Q Earnings Conference Call

Transcription

1 Q Earnings Conference Call May 1, 2018 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 regarding our focus on achieving cost and revenue synergy between Shutterfly and Lifetouch; our target of combined Company Adjusted EBITDA by 2020; our expectations that the Lifetouch acquisition will significantly increase the Company s overall profitability; the expected value of the depreciable property and equipment; and the timing for aligning Shutterfly s and Lifetouch s accounting policies. 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 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 costeffective basis; failure to realize the anticipated benefits of our 2017 restructuring activities or of the Lifetouch acquisition; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; competition and the pricing strategies of our competitors, which could lead to pricing pressure; the retention of Lifetouch employees and our ability to successfully integrate the Lifetouch businesses; risks inherent in the achievement of anticipated synergies and the timing thereof; and general economic conditions and changes in laws and regulations. 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 Website 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, stock-based compensation, restructuring, and acquisitionrelated 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 Q1 18 Earnings Call Agenda Q1 18 business review Lifetouch acquisition Q1 18 financials Capital Update Financial Outlook 3

4 Q1 18 Summary FINANCIALS Met or exceeded guidance on all major metrics Updating financial outlook to include Lifetouch Raised $825 million term loan, funding acquisition purchase price BUSINESS Healthy Shutterfly brand organic growth Continued progress in mobile SBS revenue growth continues STRATEGIC Closed Lifetouch acquisition Several new products launched, enhancements to the app, and simplification initiatives Targeted marketing in Shutterfly Consumer 4 4

5 Q1 18 Financial Summary ($ in Millions) Total Revenues Adj. EBITDA 1 $192.0 $199.7 $7.1 Q1'17 Q1'18 $(1.9) Q1'17 Q1'18 Met or exceeded guidance on all major metrics. 1 Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, and acquisition-related costs. 5 5

6 Healthy Shutterfly Brand Growth Healthy organic growth of the Shutterfly brand, driven by Photo Books and the Wedding Shop. See Appendix for additional details. 6 6

7 Business Review Targeted pricing and promotion strategy Mobile up ~400 basis points to 27% of Q1 18 Shutterfly brand 1M+ app downloads, and attractive customer acquisition costs Accelerated pace introduction of new product Good progress against strategic growth initiatives. 7 7

8 Strong Growth in SBS SBS revenue of $47.7M in Q1 18 Growth driven by major multi-year deal signed in Q3 17 Ramped volumes more rapidly than planned in Q1 On track to improve margins in second half of 2018 Q1 18 SBS growth of 52% as volumes ramped more than expected. 8 8

9 - Compelling Strategic and Financial Rationale Combine shared mission and cultures focused on sharing life s joy through photos Uniquely complementary asset (customers, revenue diversity, seasonality, manufacturing) Gaining access to many Lifetouch customers as Shutterfly customers Offering Shutterfly s broader product range to Lifetouch customers and accelerating the development of Lifetouch s online platform Realizing significant supply chain, manufacturing, and fulfilment synergies Targeting a minimum of $450 million of Adjusted EBITDA in 2020, including $50 million from revenue and cost synergies Lifetouch business has shown solid performance over the first nine months of their fiscal year 9 9

10 Q1 18 Financial Results Review Mike Pope, CFO 10

11 Q1 18 Revenue ($ in Millions) $192.0 $199.7 Q1'17 Q1'18 Q1 18 net revenue grew 4%. 11

12 Q1 18 Revenue by Segment ($ in Millions) Total Consumer SBS $192.0 $199.7 $160.6 $152.1 $31.3 $47.7 Q1'17 Q1'18 Q1'17 Q1'18 Q1'17 Q1'18 In Consumer, growth in the Shutterfly brand offset by anticipated revenue declines in the non- Shutterfly brands due to the 2017 platform consolidation and brand shutdowns. 12

13 Q1 18 Consumer Metrics Active Customers (000 s) Orders (000 s) Average Order Value 1 5,535 5,076 3,365 3,221 $29.02 $29.96 Q1'17 Q1'18 Q1'17 Q1'18 Q1'17 Q1'18 Customers and orders decreased due to 2017 platform consolidation and mix shift away from free product promotions; AOV increased due to a more targeted pricing and promotion strategy. 1 Average order value excludes SBS revenues. 13

