Cimpress plc (CMPR) Earnings Call Transcript & Summary

Hello, and welcome to the Cimpress 2021 Investor Day Part 2. I'm Meredith Burns, Vice President of Investor Relations and Sustainability. You'll hear my voice during the session to ask questions of our executives, but the camera is going to stay on them today. So with us today are Robert, Sean, Maarten and Ricky. And I hope that our audience has all had a chance to view our prerecorded content and that you found it informative. So this live Q&A session will last 45 minutes to an hour, and we'll answer both pre-submitted questions and as many live questions as we can get to. You can submit questions via the questions-and-answers box at the bottom left of the screen. And before we start, I will note that in this session, we're likely to make statements about the future. Our actual results may differ materially from these statements due to risk factors that are outlined in detail in our SEC filings and also on our event micro site. We invite you to read them.

And now, we'll take the first question, which was pre-submitted for Robert. Can you please update us on the status of our flywheel? Is it starting to spin again? And what do we need to do to get it spinning faster?

So the short answer is yes. The flywheel is spinning again. But for us to have it really gain momentum, we need to do more, and we have very clear plans on how we're going to do that. The slightly longer answer is I would break that question into 2 components. Cimpress-wide, I really feel that the mechanisms of the flywheel are very much working. And we have a clear, well-understood approach to how we run our businesses autonomously, what the central teams do. We have clear incentives and accountability for our leadership teams in each of the businesses. And those select few shared strategic advantages, we've talked about for multiple years are paying off, both individually but also in the aggregate. The second part of that longer answer is clicking on Vistaprint, where we are going through this significant transformation. And there, I'd say, at a high level -- although we don't formally describe this, if I were to describe a flywheel, it's that, one, the investments we're making in foundational basics and the investments we're making in our new capabilities are driving our execution ability. And two, that is, in turn, driving the value that we deliver to our customer and our lifetime value per customer, as a result. And then three, that allows us to find and invest in attractive customer acquisition areas that we may not have otherwise been able to do at a lower value per customer. And that, in turn, drives growth in kind of economic value creation. And if we see that type of return on investment, that reinforces our willingness to reinvest, which kind of brings back to the start of that. So if I -- yes, that Vistaprint flywheel, again, that's what I just described is not our formerly spoken about flywheel, but that concept, you can definitely feel the momentum of. And as I said in the beginning, I think we need to do a lot get it spinning faster, but we're -- it's moving in the right direction.

Great. Thank you, so much, Robert. So we have had a lot of pre-submitted questions on the concept of advertising and advertising efficiencies. So we'll get started with a group of questions on that topic. So first up, Vistaprint marketing spend in Q4 of FY '21 was above Q4 of FY '19 on both a dollar and percentage of revenue basis, while revenue in Q4 FY '21 was below. Yet you're citing marketing efficiencies. Please explain.

