Q Earnings Conference Call

Transcription

1 Q Earnings Conference Call October 27, 2015 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 2015 and beyond and our business outlook for the fourth quarter and full year 2015 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 forwardlooking 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. 2

3 Conference Call Agenda Review Q3 performance Insights on business and Q4 holiday readiness Q3 financial performance Q4 / FY2015 outlook 3

4 Q3'15 Financial Results ($ in millions except per share amounts) Q3 FY15 Q3 FY14 Change (Y/Y) Net Revenue $167.5 $ % Adjusted EBITDA * $(4.4) $(9.7) 55% Net Loss per Share (GAAP) $(1.73) $(1.20) (44)% Free Cash Flow $(25.8) $(34.6) 25% 59 th consecutive quarter of YOY growth with healthy growth in key financial metrics Revenues and gross margin were at the high end of guidance while adjusted EBITDA and free cash flow exceeded guidance Shutterfly brand continued double digit organic growth and Enterprise business doubled Increased 2015 guidance for adjusted EBITDA, free cash flow, free cash flow per share and EPS *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. 4

5 Facilities Restructuring and Consolidation Complete Celebrated opening of third state-of-the-art facility in Tempe, AZ Closed two other AZ locations and one in Elmsford, NY Expect profitability and margins to show improvement in Q4 and next year as we lap our investments 5

6 Q3'15 Consumer Metrics Q3 FY15 Q3 FY14 Change (Y/Y) Customers 3,112,094 2,516,567 24% Orders 5,343,650 4,156,382 29% Average Order Value (AOV) $25.83 $30.63 (16)% AOV excluding GrooveBook and Treat* $29.17 $31.07 (6)% Customers and Orders were also records at 24% and 29% increases AOV is typically lower in Q3 due to promotional activity to generate consumer engagement leading into Q4 Decline due to product mix towards photo gifts and mobile * GrooveBook transaction was completed on October 31, 2014 and Treat closure occurred in the first quarter of

7 Broadening Our Demographic and Customer Reach Millennials growing comprise ~40% of our active customers Introducing Spanish Language Cards and Service Customization, Spanish characters, In-language customer service Maria Canals-Barrera 7

8 Shutterfly 3.0 Next-Gen E-Commerce Platform Five Main Components Creating a world-class memory management service connected to the smartest personalized e-commerce solutions 1. Provide a next generation photo service (ThisLife + shutterfly.com) 2. Partner more deeply with other photo sites 3. Increase mobile footprint and capabilities 4. Reduce the technology platforms we manage (service-oriented architecture) 5. Expand internationally through a modernized, efficient, multi-currency, multilanguage technology platform 8

9 We are Ready for Q4 Innovative Products New products with solutions - themed innovations New photo gifts and home décor items New holiday cards and envelopes Send Something Spectacular 9

10 We Are Ready For Q4 Partnerships and Marketing Multichannel marketing 100+ Active Partnerships 10

11 Q3 FY15 Financial Results Review Brian Regan, CFO 11

12 Q3 Financial Results Summary ($ in millions except per share amounts) Q3 FY15 Q3 FY14 Change (Y/Y) Net Revenue $167.5 $142.0 $25.5 Adjusted EBITDA * $(4.4) $(9.7) $5.3 Net Loss per Share (GAAP) $(1.73) $(1.20) $(0.53) Net Loss per Share (Non-GAAP)** $(1.61) $(1.12) $(0.49) Revenues increased 18% and Adjusted EBITDA improved 55%. Strong results improved pre-tax profit, leading to a tax true-up of 48 cents per share. Excluding the tax true-up, GAAP EPS loss would have been ($1.25) per share * 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. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 12

13 Consumer and Enterprise Revenues ($ in millions) Consumer Enterprise 8% 100% Enterprise revenues represented 18% of Total Q3 Revenues 13

14 GAAP Gross Profit/Margin ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Gross Profit / Margins (Non-GAAP)* $62.2 $ % 39% Gross margins at high end of guidance, reflect Growth in Enterprise revenue, which carries lower gross margins Lapping the opening of the Shakopee, MN facility and completing the shutdown of the Elmsford, NY facility acquired with MyPublisher Promotional activity for free photo gifts and home décor, which is typically outsourced at a lower margin Expect more normalized gross margins beginning in Q4 * 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. 14

