Q Earnings Conference Call

Transcription

1 Q Earnings Conference Call October 26, 2016 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 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 2016 and beyond and our business outlook for the fourth quarter and full year 2016 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 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 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 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, 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.

3 Q3 16 Earnings Call Agenda Q3 business review Update on key projects Holiday season preparations Reflections on first 5 months Q3 financial performance FY2016 outlook 3

4 Financial Summary Total Revenues Adj. EBITDA $ % $187.3 $(2.0) +54% $(4.4) Revenue growth driven by Shutterfly brand and SBS

5 Q3 16 Summary FINANCIALS Met or exceeded guidance on all major metrics Double digit revenue growth Adjusted EBITDA improvement year over year BUSINESS Core Shutterfly brand performed well with continued progress in mobile SBS solid revenue growth Prepared for the all- important Q4 STRATEGIC Completed planned migration to All New Shutterfly Photos and launched new mobile apps Enhancements to user interface and customer experience Shift to service- oriented architecture 5 5 5

6 Consumer Segment Strong performance in flagship Shutterfly brand Momentum in Mobile including launch of new app New offerings for Tiny Prints Q4 season Consumer revenues increased 4% to $144.1 million, led by double digit growth in the Shutterfly brand

7 Technology Update Shutterfly 3.0 New photo management solution Deepen relationship with customers driving engagement More touchpoints create more opportunities to sell Machine learning and algorithmic product creation Mobile Adds cards & stationery, the largest category Simplifies product creation process Auto- upload feature In Q3 we achieved our 2016 goals of i) migrating our most active users to the All New Shutterfly Photos, and ii) launching a new mobile app, both in advance of our Q4 peak season

8 All- New Shutterfly Photos Key Consumer Benefits Improved photo organization by timeline, albums, tags, places, or favorites Find people using facial recognition technology Automatic product creation using your best pictures Early feedback has been positive with customers easily and quickly creating gifts and keepsakes

9 New Mobile Apps Key Consumer Benefits Expanded product offering including Cards and a new Photo Book engine All- New Shutterfly Photos features Smooth experience across devices Our new Shutterfly mobile app launched in Q3 available on both ios and Android

10 SBS Segment 47% revenue growth year over year to $43.2 million 29.7% gross margin from 23.4% in prior year Ongoing relationship Development with customers Increasing scale, operating leverage and process efficiencies while building platform to provide a fully integrated system with end- to- end marketing solutions

11 Ready for Holiday Season New products pop out cards, glitter cards, and standard layflat photobooks More gifting options Statements Gifts, Photo Gifts, and Home Décor Technology 3.0 advancements, and site stability and performance Manufacturing staffing and efficiency Several new and innovative product lines, new designs, improved user interface and customer experience, new mobile app, and All New Shutterfly Photos experience

12 Ready for Holiday Season - Marketing Holiday season campaign including mobile, online, direct mail, television All New Shutterfly Photos multi- channel campaign Ellen Degeneres Show Philanthropic Partner for fifth season Omni- channel holiday season campaign driving awareness, engagement, and marketing efficiency

13 What s Exceptional About Shutterfly Brand 1 Strength Customer Manufacturing Our Loyalty 2 Operations 3 Team 4 Technical Capabilities Customer surveys Customer satisfaction Aided/unaided recognition Strong connection Permission to cross- sell High repeat rate World- class operations Scale Continuous improvement Talented and dedicated team Geographically diverse Self- service product creation tools Cloud photo management Machine learning Sharing life s joy. Shutterfly has a strong set of assets that can be leveraged towards customer innovation, profitable growth, and shareholder value

14 Q3 16 Financial Results Review Mike Pope, CFO 14

15 Q3 Revenue ($ in Millions) $ % $187.3 Revenue grew 12% year over year, and exceeded midpoint of guidance by $4.8 million. 15

16 Q3 Revenue by Segment ($ in Millions) Total Consumer SBS $ % $ % $138.0 $144.1 $ % $43.2 Consumer segment revenues increased 4% while SBS revenues increased 47% year over year. 16

17 Q3 Consumer Metrics Active Customers (000 s) Orders (000 s) Average Order Value * 5,344 +1% 5,395 3,112 +1% 3,151 $ % $26.71 Favorable product mix resulted in higher Average Order Value year over year. * Average order value excludes SBS revenues. 17

18 Q3 Gross Profit by Segment ($ in Millions) Total Consumer SBS +17% $69.6 $59.5 $ % $59.2 $ % $12.9 GM% 35.5% 37.1% 40.0% 41.1% 23.4% 29.7% Gross margin increased 160 basis points year over year, driven by manufacturing efficiencies. 18

19 Q3 Total Operating Expenses ($ in Millions) $108.6 $111.4 $14.8 $15.6 $78.2 $11.1 $13.5 $86.8 Cash Opex Depreciation & Amortization Stock Based Comp % Revenue 64.8% 59.5% Operating expense as a percentage of revenue decreased to 59.5% in Q3 16 from 64.8% in Q

