Q Earnings Conference Call

Transcription

1 Q2 207 Earnings Conference Call July 25, 207 Christopher North, President and CEO Mike Pope, CFO

2 Safe Harbor Disclaimer This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 933, as amended, and Section 2E of the Securities Exchange Act of 934, as amended, that involve risks and uncertainties. These forward-looking statements include statements about our plans for 207 and beyond, expected benefits from our restructuring activities and our business outlook for the third quarter and full year 207 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 forward-looking 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, decreased consumer discretionary spending as a result of general economic conditions; our ability to expand our customer base and increase sales to existing customers; our ability to 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, including our next generation Shutterfly platform; unforeseen difficulties executing on planned strategic restructuring activities; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; 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 our SEC filings, including our most recent Form 0-K and 0-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 profits/margins, 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 Adjusted EBITDA minus Capital Expenditures 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, gross profit, 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 Q2 7 Earnings Call Agenda Q2 7 business review Platform Migration and Restructuring update Q2 7 financials Q3 7 and FY7 outlook 3

4 Q2 7 Summary FINANCIALS Met or exceeded guidance on all major metrics Increase in share repurchases over Q 7 Reiterate full year 207 guidance BUSINESS Core Shutterfly brand performed well Continued progress in mobile SBS revenue growth continues Enhanced manufacturing operations with new printers STRATEGIC Key milestones on platform consolidation, including Tiny Prints boutique launch Launched several new products, enhancements to the app Scott Arnold to lead Enterprise 4 4

5 Financial Summary Total Revenues Adj. EBITDA $204.0 $209.0 $8.2 $7.4 $7. Q2'6 Q2'7 Q2'6 Q2'7 (adj.) Q2'7 Normalized for restructuring charges of $4.7 million and capital lease termination charges of $8. million in the second quarter of 207, of which $0.3 million impacted Adjusted EBITDA. Met or exceeded guidance across major metrics. 5 5

6 Business Overview Notebooks, Luggage Tags, Journals Baby and Thank You Card Occasions, Address Labels Mobile as growth driver over next 2-3 years More products and styles within the app More than million app downloads Photo Books on Android HP deal expands lead as world s leading four-color digital printer Good progress against strategic growth plans. 6 6

7 SBS Segment 0% revenue growth year over year to $29.9 million Expanded relationship with key clients in Q2 Scott Arnold to lead Enterprise Reiterate full year outlook of 20% top-line growth. 7 7

8 Restructuring the Consumer Business in 207 LEVERAGE THE SHUTTERFLYPLATFORM as a boutique on a dedicated tab on Shutterfly.com New Shutterfly Wedding Store to feature a Wedding Paper Divas branded collection Focus all of our resources on our largest opportunities Shut Down: Simplify Brand Portfolio Over 207 FavPix Pro Gallery Explore Strategic Alternatives: To Deliver Significant Benefits In Q4207 And Beyond Single consumer platform means all customers benefit from technology investments Significant cost savings allow both reinvestment and improved bottom line 8 8

9 Tiny Prints Boutique Launch Premium design including artist collection Migration effort supported by marketing and customer care team Shutterfly platform benefits The Tiny Prints boutique launched on Shutterfly.com on June

10 Q2 7 Financial Results Review Mike Pope, CFO 0

11 Q2 Revenue ($ in Millions) $204.0 $209.0 Q2'6 Q2'7 Shutterfly brand and SBS were growth drivers in Q2 7.

12 Q2 Revenue by Segment ($ in Millions) Total Consumer SBS $204.0 $209.0 $76.6 $79. $27.4 $29.9 Q2'6 Q2'7 Q2'6 Q2'7 Q2'6 Q2'7 Personalized Gifts and Home Décor continue to perform well. 2

13 Q2 Consumer Metrics ($ in Millions) Active Customers (000 s) Orders (000 s) Average Order Value 5,303 5,468 3,260 3,350 $33.30 $32.75 Q2'6 Q2'7 Q2'6 Q2'7 Q2'6 Q2'7 Customer and orders increased 3% over Q2 6, while AOV decreased 2%. Average order value excludes SBS revenues. 3

14 Q2 Gross Profit by Segment ($ in Millions) Total Consumer SBS $94.4 $90.8 $90.6 $9.3 $87.0 $86.8 $5.5 $6.0 GM% Q2'6 Q2'7 (adj.) Q2'7 Q2'6 Q2'7 (adj.) Q2'7 Q2'6 Q2'7 46.3% 43.5% 43.4% 5.7% 48.6% 48.5% 20.2% 20.2% Q2 7 overall gross margin of 43.5%. Normalized for restructuring charges of $4.7 million in the second quarter of 207, of which $0.2 million impacted gross profit. 4

15 Q2 Total Operating Expenses ($ in Millions) $22.5 $5.4 $09.9 $2.6 $9.8 $9.4 $9.4 $4.5 $0.9 $0.9 $9. $89.6 $89.6 Q2'6 Q2'7 (adj.) Q2'7 Cash Opex Depreciation & Amortization Stock Based Comp Restructuring & Lease Termination % Revenue 56.6% 52.6% 58.6% Normalized operating expenses as a percentage of revenue decreased 400 basis points from Q2 6 to Q2 7. Normalized for restructuring charges of $4.7 million and capital lease termination charges of $8. million in the second quarter of 207, of which $2.6 million impacted operating expenses. 5

16 Q2 Operating Expenses by Category ($ in Millions) Technology & Development Sales & Marketing General & Administrative $4.3 $39.4 $47.5 $43.0 $26.6 $27.5 Q2'6 Q2'7 Q2'6 Q2'7 Q2'6 Q2'7 % Revenue 20.3% 8.8% 23.3% 20.6% 3.0% 3.2% Sales and marketing expense as a percentage of revenue decreased 270 basis points over Q2 6, largely driven by a decrease in external marketing spend. 6

