expense) income, net on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other (expense) income, net, whereas the offsetting economic gains and losses are reported in the line item of the underlying activity, for example, revenue.

•Translation of our non-U.S. dollar assets and liabilities: Each of our subsidiaries translates its assets and liabilities to U.S. dollars at current rates of exchange in effect at the balance sheet date. The resulting gains and losses from translation are included as a component of accumulated other comprehensive loss on the consolidated balance sheet. Fluctuations in exchange rates can materially impact the carrying value of our assets and liabilities.

We have currency exposure arising from our net investments in foreign operations. We enter into currency derivatives to mitigate the impact of currency rate changes on certain net investments.

•Remeasurement of monetary assets and liabilities: Transaction gains and losses generated from remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of a subsidiary are included in other (expense) income, net on the consolidated statements of operations. Certain of our subsidiaries hold intercompany loans denominated in a currency other than their functional currency. Due to the significance of these balances, the revaluation of intercompany loans can have a material impact on other (expense) income, net. We expect these impacts may be volatile in the

future, although our largest intercompany loans do not have a U.S. dollar cash impact for the consolidated group because they are either 1) U.S. dollar loans or 2) we elect to hedge certain non-U.S. dollar loans with cross-currency swaps. A hypothetical 10% change in currency exchange rates was applied to total net monetary assets denominated in currencies other than the functional currencies at the balance sheet dates to compute the impact these changes would have had on our income before taxes in the near term. The balances are inclusive of the notional value of any cross-currency swaps designated as cash flow hedges. A hypothetical decrease in exchange rates of 10% against the functional currency of our subsidiaries would have resulted in a decrease of $0.9 million and an increase of $14.2 million on our income before income taxes for the three months ended December 31, 2020 and 2019, respectively.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is incorporated by reference to the information set forth in Item 1 of Part I, “Financial Statements - Note 13 — Commitments and Contingencies,” in the accompanying notes to the consolidated financial statements included in this Report.

Item 1A. Risk Factors

There have been no material changes with respect to the risk factors we disclosed in our Form 10-K for the fiscal year ended June 30, 2020 and our Form 10-Q for the fiscal quarter ended September 30, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 25, 2019, we announced that our Board had authorized us to repurchase up to 5,500,000 of our issued and outstanding ordinary shares on the open market (including block trades), through privately negotiated transactions, or in one or more self-tender offers. This repurchase program expires on May 22, 2021, and we may suspend or discontinue our share repurchases at any time.

On April 28, 2020, we entered into an amendment to our senior secured credit agreement, which suspended our financial maintenance covenants in addition to prohibiting us from repurchasing shares during the suspension period. Refer to Note 9 for additional information. We did not purchase any of our ordinary shares during the three months ended December 31, 2020.

Item 6. Exhibits, Financial Statement Schedules


Exhibit No.						Description
10.1						2020 Equity Incentive Plan is incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 30, 2020
10.2						Form of Restricted Share Unit Agreement under our 2020 Equity Incentive Plan
10.3						Form of Performance Share Unit Agreement for employees and executives under our 2020 Equity Incentive Plan
10.4						Form of Performance Share Unit Agreement for our Chief Executive Officer under our 2020 Equity Incentive Plan
10.5						Form of Performance Share Unit Agreement for our Board of Directors under our 2020 Equity Incentive Plan
31.1						Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13a-14(a)/15d-14(a), by Chief Executive Officer
31.2						Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Rule 13a-14(a)/15d-14(a), by Chief Financial Officer
32.1						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer
101						The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Statements of Shareholder's Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.
104						Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

January 28, 2021 Cimpress plc


			By:			/s/ Sean E. Quinn
						Sean E. Quinn
						Chief Financial Officer (Principal Financial and Accounting Officer)