15 Gross Profit/Margin by Segment ($ in millions) Consumer Gross Profit/Margin Enterprise Gross Profit/Margin 23.4% 42.0% 40.0% 17.2% Consolidated Gross Profit/Margin 36.8% 35.5% 15

16 GAAP Total Operating Expenses ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Operating Expenses (excl. SBC) $93.8 $ % 62% Operating expenses (excl. SBC) grew 6% YOY and represented 56% of net revenues compared to 62% of net revenues last year Decrease was primarily due to lower headcount growth and timing shifts of certain marketing expenses 16

17 GAAP Technology and Development Expense ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Technology & Dev. $38.1 $ % 24% T&D (excl. SBC, D&A) $27.1 $ % 17% Technology and development costs were up 14% versus the prior year and were down slightly from the prior year as a percentage of revenue Excluding SBC, and D&A, T&D costs were up 9% Comparison primarily reflects lower headcount and savings from the co-location data center move to Las Vegas in Q

18 GAAP Sales and Marketing Expense ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Technology & Dev. $38.1 $ % 24% Sales & Marketing $43.1 $ % 30% S&M (excl. SBC, D&A) $33.0 $ % 22% Sales and marketing expenses were down as a percent of net revenues Excluding SBC and D&A, S&M costs were up 4% Comparison primarily reflects spending timing shifts into Q4, offset slightly by the rising cost of media/advertising 18

19 GAAP - General and Administrative Expense ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Technology & Dev. $38.1 $ % 24% Sales & Marketing $43.1 $ % 30% General & Admin. $27.4 $ % 18% G&A (excl. SBC, CC fees, and D&A) $14.0 $13.2 8% 9% General and Administrative expenses, excluding SBC, credit card fees and D&A, were up 6% from the prior year As a percent of net revenues, G&A was 16% versus 18% in Q

20 Non-GAAP Adjusted EBITDA ($ in millions) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Technology & Dev. $38.1 $ % 24% Sales & Marketing $43.1 $ % 30% General & Admin. $27.4 $ % 18% Operating Loss $(49.1) $(48.9) (29)% (35)% Adjusted EBITDA * $(4.4) $(9.7) (3)% (7)% Operating loss was 11% better than the midpoint of the guidance range. Adjusted EBITDA improved 55% from the prior year and was $6 million above the midpoint of the guidance range. *Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. *A non-gaap to GAAP reconciliation is provided on the last slide of this presentation. 20

21 GAAP and Non-GAAP Net Loss ($ in millions except per share amounts) Q3 FY15 Q3 FY14 Q3 FY15 Q3 FY14 Net Revenue $167.5 $142.0 of Total Net Revenues Gross Profit / Margins $59.5 $ % 37% Operating Expenses $108.6 $ % 72% Operating Loss $(49.1) $(48.9) (29)% (35)% Adjusted EBITDA* $(4.4) $(9.7) (3%) (7%) Tax Rate (16.3)% 13.1% Net Loss (GAAP) $(63.1) $(46.2) (37%) (33%) Net Loss (Non-GAAP)** $(58.7) $(43.2) (35%) (30%) Net Loss per Share (GAAP) $(1.73) $(1.20) Net Loss per Share (Non-GAAP)** $(1.61) $(1.12) * 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. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 21

22 Share Repurchase Program Update Repurchases No. of Shares (000s) Average Price Total $ (M) incl. comm. Q ,915 $43.41 $83.1 YTD ,840 $44.51 $ to date 5,801 $44.77 $259.7 $140.3 million remaining authorization under current share repurchase program. 22

23 Capital Expenditures Annual Capital Expenditures ($ in millions) CapEx (% of Rev) 8.0% - 8.4% 23

24 Improving Free Cash Flow $120 $106 $4.00 $ % $3.50 $80 $60 $50 $67 $75 $77 +44% $2.87 $3.00 $2.50 $40 $20 $- $1.91 $1.99 $1.80 $ E $2.00 $1.50 $1.00 FCF FCF/Share Year-to-date free cash flow (1) improved to ($51.7) million at the end of the third quarter compared to ($72.3) million for the comparable period in the prior year. For FY 2015, free cash flow is expected to be up 38% to $106 million at the midpoint of our guidance range versus 2014, and free cash flow per share is expected to be up 44% YOY at the midpoint. As our share count is expected to continue to decrease from buybacks, our growth in free cash flow per share is also expected to continue. (1) Free cash flow is defined at EBITDA less capital expenditures. 24

