Helping people share life s joy

Transcription

1 2017 Helping people share life s joy 1

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 2017 and beyond and our business outlook for the second quarter, full year 2017, and full year 2018 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 and mobile offering; 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 forwardlooking 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, and Adjusted EBITDA minus Capital Expenditures. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and stock-based compensation. We define Adjusted EBITDA minus Capityal 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 Investor Presentation Summary Overview Consumer Enterprise Manufacturing Financials Management Team 3

4 Investment Highlights Unique digital e-commerce business with scale, powerful brand and clear market leadership Vibrant market for photo-based products with favorable secular trends Focus on personalized products create competitive and business model differentiation Vertical integration and technology capabilities widen competitive moat, create barriers to scale Attractive business model featuring large repeat customer base, strong EBITDA and cash flow generation Solid capital structure and commitment to capital returns 4

5 Fully Scaled Leading Digital E-Commerce Business ($ in Millions) Revenue $641 $784 $922 $1,059 $1, Adjusted EBITDA * $128 $150 $167 $192 $ GAAP Operating Income $49.1 $40.7 $22.1 $6.2 $ Notes: *Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. Please see our SEC filings on Form 10-K for reconciliations. 5

6 Today Leading consumer franchise paired with high-growth enterprise opportunity Consumer: Enterprise: Fully scaled market leader 30B hosted photos 10M customers placing 27M orders annually $36 AOV 75% repeat customer rate* $1B+ Revenues Early stage high growth opportunity Targets integrated direct marketing needs of Fortune 500 Leverage in-house manufacturing capability augmented by partners Industry moving to digital from offset based on favorable economics Notes: Numerical statistics for the fiscal year ended December 31, *Customers who purchased from Shutterfly in the fiscal year ended December 31, 2016, and were also prior customers. U.S. Enterprise Printing Market Digital Printing 11.5% Commercial Flexographic Printing 10.5% Commercial Screen Printing 9.6% Book Printing 6.0% Commercial Gravure Printing 4.1% Other Printing 16.9% Commercial Lithograph Printing 41.4% 6

7 What Sets Shutterfly Apart 1 Brand Strength Customer Loyalty Manufacturing Operations Our Team Technical Capabilities Sharing life s joy. Shutterfly has built differentiated competitive strengths that are poised to drive customer innovation, profitable growth, and shareholder value 7

8 Charting Our Next Phase of Growth Make Purchasing Personalized Products Simple Offer a Broader Range of Products Leverage Our Manufacturing Platform Pivot to Mobile Growth strategy moving from a focus on building scale to leveraging competitive advantages to drive revenue growth and improve profitability and quality of earnings 8

9 Make Purchasing Personalized Products Simple Platform and Device Agnostic, End-to-End Photo Solution AUTO-UPLOAD & AGGREGATE INTELLIGENT ORGANIZATION SIMPLIFY PRODUCT CREATION 30+ Billion Photos Organize by time, place, people, tags and more Easily search, filter, curate, annotate Smart algorithms: photo rank, facial recognition and deduplication Simple creation experiences Site speed and reliability Automated product creation using machine learning algorithms One-click purchases Auto-upload from desktop and mobile devices. Import from third party services 9

10 Offer Customers a Broader Range of Products CARDS PHOTO GIFTS TINY PRINTS BOUTIQUE PRINTS CALENDARS PHOTO BOOKS CARDS TINY PRINTS EXPANSION / ACQUISITION CREATION PATH REDESIGN HOME DÉCOR / PHOTO GIFTS EXPANSION STATEMENT GIFTS SHUTTERFLY WEDDING STORE

11 Pivot Towards Mobile Adding products, simplified creation experiences and new customer acquisition levers to drive engagement 18% Shutterfly brand revenues in %+ Y-o-Y growth 2016 app customers & revenue more than doubled Simplified Creation Experiences Auto-upload More Products 11

12 Leverage Our Manufacturing Platform Variable inputs are managed through a consolidated gateway to various manufacturing operations: Consumer Business GATEWAY Enterprise Business SFLY Insource 3 Facilities Outsource Partners 30+ Partners Tempe Shakopee Fort Mill 12

13 Consumer 13

14 Shutterfly Brands and Products Consumer Consumer Brands Personalized Gifts / Home Decor The market leader in personalized photo products and services Gather and organize your photos and videos so you can easily find, share and transform them into personalized photo books, cards, home decor and gifts Cards and Stationery Product Categories Photo Books The leading online cards and stationery boutique, offering stylish announcements, invitations and personal stationery for every occasion Prints Calendars 14