Yes, I'll take this one, and then maybe, Ricky, I'll hand off to you at some point as well. So as Meredith said, there are a number of pre-submitted questions here, and I think very good questions. Let me try and address that specific question, and I'll kind of add some other context as well. And if I start, I'll go back to what we shared in this event 2 years ago, which was, if you recall, we were, at the time, about 6 months into our transformation journey in Vistaprint, and we had described some of the brute-force changes that we had made in advertising spend. And we had showed a chart of the increased efficiency of that spend, where in the fourth quarter of fiscal 2019, we had cut out almost all of the spend that was paying back beyond 3 years, which previously had been a significant amount of spend. That had a big impact on EBITDA. So I think when we were talking about efficiency at the time, that was very clear in the numbers, and that remained clear in the subsequent quarters. And of course, the pandemic impact has somewhat blurred that. After that initial brewed force effort, then we started to increase the sophistication of the efforts that we were making. That was the case in talent that we are bringing in, in the tooling that we are putting in place and the way that we are using data. And we've made changes in a lot of areas, but I think the one that's had the most impact from a financial perspective is clearly nonbranded paid search, where we've seen the biggest impact in terms of efficiency. The returns on our paid search or nonbranded paid search have improved by about 30% versus 2 years ago. And so if you were to compare what we would have spent in 2019 versus what we spent in 2021, again, just in nonbranded paid search, we were able to generate the same amount of variable gross profit in that channel with 20% less spend. And so we are very confident in the efficiency that we've driven. And so what drove that? The biggest impact is in the way that we are bidding and specifically switching to machine learning-based bidding optimization, where we had done initially some controlled experiments that showed the efficient -- type of efficiency I just mentioned. And then as we rolled that out on a broader scale, we've seen the same level of efficiency. So we're very confident that, that is the driver. And quarter-to-quarter, there's a bunch of other factors as well, like last year in Q4 when the pandemic hit, cost per click went way down. We've changed payback thresholds over the last 2 years. And so there's other things that impact it. And certainly, when you look at our kind of headline financials, paid search -- nonbranded, paid search is not the only thing that drives it, it's other things as well. So it's without question that we've massively improved the efficiency of our performance advertising spend, and that's had a very material contribution starting back in 2019, but that's very much the case still today. And we're not done. So there's next levels of maturity that we are about to get into around bidding optimization, looking at in-house-built machine learning and API-driven interfaces that will further automate how we bid and that's across all of our performance advertising partners. The initial testing that we've done there shows another uplift in efficiency, and so we're quite optimistic about continuing to improve on that journey. So then, I think all of you may ask the question, well, why did advertising spend as a percentage of revenue actually go up in the past quarter and it was higher than where it was 2 years ago. So let me explain that. The first 2 quarters of fiscal year 2019, so before we made the changes that I talked about at the beginning, our advertising spend as a percentage of revenue was 21% of revenue. And really, all of that was what I would call lower funnel advertising. There was a material amount of spend on TV, still. Ricky will touch on that, but it was all kind of lower funnel. Performance advertising in Q3 of this past year was 11% of revenue and in Q4 was 13% of revenue. So much lower than the 21% of 2 years ago. And so there you can see the efficiency. On top of that, though, and this is what blurs the picture, we had a material amount of upper funnel spend that started in the third quarter. That was $8 million in the third quarter. And in the fourth quarter, it was another -- it was $14 million. And so that's what blurs the picture for all of you looking at is the efficiency story really there. It definitively is. We see that in the data, but we've added on top of that upper-funnel spend. So maybe, Ricky, I'll pass it over to you to talk about what we're doing from an upper-funnel perspective.

Thank you very much, Sean. Yes, this is a journey we're on. Oftentimes, you'll hear me talk about it as a reconsideration journey. And so much of what we've done in the past was about selling items and delivering this transaction of selling you the business card. So there's a lot of money invested in things like direct response television that, though, not necessarily the most efficient spend, helps take the brand into a corner as being a value provider of print. And we have a very big journey ahead of beginning to reposition ourselves as a marketing and design partner for a small business. And so the upper funnel spend is coming back on board with us in the last couple of quarters and really a completely different spend than it may have been 2 or 3 years ago. It's all digital-driven. It's platforms like YouTube. It's us being able to go into places like Snapchat and TikTok. It's going strong at Facebook and Instagram. And what we're seeing is that a lot of new small businesses are 2 to 4x more likely to hear a communication from us and have a positive perception of us through our marketing we're doing in those new channels in those new platforms like YouTube, Twitter, YouTube, Twitter, Snapchat, Instagram and so on and so forth -- or I should say, new channels for Vistaprint. In addition, it's not like upper funnel lives in isolation. Upper funnel also is something that drives right down into a full funnel offense for us. And so we work super closely with the performance marketing team to make sure that we have full stack across all touch points with something like YouTube, so that we're able to make sure that if we're sending something in the upper funnel, we're able to find the right communication mid-funnel and lower funnel. And what it's done is it's allowed some of those lower-funnel activities -- and I talked about this in the prerecorded video. Obviously, YouTube is now paying back for us as a channel in a lower funnel way than it wasn't previously. But the reality is with upper funnel, it's going to take time. the ability for us to change our perception, to introduce ourselves to new small businesses, to become that marketing design partner is something that's going to take time and investment and commitment to really be that partner. And for us, as a company, we're going to transition. A lot of what you've seen today is about where we want to go in the future, but we also have this existing business that we're running. And so as we have a foot in both worlds, we're going to find moments where we can't turn the book too fast. There are always going to be things we need to do to help deliver the results of the quarter while continually building these relationships for the future that are going to be rooted in being that marketing and design partner. Again, the same company, just on this transition journey, as we go through migration, as we go through NPI. And that really is what the exciting aspects of this is, is the journey that we're on and beginning to see lots of positive results already. But it's early in the journey.