25 Q4 FY15 Guidance (as of October 27, 2015) ($ and shares in millions, except per share components) Q4 FY15 (GAAP) Q4 FY15 (Non-GAAP) Net Revenues $528.7 to $548.7 Year-over-year Growth 9.4% to 13.5% Gross Profit Margins 59.2% to 59.9% 59.7% to 60.3% Operating Income $128.8 to $139.5 $152.1 to $162.1 Adjusted EBITDA * $176.7 to $186.1 Effective Tax Rate 1.0% to 4.1% Net Loss per Share $3.46 to $3.64 $3.56 to $3.74 Weighted Average Shares 35.4 *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. 25

26 2015 Guidance (as of October 27, 2015) ($ and shares in millions, except per share components) FY15 (GAAP) FY15 (Non-GAAP) Net Revenues $1,040 to $1,060 Year-over-year Growth 12.8% to 15.0% Gross Profit Margins 50.5% to 51.0% 51.7% to 52.2% Operating Income / (Loss) $5.1 to $15.8 $99.1 to $109.0 Adjusted EBITDA * $187.1 to $196.5 Effective Tax Rate 20.0% to 35.0% Net Income / (Loss) per Share ** ($0.26) to ($0.09) ($0.01) to $0.22 Weighted Average Shares 36.8 Capital Expenditures 8.0% to 8.4% * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Income/Loss normalizes for the impact our Convertible Note offering has on Net Income/Loss and earnings per share. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 26

27 Concluding Remarks Milestone year CFO Transition New Employee Incentive Plan Proposal 27

28 Q&A

29 Reconciliation of Non-GAAP Gross Margin ($ in millions) Q3 FY15 Q3 FY14 Reconciliation of Non-GAAP Gross Margin GAAP gross profit $59.5 $52.3 Stock-based compensation Amortization of intangible assets Non-GAAP gross profit $62.2 $

30 Reconciliation of Non-GAAP Adjusted EBITDA ($ in millions) Q3 FY15 Q3 FY14 Reconciliation of Non-GAAP Adjusted EBITDA GAAP net loss $(63.1) $(46.2) Interest expense / (income), net Tax (benefit)/provision 8.8 (7.0) Depreciation and amortization Stock-based compensation expense Non-GAAP Adjusted EBITDA $(4.4) $(9.7) Reconciliation of Cash Flows from Operations To Non-GAAP Adjusted EBITDA Net cash used in operations $(22.1) $(7.9) Interest expense / (income), net Tax (benefit)/provision 8.8 (7.0) Changes in operating assets/liabilities 0.1 (2.5) Other adjustments Non-GAAP Adjusted EBITDA $(4.4) $(9.7) 30

31 Reconciliation of Non-GAAP Net Loss Per Share ($ in millions, except per share amounts) Share amounts in thousands Q3 FY15 Q3 FY14 Reconciliation of Non-GAAP Net Loss Per Share GAAP net loss $(63.1) $(46.2) Add back interest expense related to: Amortization of debt discount Amortization of debt issuance costs % coupon Tax effect 0.8 (0.4) Non-GAAP net loss $(58.7) $(43.2) GAAP Shares outstanding 36,369 38,453 Add: Dilutive effect of convertible notes 0 0 Non-GAAP Shares outstanding 36,369 38,453 GAAP net loss per share $(1.73) $(1.20) Non-GAAP net loss per share $(1.61) $(1.12) 31

32 (10(1) Inc(1) Includes!0 Non Recurring Restructuring (NRR) and Proxy Impact ($ in millions) From To Platform Consolidation $3.0 $3.5 Facility Closure/consolidation and Treat closure $5.0 $5.5 Depreciation and Amortization (1) $1.3 $1.3 Proxy-related Costs $2.0 $2.0 $11.3 $12.3 NRR and Proxy Cost estimate of $10-11 million excludes depreciation and amortization. (1) Includes accelerated depreciation of capitalized website costs and amortization of intangible assets. 32