Q Earnings Conference Call

Transcription

1 Q Earnings Conference Call FEBRUARY 5, 2014 Jeff Housenbold, CEO Brian Regan, CFO

2 Safe Harbor Disclaimer This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements about our plans for 2014 and beyond and our business outlook for the first quarter and full year 2014 and statements about historical results that may suggest trends for our business. You can identify these statements by the use of terminology such as guidance, believe, expect, will, should, could, estimate, anticipate or similar forward-looking terms. You should not rely on these forwardlooking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, economic downturns and the general state of the economy; the loss of sales partners for our products; our ability to expand our customer base, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop innovative, new products and services on a timely and cost-effective basis; consumer acceptance of our products and services; unforeseen changes in expense levels; and competition and the pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the Risk Factors section of tour SEC filings, including our most recent Form 10-K and 10-Q, which are available on the Securities and Exchange Commission s Web site at These forward-looking statements are based on current expectations and the company assumes no obligation to update this information. This presentation includes non-gaap financial measures, including adjusted EBITDA, non-gaap net loss and non-gaap net loss per share. We define adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and stock-based compensation. We define Free Cash Flows as Adjusted EBITDA less purchases of property, plant and equipment and capitalization of software and website development costs. The method we use to produce non-gaap financial measures is not computed according to GAAP and may differ from the methods used by other companies. To supplement our consolidated financial statements presented on a GAAP basis, we believe that these non-gaap measures provide useful information about our core operating results and thus are appropriate to enhance the overall understanding of our past financial performance and our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operational results and trends and performance. Management uses these non-gaap measures to evaluate our financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for, or superior to, net income (loss) or net income (loss) per share determined in accordance with GAAP. Management strongly encourages review of our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. 2

3 Conference Call Agenda Q4 results 2013 achievements 2014 plans Q4 financial performance Q1 / FY2014 outlook 3

4 Q4 Results ($ in millions, except AOV) Change (Y/Y) Net Revenue $410.8 $ % Adjusted EBITDA * $141.9 $ % Free Cash Flow $126.0 $111.4 $14.6 Customers 4,652,682 4,227,247 10% Orders 7,693,863 6,897,969 12% Average Order Value (AOV) $51.80 $ % Continued to drive profitable revenue growth and healthy customer behavior across entire family of premium lifestyle brands * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. 4

5 2013 Results ($ in millions, except AOV) Net Revenue Change (Y/Y) $783.6 $ % Adjusted EBITDA * $150.4 $ % Free Cash Flow $75.5 $67.4 $8.1 Customers 8,094,038 7,062,001 15% Orders 18,561,022 16,321,828 14% Average Order Value (AOV) $40.19 $ % * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. 5

6 5 Areas of Focus in ) Growth of our two core brands, Shutterfly and Tiny Prints, through innovative products and services 2) Investments in our early stage growth initiatives including Enterprise, Mobile, ThisLife, Treat and Wedding Paper Divas 3) Broadening and enhancing our overall awareness, utilizing our integrated marketing platform 4) Scaling our manufacturing and operations capabilities; and 5) Expanding our portfolio of premium lifestyle brands through disciplined strategic acquisitions 6

7 Continuing Innovation - Mobile Smartphone apps Photo Story ipad app M.dot enabled websites ThisLife Kindle app 7

8 Continuing Innovation Intelligent Product Creation 8

9 Continuing Innovation Enhanced Cloud Services 9

10 Continuing Innovation Products and Services Photo Books Cards & Stationery Photo Gifts / Home Decor 10

11 Improving Operational Efficiency - Manufacturing 11

12 Strategic Disciplined Acquisitions 12

13 Moving Forward into 2014 expect us to continue to leverage our market leadership and healthy balance sheet to innovate in our core businesses and early stage growth initiatives increase our overall brand awareness invest in our scale and operational infrastructure 13

14 Financial Results Review Brian Regan, CFO 14

15 Q4 Financial Results ($ in millions) Change (Y/Y) Net Revenue $410.8 $ % GAAP Net Income $43.6 $53.0 (18%) Adjusted EBITDA * $141.9 $ % Free Cash Flow $126.0 $ % * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. 15