15 Shutterfly is the Clear Market Leader with Sustainable Competitive Advantages Large Historical Competitors Customers 10.1M Hosted Photos 30B+ App Downloads 15.7M Products 400+ Printers 120+ Outsource Partners 30+ As of 12/31/16 15

16 Operating at a Scale and Profitability Far Beyond the Field (Revenues) $1B+ (U.S.) Source: Management Estimates 16

17 Our Passion Defines and Differentiates Us Singular Focus Customer Friendly Great Designs Easy to Use High Quality Innovation We are passionate and focused on addressing the challenges that customers face as they try to do more with their photos and memories We care as much about photos and memories as our customers do. We promise never to delete their photos. If customers are not happy, we ll fix it 100% happiness guarantee Our broad set of design-forward offerings help customers transform their moments into high quality products that add meaning to their lives and reflect their personal styles Our innovative tools easily guide customers through multiple creation paths to address a variety of needs Our vertically integrated, best-in-class manufacturing process turns memories into one-of-akind creations that reflect customers individual style, personality and relationships We continually enhance our world-class platform of personalized products and services with new offerings, further differentiating our brands (100 patents allowed to date) 17

18 Millions of Memories to Share and Preserve Each Year 80M U.S. Families with Children Under 18 41M Active Youth Sports Participants 50M U.S. Elementary- Aged Children 2M+ U.S. Weddings / Year 4M U.S. Births / Year 1 Trillion Digital Photos Taken per Year Mobile & Social Media Focus on Camera/Video Desire for Tangible Personal Products Source: Internet Retailer Top , U.S. Census Data (2010), The State of Our Unions (December 2012), 18

19 Attractive Customer Profile 35+% Millennials 75+% Female 70+% years old ~75% Returning customers* >$75K Household income Notes: *Customers who purchased from Shutterfly in the fiscal year ended December 31, 2016, and were also prior customers 19

20 Enterprise 20

21 Shutterfly Business Solutions (SBS) Variable Print-on-Demand Solutions for Large Enterprises Variable Data Innovative Automation Omni-Channel Solutions 1:1 Communication Targeted Direct Mail Plan Books Personalized Communications 21

22 Robust, Proven Go-To-Market Strategy: SBS Case Studies Client: LAND AND EXPAND Technology Need: Integrated marketing solutions for client CRM organization Solutions: Personalize marketing to efficiently target endconsumer Expand: To life-cycle marketing teams to help crosssell products FLEXIBILITY AND SCALE Client: Healthcare Need: Print books for annual benefits elections Old Way: Pure-play offset printers which require fixed orders and long lead times resulting in excess and obsolescence, and storage costs Solutions: Quickly print the latest books just-in-time with exact volumes reducing inventory and waste 22

23 Enterprise Delivers Solutions for Leaders Across Industries SBS Can Deliver High Volume and Offers High Flexibility > Mass customization capabilities > Large manufacturing capacity > Significant Q1 Q3 availability > Incremental utilization and purchasing power > Improved consumer gross margins > Revenue diversification with less seasonality Source: Company 23

24 Strong Enterprise Revenue Growth ($ in Millions) 54% CAGR $98 $137 $38 $ % of Total Revenue 5% 5% 9% 12% Growth Drivers Land and Expand Secular move from offset to digital Offering flexibility and scale 24

25 Manufacturing 25

26 Vertical Integration and Scale Provide Significant Benefits > Address key customer needs: > Innovation > Breadth > Quality > Price > Delivery > Insource products and improve margins > Provides production redundancy in peak periods > Access to new pools of talent Shakopee, MN 217,000 sq. ft. Operational Q Tempe, AZ 237,000 sq. ft. Operational Q Fort Mill, SC 300,000 sq. ft. Operational Q Three Strategically Located Production Facilities Enable Personalization Model and Improve Customer Experience 26

27 Manufacturing Summary Consumer gross margins are consistently high Several new products introduced each year Product margins improve over time with scale and experience Investments in direct labor, operating expenses and capital are balanced Investments and continuous improvement are driving quality and efficiencies 27