14 Q1 18 Gross Profit by Segment ($ in Millions) Total Consumer SBS $74.6 $75.9 $73.7 $69.6 $70.8 $67.2 $7.5 $7.8 Q1'17 Q1'17 (adj.) Q1'18 1 Q1'17 Q1'17 (adj.) Q1'18 Q1'17 Q1'18 GM% 38.9% 39.5% 36.9% 43.3% 44.1% 44.2% 23.9% 16.3% Q1 18 overall gross margin of 36.9%. 1 Normalized for restructuring charges of $9.0 million in the first quarter of 2017, of which $1.2 million impacted gross profit. 14

15 Q1 18 Total Operating Expenses ($ in Millions) $124.4 $7.8 $7.8 $116.6 $10.3 $10.3 $12.4 $12.4 $93.9 $93.9 $107.8 $4.6 $103.2 $- $10.7 $10.7 $9.5 $9.5 $83.0 $83.0 Acquisition Restructuring Stock Based Comp Depreciation & Amortization Cash Opex 2 Q1'17 Q1'17 (adj.) Q1'18 Q1'18 (adj.) 1 % Revenue 64.8% 60.8% 54.0% 51.7% Total operating expenses decreased 12% due to platform consolidation and strong expense control. 1 Normalized for acquisition-related costs of $4.6 million in the first quarter of Normalized for restructuring charges of $9.0 million in the first quarter of 2017, of which $7.8 million impacted operating expenses. 15

16 Q1 18 Operating Expenses by Category ($ in Millions) Technology & Development Sales & Marketing General & Administrative $46.0 $38.5 $42.9 $37.7 $27.8 $31.6 $27.0 Q1'17 Q1'18 Q1'17 Q1'18 Q1'17 Q1'18 Q1'18 (adj.) % Revenue 23.9% 19.3% 22.3% 18.9% 14.5% 15.8% 13.5% Technology & Development, and Sales & Marketing decrease due to benefits of platform consolidation. 1 Normalized for acquisition-related costs of $4.6 million in the first quarter of

17 ($ in Millions) Q1 18 Profitability Gross Profit Operating Loss Adjusted EBITDA 1 $74.6 $75.9 $73.7 Q1'17 Q1'17 (adj.) Q1'18 Q1'18 (adj.) 3 $7.1 Q1'17 Q1'17 (adj.) Q1'18 $(1.9) Q1'17 $(34.1) $(29.5) $(40.8) $(49.8) % Revenue Q1' % 39.5% 36.9% -25.9% -21.2% -17.1% -14.8% -1.0% 3.5% Q1 18 Adjusted EBITDA was $7.1 million. 1 Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, and acquisitionrelated costs. 2 Normalized for restructuring charges of $9.0 million in the first quarter of 2017; $1.2 million impacted gross profit and $9.0 million impacted operating loss Normalized for acquisition-related costs of $4.6 million in the first quarter of 2018.

18 Q1 18 Profitability ($ in millions except per share amounts) Q1 FY18 Q1 FY18 1 Q1 FY17 Q1 FY17 2 Change1,2 (Y/Y) Net Revenue $199.7 $199.7 $192.0 $192.0 $7.8 Gross Profit $73.7 $73.7 $74.6 $75.9 $(2.2) Gross Margin 36.9% 36.9% 38.9% 39.5% Operating Loss $(34.1) $(29.5) $(49.8) $(40.8) $11.3 Operating Margin (17.1%) (14.8%) (25.9%) (21.2%) Adjusted EBITDA 3 $2.5 $7.1 $(7.2) $(1.9) $9.0 Adjusted EBITDA Margin 1.2% 3.5% (3.8%) (1.0%) Loss before Taxes $(42.0) $(37.4) $(55.5) $(46.6) $9.2 Benefit from Income Taxes $14.8 $13.6 $22.3 $18.4 $(4.7) Tax Rate 35.3% 36.5% 40.2% 39.5% Net Loss $(27.2) $(23.8) $(33.2) $(28.2) $4.4 Basic Shares (in millions) (1.0) Net Loss per Share $(0.83) $(0.73) $(0.98) $(0.84) $ Normalized for acquisition-related costs of $4.6 million in the first quarter of Normalized for restructuring charges of $9.0 million in the first quarter of Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, and acquisition-related costs. 18