20 Q3 Operating Expenses by Category ($ in Millions) Technology & Development Sales & Marketing General & Administrative $ % $43.3 $43.1-3% $41.9 $27.4-5% $26.2 % Revenue 22.7% 23.1% 25.7% 22.4% 16.4% 14.0% Technology & Development remained flat at 23% of revenue, Marketing decreased to 22.4% of revenue, and General & Administrative decreased to 14.0% of revenue. 20

21 Q3 Profitability ($ in Millions) Gross Profit Operating Loss Adjusted EBITDA* $ % $69.6 $(49.1) +15% +15% $(41.8) +54% $(2.0) $(4.4) % Revenue 35.5% 37.1% % % - 2.6% - 1.1% Adjusted EBITDA improved $2.4 million. *Adjusted EBITDA is a Non- GAAP measure defined as earnings before interest, taxes, depreciation, amortization and stock- based compensation. 21

22 Q3 Profitability ($ in millions except per share amounts) Q3 FY16 Q3 FY15 *Adjusted EBITDA is a Non- GAAP measure and is defined as earnings before interest, taxes, depreciation, amortization and stock- based compensation. Change (Y/Y) Net Revenue $187.3 $ % Gross Profit $69.6 $ % Gross Margin 37.1% 35.5% Operating Loss $(41.8) $(49.1) 15% Operating Margin (22.3%) (29.3%) Adjusted EBITDA* $(2.0) $(4.4) 54% Adjusted EBITDA Margin (1.1%) (2.6%) Tax Rate 38.5% (16.3%) Net Loss $(29.2) $(63.1) 54% Basic Shares (weighted average share in millions) (7%) Net Loss per Share $(0.86) $(1.73) 50% 22

23 Annual Capital Expenditures ($ in Millions) $100 $80 $75.0 $90.2 $81.4 $80.0 * $60 $ CapEx $M $ (% of Rev) $20 9.5% 9.6% 9.8% 7.7% 7.0% 0 0 $ F - Q3 capital expenditures totaled $23.8 million. * FY16 CapEx represents mid- point of guidance range. 23

24 Shares Outstanding Trend (in Millions) FY13 FY14 FY15 Shares Repurchased Shares Exercised/Vested Since 2013 net reduction of 4.3 million shares, or 13% of current shares outstanding. 24

25 ($ and shares in millions, except per share amounts) 2016 Guidance FY16 Net Revenues $1,130 to $1,160 Year- over- year Growth 6.7% to 9.5% Gross Profit Margin 51.3% to 51.7% Operating Income $45.9 to $60.6 Adjusted EBITDA * $210.0 to $222.9 Year- over- year Growth 9.4% to 16.1% Adjusted EBITDA Margin* 18.6% to 19.2% Effective Tax Rate 39.5% to 38.5% Net Income per Share $0.40 to $0.66 Diluted Shares (weighted average share in millions) 35.3 Capital Expenditures $75.0 to $85.0 % of Net Revenue 6.6% to 7.3% Free Cash Flow** $135.0 to $137.9 *Adjusted EBITDA is a Non- GAAP measure and is defined as earnings before interest, taxes, depreciation, amortization and stock- based compensation. **Free Cash Flow is a Non- GAAP measure and is defined as Adjusted EBITDA less capital expenditures. 25

26 Annual Free Cash Flow * ($ in Millions) $ % $137 ** $67 $75 $ F F FY16 free cash flow* expected to grow 23% year over year at the midpoint of guidance range. * Free Cash Flow is a Non- GAAP measure and is defined as Adjusted EBITDA less capital expenditures ** FY16 CapEx represents mid- point of guidance range. 26

27 Q&A

28 Reconciliation of Non- GAAP Gross Profit Margin ($ in millions) Q3 FY16 Q3 FY15 Reconciliation of Non- GAAP Gross Profit Margin GAAP gross profit $69.6 $59.5 Stock- based compensation Amortization of intangible assets Non- GAAP gross profit $72.1 $

29 Reconciliation of Non- GAAP Adjusted EBITDA ($ in millions) Q3 FY16 Q3 FY15 Reconciliation of Non- GAAP Adjusted EBITDA GAAP net loss $(29.2) $(63.1) Interest expense, net Tax (benefit) / expense (18.2) 8.8 Depreciation and amortization Stock- based compensation expense Non- GAAP Adjusted EBITDA $(2.0) $(4.4) Reconciliation of Cash Flows from Operations To Non- GAAP Adjusted EBITDA Net cash used in operations $(4.9) $(22.1) Interest expense, net Tax (benefit) / expense (18.2) 8.8 Changes in operating assets/liabilities Other adjustments (13.7) 3.6 Non- GAAP Adjusted EBITDA $(2.0) $(4.4) 29