Thank you, Ricky. Thank you, Sean. So if it is early in the journey, we have another question that asks us to look out into the future, I think. If Vistaprint's performance marketing spend is demonstrating increased efficiency amidst the expansion of payback thresholds in recent quarters, as we've done since the -- a year ago when we had the big pullback because of the pandemic, what does that imply with respect to future revenue growth in the coming quarters, specifically from that recent spend? Sean, throw it over to you?

Yes, happy to take it. So I'm not sure it necessarily implies anything specifically about future revenue growth other than the fact that we are very confident that the dollars that we're deploying in our performance channels are going further than they did 2 years ago. And so they're being much more effectively spent. Now if we can spend the same amount of absolute dollars and continue to see that be the case, then that will be a driver -- a driver of growth. But the reality is, too, like there are a lot of contributing factors to what I said earlier in terms of the increased efficiency of our advertising spend. Of course, the other things -- and you heard this in the prerecorded content, the other things we've done to increase the lifetime value of customers, and you can see those per customer economic charts that I shared in the Vistaprint section, those also go a long way to increase the efficiency of our advertising. And so I think they don't -- to answer the question specifically, it doesn't necessarily speak to our future growth, but the more we can have those performance dollars go further, of course, the more that will contribute to our future growth.

Great. Sean, I'm going to stick with you for a second. Somebody has a clarifying question about categorization of Vistaprint investment spend that we wrote about in our letter. So the year-over-year increase in the growth investment called Vistaprint LTV-based advertising and marketing infrastructure for the full year 2021 was $40 million. We saw the disclosure in the investor letter that this specific investment consists of the cost of many marketing-related teams delivering core parts of our strategy, including user experience, data and analytics and design. We were wondering if you could roughly break out the year-over-year increase in this line item to these different components so we could understand the increased level of investment better.

Yes, yes. The -- so I may need a second to think about the year-over-year increase, but I think in absolute dollars, the -- I think -- and Meredith, you can correct me if I'm wrong here, but that in the table, the total amount of net investment for FY '21 was $46 million, is that correct?

Brought us $46 million from an EBITDA perspective and $49 million from free cash flow perspective.

So I'll break that out. So of that, roughly $20 million of that is related to kind of nonadvertising spend things, namely our internal teams that touch, whether it be marketing, whether it be brand, whether it be UX, some aspects of product and DNA. Also that's involved in kind of marketing infrastructure more broadly. So of the EBITDA impact, the $46 million, if I had that right, about $20 million of that is kind of nonadvertising spend and then the other $26 million is specifically the net investment in LTV advertising.

Great. Thank you. All right. We are going to move to a question for Robert. And the question is this. Obviously, you have had to build new capabilities and product range, et cetera, to serve higher-value customers. Aside from the upper funnel work, which presumably will attract a wide range of both traditional and higher-value customers, do you need to build a completely different marketing muscle to attract those customers as well? Or do you just need to tweak and refine your strategies? Put another way, should we expect customer acquisition costs to be meaningfully higher for high-value customers in general? Or once you pinpoint the proper message, is it likely to be as easy to attract them in large numbers as it has been to attract your more traditional customers?

Okay. I'm going to answer it a couple of ways, and then I might ask Ricky to jump in here as well. First of all, I would not be surprised, I would almost expect that higher-value customers could -- because there are fewer of them in the world, could be a higher cost to acquire on a per customer basis. But it's a ratio of revenues. Because they stay with us for a long time, I think it's equally, if not better economics. And I can speak to that very much in looking at some of the Upload and Print businesses, where we have very long high-value cohorts. And we spend a lot to acquire a customer, but as a percentage of revenue, advertising is much lower than Vistaprint, right. In Vistaprint specifically, I think it's also not just a question of figuring out how do we go after those new high-value customers. We've done a lot of research with our customers that show if you look at a share of wallet, many customers who are high value in their total market spend, not just with Vistaprint, have a positive feeling about Vistaprint for their basic or their price-sensitive products. But they do spend the majority of their wallet elsewhere, and that is not -- it certainly includes design services, includes many other products, physical products that we sell. So the biggest challenge, I think, we have to do is to better understand and build capabilities to serve the higher-quality needs of customers who, per part of that question, do come in already through our funnel. Now I'd say that's also one of the reasons we've made the investment in 99designs. We've had efforts in the serving of our top decile customers differentially. But I'd say we are still very much in the early stages of this. So I'm optimistic that the economics, in summary, will remain economically attractive. And I would say that if you look at our 99designs customers who are coming in and their revenues and the Vistaprint Corporate Solutions customers, those are both very high-value customers of this type. And we do well over $100 million a year in revenue between those 2. And it's a good growing business, so I believe we certainly can learn to do that on a much greater scale across Vistaprint. Hey, Ricky, do you want to add anything to that?