16 Consumer Revenues Q4 Revenue Full Year Revenue $450.0 $900.0 $746.0 $400.0 $398.6 $600.0 $613.4 $350.0 $343.5 $300.0 $300.0 Q4FY12 Q4FY13 $

17 Enterprise Revenues Q4 Revenue Full Year Revenue $14.0 $12.0 $12.2 $40.0 $37.7 $10.0 $30.0 $27.2 $8.0 $8.2 $20.0 $6.0 $4.0 $10.0 $2.0 $- Q4FY12 Q4FY13 $ Enterprise Revenues represented 5% of Total 2013 Revenues 17

18 Q4 Consumer Metrics Y/Y Growth Customers 4,652,682 4,227,247 10% Orders 7,693,863 6,897,969 12% Average Order Value (AOV) $51.80 $ % Our record Average Order Value (AOV) reflects: strength of our loyal customer base new premium product offerings continued benefits of our pricing and promotional initiatives 18

19 GAAP Gross Profit/Margin ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins (GAAP) $246.1 $ % 61% Gross Profit / Margins (non-gaap) * $249.6 $ % 61% Q4 s lower GAAP gross margin reflects the combined effect of: acquired intangible amortization and higher depreciation equipment expenses and increased overhead labor costs related to our new Fort Mill, SC facility Q4 s Cost of Goods Sold (COGS) also reflect impact of unanticipated labor, materials accelerated shipping and customer service costs resulting from brief production issue at Tiny Prints * Non-GAAP Gross Profit/Margins excludes stock-based compensation and amortization of intangible assets. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 19

20 GAAP Total Operating Expenses ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Operating Expenses (excl. SBC) $126.8 $ % 29% Operating expense levels reflect increased cost structure from acquisitions and purchase accounting amortization 20

21 GAAP Technology and Dev Expense ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Technology & Dev. T&D (excl. SBC, deprec., amort.) $31.0 $22.6 $24.8 $18.6 8% 6% 7% 5% The increase in Technology and Development expenses was driven by: incremental costs associated with our recent acquisitions continuing investments in engineering headcount 21

22 GAAP Sales and Marketing Expense ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Technology & Dev. Sales & Marketing S&M (excl. SBC and amort.) $31.0 $80.0 $69.5 $24.8 $62.2 $55.1 8% 19% 17% 7% 18% 16% The increase in Sales and Marketing expenses as a percent of total revenues reflects: increased investments in our integrated marketing campaigns modest increase in Sales and Marketing headcount 22

23 GAAP - General and Admin Expense ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Technology & Dev. Sales & Marketing General & Admin. G&A (excl. SBC and CC fees) $31.0 $80.0 $30.5 $14.7 $24.8 $62.2 $24.5 $12.3 8% 19% 7% 4% 7% 18% 7% 3% Q4 s General and Administration expense, excluding stock-based compensation and credit card fees, represented 4% of net revenues, roughly in line with Q4 of

24 non-gaap Adjusted EBITDA ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Technology & Dev. Sales & Marketing General & Admin. $31.0 $80.0 $30.5 $24.8 $62.2 $24.5 8% 19% 7% 7% 18% 7% Operating Income $104.6 $ % 29% Adjusted EBITDA * $141.9 $ % 36% Q4 s solid Adjusted EBITDA performance was largely driven by healthy revenue growth and certain scale efficiencies. Adjusted EBITDA grew at a compound annual growth rate of nearly 32% since Shutterfly went public in late * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. A non- GAAP to GAAP reconciliation is provided at the end of this presentation. 24

25 GAAP and non-gaap Net Income ($ in millions except per share amounts) Net Revenue $410.8 $351.8 of Total Net Revenues Gross Profit / Margins $246.1 $ % 61% Operating Expenses $141.5 $ % 32% Operating Income $104.6 $ % 29% Adjusted EBITDA * $141.9 $ % 36% Tax Rate 56.8% 47.6% - - Net Income (GAAP) $43.6 $ % 15% Net Income (non-gaap)** $47.5 $ % 15% Net Income per Share (GAAP) $1.10 $ Net Income per Share (non-gaap)** $1.20 $1.40 * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Income normalizes for the impact our Convertible Note offering has on Net Income and earnings per share. A non-gaap to GAAP reconciliation is provided at the end of this presentation