19 Annual Capital Expenditures ($ in Millions) CapEx $M $120 $100 $80 $90.2 $81.4 $75.5 $73.0 $ $ $40 0 (% of Rev) $20 $0 9.8% 7.7% 6.7% 6.1% 5.0% F Q1 18 capital expenditures were $13.2 million. 1 Excludes $9.8 million of printers that the Company acquired in 2016 and immediately sold. 2 Incudes Lifetouch. 19

20 Financial Outlook Mike Pope, CFO 20

21 Guidance updated to include Lifetouch 2018 Guidance Overview Lifetouch guidance consistent with previous guidance given in January, except for impact of imemories exit Lifetouch was as a private company: historical GAAP quarterly financials not prepared Therefore, providing quarterly targets for each quarter of 2018, showing seasonality Providing GAAP and non-gaap guidance Non-GAAP has estimates of purchase accounting related to Property and Equipment, and Intangible assets Non-GAAP exclude two discrete and normal purchase accounting adjustments, given magnitude of acquisition Inventory step-up and Deferred Revenue write-down Expect to impact 2018 only No impact to cash flow or Adjusted EBITDA Will provide updates to purchase accounting estimates and accounting policy alignment on Q2 earnings call Updating guidance to include Lifetouch, and to provide important information on trends in combined business on an ongoing basis. 21

22 2018 Shutterfly Guidance [1] ($ and shares in millions, except per share amounts) GAAP FY18 Non-GAAP Adj. Non-GAAP FY18 Net Revenues $1,970 to $2,020 $40 [2] $2,010 to $2,060 Consumer Net Revenues $1,020 to $1,050 $1,020 to $1,050 SBS Net Revenues $210 to $220 $210 to $220 Lifetouch Net Revenues $740 to $750 $40 [2] $780 to $790 Cost of Revenues $770 to $790 ($15) [3] $755 to $775 Gross Profit $1,200 to $1,230 $55 [2][3] $1,255 to $1,285 Gross Profit Margin 60.9% 1.5% 62.4% Operating Income $130 to $151 $55 [2][3] $185 to $206 Stock-based Compensation $51 Amortization of Intangible Assets $37 Depreciation $116 Adjusted EBITDA [4] $390 to $410 Effective Tax Rate [5] 21.0% 21.0% Net Income per Share $1.58 to $2.04 $1.25 $2.83 to $3.28 Diluted Shares (weighted average shares in millions) Capital Expenditures $100 $100 [1] Excludes restructuring and acquisition-related expenses. [2] The non-gaap adjustments eliminate the effect of the estimated deferred revenue write-down. [3] The non-gaap adjustment to our cost of revenues excludes the expected profit margin component that is expected to be recorded under business combination accounting. [4] Adjusted EBITDA is a Non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, and acquisition-related costs. [5] Effective tax rate assumes windfall from stock-based compensation for shares expected to vest for the remainder of 2018, based on the Company s average stock price over the last three months. 22

23 Quarterly Targets (Non-GAAP) 1 ($ and shares in millions, except per share amounts) Q1 18 Actual Q2 18 Target Q3 18 Target Q4 18 Target Total FY18 Target Net Revenues $200 $459 $387 $989 $2,035 Consumer Net Revenues $152 $170 $141 $572 $1,035 SBS Net Revenues $48 $42 $56 $70 $215 Lifetouch Net Revenues $247 $190 $348 $785 Gross Profit $74 $286 $222 $687 $1,270 Gross Profit Margin 36.9% 62.4% 57.5% 69.5% 62.4% Operating Income (Loss) ($30) $6 ($71) $290 $196 Stock-based Compensation $12 $12 $13 $14 $51 Amortization of Intangible Assets $2 $12 $12 $12 $37 Depreciation $23 $31 $31 $31 $116 Adjusted EBITDA 2 $7 $62 ($16) $346 $400 Effective Tax Rate 36.5% 24.3% 24.3% 24.3% 21.0% Net Income (Loss) per Share ($0.73) ($0.27) ($2.00) $5.87 $3.06 Diluted Shares (weighted average) Sum of quarterly targets equal the mid-point of 2018 annual non-gaap guidance. Excludes restructuring and acquisition-related expenses. 2 Adjusted EBITDA is a non-gaap measure defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, and acquisition-related costs. 23