Yes. I think with design, you have to look at it as both being an acquisition and a retention vehicle for us. And so to me, the notion that you saw with the full spectrum design video, full spectrum design is about the whole lifespan that, that customer has at day minus 100, at day 5,000. I think the notion that -- it's important for us, in order to become famous for design, we have to be consistent. We have to consistently be there talking about design, partnering on design and making it a core part of our product experience. But the reality is if you don't need a logo designed today, because you had one made 2 years ago, we have other design offerings for you. And so it's not just about logo design. It's not just about day-in-day-out print design or your digital design needs, it's going to be about that full spectrum. But we're going to have to be famous for design and really move upstream. And that's why things like new small business creation are so interesting for us because their design needs are complete blank slate. If we acquire the new small business, earn their relationship, we're going to be able to serve them throughout their entire lifespan with design. But we're going to again have to be famous for that. And it's a big thing, where if we just try to win someone over, that we are a great design company,inside a Google search result, then most likely we won't win them over. We'll be competing on price. And we're going to have to consistently be able to build that we are a great design company both through the product we're building, the experience we're delivering, and the way we communicate about how we serve you as a customer. And again, that's going to be a journey for us, but we're already seeing very positive signs with things like the 99designs, integration to Vistaprint. But on the design services test, you've heard about -- but again, we're getting data points in and have to continue to evolve and learn what is that right way for us to acquire that design-first customer into the fold, knowing we have a healthy portion of them already. They just view us as their print partner, not their design partner. So again, back to that reconsideration journey. A lot of it starts with our existing base, but a lot of it also is about getting new small businesses to view us as being a design and marketing partner first.

Excellent. Thank you. All right. [Operator Instructions] And we're going to move to a question now for -- I'm going to throw it, I think, to Robert and Maarten. It is about the new platform. So I still feel like I'm confused about the new platform versus new data and analytics capabilities. How much does the second depend on the first? What kind of improvement can only happen when the new tech stack is launched in the country? And what kind is happening now everywhere? Can you collect all the data you need to realize these benefits in the U.S. compared to Australia and U.K.? The point of the question is, it's great to see we're already realizing benefits, but are we at just the tip of the iceberg because the bulk of those benefits aren't even available in the U.S. market? Or conversely, is it more that we're just early in the process of recognizing those benefits everywhere simultaneously?

Why don't we start the overview, and then Maarten, pass it to you for some thoughts on. I'd say, use the term -- you used the term tip of the iceberg, and I think we're at a tip of the iceberg in 2 different ways. One is we'll need a few of our smaller markets with a new platform. But I think the much more significant way in which we're limited is that the results we've gotten to date are largely due to just improved, I'll call it, basic data and analytics, combined with financial rigor. It made it very impressive. But they've been in areas that don't rely on the new platform. So the return on ad spend improvements that Sean just spoke about, pricing models, which we used machine learning to model different pricing models, but it was not in the platform itself. It was done separately. And those types of things you saw in the presentation that Sean gave really improved the losses we were incurring before in the lower-end deciles and helped us serve our higher deciles better. But those are not really -- those are not things that were dependent on a new tech platform. On the other hand, in Australia, the U.K., where we've had the new platform, we are, I think, doing some much cooler, much bigger dollar items. And Maarten, maybe you can talk about some of those, where those are?

Thanks. I think we're just in the beginning of that journey there. I would see it also that already in MCP, some of those data foundation on lakes have been -- we've been building them for longer and even the beginning of the Vistaprint platform and data and analytics and that -- with MCP, have been working together really to start enabling that. So you see that being used throughout, but see it as the -- the old website can use even every insight that we might gather even on the newer platform. So what you see in Australia is that we capture a 10x of events and all kinds of like customer behavior, which we could potentially use and are building actually likely in personalization, multiple experiments that work really, really, really awesome. And again, beginning of the journey, we cannot use them on the dot-com website. So indeed, I think there is just the beginning of it and a lot more opportunity coming.