28 Financials 28

29 2016 Financial Results ($ in millions except per share amounts) Change (Y/Y) Net Revenue Operating Income (GAAP) Net Income (loss) (GAAP) Net Income (loss) per Share (GAAP) Diluted Shares Outstanding Adjusted EBITDA* Cash Flow from Operations** $1,059 $1,134 7% $18.3 $ % $(0.8) $15.9 +% $(0.02) $0.45 +% NA $192.0 $ % $165.0 $ % Notes: *Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. **Cash Flow from Operation is defined as net income adjusted for depreciation, amortization, stock-based compensation, loss on disposal of property and equipment, deferred income tax, tax benefits from stock-based compensation, and changes in operating assets and liabilities 29

30 Historical Overview ($ in Millions) Revenue $641 $784 $922 $1,059 $1, Adjusted EBITDA * $128 $150 $167 $192 $ GAAP Operating Income $49.1 $40.7 $22.1 $6.2 $ Notes: *Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. Please see our SEC filings on Form 10-K for reconciliations. 30

31 Strong Balance Sheet ($ in Millions) 2016 Cash and short term investments $315.6 Accounts receivable, net $57.4 Inventories $11.8 Other current assets $48.0 Total current assets $432.8 Long-term investments $14.5 Property and equipment, net $284.1 Intangible assets, net $43.4 Goodwill $409.0 Other assets $11.8 Total assets $1,195.6 Accounts payable $58.8 Accrued liabilities* $138.9 Deferred revenue $22.9 Total current liabilities $220.6 Convertible senior notes, net** $278.8 Other liabilities $137.0 Total liabilities $636.4 Total stockholders' equity $559.2 Total liabilities and stockholders' equity $1,195.6 Notes: *Accrued liabilities inclusive of current portion of capitalized lease obligations **$300M convertible debt due May

32 Balanced Capital Allocation Strategy ($ in Millions) $475 Cash $341 $330 $89 Repurchases $216 $ x Debt/ Adj EBITDA 1.4x 1.3x Debt + Capital Leases $345 $323 $ CapEx $90 9.8% $81 $85 7.7% 7.4% % of Total Revenue Operating Cash Flow $193 $166 $165 > Manage seasonality by maintaining adequate cash and prudent leverage > Emphasize investment in organic growth and disciplined M&A > Targeted capex at 6-8% of total revenue > Return cash to shareholders in a tax-efficient manner

33 Restructuring the Consumer Business in 2017 LEVERAGE THE SHUTTERFLY PLATFORM 1. 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 Simplify Brand Portfolio Over 2017 To Deliver Significant Benefits In Q42017 And Beyond Single consumer platform means all customers benefit from technology investments 2. Shut Down: Pro Gallery Explore Strategic Alternatives: Significant cost savings allow both reinvestment and improved bottom line 33

34 Improving Profitability and Quality of Earnings Shutterfly has continued to: grow; improve profitability and quality of earnings; and focus on limiting CapEx Net Revenue Operating Income Adj. EBITDA CapEx EPS Profitability improvement in 2018; Revenue targeted to grow approximately $70 million with both GAAP Operating Income and Adjusted EBITDA targeted to grow approximately $50 million Notes: 1. $ s in millions is midpoint of FY guidance as of 7/25/

35 Customer Satisfaction Drives Growth and Profitability Revenue Make purchasing personalized products simple; Offer a broader range of products; Leverage manufacturing capabilities; Pivot to mobile Gross Margins ~50% margins (incl. Shutterfly Business Solutions) Adjusted EBITDA Growth to reaccelerate entering 2018 (at +20% margin) Capital Expenditures Targeted at 6-8% of net revenues Free Cash Flow Growing faster than revenues 35

36 Management Team 36

37 Strong Management Team with Proven Track Record Chris North President & CEO Amazon UK, Phaidon Press, HarperCollins Mike Pope SVP, Chief Financial Officer Clean Power Finance, MarketTools, Dionex Michele Anderson SVP, Retail Activate, Australian Vintage Limited, ivillage Scott Arnold President Shutterfly Enterprise MarketTools, Borland Software, McKinsey & Co Dwayne Black SVP, Chief Operating Officer Banta Corporation, RR Donnelley John Boris SVP, Chief Marketing Officer Lonely Planet, Zagat Survey, Flowers.com Tracy Layney SVP, Chief Human Resources Officer Gap Inc., Levi Strauss, PwC Ishantha Lokuge SVP, Chief Product Officer ebay, Urbanpixel, Netscape Satish Menon SVP, Chief Technology Officer UV Labs, Apollo Education Group, Yahoo Inc. 37