24 2018 Shutterfly Guidance Bridge As Communicated on January 30, 2018 Non-GAAP Guidance Bridge Lifetouch Q1 Normalized imemories Exit Guidance (Midpoint) at May 1, 2018 Lifetouch revenues $935 [1] ($128) ($22) [3] $785 Adjusted EBITDA Lifetouch Adjusted EBITDA $100 [1] $30 [2] $130 Shutterfly Standalone Adjusted EBITDA Guidance $270 $270 Combined Company Adjusted EBITDA $370 $30 $400 [1] Targets provided on a next twelve months basis. [2] Closing the acquisition on April 2nd benefits Shutterfly 2018 Adjusted EBITDA as Lifetouch typically incurs a loss of $30 million in the first quarter, which is a seasonally smaller quarter. [3] The Company announced its intention to exit the imemories business, which has the impact of reducing revenue by $22 million, with no significant impact to Adjusted EBITDA. 24

25 Q&A

26 Appendix

27 Reconciliation of Non-GAAP Adjusted EBITDA ($ in millions) Q1 18 Q1 17 GAAP net loss $(27.2) $(33.2) Interest expense, net Tax benefit (14.8) (22.3) Depreciation and amortization Stock-based compensation expense Restructuring charges Acquisition-related costs Non-GAAP Adjusted EBITDA $7.1 $(1.9) 27

28 Consumer Revenues by Brand ($ in Millions) Three Months Ended Year Ended Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Dec. 31, Consumer net revenues Shutterfly Brand $ $ $ $ $ $ Tiny Prints Boutique Tiny Prints (1) Wedding Paper Divas (2) My Publisher (3) Other Total $ $ $ $ $ $ (1) Tiny Prints website shut down on June 28, (2) Wedding Paper Divas website shut down on September 13, (3) MyPublisher website shut down on May 15,

29 Q1 18 Shutterfly Revenue Bridge Shutterfly Brand and Shutterfly Platform revenue growth rates include a benefit from the platform consolidation and the shuttering of legacy Tiny Prints, Wedding Paper Divas, and MyPublisher websites. The following bridges Q1 17 Shutterfly Brand revenue to Q1 18 Shutterfly Brand revenue and Q1 18 Shutterfly Platform revenue by estimating revenue attributable to i) baseline Shutterfly brand revenue growth (our best estimate of an organic Shutterfly brand growth rate), ii) incremental Shutterfly Brand revenue growth from the shuttering of legacy Tiny Prints, Wedding Paper Divas, and MyPublisher websites, and iii) the opening of the Tiny Prints Boutique. (1) The Revenue bridge uses customer cohort data to estimate Q1 18 Shutterfly brand revenue from the shuttering of legacy Tiny Prints, Wedding Paper Divas, and MyPublisher websites that benefits the Shutterfly brand growth rate ( Incremental Revenue from Shuttered Websites ). Baseline Shutterfly brand revenue growth ($12.0 million or 10%) is then calculated as the difference between total Shutterfly brand growth ($18.7 million), less Incremental Revenue from Shuttered Websites ($6.8 million). (2) Incremental Revenue from Shuttered Websites is Q1 18 Shutterfly brand revenue from legacy Tiny Prints, Wedding Paper Divas, and MyPublisher registered users, less an estimate of what Shutterfly brand revenue from this cohort would have been if the legacy Tiny Prints, Wedding Paper Divas, and MyPublisher websites were still open. 29