We're also just starting to do things like natural language processing of our customer care transcripts to be able to identify opportunities. And in those, again, very much still on the tip of the iceberg.

Great. We're going to stick with the site migration for now. So from Florian's presentation, it sounded like the new e-commerce sites in international markets where they've been launched had tangible benefits on the P&L. He said that 5% of revenues -- it was 6%, revenues in Australia was generated from new product launches, enabled by the new platform, and 5% year-over-2-year increase in variable gross profit in Australia from the new e-commerce site. Is that the right framework to think about the impact of this new platform as it gets launched globally. Robert?

Yes. It's not an exact model that we applied everywhere, but this idea that we can much more rapidly and much more easily lower cost, introduce new products, we think, has enormous opportunity globally. And then some of the variable gross profit improvements that can come beyond the improvements from new products. They come from some of the things we talked about like the early tests we've been doing in personalization or the like. We very much think that's the right framework. And the reason we've been investing -- there's a lot of reasons we've been investing in this tech platform. But from kind of the near-term economic payoffs, those are 2 very good examples.

Yes, sure. Maybe to add one thing that is that if we wanted to launch products that required a significant amount of cross collaboration but also software developers actually helping to launch a product, which is one of the big unlocks in the new platform, where you need a lot less, if not, 0 software developers for it, which makes it easier for smaller markets relative to the U.S. want to actually launch products. So yes.

Excellent. Thank you. Okay. New topic area. You have discussed your goal to become digitally relevant with regard to your product offerings and services within Vistaprint. How far away are you from that goal? What sort of investments will be needed to achieve that goal? And what does the competitive landscape look like for digital services. Robert, do you want to start to add on this one?

Sure. And then I may ask Ricky to jump in. One, just to clarify, when we say digitally relevant, we do believe the very fact that we are an e-commerce-first model in an increasingly commerce world makes us digitally relevant, in that we're relevant in that digital world. But what we mean here is how do we actually have products that help small businesses operate from a digital perspective. And that really ends up being investments in partnerships or in products which directly do that. And Ricky spoke about that in some of the connected products we expect to be launching in the coming months. Also, if you look at what 99designs does, by far, their best growth market is doing website design for various different website builders, where customers like -- especially the higher-value customers just don't want to spend the time and they really realize the value of having a high-quality professional graphic designer do that for them. So that directly makes them digitally relevant. I think there's a whole another set of products which we're not ready to speak about that we do believe that we can continue to introduce via partnerships or via internal development that. Although we're never going to be in 100% digital or probably even for the near term -- and significantly into the future, we're not going to be majority digital, we do think that we can play a unique role in bridging that physical digital world and having something which is consistent and relevant and highly infused with this vision of being the design and marketing expert for small businesses and assisting them through how we help them instead of just providing the tools themselves. Ricky, any other thoughts on that?

Yes. Robert hit it really well, but I mean, it's something where -- obviously, being digitally relevant is something that's more important than ever. I think what's supported for Vista is the notion of the right vertical slice across that customer journey. There's a lot of things that exist in the world of digital needs for a small business. What's your POS system, what's your payroll software, what is your -- like what is your drop-shipping solution? All of them are interesting things, but not necessarily the design and marketing partners slice that interest us so much. And where we're hearing so loud and clear from our customers there's need for it. And so a big part becoming digitally relevant is us embracing that it's our job to go from just items to solutions, to relationships and understanding that if we want to actually be in a relationship, we have got to come up with solutions that help meet customers' digital needs from a design and marketing standpoint. You see it with 99designs by Vistaprint already the ability to go and design websites for Shopify, Squarespace, Wix. It's not just about trying to sell our website solutions, it's not about giving you the right website design for whatever you need. It's about us being able to offer a community connection to help people understand what they might need to do social media marketing-wise. But it's also the team stepping back and understanding, as we're figuring out the next year, 2 years, 3 years, 5 years, it's about that holistic journey, day minus 100 to day 5,000 and us having digital solutions that are as needed to be as much of a core of who we are as it is about print solutions. And I think that's something where that might not have been the case 3 to 5 years ago. Digital kind of existed as a secondary business for Vistaprint. We view our digital future as being as interchangeable as design and print, and that -- this changes the complete perspective of where we're going. And again, it's only we're going to be able to be that partner for a small business, and we're able to help them with all their design and marketing needs.