26 Capital Expenditures ($ in millions) Annual Capital Expenditures $75.0 CapEx: $15.9 M $60.8 $3.4 $3.7 $5.7 $7.9 $35.0 $33.6 $4.3 CapEx (% of Rev) 18.7% $22.7 $17.7 $ % 9.5% 9.6% 7.2% 7.3% 7.1% Technology equipment & software Mfg and rental equipment & building improvements Capitalized software development costs 26

27 Q1 FY14 Guidance (as of February 5, 2014) ($ and shares in millions, except per share components) Net Revenues Year-over-year Growth Gross Profit Margins Operating Loss Adjusted EBITDA * Effective Tax Rate Net Loss per Share ** Weighted Average Shares Q1FY14 (GAAP) $132.0 to $ % to 15.7% 44.5% to 45.0% ($41.5) to ($43.5) % to 20.2% ($0.93) to ($0.99) 38.7 Q1FY14 (non-gaap) % to 47.9% ($14.9) to ($16.9) ($1.5) to $0.5 - ($0.86) to ($0.92) 38.7 * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Loss normalizes for the impact our Convertible Note offering has on Net Loss and earnings per share. See our Fourth Quarter 2013 Financial Results press release for a non-gaap to GAAP reconciliation. 27

28 2014 Guidance (as of February 5, 2014) ($ and shares in millions, except per share components) Net Revenues Year-over-year Growth Gross Profit Margins Operating Income/(Loss) Adjusted EBITDA ** Effective Tax Rate Net Loss per Share*** Weighted Average Shares Capital Expenditures FY 2014 (GAAP) $900.0 to $920.0* 14.8% to 17.4% 52.0% to 53.0% ($11.5) to $1.7-18% to 23% ($0.27) to ($0.55) % to 10.5% FY 2014 (non-gaap) % to 54.6% $94.5 to $109.1 $160.2 to $ ($0.02) to ($0.28) * Reflects the loss of approx. $15M of revenue from the termination of our Costco ship-to-warehouse partnership. ** Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. *** Non-GAAP Net Income normalizes for the impact our Convertible Note offering has on Net Income and earnings per share. See our Fourth Quarter 2013 Financial Results press release for a non-gaap to GAAP reconciliation. 28

29 Reconciliation of Non-GAAP Gross Margin ($ in millions) Reconciliation of Non-GAAP Gross Margin GAAP gross profit $246.1 $212.8 Stock-based compensation Amortization of intangible assets Non-GAAP gross profit $249.6 $

30 Reconciliation of Non-GAAP Adjusted EBITDA ($ in millions) Reconciliation of Non-GAAP Adjusted EBITDA GAAP net income $43.6 $53.0 Interest expense / (income), net Tax provision Depreciation and amortization Stock-based compensation expense Non-GAAP Adjusted EBITDA $141.9 $127.2 Reconciliation of Cash Flows from Operations To Non-GAAP Adjusted EBITDA Net cash provided by operations $218.5 $193.6 Interest expense / (income), net Tax provision Changes in operating assets/liabilities (126.1) (111.9) Other adjustments (11.4) (2.8) Non-GAAP Adjusted EBITDA $141.9 $

31 Reconciliation of Non-GAAP Net Income Per Share ($ in millions, except per share amounts) Share amounts in thousands Reconciliation of Non-GAAP Net Income Per Share GAAP Net income $43.6 $53.0 Add back interest expense related to: Amortization of debt discount Amortization of debt issuance costs % coupon Tax effect Non-GAAP Net income $47.5 $53.0 GAAP Shares outstanding 39,713 37,764 Add: Dilutive effect of convertible notes 0 0 Non-GAAP Shares outstanding 39,713 37,764 GAAP Net income per share $1.10 $1.40 Non-GAAP Net income per share $1.20 $

32 Q&A