17 Q2 Profitability ($ in Millions) Gross Profit Operating Loss Adjusted EBITDA 2 $94.4 $90.8 $90.6 $ Q2'6 Q2'7 (adj.) Q2'7 $7. Q2'6 Q2'7 (adj.) Q2'7 $(2.) $(9.) $(3.8) Q2'6 Q2'7 (adj.) Q2'7 % Revenue 46.3% 43.5% 43.4% -0.3% -9.% -5.2% 8.9% 8.3% 3.4% Q2 7 normalized Adjusted EBITDA was $7.4 million. Normalized for restructuring charges of $4.7 million and capital lease termination charges of $8. million in the second quarter of 207; $0.2 million impacted gross profit, $2.8 million impacted operating loss, and $0.3 million impacted Adjusted EBITDA. 2 Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. 7

18 Q2 Profitability ($ in millions except per share amounts) Q2 FY7 Q2 FY7 Q2 FY6 Normalized for restructuring charges of $4.7 million and capital lease termination charges of $8. million in the second quarter of Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. Change (Y/Y) Net Revenue $209.0 $209.0 $ % Gross Profit $90.6 $90.8 $94.4 (4%) Gross Margin 43.4% 43.5% 46.3% Operating Loss $(3.8) $(9.) $(2.) 0% Operating Margin (5.2%) (9.%) (0.3%) Adjusted EBITDA 2 $7. $7.4 $8.2 (5%) Adjusted EBITDA Margin 3.4% 8.3% 8.9% Loss before Taxes $(37.6) $(24.8) $(26.6) 7% Benefit from Income Taxes $4.7 $9.9 $0. (2%) Tax Rate 39.2% 39.9% 38.0% Net Loss $(22.8) $(4.9) $(6.5) 0% Basic Shares (in millions) (2%) Net Loss per Share $(0.68) $(0.44) $(0.48) 8% 8

19 Annual Capital Expenditures ($ in Millions) CapEx $M $00 $80 $75.0 $90.2 $8.4 $75.6 $ $60 0 $ (% of Rev) $20 9.6% 9.8% 7.7% 6.7% 6.5% 0 0 $ F - Q2 7 capital expenditures were $6.9 million. FY7 CapEx expected to be $75 million or 6.5% of total net revenue at the midpoint of our guidance range. 9

20 Shares Outstanding Trend (in Millions) FY4 FY5 FY6 Q2'7 Shares Repurchased Shares Exercised/Vested In Q2 7, we repurchased a total of 603 thousand shares for $30.0 million, bringing our year to date repurchases to just over.0 million shares as of June 30,

21 ($ and shares in millions, except per share amounts) Q3 FY7 Guidance Q3 FY7 Net Revenues $87.0 to $93.0 Year-over-year Growth -0.2% to 3.0% Gross Profit Margin 35.0% to 35.5% Operating Loss $(38.0) to $(35.0) Adjusted EBITDA 2 $0.0 to $3.0 Effective Tax Rate 38.0% Net Loss per Share $(0.80) to $(0.76) Basic Shares (weighted average share in millions) 33.6 Excludes expected restructuring charges. 2 Adjusted EBITDA is a Non-GAAP measure and is defined as earnings before interest, taxes, depreciation, amortization and stockbased compensation. 2

22 ($ and shares in millions, except per share amounts) 207 Guidance (Reiterated) FY7 Net Revenues $,35 to $,65 Year-over-year Growth 0.% to 2.7% Gross Profit Margin 49.0% to 50.0% Operating Income $48.5 to $68.5 Adjusted EBITDA 2 $20.0 to $230.0 Year-over-year Growth 0.8% to 0.3% Adjusted EBITDA Margin 2 8.5% to 9.7% Effective Tax Rate 37.5% Net Income per Share $0.45 to $0.80 Diluted Shares (weighted average share in millions) 34.5 Capital Expenditures $75.0 % of Net Revenue 6.4% to 6.6% Adjusted EBITDA minus Capital Expenditures $35.0 to $55.0 Excludes expected restructuring charges ranging from $5.0 million to $7.5 million as well as any costs related to refinancing our convertible debt and lease termination charges. 2 Adjusted EBITDA is a Non-GAAP measure and is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. 22

23 Annual Adjusted EBITDA minus Capital Expenditures ($ in Millions) $33 $45 $ $75 $ F F FY7 Adjusted EBITDA minus Capital Expenditures expected to grow 9% YoY at the midpoint of guidance range. Excludes expected restructuring charges ranging from $5.0 million to $7.5 million as well as any costs related to refinancing our convertible debt and lease termination charges. 23

24 Q&A 24

25 Reconciliation of Non-GAAP Adjusted EBITDA ($ in millions) Q2 FY7 Q2 FY6 GAAP net loss $(22.8) $(6.5) Interest expense / (income), net Tax benefit (4.7) (0.) Depreciation and amortization Stock-based compensation expense Capital lease termination 8. - Restructuring charges Non-GAAP Adjusted EBITDA $7.4 $8.2 Net cash used in operations $3.7 $6.9 Interest expense / (income), net Tax benefit (4.7) (0.) Changes in operating assets/liabilities (2.6) 2.4 Other adjustments Capital lease termination 8. - Cash restructuring charges.8 - Non-GAAP Adjusted EBITDA $7.4 $8.2 25

26 Q2 Restructuring ($ in millions) Q FY7 Q2 FY7 YTD Q2 FY7 Restructuring charges: Property, plant, equipment and intangibles $3.8 $2.8 $6.6 Employee costs Inventory Other costs Total $8.9 $4.7 $3.6 26